Amicus Curiae Brief — Securities and Exchange Commission, Petitioner v. George R. Jarkesy, Jr., et al.

No. 22-859

In the

Supreme Court of the United States

SECURITIES AND EXCHANGE COMMISSION,

Petitioner,

v.

GEORGE R. JARKESY, JR., et al.,

Respondents.

On Writ of Certiorari to the United States

Court of A ppeals for the Fifth Circuit

BRIEF OF THE AMERICAN BANKERS

ASSOCIATION, AMERICAN ASSOCIATION

OF BANK DIRECTORS, AND BANK

POLICY INSTITUTE AS AMICI CURIAE

IN SUPPORT OF RESPONDENTS

Thomas Pinder

A ndrew Doersam

A merican Bankers

A ssociation

1333 New Hampshire

Avenue NW

Washington, DC 20036

Gregg L. Rozansky

The Bank Policy Institute

1300 Eye Street NW,

Suite 1100 West

Washington, DC 20005

Manuel G. Berrelez

Counsel of Record

James F. Hopper

Vinson & Elkins LLP

Trammell Crow Center

2001 Ross Avenue, Suite 3900

Dallas, Texas 75201

(214) 220-7709

mberrelez@velaw.com

David Baris

A merican A ssociation

of Bank Directors

14400 Falling Leaf Drive

Darnestown, Maryland 20878

Counsel for Amici Curiae

324515

TABLE OF CONTENTS

Page

Table of Authorities .................................................... II

Interest of Amici Curiae ............................................. 1

Introduction and Summary of Argument ................... 5

Argument ..................................................................... 7

I.

The Fifth Circuit Correctly Held that

Administrative Enforcement Proceedings to

Recover Civil Penalties Violate Article III

and the Seventh Amendment. .............................. 7

II. Affirming the Fifth Circuit’s Holding Will

Promote Fair Enforcement of the Federal

Banking Laws Against Banks and their

Directors, Officers, and Employees. ................... 12

A. The Seventh Amendment and Article

III Are Important Checks and Balances

Against Government Overreach. ................. 13

B. The Seventh Amendment and Article

III Are Important Checks and Balances

Against Conflicted Decisionmakers............. 18

C. The Seventh Amendment and Article III

Ensure the Provision of Due Process

and the Fairness of Procedure. .................... 22

III. Unfair Enforcement Proceedings Are a

Disincentive for Talented Personnel to

Work in the Banking Industry. .......................... 24

Conclusion .................................................................. 27

(I)

II

TABLE OF AUTHORITIES

Cases:

Page(s)

Atherton v. FDIC,

519 U.S. 213 (1997) ................................................ 11

Atlas Roofing Co. v. OSHA,

430 U.S. 442 (1977) .......................................... 10, 12

Axon Enter., Inc. v. FTC,

598 U.S. 175 (2023) ...................................... 8, 15, 17

Bank of La. v. FDIC, No. 16-cv-13585,

2017 WL 3849340 (E.D. La. Jan. 13, 2017) .......... 23

Burgess v. FDIC,

639 F. Supp. 3d 732 (N.D. Tex. 2022) ......... 4, 11, 16

Calcutt v. FDIC,

37 F.4th 293 (6th Cir. 2022) ................ 15, 16, 20, 23

Faretta v. California,

422 U.S. 806 (1975) ................................................ 19

Galloway v. United States,

319 U.S. 372 (1943) ................................................ 22

Granfinanciera, S.A. v. Nordberg,

492 U.S. 33 (1989) ............................................ 10, 12

Hun v. Cary,

82 N.Y. 65 (1880).................................................... 11

In re Hooper,

112 B.R. 1009 (B.A.P. 9th Cir. 1990) ...................... 8

In re Oliver,

333 U.S. 257 (1948) ................................................ 19

Michael v. FDIC,

687 F.3d 337 (7th Cir. 2012) .................................. 15

III

Cases—Continued:

Page(s)

Oil States Energy Servs., LLC v. Greene’s Energy

Grp., LLC, 138 S. Ct. 1365 (2018) ........................... 7

PHH Corp. v. CFPB,

881 F.3d 75 (D.C. Cir. 2018) (en banc) .................. 15

Scott v. FDIC,

684 F. App’x 391 (5th Cir. 2017) ........................... 15

Seila Law LLC v. CFPB,

140 S. Ct. 2183 (2020) ............................................ 15

Wellness Int’l Network, Ltd. v. Sharif,

575 U.S. 665 (2015) .................................................. 8

Statutes:

5 U.S.C. § 706(2) ........................................................ 15

12 U.S.C. § 93(b) .......................................................... 2

12 U.S.C. § 504 ............................................................ 2

12 U.S.C. § 1818(i) ....................................................... 2

12 U.S.C. § 1818(i)(2)(A).............................................. 8

12 U.S.C. § 1818(i)(2)(C).............................................. 8

12 U.S.C. § 1818(i)(2)(C)(i)(III) ................................... 8

12 U.S.C. § 1818(i)(2)(D) ............................................. 8

12 U.S.C. § 1821(k) .................................................... 11

12 U.S.C. § 1828(k) .................................................... 25

Regulations:

12 C.F.R. § 7.2014 ...................................................... 25

12 C.F.R. § 359........................................................... 25

IV

Administrative Materials:

Page(s)

In re Burgess, Nos. FDIC-14-0307e+,

2022 WL 4598597 (Sept. 16, 2022) ........................ 20

In re Haynes, Nos. FDIC-11-370e+,

2014 WL 4640797 (July 15, 2014) ......................... 24

In re Patrick Adams, No. OCC AA-EC-11-50,

2014 WL 8735096 (Sept. 30, 2014) ........................ 17

Notice of Inflation Adjustments for Civil

Monetary Penalties, 88 Fed. Reg. 861

(FDIC Jan. 5, 2023).................................................. 8

Respondent David Julian’s Br. in Support of

Exceptions, In re Claudia Russ Anderson et

al., OCC Nos. AA-EC-2019-81+ (Apr. 14,

2023) ........................................................... 21, 23, 24

Respondent Harry C. Calcutt’s Exceptions to the

Admin. L. Judge’s Recommended Decision on

Remand, Calcutt v. FDIC ...................................... 20

Other Authorities:

