Landry v. Federal Deposit Insurance Corp.

RANDOLPH, Circuit Judge,

concurring in part and concurring in the judgment:

I join the court’s opinion except for its disposition of Landry’s claim under the Appointments Clause of the Constitution. In my view, Freytag v. Commissioner, 501 U.S. 868 , 111 S.Ct. 2631 , 115 L.Ed.2d 764 (1991), cannot be distinguished. The Administrative Law Judge who presided over Landry’s case was as much an “inferior Officer” under Article II, § 2, cl. 2 of the Constitution as the special trial judge in Freytag . I nevertheless would sustain the FDIC’s decision and order because Landry suffered no prejudicial error.

Rather than paraphrase the critical portion of Freytag , I will quote it in full:

Petitioners argue that a special trial judge is an “inferior Office[r]” of the United States....

The Commissioner, in contrast to petitioners, argues that a special trial judge ... acts only as an aide to the Tax Court judge responsible for deciding the case. The special trial judge, as the Commissioner characterizes his work, does no more than assist the Tax Court judge in taking the evidence and preparing the proposed findings and opinion. Thus, the Commissioner concludes, special trial judges ... are employees rather than “Officers of the United States.”

*1141 “[A]ny appointee exercising significant authority pursuant to the laws of the United States is an ‘Officer of the United States,’ and must, therefore, be appointed in the manner prescribed by § 2, cl. 2, of [Article II].” Buckley [v. Valeo, 424 U.S. 1, 126 , 96 S.Ct. 612 , 46 L.Ed.2d 659 (1976)]. The two courts that have addressed the issue have held that special trial judges are “inferior Officers.” The Tax Court so concluded in First Western Govt. Securities, Inc. v. Commissioner, 94 T.C. 549, 557-559 , 1990 WL 39357 (1990), and the Court of Appeals for the Second Circuit in Samuels, Kramer & Co. v. Commissioner, 930 F.2d 975, 985 (1991), agreed. Both courts considered the degree of authority exercised by the special trial judges to be so “significant” that it was inconsistent with the classifications of “lesser functionaries” or employees. Cf. Go-Bart Importing Co. v. United States, 282 U.S. 344, 352-353 , 51 S.Ct. 153 , 75 L.Ed. 374 (1931) (United States commissioners are inferior officers). We agree with the Tax Court and the Second Circuit that a special trial judge is an “inferior Office[r]” whose appointment must conform to the Appointments Clause.

The Commissioner reasons that special trial judges may be deemed employees in subsection (b)(4) cases because they lack authority to enter a final decision. But this argument ignores the significance of the duties and discretion that special trial judges possess. The office of special trial judge is “established by Law,” Art. II, § 2, cl. 2, and the duties, salary, and means of appointment for that office are specified by statute. See Burnap v. United States, 252 U.S. 512, 516-517 , 40 S.Ct. 374 , 64 L.Ed. 692 (1920); United States v. Germaine, 99 U.S. 508, 511-512 , 25 L.Ed. 482 (1879). These characteristics distinguish special trial judges from special masters, who are hired by Article III courts on a temporary, episodic basis, whose positions are not established by law, and whose duties and functions are not delineated in a statute. Furthermore, special trial judges perform more than ministerial tasks. They take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders. In the course of carrying out these important functions, the special trial judges exercise significant discretion.

Even if the duties of special trial judges [just described] were not as significant as we and the two courts have found them to be, our conclusion would be unchanged [because they may be assigned to conduct other types of proceedings and render independent judgments] .... Special trial judges are not ■inferior officers for purposes of some of their duties ... but mere employees with respect to other responsibilities.

501 U.S. at 880-82 , 111 S.Ct. 2631 .

There are no relevant differences between the ALJ in this case and the special trial judge in Freytag . Both held offices “established by Law,” Art. II, § 2, cl. 2; 501 U.S. at 881 , 111 S.Ct. 2631 . In both instances, “the duties, salary, and means of appointment for that office are specified by statute.” Id.; see maj. op. at 1134. Both “take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders.” 501 U.S. at 881-82 , 111 S.Ct. 2631 ; Samuels, 930 F.2d at 986 ; see 12 C.F.R. § 308.5 (defining the ALJ’s duties). “In the course of carrying out these important functions,” both the special trial judge in Freytag and the ALJ in this case “exercise significant discretion.” 501 U.S. at 882 , 111 S.Ct. 2631 .

