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Discusses New Format for Initial Decisions to Emphasize Judicial Nature of ASLB Work & Improve Commission Understanding of Issues & Resolutions.Related Info Encl
	ML20052F875
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Issue date:	12/22/1981
From:	Cotter B; Atomic Safety and Licensing Board Panel
To:	; Atomic Safety and Licensing Board Panel
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{{#Wiki_filter:' f UNIT ED ST ATEs l [% j(%[a +('fj 0 NUCLE AR REGULATORY COMMISSION ATDMIC SAFETY AND LICENSING BOARD PANEL (*- ,., r WASHitJGTON. D C. ll0SS5 Dec e.r.ber 22, 1981 MEMORANDUM FOR: All Panel Members FROM: B. Paul Cotter, Jr. I Chief Administrative Judge Atomic Safety and Licensing Board Panel

SUBJECT:

NEW FORM FOR INITI AL DECISIONS-The Panel's most important single product by far is the Initial Decision. It is appropriate at this point to revise the standard format for Initial Decisions to better convey the judicial nature and comprehensiveness of Board decisions. The "new" Commission, discussions with Sy Wenner concern-ing writing practices at other agencies, and _ internal NRC developments all point to the need and the timeliness of the changeover. The purpose of the new format is threefold: (1) to emphasize more graphi-cally the judicial nature of the board's work; (2) to improve Comission (and other audiences') understanding of issues and their resolution by the Boards through a readable " judicial" opinicn; and (3) to heighten the like-lihood that a more judicial' Initial Decision will become the final Commis-sion decision. The numbered paragraphs " findings" format presently used is-hard to read and comprehend for an outsider. It also can lead to the omission or minimizing of evidentiary discussions and Board reasoning on i l close questions. l The present format frequently conveys the impression of being the work of a special hearing officer cr examiner whose findings will form the basis for treatment in a subsequent, final opinion by a judicial officer. Present format retains too 'much of the early hearing examiner style which summar-ized conflicting testimony and then stated a bare, minimally exclained con-clusion. By comparison, Appeal Board decisions (althougn written from a i dif ferent standpoint and for a different purpose) convey the feeling of a ( final, reasoned decision. l 74 920400 POR l -A e -14g b J

. Accordingly, absent a Commission order in a particular proceeding to the contrary, please make every effort henceforth to follow an Initial Decision format basically comprised of two parts: (1) an Opinion discussing the important issues in the proceeding and how they were resolved; and (2) Findings composed of two elements, Findings of Fact and Conclusions of Law. Each of these two el.ements are discussed in greater detail below and examples are attached. It will take a while to become familiar with the tormat and for each person to adapt it to their own style. It will also place a possibly greater writing burden on technical Board members. The matter has been discussed at some length by the Legal Writing Committee (Miller, Cotter, Frye, Lazo, Linenberger, Paris, Shon and Wenner) should you wish to consult with someone. The Findings section is the backbone of the opinion. It is written essen-tially for lawyers parties, and appellate bodies. Few others (including some of the latter) will ever read them. The Findings section is the most dif ficult part of the decision to write and is usually written before the Opinion section. A few general rules governing the writing of findings are: 1. Do not summarize pleadings and filing dates; 2. Do not suamarize testimony; 3. Do write the findings in declarative sentences and wherever %ssible use the active voice; 4. Do begin with the uncontroverted findings (e.g., parties and 'Jiirisdiction) and proceed to the controverted and more difficult findings; 7 Do cite in parentheses to portions of the record (transcripts or Whibits) that support the finding (see the second half of l, for example); 1 6. Do write subsidiary findings that support the ultimate finding (s) oT f act (see, e.g., Attachment 2, Finding 32 and the relationship i between Finding 19 and Findings 20-26); and 7. Do require all parties in cases where the record closes af ter Tanuary 1,1982 to submit findings in accordance with the j foregoing principles. l l L

. And last but not least do remember the ultimate rule: "There is no such thing as good writing; there is only good rewriting."* Thus, the Findings of Fact and Conclusions of Law section is pretty much self explanatory and, in f act, is essentially what is now issued as an Initial Decision. However, the new format should result in boiling the findings down to the essentials. While the findings are the bones or skeleton of the decision, the opinion constitutes the flesh and blood. Generally, the Opinion section has seven basic elements: (1) a Table of Contents, if necessary; (2) a very brief statement of jurisdictional / procedural history; (3) a very brief synopsis of the issues and relief sought; (4) captioned discussions of contentions and major issues and their resolution, including references to controlling statutory. and case law and cross references to the numbered findings of Fact (this is the bulk and essence of the Opinion); (5) a brief statement at the end that all other matters not discussed in the 0 pinion were consid-ered and found either to be without merit or not to affect the outcome; (6) a sentence incorporating by reference the attached Findings of Fact and Conclusions of Law; and (7) a two or three sentence Conclusion. See the decision in the Rickover case at Attachment 2. There are, of course, many variations within that f ramework depending on individual style. As noted, the Opinion is usually written after the findings section is written. Judge Conford's four page discussion ( Attachment 1) suggests that findings may be omitted if a complete opinion is written, or vice versa, but I do not believe that is workable for Initial Decisions. (However, the memoran-dum opinion alone may be sufficient in shorter decisions, possibly low power, short PIDs, or rulings on contentions.) in sum, the Findings section and the Opinion section are interdependent and mutually essential to a full statement of not only the f acts found and law applied but the analysis and reasoning from which they were derived. While there is a certain amount of overlap between the Findings and the Opinion, anything not needed to decide the case is omitted, including lengthy procedural histories, summaries of testimony, and discussion of peripheral

Stolen from Sy Wenner December 8, 1981.

L

~ . issues. I personally see no need for appendices of witness and exhibit lists.** That is the litigants' and the Appellate bodies' job. If the Appeal Board thinks something should have been addressed, that is their business. The Licensing Board should spill ink only on those subjects that in the Board's judgment affect the outcome, in the last analysis, the Initial Decision is the critical product by which the Panel is judged. A more judicial tone in Initial Decisions will im-prove the Commissioners' opinion and understanding of our work. It should also blunt some of the attacks on the hearing process from the private sec-tor by establishing a body of reasoned opinions readable by all.

- Such lists are useful in preparing decisions, and we will continue to send them to Chase Stephens so that he can verify the completeness of his records.

Attachments: 1. Conford, " Findings of Fact and Conclusions of Law", The Judges Journal (January 1969). 2. Public Affairs Associates Inc. v. Rickover, 268 F. Supp. 444 (1967). 3. In the Matter of Mechanics National Bank, et al., HUD Docket No. 77-5-KR (1979) (Excerpts) 4. In the Matter of Florida Power & Light Co., FPC Docket No. E-7210 (1966). 5. U.S. v. Bethlehem Steel Corp., et al., Civil No.115-328 (1958) (Weinfeld, J.) (Excerpts) i

ATTACHMENT 1 ~. f

T, g. s 4 N{.... 's....... ,V.".*"!.**:~. \\ [l,$. FINDINGS OF FACT AND .. =. CCNCLUSIONS OF I.A*d l==: :::: ... ~. {.'E~E V Sy: Judge Milton 3. Conford .:..[2 Appellate Division, Superior Court of New Jerscy - d:.ii The hear: of the decisional function of a judge hearing a R== contested matter without a jury is his formulation of findings of L:.5csE2 fact and conclusions of law. The understanding by the parties and l '255 appellate courts of a trial court determination is dependen upon the clarity and chorou-hness with which such findings a.d conclu-v c ::::::'. .siens are cade. Deficiencies in findings and conclusions =otivate appeals, m......_. since parties are in such instances not adequately apprised as to Q~ ~ -~ ~ why they have lost. And many appeals eventuate in remands to the trial courts for more adequate findings. Appellate courts are fgl~. generally loath to substitute their own factual de e:-nina:icas for ..llll;;;; those of trial judges who have heard the witnesses and they will therefore withhold final dete==ination until they can verify the ~ .:_.~---- precise findings of fact of the --ial judge and thereby become ^. enabled no make appropriate application of the per.inen: law to

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such adjudicated facts and avoid exploration of % aterial c.ues-T=:=_.

LonS, Sound techniques in the making of findings of fact and con-clusions of law will be promoted by a review of certain funda=en-

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. =... =. ~ J.~=-55 1. The essence of findings and conclusions in a contested b=m na::er is an explanation of the judge's reasons for arriving at the }--- :- determination. s... "=" 2. Since the date: ination of a case consists of an ac.c.li-l......... cation of the cont elling principles of law to the material facts, Os:s M55 he judge mus: specially find the facts fron the proofs and state them, but he must also ascertain the con:rciling principles of law .:=

s and render his conclusions as to them.

- = =. Jg= 3. If the foregoing is properly done it will b5 readily , ;g possihle for the losing party to pinpoint any alleg'a icn of error IEEE in the determination and enable the appellate court ei her to C; render its full and final adjudication in rela:ica o any error j: asserted or to affir= the judg=ent entered en the determination. '":*:'.".~.". L='~=~E 5 One Jucges' Journal 1, No. 1 ( Janua:.,r 1969) = = E '. r...cE..i .er%1ss1Cn to Reprin: l'..=:*. i [==O [ 1=.":***. P ..l.n'... l [ I .".7.** ...:*"~"**:,"........ w.;;'.

e t By and lar-a, adherence to the fc11cwing e.rece :s will be .e,...d e,,e. ._= -a ac s a- -_4 w.e a,s 4--.d c.- a4s,...e-. ..%.e. a_.e_ 4 a 3 Findisc.s should include facts in heth categories. a .--.._u., <_es e.,- g...,es, se - z..a t.. n,g a_-. -. ge-.s a 4 .c:andus c: ce.inics it is unnecessary and undesirable to raft: to c: discuss the testimony c: evidence in de findings of fact. A _~ n d =- ' ' ~. ' -- c y * - - * = ' cour. ' '..A '..c. s o '

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s

'.e.- 's * - c - e -,'s o'==s-*-~~..v., =~v.~e..-

v. =x.=. Sed, '

s'.'e s '~- ... a.. findings by he judge as to the facts. 3. Findings of f act nay include findings as := basic (evi-dentiarv. ) fac s and as to conclusiona:.r facts. I.:., "~he defend- - ve =- 60 es a e , 4 gw..- a..a. "...e lad..' "- s w 2 eye _--.,u3 per hon =" are basic facts. "~he defendan was negligent' and " John ce was the agent of Richard ?.=e" are conclusionarv. I.s.6:s. The scundness of findings as to cenclusiena y facss c dinarily depends ut.en their fcundanics in basic facts. I.e., in, "The defendant d:cve through a red light. He failed to make chserration fc -.=..' ' ' ~... e.~..'. g. '. =- - - ~ =- s e c - c.. '- .. s - -,.... r-e ' =-..da.. wa s nee. lic. e.:, " the conclusionarv. finding rests uren the findings as to he basic fact. A variation of the ec==cn failing of trial judges neced above 3 s --..n - e.e s --.- .v " ea- -..g " r.. ' a s -- a c s, c.--. .=..v. a.= eme... e-i a2 ~' c ~ ~- s c.h.'ac s, a.' "e.. .c c..c' 'e w.'..'. -.' -gs c.e --.c-..gs a-l solely as ec the conclusionary facts, c=, verse yet, with c ly a s,atement as to whether c: he: the cause of ac.cn has bee. =ain- ~ ained. Eere the judge's dete==inations as to the basic facts are u kscwn c: left := inference, and.his is unacceptable .....' =.s s .e 2..# e-=.c e ' s. e 'ac -' f c ' e =. S.u. =. ex = s s ..d '..-,s .e- =.". r'=-, s e...'..e. a'wavs ".e.=~ ..'.an a...*.. = =..n al c..e. r ..". e. = s. *..~-.v. c ' a v 3 -.e e. s a..d c --..~. '..e. -.a. '.=. ",,.d.e as _' - ~. ~ w_ '.'.._s de. ear. - does ..c. c...s..'. = a '-'..'.'.c. '- -=c- =s- ..essed e o .u.e

u. es

..e .s,_' ca.v. add e. 4. ':'he ar,.ies nav. ae.ree c disagree as to the pertinen: J

inciples of law, c= a.s te se=e cf them.

Cc=clusic=d of law .shculd be stated with respect to all legal issues involved, whether c: .c disputed.

hese =ay be in the fc s of general state =ents of a.-----=-----;- ' '

' ' ' ' - ~.e '. =. a-r - - ..e c.u '.=.^ .'.s .e s..' '.=.33,4 4 ei. ..w c.- _ay c,se. e.., ..w.e 3..... = - -.......e e,4. a z - s ' = c -_-.. c ' d e ' e..d ar.. ' s..*. ' ' = - ' ". aoa. no . 22,-~ 1 , n.~.....r. -.en a note of 5100.00 was not hinding en him because he received 30 c..-. - ss .a.. a. n. a.- -.e t..c. --, :t t.., a; e6 c.si;e ,-t n .a 4....= t l. l. t t .b I ~ f.

r 9 = 5. Citations of authority for conclusions of law are un-necessary and undesirable unless the conclusions are set forth in a

ccr the for= of a memorandu= cr opinion.

A cuotatica frc= a reported a..e < - 4, ., --- - e. e v. 4...t ., o o .e en...o-*~v. =_ _ s '.o ~ a s n ~_ _ s ' a c ~. o.- v. s"*s.*- . '. a.1 ' d -.i e e.d e....f ' - -'.=..=.^- c.cl s_ic.

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o ..*.e.-- -'se c.".es.'c'.,-=.se..~=. c' 1=w v. x ~5.=- --'a' e ^ 6. The state =ent of findings and conclusions should whenever feasible be in the fc:= cf a written docu=en filed in the cause. Where circu= stances ec=pel an cral deliverance f c= the bench, an ~ outline should be prepared in advance to assure that no essential e4 42 o c nc3..s4c.,. 4 s c <.. s. .v..,c . a C,:..:..s A trial judee will want to use the opinien (semetimes called ~ .._, _-,. a.. ). - -- o - e.. - a._4 e-e e 4-c..s..n he ..,4 ks 4.. e.s-ab3 .o 4-exc.la. n c: Justi:v any of his se arate a ncine.s c.:. ract er con-clusions of law. By this for=,.for example, the judge may analy:e conflicting lines of p: cod te demons. rate he basis for any of his ~ determina:4 ens o: :act. _n epinion s.s.cu3c no: e a veh4cle, new-w ever, for extended collations of c: cuc ations frc= the esti=cny. So, tco, the opinion fer= =ay be used to explain a conclusica cf law. ~'his will be done where there is no clearly definitive accella:e decision in the jurisdicticn in eci.: and the judce is

nus reac:.ng new or uncerta:.n grounc.

a g a :.n, as w:.:n. en.e cevelep- =ent of a factual finding, the discussion of law should be spare, .E. E_. cene,se and ecenc=ica, o, express:..cn anc c:.:a: en. Where the cpinien fc:s is used its s rue:ure may c dinarily be s -. 7 *.,w* s s A. A brief statement of the nature of the action, the par-1 -e l ties, and :n.e issues to.me cec:. cec. l 3. A chronological state =ent of so much of the material facts as are admitted. C. The findings of the court as to disputed iss and so much of the suppo :ing reasoning, bas,ues of mater-ial fac: ed en the p;ccfs, as is deemed appropriate. ). n e o.a. e... c . se.e-..<..e.. ..~.4,,as c' '=v. w.k..'... =-- =- undisputed, conclusicas as to these which are disputed, and an e .x, s...,.. c .s..e ...a.e,3 e-- ... e., a.. =, w '..k. -" r:c- - d.. c ' - = ' ..s c' ="..'. '.v.. i =. =. \\. ~ =/

t. t E. Deterr.ination of the court a.d directics as to the judg- ,e c _ c __.a.e _ c e e .__.a. u .==

.:

In develeping the b' asis for a conclusica of law, the judge ~~' s.u. 1. _' A- ..c. s~ s._....= a.x..=...'=.A ~,_~~.= -'-..s '- ~_~ =_ c c. =_ d ~.~ '_...* -. s fc: his es. reasening and analysis, cita:icn of a single decisien a c_ a.e.<gu..s c u c' _'e 'sd_'~~__4~~.. w.'.' c.'. '.as _ ende_ ed a l helding on a pein: is adequate. A s-ring of cita:icna should be r t avcided if a single case is authcrita ive. The =cs: recent auther-1:ative decision of the jurisdiction shculd be cited. If here is no decisica of.he jurisdiction in point, cc:-ef-sta e decisiens c secondarv. authori:les (encv.c1cc.edias, periedicals, -reatises c: anne.ariens, etc.) =ay be cited. A ::Lal.indge should avoid explcratien of ecllateral legal issues nc: necessary fer decision of the case at hand.

