Carlos Loumiet v. Office of the Comptroller of the Currency

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 6, 2011 Decided July 12, 2011
No. 10-1288
C ARLOS LOUMIET,
P ETITIONER
v.
O FFICE OF THE C OMPTROLLER OF THE C URRENCY,
R ESPONDENT
On Petition for Review of an Order
of the Department of Treasury
Alan G. Greer argued the cause for petitioner. With him
on the briefs was Eric M. Sodhi.
Douglas B. Jordan, Attorney, Office of the Comptroller
of the Currency, argued the cause for respondent. With him
on the brief were Horace G. Sneed, Director of Litigation,
and Allen H. Denson, Attorney.

-- 1 of 11 --

2
Before: H ENDERSON , BROWN and KAVANAUGH , Circuit
Judges.
Opinion for the Court filed by Circuit Judge BROWN.
BROWN , Circuit Judge: Carlos Loumiet appeals a final
decision and order of the Office of the Comptroller of the
Currency (“Comptroller”) requiring him to bear the costs of
his own defense in an underlying administrative proceeding in
which he prevailed. We reverse that decision, finding the
Comptroller was not “substantially justified” in bringing the
underlying administrative proceedings against Loumiet, and
therefore Loumiet is entitled to attorney’s fees under the
Equal Access to Justice Act, 5 U.S.C. § 504. We remand for
the Comptroller to calculate the amount of those fees.
I
In 1998, Hamilton Bank (“Bank”) engaged in “adjusted
price trades” or “ratio swaps,” a type of bank and securities
fraud when used to conceal losses in which financial
instruments are sold at face value even though the instruments
are actually worth far less. In this case, Hamilton invested
$22M in Russian debt instruments, which subsequently lost
value in the summer of 1998. See United States v. Masferrer,
514 F.3d 1158, 1160 (11th Cir. 2008) (describing the Bank’s
fraudulent transactions). To conceal the loss, the Bank
swapped the Russian debt instruments for other financial
instruments. Id. General accounting rules require such swaps
to be accounted for as related transactions. Id. By not doing
so, the Bank made it appear as if it “managed to sell its
Russian assets at face value, thereby hiding their highly
discounted sales prices.” Id.

-- 2 of 11 --

3
The Comptroller discovered the Bank’s ratio swaps and,
in April 2000, issued a temporary cease-and-desist order
requiring the Bank to take remedial measures. The Bank’s
Audit Committee retained an outside law firm, Greenberg
Traurig, LLP (“Greenberg”), to conduct an independent
investigation of the alleged fraud. Greenberg, led by
Loumiet, who was a partner at the firm at the time, reviewed
the pertinent documents, conducted personal interviews of
Bank executives, and ultimately issued a report to the Bank’s
Audit Committee on November 15, 2000 (“November
Report”). The November Report found “no convincing
evidence” to establish Bank executives “intentionally misled”
Deloitte and Touche (“Deloitte”), the Bank’s outside
accounting auditor, or the Bank’s own Audit Committee. See
Loumiet, OCC-AA-EC-06-102 (July 20, 2010) (initial EAJA
Decision), reprinted in Joint Appendix (“J.A.”) 1868.
Nevertheless, the Bank restated its public financial
statements, believing the November Report provided a
sufficient basis to conclude the swaps should have been
accounted for as related transactions.
In January 2001, the Comptroller sent Greenberg a letter
in response to the November Report. The letter indicated the
Comptroller had taken the statement of an individual who had
participated in the swap transactions (i.e. a counter-party) as
part of its on-going investigation of the Bank. According to
the Comptroller, the statement contradicted the November
Report. The Comptroller also notified Greenberg orally of six
red flags indicating the Bank had engaged in adjusted price
trades. As a result, Greenberg drafted a second report, which
it provided to the Bank’s Audit Committee in March 2001
(“March Report”). The March Report found the counter-
party’s statement was consistent with statements made by
Bank executives during Greenberg’s initial independent
investigation. The March Report also concluded the

