uwbk 6-8-2012 #105 memorandum in opposition to fdic motion for summary judgment and reply in support...

7/31/2019 UWBK 6-8-2012 #105 MEMORANDUM IN OPPOSITION TO FDIC MOTION FOR SUMMARY JUDGMENT AND REPLY IN SUPPORT OF PLAINTIFFS MOTION

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UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLUMBIA

_______________________________________)

UNITED WESTERN BANK, ) )Plaintiff, )

)v. )

)OFFICE OF THE COMPTROLLER )OF THE CURRENCY, et al. , )

)Defendants. )

_______________________________________)

1:11-cv-00408The Honorable Amy Berman Jackson

MEMORANDUM IN OPPOSITION TO DEFENDANTSMOTION FOR SUMMARY JUDGMENT AND

REPLY IN SUPPORT OF PLAINTIFFS MOTION FOR SUMMARY JUDGMENT

Theodore J. AbariotesDeputy General CounselUNITED WESTERN BANCORP , INC.700 17th Street, Suite 2100Denver, Colorado 80202(720) 932-4216 (Telephone)(720) 946-1218 (Facsimile)

Andrew L. Sandler (DC Bar No. 387825)Samuel J. Buffone (DC Bar No. 161828)Liana R. Prieto (DC Bar No. 987287)Michael R. Williams (DC Bar No. 994953)BUCKLEY SANDLER LLP1250 24th Street NW, Suite 700Washington, DC 20037(202) 349-8001 (Telephone)(202) 349-8080 (Facsimile). Kirby D. Behre (DC Bar No. 398461)Lawrence D. Kaplan (DC Bar No. 415186)PAUL HASTINGS LLP875 15th Street NWWashington, DC 20005(202) 551-1719 (Telephone)(202) 551-0119 (Facsimile)

Attorneys for Plaintiff United Western Bank

June 8, 2012

Case 1:11-cv-00408-ABJ Document 105 Filed 06/08/12 Page 1 of 37


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TABLE OF CONTENTSPage

TABLE OF AUTHORITIES ......................................................................................................... iii

PRELIMINARY STATEMENT .....................................................................................................1

ARGUMENT ...................................................................................................................................4

I. The OTSs Sudden and Unexpected Decision to Declare a Liquidity CrisisIs Unsupported By the Administrative Record ....................................................................4

A. Defendants Attempt to Rewrite History In Arguing There Was NoChange in Agency Policy.........................................................................................5

B. Defendants Confused Liquidity Analysis Still Does Not EstablishAny Likelihood That The Institutional Depositors Would Withdraw .....................8

1. The Bank was unaffected when two related entities were forcedby the OTS to withdraw their deposits ........................................................8

2. Equity Trust Company and Lincoln Trust Company were ready tostay with the Bank ........................................................................................9

3. The Bank held sufficient liquidity to cover any permissiblewithdrawals ................................................................................................12

II. The OTS Inappropriately Determined That the Bank Had Failed to Submit an

Adequate Capital Restoration Plan Within a Reasonable Time .....................................14

A. The OTSs Decision To Give the Bank Just Seven Days to Submit aCapital Restoration Plan Was Unjustified and Prejudicial ....................................14

1. The OTS erred in giving the Bank too little time ......................................14

2. The OTSs error was not harmless .............................................................16

B. The Banks Well-Supported Capital Restoration Plan Should Not HaveBeen Denied ...........................................................................................................17

1. The Recapitalization Transaction presented a realistic opportunityto recapitalize the Bank ..............................................................................18

2. The OTSs problems with the Recapitalization Transaction wereunsupported by facts ..................................................................................21

3. The OTS is not entitled to technical deference here ..............................24



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III. The Bank Was Operating in a Safe and Sound Condition, Despite the OTSsMultitude of Repackaged Concerns ...................................................................................25

A. For All Practical Purposes, Defendants Have Conceded that the OTSApplied the Wrong Law.........................................................................................25

B. No Matter What Standard Applies, the Bank Was Not In an Unsafe andUnsound Condition ................................................................................................27

IV. Even If the Court Determines That One Ground of the Seizure Order Was Valid,None of the Alleged Grounds Is SufficientStanding Aloneto Sustainthe Decision .......................................................................................................................28

CONCLUSION ..............................................................................................................................29



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TABLE OF AUTHORITIES

Page(s)CASES

Astoria Fed. Sav. & Loan Assn v. United States ,568 F.3d 944 (Fed. Cir. 2009)........................................................................................................18

Am. Petroleum Inst. v. Johnson ,541 F. Supp. 2d 165 (D.D.C. 2008) ...............................................................................................12

BellSouth Telecommcns, Inc. v. FCC ,469 F.3d 1052 (D.C. Cir. 2006) .....................................................................................................12

Cities of Carlisle & Neola v. FERC ,741 F.2d 429 (D.C. Cir. 1984) .......................................................................................................24

Cove Assocs. Joint Venture v. Sebelius ,No. 1:10-cv-01316 (BJR), 2012 WL 987862 (D.D.C. Mar. 26, 2012)............................................5

Cox v. Commodity Futures Trading Commn ,138 F.3d 268 (7th Cir. 1998) .........................................................................................................24

CS-360, LLC v. U.S. Dept of Veterans Affairs ,No. 11-00078, 2012 WL 718374 (D.D.C. Mar. 6, 2012) ........................................................15, 26

Exxon Co., U.S.A. v. FERC ,182 F.3d 30 (D.C. Cir. 1999) .........................................................................................................24

FCC v. AT&T Inc. ,131 S. Ct. 1177 (2011) ...................................................................................................................26

In re Subpoena Served Upon Comptroller of the Currency ,967 F.2d 630 (D.C. Cir. 1992) .......................................................................................................29

Intl Union, United Mine Workers of Am. v. Dept of Labor ,358 F.3d 40 (D.C. Cir. 2004) .........................................................................................................28

James Madison Ltd. v. Ludwig ,868 F. Supp. 3 (D.D.C. 1994) ..........................................................................................................4

PDK Labs. Inc. v. DEA ,362 F.3d 786 (D.C. Cir. 2004) .......................................................................................................16

Republic Airline Inc. v. U.S. Dept of Transp. ,669 F.3d 296 (D.C. Cir. 2012) .........................................................................................................5



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Satellite Broad. Co., Inc. v. FCC ,824 F.2d 1, 3 (D.C. Cir. 1987) .................................................................................................21, 23

Sprint Nextel Corp. v. FCC ,

508 F.3d 1129 (D.C. Cir. 2007) .....................................................................................................26 Taniguchi v. Kan Pac. Saipan ,No. 10-1472, 2012 WL 1810216 (U.S. May 21, 2012) .................................................................26

Typographical Union No. 18 v. NLRB ,216 F.3d 109 (D.C. Cir. 2000) .......................................................................................................12

United Western Bank v. OTS ,793 F. Supp. 2d 357 (D.D.C. 2011) .............................................................................................2, 6

Wedgewood Vill. Pharm. v. DEA ,509 F.3d 541 (D.C. Cir. 2007) .......................................................................................................26

Williams Gas Processing-Gulf Coast, Co., L.P. v. FERC ,475 F.3d 319 (D.C. Cir. 2006) ...................................................................................................7, 28

Yousuf v. Samantar ,451 F.3d 248 (D.C. Cir. 2006) .......................................................................................................26

STATUTES AND REGULATIONS

12 C.F.R. 565.4 .....................................................................................................................19, 23

12 C.F.R. 565.5 .....................................................................................................................14, 17

12 U.S.C. 1464 ..................................................................................................................2, 16, 25

12 U.S.C. 1818 ......................................................................................................................25, 26

12 U.S.C. 1821 ..................................................................................................................8, 25, 26

12 U.S.C. 1831o .................................................................................................................. passim

OTHER AUTHORITIES

Binyamin Appelbaum, Bank Lending Plummets by $587 Billion in 2009,Wash. Post (Feb. 23, 2010), available at 2010 WLNR 3811012 ..................................................27

OTS Examination Handbook (2008),available at http://www.ots.treas.gov/_files/422347.pdf ...............................................................21



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S. Rep. No. 89-1482 (1966),reprinted in 1966 U.S.C.C.A.N. 3532 .............................................................................................2



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PRELIMINARY STATEMENT

In its initial motion for summary judgment, United Western Bank (United Western or

the Bank) established that Defendants had inappropriately seized a viable bank despite the

absence of any legitimate concerns with the Banks financial health. In response, Defendants

largely offer post hoc justifications and unsupported excuses for their decision to close the Bank.