AABD, AABD Survey Results: Measuring

Bank Director Fear of Personal Liability

(Apr. 2014) .................................................... 3, 25, 26

Alford, Ryan Patrick, The Star Chamber

and the Regulation of the Legal Profession

1570-1640, 51 Am. J. Legal Hist. 639 (2011) ........ 18

Blackstone, William,

Commentaries on the Laws of England (1765) ..... 19

V

Other Authorities—Continued:

Page(s)

Burbank, Stephen B. & Stephen N. Subrin,

Litigation and Democracy: Restoring a

Realistic Prospect of Trial, 46 Harv. C.R.C.L.L. Rev. 399 (2011) ........................................... 22

FDIC, Consumer Compliance Supervisory

Highlights (Mar. 2023) .......................................... 16

Federal Farmer Letters to the Republican IV

(1787) ...................................................................... 23

Gordon, Sara, All Together Now: Using

Principles of Group Dynamics to Train Better

Jurors, 48 Ind. L. Rev. 415 (2015) ......................... 13

Grossi, Simona, Procedural Due Process,

13 Seton Hall Circuit Rev. 155 (2017)................... 22

Hamburger, Philip, Early Prerogative and

Administrative Power: A Response to Paul

Craig, 81 Mo. L. Rev. 939 (2016) ........................... 18

Hamburger, Philip, Is Administrative Law

Unlawful? (2014).................................................... 14

Lerner, Renée Lettow, The Failure of

Originalism in Preserving Constitutional

Rights to Civil Jury Trial, 22 Wm. &

Mary Bill Rts. J. 811 (2014) .................................. 14

Mascott, Jennifer, Constitutionally Conforming

Agency Adjudication, 2 Loy. U. Chi. J. Reg.

Compliance 22 (2017) .............................................. 9

Mason, Phyllis, Are Banking Regulation and

Enforcement Proceedings Out of Control? In

the Matter of Glen Garrett, 3 No. 23 Andrews’

Bank & Lender Liab. Litig. Rep. 1 (1998)............. 21

VI

Other Authorities—Continued:

Page(s)

Min, David, Federalizing Bank Governance,

51 Loy. U. Chi. L.J. 833 (2020) .............................. 11

Perry, Laura, What’s in a Name?,

46 Am. Crim. L. Rev. 1563 (2009) ......................... 14

Pet’r Brief, Calcutt v. FDIC,

37 F.4th 293 (6th Cir. Apr. 7, 2021) ...................... 20

Redish, Martin H. & Daniel J. La Fave, Seventh

Amendment Right to Jury Trial in Non-Article

III Proceedings: A Study in Dysfunctional

Constitutional Theory, 4 Wm. & Mary Bill

Rts. J. 407 (1995) ................................................... 22

Saetveit, Kristin, Note, Close Calls: Defining

Courtroom Closures Under the Sixth

Amendment, 68 Stan. L. Rev. 897 (2016) .............. 19

Symons, Jr., Edward L., The United States

Banking System, 19 Brook. J. Int’l L. 1 (1993) ..... 10

The Declaration of Independence (U.S. 1776) .......... 14

Wolfram, Charles W., The Constitutional

History of the Seventh Amendment,

57 Minn. L. Rev. 639 (1973) .................................. 19

INTEREST OF AMICI CURIAE 1

Amici curiae are organizations that represent the

interests of banks, bankers, and their customers.

Amicus curiae the American Bankers Association (“ABA”) is the principal national trade association of the financial services industry in the United

States. Founded in 1875, the ABA is the voice for the

nation’s $23.7 trillion banking industry, which is composed of small, regional, and large banks that together

employ more than 2.1 million people, safeguard

$18.7 trillion in deposits, and extend $12.2 trillion in

loans. ABA members are located in each of the fifty

States and the District of Columbia, and include financial institutions of all sizes and types.

Amicus curiae the American Association of

Bank Directors (“AABD”) is a non-profit organization that represents the interests of bank directors

throughout the United States. Founded in 1989,

AABD is the only trade group in the United States devoted solely to bank directors and their information,

education, and advocacy needs.

Amicus curiae the Bank Policy Institute (“BPI”)

is a nonpartisan public policy, research and advocacy

group that represents universal banks, regional

banks, and the major foreign banks doing business in

the United States. The Institute produces academic

1 No counsel for any party authored this brief in whole or in part,

and no party or counsel for a party made a monetary contribution

intended to fund the preparation or submission of this brief. No

entity or person aside from amici curiae, their members, and

their counsel made any monetary contribution intended to fund

the preparation or submission of this brief.

(1)

2

research and analysis on regulatory and monetary

policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues. Issues of focus include capital and liquidity regulation, anti-money-laundering,

payment systems, consumer protection, bank powers,

bank examination, and competition in the financial

sector.

This case is important to amici because it presents

critical questions concerning the constitutionality of

administrative enforcement proceedings seeking civil

monetary penalties. Banks and bankers can face civil

monetary penalties via “in-house” enforcement proceedings at a variety of federal agencies, including the

Federal Deposit Insurance Corporation (“FDIC”), the

Federal Reserve Board (“FRB”), and the Office of the

Comptroller of the Currency (“OCC,” and, together

with FDIC and FRB, the “Banking Agencies”). The

Banking Agencies are required to pursue any civil

monetary penalties via in-house proceedings; unlike

the Securities and Exchange Commission (“SEC”), the

Banking Agencies lack statutory authorization to seek

such penalties in court.2

2 See

12 U.S.C. § 1818(i) (FDIC and OCC); id. §§ 93(b), 504

(OCC). To be clear, the FDIC, acting in its capacity as receiver,

retains broad power to seek a variety of other remedies against

banks and bankers in state and federal court. See id. § 1821(k).