-- 3 of 11 --

4
Comptroller’s red flags did not alter the previous conclusions
of the November Report.
The Comptroller issued its own report alleging
wrongdoing at the Bank (“Comptroller Report”). As a result
of the OCC Report, the Bank shut down. Three Bank
executives entered into consent orders with the Comptroller,
barring each from participating in the affairs of a federally
insured bank in the future. Greenberg also entered into a
consent order, agreeing to pay $750,000 in fines. Finally, the
Comptroller closed the Bank and appointed the Federal
Deposit Insurance Corporation as its receiver.
Several years later, the Comptroller’s Enforcement and
Compliance Division (“Division”) invoked the Financial
Institutions Reform, Recovery, and Enforcement Act
(“FIRREA”) of 1989, Pub. L. No. 101-73, 102 Stat. 183
(codified in scattered sections of Title 12 of the U.S. Code),
and initiated an administrative proceeding against Loumiet.
The Division alleged Loumiet was an “institution-affiliated
party” (“IAP”), who, in participating in Greenberg’s
independent investigation of the Bank, had “knowingly or
recklessly . . . breach[ed his] fiduciary duty,” and as a result
“caused . . . a significant adverse effect on” the Bank. 12
U.S.C. § 1813(u)(4). The Division sought to assess a
$250,000 monetary penalty against Loumiet, among other
sanctions. After a three week bench trial, an Administrative
Law Judge (“ALJ”) recommended dismissal of the Division’s
claims (“ALJ FIRREA Decision”). Loumiet¸ OCC-AA-EC-
06-102 (June 17, 2008), reprinted in J.A. 950. The
Comptroller reviewed the ALJ’s recommendation
(“Comptroller FIRREA Decision”) and agreed dismissal was
appropriate, but “largely rejected” the “reasoning and
conclusions” in the ALJ FIRREA Decision. Loumiet, OCC-
AA-EC-06-102 at 17 (July 27, 2009), reprinted in J.A. 1043.

-- 4 of 11 --

5
Following the Comptroller FIRREA Decision, Loumiet
filed an EAJA application seeking attorney’s fees for his
defense in the agency FIRREA adjudication. An ALJ
recommended denying Loumiet’s application (“ALJ EAJA
Decision”), concluding that the Division’s position in the
underlying agency proceeding was “substantially
justified . . . in both law and fact” and therefore Loumiet was
not entitled to attorney’s fees. Loumiet, OCC-AA-EC-06-102
at 7 (July 20, 2010). Because neither party sought review by
the Comptroller, the ALJ’s recommendation became the final
decision of the Comptroller. 31 C.F.R. § 6.15. Reviewing
that decision for substantial evidence, see 5 U.S.C.
§ 504(c)(2) (specifying the standard of review); Kuhns v. Bd.
of Governors of Fed. Reserve Sys., 930 F.2d 39, 41 (D.C. Cir.
1991) (reviewing agency’s EAJA decision for substantial
evidence); we reverse and remand for further considerations
consistent with this opinion.
II
The EAJA provides: “An agency that conducts an
adversary adjudication shall award, to a prevailing party . . .
fees and other expenses incurred by that party in connection
with that proceeding, unless the adjudicative officer of the
agency finds that the position of the agency was substantially
justified or that special circumstances make an award unjust.”
5 U.S.C. § 504(a)(1). The Comptroller, who bore the burden
in the EAJA proceeding before the ALJ of demonstrating the
Division’s position was substantially justified, see F.J.
Vollmer Co., Inc. v. Magaw, 102 F.3d 591, 595 (D.C. Cir.
1996), concedes Loumiet was a “prevailing party” under the
EAJA. Thus, Loumiet is entitled to attorney’s fees unless the
“administrative record, as a whole, which is made in the
adversary adjudication,” 5 U.S.C. § 504(a)(1), shows the
Division’s position in the underlying agency FIRREA

