United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 19, 1999 Decided March 3, 2000
No. 99-1230
Michael D. Landry,
Petitioner
v.
Federal Deposit Insurance Corporation,
Respondent
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 weap-
ons 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. s 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, ad-
ministrative hearing. See 12 U.S.C. s 1818(e)(4); 5 U.S.C.
ss 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
__________
1 In the same proceedings, FDIC enforcement counsel also
sought, and ultimately received, a prohibition order against Alton B.
Lewis, a member of the Bank's Board of Directors who also did
some legal work for the bank. Lewis's petition for review is
pending before the United States Court of Appeals for the Fifth
Circuit. See Lewis v. FDIC, No. 99-60412 (5th Cir. filed June 18,
1999).
Appointments Clause of the Constitution, Art. II, s 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 ex-
amination and found that the Bank's financial position had
improved slightly, but that it was still a candidate for near-
term 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 infu-
sion.
Landry's alleged malfeasance occurred in connection with a
capital enhancement plan initially proposed by Rick A. Jen-
son, 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 associ-
ates 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 portfo-
lio, 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 vari-
ety of imaginative sources of capital, many of which involved
Pangaea. These sources included: individuals seeking Unit-
ed 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 pre-
ferred stock offering for Pangaea prepared by Funding Place-
ment 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 Pan-
gaea incorporators--with Landry's full knowledge and coop-
eration--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 incorpo-
rators 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 culpa-
bility, laid bare in this letter, was reinforced by Landry's
resignation letter (not accepted by the Bank's board of di-
rectors), 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 the
Advice and Consent of the Senate, shall appoint ...
Officers of the United States, whose Appointments are
not herein otherwise provided for, and which shall be
established by Law: but the Congress may by Law vest
the Appointment of such inferior Officers, as they think
proper, in the President alone, in the Courts of Law, or
in the Heads of Departments.
U.S. Const., Art. II, s 2, cl. 2.
Landry would classify ALJs who conduct administrative
proceedings for the various federal banking agencies as "infe-
rior officers" of the United States. If so, Congress's instruc-
tion 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"), s 916, 103 Stat. at 486, codified at 12 U.S.C.
s 1818 note, would be unconstitutional because it vests ap-
pointment authority in a set of agencies that are not (accord-
ing 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 Lan-
dry has shown no prejudice from any Appointments Clause
violation that may have occurred. The FDIC itself deter-
mined Landry's responsibility after reviewing the ALJ's rec-
ommended decision de novo. See 12 U.S.C. s 1818(h)(1)
(requiring the FDIC to make its own findings of fact when
issuing its final decision); 12 CFR ss 304.38, 304.40 (requir-
ing the FDIC Board to issue the agency's final decision).
The Supreme Court has not decided whether an Appoint-
ments Clause violation requires reversal where it appears to
have done a party no direct harm. Ryder v. United States,
515 U.S. 177, 182-83, 186 (1995). But in Freytag v. Commis-
sioner, 501 U.S. 868 (1991), in reaching the Appointments
Clause issue despite its not having been raised below, the
Court classified the clause as "structural," because of its
purpose to prevent encroachment of one branch on another
and to preserve the Constitution's structural integrity. Id. at
878-79. Here, of course, the issue was raised all right; the
problem is that Landry's injury may be questionable. But
the Court uses the term "structural" for a set of errors for
which no direct injury is necessary--such as a criminal
defendant's indictment by a grand jury chosen in a racially or
sexually discriminatory manner. See Vasquez v. Hillery, 474
U.S. 254, 261 & n.4, 263 (1986) (race); Ballard v. United
States, 329 U.S. 187, 195 (1946) (sex). In such cases, of
course, the later conviction by a petit jury supplies virtual
certainty that a properly constituted grand jury would have
indicted, as the Court has observed in regard to lesser-
ranking grand jury errors. See United States v. Mechanik,
475 U.S. 66, 70-71 & n.1 (1986). As grand juries do not draft
opinions for the petit jury, the latter's insulating effect is
positively surgical compared to the FDIC's action here, how-
ever independent its review of the ALJ's decision.
The Court recently noted its use of the label "structural,"
observing that only in a limited class of cases has it "found an
error to be 'structural,' and thus subject to automatic rever-
sal." Neder v. United States, 119 S. Ct. 1827, 1833 (1999).
Issues of separation of powers (including Appointments
Clause matters, Freytag, 501 U.S. at 878), seem most fit to
the doctrine; it will often be difficult or impossible for
someone subject to a wrongly designed scheme to show that
the design--the structure--played a causal role in his loss.
And in Plaut v. Spendthrift Farm, Inc., 514 U.S. 211 (1995),
the Court gave a further explanation: "[S]eparation of pow-
ers is a structural safeguard rather than a remedy to be
applied only when specific harm, or risk of specific harm, can
be identified.... [I]t is a prophylactic device, establishing
high walls and clear distinctions because low walls and vague
distinctions will not be judicially defensible in the heat of
interbranch conflict." Id. at 239. For Appointments Clause
violations, demand for a clear causal link to a party's harm
will likely make the Clause no wall at all.