Ecwever, che state =ent of an ales native basis fer a decisic= is per=issi-m_ e.

a .o The prese style in a trial ecur cpinics should be as si=ple as the sub4ect =arter.ce its. The dudce shculd avoid cc==. lex e J e - sentences and wc ds which are showy c: would send the average lawfer c the dictionarf. If in docht, a new paragraph should he. b egun. - If a concept can be expressed in Inglish, I,atin shculd be avoided. Functua:icn should be sc.arine. exce.:: where essential ec clarity. The draft of cpinica should be read and reread and edited c a__. _e._,,, y _ee_ e __.._ ~... _...a _' c. =.d e.__, _,, ac- .=.cv. c-=- r-ticas and q::.ctations. = _S i I g g e* i t a b h e 3 + n .*eem i =.. e--- --e

1 l J ATTACHMENT 2 1

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" ~ ~ " ~ j ~~, ~ ., _ ;. [ l 's p. r_ ;. ~~...t... y,:y. ,; -t.=n.+z

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h y;. l ; w* >q- -.- a y p. _~_ ~ 4 444 268 TEDERAL SUPPLEMENT

4. 3 provided by Section 301.600 is invalid 2d 262, reversed and remanded and certi-

'against a trustee in bankruptcy as we!! orari was granted. The Supreme Court. rectq as against subsequent transferees and 369 U.S.111,82 S.Ct. 580,7 L.Ed.2d 604, fune persons holding subsequent security in-vacated judgment of Court of Appeals manz terests in the vehicle. We do not reach with directions. On remand, the District } l 5. that question and its resolution is ex-Court, John Lewis Smith, Jr., J., held ^ g pressly reserved for a case in which it is that speeches which contained copyright l L in issue. notice, which were made by vice admiral i The petition for review is sustained, in United States Navy to private organ. D and the order of the Referee is reversed izations on the vice admiral's own time g with directions to sustain the reclamation and which concerned matters removed 4 [ '[J petition and grant such further relief to from official duties.of vice admiral who Mercantile as may be required in the prepared speeches on his own time and j ,pp ; y premises. only used government facilities for pur-pose of duplicating speeches to secure that security clearance and to distribute j;,g copies to press and others, did not form ~ '

* "' ""' 'W a part of his official duties and were pri-

"'k '[j vate property of vice admiral who was en-titled to copyright therein. ,g Complaint dismissed. mim PUBLIC AFFAIRS ASSOCIATES INC,

6. O

1. Declaratory Judgment c='236 trading as Pubtle Affairs Press, There existed between plaintiff pub-pj,g,gggf, yg lisher, which had been refused the right Vice Admiral Hyman G. RICKOVER, U.S.

publish two of his speeches and which, a Register of Copyrights, U. S. Librarian through admiral's publisher, had been

7. A, of Congress, U. S. Secretary of Defense, U. S. Secretary of Navy, and Glenn T.

threatened with legal action should plain- -C Seaborg, James T. Ramey, Leland J. tiff publisher attempt to publish those Haworth, John C. Palfrey, Robert E. speeches, and the vice admiral a jus. not! 't Wilson, as members of the U. S. Atomic ticiable controversy making granting of in ? Energy Commission t all of Washing. a declaratory judgment relief approprj. gan-ton D. C., Defendants-ate. 23 U.S.C.A. li 2201, 22021 Fed. and Civ. A. No.116-59. Rules Civ. Proc. rule 57, 23 0.S.C.A. fror United States District Court

2. Declaratory Judgment C:=236 District of Columbia.

There was no obligation on part of May 9,1967. plaintiff publisher to infringe the copy-right which it challenged prior to obtain-e,pg ing appropriate relief, and it could bring not Action by publisher for declaratory an action for declaratory judgment. 28 w,j judgment as to his right to publish U.S.C.A. $$ 2201, 22021 Fed. Rules Civ. whg speeches given by the defendant, a vice Proc. rule 57, 23 U.S.C.A. 28 admiral in the United States Navy. The United States, District Court for the

3. Declaratory Judgment C=6 CIV District of Columbia,177 F.Supp. 601, Judicial restraint is exercisable with

a. g dismissed the complaint and the plaintiff respect to granting of declaratory judg-publisher appealed. The United States ment relief only when presence of an pt;g Court of Appeals for the District of actual case or controversy is questioned.

tod Columbia,109 U.S. App.D.C. 128,234 F. 28 U.S.C.A. ll 2201,2202. nee

1. The individual parties are those narned Scabarc. James T. Ramer, Wilfriel E.

'I. In the amended complaint. The Com. Johnson. Samuel St. Nabrit, and Gerald mis ion members at present are Glenn T. P. Tape.

-~0 / \\ f

g. _

PUBLIC /.TTAIRS ASSOCIATES, INC. v. RICDTER W$ .+ aw..:msr w uown 4, 3f andamus C=72

9. Copyrights C='5.

2ninded and certi-No government officer can.be di-Ultimately, what is fair use depends b Suprema Court, rected in exercise of his discretionary on particular circumstances of use. FJO,7 L.Ed.2d 604, functions by a court order in nature of

10. Copyrights C=58 u

of pe mandamus. If there had been no clear showing @th' J ' J"' held L ^ * *d 3#"I'" #"* 9 M *' Declaratory Judgment C=203 doctrine of fair use was inapplicable ,ntained copyright Promulgation of regulations govern-with respect to speeches in which vice ad-Do by vice cdmirsi ing speech making activities of Defense miral of United States Navy had copy-

to privata orgaa-Department and Atomic Energy Com-right.

fmirals own Ume mission employees was clearly a duty re-I dmira w o @3ITI"E ""# ** f Mgmeny and Mscm d " ** *** #'#* *tmn of a c7pyright Harry N. Rosenfield, Washington, D. tis own time and application, and neither function 'was C., for plaintiff. &ccilitizs for pur. within the power of court to control so Mu%sm Royall, Koegel, Rogers & Wells, by Id to distribute that complaint asking for declaratory re-William R. Glendon, Washington, D. C, lie against g vernment officers in con- - for defendant Rickover. 'ers, did not form nection with those activities and asking Gcs and were pri-court to direct officers to take certain Irwin Goldbloom, Dept. of Justice, Efral who was en. actions with respect to administration Washington, D. C., for Government de-d"' fendants. of their respective agencies was dis-h missed. L OPINION

s. Amed Senices C=15 O C=236 Official di Mes of sice admiral in ben plaintiff pub.

JOHN LEWIS SMITH, Jr, District befused the right United States Nan were a matter of Judge. Ed State Navy to e ntras between vice adm,ral and the i On remand from the Supreme Court of Jan partment %phes and which, the United States, plaintiff Public Af-shtr, hid been

7. Armed Services C=15 fairs Associates, Inc., a Washington, D.

Ecn should plain. Copyrights C=24 C'. publishing house. seeks a declaratory

to publish those Speeches, which contained copyright judgment adjudicating the rights of de-tdmirel a jus-notice, which were made by vice admiral fendant Admiral Rickover. in two' ping granting of.

in United States Navy to private or-speeches delivered by him on December p reliaf appropri. ganizations on vice admiral's own time 11,1958 and May 28,1959. The first of - 801, 2202; Fed. and which concerned matters removed these entitled " Education--Our First 6 28 U.S.C.A. from official duties of vice admiral who Line of Defense," (hereinafter "the Ed-L prepared speeches on his own time and ucation. speech") was delivered at the B c=>23s only used government facilities for pur-Harvard Club in New York City; the Etion on part of pose of duplicating the same to obtain second speech, "The Shippingport Atom-bfringe the copy-security clearance and to distribute ic Power Station-Lessons From Its Op-h prior to obtam-copies thereof to press and others, did eration," (hereinafter "the Shipping-md it could bung not form a part of his official duties and port speech") was delivered to the Ameri-7 judgment. 8 were private property of vice admiral can Public Power Association Conven-p Fed.Rults Civ. who was entitled to copyright therein. tion in Seattle, Washington. A 28 U.S.C.A. ll 2201, 2202; Fed. Rules The original action brought by the L c=6 Civ. Proc. rule 57, 28 U.S.C.A. plaintiff in 1959 concerncd twenty-three exercisable with I,eclaratory judg-

8. Copyrights C=56 speeches delivered by Rickover to various f

Doctrine' of fair use is usually ap. groups between October 20,1955 and presence of an plied in case of scientific, legal and his. January 16, 1959. Plaintiff was denied ty is questioned. torical materials and also arises in con. permission either to quote from or pub-b nection with compilations, listings and lish them and received written notice digests, and permits copying of themes from Rickover's publisher that action wiltrid E. and Gerald or ideas but not their expression. would be brought if plaintiff infringed l d = ", - - - - - +. - -. -. - - - -,. - -, -,-.-.--,-.-----.-.,,---_-.,m c

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...c-,. ~..s~ ? _ ..jQll*.*gQl}y:.h '-:[.l._' C m .m ~ W W *.% ".y L;:.V h'K y ~ " 1 / 263 TIDERAL SUPPLEMINT l for Nava 4$ court, Public Affairs Associates, Inc. v. J tor Deve ?!aintiff on Rickover's legal rights. Rickover, 369 U.S. III, 82 S.Ct. 580, 7

mission, then instituted an action for declaratory L.Ed.2d 604 (1962). Commenting that Shipping:

judgment contending the speeches result-the " Declaratory Judgment Act was an experime ed from the Admiral's official duties, authrization not a command," the court search in were partially prepared on Government founc. the record inadequate to support sistant C time with Government facilities, were in a ruling and remanded for further pro. Nuclear the public domain, and therefore that ceedings to establish a full and complete sponsibil R!ckover had no literary property there-record on which an action for declaratory Navy fo: The Admiral contended the speeches relief might be entertained. construc-in. formed no part of his official duties for nav and that he had a proprietary interest Subsequent to remand, plaintiff filed over's si the Ship-which could be copyrighted to bar others amended pleadings, aiding and inf: pingport speech (not in issue in the orig-from dissemir.ating them without per-between inal action) and joining two groups of The In h g,; federal officials as co-defendants. At trial in this court, Judge Holtzoff Register of Copyrights and his superior, N'" D dismissed the complaint, holding that a the Librarian of Congress, were joined dress n l Government officer has a literary prop-for allegedly violating the Copyright Act, It'I erty right in speeches the delivery cf 17 U.S.C. ! 8 (1964) in issuing a copy-j

speech, which forms no part of his official du-right to Rickover for the speeches.

The his hon-I ties, although the subject matter has a Secretary of Defense, the Secretary of his ever The court concluded that such literary products are not in the the Navy, and the members of the final d: bearing on them. Energy Commission, Admiral Rick-adm,w, t public domain but remain the property over's superiors,'were also joined as de. ( f bore a of the author to the extent he is protect-The amended complaint as-the Co-ed by copyright and the common. law serted denial of plaintiff's constitutional fendants. with D and that his rights are not affected by rights under the Freedom of the Press Depan the fact of Government employment, The sp l Public Affairs Associates, Inc. v. Rick' guaranty of the First Amendment t Constitution by virtue of the Govern-parta over,177 F.Supp. 601 (D.C.1959). ment defendants' refusal to treat the dual + The United States Court of Appeals Government publications 'E*# speeches as f for the District of Columbia Circuit re-within the meaning of the Copyright Act nerg versed and remanded on the issue of and the Printing Law, 44 U.S.C. 5 SS (* public distribution, holding that there Rickover has surrendered his was such distribution of the speeches de' (1964). ed to livered prior to December 1,1958 as to claim to all but the Education and Sh cxact place the speeches in the public domam pingp rt speeches. He de prior to obtaining a copyright, thus for-At the time these speeches were de. that The court remanded livered, Admiral Rickover held two ti. an he feiting said right the case on the question of fair use of Under orders issued in 1947 de. tfied ties. certain of the addresses, particularly taching him from primary duty in the On then Bureau of Ships and directing him ecpyrighted after December 1, Pubi those 1958. Public Affairs Associates, Inc. v. to report to the Secretary of the Navy, Adm 123, 284 F. he was assigned primary duty in the Rickover,109 U.S. App.D.C. tion Atomic Energy Commission reactor pro-2d 262 (1960). The Supreme Court of the United gram and additional duty with the Bu-States vacated the judgment of the Court reau of Ships.* As Assistant Manager of Appeals and remanded the case ta this the Navy for duty with the reactor pro. gram of the Atomic Enercy Commis-l

2. A memorandu- > f rom the Chief of Naval In this duty the Secretary should to Rickover, osted 14 No.

sion. Personnel tember 1D55, interpreted his orders as be your reporting senior in so for as fitness reports are concerned, and as Your primary duty, as specified by a directly attached member of his staff fonows: your orders, is with the Secretary of l

-.-. L ~f ' 'N Q' ]q/ PUBLIC AFFAIRS ASSOCIATES,INC.v.RICKOVER 447 Cite sa cro F 9erp. 44412:47) for Naval R'cactors, Division of Reac-After suggesting ' education as an alter-tor Development, Atomic Energy Com-native topic, Rickover acceded to the as- .e, ** 'g 7 tbt mission, he was responsible for the-sociation's request and accepted the in-Shippingport Atomic Power Station, an vitation. The speech was prepared in experimental water reactor built for re-the same manner as the Education speech 4a '. po,. search in civilian nuelaar power. As As-with the exception that copies were fur. cu istant Chief of the Bureau of Ships for nished by the American Public Power huclear Propulsion, he had primary re-Association and the copyright notice dif-I [: 3ponsibility within the United States fered slightly. The Admiral traveled to U p t',

7 Navy for the planning, developing, and the West Coast on official business, the filed for naval vessels. A portion of Rick-facilities. The speech was delivered

' @1 - constructing of nuclear propulsion plants inspection of potential sites for nuclear ihip-over's staff also had dual assignments, after working hours and without com-7

rig.

and information was freely exchanged pensation, 4 of between the two positions. [1-3) The threshold question of the The In June,1958 the Harvard Club of appropriateness of relief under the De-i rior New Y rk City invited Rickover to ad-claratory Judgment Act, 28 U.S.C. Il bd dress its members on the general sub-has been raise.d by 2201-2202 (1964),' Defendant ject of education and he accepted., The all defendants. Rickover epy. speech, typed by the Admiral's wife at challenges the presence of the basic cri-g his home, was prepared by him during terion, a Justiciable controversy. Ein-y gg his evenings over a period of weeks. The phasizing the discretionary nature of the final draft., typed by Admiral Rickover's doctrine, he asserts that plaintiff's fail-( 'ick-administrative assistant at his office, ure to publish the speeches and legisla- ) ;4 bore a copyright notice obtained from tive action pending on the definition of u-the Copyright Office after consultation a Government publication warrant the end with Mr. A., H. Helvestine of the Navy exercise of judicial restraint and denial 33, Department's Office of Patent Counsel of the relief sought. These arguments ,the The speech was duplicated on Navy De-are not persuasive. Rickover has refus-partment facilities, apparently for the ed plaintiff the right to publish his g dual purpose of security review by the :peeches and through his publisher has g, Department of Defense and the Atomic threatened suit should plaintiff attempt i Energy Comm,ission and for distribution to do so. There is no obligation on

g as a press release at the Harvard Club. plaintiff to infringe the copyright he s

On the day of dehvery Rickover travel-challenges,28 U.S.C. I 2201 (1964), Fed. ,s,p' ed to New York on official business the R.Civ.P. 57, Paramount Pictures Cor-i cxact nature of which he cannot recall. poration v. Holden,166 F.Supp. 684 (S. He delivered the speech on his own time D. Cal.1958), Scott-Burr Stores Corp. v. de-that evening, and the Harvard Club sent Wilcox,194 F.2d 989 (5th Cir.1952). . ti, an honorarium therefor to a charity spec-Judicial restraint is only exercisable de, ified by him. when the presence of an actual case or the him On February 6,1959 the American controversy is questioned, 3fechling

avy, Public Power Association invited the Barge Lines v. United States, 368 U.S.

the Admiral to address its Seattle conven-324, 82 S.Ct. 337, 7 I.Ed.2d 317 (1961),

ro-tion on the Shippingport Power Station. Eccles v. Peoples Bank of Lakewood Vil-Su-

'ICT for duty with the Atomic Energy Com-way customarily encountered to give ad. mission you are free to deal directly ministrative convenience. logistic sup-with any agency under the purv ew of port. and the necessary authority to 8 the Secretary of the Navy. es your originate appropriate measures within performance of duty may indicate and the Bureau of Ships in support of and J consistent with your primary duty. require. Your additional duty with the Chief of the Bureau of St ips is related in a 1 g. --==.== ~ s. l h ~ -f; 3 L

- r- .W .v, -.w ~ M.'E

c'W. 7 * %

.. t , ' x. e. n.=m .. 3 z. m .g... - e PUB 258 FIDERAL SUPPLEMINT be narrowly interp .{.{$ that such a power was never intended to the circumstances c Decatur v. Paulding, delivery of the spee ! age, California, 333 U.S. 426, 68 S.Ct. bc given them." supra, 39 U.S. at 515; see also Perkins themselves must t Perkins v. Lu-641,92 L.Ed. 784 (1943), According, mine whether the. kens Steel Co., 310 U.S.113, 60 S.Ct.

v. Lukens Steel Co., supra.

S69,84 L.Ed.1103 (1940). ly, the complaint as to the Government his public or his p1 The conflict between Rickover's right to copyright defendants must be dismissed. Delivery of the his speeches and plaintiff's right to pub-ception in invitat lish materials allegedly in the public do- ,6] The question as or gmally stat-to Rickover by twc t May a ed by Judge Holt-off remains: There is nothing main has been clearly set forth before Consequently, the court finds Gqerntnent employee who prepares andbetween these gro this court. dehvers a speech on his own time, on & suggest that the i that as between these parties a justici-subject relating to or bearing directly on ed to him other able controversy exists., has employment, claim a proprietary in-pacity. Rickover Declaratory relief need not te terest in that speech and copyright it as and did not cor [4] considered in connection with the Gov-a prot,ection against its unauthorized Senetary of the ernment defendants since the court lacks The fundamental determination of the AEC. Th usef Plaintiff's complaint asks in resolvmg that issue is whether the dis-ed in the privaev jurisdiction. this court to direct nine Government puted speeches fall within the purview Purely mechani$ executives to take certain actions in con. of Admiral Rickover's official duties

performed on th nection with the administration of their United States v. First Trust Company of by his administi respective agencies to protect its own St. Paul,251 F.2d 686 (Sth Cir.1958);

a final draft fo and the public's rights. The court order Sawyer v. Crowell Pub. Co.,142 F.2d of the Educatic sou ht bears on the Register of Copy. 497 (2d Cir.1944); Sherrill v. Grieves, ties. The dupli right's duties under the Copyright Law 57 Wash. Law Rep. 2S6 (S.Ct.D.C.1929); pose, one offici n and internal regulation of employees in Heine v. Appleton,11 Fed.Cas.1031 ty clearance ( Those connection with that same law by the de-(No. 6,234) (C.C.S.D.N.Y.1857).8 tice no matter fense establishment and the AEC.duties are a matter of contract between of the speech) As far back as 1840, it was well settled that Admiral Rickover and the Navy Depart-obtaining copi no Government officer can be directed ment, United States v. Dubilier Condens-addressees an in the exercise of his discretionary fune-er Corp., 289 U.S.178, 53 S.Ct. 554, 77 tional release tions by a court order in the nature of L.Ed.1114 (1933). mirag.s recogr

v. Paulding. 39 U.

