Constitutionality of FDIC Judges at Risk

By Bernie Pazanowski

The appointment of Federal Deposit Insurance Corporation administrative law judges is likely unconstitutional, the U.S. Court of Appeals for the Fifth Circuit ruled Sept. 7 ( Burgess v. FDIC , 2017 BL 315521, 5th Cir., No. 17-60579, 9/7/17 ).

A banker the FDIC ordered to withdraw from the industry is therefore entitled to a stay of the order while he tries to prove that ALJs are inferior U.S. officers who hold their positions in violation of the appointments clause, the court said in an opinion by Judge Priscilla R. Owen.

The decision could create a split with the D.C. Circuit, which held that FDIC ALJs aren’t inferior officers of the United States, and may have repercussions for ALJs in other federal agencies.

The Fifth Circuit relied on the U.S. Supreme Court’s holding in Freytag v. Commissioner of Internal Revenue, which held that special trial judges of the U.S. Tax Court are inferior U.S. officers subject to the appointments clause.

Under the appointments clause, principal officers of the United State must be appointed by the president with advice and consent of the Senate. Inferior officers may be appointed either by the president, the courts, or federal department heads. Nonofficer employees aren’t subject to the clause.

A government employee is an inferior officer subject to the appointments clause if his office entails significant duties and discretion, the appeals court said. FDIC ALJs meet this standard because their position is established by law; their duties, salary, and means of appointment are specified by statute; and they exercise significant discretion, it said.

Because the banker also showed he will suffer irreparable harm without the stay, and that both the balance of hardships and the public interest favor the stay, the court granted his motion.

Judges Edith H. Jones and Edith Brown Clement joined the opinion.

To contact the reporter on this story: Bernie Pazanowski in Washington at bpazanowski@bna.com

To contact the editor responsible for this story: Jessie Kokrda Kamens at jkamens@bna.com

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