FDIC enforcement
CBW Bank v. Federal Deposit Insurance Corporation
Date: March 3, 2025
Issue: Whether the district court has subject matter jurisdiction to review CBW Bank’s lawsuit challenging the Federal Deposit Insurance Corporation’s (FDIC) $20.4 million civil monetary penalty (CMP).
Case Summary: A Kansas federal court dismissed CBW Bank’s lawsuit challenging FDIC’s authority to seek a $20.4 million civil monetary CMP via an in-house proceeding, following the U.S. Supreme Court’s decision in SEC v. Jarkesy.
In Jarkesy, the U.S. Supreme Court upheld a Fifth Circuit decision that concluded the SEC’s use of its in-house judicial forum unconstitutional under the Seventh Amendment when imposing CMPs.
According to CBW Bank, FDIC examined its Bank Secrecy Act/anti-money laundering compliance program and found no evidence of intentional or reckless misconduct. Still, on Nov. 19, 2024, FDIC filed charges to impose a CMP against CBW Bank over issues related to its former correspondent banking and money services businesses. CBW Bank challenged the CMP in federal court, claiming the FDIC’s in-house proceeding violated its Seventh Amendment right to a jury trial under Jarkesy. FDIC moved to dismiss, arguing the public rights exception allows it to adjudicate the case without a jury because the CMP enforces federal law and protects sovereign interests. The FDIC also argued that Section 1818(i)(1) of the Federal Deposit Insurance Act (FDIA) bars district court jurisdiction over its proceedings, because it declares that “no court has jurisdiction to affect by injunction or otherwise the issuance of enforcement orders or to review or modify the same.”
ABA filed a coalition amicus brief supporting CBW Bank, making two main arguments. First, ABA argued that FDIA Section 1818(i)(1) does not block district courts from exercising jurisdiction or reviewing collateral constitutional claims. Second, ABA argued that FDIC’s civil penalty action does not meet the “public rights” exception criteria.
Judge Daniel Crabtree of the U.S. District Court of Kansas held that the court lacked subject matter jurisdiction because Congress restricted its jurisdiction through Section 1818 of the FDIA. Section 1818 establishes a limited judicial review process, allowing district court involvement only in two cases: to pause a temporary order within ten days of service or to enforce an outstanding order at the request of the Federal Reserve Board. In all other situations, Section 1818 explicitly bars court involvement. The court ruled it lacked jurisdiction because CBW’s claims fell outside these exceptions.
The court also held that structural constitutional claims do not warrant a separate jurisdictional analysis when Congress has explicitly removed district court jurisdiction. CBW Bank claimed FDIC unlawfully attempted to subject it to an administrative proceeding to impose CMPs conducted by an ALJ housed in the Office of Financial Institution Adjudication (OFIA). According to the CBW Bank, the structure of the OFIA violates Article II, Article III, and the Seventh Amendment of the U.S. Constitution because the ALJs are unconstitutionally protected from removal. CBW Bank pointed to Axon v. FTC, where the Supreme Court allowed early court review of constitutional challenges to SEC and FTC proceedings. But Judge Crabtree reasoned that Axon did not apply because the statutory review schemes there did not explicitly block judicial review, while Section 1818 does. According to Judge Crabtree, other courts have reached the same conclusion, including Bonan, Ponte, and Moats, all of which held that even structural constitutional claims must go through the agency process first. Finally, Judge Crabtree rejected CBW Bank’s argument that Burgess v. FDIC applies. In Burgess, the court enjoined an FDIC proceeding after deciding that Section 1818(i)(1) does not bar subject matter jurisdiction “over structural constitutional claims.” In Judge Crabtree’s view, Burgess is unpersuasive because it wrongly ignored Section 1818(i)(1)’s explicit preclusion.
After the court’s decision, on March 10, 2025, FDIC reversed its position on the constitutionality of in-house administrative law judges (ALJs). The acting solicitor general told the court that it would no longer defend the constitutionality of removal restrictions. In other words, the acting solicitor general now agrees that these restrictions are unconstitutional under the separation of powers and Article III.
Bottom Line: The court does not address whether Jarkesy requires a jury trial for FDIC or whether ALJ removability presents constitutional issues for FDIC enforcement actions.
Document: Opinion