Admiral Rickover has asserted sition made a mandamus, Decatur S. (14 Pet.) 497,10 L.Ed. 559 (1840). [7] interest to th that the speeches do not fall within his CCpyright not The promulgation of regulations official duties, and his Government em-

EE'***d 8"

{5] governing the speech making activities ployers have stated categorically that The narrower assertion Ver,unqua of Defense Department and AEC em-they do not. ployees is clearly a duty requiring the that speech making is not enumerated B th speeche It

- - - I 8 CWA exercise of judgment and discretion.

among Admiral Rickover's official duties also puforn By the same token remains uncontroverted, nor has there i is not ministerisi registration of a copyright application been any evidence that he was directed

- - - "8 imm; Normal-Neither to make the speeches in issue.

calls for executive judgment. function is within the power of this ly, such evidence would be dispositive of court to control, Adams v. Nagle,303 U.the question, but the broad authority A A crut d< . S. 532,58 S.Ct. 687, S2 L.Ed. 999 (1938). vested in Rickover as head of the

[
/

nu-with In the words of Chief Justice Taney: clear propulsion program carries schoch in "The interference of the courts with the it the power to act in a variety of ways Eduestion performance of the ordinary duties of not enumerated in his formal position of his of In this context the duties t nuou the executive departments of the govern-description. ment, would be productive of nothing but of a high Government official should not atark ta and we are quite satisfied, han % mischief; P.eble v. Johnson. 275 Fad 0 5 (10th It wa, of Cir.1D00) and Bart v. Statteo. 300 U S. g

3. The definition of official duties" con.

taincJ in that une of cnws rutine ce the5C4, 70 S.C t. 1035. 3 LEdad 143' que tion of executive immunity from must (ID*D). cenc raur. contronine here, see is not

v ,./ J.I. .PUBLIC ATTAIRS ASSOCIATE,S INC. v. RICKGVIR 49 Citr es era F,Nipp. 444 (trgil short, both speeches were handled as pri-na'rrowly interpreted. Consequently, vate business from start to finish. the circumstances of the preparation andThe absence of a disclaimer clause on be r intendtd to delivery of the speeches and the speeches

v. Paulding clsa Perkins themselves must be examined to deter-the speeches as allegedly requir According.

whether the Admiral was acting in Navy regulations, Navy REG., art.1252 rnine i 3 (1948), and the a!!eged use by Ad-his public or his private capacity. miral Rickover of certain Department of Covernment pelivery of the speeches had its in. , sed. Defense facilities in preparing the igin:lly stat. ception in invitatiens extended directly speeches are neither material to the' case to Rickover by two private organizations. nor proper subjects of. comment for this , dns: May a prepares and There is nothing in the correspondence

court, between these groups and the Admiral to That Rickover delivered th'e speeches vn time, on a ng directly on suggest that the invitations were extend-in his private capacity is further con-reprietary in-ed to him other than in his private ca-firmed by their subject matter.

The Rickover treated them as such Education speech presents the Admiral's upyright it as pacity. untuthsrtzed and did not consult his superiors, the private views on the danger of the pro-determination Secretary of the Navy and the members fessional educationist's exclusive control of the AEC The speeches were prepar-of the public secondary school system.

tethsr the dis-th2 purview ed in the privacy of Rickover's own home. A subject further removed from the Ad-

'ficiti duties. Purely mechanical operations were then miral's official duties is difficult to rt Comp:ny of performed on the completed manuscripts imagine.' The Shippingport speech con-Cir.1958); by his administrative assistant in typing tains the Admiral's views on the mean-p% 142 F.2d a final draft for duplication, in the case ing of the Shippingport experiment to

ll v. Grieves, of the Education speech, on Navy facili-those private individuals, concerned with '

i The duplication served a dual pur-future development in public power, who Ct.D.C.1929); ties. ed.Cas. 1031 pose, one official, i. e. obtaining securi-comprised the American Public Power .857).8 Those j ty clearance (Rickover's standard prac-Association. The speech was aimed at tice no matter what the subject matter administrators, not scientists, and the . tract between i of the speech), and the other unofficial, entire content from a technical stand-Navy Depart-I ' iller Condens-obtaining copies for distribution to the point had long been public knowledge. The addi-S.Ct. 554, 77 addressees and the press. As previously stated, Admiral Rickover tional releases only evidence the Ad-scught to address the group on the sub-miral's recognition that his official po. ject of education. The correspondence hss esserted sition made anything he had to say of makes it clear that the American Public .cIl within his Interest to the press. Furthermore, the Power Association approached the Ad-h ,varntr ent em. (cpyright notice borne by both speec es miral as a private individual, and had he gorically that appeared in the name of "H. G. Rick-insisted, would have agreed to an address war assertico ver", unqualified by any official titles. on education as the Admiral initially l 3t enumerated Both speeches were delivered on the Ad-The tone and content of the + ' efficial duties miral's own time. The fact that he was desired. address ultimately delivered confirm the i also performing official duties in the understanding contained in the cor-- ',. - di ted area is immaterial; those duties had no [ sue. Normal-connection with the addresses. In respondence. dispositive of appears in the context that noneduca-ord authority A great deal of evidence was addaced at tionists are competent to critleise and 4. ad of the nu. trial regarding the Admiral's duties in shape our public school system. The connection with various nuclear training Admiral forther testified that his Navy emNs wM 2 schools in an attempt to show that the career has precluded the discharge of Lis griety cf ways l Education speech feu within the purview to the community as a private duty Srmnl position of his official duties. The connection citizen and dat he has nied to inut Gis t Gnat em- ' ext the duties is uruous in de cztume. responsibility br devoting a major portion I

cial should not phasis was pinced on the Admirars re-of his private time to studying and speak-

"I mark in the EJuestion speech that Ing on the subject of public education. have been running schools for years. but Od 073 00th it was not polated out that the remark ts. <s.-e l 1 l l .r. ,Q- .[, ~ ~., ( "? ^ .s ..J 2 - i ( = .o. I /

.h.f.. ~ ~ .. L.. ,e- .,[.. .~.. s, .,p 450 268 FEDERAL SUPPLEMENT In view of the foregoing the court cumstances of the use Toksvig v. Bruce barred f I I finds that the writing and delivery of the Pub. Co., supra,181 F.2d at 666. Since (1964). speeches formed no part of Admiral there has been no clear showing of the i 4, Al Rickover's official duties :nd that the use -to which the quotations would be speec.hes speeches are the Admiral's private. prop-put, the court finds the doctrine inappli-I Rickover erty which he was entitled to copyright. cable. not pub The factual and legal determinations Findings of Fact and Conclusions of i Governn considered, supra, make it unnecessaq Law are annexed hereto. a thereon for the court to discuss administrative Accordingly, it'is this 9th day of May, 5. T: practice in the Defense Department, the 1967, ordered that the plaintiff's com-I ucation-Atomic Energy Commission, or the of-plaint be, and it hereby is, dismissed. (herein fice of the U. S. Register of Copyrights Counsel will present an order in accord-livered e in connection with the two speeches in ance with this opinion. Harvarc issue. l New % FINDINGS OF FACT Atomic By the same token the finding that Admiral Rickover was entitled to copy-1. Plaintiff is an educational pub-Its Ope right the speeches precludes the neces-lisher located in Washington, D. C., spe-pingpor. sity of discussing plaintiff's allegation of cializing in pamphlets and books on na-1959, be infringement of his rights under the tional affairs. Its list of publications in. Associa Freedom of the Press guaranty of the cludes works of the U. S. Government tie, Wa - First Amendment to the Constitution. which are in the public domain. 6. T [8-10] Plaintiff's complaint would 2. The defendants are (1) Hyman G. the ger appear to invoke the doctrine of fair Rickover (hereinafter "Rickover"), a dren ar-use 8 which has been defined as the priv. Vice Admiral in the United States Navy of pro f ilege of using copyrighted material in a and an official of the Atomic Energy pingpo: reasonable manner without the copyright - Commission; (2) the Secretary of De. proble: owner's consent. Toksvig v. Bruce Pub. fense; (3) the Secretary of the Navy; Shippir Co.,181 F.2d 664 (7th Cir.1950). The (4) the Commissioners of the Atomic joint p doctrine is usually applied in the case of Energy Commission; (5) the Register missici scientific, legal, and historical materials, of Copyrights; a'nd (6) the Librarian pany d i Eisenschimi v. Fawcett Publications, of Congress, the superior of the Regis-Power. - Inc., 246 F.2d 598 (7th Cir.1957), cert. ter. 7, l denied, 355 U.S. 907, 78 S.Ct. 334, 2 L. 3. Plaintiff seeks a declaratory judg-Schna; i Ed.2d 262 (1957) and also arises in con-ment that Rickover cannot retain copy-plainti nection with compilations, listings, and rights on the written texts of two holder - digests, Benny v. Loew's, Incorporated, speeches delivered by him in 1958 and copies-239 F.2d 532 (9th Cir.1956). Further-1959 and an order directing him to can-in iss-more, the doctrine permits copying of cel these copyrights. It further seeks an from t themes or ideas but not their expression, order requiring the Register of Copy-lished Bradbury v. Columbia Broadcastieg Sys-rights and the Librarian of Congress to ,tge b tem, Inc., 287 F.2d 478 (9th Cir.1961), expunge these copyrights from the rec-Ricko* t 4 petition for cert. dismissed,368 U.S.801, ords of the Copyright Office and direct-speecy 82 S.Ct.19, 7 L.Ed.2d 15 (1961), Shel-ing the other defendants to instruct he co don v. Metro-Goldwyn Pictures Corpora-Rickover that he cannot copyright these they, i tion, 81 F.2d 49 (2d Cir.1936). The speeches and to issue regulations to this ,sp,,,) applicability of the doctrine here is effect. Plaintiff contends that the sub-the n doubtful. Ultimately, however, what is ject speeches are " publications of the g, fair use depends on the particular cir-United States Government" and hence , p, nounc. Plaintiff's comi nint states la part: and said defendant *n threat of restraint sue c d 5. in view of defendant Rickover's to prevent plaintiff's use thereof, an ac-a vol i denial of plaintiff's right to quote from tant controverny exints between the pista-g I tiff and said defendant. said specches or pre *s reles=es

e ',,*A i. 451 PUBLIC ArTAIRS ASSOCIATES,INC. v.EICKOVER J-Cite na c9iF.Mupp. 444 (1967) 9. Rickover, never having been con-cksvig v. Bruce barred from copyright by 17 U.S.C. i 8 sulted about this book and not approv-st CG6. Since (1964). ing of it, protested to Schnapper and in-All defendants assert that the formed him he did not wish it to be pub-sh: wing of the 4. tions would be speeches were not made as a part of lished. Schnapper indicated his intent .soctrine inapDII-nickover's duties and accordingly are to proceed over Rickover's objection. By act publications of t e United States letter dated November 10,1958, plaintiff h , Conclusions of hovernment and that the copyrights was advised by E. P. Dutton & Co., Inc. thereon are valid. Ca a f s sPedes, and The two speeches in issue are "Ed-9th day of 3!ay' 5. a se a p m posed ' plaintiff's com- ~ tion--Our First Line of Defense" e, nw sue on Mcber s is, dismissed. ereinafter "the Education speech") de-l crder in accord-lisered on December 11,1958, before the f* Harvard Club at 27 West 44th Street in

10. On December 1,1958, Rickover New York City and "The Shippingport filed an application for registration of a i

Atomic Power Station; Lessons From claim to copyright on the Education Its Operation" (hereinafter "the Ship-speech which was given registration

due:tional pub-pingport speech") delivered on 3 fay 28, number A 363451. On 3 fay 26,1959, l gton, D. C., spe-1959, before the American Public Power Rickover filed a similar application on
sd books on na.

the Shipp,ngport speech which was given Association at the Olympic Hotel in Seat-i

ublications in-p

, S. Government tie, Washington. registration number A 393449.

6. The Education speech concerns'

11. On January 16,1959 plaintiff lin-

! cmtiny the gerieral education of Amnican chH-stituted suit against Rickover as sole de-I Rickove )' dren and corisists pnmanly of cn,ta,ctsin fendant for a declaratory judgment 'as i ed States N*Yy of professional educators. The Ship-to twenty-three speeches, the last of t pingport speech concerns the general which was the Education speech. rgy problems involved in constructmg the

12. In October,1959, Judge Holtzoff c

ry De-y of tha Navy; Shippingport Atomic Power Statior., a of this court, en the basis of an agreed

cf th* Atomic joint project of the Atomic Energy Com-statement of facts, dismissed the com-

1) the Register mission and th8 Duquesne Light Com. plaint, holding that the twenty-three

' I the Librarian pany designed to produce civilian atomic speecass delivered by Rickover were not' ! e of tha Regis-power. made as a part of his official duties and- '5 9, i rn.s B. accordingly were not Government pub- , eclaratory judg-Ehnappu (heremafter "Schnapper"), lications, Public Affairs Associates, Inc. tot retain copv-plaintiff's president and pn,netpal stock-

v. Rickover,177 F.Supp. 601 (D.C.1959).

texts of two holder, wrote Rickover and asked him for On appeal, the United States Court of " I".1958 and copies of two of his speeches (not here Appeals for the District of Columbia Cir-l Ing him te can-in issue). Schnapper wanted to quote cult held (109 U.S. App.D.C. 128, 284 F. per suks an from these speeches in a book to be pub. 2d 262 (1960)] that none of the speeches gister of Copy-lished entitled Seapoteer in the Nuclecr were Government publications, but re-f naress t Age by Anthony Sokol. On October 31, versed and remanded to the District 8 O' Rickover's office forwarded copies of the Court to determine the extent to which fa.'"*nd da. "#* t speeches but informed Schnapper that the first twenty two speeches might have ce a nct. nstmet i he could r.ot quote from them because been dedicated to the public domain by ya

c pyright these they were to be in a book of Rickover's publication without notice of copyright ulations to this speeches which would be published in and the extent to which " fair use could 4s th:t the sub-the near future.

be made by plaintiff of the speeches 8. Plaintiff, on the theory that the which had not been so dedicated, >peeches were in the public domain, an-The Supreme Court granted certiorari ! ~ dh # nounced plans in the November 10th is. and on 3farch 5,1962 (369 U.S.111,82 sue of the New York Times to publish f N[, a volume of Rickover's speeches entitled S.Ct. 580, 7 L.Ed.2d 604), vacated the Judgment of the Court of Appeals and l wesa the pWu. ll' hat Rickover Thinks. l I s .v l l

-w -T.l -c - l': ' .-i l. O.... ~ -. ~. - _.i. p. y, - - -.. ~ '~ / I C 2'3 FIDERAL SUPPLI31ENT { l remanded the case to the District Court Shippingport speech: I for disposition not in:;onsistent with its Copyright 1959, H. G. Rickover i to conduct ms, d ! opinion. The court pointed out that the No pe: mission needed for newspaper r Declaratory Judgment Act is an author-or news periodical use. l the day and l the Educati. ization not a command and stated among Above copyright notice to be used if e in New Yor oO.er things, "So fragile a record is an m st of speech reprinted. had availabh unsatisfactory basis on which to enter-i

17. With respect to the Education i

speech and li tain this action for declaratory relief." speech, Rickover was asked by the Har-for official 1

13. After remand by the Supreme Court, plaintiff amended the complaint vag b speak on & %, Ject of edti-l With rest cation and he did so. Beginning in 1954, Rickover's c to include the Shippingport speech and Rickover had developed an interest in the spection of to add as defendants, in their official ca-general sWed M educamn. Hadng n l

the Keyport pacity, the Government officials speci-ho%2es or outside activities, Rickover Island. The fied in Finding No. 2., supre. commenced studying and speaking on ed-over confer:

14. On J nuary 11, 1963, Rickover ucation as an avocation. He receives 7.

,rsity abandoned his claim to copyright on the and reads a large quantity of educa-which was i first twenty-two speeches. Only the Ed. tional literature and has delivered a num-Navy and v ucation and Shippingport speeches are in ber of speeches on the subject. 13th Naval tssue before this court.

18. With respect to the Shippingport

21. Rick

15. Both speeches were written by speech, Rickover initially indicated to his ty while del Rickorer himself at his home during his host, the American Public Power Asso-ing time of leisure time. No one assisted him in re-ciation, that he'would like to speak on for leave i search work for the two speeches. Both the subject of education.

However, Rickover's speeches required substantial effort and when representatives of the Association

22. Bo0 considerable drafting and revision on made clear their preference that he tate affa,r i

Rickover's part, about a month for the speak about Shippingport, Rickover ac-The Edu Education speech and approximately two ceded to their wishes. weeks for the Shippingport speech. The invitation to Rickover to speak to

1. "P. b l

16. Both speeches were typed in final the Association originated with Alex

'[' 'd form with notice of copyright thereon Radin, its General 5 tanager. Radin ex-States and by Rickover's administrative assistant tended the invitation to Rickover through versity co! from drafts he turned over to her. The Senator Henry 51. Jackson whom he knew to be a personal friend of Rickover. Both The Shig Education speech was duplicated on L Bureau of Ships facilities, and the Ship-Radin and Senator Jackson ' understood a group of sociation c pingport speech was duplicated by the that Rickover could accept or decline the interested l American Public Power Association. invitation to speak. Senator Jackson tel. ure and a. l The mimeographed copies of both ephoned Rickover and asked him to ac. reactor fic p speeches with notice of copyright there-cept the invitation as a personal favor to

23. Eac L

on were distributed prior to delivery. him.

16. Rickover's copyrights were duly

19. Rickover traveled to New York gss prij 1

registered after consideration by the and to the Seattle area on official bust-Copyright Office. The copyright notice ness unrelated to the speeches. On both rel i appeared on the deposit copies submitted occasions his travel expenses were paid with the appli:stion form as follows: by the Atomic Energy Commission. The j ses wea American Public Power Association had Ver in hi-Education speech: offered to pay his travel expenses to Se. t attle, but Rickover declined the offer be-Copyright 1958 H. G. Rickover cause he had official business in the Seat-

24. TD No permission needed for contem-tie araa unconnected with the speech.

non-techn: audience. poraneous press use.

20. While Admiral Rickover does not tu a-Above copyright notice to be used if recall the exact nature of his official At most of speech reprinted.

business in New York, it is his practice that the

f ,} * \\ a._ ~~ } -, \\.. / PUBLIC ATTAIRS ASSOCIATES,INC. v.RICKOVER 453 Cile an 2G1 F*.Supp. 444 (ibCT) conduct business at airports, hotel public utilities to get into the atomic rooms, and similar places at all times of ' power field at the time whereas the to ' Rickover cr new 2 pag,er he day and night. On the occasion of speech warned them against entering this field too quickly because of the high the Education speech, Rickover arrived n New York in mid. afternoon, and he costs.