There is certainly no rule that a party claiming constitu-
tional error in the vesting of authority must show a direct
causal link between the error and the authority's adverse
decision. In fact, the opposite is often true. For example, in
a challenge to the authority of a non-Article III court on the
grounds that the challenger is entitled to a court enjoying
Article III's exceptional tenure provisions, the assumption
that inadequate tenure may prejudice the challenger is so
automatic that it usually goes unmentioned. See Northern
Pipeline Construction Co. v. Marathon Pipe Line Co., 458
U.S. 50 (1982); Palmore v. United States, 411 U.S. 389 (1973);
Crowell v. Benson, 285 U.S. 22 (1932). Bowsher v. Synar, 478
U.S. 714 (1986), extended this principle to general separation-
of-powers claims. Although the union plaintiffs there had
clearly been injured by a suspension and proposed cancella-
tion of their cost-of-living adjustments, see id. at 721, there
was no showing that the Comptroller General's exposure to
removal by Congress in any way increased the probability of
the cuts. Instead, the Court seemed to presume that subtle
variations in the quality of tenure would affect conduct. See
also Ryder, 515 U.S. at 182-83, 186-88.
Of course in the above cases there was no de novo review
following the decision of the (arguably) unlawfully designated
official. (But see Vasquez v. Hillery, 474 U.S. at 261 & n.4,
263, and Ballard v. United States, 329 U.S. at 195, reversing
convictions based on indictment by discriminatorily selected
grand jury, despite later petit jury verdict, discussed above at
6-7.) Here there is. But Freytag itself indicates that judicial
review of an Appointments Clause claim will proceed even
where any possible injury is radically attenuated. There, the
Court made plain that, had it not found the "inferior officer"
appointed in a constitutional way, it was ready to throw out
the Tax Court's decision simply on the ground that special
trial judges ("STJs") held what it viewed as clearly the
powers of an "inferior officer" (to make final decisions), even
though the STJ had not exercised any power to make final
decisions in Freytag's case. See 501 U.S. at 871-72 & n.2,
882. Indeed, the Court made no attempt to explain how the
STJ's possession of powers not used in Freytag's case could
possibly have prejudiced him. Id.
Moreover, Appointments Clause analysis of purely decision-
recommending employees presents a special problem. Sup-
pose that a purely recommendatory power, i.e., one followed
as here by de novo review, can make an employee an "inferior
officer" within the meaning of the Appointments Clause--a
hypothesis we must assume at this stage. If the process of
final de novo review could cleanse the violation of its harmful
impact, then all such arrangements would escape judicial
review, unless the officer's powers happened fortuitously, as
in Freytag, to be combined with still greater powers. Recog-
nition of this problem may well explain the Court's statement
in United States v. L.A. Tucker Truck Lines, 344 U.S. 33
(1952), that a defect in the appointment of an "examiner"
(precursor of today's ALJ) was, if properly raised, "an irregu-
larity which would invalidate a resulting order." Id. at 38.
Thus, to refuse to entertain Landry's claim is to rule, in
effect, that officers holding purely recommendatory powers
subject to de novo review are not "inferior officers," i.e., it is
to resolve the merits without purporting to do so.
For this reason our decision here is not inconsistent with
Doolin v. OTS, 139 F.3d 203 (D.C. Cir. 1998). There we
relied on Mechanik, 475 U.S. at 70-71, to conclude that
although enforcement proceedings culminating in a "cease
and desist order" were initiated by an improperly appointed
Director of the OTS and therefore defective, the ultimate
issuance of the final merits order by a properly appointed
Director ratified the initiation and cured the error. Doolin
139 F.3d at 212-14. But Doolin did not present the catch-22
of the present case, where the government's argument re-
quires one to believe that, even if we assume that a pure
power to recommend is enough to lift an employee into the
august "inferior officer" realm, it is not enough to taint the
ultimate judgment and thus give the loser a chance to raise
the issue.
Finally, we note that in United States v. Colon-Munoz, 192
F.3d 210 (1st Cir. 1999), the First Circuit said that "structur-
al" has two meanings, referring not only to errors related to
the constitutional structure but also to ones simply deemed so
"fundamental" as to deprive a criminal trial of basic fairness.
Id. at 217-18 n.9. The court used the distinction to justify
not applying Freytag's rejection of the waiver argument, a
problem not before us. But Colon-Munoz never passed on
the issue that is before us--whether an issue that is structur-
al in the sense that it derives from the constitutional struc-
ture can be reviewed even where the link between the error
and the party's harm is conjectural.
We now turn to whether a violation of the Appointments
Clause occurred. The line between "mere" employees and
inferior officers is anything but bright. See Nick Bravin,
Note, Is Morrison v. Olson Still Good Law? The Court's
New Appointments Clause Jurisprudence, 98 Colum. L. Rev.
