5th Circuit Stays Challenge to FDIC Proceedings

On July 17, 2023, the U.S. Court of Appeals for the Fifth Circuit stayed proceedings in a case that deals with the constitutionality of FDIC administrative proceedings, pending the U.S. Supreme Court’s decision in SEC v. Jarkesy, a separate case challenging in-house enforcement by the SEC.

In the present case, the FDIC initiated enforcement proceedings against a former Texas bank CEO for alleged misappropriation from his bank.  Like in Jarkesy, the former CEO similarly argues that the enforcement proceeding violates his Seventh Amendment right to a jury trial and is overseen by an unconstitutionally tenure-protected administrative law judge.  Late last year, a Texas federal judge granted the former CEO a preliminary injunction – based on his jury trial claim –barring the FDIC from continuing with the case.  The Fifth Circuit’s recent order staying proceedings covers both the FDIC and former CEO’s appeals from the injunction ruling.

Opposing the stay, the FDIC had argued that Jarkesy is not directly relevant to the present case because the laws governing FDIC in-house enforcement proceedings are distinguishable from those governing the SEC’s.  The stay order did not explain why the Fifth Circuit disagreed with the FDIC.