]g be used jf had available some three hours before the All information concerning Shipping.

Prior to the port was unclassified. . se Education ,peech and four hours after the speech i speech there had been full disseminatio'n by the liar. for official business. of the technical information derived from With respect to the West Coast trip,

abi:ct of edu.

Eickover's official business involvec"in-Shippingport by the Technical Infor-

ning in 1954 mation Division of the Atomic Energy

nterest 2n the

,pection of the Bremerton Navy Ydrd. Commission. Rickover had no duty in !. Having c0 the Keyport torpedo station and Ranger this respect, and the speech itself is now Island. The day after the speech Rick-j ses. Rickover substantially outdated. caking en ed. over conferred with the director of the He 1*niversity of Washington laboratory

25. Rickover received no compensa-gyojee:5 educa.

which was conducting research for the tion for either speech. With respect to Navy and with the Commandant of the the Education speech Rickover informed ere a num. 13th Naval District. the Harvard Club that should any emolu-Rickover was not on official du-ment be involved he would like it con-Shipp.ingport 21. dic:ted to his tv while delivering these speeches. Tak-tributed to charity, and the Harvard . Power Asso.

ng time off without formal application Club did so.

for leave is permitted for officers of

26. The writing and delivery of the to on R ekover s rank Zducation speech and the Shippingport Arsociation Both speeches were given at pri-speech were not part of Rickover's duties 22.

ice thst h, vate affairs before private audiences-w th the Navy or the Atomic Energy Commission. The speeches were not Rickover ae. The Education speech was given to a made in furtherance of his duties. His group of Harvard Club members who duties did not call for the writing and r to speak to were interested in Rickover's views on l with Alex educational needs of the United delivery of these speeches, nor was he Radin m States and what he felt a private uni-requested to deliver them by his su-the over through versity could do to meet those needs. periors. The Shippingprt speech was given to

27. At all times material to this case, hcm he knew a group of American Public Pawer As-Rickover held two U. S. Government posts

. lover. Both sociation convention members who were simultaneously; Assistant Director for 2 understood ~ interested in Rickover as a national fig-Naval Reactors, Division of Reactor De- .r decline the-ure and es an authority in the nuclear velopment, Atomic Energy Commission, Jackson tel. and Assistant Chief of the Bureau of ' 3 him to ae. reactor field.

23. Each speech was released to the Ships for Nuclear Propulsion, United on:I favor to Rickover States Navy. His duties in both agen-press prior to its delivery.

afficial busi. himself issued the Education speech cie.s were inseparable. and part of his i New York staff served both interchangeably irre-press release, while the Shippingport spective of their payroll designation. (s. On both speech was released by the American Rickover's duties were substantially the is zeere paid Public Power Association. These re-

issisn. The leases were authorized by Admiral Rick-same for the period from 1956 to the date over in his capacity as a private individ-of the trial: those duties are highly ociation had technical.

enses to Se-ual.

28. In 1953 and 1959 Rickover's du-

.he offer be-

in tha Seat.

24. The Shippingport speech was a ties in the Atemic Energy Commission spuch.

non. technical address to a non-technical and the Navy consisted generally of re-audience. The speech was subjective in his official nature and was not consistent with sponsibility for the development and in-ver does not stallation of nuclear reactors for naval Atomic Energy Commission policy in his practice that the Commission was encouraging ship propulsion. As an additional duty ~ - -. - - - - - - - ~. - - - M_ ~ ~ -g

~ ~_ m j ^ f ' l-Y hYEN_ .. - "..,.,Y w ..y 3 J':a.*g y q.,. f. -.;

7

'~

4.

.a 454 268 TEDERAL SUPPLEMENT 'he was responsible in the Atomic Ener-was also responsible for liaison with the are not p-gy Commission for the development of Navy Department in carrying out ap-and that the Shippingport reactor. proved Naval Reactor Programs. 35.* T:

29. More specifically, Rickover's ~ du.

32. Considerable evidence was intro-termined ties included responsibility for research, duced by plaintiff with respect to the vestigatic 4

design, development, construction, and training of nuclear personriel. This evi-by Schna Ql' the improvement of naval nuclear reac-dence is irrelevant to the issues in this copyright q tors and associated equipment; for-op-case. Rickover was concerned, as are private ( .[; erations of naval prototype plants and most naval officers, with the training of his offici'

[j.

the Shippingport reactor; for installa-corr.petent personnel. This concern arose

36. T tion, maintenance, and disposition of nu-frou his responsibility for the safety of ing Divi clear systems and components used in nuclear reactors and his need to be cer-who is n Navy nuclear propulsion plants; for the tain that the designers and operators in Decen construction and maintenance of asso-thereof were competent and qualified in copyrigh ciated Atomic Energy Commission facili-their highly technical duties. To this speech.

ties; for all aspects of reactor plant end, certain members of Rickover's staff determin safety; and for providing te,:hnical as-would retiew the technical content of clear on sistance in the training and qualifica-the training program at the nuclear right ret tion of personnel connected with the nu-training sites and inspect these facili-37, g, clear reactor prograin. ties periodically. They noted any defi-

30. White Rickover was granted dis. ciencies in the training and submitted by Sch-right att cretion in his reactor development work recommendations for the improvement y,yy g in that he was assigned a developnien. thereof to those in charge. Rickover had the Educ tal project with the object of achieving no responsibility for the operation of deliverec an end result, his authority had well de.

these training facilities, nor was he con-duties. fined limitations in both the AEC and cerned with the mode and manner of the Navy. He was subordinate to other instruction there. Rickover had no con. 38-T officials in both agencies, and his au. nection with any of the remedial courses

ttorney thority was circumscribed not only by provided at one of the training facili-d' '#* *
the regulations which delineated his du.

ties other than an awareness that they (" ties but also by numerous other regula. had been found necessary. Rickover s tions, orders, and directives which con. concern about the technical competency ferred specific authority on other em. of nuclear personnel did not create any g ployees or branches of the AEC and the duty to write and deliver the Educa-Navy. For example, while Rickover fur. tion speech. y nished the AEC with technical reports

33. Rickover's specific function, a5 39' of the developmental work being done at Assistant Director for Naval Reactors in Division.

Shippingport, he had no authority or du-the AEC, of " review and concurrence in

- - the ty to disseminate this information out-all proposed c4assification decisions and reading side the AEC. This was the function of public information releases concerning the Technical Information Division of Naval Reactor Programs" did not im-that sE[

the AEC. That Division had nothing to pose any duty on him to deliver the Sh p-do with the preparation and delivery of pingport speech, nor did that function

40. 1 the Shippingport speech.

bring the speech within his official du. interrog

31. The Naval Reactors Branch ties.

he.Nav e.; planned and directed the technical and

34. Throughout the course of thi8

'Peech administrative aspects of the develop-matter Rickover's employer, the Govern-ment of reactors for naval ship propul-ment, has consistently taken the position g sion. As a special assignment, it planned that it was not part of Rickover's dutied and directed the technic:.1 and admin-to write and deliver the subject speeche* 4I-istrative aspects of the pressurized wa-Accordingly, the Government has C*"" b.whi. ter reactor for civilian power at Ship-tinually maintained that it has no right yWbt sw pingport, Pennsylvania. The Branch or interest in these speeches, that ther

f t PUBLIC AITAIRS ASSOCIAhES,INC.v.RICKOVIE 455 .CRe as cCS F.Mupp. 444 0907)

s with the are not publications of the United States, ernment" for the purpose of 17 U.S.C.

nd that they are copyrightable.

i 8, have uniformly taken the position g cut ap. ms. The Department of the Navy de. that if a publication was not prepared by 35. a Government employee as a part of his aas intro. termined in December,1958, after an in. official duties it is not a publication of h.estigation resulting from a complaint 'rct to thi the United States Government, irrespec, y Schnapper, that Rickover obtained his This evi. tive of its suldect matter. ys in this copyright on the Education speech as a

42. It is the policy and p,ractice of the d, es are private citizen, not in connection with edning of his official duties.

Copyright Office in determining wheth-cen arose

36. The then Chief of the Examin-er a work by a Government employee is

, a:fety cf ng Division of the Copyright Office, a publication of the United States Gov-ernment to consider whether the work is to be cer. who is now the Register of Copyrights, written as a part of the employee's offf- , cpeators l jn December,1958, reviewed Rickover's cial duties. If the work was not so writ-clified in i copyright application on the Education To this 3peech. After examining the speech, he ten, it is held copyrightable and is regis-W s staff f determined that its copyrightability was tered irrespective of its subject matter. ontent of j clear on its face and, approved the copy-

43. The defendants, the Department right registration.

of Defense, the Department of the Navy

37. In response to a further complaint and the Atomic Energy Commission,.

3 by Schnapper, the chief patent and copy-have consistently recognized the right of eny defj submitted right attorney of the Department of the Government employees to write private-re.'ement Navy determined in February,1959, that ly concerning their duties or otherwise aover hid the Education speech was not written or and to copyright such works if they were .ati:n of delivered as part of Rickover's official not written as a part of their official s he con. . tuner cf duties. duties.

38. The chief patent and copyright -

44. It is the policy of the Executive 3 no con.

il courses attorney of the Department of the Navy Branch of the. Government, as stated by is feejji. determined in May,1959, that the Ship-the Executive Office of the President, hit they j pingport speech was not written br de-that if works are prepared by employees 2ckover's livered as part of Rickover's duties. This of the Government in their private ca-determination was communicated to and pacity (f. e., not as part of their official 8 mp:tency accepted by the Office of General Coun-duties), they are not publications of the ,eate any sel of the Atomic Energy Commission in United States Government. ' ! Educa, ~

45. The court notes that the Comp-I' Si:n,as

39. The then Chief of the Examining troller General of the United States has Division of the Copyright Office, who is recognized and approved the estab-Octors in rance.in now the Register of Copyrights, after lished practice of Government scientists h ns and reading the Shippingport speech and in-and experts writing for publication on Octrning quiring as to Rickover's duties, approv-subjects pertaining to the particular

[ nst im. ed the registration of the copyright on work on which they are employed and [ha Ship-that speech. that such writings are not official pub-l function

40. In 1963, in answer to plaintiff's lications if they have not been prepared Teit! du-interrogatories, both the Department of at the direction of the official superiors the Navy and the Atomic Energy Com-of the author or as part of his official mission, Rickover's employers, formally duties.

cf this l stated their determination that these two

46. There were ' introduced into evi-
Govern-g speeches were not written or delivered as dence the regulations of the defendant position s duties part of Rickover's official duties.

Executive agencies in effect in 1958 and h peeches.

41. The Government atencies involv-1959 governing private writings by em-

%s con

ed. which have to deal on a continuing ployees. These regulations do not re-to right basis with the issue of what constitutes late to the matter of copyright and do not eat they a " publication of the United States Gov-affect the right of an employee to copy-l

--wass. 1-l - a.".- .. f,. y.: ;,.', ~ ~ e ---e --.c< 7 g - - y c

4 ,, y,.-, ,4 3., ' - *,-}] e.- .,,e.~ f,* -, - .y., > ', +, .e ' Q,,$,..; -.,' f.t. ; 7f '.~, '.,.$ d.;/, E- - yi m %[,' .I1.,,,.[l p - Q'-fd' ~~ -^-".a' .,:S c. .,. - c.r.- ,g q. , 7 ,f r t-31ETAL' S 456 2ss rEDERAL SUPPLE 3IENT trators to dete right his writing;s. They are merely 6. The copyrighting of these two differences an agency standards governing the conduct speeches does not deprive plaintiff of Ch* ^ of employees in their private writings its rights of freedom of speech and free. and statements, and any departure there-dom of the press within the guarantics

3. Shipping C l3 from is a matter of agency discipline.

of the First Amendment to the Consti. Addendur tution. I master would 'i

47. T'he Government has found it de-lading irrespe

~ 'i. The doctrin.e of fair use is not ap. sirable to encourage its employees to of loadin an l. write privately, including private writ. plicable in this case. ings concerning the subject matter of 8. Pursuant to 17 U.S.C. I 116 ? .as be*ng ca i their official duties, since (a) publish. (1964), costs will be assessed against the g, rat 7 ing is 'important to the professional plaintiff, but all parties shall pay their cis to vesse standing of many employees; (b) many own attorney's fees. was Japan,5 dr..ployees are persons of great talent Bill of Ladi: and knowledge and their works con-i121.

ribute to the fund of public knowledge

, j,,',,,,,,,,,,,g

4. Shipping <

and thereby benefit society; and (c) the polfey at.sists in securing highly Federal lend its aid qualified personnel. s of lading a In the 3Istter of the Arbitration between where owne: CONCLUSIONS OF LAW SIETAL TRANSPORT CORPO-tered into 0 1. The court lacks jurisdiction to RATION, Petitioner, Bill of Lad grant plaintiff the relief sought agains,t and gg the Government defendsnts in the nature CO3IPANIA NATIONAL NAVIiRA, i ~ ' of mandemus compelling them to adopt S. A, Respondent. and enforce regulations or in any way No. 65 AD 567. Big h to discipline their empl0yees, since these ' United States District Court New York d are discretionary matters. S. D. New York. Zock, Pe 2. As between Admiral Rickover and Aug.12,1965. York City plaintiff, this is a proper case for the National exe'rcise of the court's discretionary Ju-31stia Le+ risdiction under the Declaratory Judg. 3fetion was made for arbitration ment Act, 28 U.S.C. I 2201 (1964), since under charter party. The District Court, a justicial,le controversy is presented. Ryan, J., held that addendum to charter Petition party that master would issue November has mo. l; 3. The issue in this case is whether bills of lading irrespective of date of arbitratiot the two sp<.eches involved in this action completion of loading and that both bili 5 Clause 43 l1 are " publications of the United States of lading and manifest would recite that ~ Government" within the meaning of the cargo was being carried from Angra dos ber 2,19g Copyright Act.17 U.S.C. 5 8 (1964), pro-Reis to Haifa rather than from Angra for a vog South Ja hibiting copyright thereon. dos Reis to vessel's true destination. 4. The legal test to be applied in de-which was Japan, was illegal. The es tcrmining this issue is whether the two Sfotion denied and petition dis-thatt speeches were writt,en and delivered as a missed. "Any part of Admiral Rickover's official du. . of ties.

1. Shlpping C=39(7) this l'. slity of charter party is issu
, 3,J g

5. Since the two speeches were not determinable by court rather than written or delivered as a part of Admiral arbitrators under arbitration clause ing out. Rickover's official duties, they are not charter party. failure l

- publications of the United States Gov-ernment" within the meaning of the ::. Shipping c=30(7) the char Copyright Act, and the copyrights on Arbitration clause of charter party the two speeches are valid.

was not broad enough to empower arbi-

.a.- - - - l ATTACHMENT 3 l __- ~ ____.,

.= UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND UR3AN DEVELOPMENT S Washington, D. C. JE

:

lt//))L /' ? = .=. i In the Matter of: .=. MECHANICS NATIONAL BANK and Docket No. 77-5-MR I =- MECHANICS NATIONAL MORTGAGE

=

CO RPO.U. TION, t= > I.7.- Accellants i.=

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=-

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For Appellants: gg E-Brownstein, 2eidman and Schemer By John F. Dienelt, Kenneth G. Lore, if EF and David J. Butler r=. .=

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For the Government: IE Office of General Counsel Department of Housing and Urban Development If By William Caldwell and 5 Phillip L. Schulman [:j E DE'"EPMINATION r.... Introduction EF 5 Mechanics National Bank and its wholly owned subsidiary,

p;

~ Mechanics National Mortgage Corporation, appealed a determi-gl nation issued March 31, 1977 by this Department's Mortgagee l@ Review board ("the Board"), terminating their status as [i approved mortgagees. Appellants seek an order reinstating

liem retroactive to the date of the Board's determination.

s si This case arises under the National Housing Act which E authorizes a variety of mortgage insurance programs for [ii crivate lenders administered by the Federal Housing Authority g i"FEA"). 12 U.S.C. 51702, g sec. (1970). Regulations

s imolementing FHA insurance programs are issued pursuant to rg l

h'e Secretary's authority under the Department of Housing and

'{ l g l Urban Development Act. 42 U.S.C. 52525(d)(1970). .=: . ~. g... I [f i 1 I _;, :.~~. _.,q:,,[. ::~. _ ~, ;:. ll~;' 2:. 1,*L . ~;;"*=.. .,_~--;~-

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'--*"~~:.,,.._ . :.r = = === .= :==,.;=== = - :=.. -m=- _ ;.- =.4 =.. 3.- 7.-i..

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e Privato lenders like appallants may obtain approval to participate in FHA mortgage insurance programs by application -= pursuant to the procedure described in 24 C.F.R. 5200.6 (1977). Mechanics National Bank ("MN3") and its subsidiary L.-E 32 - were approved for participation in FEA insurance programs in 1966 and 1973, respectively. The approved applications t@ provided in pertinent part that "the undersigned agrees that ?= i: will comply wi-h -he provisions, of FEA regulations and .T other reccirements of the [ Federal Housing) Commissioner." i5 r . =.. = = In the course of administering the insurance programs, jss. the Se cre tar.v. of Housing and Urban Development ("HUD") 4.5... ; u created the Mertgagee Review Board, 24 C.F.R. Part 25, to EE

=:.

,g. ... exercise all of the authority and perf orm all of the Nii functions of the Secretary with respect to withdrawal of ps mortgagee a? proval. rs= ~ d5~ When the Board issued the determination challenged in this E? a c c. e a l, it was comprised of two Assistan: Secretaries, the E.E General Counsel, and the Inspector General, or their EE designees. 24 C.F.R. 524.2 (197 6). .ME . =.. .=- The regulation authorized withdrawal of approval on gg several grounds, including "such other reason as the Board, EN Secretary, Under Secretary or hearing officer, as EE: ao.oro.criate, determines to be justif.ied." 2' C.F.R. .E.._ 525.5(h). If the Board withdraws approval of a mortgagee, EE the mor:gagee is entitled to a hea:;ing before a Departmental' EE hearing officer. 24 C.F.R. 525.4(c). gg .==- Procedural Historv EE ca"

n-On June 21, 1976, the Inspector General of HUD issued a jg 50 page report alleging various deficiencies in the practices of MN3 and its subsidiary.