In reality, the administrative record shows that the Office of Thrift Supervision (OTS) acted

because of its newly found discomfort with the Banks business modelone that the OTS had

monitored and approved of during years of regulatory supervision.

Defendants combined opposition and cross-motion offers two principal defenses for theclosure of the Bank. Neither rings true.

In their first argument, Defendants craft a broad notion of agency deference. Indeed, they

insist that this deference is so broad as to render the OTSs flawed decisionmaking essentially

unreviewable. But in doing so, they disregard the language of the controlling statute.

Furthermore, they reduce the important role for reviewing courts and render the sole remedy for

an improper seizure of a bank effectively meaningless.

A federal bank regulators power to seize a bank has limits. The relevant statutes

contemplate that the regulator will take action only in limited, statutorily-defined circumstances.

Congress further mandated that any decision to wield the ultimate power of seizure must be

grounded in careful and reasoned decisionmaking. To this end, Congress also provided for

meaningful judicial review of the decision to appoint a receiver. This judicial review is critical

to ensure that savings and loan associations and their officials receiv[e] fair treatment from

the Government, and receiv[e] a reasonable degree of protection from Government actions

which might at times, for one reason or another, [de]generate into arbitrary[,] capricious, and



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overbearing tactics. S. Rep. No. 89-1482 (1966), reprinted in 1966 U.S.C.C.A.N. 3532, 3535.

Though these basic concepts are undeniable, Defendants have pressed theories

throughout this case that would render meaningful judicial review unattainable. Initially, they

sought to sidestep review by creating a completely new theory of jurisdiction. The Court

rejected this attempt to eviscerate the judicial review provision contained in section

1464(d)(2)(B). United Western Bank v. OTS , 793 F. Supp. 2d 357, 364 (D.D.C. 2011). 1

Defendants then launched a months-long campaign to reinvent the scope of the administrative

record for revieweven arguing that they had total discretion to decide what went in the record

in the first place. See, e.g ., Hrg Tr. 52, Aug. 11, 2011, ECF No. 67. This Court expressedappropriate skepticism toward Defendants attempt at cherry-picking. Id. This Court now

should reject Defendants latest invitation to enfeeble the carefully crafted limitations on seizure,

which were crafted by a Congress well aware of the potential for abuse inherent in the ultimate

regulatory actclosure of an otherwise viable bank.

In their second argument, Defendants rely on their carefully constructed administrative

record to advance arguments that are neither supported by the record or the facts before this

Court. In particular, Defendants present a gross distortion of the relevant facts that relies upon

omissions, revisions, and misrepresentations. They then ask the Court to push aside the Banks

challengea challenge to an improper seizure unnecessarily costing hundreds of millions to the

Federal Deposit Insurance Corporations (FDIC) Deposit Insurance Fund and the Banks

shareholdersas an instance of mere disagreement warranting no remedy. Defs. Mem. of

Points and Auths. In Supp. of Their Mot. for Summ. J. and In Opp. to Pl.s Mot. for Summ. J. 38,

ECF No. 100-1 (Defs. Mem.). Simply put, Defendants have found themselves unable to rely

1 Internal marks and citations are omitted throughout this memorandum.



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on prudent and rational decisionmaking by the OTS. Consequently, they resort to a skewed

reading of the record to justify their position.

Yet when one looks past Defendants efforts at revisionist history, the facts of this case

are actually rather straightforward. There was no dire liquidity or capital problem at United

Western. The principal problem for the Bank lay with its regulator; that regulator made a

legally-unsupportable decision to appoint the FDIC as receiver for the Bank and set upon a

course of action to do so, without regard to the agencys obligation to use its overwhelming

powers wisely and judiciously.

First , as the OTS itself conceded in January 2011, United Western had taken steps toincrease liquidity and there was a strong indication that [the] institutional depositiors [were]

unlikely to immediately withdraw significant amounts of funds. See OCC-UWB 00793. The

Institutional Depositors had a history of staying true to the Bank. That history was buttressed by

the written agreements thatrather than terminating in weeks, as the OTS suggestsbound the

Institutional Depositors to the Bank for at least several more months. See, e.g. , AR 1555-57.

Second , by the time the Bank was seized, United Western Bancorp, Inc. (the Holding

Company) had obtained commitments for roughly $201 million to shore up the Banks capital.

This recapitalization transaction (the Recapitalization Transaction) would have provided funds

directly to the Bank; the Bank would have been rendered well-capitalized, with capital ratios

well above the meet-and-maintain capital requirements imposed on the Bank via a June 24,

2010 OTS cease and desist order (the Cease and Desist Order). The Recapitalization

Transaction also addressed the OTSs new and questionable safety and soundness concerns by

permanently removing criticized assets from the Banks balance sheet. Defendants, however,

address the Recapitalization Transaction through unfounded hindsight speculation about the



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seriousness of the investments and derisive comments about the identities of the relevant

investors.

The OTS was either unwilling or unable to come to grips with basic facts. And at

bottom, this is the story of an agency that contrived a series of events to give a post hoc

justification for its entirely unfounded decision to seize the Bank. Only more robust discovery

would reveal whether this action was spurred by a soon-to-be failed agency trying to justify its

continuing existence (or some other improper justification). But it is now known that the OTS

had determined to seize the Bank long before it acted to do so. OCC-UWB 00734. It then

embarked on a path that gave the Bank no opportunity to change [the] OTSs approach. AR4229. Defendants should not be permitted to use the agencys success in effecting its plan to

undermine the Bank to now deny the Bank relief from that plan. After all, banking regulators

may not set out to find banks insolvent and place them in receivership, regardless of their

true financial state. James Madison Ltd. v. Ludwig , 868 F. Supp. 3, 9 (D.D.C. 1994).

ARGUMENT

I. The OTSs Sudden and Unexpected Decision to Declare a Liquidity CrisisIs Unsupported By the Administrative Record.

Defendants attempts to substantiate their fabricated liquidity crisis actually demonstrate

that the OTS had sufficient information to understand that the Banks liquidity position was

adequate. The documents that Defendants insist warned the Bank of its liquidity issues in fact

reference the Institutional Depositors as a continuing source of funds. More significantly,

Defendants own documents demonstrate that the Bank had firm written commitments from two

such depositors. Meanwhile, two other related depositors were driven from the Bank by the

OTS, expressly for the purpose of creating a liquidity crisis where there was none.



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A. Defendants Attempt to Rewrite History In Arguing There Was NoChange in Agency Policy.

As the Bank explained in its previous memorandum, the OTSs concern over the Banks

relationship with certain Institutional Depositors was a sudden shift from the agencys earlierregulatory supervision of the Bank. See Mem. in Supp. of United Western Banks Mot. for

Summ. J. 35-37, ECF No. 99 (Banks Mem.). The OTS said as much in the L-

Memorandum, which acknowledged that the agency did not object to the concentration in

several previous examinations. AR 12; see also AR 6 n.9 (In certain previous examinations,

OTS did not object to the [Institutional Depositor] concentration.). Because OTSs new

hostility towards the Institutional Depositors was a material change in course, the agency was

obligated to supply a reasoned analysis for the change. Republic Airline Inc. v. U.S. Dept of

Transp. , 669 F.3d 296, 299 (D.C. Cir. 2012). Yet instead of providing any reasoned analysis

for a shift that undermined a core element of the Banks long-standing business model, the

administrative record offers absolutely no analysis concerning the new position taken in the

January 21, 2011 Order seizing the Bank (the Seizure Order). See AR 2-8. Sudden and

unexplained change, or change that does not take account of legitimate reliance on prior

interpretation, may be arbitrary, capricious or an abuse of discretion. Cove Assocs. Joint

Venture v. Sebelius , No. 1:10-cv-01316 (BJR), 2012 WL 987862, at *15 (D.D.C. Mar. 26, 2012).

