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F.D.I.C. v. Wentz

filed: June 5, 1995.

FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR THE HOWARD SAVINGS BANK, APPELLEE
v.
SIDNEY F. WENTZ; NATALIE I. KOETHER; WILLIAM E. MARFUGGI; ROBERT M. KREMENTZ; J. ROBERT HILLIER, NATALIE I. KOETHER AND SIDNEY F. WENTZ, APPELLANTS



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY. (D.C. Civ. No. 94-cv-03287).

Before: Stapleton, Hutchinson, and Weis, Circuit Judges.

Author: Weis

Opinion OF THE COURT

WEIS, Circuit Judge.

In the course of its investigation of a failed depository institution, the Federal Deposit Insurance Corporation issued a subpoena to former directors of the bank directing them to produce a wide variety of their personal financial records as well as those of family members. The district court required the directors to produce only their own records, showing additions or reductions in their assets. Rejecting the directors' claims of privacy violations, we will affirm the district court's order.

Natalie I. Koether and Sidney F. Wentz were directors of The Howard Savings Bank of Livingston, New Jersey, which was declared insolvent on October 2, 1992. On that same day, the FDIC was appointed receiver.

In April 1993, the FDIC issued an "Order of Investigation" pursuant to 12 U.S.C. § 1820(c) and 12 C.F.R. § 303.9(i)(2), targeting former officers and directors of the bank. Four purposes were cited in the order: (1) determining whether the individuals may be liable as a result of any action or inaction that could have affected the bank; (2) assessing whether the pursuit of litigation would be cost effective by considering the ability of the individuals to satisfy a judgment; (3) establishing whether the FDIC should seek to avoid transfers of interests or incurrences of obligations; and (4) ascertaining whether the FDIC should seek attachments of assets. The order authorized FDIC representatives to issue subpoenas duces tecum.

The directors, together with other bank principals, were served with notices to appear for depositions and ordered to produce documents in some twenty-eight different categories covering the six-year period preceding October 1992. Included were records in their possession pertaining to bank operations. In addition, the subpoena demanded production of such documents as financial statements and credit applications of the directors and their spouses; records of any bank accounts of the directors and those maintained by "any member of [their] immediate families," including canceled checks and bank statements; tax returns; title and registration papers for motor vehicles, boats, and airplanes; pension and profit-sharing plans in which the directors or their spouses had an interest; insurance policies; and records of inheritance, and other such gifts received by the directors and "any member of [their] immediate families."

The directors timely complied with the requests for documents having any connection with their activities as officials of the bank, but refused to produce their personal records and those of their families.

In seeking enforcement of the subpoena in the district court, the FDIC presented the affidavit of James M. Judd, an investigations specialist for the FDIC. It stated that the documents were necessary to enable the FDIC to determine the nature and extent of any losses sustained by the bank because of negligence or breach of fiduciary duty by the directors, and to establish whether it would be cost-effective to pursue any such claims. The affidavit alleged that the directors had approved transactions that resulted in losses of millions of dollars and that the transactions "appeared to exhibit inadequate documentation, unsafe concentrations of credit, poor credit administration, and inadequate supervision of management." Finally, the affidavit asserted that the directors had been "warned repeatedly" by bank examiners about lax business practices at the bank, but that the deficiencies were not corrected.

The district court conducted a hearing and, at its Conclusion, ordered the directors to produce all records that demonstrated increases or depletions in, or transfers of, their assets. As the Judge explained,

"I do not sanction an inquiry whose sole purpose is to find out whether these folks have money to respond to a judgment, if one should eventuate. . . . My requirement of document production . . . is narrow enough to specifically address transfers or sudden accretions or depletions of wealth. . . . I feel that those purposes are reasonably within the power of the FDIC, and I feel that what I have ordered is a limited incursion into the financial affairs that is tailored to match up with the purposes that I have articulated."

In a formal order filed a few days later, the court denied the FDIC's request for enforcement of the subpoena duces tecum, except that the directors were instructed to produce:

"(a) All documents which relate to any increases or depletions of assets, or any transfer of assets, for the period October 1986 ...


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