The Board notified appellants of EE' its intent to withdraw approval in November based on the. EE r,eport, and appellants filed a detailed response to the audit M rboort. Thereaf ter, on March 31, 1977 the Board withdrew EE ap' proval. The scard notified appellants of its decision by 5 letter dated April 27, 1977, and this appeal followed. A: EE the outset, the hearing officer ruled that the entire matter Es would be heard de novo and that evidence would be limited to Ei. transactions occurr: ng between January 1, 1974 and June 21, EE 1976 ("the relevant period"). All references herein are to JE= events occurring during the relevant period unless otherwise y =: noted.

s:

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is i: .I 5 i .:=~.::==.===.== ....:= = =. =:- .. - - - - ~. -...............-..: ~r=='

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3l-jj;;.

E" On January 19, 1979, appellants filed'a motion to terminate this proceeding on two grounds. First, appellants challenge the validity of the decision by the Board on the the Inspector' General had prejudged the matter ground that cefore the Board reached its decision to withdraw appellant's approval. Appellants argue that the Inspector General's 21 alleged prejudgement tainted the proceeding and rendered the 5 w::ndrawal void ab initic. Accordingly, appellants move to termina:e this proceeding, to dismiss all charges, and to be E.- reinstated. .g, Appellants rely on a recent decision, Association of s National Advertisers, Inc. v. Federal Trade Commission, Civil d No. 75-1421 (D.D.C. illed Novemoer 3, 1976). That decision E N enjoined the Chairman of the Federal Trade Commission from participating in a rule making proceeding for having

~

" prejudged and given the appearance of having prejudged. issues of fact involved in a fair determination",of the E= proceeding. (order issued November 3, 1978). [ E The case cited is not applicable to the instant case. 5: While both cases are cuasi-judicial proceedings, one a rule i making proceeding and the other a review of an adverse agency E action, they differ in several significant re spe c ts. E ,e .:n the FTC rule making proceeding, the agency head was S. involved in a determination that would become final after a W lengthy hearing process. The final determination to be k issued bv the FTC could oniv.be reviewed in the United States Court of' Appeals. In the instant case, the agency head did i not, participate in the initial decision to withdraw ~ approval. Administrative due process does not recuire that a 2 hearing be held at any particular stage in the administrative Due process is satisfied if full hearing rights are [. process. granted a: some point in the administrative proceeding. Sink g I a v-Morton, 529 F.2d 601, 604 ( 4 th Ci r. 19 7 5 ), Reed v. E Franks, 297 F.2d 17, 27. (4 th Ci r. 1961). And so long as a cue process hearing is afforded, the participation of an investigator on the initial agency decision is not fatal. g been P The presamption of honesty in decision makers has not rebutted in this appeal. Withrow v. Larkin, 421 U.S. 35 (1975). .n i As noted above, this hearing officer has already ruled } the Mortgagee Review Board's decision was no , final, but that rather is subject' to de novo review. After extensive.e, [' the se novo review has af forded appellants 'a full discovery, and complete due process hearing cf seme 20 days in which scme 1,000 pages of charces were stated and answered, docu5entary evidence were received, and 37 witnesses

estified and were cross-examined under oath.

A verbatim %:.7.="+ "~~j=-; 5.:: _:;:-ii'=iff y;; ; :q::; =gj?g. =. = b.ph;.' :.:;gi; 5.: .. ; :. = ~ t = =::. = ~

4 i 3E s = record of the hearing totalled almes: 3,000 pages, and the if 5E parties have filed over 600 pages of pre-hearing and ~ iW" the written determination pes:-hearing briefs.

Moreover, following the hearing is itself subject to review by the head j@<

of this Department. 24 C.F.R. Part 25 (1978). ji. .=.= =-ff. Consequently, whether or not the Inspector General Even ji, prejudged the Board proceeding is immaterial here.the full, due process review GL assuming, arcuendo, that he did, 55 accorded the Board's determination satisfies the fundamental f5; principle that appellants have a right to a disinterested, objective hearing. Accordingly, appellant's motion is dg-sp. ceniec. = -= a The second ground for appellants' motion to terminate E5~ proceedings is that they had been " suspended" for one year $~ ; resolution of the charges against EE: and eleven months withoutthe duration of that suspensio'n is a violation EE them, and that The claim is unfounded because adequate ((: ' of due process. and Eg grounds for " suspension" have existed from the outset Eg because a substantial portion of the duration of the ~ ((l suspension is attributable to appellants' own actions. EE: appellants sought to withdraw voluntarily. $5 the outset Esi At the legal process associated with a case of this ji Thereafter, i size resulted in over 100 filings of motions, briefs, orders, Eg; culminating in appellants' January 1979 and pleadings, Post hearing briefs.were not completed until June EE. In EE l motion. Both sides repeatedly requested continuances. (( 1978. appellants requested and received several continuances set to commence E5.

fact, of the hearing date itself af ter it was first Appellants also sought to bifurcate the EE-j in November 1977.

All of these a,ctions consumed a substantial portion (( i hearing. g: a majority of the time elapsed since appellants were hi if not first suspended March 31, 1977. E.- a.g More importantly, however, adequate grounds for the since the outset. A E s ( " suspension" have been present E agency's " suspension", the initial withdrawal of must be based on adequate evidence. Adequate E covernment of $( ap'oroval here, evidence of conduct warranting suspension may consis: documentation and corroboration of important allegations, as g l drawn from the 5. inferences which may be proper y Such evidence E; well as existence or absence of affirmative facts. !{ need not be the kind of showing necessary for a successful see:.Horne_ criminal prosecution or even a formal debarment.' Brothers, Inc. v. Laird, 463 F.2d 1268 (D.C. Cir. 1972). E i E: l F; ngs and mo: ens both established and tested the adequacy 5: ef the evidence upon which appellants were suspended. The g, ~ .me: ion is denied. N i t~ l b t i-I' .{ v i ' "'f.ik._...g . ~...... -. - - ... -...g g -, I + ". ~. .,, - - - -.7

"*::.6::'

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s Backcround K In essence, the Government has charged in this 5A proceeding that appellants: (1) failed to exercice~ sound Es besiness judgment or to follow accepted practices of prudent ~s lending institutions; (2) breached their contract with HUD by Ei f ailing to comply fully with statutes, regulations, mor:gagee si letters, and c:her guidelines; (1) maf e f alse s tatements to EE the FEA; (4) f ailed to cocain and verify inf ormation with the 55 same care as they did in commercisl icans where the property EE Ei mor:caced was the sole security for such loans; (5) failed to supehvise properly those handling FEA insured loans; and (6) permitted their employees to benefit personally from the 55 programs. (Documents File, Ta b 6 0). 'Fot"a proper @[. foregoing practices in selling their property under FEA gg understanding of the resolution of these charges, it is si necessary to summarize the relevant mortgage insurance j@ procedures and the operation of appellants. gh 5 The Government's charges relate to two b~ road categories of 55 t activity, these required in the origination of FEA insured si mortgages and those requi' red for the servicing of such ?E mortgages after origination. To originate an insured mortgage, (( the FEA requires an approved mortgagee to submit financial data Ei for the mortgagor (or borrower), data which the mortgagee El certifies. EE

== CC Virtually all loan transactions at issue here began with a 55 El potenzial borrower completing a lending institution's loan application form. Data on re,sidence, dependents, employment, 5@ assets, and liabilities were reported on the institution's is form. Not infrequently, the forms were filled out for the 55 borrower in a real estate of fice and then submitted by the real EE estate agent to the lending institution. The loan processor @E for the lending institution then verified the borrower's 5s informa:ic.3 and submitted it to the FEA on three forms central EE to the issues in this appeal. pg a

=

r "The first form, FEA Form 2004-F, titled " Request for 5E. s Verification of Deposit (hereinafter "VOD"), requires a bank s~ depository, in response to the signed request of one applying g i for a mor: gage loan, to verify that the applicant has funds on g; deposi: in a specified amount and on a date certain. Es Frequently, the bank or depository verifying the f unds on hand 2; is also the lender or mor gagee that is seeking FEA insurance Et on the funds to be loaned. The purpose of the VOD is to show tha: the borrower has on hand sufficient funcs for closing, si Those funds demonstrate that the borrower has a fi,nancial, staxe 5 in the proper:y to be mortgaged and thus will be less liikely to 5 default on the insured loan. Consequently, it is importan 25 F EE = I G-N. l += : :.:+.3.:. :.T.?~~~ "..~ -l.l.;..

.=.5 = __ ~.[

= =7.%U '

that the f unds in question cro actually those of the applicant. FEA regulations specify minimum amounts that applicants must deposi: in purchasing a house financed by an FHA. insured loan. (Finding of Fact 44). The second form, FHA Form 2004-G, titled "F.equest for Verification of Empicyment" (hereinafter, "VOE"), is a verifi-ca:ica j the .:::3:9a

cil: ant's employer of the applica6t's length of employment, type and amount of earnings for the las:

12 months, and probability of continued employment. The instructions to the lender on the VOE form provide that the lender is to " Forward directly to employer named in Item 1." The applicant is required to sign the form to authorize the verification, but is not permitted to hand carry it. Nor.was any c:her interested party permitted to hand carry the form except in the most unusual circumstances. (Findings of Fac: 7-8). 1 The information from the two verifications is then transferred to a third form, FEA Form 2900, titled " Mortgagee's Application for Mortgagor Approval and Commitment for Mortgage Tnsurance Under the National Housing Act" (hereinafter, " Form 2900"). The VOD and the VOE are submitted with the Form 2900 ~ and other supporting documentation to HUD. The Form 2900 is a financial profile of the applicant and the loan. It is the primary document upon which HUD bases its decision to insure the loan. The form concludes with a " Mortgagee's certificate" which pr.ovides that'"The mortgagee c certifies that all information in this application is true and complete to the best of its knowledge and belief." Credit data for the Form 2900 was. obtained from credit i reports costing a relatively nominal sum furnished by HUD approved credit companies. In most instances the credi check consisted of consulting a central records system for deb: reporting and making telephone incuiries, the latter not.in frequently to the borrower who had filled out the loan ' application in the first place. The credit reports furnished the lending institutions were sometimes incomplete and some f orms bore printed 2 imitations or disclaimers as to the l completeness of the information that was furnished. The HUD office reviewing Form 2900's was staffed by less than a dozen people who were required to process all such acclications from well over 100 lending institutions. CEnsequently, HUD relied heavily on the certified 1.inancial inf ormation f urnished by those lenders. Appellants were well aware.of the HUD of fice's limited staf f. ~ l -==:====-.. .= w.=.=..:==.=.==.===:=. . - - _ =. _ ~. = - .=- =. =...... _ _

..i I. ". 9.

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MN3 Loan Oricination EE .r:.3- = 1. Verification of Employment E@. ..=...:, ..=, T..e severnment chargec. in 13 counts that MN3 submitted EE; i. : : ::, c.:s =mpicymen data :o FHA in violation of instructi'ons 3.tl on the f ace of the VOE and the applicable Mortgagee Handbook. EE; (Statement of Charges, Counts 1.to 13). The Government alleged tha: the false information resulted from M!i3's failure to act EE' as a prudent lending institution in processing applications and EEi v e r i f v in e., the e==1o.vmen t information submitted on behalf of E.. E prospective borrowers. EEe

=.

d": E As noted above, the VOE by its terms forbade hand carrying .E to the employer by either the applicant or any other interested E=l carty. Tnose sections of Mortgagee Handbook No. 4000.2 EE iMarch 197 5) (Govt. Ex. 53) relied on by the, Government in d connecti6n with changes of loan origination deficiencies-Eg> provide in pertinent part: gg y=. a __is 3-7. LOAN ORIGINATION RESPONSIBILITY. HUD requires the originators of insured mortgages to develop such. EE: loans in accordance with accepted practices of-gg prudent lending institutions and HUD-FHA requirements. They must obtain and verify

EE:

information with at least the same care that would' E= be exercised in cricinatine.a loan in which the EE mortgagee would be entirely dependent on tne [=- property as security to protect its investment. Ei . =.

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EE }E 6-3. COLLECTING INFORMATION. = E.. g a b. FEA Form 2004-G, Verification of Emelovment. [5 ...The mortgagee must send this f orm directly 5 (to) the applicant's employer (and the employer g=. of any co-mortagor). The form is returned 15 directly to the mortgagee. It must no pass F-through the hands of the applicant, real estate E agent, or any other third party. g.. ?q' .I..t. = .u 5 5 ~~ =' p* 5.- .? '"k:.... N. ?...

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r \\ I e e e .a 5-6. liCN-CCNFLICTING SERVICES. E E i; d. Real Estate Broker or Agent. = [. a s L (3) The mortgagee is responsible to HUD-FEA for P accuratelv comoleting the mortc.ac.e f. insurance applica-ion and the forec.oinc. E procedures are not intended in an.y w a.v to i change the specific procedures for such [ preparation outlined in other portions of h this Handbook. Where applications [ Form E-2900] are prepared by a real estate broker i: (or agent), the form must be reviewed and i signed by an appropriate official of the E mortgagee. Verification of employment and i ~ deoosit must ce corn initiated cy.and I received bv tne mortgacee. The real estate E broker (or agent) is not to perfor= this p function. (Emonasis added). ~ v. The first 13 counts in the Statement of Charces arose *out of six loan transactions. In each transaction a VOE and Form E 2900 totalling 12 documents, were 3ubmitted to MUD. Employment I; information in every transaction was false (Findings of Fact E.=: 16-42). -r In all but one instance, _ (Finding of Fact 28) the MN3 loan t processor's file contained conflicting information. In three i. of the transactions, MN3 permitted either the applicant or a i real estate agent to hand carry the VOE. (Finding of Fac 23,. [ %27, and 31). In a fourth transaction, an MN3 employee .i deliberately called the employer in cuestion and asked him to [j revise the employment data and resubmit it to MN3. (Finding of Fact 4 2). 2. Verification cf Deposit } i The Government charges in 17 counts that MN3 falsely certified to HUD that funds were on deposi: in nine different loan ::ansactions in violation of the mortgagee's cer,ificate on the Form 2900 and Mortgagee Handbook paragraph 3-7, cuoted ~ above. In all but one ::ansaction the f alse inf ormation was 3 verified on a VOD and then transf erred to the Form 2900. Bo th documents were then submitted to M*CD. (Statement of Charges, o Counts 14-30). y i 8 3 I*

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r ~ O Two MN3 departments were involved in preparing and verifying a VOD, the Government Loan Department and the Escrow Department. The f~ormer was headed by Michael A. Manginelli, an MN3 vice president who reported to the President of MNB, Albert Greenfield. The head of the Escrow Department, Sharon Barrow, also reported to Mr._ Greenfield. Both departments were located on the same floor in MN3's Paramount, California office. In eight of the nine transactions, the deposit information originated with a real estate agent, Peter Petsas. Mr. Petsas-originated a series of fraudulent loans by purchasing properties, frecuently from EUD, advertising them for rent, and then deceiving the renters into purchasing the homes. The i scheme was funded by loans, and it appears that Petsas made the necessary deposits with his own funds whenever " rental" inccme frem his victims was insufficient. MN3's loan processors never saw the loan applicants, but rather dealt with. Petsas who furnished them with the necessary doccments and funds. Procedurally, loan processors under Manginelli would fill out the VOD and take it to the Escrou Department for verification. Sharon Barrow's signature constituted that verification. Mrs. Barrow testified under oath in another proceeding that she never checked Escrow Department records before signing the VOD. She said that she relied on the information in the loan proc'essor's file, because the' bank was simply telling itself that it had the money. 3. Liabilities and Dependents ~ The Government charged that in eight transactions MNB submitted to HUD Form 2900s that failed to disclose liabilities or real estate ownership in violation of MN3's mortgagee's certificate and paragraph 3-7 of the Mortgagee Handbook. (Statement of Charges, Counts 31 to 38). The Government charged that the omissions resulted from MNB's failure to ^ follow accepted practices of prudent lending institutions in sobtaining information and processing the Form 2900. Six of the 1 Form 2900s contained incomplete installment debt information, and two failed to list other encumbered real estate owned by the applicants. (Findings of Fact 90-110), i In four of the six cases involving unreported installment l debts, MN3 loan processing files contained conflicting i information. In all four cases MN3 was on notice of the existence of the debt and failed to pursue the da'tter.and l resolve the conflict. In two ins tances, MN3 was nop-Un notice. of unreported installment debt. (Counts 33 and 34).

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l l = t F Similarly in one of the two cases of unreported real [ estate ownership and its accompanying encumorance, MN3 was on notice from information in its own files. (Findings of Fact 101-105). There was no showing that any MN3 employee investigated beyond obtaining the standard credit report. j r The Government charged similar deficiencies in reporting I total number of dependents in two loan transactions involving Mrs. Elcans and Mr. and Mrs. Garcia. (Statement of Charges, Counts 39 and 40). Neither applicant was personally ) interviewed by an MN3 employee, and there was nothing in MN3's t files to put them on notice of the correct number of decendents I g in either case. e 7 L However, on July 30, 1975, HUD issued Mortgagee Le::er i 75-7. That instruction to mortgagees such as MN3 warned that .i. many lenders had come to " function merely as con,duits of E paper," and reemphasized the mortgagee's responsibility for [ obtaining and verifying credit information. The letter stated i specifically tha t: t The orcoer function of the mortgagee is to interview the [ buver, collect :ne necessary information in order to i' cocain a credit report that meets our s tandards, and [: obtain app.licant's authorization te check and verify employmen t and assets. The interview with the applican: E should reveal the potential for stability and i: respensibility that could pe.rsuade the mortgagee to lehd [ the applicant money for the purpose of buying a heme, i provided the credit report reveals a satisfactory history. l (Emphasis added). [ Despite the explici: ness of Mortgagee Letter 75-7, no MN3 i. employee interviewed the Garcias whose Form 2900 was submitted ~[

o HUD almost six months af ter the date of the Mortgagee Le tte r.