1103, 1114-15 (1998) ("Early Supreme Court attempts to
define the term 'officer' provide inexact, if any, judicially
manageable standards"); Edward Susolik, Note, Separation
of Powers and Liberty: The Appointments Clause, Morrison
v. Olson, and Rule of Law, 63 S. Cal. L. Rev. 1515, 1545
(1990) ("[A] definitive understanding of the term 'officer' is
not forthcoming for two simple reasons: (1) there are too few
cases for any consistent precedential principle to be articulat-
ed, and (2) the few cases that do exist posit conclusions rather
than arguments and provide little insight to justify their
results."). In fact, the earliest Appointments Clause cases
often employed circular logic, granting officer status to an
official based in part upon his appointment by the head of a
department. See, e.g., United States v. Mouat, 124 U.S. 303,
307 (1888) ("Unless a person in the service of the Government
... holds his place by virtue of an appointment by the
President, or of one of the courts of justice or heads of
Departments authorized by law to make such an appointment,
he is not, strictly speaking, an officer of the United States");
United States v. Germaine, 99 U.S. 508, 510 (1878); United
States v. Hartwell, 73 U.S. (6 Wall) 385, 393 (1867). In an
attempt to clarify the inquiry, the Court has often said that
"any appointee exercising significant authority pursuant to
the laws of the United States is an 'Officer of the United
States,' " Buckley v. Valeo, 424 U.S. 1, 126 n.162 (1976); see
also Edmond v. United States, 520 U.S. 651, 662 (1997);
Ryder v. United States, 515 U.S. 177 (1995); Freytag, 501
U.S. at 881-82,2 but ascertaining the test's real meaning
__________
2 In its Order, the Board seemed to agree with Landry that the
ALJs were inferior officers but found this status irrelevant because
the federal banking agencies are "departments" capable of accept-
ing Congress's delegation of appointment power. The FDIC has
abandoned its apparent concession and now argues that the ALJs
are not inferior officers. Because we agree that the ALJs in
requires a look at the roles of the employees whose status
was at issue in other cases.
In the most analogous case, Freytag, the Court decided
that STJs were inferior officers. 501 U.S. at 881-82. In so
finding, the Court relied on authority of the STJs not
matched by the ALJs here. In particular, the Court noted
that STJs have the authority to render the final decision of
the Tax Court in declaratory judgment proceedings and in
certain small-amount tax cases. See id. at 882. But the
ALJs here can never render the decision of the FDIC. See
12 CFR s 308.38 (noting that ALJs must file a "recom-
mended decision, recommended findings of fact, recom-
mended conclusions of law, and [a] proposed order" (emphasis
added)). Final decisions are issued only by the FDIC Board
of Directors. See 12 CFR s 308.40(a), (c). Moreover, even
for the non-final decisions of the type made by the STJ in
Freytag, the Tax Court was required to defer to the STJ's
factual and credibility findings unless they were clearly erro-
neous, see Tax Court Rule 183(c), 26 U.S.C. App. (1994);
Stone v. Commissioner, 865 F.2d 342, 344-47 (D.C. Cir. 1989),
whereas here the FDIC Board makes its own factual findings,
see 12 U.S.C. s 1818(h)(1); 12 CFR s 308.40(c); see also In
re Landry, FDIC-95-65e, 1999 WL 639568, at *1 (FDIC July
8, 1999) (noting that the FDIC had given Landry's case "an
exhaustive de novo review"). Landry argues that the FDIC
Board did not undertake a de novo review of his case, but his
characterization of the FDIC's work goes only to its careful-
ness, not its authority.
It is, to be sure, uncertain just what role the STJs' power
to make final decisions played in Freytag. Many of the
features of the STJ job that the Court found to contribute to
its being covered by the Appointments Clause have analogues
__________
question are not inferior officers we need not decide whether any of
the federal banking agencies are in fact "departments" for purposes
of the Appointments Clause. Moreover, because the issue before us
does not depend on the FDIC's interpretation of the statute or
exercise of its discretion, there is no problem under SEC v. Chenery
Corp., 332 U.S. 194, 196 (1947).
here. The office of STJ was "established by Law" (the
threshold trigger for the Appointments Clause) and the
"duties, salary, and means of appointment" for the office were
specified by statute, a factor that has proved relevant in the
Court's Appointments Clause jurisprudence. Freytag, 501
U.S. at 881. The ALJ position here is also "established by
Law," as are its specific duties, salary, and means of appoint-
ment. See 5 U.S.C. s 5372 (pay scales for ALJs); 5 U.S.C.
s 3105 (hiring practices); 5 U.S.C. ss 556-557 (functions); 12
CFR pt. 308 (same). Similarly, both the ALJs here and the
STJs in Freytag "take testimony, conduct trials, rule on the
admissibility of evidence, and have the power to enforce
compliance with discovery orders." Freytag, 501 U.S. at 881-
82. And, the Court observed, "In the course of carrying out
these important functions, the special trial judges exercise
significant discretion," id. at 882, rather a magic phrase under
the Buckley test. Further, the Court introduced mention of
the STJs' power to render final decisions with something of a
shrug: "Even if the duties" of STJs involving conduct of non-
final proceedings "were not as significant as we and the two
courts [Tax Court and Fifth Circuit] have found them to be,
our conclusion would be unchanged." Id. Only then did it go
on to discuss the STJs' power to make final decisions.
