Greenberg v. Board of Governors of Federal Reserve System, 1487

• Decision Date: 19 June 1992
• Docket Number: D,No. 1487,1487
• Citation: 968 F.2d 164
• Parties: A. Frederick GREENBERG; Richard M. GREENBERG, Petitioners, v. The BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondent. ocket 91-4200.
• Court: U.S. Court of Appeals — Second Circuit

Page 164

968 F.2d 164

A. Frederick GREENBERG; Richard M. GREENBERG, Petitioners, v. The BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondent.

No. 1487, Docket 91-4200.

United States Court of Appeals Second Circuit.

Argued April 22, 1992.

Decided June 19, 1992.

Peter I. Livingston, (Michelle J. D'Arcambal, Ross & Hardies, New York City, of counsel), for petitioners.

Douglas B. Jordan, Sr. Atty., Bd. of Governors of the Federal Reserve System, Washington, D.C. (Stuart M. Gerson, Asst. Atty. Gen., James V. Mattingly, Jr., General Counsel, Richard M. Ashton, Associate General Counsel, Board of Governors, Federal Reserve System, of counsel), for respondent.

Before: OAKES, Chief Judge, KEARSE and WALKER, Circuit Judges.

WALKER, Circuit Judge:

Richard M. Greenberg and A. Frederick Greenberg ("the Greenbergs") petition for review of a decision of the Board of Governors of the Federal Reserve System ("the Board") barring the Greenbergs from further participation in the affairs of any federally supervised financial institution. The Greenbergs contend that bias tainted the administrative proceedings leading up to the Board's decision, that settlements reached with the Office of the Comptroller of the Currency (OCC) bar this enforcement proceeding, and that the Board erred in finding the Greenbergs' personally culpable. We affirm the Board's order of prohibition in all respects.

Background

This case arises out of the failure of the First City National Bank and Trust Company (the Bank) in 1989. The Greenbergs were members of the board of the Bank, served on the Bank's loan committee, and each owned at least 40% of the common stock of the Bank. A. Frederick Greenberg served as the Chairman of the Board, while Richard Greenberg assumed the role of acting Chairman in Frederick's absence.

On October 11, 1986, the Bank converted from a savings bank to a national banking association, placing the Bank under the supervisory authority of the OCC. Between the conversion in 1986 and the Bank's insolvency in 1989, the OCC raised numerous questions about the Bank's practices, focusing in particular on a series of transactions between the Bank and certain limited partnerships controlled or managed by the Greenbergs.

After the Bank failed, the OCC instituted a prohibition proceeding against the Greenbergs in March of 1990 based largely on these insider loans. That proceeding culminated in a hearing before an Administrative Law Judge (ALJ) in November of 1990, and the ALJ issued a lengthy recommended opinion concluding that the Greenbergs had engaged in several impermissible transactions and that this misconduct warranted barring the Greenbergs from the banking industry.

The Greenbergs filed objections to the recommended decision with the Board. After careful consideration, the Board rejected these objections, adopted with minor modifications the recommendations of the ALJ, and issued an order of prohibition barring the Greenbergs from the industry. This petition for review followed.

Discussion

The Greenbergs raise three principal issues on this petition for review. First, they argue that the ALJ's employment of a law clerk who had previously worked on the OCC's investigation of the Greenbergs irreparably tainted the proceedings. Second, they assert that prior settlements with the OCC bar this prohibition proceeding. Finally, they question whether substantial evidence in the record supported the Board's finding of misconduct.

1. The Law Clerk

Shortly before the trial, the Greenbergs' counsel discovered that the ALJ's former law clerk had previously worked for the OCC and had participated in that agency's investigation of the Greenbergs. The Greenbergs thereupon requested that the ALJ recuse himself. The ALJ refused to do so. The ALJ explained that he had not known that the law clerk had previously participated in the Greenberg investigation and noted that the law clerk had worked for the judge for only six weeks "during the course of which he did some administrative things for me with regard to this case, but he had no substantive input." The ALJ assured the Greenbergs that the law clerk "ha[d] not said to me one word concerning any previous involvement in this case, nor said anything about the bank or the people involved." Accordingly, the ALJ concluded that there was no need to recuse himself. The Greenbergs did not investigate the matter further. On this petition for review, however, the Greenbergs assert that the participation by the ALJ's law clerk in the underlying investigation biased the entire administrative proceeding.