In contrast, Mrs. Elcans' Form 2900 was submitted well i before July 30, 1975. (Findings of Fac: 111-117). 4. Mortgagors Unaware of Purchase i 1 f The Government charged in three counts that MN3's failure to act in accordance with accepted practices of prudent lending i institutions resulted in three mortgagers mistakenly believing [ they were rencing a home when in f act they were buying it. (Statement of Ch arge, Counts 41, 4 2, and 43). All three were { vic ims of the Petsas fraudulent rental scheme.,(Findings of l Fac 118-121). ' . e-i l t l e l I l l l l l ' '":..'...:.":.,... :.:" ::.. L....'.X. "'.' '. ". ~...~~... -..."*""".*.""."..;'......;,' ". " ".. ".;,...:......,..".".:.=;......._ ~~ .:- : :::.." " * " ~ ~ " ^

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In two of the three transactions, (Gomez and Wilson), the F paperwork was completed _after Mortgagee Letter 75-7 was issued. i' None of the applicants in those two transactions was [ interviewed as required by the Mortgagee Letter, ii E In the case of Andres and Ruth Gomez, an interview would have prevented the f raud. Neither Gomez could read or wri e 5 English. Consequently, they were ideal targets for the Pe:sas f scheme. They thought they were renting and did not learn g c:herwise until the transaction was completed. g ~ s b I Although Nathaniel Wilson could read and write and understood prior to closing that he could purchase the property in question, he only intended to rent. He too was deceived by Fe:sas in:o exect:ing the papers necessary to buy. The fraud h in the Wilson case also would not have occurred if MN3 had held E the interview required by Mortgagee Letter 75-7. [.- b Discussion The relationship between appellants and EUD/FEA is r c on trac tu al. By applying for and receiving approval to participate in FEA insurance programs, appellants agreed to i furnish information collection services in consideration for = FEA's agreement to insure qualifying loans issued by g accellant's. The nature and manner of furnishing the services E ar'e detailed in FEA regulations, handbooks, a,nd guidelines such N ~ as mortgagee letters. Appellants agreed to satisfy those T requirements as a condition of their approval to participate in l F'HA insurance programs. E The Mortgagee's Handbook describes the standard of care y I that approved mortgagees must meet in obtaining the information i required by FEA to insure the loan. Mor:gagees must follow E " accepted practices of prudent lending institutions," that is: [ 5 They must obtain and verify information with at leas the F same care that would be exercised in originating a loan in i which the mortgacee would be entirely dependent on the property as security to protect its investment. Mortgagee L Handbook No. 4000.2, 53-7 (March, 1975). L P + I, a . e-p E ? Y l' O ... ~.. _........ m & 8

'*..*.8 D*

In se doing, mortgagees must, cf. course, satisfy HUD/ FHA I '~ procedural requirements. j L Considerable, occasionally conflicting testimony was L offered at the hearine as to the meaning of " accepted practices k. of pruden: lending ins titutions." Tne parties and their p ex:erts, disacreed as no when, if at all, mor:c.agees were y required to hold a personal, face to face interview with loan applicants. Based on the entire record, such interviews se-= not universally an accepted practice of prudent lending !.e institutions before July 30, 1975. After that date such E interviews were required by HUD through the issua'nce of f Mortgagee Le::er 75-7. Failure to hold a face to face E interview after July 30, 1975 was both contrary to HUD i' guidelines and an i= prudent practice. g. i C:her specific practices that were clearly imprudent li include verifying employment or deposit when the form was no: Il signed by the applicant, permitting applicants'or other E interested c.arties to hand carrv such verifications for i_s signature, and failing to check escrow records in verifying E deposits. MN3 employed each of the foregoing imprudent 1.' practices and thereby violated HUD regulations and guidelines F in originating the 17 loans underlying the first 43 counts of g the Statement of Charges. The Government carried its burden of .i.' 5 .croof bv a creconderance of the evidence in 37 of the 43 _i l counts. The charges in Counts 5, 33, 34, 37, 39, and 41 were not established. g .= Appellants make two orincloal-arc.uments in o.c.c.osi:1on to, _E and in mitigation of, any finding of imprudent practices. In A br~ief, appellants argue first tha: the 17 transactions represen a negligible percentage of their total governmen: loan work and g as such are not representative of their practices as a lending 5 institution. Secondly, appellants argue that virtually all of ? the 17 loans resulted f rom the unauthorized activities of the .+ escrow cfficer, Sharon Barrow, and a "selle r's representative," [.] Peter Pe:sas, activities for which the bank should not be held E resp'onsible. The record in this matter does not support either E contention. The root cause of the failures and violations charged in h[ the firs: 43 counts of the Statement of Charges is a failure of sucervision at the highest levels of MNE. Albert Greenfield, E:. -h'e President of MN3, failed to supervise properly or adequately 7 either the head of the Escrow Department or the head of the d Governmen Loan Department. The latter, Michael Manginelli, Ej l failed to properly supervise the loan processors u'nder him.

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l e .i, Both the Government Loan Department and the Escrow Department were seriously deficient in their procedures at best cnd, in at leas: one instance, engaged in fraudulent activity (Findings of Fact 39-42). Thus, for example, Mrs'. Barrow never ! checked her own accounts in verifying deposits at MN3. She said! tha she relied on the information prepared by loan processors from MN3's Government Loan Department. Her reason for so doing,l that the bank was only telling itself that it had the money, is simply ludicrous, particularly in light of he; experience and th California licensing requirements she had already met. (Tr. 2584). As a direct result of this verification procedure on the par: of both loan processors and the escrow officer, false deposit information was submitted' o EUD in at least 17' documents. (See Findings of Fact for Counts 14 to 30). These documents related to the origination of nine loans. In the cases of Mr. and Mrs. Gomez, Mr. and Mrs. Nolan, Mr. and Mrs. Mathews, Mr. and Mrs. Goward, Jimmy and Urcel Scruggs, and Barbara Jean Thomas, MNB's escrow officer certified that various deposits had been made toward the purchase of homes whe@ in fact, no such deposits had been made by the people n'amed. ~ (Findings of Fact 49-52, 57-74, and 85-88). In other cases, funds recorded as deposits were actually rental payments made te a fraudulent real estate agent and housing rehabilitation centractor, Peter Petsas. (Findings of Fact 75-84).,In virtual 3 all'of these transactions the information in MNB's files was conflicting on its face and the verification of deposit dates 63 not coincide with MN3's escrow-records, o a It is clear that Albert Greenfield's working contact with Sharon Barrow and Michael Mancinelli was casual. For example, Greenfield testified that he never even learned how a loan package was done. (Tr. 2610). Although Mrs. Barrow and Mr. Manginelli had been employed for several years, Greenfield's "sucervision" was ccnfined to general discussions or treatmen specific problems brought to him. He never personally reviewed ^ l their work and had no way of determining whether they were l m i falsely certifying VOD's and otherwise defaulting on loan i origination requirements. (Tr. 2616-2619). Concomitantly, Michael Manginelli never properly sucervised his loan processors. The loan processors' function wa's critical. They were responsible f or obtaining the { information required by HUD for insuring the loan, verifying it, and putting it in the proper form for submission to the HUD Los Angeles Area Of fice. A substantial numbes of their final ~ j product, the Form 2900, was reviewed by Mancinellitor his ' 'Y M-*""J."*J.;*.. .....**:**:..~.... ..:"** ^. ".C*:"".**:**"*.;*?.".";.";"" "*'**:: * "" ;C'C".':*;;d"".. ~ ,,,-m- '*l'b5: ...".fl 'd[ *"" -""'""""*'E7~."."."..... 'T* **. "...:: "

[ 4 There is no evidence that the terms and handling of the four loans connected to Greenfield and Grabowski, either ~ directly or through their corporations, were any different than q c:her FEA mor: gage insurance applications processed by MN3 h during the relevant period. Nor is there any similar showing (( with respect to the nine 1974 acans er the cause f or def ault of b five of them. = In view of the dearth of evidence described above, it is not necessary to reach the cuestion raised by appellant as to

E,{

the appropriate standard of proof applicable to this charge. [, l One Government has failed to establish the charge by a 9 creconderance of the evidence. E.: V. f. g To properly decide this appeal, it is.iecessary to examine i the nature of the cuthority to withdraw approval delegated by i: of statutorily authorized mortgage insurance programs, the. [ the Secretary to the Board. In supervising the implementation Secretary has a duty to protec those programs from negligence, fi fraud and other forms of abuse. One remedy the Secretary may F employ is the refusal to permit continued participation by [ those who have failed to meet program requirements in the past. ![ The Secretary's authority to refuse.no permit continued [ l participation is a prospective, protective power that is E inherent in her. authority to operate FEA insurance programs without impairment. Participation in the programs is a il privilege, not a right. Denial of participation is a sanction {: (a's distinguished from a penalty) directed at protecting the i future implementation of FEA insurance programs. Cf. L.P. i: Steuart & Bro., Inc. v. Bowles, 322 U.S. 398 (1944); copper T Plumoinc & Hea:Ing Co.

v. Campbell, 290 F.2d 368 (D.C. Cir.

i:, 1961); Gonzalez v. Freeman, 334 F.2d 570 (D.C. Cir. 1964). p 4 f The authority to withdraw approval delegated to the Board. [ 's the aut5crity ec refuse permission to continue to

i.

i carticitate in FEA insurance programs. It is virtually b identic'l to the Secretary's authority to debar contractors and [ a crantees. Cf. 24 C.F.R. Part 24 (1978), and In the Matter of f l First Western Mortgage Company, Docket No. 76-107-MR, at pages ( 15 anc 19 (Determination issued March 18, 1977). The same I considerations operative in debarments are operative in y cetermining the scope and extent to be given the withdrawal s an.c t ion. .e .~ l l I e T- .=...,:==...2,, = =., "~ = :-i= =~= =.= - ' = ~ ~ * ' _. =.. =:: :.:;=.. f. =.:.====== :==.==

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T o The parties have raised a cuestion as to the hearing E4 of ficer's authority to formulate a remedy in this procacding. E. The Government argues that the appeal is limited to affirming h. or denying the Mortgagee Review Board determinatio'n to withdraw ),' appellants' a:Oroval indefinitel.v. The Ivnch e-in of the T i Government's contention is that the regulation does not contain [# specific language authorizing the hearing officer to fashion a EP EET re.tiy as :ces -his Department's debarment regulation. Analysis of the Mortgagee Review Board regulation does not $[ GE support the Gcvernment's cosition.

== ~ 7.:.: The section authorizing a withdrawal determination b.y the Board makes no provision for notice or hearing prior to the 55 3 card's decision. The section simply describes the scope of EE the san : ion in terms of duration and'the geographical or 55 programmatic exten; to which the sanction may be extended. ' EE Af er the determination is made, the Board is recuired to b:.:. notify the party sanctioned. It is at this point tha: the right i.M_ to a hearing :1rst arises. E= r;;; If that hearing is limited as contended by the Govern. ment, 15.=

== appellants woulc. be c.enied their cue process rign:s as argue.c E.- earlier. Association of National Advertisers, Inc. v. Federal GE; Trade Commission, Civil No. 78-1421 (D.D.C. filed November 3, ~~ 1975). Unless the hearing proceeds de novo, as here, the due 55 process cuestion raised by appellants would have to be decided GE in their favor. The de novo heating is without restriction. 5l --== secondly, as contended by appellants, the hearing officer si

E is charged with issuing an "Lnitial written determination."

The term clearly implies something 'more than a mere affirmation ~ 55 or reversal of, in this case, an unwritten decision. In the EE' Matter of Accuraev National Mor:cace, Inc. Docket No.75-2-MR EE (Determination issued May 19, 1978). An initial determination, 55 as used in HUD regulations, includes the fashioning of a EW remedv. _C_f., 24 C.F.R. Part 24 (1978). EE

.

l = =. Finally, it is clear that the nearing officer is to 52 exercise the full authority of the Secretary from the language "2.[ ci the regulation itself. The initial determination results Ei from a " fair and expeditious condue of proceedings," is basec 55 on "the evicence presentec,. anc 1: withdrawal is cetermineo, 1E it shall be based on "such other reason as the hearing E[ officer determines to be appropriate." 24 C.F.R. Eh This language means tha: the 5524.4(d)(1) and 25.5(h)(1977).. cue process hearine -s= hearing c:,1cer is to concuct a ce novo, E aspect of sv and to issue a determination fully addressing every,d the proposed sanction. The hearing officer's ini:~ia

_E determination w1_33 become the.,.4na3 c e c i s io n o.,

th e Dep..., artment 55 unless the Secretary decides to review it. g:. =. :: "C.'. 7.".** 6 h c f

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7 The Government has met its burden of proof, by a proponderance of the evidence, of establishing five of the six principal deficiencies charged in connection with the f.i crigination of loans, namely; (1) failure to exercise sound ] resiness judgment or to follow accepted practices of pruden: _end ng ins i utions; (2) breach uf contract with HUD by i.5 failing to comply fully with HUD regulations, mortgagee F:& letters, and other guidelines; (3) making false statements to the FHA; (4) failure to obtain and verify information with the ' same care as with co=mercial loans where the property mortgaged is the sole security for the loans; and (5) failure to properly E.i. (i. supervise employees handling FEA loans. These failures clearly !? f all wi-hin the general cause for withdrawal of approval se: out in the Board's regulation. 24 C.F.R. 525.5(h) (1976). The N deficiencies state adecuate grounds for FEA and EUD, as a _F reasonably prudent insurer, to refuse to continue.to do E business with MN3. i:. The cuestion then is, what is the scope and extent of the $E sanction necessary to protect the public interest in FEA E insurance programs vis-a-vis these a:oellants. The Government has established a pattern of imprudent practices by MNB. Absent a change in appellant's personnel and practices, in d. would not be reasonable for EUD ever to permit appellants to participate in FHA mortgage insurance programs. However, the record shows that MN3 has undergone a series of changes. Both the escrow of ficer' and the head'of the Government Loan Department are no longer employees of MNE. Almes: three years have passed since the end of the relevant period and the record reflects tha a number of procedures have been implemented by MS3 to prevent repetition of the failures tha: caused the withdrawal of approval. This proceeding itself has had a salutary and instructive impact on MN3's awareness of ::s obligations. = ~ l In contrast to charges based on the origination of loans, E the Government did not establish charges in the three other i.:: major areas. It was not established that servicing was E deficient, that a false certification had been made as :o one E. l loan's s tatus, or that officers and directors had engaged in h E j self dealing. V h \\ It is also noted that the Department is very interested in encouraging home ownership through its FEA insurance programs !:g in the very inner city area where MN3 placed the loans ac issue here. MS3 is entitled to consideration in this regard. [:3 PE i !=. i ( II Vi C' a::.. -. . :. - :.a =.=..

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h A: the same time the record contains evidenc.e of a y

if substantial number of mortgage def aults af ter. the end of the relevant period. The record does not fix with any absolute certainty the exact cause of the defa'ults. However, the def aults sound a cautionary note in assessing the degree to which MN3 he.s reestablished itself as a prudent lending j ins t i tution. g Based upon the entire record in this matter, a period of - F three vears f rom the time of the initial withdrawal of approval' is an "adecuate period of time for appellants to demonstr' ate their status as a prudent lending institution. The period,of 5-withdrawal of approval would thus expire on March 21, 1980. At tha: time, MS3 and its subsidiar.v mav a:ain become ac.croved E mortgagees. If, prior to that time, appellants can establish' i to the Department's satisf action that they are a prudent Is lending institution, earlier reinstatement would be g ac..c ro.c r i a t e. s = n bi..; During t.e relevant perloc Mec.nanics National Mortgage a Corporation had no employees and originated no loans.

However, E

it did service loans. More importantly, however, MNB's M subsidiary shared the same officers who were responsible for E A . n c.eec, une contro.3..,.ing .g the performance de.,.lciencies at MNB. sharehcider of the parent, MNS, was an officer and director of M the subsidiary. See Findings of Fact 138-139. M M n view of the close identity of officers and their. 5 abili:y to control the activities of Mechanics National E Mor: gage Corporation, a like period of withdrawal of approval. E is herebv i m o. o s e d. As with MNS, the withdrawal of approval of E the mor: gage corporation may be terminated if the Department is = satisfied that MNB's subsidiary has established itself as a E_ .= orudent lenc..inc institu:lon. =. - All other contentions presented by the ~carties, but not Ei! = addressed in this cetermination have been consicerec ano.ounc- .E.. c be w,:.nou merit. E

=:

Findings of fact and conclusions of law are attached [:5 hereto and incorporated herein by reference as if set forth at [g lenc. h. i.= -h N. EI. / / I lid / Y 3. Paul Co::er, Jr. -t E. Administrative Judge E... HUD SOARD OF CONTRACT APPEALS 5: =- ::

ssued at Washington, D. C.

E on March 6, 1979. .[ L* : -1 la 1- 'i:J.T:pj;. ..._.,..,.,....;;j.-{-" ...,;.,.,.3.y

t i:. t kib. UNITED' STATES OF AMIRICA DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT En.. u. ~4ashington, D. C. g-

v..-

?: m. In the Matter of: ?"= MECHAN ~CS NATIONAL MORTGAGE Docket No. 7 7-5-MR. MECHANICS NATIONAL BANK and CORPORATION, Appellan ts i:..

2 FINDINGS OF FACT Appellants are a national banking institution and its wholly g

1. owned subsidiary with offices located in Huntingon Park and 5E Paramount, California. Appellant Mechanics National Bank EE .("MN3") was founded in 1964 pursuant to the National Bank lEt. Mechanics Nation.l Mortcace Corc. ora. tion E: a Act. Appellant ("MN3 's subs idiary" ) was incorporated in California in 1972 9.5 as a wholly owned subsidiary of MN3. (Gov't. Ex. 149 and 7 g 155; Tr. 2558). .7 2. Respondent, the Department of Housing and Urban Development E. ( " HU D" ), is an agency of the United States responsible for i administering a variety of mortgag'e insurance programs under T+5, ) the National Housing Act, 12 U.S.C. 51702 ej sec. (1970), as th I:- amended. .The mortgage insurs . programs certinent to this acceal i 3. are adminis.ered by EUD's Federal Housing Administration l-5 L (" FHA"). FEA approves financial institutions that wish to MN3 and MN3's subsidiary were F participate in its programs. approved for participation in 1966 and 1973, respectively. [- Appellants' applications for approval provided, that "the E. l undersigned agrees that it will comply with the provisions .~ l of FEA regulations and other reouirements or the C,- 1 Commissioner". (Govt. Ex. 137, 151 and 155). ,a t p I l ? r l ....:=: :.--.:--.u.. --r.-. ,........=~m==.:. a.--== a.: :-

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[ :. .E 4. This matter was heard de novo. Evidence was lh.mited to lN! evn s occurring between January 1, 1974 and June 21, 1976 ip-("the relevant period").