Defendants do not point to any contemporaneous explanation for the shift in policy.

Instead, they now insistcontrary to the OTSs earlier viewthat there was no change at all. In

other words, the OTSthrough its successor agencyhas changed its position on whether it

changed position, in direct contradiction of the administrative record. AR 12.

In support of this radical change, Defendants cite comments from two Reports of

Examination (ROEs) in 2007 and 2009, which they say warned the Bank that the Institutional



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Depositors were a problem. See Defs. Mem. 10-12. Much like they did earlier in this case,

Defendants read[] too much into sentence fragments lifted out of their proper context. United

Western Bank , 793 F. Supp. 2d at 362. The 2007 ROE, for instance, could hardly be said to have

sounded the alarm:

Liquidity and cash flow management policies and practices are satisfactory and effectivegiven the complexity of the institution. AR 80.

Liquidity sources are satisfactory and related reports provided the Board of Directorsand management are adequate. Id.

Contractual agreements with some of the largest of these depositors help protect theinstitutions liquidity position and would allow management time to obtain additional

funds. Id. Many of the institutional deposit relationships are long-standing. [The Bank] has

contracts and other arrangements with its institutional depositors generally requiringadvance notice of the withdrawal of deposits in excess of an established threshold. [TheBank] maintains excess borrowing capacity at the [Federal Home Loan Bank] and isbuilding a branch deposit franchise. AR 99.

The OTS assigned a rating of 2 for the Banks liquidity component. AR 55. 2

As for the 2009 ROE, 3 there was nothing whatsoever to alert the Bank that the OTS had adopted

2 The ROE did not list any corrective actions relating to liquidity and merely instructedmanagement to remain cognizant of the Institutional Depositor concentration. AR 56, 84.Furthermore, the ROE noted that second largest institutional depositor, Sterling Trust Company,was an affiliate of the Bank, AR 81, rendering it far less likely that the depositor would withdrawits deposits on a whim. Unfortunately, Defendants loose treatment of the facts relayed in the2007 ROE is not limited to liquidity issues. For instance, Defendants suggest that the ROEcriticized the quality of the Banks assets, Defs. Statement of Facts with References to theAdmin. R. 4, ECF No. 100-2 (Defs. Statement), but the examination actually gave the Banksasset quality a rating of 2, the second best possible rating, AR 55. Similarly, though Defendantscorrectly note that the Banks capital had decreased as of the 2007 ROE (because of the shift tocommunity lending), Defs. Statement 7, they fail to mention that the Banks capital ratiosexceeded its peers, AR 60, and that the Bank was maintain[ing] a prudent level of capital, apractice it was encouraged to continue, AR 62.

3 Defendants also misleadingly parse the 2009 ROE. For example, though Defendants claim theROE identified serious weaknesses in the Banks underwriting for [certain] loan programs, theROE also found that [m]anagements responses addressed [those] concerns, AR 148.



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a new policy that the Institutional Depositors were per se unsafe. 4 Certainly, the ROE indicated

that the Bank should develop a concentration policy that would set limits on funding

sources, including exposures to institutional depositors. AR 139. But the 2009 ROE concluded

that [l]iquidity and cash flow management [were] satisfactory for the banks day-to-day

operations. AR 159. Especially given the agencys accepting view of the Institutional

Depositors in years past, such a muddled message was not an adequate signal of a major policy

change. 5 And perhaps most importantly, the ROE still lacked any useful analysis explaining the

agencys new hostility toward the historically-stable, long-standing Institutional Depositors. 6

If an agency decides to change course, then it must supply a reasoned analysisindicating that prior policies and standards are being deliberately changed, not casually ignored.

Williams Gas Processing-Gulf Coast, Co., L.P. v. FERC , 475 F.3d 319, 326 (D.C. Cir. 2006).

As Defendants have not identified any such reasoned analysis in this record, the OTSs change of

course with regard to the Institutional Depositors should be seen for what it isan unfounded

and unjustified basis upon which to attack the Banks stability.

4 By late-2010, there was obviously such a per se policy. The OTS proclaimed during a meetingwith the Bank that it was generally not comfortable with business models that rely on largeblocks of institutional or other wholesale deposits, whether or not those deposits are technicallybrokered. OCC-UWB 00787.

5 The message remained muddled because of the agencys later failure to deliver an ROE from2010. The OTS completed an ROE on April 28, 2010 and included that report in theadministrative record. AR 255-266. However, that ROE was never provided to the Bank. Defs.Opp. To Pl.s Motion to Supp. the Admin. R. 6, ECF No. 48. Instead, the OTS sent the Bank aletter indicating some corrective measures were necessary from the examination, but nototherwise outlining the apparent seriousness of the OTSs concerns, especially as to the Banksmodel for determining Other Than Temporary Impairment (OTTI) charges. AR 267-69. Thus,the Bank was never made aware that the OTS had assumed a decidedly hostile posture towardsthe Bank. Because the ROE was never provided to the Bank, the Court should provide it noweight in considering whether the Bank was informed of the agencys change in position.

6 Any argument that a change in circumstances warranted the reversal would be disingenuous.After all, between 2007 and 2009, the Institutional Depositors had weathered a brutal financialcrisis and maintained their deposits with the Bank. If ever there were a time for the InstitutionalDepositors to leave, it would have been before 2009, not after.



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B. Defendants Confused Liquidity Analysis Still Does Not Establish AnyLikelihood That The Institutional Depositors Would Withdraw.

The Bank explained in its initial memorandum that the OTS did not establish any

likelihood that Institutional Depositor withdrawals would exceed the Banks liquidity reserves.Banks Mem. 37-39. In response, the OTS misrepresents the facts concerning two depositors

who left the Bank and offers entirely unsubstantiated theories about two other depositors who

stayed. There is simply no support for Defendants arguments in the administrative record.

1. The Bank was unaffected when two related entities were forced bythe OTS to withdraw their deposits.

First , Defendants wrongly assert that [t]wo large institutional depositorssimultaneously began withdrawing their deposits from the Bank on December 20, 2010. Defs.

Mem. 29. Defendants apparently contend that this coordinated withdrawal of two purportedly

independent depositors substantiated OTSs expert predictions. But these were not two

independent depositors at all; one of themCPI Qualified Plan Consultants, Inc. (CPI)was

the client of the otherMatrix Settlement and Clearing Services, Inc. (MSCS). AR 2242-43.

Nor were both large depositors; CPIs deposits comprised a very small portion of the Banks

deposit base. See AR 1557 (indicating that CPI would withdraw approximately $30 million).

Thus, these combined withdrawals did not have a significant impact on the deposit base.

But most importantly, both CPI and MSCS withdrew their deposits because the OTSin

its quest to set the Bank up for failureissued a directive requiring the Bank to force them out. 7

AR 1457-58; 2242-41. While Defendants conveniently make no mention of the directive, which

called for the Bank to divest itself of any employee benefit plan deposits, it was this directive

7 The directive resulted from the OTSs decision to force the Bank into undercapitalized status via

an unnecessary OTTI charge. Because the Bank was in undercapitalized status, it could no longeraccept such deposits. See 12 U.S.C. 1821(a)(1)(D)(iii)(II).



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and this directive alonethat caused the deposits to be lost. There is no indication of any further

loss of confidence in the bank by these Institutional Depositors. Thus, Defendants are wrong to

(repeatedly) suggest that these compelled withdrawals were some early indication of a broader

run on the Bank by its Institutional Depositors.. See, e.g. , Defs. Mem. 21 (Institutional

Depositors Begin to Flee the Bank); 26; 30 n.30.

Thus, the facts show that these withdrawals would not have occurred but for the OTSs

actions. Moreover, the facts show that the Bank was easily able to replace these OTS-demanded

withdrawals via other sources of liquidity. See AR 1553-1725; 2242-43.

