Federal Deposit Insurance Corporation v. Mallen, 87-82

• Citation: 108 S.Ct. 1780,486 U.S. 230,100 L.Ed.2d 265
• Decision Date: 31 May 1988
• Docket Number: No. 87-82,87-82
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Appellant, v. James E. MALLEN, et al
• Court: United States Supreme Court

486 U.S. 230

108 S.Ct. 1780

100 L.Ed.2d 265

FEDERAL DEPOSIT INSURANCE CORPORATION, Appellant,

v James E. MALLEN, et al.

No. 87-82.

Argued March 22, 1988.

Decided May 31, 1988.

Syllabus

Title 12 U.S.C. § 1818(g)(1) authorizes the Federal Deposit Insurance Corporation (FDIC) to suspend from office an indicted official of a federally insured bank if his continued service poses a threat to the interests of the bank's depositors or threatens to impair public confidence in the bank. Section 1818(g)(3) entitles a suspended official to a hearing before the FDIC within 30 days of his written request, and to a final decision within 60 days of the hearing. At the hearing, the official may "submit written materials (or, at the discretion of the agency, oral testimony) and oral argument." The FDIC suspended appellee, the president and a director of a federally insured bank, after he was indicted for making false statements to the FDIC and the bank for the purpose of influencing the FDIC in violation of 18 U.S.C. §§ 1001 and 1014. A hearing was scheduled to occur 19 days after his written request for an expedited hearing, but the FDIC's regional counsel took the position that the oral testimony appellee proposed to offer at the hearing would not be necessary. Before the hearing date, appellee filed suit in the Federal District Court, which preliminarily enjoined the FDIC from enforcing the suspension order. Although it rejected appellee's argument that the order was invalid because it was not preceded by a hearing, the court concluded that § 1818(g)(3)'s post-suspension procedure violates the Due Process Clause of the Fifth Amendment because it does not guarantee a suspended officer a sufficiently prompt decision or an unqualified right to present oral testimony.

Held:

1. Section 1818(g)(3)'s post-suspension procedure is not unconstitutional on its face. Pp. 240-248.

(a) Appellee was not entitled to a pre-suspension hearing, since the important governmental interest in protecting depositors and maintaining public confidence, coupled with the fact that the felony indictment provided substantial assurance that the suspension was not baseless, justified prompt action before a suspension hearing was held. Cf. Barry v. Barchi, 443 U.S. 55, 99 S.Ct. 2642, 61 L.Ed.2d 365. Pp. 240-241.

(b) Appellee was not denied a sufficiently prompt post-suspension hearing. Although a bank officer has an important, constitutionally protected interest in continued employment, he also has an interest in see- ing that a decision concerning his continued suspension is not made with excessive haste. Moreover, a temporary suspension is not likely to augment the injury to the officer's reputation that has already been done by an indictment accusing him of serious wrongdoing. Thus, even a delay of the full 90 days allowed by § 1818(g)(3) for a post-suspension decision will usually be justified by the public interest in a correct decision as to whether depositors' interests or public confidence are threatened, and by the likelihood, arising from the grandjury's finding of probable cause that the officer has committed a felony involving dishonesty, that the suspension decision was not mistaken. The fact that the criminal proceedings might be concluded more promptly than the FDIC proceeding is irrelevant to the due process determination, since an acquittal will require that the suspension order be vacated, while a conviction will merely strengthen the case for maintaining the suspension. Barry v. Barchi, supra, distinguished. Pp. 241-247.

(c) The District Court's reliance on § 1818(g)(3)'s failure to guarantee an opportunity to present oral testimony was misplaced. The relevant regulation delegates the discretionary decision whether to accept oral testimony to the hearing officer, but appellee never gave that officer the opportunity to render a decision. There is no inexorable requirement that oral testimony be heard in every administrative proceeding in which it is tendered, and unconstitutionality cannot be premised on the fact that discretionary authority to admit or reject such evidence may be applied in an arbitrary or unfair way in some hypothetical case. Pp. 247-248.

2. There was no unfairness in the FDIC's use of the § 1818(g)(3) procedure in this case. P. 248.

667 F.Supp. 652 (ND Iowa 1987), reversed.

STEVENS, J., delivered the opinion for a unanimous Court.

John C. Harrison, Washington, D.C., for appellant.

Mary E. Curtin, Minneapolis, Minn., for appellees.

Justice STEVENS delivered the opinion of the Court.