11 events described herein

[22. occurred during the relevant period unless otherwise noted. E!F .=:* 5. During the relevant period, -he HUD Los Angeles Area Office 5 crocessed ac.clications for FEA insurance on mort 9ac.es E.E.... originated by appellants and monitored appellants' servicing El. of FEA insured mortgages. The Area office mortgage credit .= section, staffed by nine people, received and approved or Mie rejected acclications for FEA insurance, and the loan !9.E. 2 =. -r management oranch, s :a _a :e c cy.,ive people, monitorea. the r: - admi..is: ration, after cricination, of FHA insured loans. EE: n= (Tr. 22, so, ,_3e ,,20, 422). . = = - 6. Because there were approx:..mately 120 approved mortgagees in ff-l the Los Angeles Area participating in FHA programs at any

p.+.

c.iven time, the Area Office staff had to rely heavily on the ' ' =. ac.creved mor:cacees to mee: their contractual oblications as .E detailed in applicable regulations, handbooks, and mortgagee ~ le::ers. (Tr. 98-99, 428).

f..:=.'.,

._. l 7. MNE's loan oricination activities were coverned by Mortgagee

.g.=

Handbook No. 4000.2 (March,,197 5 ) ( App. Ex. 5 3 ) which l373 provided in pertinent part:

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=-- 3-7. LOAN ORIGINATION ESSPOhSIBILITY. HUD requires the d orig:.nators of insured mortgaces to develoo such 3.E..l _ cans in accordance with accepted practices o, .g,.;.. pruden lending institutions and EUD-FEA i.=.i.N. requirements. They must obtain and verify gL information with a: leas: the same care that would R... l be exercised in originating a.,oan in which the ..E. mortgagee would be entirely dependent on the E...E. .=rocerty as securitv to.orotect its investment. Es: =- =.. =. l in = i

=."".

T.: 6-3. COLLECTING INFORMATION. ?k .= = .i:5=. b. FEA Form 2004-G, Verification of Ecolovment. b35$ ...Tne morce.ac.ee mus: send this f orm.cirectly 'S_- [to] th e ac..c li can t ' s e m.olo.v e r (and the exa. lo.ver =. =.. 1 of any co-mortgagor). The form is retur'ned Ki directly to the mor:cacee. It must no:.cass =...E.... through the hands of the applicant, real estate Eg., acent, or any c:her third party. t= :- y=:- e

=. :.

1.; - $2: i- - 1. 1 ::.- V' _{0 '~' -{b *? ~ - 5 'E* * -,.,:K.".';.".=**'I=.' ,,, ~ ~ l5I-*;;;*:;. ~~ k -*h?'

L';.l~'..***..

i 1

~ 'E y 3' t t 1 1 s.. g.. S-6. NCN-CONFLICTING SERVICES. { 4 ~.2. d. Real Estate 3rcker or Agent.

.=..

+ 'U;..

a. r.

(3) Th e mortgagee is responsible. to HUD-FEA for ....E accurately completing the mortgage @E ' insurance application and the foregoing M crocedures are not intended in any way to )~k, ' change the specific procedures for such g.- i = preparation outlined in c:her portions of E= this Handbook.. Where applications (Form lE= l are cre=ared b.v a real k i.f.. the form must be. estate bro er 2900) reviewed and E', (or agent), signed by an appropriate official of the E;: mortgagee. Verification of emclovment and [ 4 i deposit must ce coth initiated by and; Ei, received by the mortgagee. The real estae il broker (or agent) is no: to perform this E5, function. (Emphasis added). [.i 8 ' =c+ s. on July 30, 1975, HUD issued Mortgagee Letter 75-7,. a copy of = = - which was received by MNB. The' letter provided with respect g: to loan origination under.FEA programs that g The crocer function of the mortgagee is to interview the_ R ouyer, collect the necessary information in order to cotain a credit report that meets our standards, and 1 ~ i' obtain applicant's authorization to check and verif.v U.~ employment and assets. The interview with the applicant r should reveal the potential f or stability and responsi-

7 bility that could persuade the mortgagee to lend the EE applicant money for the purpose of buying a home, provided the credit report reveals a satisfactory e

s I history. (Emphasis added). (Gov' t Ex. 171). ..Y ' l 9. In september, 1975, HUD established a Mortgagee Review Board

=

l ("the Board") "to act for the Secretary in determining

E whe:her or not to withdraw approval of a mortgagee under HUD i.

a crograms. 40 F.R. 43026 (1975), 24 C.F.R. Part 25 (1977). E.* 'section 25.5(h) of the Board's regulation authorizes the M Board to wi:hdraw approval for "Such other reason as the Board, Secretary, Under Secretary or hearing office > as Mi.: ac.erco.riate, determines to be justified." . F Eh l i I e I 3 i l

~__.... _.... _. _......

_...,.~_~:=..,.z..=.;.==._.. -.. =. = _.... ... =. . x..

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gg

10. Tne membership of the Board was initially comp'osed of the gg secretary for Housing Procuction and Mortgagethe General ~C:unse gg As sis tan:

credi -Federal Housing Commissioner, Secretary for Housing Manageme 0 F.R. g3 and the gg nscector General, or their respective designees. 4 g~ the Assistant 430'26 (1975), 24 C.F.R. 525.2 (1977).

=

77 (( The Board withdrew approval of appellants on March 31, 19 report issued by gg based on deficiencies described in an auditThe Boarc's gg 11. 1976. HUD's Insoector General on June 21, gg decision Oas made following a notice of the proposed a. tion c 1976 and appellants' gg to appellants in November,1976 to the Inspector General's auct:

7 sen Ex. 162 and 163).

}{ rescense in December, (Documents File, Tab 26 ; Gov: ~

_f repcrt.

Q ac..ceal f rom the. Board's decision m. e._ e.1.an.s.4.1ed a timelv.525.4(c)(1976). gs e 3 33 chrsuant to 24 C.F.R. of Charges in, { filed a revised Statement 13. One Government chargec :nat Therein, the Government

f. ailed to exercise sound business gudgment anuarv 1978.

L accellants: (1) lenc,ing c'r' o follow accepted practices of prudent (2) breached their r. ins-itutions;to comely fully with statutes, regulations,(3) made false

ailine and other guidelines; E.orteacee letters, f ailed to obtain anc verify (4) information with the same care' as they old in commercial statements to the FHA; loans where the property mortgaged.was the sole security.,og failed to properly supervise those hancling and (6) permitted their employees to y

such loans; (5) g benefit personally f rom the foregoing practices in selling FHA insured loans; (Documents :lle, Tab their own property under FEA programs. 60). s recited 47 counts .The Government's Statement of C'.7.argeof scecific insta h 14. An additional count charging The deficiencies charced. collection was subsecuen-ly withcrawn. ~ Government seeks an order affirming the cecis i excess interest { =cabrance programs. (Documents File, Tab 60; Tr. 26). [ns averred that J Accellants denied the Government's charges,in a manner consisten,,. w '5* -Vev acted at all times a..d controverte'd e,aih of 3,.}e

ractices and FHA recuirements, Appellants seek an creer reinstat

~ heir accreved mortgagees retroactive o -he date o. t '47 counts. l Tr. e ,). (Docmments File, Tacs 43 anc as; l sh'spe nsion. i l 1 I ~~ ~ ": "; :.~.. = ~= i =- '~~"' ~~ ^ "'*=.E.;~;?:h*: ' * ' ...;^=~= = "~~~ =": z. ^"*u -:.=-=.=r = =.=====~ "n"-~~~~~~ -mr=.::.: l ~..... ?:~ : :.:::.=.......:......_...* * =. -......... - - ~ ~ - -.

t..

L..E A. Employment Information: Counts 1 to 13 Iki. =. +~ To obtain insurance under HUD programs a dinancial submits to EUD FEA Form 2900, " ~. 16. institution, or mortgagee, entitled "Mor:gagees Application for Mortgagor Approval and 3 f or Mor:c.ac.e Insurance Under the National Housin9 ...J; Co r..i tmen t Ac:" (hereinaf ter," Form 2900"). Through the Form 2900, t.he E...s.. t"7 mortgagee f urnishes EUD with Iinancial information c..

ha The information includes data on f.h borrowe r, or mortgagor.

pE.. the mortgagor's assets, liabilities, dependents, and income, !E: and future' cost of as well as the mertgagor's present The Form concludes with a EE.. t. cerchasinc. th e c ro.ce r t.v. "The mortgagee EEL I "Mor:gagee's Certificate" which states that EE all information in this application is true certifies that EF and complete to the best of its knowledge and belief." = t *"* be submitted to HUD with specified E;

17. 'The Form 2900 must data.

Amonc. these is an FEA Form.No. 2004-G, E.i suc..cor tinc. entitled "Recuest f or Verification of Employment" (here-F inafter, "VOE"). In this form, the applicant's employer i,, voe and E.. reports the acclicant's lenc.th of employment, . 2. amount of earninc.s for the c. as 12 months, and crobabilitv. The VOE provides on its face that Er o f continued employment. lender is to " Forward directly to employer named in j.5 the Item 1." = =.

.

=.1. ~.. Counts 1 and 2 =.. = = On or before July 5, 19i4, MN3 submitted loan E:. E.E 18. oric.ination documentation to EUD to obtain FEA insurance i... .g Peltier. The documentation, on a loan to one Nadine J. with =.. c.reoarec bv a,.leic ree.resentative under contract MNB, included a VOE stating that Peltier workec as a L; located a: 5155 i.. secretary for Pacific State Discount Los Angeles, CA. No such firm was jf.. South Vermont, i2 the stated address, nor was any evidence located at EE ^ ' cresented to establish the existence of such a firm. 'The employment information submitted by MN3 to EUD for lE E Peltier on the VOE and the Form 2900 was f alse. [;; (Tr. 550-556; Govt. Ex. 1, 2, 3 and 4). .= MN3's loan origination file on Peltier contained 19. conflic ing employment information. The preliminary repor show differen: Q application and the creditaddresses for the pla.ce of employers and different employmen:.. The last creci report information was q "WILL SUPPLEMENP' F obtained f rom Peltier and states WHEN RECEIVED." (Govt. Ex. 2 and 4). .~ T ? --- q: ;;;;. :.. : ~ ~-" /. 2-a.,...g., ; ;;.... ;. ;.,;.;;.;..;;.,..,,;..;,.. .,.,.;.,..;..,7 . - '[ '^ .. ~ ~ ""^* :.:.

5: i 6 ("- ,t..=': 20. There is no evidence that any MN3 employee sought to 15 E3 resolve the incom lete and conflictinc. emo. lov. ment information by independen verification before E. 5E submitting the information to EUD.

=.

~ =[L Counts 3 and 4 2" 21. On or about November 5, 1974, MN3 submitted to EUD a

== Form 2900 with a VOE certifying that Annie Marie Ele'ans iE: was employed at the Child Improvement Center at S380.00 t..=. cer month as a Teacher-Instruc:cr. The emo.lo ent E== information on both forms was false. (Tr. 607; Govt. Ex. Ei 7 and 9).

=

=.. 22. 7.nnie Marie Elcans cannot read or write, but she can E-sign her own name. She was not employed during the k) relevant period, nor was she ever a salaried employee of g;. the Child Improvement Center. She was not interviewed i l.. E by anyone from MNB during the course of the purchase of the home and insurance of the mor: gage. (Tr. 576, 594, 'j.: 396, 607, 609, 613). igi--

5'"

23. Although Mr. Neese, the Director of the Child g= Improvement Center, idqntified the signature on the VOE gg . E. E as his own, he did not recall signing it. He was EE visited by a man he did not know who asked about l Mrs. Ilcans, but Neese had no contact with MN5, MN3's. EE subsidiary, or any credit bureau in connection with - [~=E Mrs. Elcans' alleged employment. (*r. 578-581, 586, E 55 588-589; Govt. Ex. 9).

=-

Es ' 24. Peter Petsas, an independent real estate agent, hao Mrs. Elcans sign the VOE in blank, hand carried it to R... I Mr. Neese anc hac. him sign it, anc :nen hanc, carr,ec. it I

o MNB.

(Govt. Ex. 9 and 10; Tr. 632-634). g.: -5? I In permitting Petsas to hand carry the Form 2900 and the is:. i 25. l VOE of Mrs. Elcans, MN3 f ailef to comply with the i== instructions on the VOE and in the Mor:gagees Handbook. f..r. El

==' .:w ,e 7 !. 8 . =[w * . = *. ' t I.":* ? I. ' .--...f;_.., ~r. Y -.... -

72. '"*^ " " :

"." ::"hb N"*b=

.*.""' "* ;$ $ "Y.5N 5* 50...

. ";.::..:.,....:.=-- ... - +

i i l i 7 Counts 5, 6, and 7

.=..

26. On or aboe: June 26, 1975, MN3 submitted to HUD a ss= GE rerm 2900 and two VCE's for Lee and Deborah Meadows.. The salary inf ormation for both the Meadows was f alse, !.d. the name of Mr. Meadows' employer was incorrect, and the Ei:- Ein name of the person certifying Lee Meadows employment was fictitious. (Tr. 665-670, 692-694; Govt. Ex. 12, 13 and g4. E.=.

1. s ).

5.5 8 27. MN3 imprcperly permitted Deborah Meacows to hand *cafry ...p~ her VOE to her employer Willie Mae Harris, in violation cf VOE and Mortgagee Handbook instructions. (Tr. (( 670-671). m 28. On the other hand, there is nothing in' the record to ll_~. support a fincing of unacceptable practice by MN3 in [7 connection with the employment information submitted,to b. EU3 for Lee Meadows. E^

g. -

Counts 8 and 9

x. -

- TT 29.

On June 11, 1975, the date of the Form 2900 submitted to i"hr HUD for Ella McGee, MN3's files contained conflicting $[ e mployment information for Ella McGee as follows: (a). EE the Fcrm 2900 dated June 11 reported that Mrs. McGee !5 werked as an assistant manager at a Pizza Hut earnine Ef.. s942,50 per month; (b) a hand written note to the file i..:. dated June 9 reported income at S4.65 per hour averaging is 45 hours per week which totalled S837.00 per month; (c) L. a credit report dated May 29 which estimated a monthly by income of 5850.00 per month; and (d) a VOE dated May 8 k.i reporting a salary of S870.00 per month based on 50 hours per week at S4.35 per hour. (Govt. Ex. 15,~17,

-;9

^ p 18; App. Ex. 30). 30. Mr. Manginelli testified that based on the above ..ir I discrepancies he would have returned the application to [ l the loan processor. ( Tr. 1838-1839, 1952). E: 1 31. Pauline Antonelli, an employee of Urban Concepts, Inc., I a loan processing firm, hand carried the VOE for Ella l} McGee to the manager of the Pi :a Hut wher,e she was (! e m o. l o v e d. (Tr. 832-834). s .~ t .= ~ 4 .i l .h I I

==.gfy =. J. E.'. g., g_,M.,.,; . ;. :.. = - q ( .. -- ; c,.;.= =.u..

i...-

E.' g-

=-

=

Counts 46 cnd 47 = 132. In inspecting two properties held by MNB just prior to s~ conveyance to HUD following default, security deficiencies were found. In one instance three windows EE. were nailed rather than bolted as required by a HUD 5f circular, and in another instance padlocks were not' found Ef on doors and the house in question was open. There was @E no evidence of vandalism at either location. (Tr. EE.

.=-

1141,1148). gg

== 133. As an approved mortgagee, MN3 is responsible for the i=~d security of such properties as.well as any unexcused 5k failures of performance by the contractor who aciually 5? performs the work on MN3's behalf. No evidence was EE presented that MN3 failed to properly secure properties for which it was responsible other than in the two EE: isolated incidents charged. EE .s =

~ r -: r--; =.

E. Self-Dealipe EE

=

134. Patrick F. Grabowski and Albert Greenfield were officers EE and directors of MN3's subsidiary during the relevant 55.i period. Patrick F. Grabowski, or a corporation in which 55 he or Albert Greenfield had an interest, was the. seller 5@ of record in four transactions during the relevant period - 51 in which the buyers cbtained mortgage loans from MN3 Es which were ultimately insured by FEA. (Gov't Ex. 18 8, E~ ET l 189, 190, 191). t =.==- 135. There is no evidence that any officer or director of MN3 f.if l 1' was individually involved in the sale of any properties EE on which the buyers obtained mortgage loans from MN3 and M[ which were ultimately insured by FHA.,

.i.;g

. =.

== 136. There is no evidence that any officer or c.irector o:. MN3

.s interceded in the preparation or processing of any FEA dg-mortgage insurcnce applications in connection with loans made by MN3 on properties in which such officer or s@

director had any direct or indirect in tere s.t. i% tE~ l 137. There is no evidence showing that the processing, terms, or conditions of any FEA insured loan made by MN3 to the T!i purchaser of a property in which any officer or director cf Mechanics had any direct er indirect interes t. dif f ered Wii from any other FEA insured loans issued by Mfi3..4, i:=- . =. -

=

I =.: l l

==.~"*i2= :=';iz..-

2'~~ '. l.: ;;b; -.'~"=--:==.:...

.. - :: =.--= :- .:=:. : - -. = y.;; .:.=. _;. _ --...

r 25 u... o I. f. r, : I. Mechanics National Mortgage Corporation p a.= r::::- 11E. During the relevant period, many of the same persons EE-acted as both officers and directors of MN3 and MN3's EE sucsidiary, although their titles and positions changed. 55 Technically MN3's subsidiary had no employees, but its E5: work was performed when necessary by MN3 employees. (Tr. ((:,.. 2046-2062, 2557-2559; 2575, 2590). EEE .-E=- 129. MN3's subsidiary was effectively under the control of 5k.'; Albert Greenfield, the controlling shareholder of the si.

