Several bank employees (the "employees") occupied prominent positions at the bank following the 2008 financial crisis, while the bank struggled to remain solvent. The employees implemented several strategies to keep the bank open, but each effort failed, and the bank ultimately closed. After the bank’s closure, the Office of the Comptroller of the Currency (OCC), initiated an enforcement action alleging the employees “(1) engaged in unsafe and unsound banking practices, (2) breached their fiduciary duties, and (3) filed materially inaccurate reports.” An administrative law judge (ALJ) heard the case after the OCC reassigned it to another ALJ judge in light of Lucia v. SEC, 585 U.S. 237 (2018). The OCC adopted almost all the ALJ’s recommendations. However, the ALJ found that the OCC’s enforcement counsel failed to meet its burden to ban the employees from working in the financial industry. But the Comptroller determined otherwise and imposed the ban. The OCC’s order imposed civil penalties and prohibited each of the employees from working in the financial industry. The employees appealed to the Fifth Circuit. On appeal, the employees raised six issues: (1) whether the enforcement action violated their Seventh Amendment right to a jury trial, (2) whether the appointment of the new ALJ was valid, (3) whether the statute of limitations barred the OCC’s enforcement action, (4) whether the ALJ and OCC issued improper evidentiary rulings, (5) whether the OCC presented substantial evidence to justify a prohibition order, and (6) whether the correct evidentiary standard was used in prohibition cases.
In Ortega v. Off. of the Comptroller of the Currency, 155 F.4th 394, (5th Cir. 2025), the court denied the employees’ petition for review and affirmed the finding of the OCC, upholding the employee’s liability for civil penalties and their prohibition from working in finance. First, the court addressed the employees’ contention that the OCC denied their right to a jury trial. The court concluded that the OCC did not violate the employees’ right to jury trial because the OCC’s enforcement action fell within the public rights exception. Courts apply the public rights exception narrowly because the exception only relates to areas where matters “historically could have been determined exclusively by [the executive and legislative] branches,” rather than Article III courts. Stern v. Marshall, 564 U.S. 462, 485 (2011). The court held the public rights exception applied because the OCC’s enforcement action did not regulate private rights but rather regulated the banking system at large. The court emphasized the legislative history of state and nationally chartered banks, specifically how Congress gave enforcement actions to the legislative and executive branches, rather than to the courts. The court noted that not only did the federal government possess an interest in regulating the banks, but that federal law created the entire national banking system, which placed the enforcement action within the public rights exception. Second, the court addressed the appointment of the ALJ. The court held that the Secretary of the Treasury, a properly authorized department head, had appointed the ALJ. Therefore, the appointment was in accordance with Lucia’s requirement that only the President, a department head, or a court of law may make these appointments. Third, the court concluded the five-year statute of limitations did not bar the government’s enforcement actions. The court clarified that accrual did not occur until the regulator made the determination that the employees’ action would probably harm the bank, satisfying the statutory elements of the enforcement action. The court found the enforcement action occurred within the five-year period after the claim accrued. Thus, the action was timely under the applicable five-year limitations period. The circuit court explained that the OCC’s decision not to initiate proceedings earlier did not preclude the claims it ultimately asserted. Fourth, the court held neither the ALJ nor the OCC issued any improper evidentiary rulings. Regulations permitted the ALJ “to avoid undue delay… by refusing to admit repetitive and cumulative evidence.” See C.F.R. §§ 19.4-19.5. The court emphasized that substantial evidence existed to justify the OCC’s and ALJ’s rulings, and that the OCC reviewed all the ALJ’s rulings before issuing a final decision. Fifth, the court found that the OCC correctly overturned the ALJ’s recommendation not to prohibit the employees from working in finance. The OCC found the employees were “under an obligation to be fully transparent” with the OCC but nevertheless continued to conceal or misrepresent their records. Here, the court found that the OCC sufficiently articulated reasons for removal because the employees’ actions were “well beyond mere negligence.” See Kim v. OTS, 40 F.3d 1050, 1054 (9th Cir. 1994). Lastly, the court reaffirmed that the preponderance of evidence standard governs civil proceedings involving prohibitions because it had already established that this standard is appropriate for a banking regulator under § 1818(e)(1). Therefore, the court denied the employees’ contention that the standard should be clear and convincing evidence.
By Charlie Cole [email protected]
Edited by Olivia Lewis [email protected]
Edited By Callighan Ard [email protected]
Edited By Hayden Mariott [email protected]