If the Fifth Circuit’s opinion is affirmed, the Banking Agencies

may seek authorization from Congress to pursue civil penalties

in court. Amici support reasonable regulation of banks and

bankers, and believe that the Banking Agencies should have

3

The government has acknowledged that the “practical consequences” of this case will not be limited to

the SEC, and the Court’s holding may extend to other

agencies that “conduct adjudications seeking civil penalties.” Pet. 23–24. Amici therefore have a strong interest in ensuring that the Fifth Circuit’s opinion is

affirmed, which in turn will ensure that amici’s members do not face unfair and unlawful enforcement proceedings at the Banking Agencies.

Besides protecting banks and their directors, officers, and employees from regulatory overreach, the

maintenance of adequate checks and balances in the

enforcement process is mission-critical to ensure that

banks are able to recruit and retain qualified personnel, including directors and officers. At present, a variety of risks and problems with the banking regulatory structure, including the absence of adequate safeguards in the Banking Agencies’ in-house processes,

disincentivize talented professionals from serving as

bank directors or employees, to the detriment of bank

customers and the public. See AABD, AABD Survey

Results: Measuring Bank Director Fear of Personal Liability, at 1 (Apr. 2014), https://tinyurl.com/mr3sthhc

(“AABD Survey”). Bank directors are typically paid

little for their roles and are not professional bankers,

especially in community banks. They are the doctors,

pharmacists, teachers, and leaders of their respective

communities. Therefore, they generally have few resources to litigate against the federal government in

authority to pursue civil penalties in court, so long as that

authority is lawful and reasonably bounded. Amici would look

forward to working with Congress and their regulators to

improve the Banking Agencies’ enabling statutes.

4

protracted enforcement actions, even though enforcement actions expose directors to significant financial

liability and reputational risk. See Br. for AABD as

Amicus Curiae, at 1-2, Calcutt v. FDIC, No. 22-714

(Mar. 3, 2023).

In this case, the Fifth Circuit correctly held that an

administrative enforcement proceeding at the SEC violated Mr. Jarkesy’s rights under Article III and the

Seventh Amendment. See Pet. App. 4a–5a. Relying

on that holding, another federal court recently recognized that an FDIC enforcement proceeding against a

banker was unconstitutional. In that case, as in this

one, the court determined that the enforcement target

was entitled to a jury trial in court because the agency

was seeking civil monetary penalties based on a cause

of action that was akin to a common law theory of liability. See Burgess v. FDIC, 639 F. Supp. 3d 732, 747–

749 (N.D. Tex. 2022), appeal docketed Dec. 5, 2022

(5th Cir. No. 22-11172). The FDIC’s appeal in Burgess

has been stayed pending disposition of this case.

Amici have a significant interest in ensuring that

the Fifth Circuit’s opinion is affirmed, and that banks

and their directors, officers, and employees are able to

enjoy the full protections of the Seventh Amendment

and Article III. Only then will bankers be assured

that their property and livelihoods will not be stripped

away via in-house enforcement proceedings where

agency personnel, and not a jury of their peers, hold

the ultimate reins of power.

5

INTRODUCTION AND

SUMMARY OF ARGUMENT

1. Although this Court has not yet defined the precise contours of the “public rights” doctrine, its prior

decisions provide some waypoints that help draw the

line between public and private rights. Those waypoints include whether the remedy at issue implicates

core private-property interests, whether the cause of

action in question is within the traditional bailiwick

of American courts, and whether the cause of action or

remedy would have been understood by the Framers

to fall within the ambit of Article III and the Seventh

Amendment. In this case (and in many banking-related administrative enforcement actions), the agency

seeks civil monetary penalties based on causes of action that existed at common law or that otherwise

closely mirror actions which would have been heard in

English courts of law prior to the merger of law and

equity. Each of the waypoints discussed above suggests that enforcement proceedings of this type implicate private rights, not public rights.

The experience of banks and their directors, officers, and employees confirms the wisdom of the Fifth

Circuit’s holding that this case does not implicate the

“public rights” doctrine. The Banking Agencies can

and do assess enormous penalties against individual

bankers in their personal capacities. The suggestion

that these penalties do not implicate those banker’s

“private” rights strains the ordinary meaning of the

words “public” and “private” beyond recognition.

Moreover, the history of financial regulation in the

United States confirms that actions to recover money

from a banker or other finance professional have

6

traditionally been understood as species of common

law claims sounding in fraud or fiduciary breach, both

of which were routinely heard in early American

courts as actions at law. The history and practice of

banking regulation, from the early Republic to the

present, bolsters the Fifth Circuit’s holding that cases

of the type at issue here belong in courts, not agencies.

See Section I, infra.

2. The banking industry is an ideal microcosm for

understanding why Article III and the Seventh

Amendment are such critical safeguards of individual

liberty. Those constitutional provisions were designed

to protect against the exact problems that have come

to characterize some administrative enforcement proceedings at the Banking Agencies—i.e., the absence of

checks and balances if banks and their directors, officers, and employees are subject to government overreach, conflicted decisionmakers, and unfair procedures. The experience of bankers confirms the Framers’ prescience when crafting Article III and the Seventh Amendment, and it serves as an exemplar of the

type of expansive agency power that regulated parties

would come to expect if the government’s capacious

view of the “public rights” doctrine were credited. See

Section II, infra.

3. This case will transform the American banking

industry, impacting not only banks and bankers but

also their customers and the public at large. The specter of unfair enforcement proceedings at the Banking

Agencies is a disincentive for talented professionals to

serve as bank directors or otherwise work in the banking industry. Affirming the Fifth Circuit’s decision

will guarantee that Americans who make their living

7

in regulated industries can rest assured that they will

receive a fair shake if called to account by their regulators. See Section III, infra.

ARGUMENT

I. The Fifth Circuit Correctly Held that

Administrative Enforcement Proceedings to

Recover Civil Penalties Violate Article III

and the Seventh Amendment.

