An appeals court holding, and pending U.S. Supreme Court case, could up-end FDIC enforcement procedures.  One of the interesting recent themes in Game of Thrones is the basis for power.  In these United States, the power of judges originally comes from the United States Constitution.  And, it turns out; if you don’t follow the rules of the Constitution your Court might not actually have any power.

Credit: Game of Thrones. Home Box Office, Television 360, Grok! Studio, Generator Entertainment, Bighead Littlehead.

The matter begins with the FDIC investigating a director and officer of a bank.  The individual, Mr. Burgess, is accused by the FDIC of improper expense practices and misuse of bank property.

Mr. Burgess first stood accused before an FDIC Administrative Law Judge (an “ALJ”) who issued its findings that Mr. Burgess did, in fact, do the bad things he was accused of.  Next, those findings were then passed on to the FDIC Board, which largely agreed with the findings and assessed civil penalties against Mr. Burgess which included being kicked out of the banking industry forever.

Faced with banking banishment, Mr. Burgess petitioned the 5th Circuit Court of Appeals to stay the FDIC’s order while he appealed it.  The first line of attack against the FDIC was that the ALJ violates the U.S. Constitution Appointments Clause because the ALJ judge was not properly appointed pursuant to the Clause.  Without a Constitutional basis the ALJ would therefore have no power or right to hear any matters.

In an interesting ruling, the Court found that Mr. Burgess made a strong showing that he was likely to succeed with his argument that the ALJ was unconstitutional because the appointment o the Judges to the ALJ were not in accordance with the Appointments Clause.

With this holding, the Court went on to prevent enforcement of the FDIC order punishing Mr. Burgess while he appealed.

It is important to remember that the ALJ didn’t actually issue any order, rather the ALJ simply provided findings and recommendations to the FDIC to consider in assessing the penalty.  The Court found that the ALJ’s inherent ability to frame the issue and rule on evidence was sufficient to upend the whole FDIC enforcement process if it turns out the ALJ lacked any power under the Constitution because it violated the Appointments Clause.

Burgess v. FDIC, cause no. 17-60579, In the United States Court of Appeals for the Fifth Circuit.