The majority attempts to distinguish Freytag on two grounds. Neither survives close attention. First, the majority says that the Tax Court, in reviewing the special trial judge’s “non-final decision” in Freytag , gave deference to factual and credibility findings pursuant to Tax Court Rule 183(c), whereas the FDIC reviewed the ALJ’s decision de novo. Maj. op. at 1133. It would be odd for the constitution *1142 al status of a special trial judge to depend on an internal rule of procedure, particularly since, the Tax Court had discretion to pick whatever standard of review it saw fit. See 26 U.S.C. § 7443A(c). Odd or not, the Supreme Court in Freytag decided that Tax Court Rule 183 and its deferential standard were “not relevant to our grant of certiorari” — and the Court granted the writ, so it explained, in order “to resolve the important questions the litigation raises about the Constitution’s structural separation of powers.” 501 U.S. at 874 n. 3, 873, 111 S.Ct. 2631 . 1 The majority’s first distinction of Freytag is thus no distinction at all. The fact that an ALJ cannot render a final decision and is subject to the ultimate supervision of the FDIC shows only that the ALJ shares the common characteristic of an “inferior Officer.” “[W]e think it evident that ‘inferior officers’ are officers whose work is directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.” Edmond v. United States, 520 U.S. 651, 663 , 117 S.Ct. 1573 , 137 L.Ed.2d 917 (1997).

According to the majority opinion, the second difference between this case and Freytag is that here the ALJ can never render final decisions of the FDIC, whereas special trial judges could, in cases other than the sort involved in Freytag , render a final decision of the Tax Court. See maj. op. at 1133, 1134. It is true that the Supreme Court relied on this consideration; the last paragraph of the opinion quoted above indicates as much. What the majority neglects to mention is that the Court clearly designated this as an alternative holding. The Court introduced its alternative holding thus: “Even if the duties of special trial judges [just described] were not as significant as we and the two courts have found them to be, our conclusion would be unchanged.” 501 U.S. at 882 , 111 S.Ct. 2631 (italics added). What “conclusion” did the Court have in mind? The conclusion it had reached in the preceding paragraphs — -namely, that although special trial judges may not render final decisions, they are nevertheless inferior officers of the United States within the meaning of Article II, § 2, cl. 2. The same conclusion, the same holding, had also been rendered in Samuels, Kramer & Co. v. Commissioner, 930 F.2d 975, 986 (2d Cir.1991), a decision the Supreme Court cited and expressly approved. See 501 U.S. at 881 , 111 S.Ct. 2631 . There the Second Circuit held that a special trial judge performing the same advisory function as the judge in Freytag was an inferi- or officer; the court of appeals did not mention the fact that in other types of cases, the judge could issue final judgments. 2

*1143 That the ALJ in this case is an inferior officer thus follows from Freytag . It follows also from the Supreme Court’s recognition that the role of the modern administrative law judge “is ‘functionally comparable’ to that of a judge.... He may issue subpoenas, rule on proffers of evidence, regulate the course of the hearing, and make or recommend decisions. See [5 U.S.C.] § 556(c).” Butz v. Economou, 438 U.S. 478, 513 , 98 S.Ct. 2894 , 57 L.Ed.2d 895 (1978) (emphasis added). Furthermore, the ALJ, in proposing findings of fact and a recommended decision, which the FDIC reviewed de novo, 3 performed functions essentially like those of a federal magistrate assigned to conduct a hearing and to submit proposed findings and recommendations to a district judge. See 28 U.S.C. § 636 (b)(1)(B). When there is an objection to a magistrate’s findings and recommendations, the district judge— like the FDIC — must conduct de novo review. See 28 U.S.C. § 636 (b)(1)(C). Nonetheless, it has long been settled that federal magistrates are “inferior Officers” under Article II, which is why they are appointed by “Courts of Law” under 28 U.S.C. § 631 . See Rice v. Ames, 180 U.S. 371, 378 , 21 S.Ct. 406 , 45 L.Ed. 577 (1901); Go-Bart Importing Co. v. United States, 282 U.S. 344, 352-54 , 51 S.Ct. 153 , 75 L.Ed. 374 (1931); Pacemaker Diagnostic Clinic v. Instromedix, 725 F.2d 537, 545 (9th Cir.1984) (en banc).

Because the ALJ in this case was an “inferior Officer,” the next question would ordinarily be whether he was duly appointed by the President, a Court of Law, or the Head of a Department, as Article II requires. The FDIC assumed that the ALJ was an inferior officer and ruled that he was properly appointed, having been hired by the Office of Thrift Supervision and assigned to this case by the Office of Financial Institution Adjudication. See In re Landry, FDIC-95-65e, 1999 WL 440608 , at *28 & n. 37 (FDIC May 25, 1999). In this court, the FDIC has given up on this claim. For reasons it did not explain, it expressly abandoned the argument that the ALJ was appointed by the head of a department. See Brief for Respondent at 48 n.32. I accept that as a waiver of the defense. It is true that “one who makes a timely challenge to the constitutional validity of the appointment of an officer who adjudicates his case is entitled to a decision on the merits of the question and whatever relief might be appropriate if a violation indeed occurred.” Ryder v. United States, 515 U.S. 177, 182-83 , 115 S.Ct. 2031 , 132 L.Ed.2d 136 (1995). But I do not take this salutary rule to mean that a court may not accept a concession from the party defending the appointment.