The government does not dispute that, if an action

to recover civil penalties were heard in a court, the defendant would be entitled to a jury under the Seventh

Amendment. Gov’t Br. 28–29. In the government’s

telling, the key issue in this case is not the scope of the

Seventh Amendment, but rather is the question

whether actions seeking civil penalties involve “public

rights,” such that they may be assigned to agency adjudication without violating Article III.

Although the public rights doctrine has not been

“definitively explained,” this Court’s cases have laid

out several benchmarks that help draw the line between public and private rights. Oil States Energy

Servs., LLC v. Greene’s Energy Grp., LLC, 138 S. Ct.

1365, 1373 (2018). As for each of those benchmarks,

history and practice suggest that administrative enforcement proceedings seeking civil monetary penalties are not within the ambit of the “public rights” doctrine. As explained below, the experience of banks

and bankers helps clarify why the Fifth Circuit was

correct not to expand that doctrine to capture proceedings of the type at issue here.

1. One obvious demarcation between “public” and

“private” rights is inherent in the common meanings

8

of those words. There is no clearer example of a “core

private right” than the right to private property,

which—by its nature—vests in “each individual” rather than “the people at large.” Axon Enter., Inc. v.

FTC, 598 U.S. 175, 198–199 (2023) (Thomas, J., concurring); see id. at 204 (noting that “the threat of significant monetary fines” or “penalties” necessarily

“implicate[s] the core private right to property”).

Bankers, perhaps more than any other regulated

professionals in American life, understand that the

threat of civil penalties is an intensely “private” affair.

The Banking Agencies possess authority to take the

private property of banks and bankers through crippling civil monetary penalties. Under current law, the

Banking Agencies can wield fines of more than $2.3

million per day for violations that include “breaches

[of] fiduciary duty” and fraud (both of which have traditionally been understood as actions at law).3 See 12

U.S.C. § 1818(i)(2)(A), (C)–(D); Notice of Inflation Adjustments for Civil Monetary Penalties, 88 Fed. Reg.

861, 861–862 (FDIC Jan. 5, 2023).

The Banking Agencies’ authority to assess civil

penalties has dramatically expanded in recent years:

New agencies such as the Consumer Financial Protection Bureau (“CFPB”) have been granted authority to

issue civil money penalties, and other statutes (such

as the Financial Institutions Reform, Recovery, and

3 “[A]n

action to recover money damages for * * * breach of

fiduciary duty”—the type of action the Banking Agencies can

pursue “in house” under 12 U.S.C. § 1818(i)(2)(C)(i)(III)—“was

the type of action that would have been brought in a court of law

in the courts of England prior to the merger of law and equity.”

In re Hooper, 112 B.R. 1009, 1012 (B.A.P. 9th Cir. 1990).

9

Enforcement Act of 1989) have significantly increased

the maximum penalties available by statute. This

trend—under which more agencies are assigned everexpanding penalty powers—shows no signs of abating.

Whatever the bounds of the “public rights” doctrine

may be, that doctrine should not be understood as a

license for agencies to impose such massive civil monetary penalties on private individuals, without ever

affording them a right to a jury or the procedural protections available in court. Since the Founding,

“[d]isposition of private rights to * * * property” was

understood to fall squarely “within the core of the judicial power.” Wellness Int’l Network, Ltd. v. Sharif,

575 U.S. 665, 711 (2015) (Thomas, J., dissenting); accord Jennifer Mascott, Constitutionally Conforming

Agency Adjudication, 2 Loy. U. Chi. J. Reg. Compliance 22, 45 (2017) (noting that disputes involving

“deprivations” of “property constitute a ‘core’ of cases

that * * * must be resolved by Article III courts—not

executive adjudicators ‘dressed up as courts’”).

The taking of property is of course an intensely

“private” affair for banks and bankers. Their livelihoods and life savings can be stripped away as a result

of enforcement proceedings superintended by the

leaders of the very same government agencies that

performed the underlying investigations and examinations of the conduct giving rise to the enforcement

proceeding. And, as explained below, the “private”

and individualized nature of the Banking Agencies’

penalty authority has profound on-the-ground consequences for banks and bankers, many of whom view

the threat of personal liability and the unfairness of

the Banking Agencies’ enforcement proceedings as a

10

disincentive to work in the banking industry. See Section III, infra.

2. A second mode of distinguishing between “public” and “private” rights is to determine whether the

type of action or remedy at issue is within the traditional bailiwick of American courts. See Atlas Roofing

Co. v. OSHA, 430 U.S. 442, 458 (1977); Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 53 (1989). As the

Fifth Circuit correctly explained, actions to recover

civil monetary penalties were known at common law

and track early American causes of action sounding in

fraud, debt, or fiduciary breach—all of which have

been adjudicated in courts since the Founding. See

Pet. App. 9a–10a. The public rights exception applies

only when a cause of action and its remedies were “unknown to the common law,” which is not the case in

claims for civil penalties of the type at issue here and

in many administrative enforcement proceedings by

the Banking Agencies. Pet. App. 9a–10a; see pp. 7–8

& note 3, supra.

The history of banking regulation is instructive.

Banks were first incorporated in the early Republic in

1781, and at this time banks were variously either private or were chartered by state legislatures. See Edward L. Symons, Jr., The United States Banking System, 19 Brook. J. Int’l L. 1, 4 (1993). For the next 150

years, an action seeking to recover money from a bank

or banker due to malfeasance was understood as a

species of claim rooted in common law notions of fraud

and fiduciary breach, and such claims were routinely

heard in American courts. In Hun v. Cary, for example, a bank receiver sued bank trustees seeking money

damages for breach of fiduciary duty based on the

11

trustees’ “improvidence and reckless extravagance.”

82 N.Y. 65, 66 (1880). The New York Court of Appeals

held that the action “was properly tried as an action

at law” because the complaint sought “a money judgment.” Id. at 79.4

The concept of superintendence of banks and bankers via administrative enforcement actions was introduced in New Deal-era statutes, and was then dramatically expanded following the savings-and-loan

crisis of the 1980s. See David Min, Federalizing Bank

Governance, 51 Loy. U. Chi. L.J. 833, 851–852, 857

(2020). But even after these New Deal-era changes,

courts have always retained the power to hear cases

brought by the FDIC (acting in its capacity as a receiver) against bankers. See 12 U.S.C. § 1821(k).