-- 5 of 11 --

6
adjudication was “justified in substance or in the main.”
Pierce v. Underwood, 487 U.S. 552, 565 (1988).
A
The Division claimed the Bank Audit Committee
engaged Loumiet to provide services to the Bank, and
Loumiet’s conduct in providing those services met all the
elements necessary to establish him as an IAP. FIRREA
defines an IAP to include:
Any independent contractor (including any
attorney, appraiser, or accountant) who
knowingly or recklessly participates in—(A)
any violation of any law or regulation; (B) any
breach of fiduciary duty; or (C) any unsafe or
unsound practice, which caused or is likely to
cause more than a minimal financial loss to, or
a significant adverse effect on, the insured
depository institution.
12 U.S.C. § 1813(u)(4). The Comptroller FIRREA Decision
found the administrative record “lack[ed] sufficient evidence
that the two reports prepared by Mr. Loumiet caused, or were
likely to cause, harm to the [B]ank that satisfies the ‘effect’
requirement . . . .” In other words, the Division could not
show that the November or March Reports caused “more than
a minimal financial loss to, or a significant adverse effect on,”
the Bank. 12 U.S.C. § 1813(u)(4). The ALJ EAJA Decision,
nevertheless, found the Division’s litigation position
“supported by a variety of highly-qualified expert witnesses,”
“stood a reasonable chance of succeeding on the merits,” and
“represented a good-faith and credible interpretation of law.”
Loumiet, OCC-AA-EC-06-102 at 7 (July 20, 2010), reprinted
in J.A. 1873.

-- 6 of 11 --

7
To justify the ALJ EAJA Decision, the Comptroller now
argues the November Report and the March Report falsely
exonerated Bank executives, and as a result, the Bank’s Audit
Committee failed to replace “at least one of the Bank’s senior
officers.” Resp’t’s Br. at 29. Said differently, the
Comptroller alleges the harm caused by Loumiet’s conduct
was the continued employment of the Bank’s executives. In
support, the Comptroller relies upon the expert report of
Charles Rardin, a bank examiner with the Comptroller.
Rardin’s report stated that “the [November and March]
Reports led the Bank to retain the dishonest officers. In
particular, the Reports gave the officers the shield of a large
law firm’s exoneration from wrongdoing, which protected the
officers regardless of whether others at the Bank knew the
Reports were false. Retaining dishonest senior executive
officers is likely to harm a bank.” Loumiet, AA-EC-06-102 at
18 (July 31, 2007) (expert witness report), reprinted in J.A.
676. Rardin’s report also says “the [November and March]
Reports facilitated the perpetuation of the Bank’s inaccurate
public financial statements.” Id. at 7.
Section 1813(u)(4) requires that an IAP cause harm to the
Bank itself. Thus, showing the November and March Reports
exonerated Bank executives is not sufficient to qualify
Loumiet as an IAP, without some evidence linking the
continued employment of the Bank executives to a significant
adverse effect on the Bank. The administrative record is
noticeably devoid of such evidence. There is no evidence the
continued employment of Bank executives after the
November and March Reports caused reputational harm to the
Bank, impacted the internal culture of the Bank, or created
any other effect on the Bank. Even Rardin’s report is
unhelpful. It says only that retaining the Bank executives
would “likely” harm the Bank. It is true that demonstrating
the continued employment of Bank executives “is likely to

-- 7 of 11 --

8
cause harm,” 12 U.S.C. § 1813(u)(4), could be sufficient to
classify Loumiet as an IAP (and thus to show substantial
justification under the EAJA). But the Agency’s evidence
here—a conditional statement from an Agency examiner that
some unspecified harm may result—falls short of the
necessary quantum of proof. Because Rardin’s statement was
both vague and unsubstantiated, it does not demonstrate the
Division’s litigating position was justified, let alone
“substantially” so. In addition, Rardin’s reliance on the
Bank’s “inaccurate public financial statements” is a red
herring, as the Bank promptly revised its public financial
statement as a result of the November Report. Thus, the Bank
executives’ continued employment did not delay the
restatement.
The Comptroller offers a cornucopia of alternative
arguments. None merit much consideration. First, the
Comptroller argues the Bank did not obtain its money’s worth
from Greenberg’s independent investigation. But this is not
the type of “financial loss” or adverse effect § 1813(u)(4)
contemplates. Cf. Lindquist & Vennum v. FDIC, 103 F.3d
1409, 1419–21 (8th Cir. 1997) (refusing to enforce an order
of the FDIC requiring a law firm to refund the fees it
charged). The focus of § 1813(u)(4) is on independent
contractors “conducting the affairs of” the Bank, Grant
Thornton, LLP v. Office of Comptroller of Currency, 514 F.3d
1328, 1331–32 (D.C. Cir. 2008) (quoting 12 U.S.C.
§ 1818(i)(2)(B)(i)(II)), such as an attorney who provides “oral
and written advice” that a particular investment was in the
Bank’s best interest. See, e.g., Cavallari v. Office of
Comptroller of Currency, 57 F.3d 137, 142 (2d Cir. 1995). In
that case, the “financial loss” or “significant adverse effect”
on the bank is the lost value of its investment, not the value of
services furnished by independent contractors investigating
bank affairs after the suspect transaction occurred. Indeed,