Nonetheless, in another way the Court laid exceptional
stress on the STJs' final decisionmaking power. After noting
those powers, the Court went on to explain why Freytag
could raise the claim even though in his case the STJ had not
been exercising them:
Special trial judges are not inferior officers for purposes
of some of their duties under [the enabling statute], but
mere employees with respect to other responsibilities.
The fact that an inferior officer on occasion performs
duties that may be performed by an employee not sub-
ject to the Appointments Clause does not transform his
status under the Constitution.
Id. All this explanation would have been quite unnecessary if
the purely recommendatory powers were fatal in themselves.
Accordingly, we believe that the STJs' power of final decision
in certain classes of cases was critical to the Court's decision.
As the ALJs hired pursuant to s 916 of FIRREA have no
such powers, we conclude that they are not inferior officers.
Privilege and Brady/Jencks claims
During pre-trial discovery the FDIC asserted claims of
deliberative process, law enforcement, and attorney-client
privilege in various permutations to justify withholding 97
documents. As required by the FDIC's rules, see 12 CFR
s 308.25(e), FDIC enforcement counsel produced a privilege
log which briefly described each document and indicated its
date, author, and recipient and the privileges claimed. In
addition, enforcement counsel produced the affidavit of Cott-
rell L. Webster, the Memphis regional director of the FDIC's
division of supervision, claiming to have personally reviewed
each of the withheld documents, formally invoking the law
enforcement and deliberative process privileges, and explain-
ing how each privilege applied.
The ALJ rejected an initial effort to compel production of
the documents, and the FDIC denied interlocutory review.
It specifically rejected Landry's claim that there were docu-
ments that Brady v. Maryland, 373 U.S. 83 (1963), required
the FDIC to disclose. In doing so it observed that enforce-
ment counsel's assurance that no such withheld documents
existed was enough to defeat Landry's claims in the absence
of some source of doubt rising above Landry's unadorned
"suspicions." The ALJ also denied several requests to com-
pel production made during the hearing itself. But when the
hearing was over, the FDIC Executive Secretary ordered
that the record be reopened and that FDIC enforcement
counsel submit a more detailed privilege log. After reviewing
the revised privilege log, the Board upheld the assertion of
privilege for 44 of the documents but reopened the record a
second time and ordered enforcement counsel to produce the
remaining 46 documents (seven had been produced to Landry
for other reasons) for in camera inspection.
After reviewing the newly submitted documents, the Board
found most of them not to be privileged but did not order
disclosure because it found the error harmless in light of the
cumulative nature of the information withheld. See Order at
5-6, 51-52, J.A. at 223-24, 268-69. The FDIC Board did not
address any of Landry's claims under Jencks v. United
States, 353 U.S. 657 (1957). Because the FDIC had not ruled
on Landry's Brady and Jencks claims for the documents that
it did not review in camera, we ordered the FDIC to produce
these documents so that we could decide whether material
had been withheld improperly.
Privilege. We begin with Landry's challenges to the
FDIC's claims of privilege. His most substantial argument is
that the deliberative process and law enforcement privileges
were not properly invoked. Assertion of either of these
qualified, common law executive privileges requires: (1) a
formal claim of privilege by the "head of the department"
having control over the requested information; (2) assertion
of the privilege based on actual personal consideration by that
official; and (3) a detailed specification of the information for
which the privilege is claimed, with an explanation why it
properly falls within the scope of the privilege. See In re
Sealed Case, 856 F.2d 268, 317 (D.C. Cir. 1988) (noting the
requirements for invoking the law enforcement privilege);
Northrop Corp. v. McDonnell Douglas Corp., 751 F.2d 395,
399 (D.C. Cir. 1984) (same for deliberative process privilege).
Landry's argument is that assertion merely by the Memphis
regional director of the FDIC's division of supervision, Cott-
rell L. Webster, rather than by the head of the FDIC, is
inadequate.
The argument mistakenly assumes that only assertion by
the head of the overall department or agency is enough. Our
cases hold to the contrary. In Tuite v. Henry, 98 F.3d 1411
(D.C. Cir. 1996), we allowed Counsel to the Justice Depart-
ment's Office of Professional Responsibility, rather than the
Attorney General herself, to assert the law enforcement
privilege for information obtained during investigations of
potentially illegal Justice Department recordings of conversa-
tions between a defendant and his lawyer. See id. at 1417.
Similarly, in Friedman v. Bache Halsey Stuart Shields, Inc.,
738 F.2d 1336 (D.C. Cir. 1984), in rejecting enforcement
counsel's assertion of the law enforcement privilege, we im-
plied that officials other than the head of the department
could assert the privilege, stating: "the files had not been
examined for this purpose by responsible members or officers
of CFTC." Id. at 1342 (emphasis added); see also Kerr v.