In short, “[f]ederal courts” have long “handled

claims alleging entitlement to civil penalties for

breaches of common-law duties.” Burgess, 639 F.

Supp. 3d at 748. Thus, the notion that the regulation

of banks and bankers is particularly well-suited to

agency adjudication conflicts with both historical facts

and modern realities.

3. A final way to distinguish between “public” and

“private” rights is to return to the original public

meaning of Article III and the Seventh Amendment,

in hopes of ascertaining whether the type of action or

4 Such cases were often heard in state court because “during most

of the first century of our Nation’s history * * * state-chartered

banks were the norm and federally chartered banks an

exception”; in this period, the fiduciary duties of banks and

bankers were ordinarily understood as matters of state common

law. See Atherton v. FDIC, 519 U.S. 213, 220 (1997).

12

remedy at issue would have been understood to be

captured by those provisions at the Founding. See Atlas Roofing, 430 U.S. at 458; Granfinanciera, 492 U.S.

at 42. As explained below, the Framers viewed the

protections afforded by Article III and the Seventh

Amendment as critical checks against government

overreach, biased decisionmakers, and procedural

abuses. It speaks volumes that modern administrative enforcement proceedings (and banking-related

proceedings in particular) have come to be defined by

the exact problems the Framers sought to avoid when

crafting our Constitution.

II. Affirming the Fifth Circuit’s Holding Will

Promote Fair Enforcement of the Federal

Banking Laws Against Banks and their

Directors, Officers, and Employees.

The current process for administrative enforcement proceedings at the Banking Agencies is an ideal

lens for understanding why Article III and the Seventh Amendment remain such critical bulwarks

against infringements on individual liberty.

In the vast majority of cases, banks and bankers

will take necessary corrective action during an examination or shortly thereafter, meaning that formal administrative enforcement proceedings are largely outlier cases. But in at least some of those outlier cases,

examiners and Banking Agency investigators make

errors, exhibit bias, or otherwise engage in regulatory

overreach. That examiners and other agency staff often make inherently subjective judgment calls means

that the need for a fair and independent administrative enforcement process on the back end is especially

critical in the banking industry. Regrettably, the fact

13

that banks and bankers lack access to juries or an Article III court only reinforces the power of the Banking

Agencies and to underscore the unfairness of the administrative enforcement process.

As explained below, modern banking-related enforcement proceedings have come to be defined by the

exact set of ills that the Framers sought to prevent

when drafting Article III and the Seventh Amendment, including government overreach and an absence of checks and balances, see Section II.A, infra;

decisionmakers who have a strong incentive to side

with their agency employers, see Section II.B, infra;

and unfair procedures and an absence of due process,

see Section II.C, infra.

A.

The Seventh Amendment and Article

III Are Important Checks and Balances

Against Government Overreach.

Long before the ratification of the Constitution,

Americans viewed the right to a jury trial in a court

as an essential check on government overreach. The

original 1606 Charter of Virginia recognized the right

to trial by jury, and by 1623 that right was also recognized in Plymouth Colony. See Sara Gordon, All Together Now: Using Principles of Group Dynamics to

Train Better Jurors, 48 Ind. L. Rev. 415, 420 n.38

(2015).

The expansion of non-jury proceedings in the late

Colonial era—including Parliament’s decision to expand the jurisdiction of jury-less admiralty courts to

cover alleged violations of the Stamp Act of 1765—

drew fierce resistance from the Colonists, and was a

significant factor in the push for independence. See

14

Philip Hamburger, Is Administrative Law Unlawful?,

at 150 (2014); see also The Declaration of Independence ¶ 20 (U.S. 1776) (listing among the reasons for

separation that the Crown had “depriv[ed] us, in many

cases, of the benefits of trial by jury”).

That experience in turn formed the backdrop for

crafting Article III and the Seventh Amendment a

dozen years later. Indeed, a key aim of those provisions was to ensure the availability of jury trials in

cases involving interests in property, money, and

other legal rights, thus preventing a wayward drift towards tribunals of the kind that helped spark the

American Revolution. See Renée Lettow Lerner, The

Failure of Originalism in Preserving Constitutional

Rights to Civil Jury Trial, 22 Wm. & Mary Bill Rts. J.

811, 818 (2014); Laura Perry, What’s in a Name?, 46

Am. Crim. L. Rev. 1563, 1567 (2009).

Modern administrative enforcement actions have

come to resemble the exact types of proceedings that

the Framers sought to prevent. The Banking Agencies, for example, leverage their power to extract enormous financial penalties from banks and bankers,

without ever affording them a jury or a right to de

novo review by a court. See pp. 2 & note 2, 7–8, supra

(discussing Banking Agencies’ penalty authority).

Remarkably, some federal agencies with bankingrelated jurisdiction have even elected to use individual

adjudications to announce changes to longstanding

agency precedent, and then to impose massive new

penalties against enforcement targets based on that

novel interpretation. In 2014, for example, an administrative law judge (“ALJ”) at the CFPB imposed a

$6.4 million penalty on an enforcement target. On

15

review of that Order, the CFPB Director added $103

million in additional penalties—a twentyfold increase.

As then-Judge Kavanaugh explained, the “Director

discarded the Government’s longstanding interpretation of the relevant statute, adopted a new interpretation of that statute, applied that new interpretation

retroactively, and then imposed massive sanctions

* * * for violation of the statute—even though [the]

relevant acts occurred before the Director changed his

interpretation of the statute.”5

The problem is not just the size of the potential

penalties but also the fact that the penalties are

largely immune from any meaningful judicial review.

Banking Agency orders assessing civil monetary penalties can only be set aside if “arbitrary, capricious [or]

an abuse of discretion.” Calcutt v. FDIC, 37 F.4th 293,

310 (6th Cir. 2022) (quoting 5 U.S.C. § 706(2)), rev’d

on other grounds, 598 U.S. 623 (2023) (per curiam);

see Scott v. FDIC, 684 F. App’x 391, 397 (5th Cir.