2. Equity Trust Company and Lincoln Trust Company wereready to stay with the Bank.

Second , Defendants make unsupported allegations that the Bank was forced to

scramble to convince two other Institutional Depositors to temporarily forestall [their]

departure. Defs. Mem. 36. Nothing in the record indicates that the two Institutional

DepositorsEquity Trust Company (Equity Trust) and Lincoln Trust Company (Lincoln

Trust)were anything less than the same voluntary and willing depositors they had always

been. Each Institutional Depositor had a fiduciary duty to their customers, and maintained funds

at the Bank because they remained fully insured by the FDIC; thus, there was no need to

precipitously withdraw those funds from the Bank. It is hard to understand the agencys view

that these were reluctant depositors, who wanted to withdraw fully insured funds from the Bank,

when these depositors were nevertheless willing to sign written agreements with the Bank

reiterating their commitment to maintain those deposits. 8 And to make matters worse, the OTS

misrepresents these agreements as forbearance agreements that set absolute deadlines for

8 See, e.g. , AR 1556 ([Equity Trust] has advised the Bank that the consummation of theRecapitalization Transaction as quickly as possible is in its best interest and that as a client of theBank for almost ten years, it is supportive of the Banks operations.).



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future withdrawals. 9

Defendants incorrectly say that Lincoln Trust pledged to hold off on withdrawing its

funds on deposit until January 31, 2011. Defs. Mem. 36. Lincoln Trust had previously entered

a subaccounting agreement with the Bank; 10 after the OTS pushed the Bank into undercapitalized

status, Lincoln Trust and the Bank agreed to amend that agreement. In the amendment, Lincoln

Trust did in fact reserve its right to terminate the Agreement if the Bank did not achieve well-

capitalized status by January 31, 2011. AR 1947. But the agreement between Lincoln Trust

and the Bank still required 30 days notice before termination. AR 1952. Because February 1

was the first possible day Lincoln Trust could give such notice, Lincoln Trust could notwithdraw any funds until March 3, 2011, a full month after the OTSs perceived deadline.

Likewise, Defendants mistakenly contend that Equity Trust gave the Bank a final short-

term forbearance until February 15, 2011. 11 Here again, the OTS misunderstands (or

mischaracterizes) the relevant agreement, which was simply another amendment to an already

existent subaccounting agreement. The agreement actually provided that Equity Trust could not

terminate its subaccounting agreement with the Bank until after February 15, 2011. AR 1944-

45. As with the Lincoln Trust agreement, Equity Trust was required to give the Bank 30 days

notice before beginning deposit withdrawals upon termination. AR 1927. Consequently, Equity

Trust could not start withdrawing funds until March 18, 2011, at the earliest. Furthermore, as

9 The OTS struggled to understand these agreements throughout the relevant events. Even the S-

Memo cryptically labeled the agreements as ambiguous. AR 32.10 The OTS argues that the Lincoln Trust agreement expired in February 2011. Defs. Statement

83. Not so. The agreement could only expire on February 1, 2011 if Lincoln Trust providednotice to the Bank at least 90 days before that date; because Lincoln Trust never provided notice,the agreement renewed for an additional one-year period. AR 1952.

11 Defendants claim this forbearance came two days before [Equity Trust] was set to leave.Defs. Mem. 37. There is nothing in the record that indicates that Equity Trust planned towithdraw any deposits on December 31, 2010.



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Defendants recognized in the 2007 ROE, [i]f [Equity Trust] decides to terminate the agreement,

[Equity Trust] can only withdraw up to 1/6 of the deposit balance at the end of the termination

date at the end of each calendar month for a period of six months. AR 82.

Defendants insist that Equity Trust was definitely going to withdraw its funds after the

termination date, apparently because of Equity Trusts reference to the absolute outside date

for termination in its transmittal letter for the amendment. Defs. Mem. 37. Defendants

misunderstand the meaning of the phrase. The amended subaccounting date contained three

possible dates triggering Equity Trusts right to terminate: (i) the date the October 28, 2010

investment agreement (the Investment Agreement) was terminated, (ii) the date the InvestmentAgreement was consummated, or (iii) the termination date set by the agreement ( i.e., the

absolute outside date.). Equity Trusts reference to an absolute date simply meant that it was

referring to the only set termination date in its agreement with the Banka date akin to a

period of repose. 12 The company was not issuing an ultimatum, and the Bank had informed the

OTS that the relevant Institutional Depositors planned to extend their agreements further. AR

4190. In fact, Equity Trust (along with Lincoln Trust and Legent Clearing) was entering an

additional amendment just when the Bank was seized, further mitigating any cause of an

imminent liquidity crises. 13 See AR 4192 (indicating, as of January 20, 2011, that [e]ach of [the

Banks] three largest institutional depositors, Lincoln Trust, Equity Trust, and Legent Clearing,

ha[d] agreed to modify their deposit agreements to extend the terms of such agreements).

Defendants erroneous reading of these critical dates is not their most serious error; the

12 On January 21, 2011, this set date was extended to March 31, 2011. AR 4218-4225.13 Specifically, the Bank, Equity Trust, and Lincoln Trust were in the process of amending their

respective deposit agreements to extend the date in which the depositor could provide notice tothe Bank to terminate the deposit agreement due to the Bank being undercapitalized to March 31,2011the same date as the termination date in the Investment Agreement. AR 4218-4225.



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most irrational aspect of this imagined liquidity crisis was the OTSs belief that all the relevant

Institutional Depositors would withdraw their deposits the moment that they could . That

assumption finds no support in the record, and speculation is not evidence. Detroit

Typographical Union No. 18 v. NLRB , 216 F.3d 109, 121 (D.C. Cir. 2000). Indeed, the OTS

itself recognized as late as January 2011 that there was a strong indication that Institutional

Depositors [were] unlikely to immediately withdraw significant funds. OCC-UWB 00793. The

OTSs assessment of the Banks liquidity position in January 2011, as demonstrated by its own

statements in the administrative record, are wholly inconsistent with the Defendants current

argument that the Bank presented an unacceptably high risk of an uncontrolled collapse due toliquidity issues or a devastating liquidity failure. Defs. Mem. 2, 18, 30.

The OTSs liquidity paranoia was rebutted by the long and loyal history of the

Institutional Depositors, even through periods of economic difficulty and regulatory scrutiny.

See No. 99 at 3-5. Much like the Seizure Order, Defendants fail to address this long history in

any meaningful fashion. [T]he deference owed agencies predictive judgments gives them no

license to ignore the past when the past relates directly to the question at issue. See BellSouth

Telecommcns, Inc. v. FCC , 469 F.3d 1052, 1060 (D.C. Cir. 2006); see also Am. Petroleum Inst.

v. Johnson , 541 F. Supp. 2d 165, 183 (D.D.C. 2008) (condemning an agency for ignoring a long

and complicated history relevant to its administrative decision).

3. The Bank held sufficient liquidity to cover any permissiblewithdrawals.

In any event, the Banks liquidity would have been enough to cover depositor

withdrawals even if a worst-case mass withdrawal had occurred. In the days leading up to the

seizure, the Banks on-hand liquidity actually increased from $394 million (on January 7, 2011)

to $426 million (on January 20, 2011) , OCC-UWB 00793, 00798, which was well above



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industry standards. Moreover, at any time the Bank could have obtained an additional $137

million to $256.8 million from Legent Clearing, LLC (Legent). AR 39, 2245-46. The Bank

also could have taken advances from the Federal Home Loan Bank or continued to accept

deposits through the Qwikrate deposit-gathering system. AR 1553-1725.

And the worst case scenario was not nearly the parade of horribles that the agency now

suggests it to be, as Equity Trust could not immediately withdraw all of its deposits even if it

chose to terminate its agreement with the Bank. Rather, as noted above, Equity Trust had the

right to withdraw no more than one-sixth of its deposits each month over the course of six

months upon termination. See AR 82, 1916, 2250-51. Thus, even assuming the Bank obtainedno additional funds from Legent, and even assuming that Lincoln Trust and Equity Trust both

withdrew the maximum amount of deposits permitted under their agreements, the Banks

liquidity on hand would still have covered these withdrawals. 14 As the OTS earlier

acknowledged, these [c]ontractual agreements with some of the largest of these depositors

help[ed] protect the institutions liquidity position and would allow management time to obtain

additional funds. AR 80. The contracts with the Institutional Depositors were no less useful in

2011 than they were in 2007.