=.:- :

. parent, MN3. E .. + EE CONCLUSIONS OF LAW EE $$.Y 1. Mechanics National Bank and Mechanics National Mortgage E% Corporation are mortgagees within the meaning of 24 C.F.R. [F Par:s 25 and 200 (1977). gm i.5.' I: 2. The Government has established by a preponderance of the evidence the violations charged in all but the following [;;. counts of the Statement of Charges: Counts 5, 33, 34, 37, Ms '39, 41, 44, and 45. Although the Government establ.ished Ei che failures of performance charc.ed in Counts 46 and 47, E. i.. those two failures do not rise to a level of significance i@h sufficient to support withdrawal of approval. Eh ?=E-3.~ Mechanics National Bank has demonstrated a lack of "i" responsibility in the origination of FEA insured loans during the period January 1, 1974 throug h June 21, 1976, as fd6 5.I follows: m. 9-(a) Mechanics failed te follow accented cractices of ~ pruden: lending institutions in collecting and E verifying information from applicants concerning their e mplo yment, downpayments, liacilities, and dependents; 3 (b) Mechanics f ailed to comply with the recuirements of Mortgage Handbook No. 4000.2 and Mortgagee Lette-75-7 and in so doing breached their contract with HUD; 5::. l (c) Mechanics failed to supervise properly its. officers ~ ~~- and employees handling FEA loans; and .s' (d) Mechanics made false statements to HUD. l l i -1 \\

'

~

. :." ~= ~ ? ~~-

..,~*='::,==_='. , "~ r [

-~L = ---~ :..

l ,_L. t- = s 1 e . =. t. .'t - 4. The Government has not established that Mechanics f ailed to i properly service FHA. insured loans after oricination. f*~~* " ass. T.e Government has not established that Mechanics permitted s.F. =.:.

s officers, directors, and employees to benefit pars:. ally frc the cractices described above.

f,.ii. ~ =:: =.:

=.

U =. :. 6

=-

-=.

i.=. i 'd /'d? A I. 55El. l 3. Paul Cotter, Jr.. E59: Administrative Jud 'e EE t'

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y i i ATTACHMEt1T 5 i i ? i i t 4

I. g I _\\ \\-} i. l c,.. 9,7 v. U iF lhtifth Plates 53istrirl @mtrf r. l SOUTHERN DISTRICT OF NEW YORK 1i ', i ]' ~ r t (; i fi UNITED STATES oF A3rtnicA, Plainti T, -against-Civil No. 115-328 ,(([ BETin.nnn>r Srztt. ConrnnATION and F '. ~ Tus YorsosTowx Sntti Axo Test Co3rrAsv, Ni

Defendants.

l FINDINGS OF FACT AND CONCLUSIONS OF LAW

1., i nrrruzTzoxs 1.

As used in these findings of fact and conclusions

i of law the following terms have the meaning indicated lf[

Rr I below:' !Lf I Eastern Area: Connecticut, Delaware, District of 1 i Columbia, 3Iaine, Maryland, 3tassachusetts, New Hampshire, New Jersey, New York, North Carolina, I Pennsylvania, South Carolina, Vermont, Virginia. Western Area: The seven western States of Wash-ington, Oregon, California, Nevada, Idaho, Utah, [ and Arizona. Mid-Continent Area: The remaining 25 States. Xortheastern States: The Eastern, Cleveland-l E Detroit, and Pittsburgh-Youngstown production dis-f[ tricts of the American Iron and SteelInstitute. These ( t i three prodnetion districts include the following States: if[$ l l Connecticut, Delaware, District of Columbia, Ken- , ' ll tucky, Maine, Maryland Massachusetts, Michigan, i I New Hampshire, New Jersey, New York, Ohio., Penn-sylvania, Rhode Island, Vermont and West Virginia..., ~ Chienno District: The States of Illinois, Indiana", . Iowa. Minnesota, Missouri and Wisconsin. 7 e /

f. V 2 O The foregoing areas as defined by the respective (*,,m mten pr parties are used in these findings solely as definitions duied by JIer iron, serni-fin ~ unless otherwise indicated. ,Sortheast Quadrant: The Northeast Quadrant in-I'rodm t.<. cludes the Northeastern States and the Chicago Dis- ,.g fgf, an trict. to ivit the following contiguous States: Connecti-asdiation m cut Delaware, District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New I 2. The Yi Jersey, New York, Ohio, Pennsylvania, Rhode Island, hereinafter G Vermont, West Virginia, Wisconsin.

** "I '.0 *
Common finished stect products:

The f011owing Oh.io, with ij six categories of products, which are produced and The term "Y sold by both defendants except as indicated, which oiii tow categories conform generally to mill product groups: ~ (i) sheets and strip, inchtding hot rolled sheets, ygg. York. galvanized sheets,2 cold rolled sheets and hot and

1. Youngs cold r.olled strip; Ytunigstown, (ii) bar mill products, including merchant bars, Front these bar size shapes, cold finished bars, sucker rods and inounts prc track spikes, but excluding concrete reinforcement aer ss state 1 j

bars, produced by both Bethlehem and Youngstown; 4. Bethle' [ (iii) tin mill products, including electrolytic tin "Ilethlehem,' l plate, hot-dipped tin plate, hot-dipped terne platet under the'la-i and black plate; U'"."*I'" OIE I (iv) rod mill products, including wire rods, wire (*.' aries), n and staples,1 barbed

F*

j (both plain and coated), nailst and twisted wire,' woven wire fence,8 and bale ties;8 std.iarie.< of (v) plates, including universal 2 and shearedt plate 5. Bethh f mill plates and strip mill plates; and flethlehem, i (vi) buttaccid pipe. 1.ni kawanm These six broad categories inchtde the great bulk of I.os Angele l l all finished steel mill products. and Seattle, l t Produced by Bethlehem but not by Youngstown. l N 1 1

o ---~.- '.y

y

~ s, - ', % i r., m L9 iM

t..

I g.. j O L" , apective Common products: Products in classiScations pro- ! ?.T initions duced by Bethlehem and Youngstown, including pig N '?!. 4 : iron, semi-finished steel products and finished steel ant in. products.

1 go Dis-AISI: American Iron and Steel Institute. a trade 3 -

muceti-association maintained by the iron and steel industry.

ndiana, luSetts'

.TURISDICTIoN ~ e,New l Li f

r}_

i-

Island, 2.

The Youngstown Sheet and Tube Company, hereinafter called " Youngstown", is a corporation organized and existing under the laws of the State of h! lowing Ohio, with its principal office at Youngstown, Ohio.

. IV rd and The term " Youngstown" includes subsidiaries of The ij [ "l which.

Youngstown Sheet and Tube Company. Youngstown ig[i roups: transacts business within the Southern District of I

sheets, New York.

I: 3. Youngstown has steel plants located at or near [ it and . bars, Youngstown, Ohio, and East Chicago, Indiana. From these plants Youngstown ships in substantial ( ls and amounts products of the iron and steel industry I 'ement ! : town; across state lines to purchasers located in other states.

T,

,! 5 l ie tin 4. Bethlehem Steel Corporation, hereinafter called " Bethlehem",'is a corporation organized and existing i !. 1 i plate l under the laws of the State of Delaware, with a stock .( transfer office (maintained through one of its sub- ,j wire sidiaries), and a mail address, at 25 Broadway, New Ile[ arbed [j York City. The term " Bethlehem" includes sub-ities;r sidiaries of Bethlehem Steel Corporation. j. . plate-Bethlehem has steel producing plants locatell'at Beth!ehem, Johnstown and Steelton, Pennsylvania; i'; {i(( 5. .e Lackawanna, New Yoi,k; Sparrows Point, Maryland; 1 !. j _ I ilk of Los Angeles and South San Francisco, California; !l,f j and Seattle, Washington. It also has manufacturing l 51iE i f i A 1 b

-c u y r-y, j ~l i*t I nets and that i plants located at Lebanon and Williamsport, Penn-ican iminstry From these plants Bethlehem ships in sylyania. I to a large e: substantial amounts products of the iron and steel American im industr'y across state lines to purchasers located in g'. In 'he 1 other states. 6. Bethlehem and Youngstown entered into a lar;:ely stawl of style appt " Reorganization Plan and Agreement" dated Decem-uses, for mm I ber II,1956, which provides for ~ the acquisition by tutes. Bethlehem of the business and properties and assets of Youngstown and such Plan and Agreement will B.Th be carried out unless the Defendants are enjoined

10. The p from so doing.

y, makin;: are ' THE STEEL INDUSTRY three tons e produce a to A. General in Northern d The " iron and steel industry" extends from the and transpo; 7. ] mining of iron ore through the production and. sale centers in t! of pig iron, steel ingots, and the various finished of the Unit steel products, but does not include the fabrication from Canat of steel by consuming industries. However, a nmn-deposits are ber of integrated steel companies fabricate certain of steel pro < [j;;ng;g, m products such as heavy structurals and concrete reinforcement bars, cast ingot moulds and manufac-quarries aro Accordingly, such activities, which Ohio. ture wire rope. l' are substantial, cannot be considered separate and

11. The

. apart from the iron and steel industry. P"rtraved u Coke. limes S. The iron and steel industry, of which Bethlehem blast furna: and Youngstown are members, is commonly recog-l'it: iron l 7 nized as a separate and distinct segment of American element.< su industry. While the iron ore consumed by the iron and steel industry is produced primarily from mines phnr and I burned ont l 1 owned by members of the' iron and steel industry, furnaces, o substantial quantities of iron ore are produced bT } companies that do not produce iron and steel prod-I;essemer ( i ... ~ ~%, =

f.[ ' ' .~ 7 n.1 i-@N,N. ~.- i . u;, d' ?.* H t 5 , (p! 4 h. c y ucts and that are a part of another recognized.imer-h;., g iun-ican industry. The fabrication of steel is carried on j3F in Leel to a large extent by companies in other recognized p ' American industries. ',6 b. > in n. 9. In the steel industry the end products are lDf[ largely standardized, are not subject to the vagaries [,r,. of style appeal and have peculiar characteristics and . li d.. ,a by uses, for many of which there are no effective substi-f$ un-19 av,- ifG iets tutes. ij; Q- . vill !p B. The organization and flow of products y ned

10. The principal raw materials for iron and steel hi
i.

making are iron ore, coal and limestone. More than three tons of these raw materials are required to i' produce a ton of pig iron. Iron ore is mined chiefly p':; in Northern Minnesota, Michigan and Wisconsin c the and transported by lake vessel and rail to the steel [.',l c

I" centers in the middlewest and northeastern sections

.,I - I pd of the United States. Iron ore is also imported L' lon from Canada and other countries. Coking coal C '- !-

i deposits are found in abundance near the centers un-6 lj1

-if r[L.J. - of steel production in Pennsylvania, Ohio, Indiana, 31n t? ,g Illinois, West Virginia and Kentucky. Limestone . c-quarries are located in Michigan, Pennsylvania and p"'i ' - 1-a 12 r

h Ohio.

!1 I

11. The physical flow of products in the industry is ji I.4 ind i

portrayed in the flow chart set forth in this finding. j;. [t Nll1 3 1' Coke, limestone and iron ore are combined in the. f-h [l ' E~ blast furnaces to produce pig iron. Pig iron is brittle because it contains a number of i... i, elements such as manganese, silicon, phosphorns, sul- []f M ,"l,'. phur and particularly ' carbon. These are largely "s di E ' hurned out or oxidized from the iron in the steel ir - by furnaces, of which there are the following types- ..4 p.... ud-IIeuemer converters, open hearth, electric and cru-

i.f4','..

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~ ~ ~---- ~ e.. ~ a t 195 a Youngs-451. Sunbury Wire Rope Manufacturing Co. pre-made 8% ferred to buy rope wire from companies who do not muestown compete with it in the sale of wire rope because the l6 Dpson-company assumed that a competitor would satisfy s of wire its own requirements first and let a nonintegrated competitor wait. l K. Porter 452. Since 1954, the price for rope wire paid by 1956 and Rochester Ropes (a nonintegrated manufacturer of es of wire _ wire rope with about 2%% of industry sales) in-re of total creased approximately once cach year; and between u

aut 5.1%,

1954 and 1958 the prices paid by Rochester Ropes for d' rope wire have risen about 20%. The cost of rope i wire represents between 65 and 70% of the cost of

ing Com-wire r pe manufactured by Rochester Ropes. While vire rope the price for rope wire paid by Rochester Ropes has rope sales generally risen approximately 20% since 1954, the prices of wire rope sold by Rochester Ropes have re-y limited mained the same or declined during the same period.

d greater This has resulted in Rochester Ropes losing consider-

with in-able business and the profits on straight wire rope

~s in short sold by Rochester have been substantially reduced. products. 453. Rochester Ropes' share of total industry sales >sition of of wire rope over the last 10 years has declined from about 3%% to about 2%%, because of the losses of

practice, valuable accounts resulting from the decline in market i

utegrated prices of wire rope. a ceause of 454. During the last two years, similar price j. ire when c mpetition in the sale of wire rope has been experi-the com-enced by the Leschen Wire Rope Division of.H. K. I ties argu, Porter. In order to reduce costs, Leschen 'lias m,.te,

f Roches-grated backward to undertake the drawing of its e than it own rope wire from wire rods.

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I-- '9. 2 - p 106 't-d 1 455. Sunbury ' Wire Rope 3Ianufacturing Co. in 460 2 1953, while it was still in business, experienced in-rope. dnstry price increases in rope wire which were not sen-V accompanied by increases in the price for wire rope. i 461 456.. The effect of this price development in rope suppl . wire in 1953 on Sunbury was to increase its costs 469 ', without increasing its selling price and to eliminate enti*v-it.tprofit and turn that profit into a loss on the fixed price contracts then on its books. Shortly thereafter, 463 about the middle of 1954, Sunbury ceased manufac-field s turing wire rope. j 457. Paulsen-Webber Wire Rope Co. (an inde-f pendent nonintegrated manufacturer of wire rope) if has experienced increases of from 457o to 55fo in the of j, y cost of rope wire for the most common types used comp. by' that company during the 8-year period, 1950-1958. ands During this same interval, the prices received from eastC the sale of wire rope by Paulsen-Webber have been states slightly below or slightly above what they were at the in the ? beginning of the period 8 years earlier. and i F 45S. There is no price competition among domestic-Act. E producers of rope wire and this is one reason why 2 ~ ) independent nonintegrat'ed wire rope producers have of je 8 been forced to go abroad to secure supplies of rope eggp 1:' ductii l ~' 459. Paulsen-Webber, in 1958, has experienced and li keen price competition in the sale of wire rope with east C the effect that it is now selling wire rope for less than .f states it is able to make and deliver it. in thi and i Act. 3. of De i i st l W l 7 i W 4

y.. E. l 197 i l iring Co. in 460. Because of tl e very free competition in wire perienced in-rope and the lack of competition in rope wire, Paul-l Jeb were not sen-Webber has been caught in a squeeze. j ) ' r wire rope. 461. Bethlehem sells wire rope through its oil field bient in rope supply stores. Ese its costs 462. Bethlehem sellt wire rope through independ- ' to eh,minate ently-owned warehouses. on the fixed 463. Youngstown sells wire rope through its oil ed manufac. field supply stores. ,3;. 4 thereafter, =: t i. C ""I"8I "* f ). (an inde-wire rope) 1. There is a reasonable probability that the merger l > 55% in the of Bethlehem and Youngstown will substantially lessen types used competition and tend to create a monopoly in the iron b' 1950-1958. and steelindustry, in the United States, in the North- $cived froin east Quadrant, in the Northeastern States, in the four r have been states of 3Iichigan, Ohio, Pennsylvania and New York, were at the in the two states of 3Iichigan and Ohio, in 3Iichigan, l and in Ohio, in violation of section 7 of the Clayton %g domestic-Act. l reason why 2. There is a reasonable probability that the merger i queers llam of Bethlehem and Youngstown will substantially lessen leS of r Pe competition and tend to create a monopoly in the pro-duction and sale of hot rolled sheets, cold rolled sheets l experienced and hot rolled bars in the United States, in the. North-I i h rope with east Quadrant,in the Northeastern States,i' tte fo.ur, for less than states of 31ichigan, Ohio, Pennsylvania and New Yore, in the two state,s of 31ichigan and Ohio, in 31ichigan, l and in Ohio, in violation of section 7 of the Clayton Act. 3. There is a reasonable probability that the merger of Dethlehem and Youngstown will substantially lessen i-d 2 l.

[ .P. a g. i 2; 'y a F ~ [,"3.. < u 19S 1 compet competition and tend to create a monopoly in the sale of production and sale of tin plate in the United States, supply in violation of section 7 of the Clayton Act. secIlo!; .4. There is a reasonable probability that the merger 10. . 'M B.ethlehem and Youngstown will substantially lessen ,] merger comp'etition and tend to create a monopoly in the , tially 1 production and sale 'of track spikes in the United 2n the States, in violation of section 7 of the Clayton Act. 'i

States, 5.

There is a reasonable probability that the merger 11-j l of Bethlehem and Youngstown will substantially lessen would competition and tend to create a monopoly in the production and su of buttweld pipe in the United

Dated, States,in violation of section 7 of the Clayton Act.

6. There is a reasonable probability that the merger of Bethlehem and Youngstown will substantially lessen ] competition and tend to create a monopoly in the production and sale of electricweld pipe in the United u States,in violation of section 7 of the Clayton Act. 7. There is a reasonable probability that the merger of Bethlehem and Youngstown will substantially lessen competition and tend to cr6 ate a monopoly in the sale of seamless pipe in the United States, in violation of section 7 of the Clayton Act. 8. There is a reasonable probability that the merger g ~ of Bethlehem and Youngstown will substantially lessen conipetition and tend to create a monopoly in the production and sale of oil field equipment, including drawworks, rotaries, traveling blocks, swivels, slush pumps, and pmnping units, in the United States, in violation of section 7 of the Clayton Act. 9. There is a reasonable probability that the merger of Bethlehem and Youngstown will substantially lessen l h I' = 4 4

f "^ C e ~ u 199 a competition and tend to create a monopoly in the {yinthe sale of oil field equipment and supplies by oil field sd States, supply stores in the United States, in violation of s - section 7 of the Clayton Act. 2e merger

10. There is a reasonable probability that the

/ y lessen merger of Bethlehem and Youngstown will substan-Il 7 in the tially lessen competition and tend to create a monopolv s United in the production and sale of wire rope in the United Mon Act. States, in violation of section 7 of the Clayton Act. e w merger II. The inerger of Bethlehem and Youngstown E lessen T, would violate section 7 of the Clayton Act. y in the g e United Dated, November' 20,1958. . Act. EDWARD WEINFELD ie merger United States District Judge lly lessen y in the e United on Act. [ e merger $ly lessen 4.~ c the sale ~

violation e merger

~ I, j Oly lessen B r in the ' mieluding .u 2sg slush tates, in I f- @ nierger g.

ly lessen l

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