2017) (affirming the FDIC Board’s civil monetary penalty award because it “did not constitute an abuse of

discretion and was not arbitrary and capricious”); Michael v. FDIC, 687 F.3d 337, 355–356 (7th Cir. 2012)

(similar); see also note 7, infra.

Given the expansive nature of their penalty powers

and ongoing regulatory supervision, the Banking

Agencies can functionally compel enforcement targets

into settlement. Much of the Banking Agencies’ power

is now exercised via the mere threat of exposure to

5 PHH Corp. v. CFPB, 881 F.3d 75, 185 n.13 (D.C. Cir. 2018) (en

banc) (Kavanaugh, J., dissenting) (emphasis altered), abrogated

by Seila Law LLC v. CFPB, 140 S. Ct. 2183 (2020).

16

enforcement proceedings. Recent data from the FDIC

suggests that the amount of money extracted from enforcement targets via “voluntary” settlements and restitution payments can vastly exceed the amounts actually imposed via monetary penalties—sometimes by

tenfold or more. See FDIC, Consumer Compliance Supervisory Highlights 4 (Mar. 2023), https://tinyurl.

com/58tumeuu. Banks and their directors, officers,

and employers also know that the Banking Agencies

will continue exercising their ongoing supervisory duties, such as conducting annual bank examinations,

and thus are inclined to settle rather thank risk upsetting regulators.

This power imbalance is made all the worse by the

fact that the Banking Agencies’ enforcement proceedings often drag on interminably. In recent years, some

of those proceedings have lasted a dozen years or

more, all before the enforcement target ever has an

opportunity to invoke judicial review (which will take

years more).6 Banks and bankers recognize that decade-long enforcement proceedings will be extraordinarily expensive to defend, and that their reputations

will remain sullied through those investigations. Cf.

Burgess, 639 F. Supp. 3d at 749. That the Banking

Agencies conduct their enforcement proceedings at a

pace that would never be permitted in any court is yet

6 The FDIC’s Burgess investigation was initiated thirteen years

ago, with the formal enforcement proceeding (which is still ongoing) having been initiated some nine years ago. See Burgess, 639

F. Supp. 3d at 738; see also Calcutt, 37 F.4th at 307 (pending

FDIC proceeding initiated over ten years ago).

17

another pressure point the Agencies use to compel settlements.

The absence of checks and balances has only grown

more problematic in recent years, as the Banking

Agencies continue to develop innovative strategies to

shield their enforcement practices from accountability, judicial review, and public exposure.

The case of Patrick Adams is instructive. See No.

OCC AA-EC-11-50, 2014 WL 8735096 (Sept. 30, 2014).

In that matter, OCC Enforcement Staff charged Mr.

Adams with several violations of federal banking

laws, but the ALJ issued a decision recommending

that the case be dismissed in its entirety. The ALJ’s

decision was then reviewed by the Comptroller of the

Currency, who disagreed with the ALJ’s findings and

found that the record supposedly “could” support findings of violations and a decision to impose civil penalties. Id. at *37. But the Comptroller ultimately dismissed the charges against Mr. Adams, meaning that

there was no adverse order for him to appeal. Mr. Adams was therefore left with no remedies, despite having been (1) exposed for years to an abusive and illfounded investigation that the agency’s own ALJ disparaged, and (2) heavily criticized in a 68-page opinion

from the Comptroller, which caused Mr. Adams significant reputational damage. 7 The Adams matter exemplifies the structural bias inherent in a system

where the head of an agency (who often favors the

And even if there had been a final order to appeal, the

availability of deferential judicial review is no substitute for the

provision of constitutionally-compliant procedures at the agency

itself. See Axon, 598 U.S. at 202–204 (Thomas, J., concurring).

7

18

findings made by his employees over those of an ALJ)

is the ultimate arbiter, subject only to very limited judicial review.

In sum, enforcement proceedings at the Banking

Agencies have come to resemble the types of proceedings that the Framers sought to stamp out. Those

Agencies’ toolkit—which allows them to impose massive penalties and extract massive settlements, while

also largely shielding their decisions from subsequent

review—is an important warning as to the types of

proceedings that all regulated parties can come to expect if the Fifth Circuit’s decision is reversed.

B.

The Seventh Amendment and Article

III Are Important Checks and Balances

Against Conflicted Decisionmakers.

At the Founding, deprivations of individual rights

in non-jury proceedings were a matter of recent

memory. The Framers were well-acquainted with the

Court of Star Chamber, an infamous English tribunal

where cases in which the Crown had a “particular interest” were resolved without a jury. Ryan Patrick Alford, The Star Chamber and the Regulation of the Legal Profession 1570-1640, 51 Am. J. Legal Hist. 639,

645 (2011). The “experts” who sat at the bench of Star

Chamber after it became a law court under the Tudors

commissioned reports and gathered data, and then issued decrees based on the “evidence” they collected.

See id. at 647–648; Philip Hamburger, Early Prerogative and Administrative Power: A Response to Paul

Craig, 81 Mo. L. Rev. 939, 947 (2016).

Even after the Star Chamber was abolished,

abuses by “expert” tribunals continued apace. For

19

example, some early Americans were haled before

English “vice-admiralty” courts in the Colonies, which

were another form of jury-less tribunal for common

law actions. See Charles W. Wolfram, The Constitutional History of the Seventh Amendment, 57 Minn. L.

Rev. 639, 654 & n.47 (1973).

