Landry v. Fed. Deposit Ins. Corp.

• Decision Date: 03 March 2000
• Docket Number: No. 99-1230,99-1230
• Parties: (D.C. Cir. 2000) Michael D. Landry, Petitioner v. Federal Deposit Insurance Corporation, Respondent
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1125

204 F.3d 1125 (D.C. Cir. 2000)

Michael D. Landry, Petitioner v. Federal Deposit Insurance Corporation, Respondent

No. 99-1230

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 19, 1999

Decided March 3, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

On Petition for Review of an Order of the Federal Deposit Insurance Corporation

John C. Deal argued the cause and filed the briefs for petitioner.

Kathryn R. Norcross, Counsel, Federal Deposit Insurance Corporation, argued the cause for respondent. With her on the brief were Ann S. DuRoss, Assistant General Counsel, and Colleen J. Boles, Senior Counsel. Thomas A. Schulz, Assistant General Counsel, and Ashley Doherty and Thomas L. Holzman, Counsel, entered appearances.

Before: Edwards, Chief Judge, Williams and Randolph, Circuit Judges.

Opinion for the Court filed by Circuit Judge Williams.

Separate opinion concurring in part and concurring in the judgment filed by Circuit Judge Randolph.

Williams, Circuit Judge:

Congress has given the Federal Deposit Insurance Corporation ("FDIC") a variety of weapons to use against individuals whose actions threaten the integrity of federally insured banks or savings associations.Among these is the power to remove a bank officer from his position and to bar him from further participation in the operations of a federally insured depository institution. See 12 U.S.C. 1818(e)(1). On April 30, 1996 the FDIC notified Michael D. Landry that it intended to seek such an order against him because of his conduct as Senior Vice President, Chief Financial Officer, and Cashier of First Guaranty Bank, Hammond, Louisiana.

As required by statute, the FDIC assigned the matter to an administrative law judge for a formal, on-the-record, administrative hearing. See 12 U.S.C. 1818(e)(4); 5 U.S.C. 554, 556. The ALJ held a two-week hearing and then issued a decision recommending that the FDIC issue the proposed prohibition order.¹ Landry filed exceptions to the ALJ's recommendation, and the case was forwarded to the FDIC's Board of Directors for a final decision. The Board agreed with the recommendation and issued an order of removal and prohibition. See In re Michael D. Landry, FDIC 95-65e, May 25, 1999 ("Order"), Joint Appendix ("J.A.") 218, 264-66. Landry filed a timely petition for review. The principal issue for review is Landry's argument that the FDIC's method of appointing ALJs violates the Appointments Clause of the Constitution, Art. II, 2, cl. 2.Landry also argues that the evidence against him did not meet the statutory minimum for the remedies against him and that the FDIC violated various procedural requirements.We affirm.

* * *

From the late 1980s to early 1993, First Guaranty was in serious financial trouble. In 1990, the FDIC issued a capital directive requiring it to obtain a $4.7 million infusion of capital by January 1, 1991. The Bank tried unsuccessfully to raise capital through a stock solicitation, and when the FDIC completed its 1991 examination the Bank's position looked bleaker than ever. Soon afterward, the FDIC told the Bank's board of directors that it would seek to terminate the Bank's deposit insurance. It agreed, however, to delay termination proceedings while further recapitalization plans proceeded. In early 1992 the FDIC conducted another examination and found that the Bank's financial position had improved slightly, but that it was still a candidate for nearterm failure. After Landry and others pursued a series of attempts to add capital to the Bank--some of which can only be described as bizarre and desperate--the Bank's board on September 17, 1992 accepted an offer of purchase, and in December 1992 the Bank received the necessary capital infusion.