United States Dist. Ct. for North. Dist. of Cal., 511 F.2d 192,
198 (9th Cir. 1975) (finding common law executive privilege
inapplicable because "[n]either the Chairman of the [Califor-
nia Adult] Authority nor the Director of Corrections nor any
official of these agencies asserted, in person or writing, any
privilege in the district court" (emphasis added)), aff'd, 426
U.S. 394 (1976). District courts in this Circuit have also
allowed lesser officials to assert these privileges. See, e.g.,
Koehler v. United States, 1991 WL 277542, at *5 (D.D.C. Dec.
9, 1991) (allowing the head of the U.S. Army Criminal Investi-
gation Command to assert privilege); Alexander v. FBI, 186
F.R.D. 154, 166 (D.D.C. 1999) (implying that affidavits of FBI
general counsel or inspector general would have been suffi-
cient if they had provided enough information to assess
whether the law enforcement privilege applied).
For these privileges, it would be counterproductive to read
"head of the department" in the narrowest possible way. The
procedural requirements are designed to "ensure that the
privilege[s are] presented in a deliberate, considered, and
reasonably specific manner." In re Sealed Case, 856 F.2d at
271. As we have seen, built into the requirements is the need
for "actual personal consideration" by the asserting official.
Id. Insistence on an affidavit from the very pinnacle of
agency authority would surely start to erode the substance of
"actual personal" involvement. See generally Note, The Mili-
tary and State Secrets Privilege: Protection for the National
Security or Immunity for the Executive?, 91 Yale L.J. 570,
572 n.18 (1982) (noting widespread belief that official claims of
privilege by department heads are often made after perfunc-
tory review of subordinates' decisions). Further, both privi-
leges advance important goals; the gains from imposing
demands in the interest of careful assertion must be balanced
against the losses that would result of imposing super-
stringent procedures. See United States Dep't of Energy v.
Brett, 659 F.2d 154, 155-56 (Temp. Emer. Ct. App. 1981).
Under our cases, the head of the appropriate regional
division of the FDIC's supervisory personnel is of sufficient
rank to achieve the necessary deliberateness in assertion of
the deliberative process and law enforcement privileges.
We note that decisions involving the more sensitive and
absolute privilege for state and military secrets have been
more insistent on assertion at the highest level. See, e.g.,
United States v. Reynolds, 345 U.S. 1, 7-8 n.20 (1953) (quot-
ing Duncan v. Cammell, Laird & Co., [1942] A.C. 624, for the
proposition that the decision to invoke the state secrets
privilege should be taken by "the minister who is the political
head of the department"); Clift v. United States, 597 F.2d
826, 829 (2d Cir. 1979) (declining to require disclosure where
the Secretary of Defense did not invoke the privilege because
of a statute criminalizing such disclosure but noting "the
Government would be wiser not to put courts to this test in
the future"); Kinoy v. Mitchell, 67 F.R.D. 1, 9-10 (S.D.N.Y.
1975) (requiring Attorney General himself to lodge a formally
sufficient claim of privilege); 26 Charles Alan Wright &
Kenneth W. Graham, Jr., Federal Practice and Procedure
s 5670 (1992). We express no opinion on who may assert
that privilege.
Landry's claim that the FDIC fell fatally short by not
including the disputed documents in the record is meritless.
See Vaughn v. Rosen, 484 F.2d 820, 825-26 (D.C. Cir. 1973)
(noting the immense and unjustifiable cost to the appellate
courts of mandatory review of documents for privileged mate-
rial). But see Kerr v. United States Dist. Ct. for North. Dist.
of Cal., 426 U.S. 394, 405-06 (1976) (noting that in camera
review may be used to resolve a privilege dispute).
Landry also argues that the FDIC waived its privileges by
initiating this action. He is mistaken. Here he relies on an
erroneous reading of In re Subpoena Duces Tecum Served on
the OCC, 145 F.3d 1422 (D.C. Cir.), reh'g granted, 156 F.3d
1279 (D.C. Cir. 1998). In our first pass at the case, we said
that the deliberative process privilege was unavailable where
"the Constitution or a statute makes the nature of govern-
mental officials' deliberations the issue," offering Title VII
cases as an archetypal instance. See 145 F.3d at 1424. But
when the government in petition for rehearing expressed
anxiety that any claim of arbitrary and capricious decision-
making would necessarily call the government's deliberations
into question, we responded by explaining that "our holding
... is limited to those circumstances in which the cause of
action is directed at the agency's subjective motivation." 156
F.3d at 1280. Because an ordinary enforcement action in no
way implicates the FDIC's subjective motivations, and Lan-
dry makes no credible claims that improper factors motivated
this enforcement action, there is no waiver.
Brady/Jencks. In its order the FDIC Board assumed
without deciding that Brady v. Maryland, 373 U.S. 83 (1963),
applies to enforcement proceedings, and though the Board's
order did not address Jencks v. United States, 353 U.S. 657
(1957), FDIC counsel assures us that the FDIC has the same
view of it. Thus we also assume without deciding that both
cases apply. Cf. Communist Party of the United States v.