“[T]he Star Chamber has for centuries symbolized

disregard of basic individual rights,” Faretta v. California, 422 U.S. 806, 821 (1975), and the Framers

crafted the Constitution’s jury provisions in hopes of

preventing any like tribunal from ever convening on

American soil, see In re Oliver, 333 U.S. 257, 270

(1948). See also Kristin Saetveit, Note, Close Calls:

Defining Courtroom Closures Under the Sixth Amendment, 68 Stan. L. Rev. 897, 905 n.45 (2016) (discussing

Framers’ discussion of the Star Chamber during debates over the Bill of Rights). Indeed, a central purpose of the Seventh Amendment was to install juries

as a check against “expert” decisionmakers who would

otherwise wield authority over the affairs of everyday

Americans. See Pet. App. 5a–6a. The jury was selected as the bulwark against biased decision-making

in recognition of the fact that, if the “administration of

justice” were “entirely entrusted to the magistracy,”

then decisionmakers would be plagued by “an involuntary bias towards those of their own rank and dignity.” William Blackstone, Commentaries on the Laws

of England 1991 [Book III at 380] (1765).

Regrettably, modern enforcement proceedings at

the Banking Agencies have come to be defined by

many of the same problems that made the Framers so

fearful of the Star Chamber, including conflicted

20

decisionmakers with significant authority to strip disfavored litigants of their property and liberty.

One telling example is the ongoing Burgess proceeding at the FDIC. In that case, the ALJ acknowledged “clearly unprofessional” conduct on behalf of

FDIC personnel; among other things, agency staff

characterized the FDIC investigation as a “witch

hunt” against a bank that regulators spoke of with

profanities after the enforcement targets pushed back.

In re Burgess, Nos. FDIC-14-0307e+, 2022 WL

4598597, at *32–35, *41 (Sept. 16, 2022).

The examiners involved in Mr. Calcutt’s case displayed similarly “shocking” examples of bias towards

their enforcement target.8 The FDIC case manager

engaged in improper communications with the counterparty to the loan at issue in the underlying enforcement action, including wrongfully sharing confidential information obtained during bank examinations.9

The language in those communications reveals the extent of the examiner’s animosity against Mr. Calcutt;

among other things, the examiner told the counterparty that the bank “should have fired” Mr. Calcutt

and characterized his updates as “news to brighten

your weekend.”10

8 Respondent

Harry C. Calcutt’s Exceptions to the Admin. L.

Judge’s Recommended Decision on Remand, at A386, Calcutt,

No. 20-4303 (6th Cir. Apr. 7, 2021), ECF No. 24 (citing testimony

from a FDIC examiner who characterized the inappropriate

conduct of his fellow examiners as “shocking”).

9 Calcutt, 37 F.4th at 324; see also Pet’r Brief at 44, Calcutt, No.

20-4303 (6th Cir. Apr. 7, 2021), ECF No. 26 (“Calcutt Br.”).

10 Calcutt Br., supra note 9, at 44.

21

Regulator bias extends well beyond the examiners,

and can also be found in the ALJs themselves. For

example, in the enforcement action the OCC recently

prosecuted against bank executives, the enforcement

targets moved to disqualify the ALJ after he held ex

parte meetings with OCC enforcement counsel without explanation, made disparaging remarks about respondents’ evidence and arguments, and made many

one-sided rulings both pre-trial and during trial. 11

Despite the clear bias exhibited by the ALJ, the Comptroller declined to rule on the targets’ motion for disqualification and instead allowed the ALJ to deny the

motion himself and continue to preside over the trial.

While the issue of regulator bias is now gaining increased attention, the existence of such bias is hardly

news to banks and bankers. For example, in 1991, the

FDIC began investigating Missouri banker Glen Garrett in connection with allegedly improper loans and

“questionable procedures” in constructing a new bank

branch. See Phyllis Mason, Are Banking Regulation

and Enforcement Proceedings Out of Control? In the

Matter of Glen Garrett, 3 No. 23 Andrews’ Bank &

Lender Liab. Litig. Rep. 1 (1998). During the FDIC’s

enforcement proceeding, the FDIC asked for help from

the OCC because the borrower in question held a bank

account in a national bank. The OCC ultimately

found exculpatory evidence in favor of Garrett yet

failed to share that evidence with the FDIC. See ibid.

The FDIC also sent letters to two former employees

11 Respondent

David Julian’s Br. in Support of Exceptions at

291– 293, In re Claudia Russ Anderson et al., OCC Nos. AA-EC2019-81+ (Apr. 14, 2023), https://tinyurl.com/yhar87u5 (“Julian

Br.”).

22

who had been subpoenaed by Garrett, threatening

them with criminal prosecution if they testified. FDIC

staff went as far as to say that “Mr. Garrett should be

castrated.” Ibid.

C.

The Seventh Amendment and Article

III Ensure the Provision of Due Process

and the Fairness of Procedure.

The Framers understood that an important advantage of proceedings in court—and of jury trials in

particular—would be to ensure that litigants were afforded due process and the guarantees of fair and orderly procedures. Since the term “due process” was

first used in the fourteenth century, it has been “associated with a series of protections inherent in the trial

process.” Simona Grossi, Procedural Due Process, 13

Seton Hall Circuit Rev. 155, 162 (2017); see Stephen

B. Burbank & Stephen N. Subrin, Litigation and Democracy: Restoring a Realistic Prospect of Trial, 46

Harv. C.R.-C.L.L. Rev. 399, 401 (2011) (“Th[e] right to

be heard, the core of due process of law, has been integral to democratic thought and institutions at least

since the English Magna Carta.”).

Although the Seventh Amendment does not necessarily “require photographic reproduction of historical

procedures” used in 1789, it does impose a baseline requirement that the procedures used in jury trials “do

not interfere with the performance of that which was

the jury’s essential function at the time of the amendment’s adoption.” Martin H. Redish & Daniel J. La

Fave, Seventh Amendment Right to Jury Trial in NonArticle III Proceedings: A Study in Dysfunctional Constitutional Theory, 4 Wm. & Mary Bill Rts. J. 407, 415

(1995); see Galloway v. United States, 319 U.S. 372,

23

390–392 (1943). The Framers understood that the

procedural rights inherent in the jury system were

among the reasons why juries are such effective guarantors of individual freedom. Indeed, those protections—including “trial of the vicinage,” the “cross-examining [of] witnesses * * * before the triers of fact,”

the prevention of “ex parte” presentation, and the opportunity to present “oral evidence”—were considered

by the Framers as reasons why “[t]he trial by jury is

very important.” Federal Farmer Letters to the Republican IV (1787).