-- 8 of 11 --

9
the Comptroller’s approach would vitiate the “significant
adverse effect” requirement altogether, as § 1813(u)(4)
presumes an independent contractual relationship, such as that
of a lawyer, appraiser or accountant. And, according to the
Comptroller, any such relationship could result in the
necessary harm if the work did not end well.
Second, the Comptroller argues the Bank made a $15M
loan that caused significant harm. But there is no record
evidence of the loan’s causation. Consequently, it is
impossible to determine whether Loumiet’s alleged
misconduct indirectly caused the loan to be made.
Finally, the Comptroller argues the Division’s litigating
position is substantially justified because the legal issue
presented is novel. The Comptroller cites in support Hill v.
Gould, 555 F.3d 1003, 1008 (D.C. Cir. 2009), a case in which
this court affirmed the denial of a fee award because the
agency “took a reasonable approach to [a] relatively unsettled
area of administrative law.” The Comptroller argues the
“effects” prong of § 1813(u)(4) is a similarly unsettled area of
law because only one court of appeals had addressed the
provision when the Division filed its Notice of Charges
against Loumiet in the underlying administrative FIRREA
adjudication. See Cavallari, 57 F.3d at 142. But whether the
November or March Reports “adversely affected” the Bank is
not a legal issue. And, to the extent that issue incidentally
involves questions of law, those questions focus on causation,
a topic that can hardly be described as novel. Cf. Palsgraf v.
Long Island R. Co., 248 N.Y. 339 (1928).
B
A few lingering issues remain. In order to receive
attorney’s fees under the EAJA, a prevailing party must have

-- 9 of 11 --

10
previously “incurred” the fees. In addition, the EAJA
provides that “attorney or agent fees shall not be awarded in
excess of $125 per hour unless the agency determines by
regulation that an increase in the cost of living or a special
factor . . . justifies a higher fee.” 5 U.S.C. § 504(b)(1)(A).
Loumiet argues he incurred all the attorney’s fees he requests,
even though Greenberg advanced a portion of the fees.
Loumiet also contends he may be reimbursed for fees in
excess of the $125 per hour cap because of changes in the
cost of living. The ALJ EAJA Decision did not address these
issues. Rather than do so here, we remand for the
Comptroller to consider these issues in the first instance. See
Singleton v. Wulff, 428 U.S. 106, 120 (1976) (“It is the
general rule, of course, that a federal appellate court does not
consider an issue not passed upon below.”).
III
The Division brought an administrative proceeding
against Loumiet, alleging he was an IAP under FIRREA and
subject to a monetary fine. That case was dismissed on the
merits because the evidence in the record did not establish a
“significant adverse effect” on the Bank. 12 U.S.C.
§ 1813(u)(4). Nor does the evidence in the record establish
that the Division was “substantially justified” under the EAJA
to bring the underlying agency proceeding against Loumiet. 5
U.S.C. § 504(a)(1). No evidence supports an inference that
the Bank suffered any “adverse effect” from the continued
employment of Bank executives after the November and
March Reports; nor does evidence support an inference of
“adverse effect” from any other theory presented by the
Comptroller. See Taucher v. Brown-Hruska, 396 F.3d 1168,
1173 (D.C. Cir. 2005) (requiring “a reasonable basis both in
law and fact” to satisfy the EAJA’s substantial justification

-- 10 of 11 --

11
standard). As a result, we grant the petition for review and
remand.
So ordered.

-- 11 of 11 --