The question presented by this appeal concerns the constitutionality of a statutory provision that authorizes the Federal Deposit Insurance Corporation (FDIC) to suspend from office an indicted official of a federally insured bank. The District Court concluded that the statutory post-suspension procedure is unconstitutional because it does not guarantee the suspended officer a sufficiently prompt decision or an unqualified right to present oral testimony. The District Court therefore enjoined the FDIC from enforcing an order suspending appellee from serving as the president and as a director of the Farmers State Bank in Kanawha, Iowa, and from otherwise participating in the conduct of the affairs of any FDIC-insured bank. 667 F.Supp. 652, 662, 664 (1987). We noted probable jurisdiction. 484 U.S. 911, 108 S.Ct. 256, 98 L.Ed.2d 214 (1987). We reverse.

I

In 1966 Congress adopted several amendments to the Federal Deposit Insurance Act to give federal banking agencies more effective regulatory powers to deal with crises in financial institutions.¹ The amendments were designed to protect the interests of depositors and to prevent the potentially debilitating effect of public loss of confidence in the banking industry. See S.Rep. No. 1482, 89th Cong., 2d Sess., 4-5 (1966) (S.Rep.), U.S.Code Cong. & Admin.News 1966, p. 3532; 112 Cong.Rec. 20080 (1966) (remarks of Sen. Proxmire). Congress therefore enacted 12 U.S.C. § 1818(g)(1) to give the appropriate federal banking agency ² the authority to take immediate action to suspend an officer or director of an insured bank if he or she is formally charged with a felony involving dishonesty or breach of trust. As originally enacted, § 1818(g)(1) permitted the appropriate banking agency to suspend an indicted bank officer without providing an opportunity to be heard either before or after issuance of the order of suspension.³

In 1974, the FDIC invoked its § 1818(g)(1) authority to suspend the president of an Illinois bank who had been indicted for conspiracy to commit mail fraud. That officer successfully challenged the constitutionality of the suspension on the ground that it had deprived him of property without due process of law. The three-judge District Court, in Feinberg v. FDIC, 420 F.Supp. 109 (DC 1976), found that the public interest in prompt action justified a suspension without a prior hearing, but concluded that the officer was constitutionally entitled to a prompt and meaningful post-suspension hearing in which he could attempt to persuade the FDIC to exercise its discretion to revoke the suspension. In its opinion, the District Court emphasized that the 1966 statute had given the FDIC standardless discretion to suspend or not to suspend an indicted bank official.⁴

In response to the Feinberg decision, in 1978 Congress amended § 1818(g) by incorporating standards in subsection (1) to guide the FDIC in the exercise of its discretion,⁵ and by enacting a new subsection (3) to give the suspended officer the right to a post-suspension hearing before the agency to demonstrate that his or her continued service would not jeopardize the interests of depositors or impair public confidence in the bank.⁶ It is the adequacy of the post-suspension pro- cedure authorized by subsection (3) that is at issue in this appeal.

II

On December 10, 1986, appellee was indicted by a federal grand jury in the Northern District of Iowa. He was charged with making false statements to the FDIC in violation of 18 U.S.C. § 1001 and with making false statements to the Farmers State Bank with the purpose of influencing the actions of the FDIC in violation of 18 U.S.C. § 1014, offenses that are punishable by imprisonment for more than one year, and that unquestionably involve dishonesty or breach of trust.⁷ At the time of the indictment, appellee was the president and a director of a federally insured bank. Thus, if the FDIC found that his continued service "[might] pose a threat to the interests of the bank's depositors or [might] threaten to impair public confidence in the bank," the requirements specified in § 1818(g)(1) for a suspension order would be satisfied.

On January 20, 1987, the FDIC issued an ex parte order containing the necessary findings, suspending appellee as the president and as a director of the bank and prohibiting him "from further participation in any manner in the conduct of the affairs of the Bank, or any other bank insured by the FDIC." ⁸ App. to Juris. Statement 28a. A copy of the order was served on appellee on January 26, 1987. Four days later, appellee's attorney made a written request for "an immediate administrative hearing" at which he proposed to offer "both oral testimony and written evidence" to establish that appellee's continued service was not likely to pose a threat to the interests of the bank's depositors or to threaten public confidence in the bank. App. 26. The letter re- quested that the hearing be expedited and commence no later than February 9, 1987.

After various communications with appellee's counsel, the FDIC's regional counsel, and the Administrative Law Judge who was selected to conduct the hearing, it was decided that a hearing would be held on February 18, 1987. 667 F.Supp., at 655. In those communications, the FDIC's regional counsel took the position that oral testimony would not be necessary. App. 28-30. The hearing officer, however, never had an...