5th Circuit Denies Bank Directors’ Claim That Recent SCOTUS Decision Entitled Them to Jury Trial for OCC Administrative Action

The U.S. Court of Appeals for the Fifth Circuit denied a petition asserting that a recent Supreme Court decision (SEC v. Jarkesy) mandated a jury trial in an Office of the Comptroller of the Currency (OCC) administrative enforcement action.

In Jarkesy, the Supreme Court held that the SEC could not bring a securities fraud enforcement action as an in-house proceeding before an agency administrative law judge (ALJ) because this violated the constitutional right to a jury trial under the Seventh Amendment.  The Supreme Court explained that the SEC’s fraud claims were akin to common law fraud claims that were historically tried in a court before a jury.  The court noted an exception to the jury trial requirement for cases involving certain “public rights” (e.g., revenue collection; customs and immigration; relations with Indian tribes; granting public benefits), but held that the SEC’s fraud action did not fall under this exception (see here for more on Jarkesy).

Here, the OCC brought an administrative enforcement action against two former directors of a now-defunct bank regarding actions they took to raise capital — or make the bank appear to have increased capital — after the bank experienced significant losses during the 2008 financial crisis.  The OCC alleged that they engaged in unsafe and unsound banking practices; breached their fiduciary duties; and filed materially inaccurate reports.  The case was initially heard before an OCC ALJ, and the ALJ’s decision was then reviewed by the head of the OCC.  The OCC’s final order banned the two directors from working in the banking industry and imposed civil penalties, and the directors appealed this order to the Fifth Circuit.

Among other issues, the Fifth Circuit considered the questions of whether the case should have been brought in a court and tried before a jury.  The appellate court noted that the OCC’s statutory authority to bring these types of actions allowed the agency to bring them only as administrative enforcement actions and did not allow the OCC to bring such action in federal court.  Accordingly — and unlike the SEC’s securities fraud claims in Jarkesy — there was not a long history of matters like this being tried in federal court before juries.

Further, the Fifth Circuit found that — unlike Jarkesy — the case here fell under the public rights exception to the Seventh Amendment’s right to a jury trial.  The OCC’s mission here involved the safety of the banking ecosystem at large, as opposed to addressing misconduct in transactions between private parties.  Among other things, the purpose of OCC enforcement actions like this are to: (1) regulate federally insured and nationally chartered banks; (2) ensure proper stewardship of public funds in the federal deposit insurance program, which could be put at risk if a bank fails; and (3) safeguard the value of the national currency.  These purposes historically fell within the exclusive domains of the executive and legislative branches because the federal banking system is entirely a creation of federal law.  Because the OCC’s action implicated public rights, the Fifth Circuit concluded that the case did not require a jury trial.