Subversive Activities Control Bd., 254 F.2d 314, 327-28 (D.C.
Cir. 1958) (holding that in agency adjudications in which the
government has not claimed privilege, written reports made
at the time of an event must be produced when the credibility
of the witness on matters discussed in the report is in
question). After reviewing the documents alleged to contain
Jencks and Brady material, we find no reason to disturb the
FDIC's order.
We begin with Brady. After Landry requested that the
FDIC produce all Brady materials, the government informed
the ALJ and the FDIC Board that it had reviewed the
contested documents and had disclosed all exculpatory factual
material. Normally we accept the government's representa-
tions as to whether documents in its possession constitute
Brady material. See Pennsylvania v. Ritchie, 480 U.S. 39,
59 (1987) (noting that a prosecutor's decision as to whether
exculpatory Brady information exists or is material is usually
final); United States v. Lloyd, 992 F.2d 348, 352 (D.C. Cir.
1993) (same). As the FDIC observed in denying interlocu-
tory review, it takes more than the adverse party's conclusory
suspicions to impel the adjudicator to delve behind the gov-
ernment's representation that it has conducted a Brady re-
view and found nothing.
Landry's Jencks claims have more merit. He argues that
the withheld reports by Jerry Cox and G. Martin Cooper, the
bank examiners who testified at his hearing, touch upon the
events and activities discussed in their testimony and there-
fore must be produced. See Jencks, 353 U.S. at 668. Be-
cause the FDIC concedes Jencks's applicability in this case,
Landry has established a prima facie violation if the docu-
ments in question cover the same territory as the examiners'
testimony. After examining the documents and the examin-
ers' testimony we find that several of them do so. Even so, a
privilege might beat the Jencks claim. See Norinsberg Corp.
v. USDA, 47 F.3d 1224, 1229 n.5 (D.C. Cir. 1995) (presuming
that, in a license revocation hearing in which the agency had
adopted the Jencks Act, a witness's opinions in a report that
formed part of the deliberative process would be protected
from Jencks Act disclosure); see also Communist Party, 254
F.2d at 327. But see Jencks, 353 U.S. at 671-72 (noting that
criminal actions must be dismissed when the government
chooses not to comply with a court order to produce relevant
statements or reports on the ground of privilege). But the
FDIC here makes no claim that privilege defeats its Jencks
obligations--though the ALJ did.
The FDIC does, however, claim harmless error, and the
claim is sound. Because these documents merely duplicate
other evidence in the record, we find the error harmless even
under the strict application of harmless error used to assess
Jencks violations. See Norinsberg Corp., 47 F.3d at 1230;
United States v. Lam Kwong-Wah, 924 F.2d 298, 310 (D.C.
Cir. 1991).
Evidence Satisfying the Statutory Standard
The statute authorizes a prohibition or removal order:
Whenever the [FDIC] determines that--
(A) any institution-affiliated party has, directly or indi-
rectly--
...
(ii) engaged or participated in any unsafe or unsound
practice in connection with any insured depository insti-
tution or business institution; or
(iii) committed or engaged in any act, omission, or
practice which constitutes a breach of such party's fidu-
ciary duty;
(B) by reason of the violation, practice, or breach de-
scribed in ... subparagraph (A)--
(i) such ... institution ... has suffered or will proba-
bly suffer financial loss or other damage;
...
(iii) such party has received financial gain or other
benefit by reason of such violation ...; and
(C) such violation, practice, or breach--
(i) involves personal dishonesty on the part of such
party; or
(ii) demonstrates willful or continuing disregard by
such party for the safety or soundness of such ...
institution....
12 U.S.C. s 1818(e)(1) (1994). That is, the statute requires:
misconduct, with certain adverse effects, committed with a
culpable state of mind. Landry argues that each of these
three factors is absent.
Misconduct. The Board ruled that Landry's actions consti-
tuted both unsafe and unsound banking practices under
s 1818(e)(1)(A)(ii) and breaches of his fiduciary duty under
s 1818(e)(1)(A)(iii). Because there is significant overlap be-
tween the two categories, see Kaplan v. OTS, 104 F.3d 417,
421 & n.2 (D.C. Cir. 1997) (recognizing that both involve
undue risk and that a fiduciary breach can qualify as an
unsafe or unsound practice), it is unsurprising that the Board
found that most of Landry's misconduct fit into both catego-
ries. Landry argues that fiduciary breach is a matter of state
rather than federal law, an issue we left open in Kaplan v.
OTS, 104 F.3d 417, 421 n.2 (D.C. Cir. 1997); see also Atherton
v. FDIC, 519 U.S. 213, 217-26 (1997), as we do again today:
the evidence is enough to show his participation in unsafe or
unsound practices.
In Kaplan we suggested that an "unsafe or unsound prac-
tice" was one that posed a "reasonably foreseeable" "undue
risk to the institution." 104 F.3d at 421. Other courts seem
to have agreed, using slightly different language. The Third
Circuit in In re Seidman, 37 F.3d 911 (3d Cir. 1994), for
example, said that an "imprudent act ... pos[ing] an abnor-
mal risk to the financial stability of the banking institution"
would qualify. Id. at 928. We trust that "undue" risks are
abnormal in the banking industry, so we see no difference
there. Plunging ahead with such a risk where its character is
"reasonably foreseeable" surely constitutes the imprudence of
which the Third Circuit speaks.