In sum, the administrative record does not suggest that a liquidity crisis was occurring or

that one was imminent, notwithstanding Defendants arbitrary and unfounded speculation about

the motives and intent of the Institutional Depositors.

14 In Defendants worst case world, on January 21, Lincoln Trust could have withdrawn its entirebalance of $137 million, AR 1912, while Equity Trust could have withdrawn only 1/6 of its totalbalance of its balance (or $115 million), AR 82, 1916. The Banks liquidity on handstanding at$426 millionwould have covered this entire amount with plenty of remaining liquidity, whileQwikrate and other available liquidity sources could have been pursued. See OCC-UWB 00793,00798, AR 1559-60.



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II. The OTS Inappropriately Determined That the Bank Had Failed to Submit AnAdequate Capital Restoration Plan Within a Reasonable Time.

The Banks opening memorandum explained how (a) the OTS did not give it a

reasonable time to submit its capital restoration plan (CRP); and (b) the OTS inappropriatelyrejected its plan. Banks Mem. 26-29. In response, Defendants offer three excuses for the

OTSs decision to limit the Banks reasonable time to a mere seven days. They suggest that

the OTS had full discretionwhich it granted to itself via its own regulationsto shorten the

time for CRP submission when quick action was needed. Defs. Mem. 31-32. They then

offer a line of analysis that boils down to no harm, no foul. And they further invoke notions of

agency deference in matters involving technical knowledge. Id. at 33-34. Defendants are

wrong on all three counts.

A. The OTSs Decision To Give the Bank Just Seven Days to Submit aCapital Restoration Plan Was Unjustified and Prejudicial.

1. The OTS erred in giving the Bank too little time.

A financial institution ordinarily gets 45 days to submit a CRP. Even the OTSs own

regulations agree. See 12 C.F.R. 565.5 (A savings association shall file a written capital

restoration plan with the appropriate Regional Office within 45 days unless the OTS notifies

the savings association in writing that the plan is to be filed within a different period.). Even so,

Defendants insist that the OTS had absolute discretion to shorten this time anytime it chose to do

so. That position ignores Congress explicit instruction to banking regulators that they provide

insured depository institutions with reasonable time to submit capital restoration plans, which is

generally 45 days. 12 U.S.C. 1831o(e)(2)(D)(i). Moreover, the entire purpose of the prompt

corrective action regime is to resolve the problems of insured depository institutions at the least

possible long-term loss to the Deposit Insurance Fund. See 12 U.S.C. 1831o(1). Providing an



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15

unreasonable and unnecessary timeframe undermines that statutory mandate. 15

The OTSs only contemporaneous excuse for the truncated response time was the Banks

unspecified and unexplained unsafe and unsound condition. 16 AR 16, 1441. While not

supported in the administrative record, Defendants now point more specifically to the perceived

liquidity threat, even though (a) the OTS felt at the time that there was a strong indication that

Institutional Depositors [were] unlikely to immediately withdraw significant funds, OCC-UWB

00793; and (b) the liquidity threat was never mentioned at the time as the reason for the

truncated time period. Defendants here are developing new rationales during the course of

litigation. But, of course, counsels post hoc rationalizations, offered for the first time on judicial review, [cannot] substitute for an agencys obligation to articulate a valid rationale in the

first instance. CS-360, LLC v. U.S. Dept of Veterans Affairs , No. 11-00078, 2012 WL 718374,

at *12 (D.D.C. Mar. 6, 2012).

In another act of creative misdirection, Defendants suggest the vague reference to an

unsafe and unsound condition referred to the Banks entry of the Cease and Desist Order.

Defendants contend that the Bank stipulated to the existence of unsafe or unsound practices at

the Bank when it consented to the June 24, 2010 [Cease and Desist Order]. Defs. Statement of

Facts with References to the Admin. R. 90, ECF No. 100-2 (Defs. Statement). 17 The Bank

15 Of course, the OTS announced during a November 17, 2010 meeting that it would take actionsbased on the conditions at United Western, not on concerns about possible negative effective onthe FDIC insurance fund. OCC-UWB 00787.

16 In truth, the short deadline likely resulted from planned preset timetable that anticipatedreceivership for the Bank on January 7, 2011. OCC-UWB 787.

17 The Bank filed a motion to strike Defendants Statement of Facts because the document violatesthe Local Rules limiting motions and oppositions to 45 pages. See generally Pl.s Mot. to StrikeDefs. Statement of Facts, ECF No. 102. Because that motion remains pending, however, theBank addresses allegations contained within the statement. Nevertheless, the Bank would beremiss if it failed to indicate that the Statement of Fact is filled with conjecture, argumentation,and references to facts beyond the administrative record. Thus, should the Court determine not to



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did not stipulate to any such thing, and Defendants misrepresentation of its own enforcement

document is deeply troubling to say the least. See AR 568 (stating that the Bank agreed to the

Cease and Desist Order without admitting or denying that such grounds exist, but only

admitting the statements and conclusions in Paragraphs 1 and 2 below concerning jurisdiction).

2. The OTSs error was not harmless.

Tacitly acknowledging that there was no genuine basis for a seven-day deadline,

Defendants also invoke the notion of harmless error. It is not even clear that harmless error

applies in this context. In instances of administrative agency procedural error, the challengers

interests can usually be vindicated by remand (as the challengers procedural rights areeffectively restored by the remand). Harmless error analysis is a companion to this remedy; it

exists because it would be senseless to vacate and remand for reconsideration when the end

result would be the same. PDK Labs. Inc. v. DEA , 362 F.3d 786, 799 (D.C. Cir. 2004). But the

judicial review statute implicated by this case contemplates only two outcomes: dismissal of the

suit or reversal of the receivership. 12 U.S.C. 1464(d)(2)(B). Remand is not an optionand

common sense dictates that the Bank cannot undertake a do-over of its CRP. Consequently,

the fear of a futile remand that animates harmless error review of administrative law cases does

not exist here. As such, harmless error review should not be undertaken.

But even if harmless error analysis did apply, the Bank quite obviously was prejudiced.

For instance, the OTS partly denied the CRP because of the Banks assumption that the OTS

would allow the Bank to acquire Legent as an operating subsidiary. The OTS strategically

denied the CRP on the same day that it denied the Banks application to buy Legent. See AR

4119, 4123. Had the Bank been given an appropriate amount of time, it could have presented a

strike the statement, the Bank respectfully requests an opportunity to offer a response to thestatement in its own separate filing.



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CRP that took the denial into account by either (a) excluding the Legent acquisition from its CRP

or (b) restructuring the Legent transaction into a purchase by the Banks Holding Companyas

the Bank proposed to the OTS just two days after the CRPs denial. AR 4192. Likewise, the

OTS condemned the Bank for unreasonably assum[ing] that its Recapitalization Transaction

would be successful. AR 4124. Had the Bank been granted an appropriate amount of time, it

would have provided additional evidence of the viability of the Recapitalization Transaction

just as it did right up until its final hours of existence. AR 4195-4222. Defendants now

speculate that the Bank could have amended its CRP because the Bank purportedly had more

than sufficient time to make any additional arguments or submit any additional evidence.Defs. Mem. 33. Neither the statute nor the regulations, however, contemplate such

supplemental submissions, probably because they would be superfluous were an institution

afforded reasonable time. See 12 U.S.C. 1831o(e)(2); 12 C.F.R. 565.5. And in any event,

the record indicates that the OTS had already determined to deny the CRP as early as December

30, 2010. 18 AR 4176. In sum, the shortened period precluded the Bank from offering additional

essential facts that might have saved the institution.

