Fifth Circuit Upholds Administrative Enforcement Action Against Former Bank Directors,Citing Public Rights Exception
Teh U.S. Court of Appeals for the Fifth Circuit recently affirmed an Office of the Comptroller of the Currency (OCC) enforcement action against two former directors of a failed bank, rejecting their argument that a recent Supreme Court ruling required a jury trial. The directors had appealed an OCC order banning them from the banking industry and imposing civil penalties following an administrative proceeding.
The appeal centered on the Supreme Court’s decision in SEC v. Jarkesy, which established that the Securities and Exchange Commission (SEC) cannot pursue fraud claims wiht civil penalties through an internal administrative process, as it violates the Seventh Amendment’s right to a jury trial. The Jarkesy court reasoned that such SEC claims resemble conventional common law fraud, historically decided by juries, and did not fall under exceptions for cases involving “public rights.”
However, the Fifth Circuit distinguished the OCC case from Jarkesy. The court noted that the OCC’s authority is specifically limited to bringing enforcement actions administratively, unlike the SEC which has the option of pursuing cases in federal court. This meant there was no past precedent of similar OCC actions being resolved before a jury.
Crucially, the Fifth Circuit determined the OCC’s action fell within the ”public rights” exception to the Seventh Amendment. The court emphasized that the OCC’s enforcement efforts are focused on protecting the broader banking system – a function inherently tied to public welfare – rather than resolving disputes between private parties. The OCC’s mandate includes regulating national banks, protecting the federal deposit insurance program, and safeguarding the national currency, all areas historically within the purview of the federal government due to the uniquely federal nature of the banking system.
Because the OCC’s enforcement action directly addressed these public rights, the Fifth Circuit concluded that a jury trial was not constitutionally required and upheld the agency’s administrative decision.
