Banking and Finance Law Daily Bank, directors could not sue FDIC over enforcement proceeding irregularities
Monday, April 1, 2019

Bank, directors could not sue FDIC over enforcement proceeding irregularities

By Richard A. Roth, J.D.

A state bank and its directors could not challenge FDIC enforcement orders by filing a suit claiming constitutional violations. The only avenue available to attack the proceedings was to appeal the orders in the U.S. Court of Appeals.

A federal district court did not have jurisdiction over a suit filed by a New Orleans community bank and its directors who were unhappy with two Federal Deposit Insurance Corporation enforcement actions and the resulting cease-and-desist orders and civil money penalties, the U.S. Court of Appeals for the Fifth Circuit has decided. Under the Federal Deposit Insurance Act, only the U.S. appellate courts have jurisdiction over challenges to enforcement actions (Bank of Louisiana v. FDIC, March 28, 2019, Duncan, S.).

Enforcement actions. The FDIC brought two administrative enforcement actions against Bank of Louisiana and three directors beginning in 2013:

  • The first claimed that the directors had caused the bank to violate the regulation on loans to insiders. The FDIC adopted the administrative law judge’s recommendation that each director pay a $10,000 civil penalty.
  • The second, which was brought less than one month after the first, was broader. It charged that the bank had violated the Bank Secrecy Act, Electronic Funds Transfer Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, and National Flood Insurance Program. The FDIC adopted the ALJ’s recommendation of a $500,000 penalty and a cease-and-desist order.

The order entered in the first enforcement proceeding was appealed to the Fifth Circuit, which affirmed the FDIC’s decision. The second also was appealed, but eventually was returned to the FDIC due to problems with the constitutionality of the ALJ’s appointment.

However, while the first action was on appeal and the second was being considered by the FDIC board, the bank and directors sued the FDIC in the federal district court. The suit alleged that the FDIC had violated equal protection rights by targeting the bank due to the bank president’s age and had violated due process rights by preventing the bank from offering some evidence and restricting the president’s ability to talk with his attorney. The appellate court noted that these claims had been considered and rejected by both the ALJ and the FDIC board.

Restricting court jurisdiction. The appellate court began its analysis by observing that, in most situations, Congress has the authority to decide what cases the federal courts can hear and under what conditions those cases can be considered. While civil suits usually are heard first by the U.S. district courts, Congress can "leapfrog" the district courts by sending claims through an administrative process and providing for direct appeal to the U.S. appellate courts.

Congress can establish such a process either implicitly or explicitly. The issue here, the court said, was whether the Federal Insurance Act (at 12 U.S.C. §1818) had done so by implication. That would be decided by answering two questions: First, did the statutory scheme of the FDI Act show that Congress intended to preclude district court jurisdiction? Second, were the claims presented by the suit of the type that Congress intended to fall within that statutory scheme?

Congressional intent. There was no real question about whether Congress intended to preclude federal district court jurisdiction over claims against the FDIC that arose from enforcement proceedings. In fact, the bank and directors conceded the issue. The statutory language that "no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement or any notice or order [under the section], or to review, modify, suspend, terminate, or set aside any such notice or order" (12 U.S.C. §1818(i)(1)) "virtually compels that concession," the court said.

The question then was whether the claims raised by the bank and directors were of the type that Congress intended would be covered by the statutory scheme.

Nature of the claims. The Supreme Court set the factors for answering that question in Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994), the court said. It would be assumed that Congress did not intend to preclude district court jurisdiction if:

  1. all meaningful judicial review would be precluded;
  2. the claims were "wholly collateral" to the statutory review process; and
  3. the claims were not within the FDIC’s expertise.

The three Thunder Basin factors made clear that the district court did not have jurisdiction over the suit.

The FDI Act scheme allowed meaningful judicial review of FDIC board orders, the court pointed out. In fact, the board considered the constitutional claims and the Fifth Circuit considered them on review. The complaint that limits on the bank’s discovery prevented meaningful review were unavailing because the bank and directors had been able to develop an adequate record, according to the court.

The equal protection and due process claims were not collateral to the enforcement proceedings, the appellate court continued. Rather, they arose directly from claims of irregularities in those proceedings. Even if the constitutional claims were substantively collateral to the FDIC’s allegations about how the bank was operated, they were not wholly collateral, the court pointed out.

Finally, the FDIC’s expertise included the constitutional claims. Why the FDIC chose to bring its enforcement proceedings and how those proceedings were conducted would be affected by the agency’s banking expertise, the court said.

The case is No. 17-30044.

Attorneys: Arthur A. Lemann, III (Arthur A. Lemann, III & Associates) for Bank of Louisiana. Minodora Daniela Vancea for the FDIC.

Companies: Bank of Louisiana

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