B. The Banks Well-Supported Capital Restoration Plan Should NotHave Been Denied.

In its initial motion, the Bank addressed each purported ground that the OTS invoked in

rejecting the Banks CRP. 19 See Banks Mem. 29-34. In response, Defendants largely repeated

18

Defendants misleadingly suggest that the OTS considered the CRP for almost a month, Defs.Mem. 33-34, but the truth was closer to ten days, at least assuming agency staff worked over thethree-day federal holiday weekend, AR 4176; see also OCC-UWB 00793 (UWB submitted theCRP and accompanying business plan on December 20, 2010. We intend to deny the CRP andbusiness plan and are drafting a letter to do so at a time immediately before the receivershipdate.). It is not clear why the OTS then waited nineteen days to notify the Bank of its decision.

19 The whole reason why the Bank was required to submit a CRP in the first place was that the Bank was pushed into undercapitalized status by an OTS directive ordering it to restate its financials.The directive, which concerned so-called OTTI charges, pushed the Bank 0.2% below the



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verbatim the grounds stated in the Seizure Order, filling them in with a bit of speculation and

conjecture. Defendants rehashed version of the CRP rejection does not reflect reasoned agency

decisionmaking.

1. The Recapitalization Transaction presented a realisticopportunity to recapitalize the Bank.

By selectively quoting portions of the Banks CRP, Defendants misleadingly suggest that

the plan would actually push the Bank further into a weakened financial condition. Defs. Mem.

38. The CRP demonstrates otherwise, showing that the Banks capital ratios would substantially

exceed the requirements for well-capitalized status shortly after the consummation of the

Recapitalization Transaction. Nevertheless, Defendants allege that there was no credible capital

plan on the horizon. Defs. Mem. 30. This characterization seems to relate to Defendants

belief that the CRP should have established prospects for complete recapitalization in the near

term. See, e.g. , Defs. Mem. 2.

As an initial matter, Defendants do not specify what constitutes the near term, and the

OTS demanded recapitalization in just two weeks. AR 1442. The language of the statute

expected the CRP would achieve its results over a period of years , not weeks. See 12 U.S.C.

1831o(e)(2)(B)(i)(III) (requiring a CRP to state the levels of capital to be attained during each

year in which the plan will be in effect); see also, e.g. , Astoria Fed. Sav. & Loan Assn v.

United States , 568 F.3d 944, 948-49 (Fed. Cir. 2009) (describing a CRP spanning almost 4

years). Congress understood that no financial institution could secure, in a matter of days, (a)

millions of dollars in additional capital, and (b) all required regulatory approvals or non-

threshold for adequately capitalized status. The OTS never provided a sufficient explanation orreasoned analysis of these directed OTTI charges. Instead, it criticized a model for determiningsuch charges that had been used by other institutions without criticism from their regulators,including the OTS. See, e.g. , AR 1337, 1339-40.



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objections. 20 Either the OTS lacked this basic understanding, rendering its decision arbitrary and

capricious, or it simply did not matter because the OTS had already decided to fail the Bank and

the CRP process was a sham. 21

The OTSs warped view of the relevant timeframes aside, the CRP presented a viable

scenario for the timely recapitalization of the Bank. In particular, the CRP projected that, as of

March 31, 2011, the Bank would hold capital ratios of 16.3% total risk-based capital, 15.3% Tier

One risk-based capital, and 8.5% core capital, above the requirements for a well-capitalized bank

and above the capital requirements imposed by the Cease and Desist Order. See 12 C.F.R.

565.4(b) (requiring ratios of 10%, 6%, and 5%, respectively). This significant improvement inthe Banks capital position reflected the anticipated success of the Recapitalization Transaction.

The Recapitalization Transaction also would have transferred the criticized mortgage-backed

securities from the insured Bank into the Holding Company, avoiding any further losses to the

Bank and potential related losses to the deposit insurance fund. See AR 1492 (projecting the

Banks return to profitability by September 30, 2011).

Defendants nevertheless take issue with the Recapitalization Transaction by calling it a

complex and ultimately unsuccessful private-placement recapitalization plan. 22 Defs. Mem.

16. It comes as some surprise that a financial regulator would view a straightforward private

investment as complex. And in what can only be defined as deliberate obtuseness, Defendants

20 The anchor investors in the Recapitalization Transaction filed rebuttals of the control onNovember 8, 2010. Although OTS guidance suggests a prompt 20-day review period for non-control filings, the agency affirmatively took steps to extend the time frames. See AR 2467-71(letter from the Bank requesting that the OTS take prompt action on the rebuttal of controlnotices).

21 For the OTS, even a well-capitalized bank clearly was not enough. See OCC-UWB 00787(indicating view of the OTS that a simple infusion of capital into the institution would notimmediately solve the problems there).



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complain that the plan was not in fact a $200 million capital raise. Defs. Mem. 17. As reflected

in written and oral commitments from various investorsall of which were secured before the

Banks seizure on January 21this transaction was a $200 million deal that could be quickly

closed given that the Holding Company had already secured the necessary NASDAQ

shareholder approval waiver. 23 AR 2453-55. Moreover, based on the commitments received by

the Bank and transmitted to the OTS, the offering would have raised more than the required $200

million. In fact, the transaction was already subscribed over the $200 million mark:

Investor Investment Size Administrative RecordInitial Anchor Investment $103 million AR 980

Kemnay Fund Investors,Inc. $10 million AR 4198

Auda AlternativeInvestments $17.5 million AR 4201

Lovell Minnick PartnersLLC

(Increased Investment)$3.83 million AR 4207

Henry C. Duques(Increased Investment) $12.8 million AR 4210

Oak Hill Capital Partners(Increased Investment) $3.83 million AR 4221Olympus Partners $50 million AR 4192

TOTAL $200.96 million

The OTS felt the Bank needed to immediately secure these commitments in the form of

binding, written contracts. Particularly given the short timeframe afforded the Bank to assemble

its CRP, that expectation is nonsense. It is also nowhere to be found in the statute, as the statute

only requires that a CRP be built on realistic assumptions. 12 U.S.C. 1831o(e)(2)(C)(i)(II).

22 Defendants even draw assumptions from the national origin of one of the investors. See Defs.Mem. 25.

23 Strangely, the OTS suggested that the Bank did not hold letters of intent from any investors. Of course, the Bank held written investment agreements from the Anchor Investors, and letters of intent from Kemnay and Auda.



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Congress did not call for banks to submit irrefutable, tangible evidence supporting every

assumption or projection in a CRP. And in fact, even prior OTS guidance did not seem to

conflate the realistic assumptions requirement with an evidentiary standard; that guidance

simply defined realistic assumptions as those based on current interest rates and market

conditions. AR 1447; see also OTS Examination Handbook 080A.4 (2008), available at

http://www.ots.treas.gov/_files/422347.pdf (listing realistic assumptions as those based on (1)

current Treasury rates, (2) market-based mortgage loan prepayment rates, and (3) loan

origination rates that account for recent experience and current market conditions).

If the OTS was determined to require written, unqualified commitments to support multi-million dollar capital investments in troubled banks, then the OTS should have at least

announced its intention to do so. The Bank cannot be punished for reasonably expecting that

commitments and letters of intent from investors would be enough to satisfy the statutory

requirements. Traditional concepts of due process incorporated into administrative law

preclude an agency from penalizing a private party for violating a rule without first providing

adequate notice of the substance of the rule. The quid pro quo for stringent acceptability

criteria is explicit notice of all application requirements [or, here, plan requirements]. Satellite

Broad. Co., Inc. v. FCC , 824 F.2d 1, 3 (D.C. Cir. 1987).

2. The OTSs problems with the Recapitalization Transactionwere unsupported by facts.

Fundamentally, the OTSs complaints concerning the CRP centered around three things:

(1) the Bank had not really secured the additional investors needed to support the

Recapitalization Transaction; (2) the transaction contemplated that the OTS would waive certain

regulatory requirements, which the agency was unwilling to do; and (3) the Recapitalization

Transaction relied upon approval of the Banks acquisition of Legent, which the agency was



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unwilling to approve. 24 These complaints find no support in the record, as the Banks

assumptions were decidedly realistic. 12 U.S.C. 1831o(e)(2)(C)(i)(II).