Landry's alleged malfeasance occurred in connection with a capital enhancement plan initially proposed by Rick A. Jenson, the Bank's former president, and Scott Crabtree, a consultant, involving a corporation called Pangaea. The FDIC and Landry agree that he had a role in this plan but disagree as to the scope of his role, his motivation, and the significance of his conduct. The FDIC Board, adopting the ALJ's factual findings, found that Landry and his two associates were the incorporators of Pangaea Corporation, and that they planned to use Pangaea to acquire an 80% interest in the Bank. They hoped to raise $16 million by selling 30% of Pangaea's stock, retaining 70% for themselves. Of the $16 million Pangaea would use $7.5 million to beef up the Bank's capital through purchases of its stock, $6.5 million to form a limited partnership to buy real estate from the Bank's portfolio, and $2 million to pay Pangaea expenses and to finance other ventures. They presented this plan as a means of finding capital for the Bank, and obtained approval at an executive meeting of the Bank's board of directors on August 8, 1991, but as Landry would later admit, the board was misled because the plan was "not presented as a management takeover/buyout of the Bank." Instead, the Bank's board was led to believe that Pangaea was an arm of the Bank so that a capital infusion would entail no genuine change in control of the Bank. After board approval, the Bank forwarded a draft copy of a descriptive booklet to the FDIC examiners. They rejected the plan because they believed it offered no short term capital infusion and Pangaea had no serious prospect of actually raising the $16 million. (The FDIC had determined that investors could have acquired complete ownership of the entire bank for $5 million, so that investors would not be willing to pay $16 million for a 30% interest in an entity (Pangaea) that would own only 80% of the Bank.)

Undeterred, Jenson, Crabtree and Landry pursued a variety of imaginative sources of capital, many of which involved Pangaea. These sources included: individuals seeking United States citizenship under a provision of the immigration laws admitting individuals who invest $1 million in a new business venture that creates ten or more new jobs; pension funds solicited for the immigration scheme with the help of an image-enhancement firm with pension fund contacts; a preferred stock offering for Pangaea prepared by Funding Placement Services; and an Ecuadorian currency scheme through which one could purportedly obtain a 500% return in six weeks.

Although this "Pangaea plan" never much developed, and although Pangaea was unlikely ever to have received approval to acquire the Bank from its board of directors or federal regulators, the FDIC Board found that Landry's fellow Pangaea incorporators--with Landry's full knowledge and cooperation--executed enough of the plan to cause the Bank to lose substantial sums of money in the form of promotional expenses, see Order at 14, 17-18, 29-30, J.A. at 231, 234-35, 246-47, questionable loans, see id. at 14-15, 17, J.A. 231-32, 234, and other unwise or illegal banking activities, see id. at 13, 16, 20, J.A. at 230, 233, 237, without informing the directors that their plan was designed to enrich the incorporators while providing little or no benefit to the Bank itself.The Board also found Landry had failed to satisfy FDIC rules requiring disclosure of material changes in the Bank's operations. See Order at 20, J.A. at 237.

The Board's most compelling evidence came in the form of a 16-page letter dated June 3, 1993 that Landry himself wrote to bank examiner G. Martin Cooper ("Landry letter"), and to which he attached more than 500 pages of supporting material. The Landry letter described the activities at issue here and linked them to Pangaea. Landry's personal culpability, laid bare in this letter, was reinforced by Landry's resignation letter (not accepted by the Bank's board of directors), in which he described his conduct as "self dealing" and "for the good of Pangaea Corporation at the expense of First Guaranty Bank," as well as his May 12, 1995 deposition, in which he admitted that Pangaea had become a vehicle to "make money off the bank." After examining all of the evidence, the FDIC Board concluded that although other wrongdoers may have been more culpable, Landry's conduct met the statutory criteria and thus warranted a removal and prohibition order. See Order at 21-22, J.A. at 238-39.

Appointments Clause

Landry argues that the FDIC's method for appointing ALJs violates the Appointments Clause of the Constitution:

[The President] ... shall nominate, and by and with theAdvice and Consent of the Senate, shall appoint ...Officers of the United States, whose Appointments arenot herein otherwise provided for, and which shall beestablished by Law: but the Congress may by Law vestthe Appointment of such inferior Officers, as they thinkproper, in the President alone, in the Courts of Law, orin the Heads of Departments.

U.S. Const., Art. II, 2, cl. 2.

Landry would classify ALJs who conduct administrative proceedings for the various federal banking agencies as "inferior officers" of the United States. If so, Congress's instruction to the banking agencies to "establish their own pool of administrative law judges" to conduct such hearings, see Federal Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), 916, 103 Stat. at 486, codified at 12 U.S.C. 1818 note, would be unconstitutional because it vests appointment authority in a set of agencies that are not (according to Landry) "departments" under the Appointments Clause. The FDIC counters that the ALJs in question need not be appointed by heads of departments because they are employees rather than inferior officers.

The FDIC also makes a preliminary objection--that Landry has shown no prejudice from any Appointments Clause violation that may have occurred. The FDIC itself determined Landry's responsibility after reviewing the ALJ's recommended decision de novo. See 12 U.S.C. 1818(h)(1) (requiring the FDIC to make its own findings of fact when issuing its final decision); 12 CFR 304.38,...