Louis A. DeNaples may be free to rejoin the board of directors of the First National Community Bank after a federal court vacated a lifetime ban from banking imposed by regulators.
The decision vaporized all outstanding orders against Mr. DeNaples from the Board of Federal Reserve Bank and the Office of the Comptroller of the Currency, which included a lifetime ban from all bank leadership roles and a forced divestiture of his majority shareholding in both FNCB and the Connecticut-based Urban Financial Group Inc.
The decision Monday likely ended the three-year battle to regain his leadership role in the bank, which he lost as a result of a 2009 agreement with the Dauphin County district attorney to withdraw perjury charges and later expunge all records of the matter involving his testimony about any ties to organized crime figures. Typically, a bank officer accused of a crime, entering a plea bargain or a pre-trial diversion program faces such a ban.
The 22-page decision by a three-judge panel of the U.S. Court of Appeals for the District of Columbia lambasted the federal regulators for "bizarre," "untenable" and "scatter-shot" enforcement of the law and faulted regulators for inconsistently applying the unclear and not properly framed or communicated rules.
"No citizen should be held accountable for a violation of a statute whose commands are uncertain, or subject to punishment that is not clearly proscribed," the court wrote, at one point comparing regulators' contradictory actions and at times conflicting rationales to "trying to draw a two-dimensional shape on the surface of a grapefruit."
While it vacated all orders against Mr. DeNaples, the court remanded the matter to an administrative law judge to sort out, mandating they consider Pennsylvania state law, which does not define Mr. DeNaples agreement as pre-trial diversion. The court's rebuke asked agencies for a "rational distinction (if they have one). Such is the essence of reasoned decision making."
A spokesman for the OCC declined to comment, saying the agency has other active matters.
Mr. DeNaples' attorney, Howard Cayne of Washington D.C., considers the decision a lasting victory, saying he sees no way the agencies can both satisfy the court's mandate and reinstate a ban on Mr. DeNaples. Regulators can ask the U.S. Supreme Court to hear the case, but that would require consent of the U.S. Solicitor General Donald B. Verrilli Jr. Mr. Cayne said that is unlikely.
"I hope the agencies would do the right thing and issue a final dismissal of this longstanding, ill-conceived action," Mr. Cayne said.
Typically, courts defer to the regulatory agencies as experts in their respective areas, a principal called the Chevron Deference, after a U.S. Supreme Court case. The appellate court decision said in cases such as banking, where multiple agencies can have differing and contradictory enforcement and interpretation of statutes, regulators are not entitled to as great a deference and the courts have a role in maintaining equity.
Neither Mr. DeNaples, nor his brother Dominick DeNaples, current chairman of the board of FNCB, could be reached for a comment.
Joseph Earyes, first senior vice president of FNCB, said he was aware of the decision but does not know what it means for the bank or the board of directors. He didn't know if Mr. DeNaples would return to the board.
"Mr. DeNaples resigned so he would have to be nominated and the board would have to approve it," Mr. Earyes said.
Bert Ely, an Alexandria, Va.-based financial institutions consultant and frequent expert witness in regulatory cases, said the court found the agencies' case "a muddle" of conflicting interpretation and underlying weakness in the law.
Mr. DeNaples' ascension back to the bank board may face one, or two more hurdles, however. The OCC could request an en banc hearing, one before all judges. The court later Tuesday opted to withhold issuing of the mandates pending review of such a petition.
Also, FNCB is still working under a consent order with the same agency that banned Mr. DeNaples from banking, the OCC. One of the terms of that order gives the comptroller veto power over any new members of the bank's board of directors or key officers.
"The question may be whether regulators have other grounds on which they can bounce him or bar him from the bank board," Mr. Ely said. "But even then, as this case has shows, regulators must be reasonable in their actions."
Contact the writers: dfalchek@timesshamrock.com