First , as indicated above, the Bank had secured the needed additional investment.

Investment interest in the Bank actually continued to grow through the final days of the Banks

existence. Even so, the OTS simply chose to ignore the additional investors by imposing ever-

higher burdens of proof on the Bank without even informing the Bank. That was error.

Second , it was reasonable for the Bank to expect certain conditions of the Cease and

Desist Order would be waived at the time of closing of the Recapitalization Transaction. The

Cease and Desist Order was intended to address certain conditions that the OTS believed existedat the Bank. These conditions included a purported drop in asset quality, insufficient lending

supervision, and inadequate liquidity planning. AR 569. But none of the conditions that the

Bank and investors proposed removing addressed these concerns. And it was entirely realistic

for the Bank and investors to anticipate that a highly capitalized bank would be permitted to

operate subject to fewer imposed conditions. The OTSs refusal to consider any modification of

the Cease and Desist Order, therefore, failed to account for the Banks increased capital position

resulting from the private-sector Recapitalization Transaction. From the perspective of the Bank

and its investors, a bank that significantly exceeded the well-capitalized capital requirements

(as United Western would have after the Recapitalization Transaction) should expect to be

treated as a well-capitalized institution. Such determination, however, is only achievable by

24 The OTS also noted the CRP increased the level of institutional deposits. But the actualconcentrationthe relevant concern for the regulatordeclined. See Banks Mem. 29.Moreover, the OTS seemed to assume that Legent was an ordinary, third-party InstitutionalDepositor after completion of the Recapitalization Transaction. However, as an operatingsubsidiary or affiliate of the Bank, Legents deposits would presumably have been more stablethan an outside depositor, as was the case with deposits of Sterling Trust Company noted in the2007 ROE. AR 81.



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modifying the Cease and Desist Order to delete the meet-and-maintain capital requirement. 25

The Bank was particularly justified in believing many conditions could be waived

because, excepting the meet-and-maintain requirement, the OTS had never suggested waiver was

an impossibility until the CRP denial. The OTS even refused to indicate whether it would waive

conditions when the Bank asked the agency directly. See, e.g. , AR 1193 (refusing to comment

on anything but the meet-and-maintain requirement); see also AR 4228 (Mr. Peoples [of United

Western] asked OTS to comment; we advised them [sic] that OTS was not making any

commitments and was only listening to what he (Mr. Peoples) conveyed to the OTS [concerning

the Recapitalization Transaction.). In short, Defendants used the Cease and Desist Order toforce the Bank into a dangerous game of administrative Russian Roulette. Satellite Broad.

Co. , 824 F.2d at 4.

Third , the OTSs rejection of the Banks acquisition of Legent (on the same day it

rejected the CRP and the proposed business plan) would not have doomed the Recapitalization

Transaction. Defendants essentially offer a number of reasons why they feel Legent was not a

good acquisition target. 26 Such musings are irrelevant. Legent was viewed as a necessary

element of the Recapitalization Transaction because it was an attractive investment to the outside

investors involved in the Recapitalization Transaction. But these investors did not insist on

having the Bank own Legent. They were also agreeable to a purchase of Legent by the Holding

Company. AR 4192. A purchase by the Holding Company would not have faced the regulatory

25 So long as it was operating under a written order imposing a meet-and-maintain requirement, theBank could not be considered well-capitalized. See 12 C.F.R. 565.4(b)(1)(iv).

26 Defendants memorandum and accompanying statement of facts is filled with inflammatory,unsubstantiated allegations concerning Legent. The Court should not afford these statements anyweight. See, e.g. , Defs. Mem. 18 n. 19 (asserting without support that Legent was used as avehicle by known penny stock fraudsters); Id. at 28 (same); Defs. Statement 64 (accusingLegent itself of money laundering and penny stock fraud).



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hurdles that Defendants assume were insurmountable in a purchase by the Bank. 27 And the

Holding Company was ready to proceed with just such a purchase. Id.

Simply put, the Banks CRP proceeded upon realistic assumptions and would have

improved the Banks condition. Under the terms of the statute, its denial was yet another

arbitrary and capricious act by the OTS.

3. The OTS is not entitled to technical deference here.

In a last ditch effort to save the OTSs faulty analysis, Defendants retreat to the notion

that technical judgments made by agencies are entitled to deference. See Defs. Mem. 33-34.

That may be so, but technical deference does not excuse an agency from its obligation to engagein rational decisionmaking. Exxon Co., U.S.A. v. FERC , 182 F.3d 30, 38 (D.C. Cir. 1999).

Where, as here, the agency has stopped short of carefully considering the disputed facts, then

no deference is due. Cities of Carlisle & Neola v. FERC , 741 F.2d 429, 433 (D.C. Cir. 1984).

By simply ignoring facts that undermined its conclusion, the OTS effectively declined to

exercise its expert judgment.

And in reality, the OTSs decision on the CRP did not involve a matter of significant

technical expertise. This was not an agency grappling with uncertain scientific questions or

matters undergoing evolving technological change. Rather, the OTS was simply asked to

interpret certain contractual agreements comprising the Recapitalization Transaction and

determine their likely effect. Courts routinely confront these kinds of questions in ordinary

contract cases; they are therefore well equipped to assess the agencys decision. Cf. Cox v.

Commodity Futures Trading Commn , 138 F.3d 268, 272 (7th Cir. 1998) (explaining that an

27 Moreover, the OTSs months-long delay in handling the Banks application to purchase Legentprevented the Bank from making modifications following the rejection of its proposed Legentpurchase in the CRP. See Banks Mem. 32-33.



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agencys decision is entitled to less deference when it involves a question of the sort that courts

commonly encounter). This all the more so given that Congress specifically called for on the

merits review of the OTSs decision by enacting the judicial review provision in FIRREA.

III. The Bank Was Operating in a Safe and Sound Condition, Despite the OTSsMultitude of Repackaged Concerns.

Defendants fill their memorandum with a variety of irrelevant facts concerning the

Banks final years. Though they place this random assortment under the heading of unsafe and

unsound practices, both the memorandum and the Seizure Order make clear that unsafe and

unsound focused on three things: liquidity, capital, and earnings. The OTS assessed these

matters using the wrong standard. And in any event, none of them posed a genuine threat to the

Bank.

A. For All Practical Purposes, Defendants Have Conceded that the OTSApplied the Wrong Law.

In finding that the Bank was in unsafe and unsound condition, the OTS did not use the

definition of unsafe and unsound employed by the U.S. Court of Appeals for the D.C. Circuit.

Banks Mem. 39-40. Instead, the Seizure Order used a more permissive standard that reaches

risks that do not necessarily pose a direct threat to the relevant institution. Id. Defendants do not

argue otherwise.

Rather than defending the standard that the OTS used, Defendants correctly (but

irrelevantly) note that the D.C. Circuit defined unsafe and unsound in the context of an

enforcement action under 12 U.S.C. 1818. They also observe that this action concerns 12

U.S.C. 1464. They accordingly conclude the Section 1818 cases do not apply here. Defs.

Mem. 30 n.30. Yet the actual permissible grounds for receivership are found in another statute,

12 U.S.C. 1821(c)(5). See AR 5 (noting that the grounds for the Seizure Order are drawn from



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grounds specified in the Federal Deposit Insurance Act). The relevant reference to unsafe

and unsound is found there. And both Section 1818 and Section 1821 fall within the Federal

Deposit Insurance Act.

Thus, Defendants chose to ignore a basic rule of statutory construction. Because Section

1818 and Section 1821 fall within the same act, their identical phrases referring to unsafe and

unsound would almost certainly be construed identically. [I]t is the normal rule of statutory

construction that identical words used in different parts of the same act are intended to have the

same meaning. Yousuf v. Samantar , 451 F.3d 248, 256 (D.C. Cir. 2006); see also Taniguchi v.