Modern administrative enforcement proceedings

are a far cry from the types of tribunals that the Framers would have understood as sufficiently protective of

individual freedom. In these enforcement proceedings, the Banking Agencies often strip their targets of

due process and other procedural protections that

would have been available had the case been heard

before a jury in a court.

Amici are aware of cases in which the Banking

Agencies have prevented enforcement targets from

cross-examining witnesses in an enforcement action,12

prevented enforcement targets from conferring with

counsel or witnesses, 13 blocked enforcement targets

12 See, e.g., Calcutt, 37 F.4th at 323; Julian Br., supra note 11,

at

214–225.

13 See,

e.g., Bank of La. v. FDIC, No. 16-cv-13585, 2017 WL

3849340, at *2 (E.D. La. Jan. 13, 2017) (enforcement target prevented from conferring with counsel), aff’d, 919 F.3d 916 (5th Cir.

2019); Julian Br., supra note 11, at 58–68 (enforcement target

prevented from communicating with key percipient witness).

24

from proffering evidence or calling witnesses, 14 or

made various other arbitrary evidentiary rulings (e.g.,

preventing discovery, blocking discovery of Brady material, allowing experts to testify beyond the scope of

their expertise, and imposing procedural burdens on

enforcement targets that were not imposed on agency

enforcement counsel).15 Amici are also aware of cases

where the ALJ had improper ex parte contact with enforcement counsel,16 or where an ALJ was not disqualified from a proceeding despite plain evidence of

bias.17

If the Fifth Circuit’s decision is not affirmed, this

troubling pattern will no doubt continue, and regulated parties will be forced to endure proceedings that

are fundamentally different in kind from those the

Framers viewed as fair and adequate.

III. Unfair Enforcement Proceedings Are a

Disincentive for Talented Personnel to Work

in the Banking Industry.

As explained above, administrative enforcement

proceedings at the Banking Agencies are unfair in

14 See, e.g., Bank of La., 2017 WL 3849340, at *2; see also In re

Haynes, Nos. FDIC-11-370e+, 2014 WL 4640797, at *19 (July 15,

2014); Julian Br., supra note 11, at 277–283.

15 See Julian Br., supra note 11, at 73–90, 210–214.

16 See id. at 300–303.

17 See id. at 291–300, 303–306.

Amici are aware that such bias

was on visual display during the hearing on remand in the

Burgess enforcement action, where the ALJ had an FDIC seal on

display at the beginning of proceedings before changing her

backdrop to the more “neutral” Office of Financial Institution Adjudication (“OFIA”) seal during the hearing.

25

various ways. Banks and bankers well know that enforcement proceedings will heavily favor the agency

and that they will be expensive, lengthy, and damaging to their reputations. Many talented professionals

therefore view the specter of the Banking Agencies’

enforcement proceedings as a disincentive to work in

the banking industry or serve on bank boards at all.

One recent survey by amicus AABD found that 24

percent of banks reported that fear of being subjected

to personal liability was a reason why a bank director

had resigned, refused an offer of a directorship, or declined to serve on a bank’s loan committee. See AABD

Survey, supra, at 1. Many banks reported that the

“huge uptick in enforcement actions” against banks

and bankers left them “feeling more vulnerable” because they knew that they would be “susceptible to

civil money penalties for the slightest infraction.” See

id. at 3. These concerns are heightened by the facts

that (1) Banking Agencies often demand director and

officer personal net worth statements or recent tax returns, and that (2) many banks and bankers find it

difficult to find insurers who are willing to provide

coverage against the costs of defending enforcement

proceedings or the potential imposition of civil monetary penalties.18 See id. at 3–4. Amici are also aware

of some instances where the Banking Agencies have

demanded access to bankers’ cell phones and other

18 Even if directors and officers obtain insurance, that coverage

and any bank indemnification is limited in enforcement actions

as soon as the Banking Agency issues a notice of charges against

the target of the proposed formal enforcement action. See 12

U.S.C. § 1828(k); 12 C.F.R. § 359; id. § 7.2014.

26

personal devices, which presents significant privacy

concerns and stokes yet more fear.

Many directors, especially in community banks,

have other full-time jobs and are paid little for their

service to the bank. These community leaders are reluctant to serve as bank directors because they have

few resources—in terms of both time and money—to

litigate lengthy enforcement actions or challenge the

Banking Agencies’ personally-invasive exercises of authority.

Banks, their customers, and the public all suffer

when talented personnel elect not to work at publicfacing financial institutions. The fear of enforcement

proceedings may also alter the behavior of those bankers who are brave enough to serve. As amicus AABD

has explained, fear of unjust enforcement proceedings

and civil penalties may in some cases “motivate bank

boards to disapprove loans to creditworthy individuals,” or “to forego a business opportunity for their

banks” despite the fact that the bankers believe the

opportunity to be both “prudent and sound.” AABD

Survey, supra, at 2.

27

CONCLUSION

For the foregoing reasons, and those set forth in

the Respondents’ brief, the portion of the Fifth Circuit’s judgment concerning Article III and the Seventh

Amendment should be affirmed.

Respectfully submitted.

Thomas Pinder

Andrew Doersam

AMERICAN BANKERS

ASSOCIATION

1333 New Hampshire

Ave. NW

Washington, D.C. 20036

Gregg L. Rozansky

THE BANK POLICY

INSTITUTE

1300 Eye Street NW

Suite 1100 West

Washington, D.C. 20005

OCTOBER 2023

Manuel G. Berrelez

Counsel of Record

James F. Hopper

VINSON & ELKINS LLP

Trammell Crow Center

2001 Ross Ave.

Suite 3900

Dallas, TX 75201

(214) 220-7709

mberrelez@velaw.com

David Baris

AMERICAN ASSOCIATION

OF BANK DIRECTORS

14400 Falling Leaf Drive

Darnestown, MD 20878