The acts attributable to Landry meet both parts of the test.
The ALJ's and the Board's findings leave no doubt as to their
imprudence. After a thorough review of the transactions we
summarized above, the Board correctly concluded: "The list
of misguided and aborted projects and relationships that
management entered into with minimal information and virtu-
ally no expertise is shocking." That these activities exposed
the Bank to abnormal risk is also unassailable. Conduct
attributable to Landry included substantial involvement in at
least one large loan to an uncreditworthy out-of-territory
borrower, long-term contracts with consultants whose fees
were "proportionately greater than the services rendered,"
and the use of Bank funds for travel and related expenses in
pursuit of breathtakingly irresponsible schemes. In the
Bank's weakened condition, these expenditures created an
undue and abnormal risk of insolvency. As the FDIC Board
found:
[R]ather than preserve the Bank's few remaining assets,
Landry chose to dissipate them in furtherance of his
personal takeover of the Bank.
... [Landry] failed to disclose that Bank funds were
being spent in furtherance of Pangaea and IAIS [a
partnership intended to be used for the immigration law
scheme]. He failed to disclose the contracts and certain
uncreditworthy loans to which he or Jenson had commit-
ted the Bank, or the fee-splitting arrangements, which
benefited him and Pangaea to the Bank's detriment.
Order at 26, J.A. at 243.
Landry argues that the continuing profitability of the Bank
during the relevant period forecloses a finding of undue risk,
but in so arguing he misconstrues the concept of risk, which
is independent of the outcome in a particular case. Just as a
loss, without more, does not prove that an act posed an
abnormal risk, see Johnson v. OTS, 81 F.3d 195, 204 (D.C.
Cir. 1996), a profit does not establish its absence.
Effects. The Board found that Landry's misdeeds had the
forbidden effects, see Order at 29-30, J.A. at 246-47, because
they caused both financial loss to the Bank, see 18 U.S.C.
s 1818(e)(1)(B)(i), and personal financial gain for Landry, see
id. s 1818(e)(1)(B)(iii). The losses consisted of $278,000 in
expenses paid by the Bank in promoting Pangaea, and
$174,900 in loan write-offs. Order at 29, J.A. at 246. (Al-
though relatively small in relation to large-scale banking
transactions, these expenses constitute over 12% of the
amount ultimately used to recapitalize the bank.) Landry
argues that none of the loans that yielded losses are properly
attributed to him, but his method is simply to show that most
of the misconduct at issue consisted of actions more directly
attributable to his co-incorporators. Section 1818(e) autho-
rizes punishment for actions taken "directly or indirectly."
So long as the misconduct at issue meets the stringent
preconditions for a removal order it doesn't matter that
Landry engaged in many of the proscribed acts only indirect-
ly, though knowingly, and certainly not that others may have
been more guilty.
Landry also argues that his expenses cannot be considered
losses because they were approved by the appropriate Bank
officers and the Bank's shareholders. But these approvals
were tainted, even assuming they could otherwise salvage the
expenses. Landry's own letters show that he understood that
his expenses and those of his co-incorporators were incurred
on behalf of Pangaea to the detriment of the Bank, without
the shareholders' having understood the fact.
Culpability. The Board found that Landry's misconduct
doubly satisfied the culpability prong because it involved both
personal dishonesty, see 12 U.S.C. s 1818(e)(1)(C)(i), and
willful or continuing disregard for the safety or soundness of
the Bank, see id. s 1818(e)(1)(C)(iii). The courts of appeals
that have examined the question are in agreement that both
standards of culpability require some showing of scienter.
See Kim v. OTS, 40 F.3d 1050, 1054-55 (9th Cir. 1994)
(collecting cases). We have no trouble upholding the finding
of personal dishonesty. In his letters and deposition testimo-
ny Landry repeatedly admitted that he solicited money for
Pangaea in the guise of seeking capital for the Bank. See
Order at 31-32, J.A. at 248-49. Knowing participation in a
scheme that used the Bank's funds for personal gain while
representing the scheme as the Bank's own, above-board plan
to recapitalize itself qualifies as personal dishonesty. See
Greenberg v. Board of Governors of the Fed. Reserve Sys.,
968 F.2d 164, 171 (2d Cir. 1992) (finding that failure to
disclose insider transactions provided ample support for a
finding of personal dishonesty); Van Dyke v. Board of Gover-
nors of the Fed. Reserve Sys., 876 F.2d 1377, 1379 (8th Cir.
1989) (accepting the Board's definition of personal dishonesty
which included "deliberate deception by pretense and stealth"
and "want of fairness and [straightforwardness]" (alteration
in original)).