Kan Pac. Saipan , No. 10-1472, 2012 WL 1810216, at *7 (U.S. May 21, 2012) (As we have saidbefore, it is a normal rule of statutory construction that identical words used in different parts of

the same act are intended to have the same meaning.); FCC v. AT&T Inc. , 131 S. Ct. 1177, 1185

(2011) ([I]dentical words and phrases within the same statute should normally be given the

same meaning.).

Defendants attempt to correct the OTSs error by inviting the Court to apply the proper

test on its own. Defs. Mem. 30 n.30. But a reviewing court may not attempt to supply a

reasoned basis for the agencys action that the agency itself has not given. CS-360, LLC , 2012

WL 718374, at *12. In other words, courts do not sustain a right-result, wrong-reason

decision of an agency. Sprint Nextel Corp. v. FCC , 508 F.3d 1129, 1132-33 (D.C. Cir. 2007).

Instead, the reviewing court must judge the propriety of such action solely by the grounds

invoked by the agency. Wedgewood Vill. Pharm. v. DEA , 509 F.3d 541, 550 n.13 (D.C. Cir.

2007). Because the agency did not begin with the right legal standard in mind, this ground for

the Seizure Order cannot stand.



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B. No Matter What Standard Applies, the Bank Was Not In an Unsafe andUnsound Condition.

As has been said before, the third ground for the Seizure Orderthe Banks ostensible

unsafe and unsound conditionwas not a separate ground at all. Rather, it was substantially arestatement of the two other alleged grounds ( i.e., the Banks capital levels and liquidity). Defs.

Mem. 2. For good measure, the OTS also suggested that the Banks losses posed a threat. Id.

The Bank need not burden the Court with another full discussion of the capital and

liquidity issues. The record establishes that these issues were well under control and posed no

genuine threat to the Bank. 28 And as for earnings, it would prove entirely unreasonable if an

insured institution could be closed after suffering two years of losses in the midst of the worst

financial crisis since the Great Depression. Were that the case, the OTS would have seized much

of the national thrift system in 2009, when one in three banks suffered losses during the final

quarter. Binyamin Appelbaum, Bank Lending Plummets by $587 Billion in 2009, Wash. Post

(Feb. 23, 2010), available at 2010 WLNR 3811012. As to United Western, the losses were

largely traceable to certain non-agency mortgage backed securities. 29 These securities would

have been removed from the Banks balance sheet via the Recapitalization Transaction,

eliminating any future ability for them to inflict a loss on the Bank. Thus, earnings were not a

continuing concern.

28 Indeed, from June 2010 until the seizure of the Bank, the OTS continually acknowledged that theBanks management was responsive to OTS concerns regarding concentration risk, asset quality,and liquidity. OCC-UWB 00728, 00733,00739, 00744, 00750, 00756, 00761, 00766, 00771,00776, 00781, 00786, 00792, 00797, 01021, 01027, 01032, 01037, 01042 and 01047.

29 Defendants overstate the number of problem assets at the Bank, claiming that the Banks non-performing assets stood at $348.2 million on September 30, 2010. Defs. Mem. 38. Evenaccording to the S-Memo, the Banks non-performing assets were only $98.888 million. AR 29.Defendants would also have the Court believe that losses were also traceable to the Bankscommunity lending program. The 2007 ROE seemed perfectly comfortable with these assets,noting that they enjoyed solid underwriting practices and procedures, an effective internal assetreview system, and government insurance for a portion of the credits. AR 66.



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IV. Even If the Court Determines That One Ground of the Seizure Order Was Valid,None of the Alleged Grounds Is SufficientStanding Aloneto Sustainthe Decision.

Defendants improperly assume that the Seizure Order must be affirmed if any one of its

three grounds proves valid. Defs. Mem. 9. In reality, [w]hen an agency relies on multiple

grounds for its decision, some of which are invalid, [courts] may only sustain the decision where

one is valid and the agency would clearly have acted on that ground even if the other were

unavailable. Williams Gas Processing-Gulf Coast Co. , 475 F.3d at 321. Where one of the

independent grounds is really illusoryperhaps because the ground is conclusory, or perhaps

because the ground is not really independent at allthen the Court has even less reason tosustain a decision on this tenuous ground. See, e.g. , Intl Union, United Mine Workers of Am. v.

Dept of Labor , 358 F.3d 40, 44-45 (D.C. Cir. 2004) (finding agency decision could not be

affirmed where two of three grounds were invalid and third ground was conclusory).

Here, the Seizure Order did not indicate any belief on the part of the OTS that these were

three independent grounds. In fact, the agency memoranda prepared in support of the seizure

demonstrate that each of the three alleged grounds did not, and could not, serve as independent

bases for seizing the Bank. Rather, each alleged ground was intertwined with the others. AR 16-

17. For example, the imagined liquidity crisis was presented as an unsafe or unsound condition

because of circumstances that purportedly resulted from (a) other alleged unsafe or unsound

conditions and (b) the denial of the CRP.

Furthermore, these grounds were premised on alleged facts thatwhen examined

individuallycould reach almost every bank operating in a troubled economy. If, for instance,

regulators set out to seize every bank operating with losses and some number of sub-par assets, a

great portion of the banking system would have been seized during recent years. It seems



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equally unlikely that regulators would invoke a supposed liquidity crisis as the sole basis for

receivership, at least where the agency had just days earlier determined that the immediate

withdrawal of a significant amount of funds was unlikely. And as for the alleged capital issues,

many banks operate in undercapitalized statusand without approved CRPseach day. These

common sense facts signal that the OTS acted only because of its misperception that there was a

confluence of negative circumstances happening at United Western. To the extent one of these

circumstances proves unsupported, the Court should not assume the regulator would have leapt

into action anyway.

CONCLUSIONEffective agencies make careful decisions that find substantial support in fact. And

effective bank regulators, in particular, should favor adjustment, not adjudication. In re

Subpoena Served Upon Comptroller of the Currency , 967 F.2d 630, 634 (D.C. Cir. 1992). In

contrast, the OTS here overlooked critical facts in its race towards a preordained punishment. In

acting so rashly, the agency did not just violate the public trust; it also thwarted its own

regulatory goals by (a) creating instability in the market via a painful, forcible, and avoidable

closure; (b) causing an unnecessary loss to the FDICs Deposit Insurance Fund; and (c) fostering

distrust between banks and their regulators.

Congress anticipated that there could come a time when judicial intervention was

necessary in a bank receivership. Now is that time. The OTS utterly failed to meet its statutory

obligations. Defendants motion should therefore be denied, and the Court should order

Defendants to remove the FDIC from its post as receiver of the Bank and return the Bank to its

rightful owner.



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Respectfully submitted,

/s Andrew L. Sandler .Andrew L. Sandler (DC Bar No. 387825)Samuel J. Buffone (DC Bar No. 161828)

Liana R. Prieto (DC Bar No. 987287)Michael R. Williams (DC Bar No. 994953)BUCKLEY SANDLER LLP1250 24th Street NW, Suite 700Washington, DC 20037(202) 349-8001 (Telephone)(202) 349-8080 (Facsimile)

/s Lawrence D. Kaplan . Kirby D. Behre (DC Bar No. 398461)Lawrence D. Kaplan (DC Bar No. 415186)

PAUL HASTINGS LLP875 15th Street NWWashington, DC 20005(202) 551-1719 (Telephone)(202) 551-0119 (Facsimile)

/s Theodore J. AbariotesTheodore J. AbariotesDeputy General CounselUNITED WESTERN BANCORP , INC.700 17th Street, Suite 2100Denver, Colorado 80202(720) 932-4216 (Telephone)(720) 946-1218 (Facsimile)

Attorneys for Plaintiff United Western Bank

Dated: June 8, 2012



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CERTIFICATE OF SERVICE

I hereby certify that on this 8th day of June, 2012, a true copy of the foregoing was filed

electronically. Notice of this filing will be sent by email to all parties by operation of the Courts

electronic filing system. Parties may also access this filing through the Courts electronic filing

system.

/s Liana R. PrietoLiana R. Prieto


uwbk 6-8-2012 #105 memorandum in opposition to fdic motion for summary judgment and reply in support...

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