In October 2023, AABD joined several other bank trade associations to file an amicus brief before the U.S. Supreme Court supporting the right of bank directors and other institution-affiliated parties (IAPs) to a jury trial.

While the Jarkesy case involves an individual subject to a civil penalty action by the SEC who sought a trial by jury, there are striking parallels to bank directors and others facing civil money penalties and removal actions brought by the federal banking agencies.

AABD supports a fair tribunal to hear enforcement actions against bank directors and others in the banking industry. But the administrative proceedings before an administrative law judge (ALJ) selected by the agencies and the decisions of the heads of the agencies have often exhibited bias and unfairness.

It often starts with the bank examination, during which the agency will establish “facts,” sometimes without full participation and open dialogue between the examiner and the bank or IAP. If the agency believes enforcement action is appropriate, it will then initiate such action, again sometimes without the full input of the bank or IAP. Given the choice of whether to agree to an enforcement action or utilize the administrative processes available to the bank or IAP and recognizing the long odds of winning the case against the government apparatus, virtually all banks and IAPs will consent, regardless of the merits of their case.

If the matter is disputed, the ALJ (selected by the agency) likely will bar the bank or IAP the right to cross-examine examiners and agency personnel to prove bias or from accessing evidence from work papers and emails of the examiners, and will generally grant deference to the opinion of the examiners and other agency officials over the opinions of expert witnesses of the bank or IAP. The required statutory standards to fine or remove an IAP are not defined in the statute, so that allows the agency to interpret the standards as it wishes, with deference for that interpretation granted by the ALJ.

Once the ALJ issues a recommended decision, the head of the agency will make a final decision, typically reflecting again the deference to the agency representatives that the ALJ had shown. The bank or IAP may appeal to a federal circuit court of appeals, but the standard of review is not a de novo review but an affirmation unless the agency has acted arbitrarily or capriciously.

AABD’s previous Alerts on the Calcutt (4/19/21, 8/8/22, 5/2/23, 7/24/23) and Wells Fargo (4/27/21) cases summarize examples of the lack of fairness in the process.

These cases all remind us of the adage attributable to Lord Acton: “Power corrupts; absolute power corrupts absolutely”.

A right to a jury trial is not just required by the U.S. Constitution; it is essential to assist in rebalancing the power of the agencies with the rights of individual directors and other IAPs to assure fairness.