Fifth Circuit grants stay in FDIC enforcement case, Supreme Court’s SEC ruling pending

Administrative Law
Burgess v. Federal Deposit Insurance Corporation
Date: July 17, 2023

Issue: Whether the FDIC civil enforcement proceedings violate the Seventh Amendment’s constitutional right to a jury trial.

‌Case Summary: The Fifth Circuit granted Cornelius Campbell Burgess’ motion to stay further proceedings in his lawsuit against the FDIC challenging the constitutionality of the agency’s administrative proceedings.

The FDIC alleged Burgess abused his position while serving as president and CEO of Herring Bank. According to FDIC, Burgess used the bank’s corporate cards to pay his personal expenses. FDIC launched an enforcement proceeding against Burgess before an FDIC Administrative Law Judge (ALJ). The ALJ determined Burgess should be permanently banned from the banking industry and ordered him to pay a $200,000 civil penalty. Burgess appealed the ALJ’s decision to FDIC, but his appeal was denied.

Afterward, Burgess sued FDIC arguing its proceeding was unconstitutional on various grounds. Burgess claimed the proceeding deprived him of his Seventh Amendment right to a jury trial. He also claimed the proceeding was run by a tenure protected ALJ, and the agency itself has an unconstitutionally structured board. The district court granted Burgess a preliminary injunction, but only on his claim finding the procedure violated Burgess’ constitutional right to a jury trial.

FDIC and Burgess each appealed to the Fifth Circuit. Burgess argued the injunction should also have been granted based on his other constitutional claims. FDIC argued the injunction should be lifted because a district court cannot intervene in ongoing administrative proceedings at the agency. The Fifth Circuit stayed the opposing appeals pending the U.S. Supreme Court’s resolution of SEC v. Jarkesy.

In Jarkesy, the Fifth Circuit ruled the SEC’s use of in-house courts to bring a securities fraud case against a hedge fund manager was unconstitutional. Burgess argued the stay was justified pending a decision in Jarkesy because the case involves constitutional issues “directly relevant” to Burgess’ FDIC challenge, and the Court’s decision in Jarkesy “could have a dispositive impact” in this case. By contrast, FDIC argued Jarkesy is not a relevant case because the laws governing the FDIC’s in-house enforcement proceeding are different from those governing the SEC. But the Fifth Circuit agreed with Burgess and stayed the case.

Bottom Line: Jarkesy v. SEC will be reviewed during the next U.S. Supreme Court term, which begins on Oct. 2, 2023.

Documents: Order