The remaining question then is what relief is appropriate. Given the FDIC’s de novo review and the majority’s thorough rejection of Landry’s various claims of error, 4 I am persuaded that he suffered no prejudice. The Administrative Procedure Act contains a harmless error rule. See 5 U.S.C. § 706 ; Doolin Sec. Sav. Bank, F.S.B. v. Office of Thrift Supervision, 139 F.3d 203, 212 (D.C.Cir.1998). The majority suggests that harmless error cannot apply because the constitutional violation is “structural” in nature. But as the majority acknowledges, in none of the “structural” cases it cites was there de novo review. See maj. op. at 1131-32. Still, the *1144 majority reasons that “[i]f the process of final de novo review could cleanse the violation of its harmful impact, then all such arrangements could escape judicial review.” Id. at 1132. The majority is not correct about this. The rule in Ryder , quoted in the preceding paragraph, requires us to decide the Appointments Clause claim first, before we reach the question of relief. If we had done so correctly here, our decision would have been, in effect, a declaratory judgment that an ALJ sitting on a case such as this had to be appointed by the head of a department. Such a judgment would have been the “practical equivalent” of mandamus, as we said in Sanchez-Espinoza v. Reagan, 770 F.2d 202 , 208 n. 8 (D.C.Cir.1985). If any litigant in the future wished to challenge the ALJ’s status before trial, mandamus would lie. Or a litigant could refuse to present evidence before an unconstitutional officer, or refuse to comply with an ALJ’s discovery orders, and bring the case here for review after the FDIC acted. See Morrison v. Olson, 487 U.S. 654, 668 , 108 S.Ct. 2597 , 101 L.Ed.2d 569 (1988). Then there would be real prejudice. Here there is none and I therefore join in the denial of Landry’s petition for judicial review.

. There was doubt, despite this court's decision in Stone v. Commissioner, 865 F.2d 342, 344-47 (D.C.Cir.1989), whether the Tax Court had authority to provide by rule that it would give deference to special trial judge decisions rendered after an assignment pursuant to 26 U.S.C. § 7443A(b)(4). The Tax Court derived its rulemaking authority from § 7443A(c), but on its face that provision applied only to assignments under (b)(1) through (b)(3). Hence, the petitioners in Freytag argued that "Congress did not intend for Tax Court supervision of special trial judge findings and opinions in (b)(4) cases to be appellate in nature.” Brief for Petitioners, 1991 WL 521270 , at *22, Freytag v. Commissioner, 501 U.S. 868 , 111 S.Ct. 2631 , 115 L.Ed.2d 764 (1991) (No. 90-762). The Supreme Court avoided deciding the issue by deeming Rule 183 irrelevant to its disposition.

. The Second Circuit reached this conclusion for the same reasons given in the third full paragraph of Freytag quoted in the text:

The special trial judges are more than mere aids to the judges of the Tax Court. They take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders. Contrary to the contentions of the Commissioner, the degree of authority exercised by special trial judges is "significant.” See Buckley [v. Valeo, 424 U.S. 1, 126 , 96 S.Ct. 612 , 46 L.Ed.2d 659 (1976)]. They exercise a great deal of discretion and perform important functions, characteristics that we find to be inconsistent with the classifications of "lesser functionary” or mere employee. Cf. Go-Bart Importing Co. v. United States, 282 U.S. 344, 352 , 51 S.Ct. 153 , 75 L.Ed. 374 (1931) (United States commissioners are inferior officers).

*1143 930 F.2d at 986 .

. De novo review does not mean that the ALJ’s recommended decisions are without influence. In this case the FDIC "affirm[ed] the recommendation of the ALJ and adopt[ed] his Recommended Decision, Findings of Fact and Conclusions of Law, as discussed herein.” In re Landry, FDIC-95-65e, 1999 WL 440608 , at *4 (FDIC May 25, 1999).

. On some points, the FDIC supplied different rationales to reach the same conclusions as the ALJ and on other matters the FDIC reached different conclusions. See, e.g., In re Landry, 1999 WL 440608 , at *33 (ordering release of certain documents withheld by the ALJ under the due process privilege). In the end, the conclusive evidence came from Landry himself. See, e.g., id. at *13-14 (reproducing portions of Landry's resignation letter to the bank).