On August 12, the U.S. Court of Appeals for the 7th Circuit held that the FDIC’s in-house adjudication of claims of unsafe or unsound banking practices and breach of fiduciary duty did not violate the Seventh Amendment, denying a petition for review brought by a former bank director who was permanently barred from working at any FDIC-insured institution and assessed a $105,000 civil money penalty. Applying the framework established in SEC v. Jarkesy (previously covered by InfoBytes here), the court held that the FDIC’s enforcement claims under 12 U.S.C. §§ 1818(e) and (i) involve “public rights” under Atlas Roofing Co. v. Occupational Safety and Health Review Commission because neither the “unsafe or unsound practice” standard nor the breach of fiduciary duty claim in the banking context traces its ancestry to a “common law action at the Founding,” while breach of fiduciary duty was then an equitable action that did not appear to extend to bank directors. The court acknowledged the question was “close,” particularly as to fiduciary duty, noting it has historically been an equitable rather than common law concept, but concluded that Jarkesy narrowed Atlas Roofing only for statutory claims resembling preexisting common law actions, not traditional equitable ones. The court stated that “[i]n time the [U.S. Supreme Court] Justices are sure to consider this question” but stated that until then, “the appropriate path is to adhere to Atlas Roofing.”

The court also rejected the petitioner’s request for relief based on the FDIC Board members’ and administrative law judges’ statutory protections from presidential removal, holding under Collins v. Yellen (covered by InfoBytes here) that the petitioner failed to demonstrate the removal restrictions caused him compensable harm. The court further denied the petitioner’s due process claims, finding that the combination of investigative and adjudicative functions within the FDIC does not by itself constitute a due process violation, and that the lack of pretrial depositions did not render the hearing fundamentally unfair. On the merits, the court found “substantial evidence” supporting the FDIC Board’s findings that the petitioner breached his fiduciary duty of care by pushing through a $1.25 million loan to two borrowers who were purportedly “not financially stable,” resulting in a $513,760 charge-off by the bank.