The Greenbergs acknowledge that they have no evidence that the law clerk improperly influenced the ALJ. Instead, they argue that the mere appearance of impropriety is sufficient to require the ALJ to recuse himself. Had this case been tried before a federal district judge, this might be a plausible argument. Under 28 U.S.C. § 455(a), a federal judge must recuse herself "in any proceeding in which [her] impartiality might reasonably be questioned." That high standard of propriety applies, however, only to Supreme Court justices, magistrate judges, and "judges of the courts of appeals, district courts, Court of International Trade and any court created by Act of Congress, the judges of which are entitled to hold office during good behavior." 28 U.S.C. § 451. The heightened standard cannot apply to administrative law judges who, after all, are employed by the agency whose actions they review. Otherwise, ALJs would be forced to recuse themselves in every case.

Instead, we think the Greenbergs' charge must be judged under the standards imposed on ALJs by the Administrative Procedure Act (APA), 5 U.S.C. § 554(d). That section requires that "[a]n employee or agent engaged in the performance of investigative or prosecuting functions for an agency in a case may not, in that or a factually related case, participate or advise in the decision...."

The APA is violated only where an individual actually participates in a single case as both a prosecutor and an adjudicator. Ministerial participation in one function will not disqualify the actor from more substantial participation in the other function. See Finer Foods Sales Co., Inc. v. Block, 708 F.2d 774, 779 (D.C.Cir.1983) (signing a reparations order a ministerial act, not the performance of a prosecutorial function, since signing "did not require the Judicial Officer to exercise any discretion or make any legal or factual judgments."); Shultz v. Securities and Exchange Com'n, 614 F.2d 561, 569 (7th Cir.1980) (no violation of APA where the agency prosecutor drafted the notice of decision for the agency, because the decision had been made by judges without any input from the prosecutor).

The uncontroverted facts in this case lead to the conclusion that the law clerk played only a ministerial role in the adjudicatory process. The ALJ stated that the law clerk had not spoken to the ALJ about the underlying investigation and had performed only administrative tasks in the case. The Greenbergs had the burden of establishing that the law clerk played a more significant role in the decision. See Grolier Inc. v. FTC, 615 F.2d 1215, 1221 (9th Cir.1980). The Greenbergs failed to present any facts that would contradict the ALJ's version of events. Indeed, the record does not indicate that the Greenbergs even attempted to depose the law clerk. Since the ALJ's version remains effectively unchallenged, we hold that there was no violation of the APA.

As a final resort, the Greenbergs assert that the law clerk's participation in both the adjudicative and prosecutorial processes created such a risk of an unfair decision as to violate due process. We agree that a due process violation may be established without a showing of actual bias where "a court ... determin[es] from the special facts and circumstances present in the case before it that the risk of unfairness is intolerably high." Withrow v. Larkin, 421 U.S. 35, 58, 95 S.Ct. 1456, 1470, 43 L.Ed.2d 712 (1975). However, the simple "combination of investigative and adjudicative functions does not, without more, constitute a due process violation." Id.

In Withrow, the Court approved an arrangement whereby the state medical board both brought and adjudicated charges against wayward physicians. The Court reasoned that the adjudicators were entitled to a presumption of honesty. Id. at 47, 95 S.Ct. at 1464. Absent specific evidence to the contrary, the Court was confident that the mixture of functions would not create "a sufficiently great possibility that the adjudicators would be so psychologically wedded to their complaints that they would consciously or unconsciously avoid the appearance of having erred or changed position." Id. at 57, 95 S.Ct. at 1469. Here, where the former prosecutor (the law clerk) had no decisional authority, but at most might have advised the decision maker, the risk of impropriety was not as high as that tolerated by the Court in Withrow. Accordingly, we reject the Greenbergs' due process challenge.

In sum, while we recognize that law clerks occasionally play more than a ministerial role in the decision making process, the uncontroverted record establishes that this law clerk did not. Accordingly, the law clerk's prior association with the prosecuting agency does not undermine our confidence in the fairness of the proceedings.

2. Res Judicata

The Greenbergs argue that prior OCC enforcement actions against them and the Bank bar this removal action. This claim has been before us once before. In Greenberg v. Comptroller of the Currency, 938 F.2d 8 (2d Cir.1991), the Greenbergs sought to enjoin the OCC action that resulted in the orders of prohibition at issue here. As one ground of attack, the Greenbergs asserted the preclusive effect of the prior enforcement proceedings. We declined to entertain the claim then, reasoning that the better course was to await the outcome of the OCC...