Landry offers two arguments against this finding. First,
he claims that a requirement that a bank control transaction
must secure approval by the bank's directors and by regu-
lators "provide[s] the ultimate assurance of fairness that
precludes a sanction against Landry," citing Kaplan, 104 F.2d
at 424. In Kaplan, however, we said only that when a
director cast a vote in favor of an arguably risky transaction,
his anticipation of the need for board and regulatory approval
afforded "reasonable assurance that an unfair transaction
would not take place." Id. There the vote was completely
independent of a later scheme by others to circumvent the
OTS's and the S&L board's approval processes. Id. at 422.
Here, Landry and his co-incorporators' conduct, when viewed
ex ante, was far from blameless. Instead, it accomplished the
step missing in Kaplan by disguising wrongdoing from the
regulators and the Bank's board of directors and directly
misleading both.
Second, Landry argues, once again, that the Bank's approv-
al of his expenses, and the failure of its board of directors and
the FDIC to seek to remove him after fully initially examin-
ing the transactions at issue here, proves that he did not act
dishonestly. But neither the independent audits commis-
sioned by the Bank after the recapitalization, nor Landry's
cooperation with the 1993 examination, eliminate his prior
involvement as a co-incorporator and participant in the
scheme. His later honesty, forthrightness, and integrity are
to be commended, and his continued employment at the Bank
show that its management found that his role in the Pangaea
scheme was outweighed by the benefits he offered the Bank.
But we do not have the power to substitute our judgment--or
the Bank's management's--for that of the FDIC. Once we
conclude that Landry's conduct satisfies the statutory precon-
ditions, we must uphold its decision.
Landry also argues that the FDIC reached its decision
without taking account of exculpatory evidence. It is well
established that the substantial evidence rule requires consid-
eration of the evidence on both sides; evidence that is sub-
stantial viewed in isolation may become insubstantial when
contradictory evidence is taken into account. See Universal
Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951); Johnson v.
OTS, 81 F.3d 195, 204 (D.C. Cir. 1996). But here the
evidence to which Landry points is not exculpatory; it shows
no more than that Landry had a lesser role than others in the
individual actions taken in furtherance of the illegal scheme
and that many of his actions were approved by the Bank.
The FDIC Board did consider these factors, however, and its
findings on all relevant facts are adequately supported by
record evidence, including Landry's own statements.
Last, Landry says that the Board failed to provide ade-
quate record citations for its factual findings. Indeed, Lan-
dry is correct that several critical findings lack record cita-
tion. Such omissions might render an agency's reasoning
incomprehensible, possibly requiring a remand. See general-
ly SEC v. Chenery Corp., 332 U.S. 194, 196 (1947) ("If the
administrative action is to be tested by the basis upon which
it purports to rest, that basis must be set forth with such
clarity as to be understandable."). But here the FDIC Board
explicitly adopted the ALJ's findings of fact which, in turn,
contained ample record citations for the factual findings that
Landry disputes.
* * *
For the foregoing reasons, Landry's petition for review is
Denied.
Randolph, Circuit Judge, concurring in part and concur-
ring in the judgment: I join the court's opinion except for its
disposition of Landry's claim under the Appointments Clause
of the Constitution. In my view, Freytag v. Commissioner,
501 U.S. 868 (1991), cannot be distinguished. The Adminis-
trative Law Judge who presided over Landry's case was as
much an "inferior Officer" under Article II, s 2, cl. 2 of the
Constitution as the special trial judge in Freytag. I never-
theless would sustain the FDIC's decision and order because
Landry suffered no prejudicial error.
Rather than paraphrase the critical portion of Freytag, I
will quote it in full:
Petitioners argue that a special trial judge is an "inferior
Office[r]" of the United States....
The Commissioner, in contrast to petitioners, argues
that a special trial judge ... acts only as an aide to the
Tax Court judge responsible for deciding the case. The
special trial judge, as the Commissioner characterizes his
work, does no more than assist the Tax Court judge in
taking the evidence and preparing the proposed findings
and opinion. Thus, the Commissioner concludes, special
trial judges ... are employees rather than "Officers of
the United States."
"[A]ny appointee exercising significant authority pur-
suant to the laws of the United States is an 'Officer of
the United States,' and must, therefore, be appointed in
the manner prescribed by s 2, cl. 2, of [Article II]."
Buckley [v. Valeo, 424 U.S. 1, 126 (1976)]. The two courts
that have addressed the issue have held that special trial
judges are "inferior Officers." The Tax Court so con-
cluded in First Western Govt. Securities, Inc. v. Commis-
sioner, 94 T.C. 549, 557-559 (1990), and the Court of
Appeals for the Second Circuit in Samuels, Kramer &
Co. v. Commissioner, 930 F.2d 975, 985 (1991), agreed.
Both courts considered the degree of authority exercised
by the special trial judges to be so "significant" that it
was inconsistent with the classifications of "lesser func-
tionaries" or employees. Cf. Go-Bart Importing Co. v.
United States, 282 U.S. 344, 352-353 (1931) (United
States commissioners are inferior officers). We agree
with the Tax Court and the Second Circuit that a special
trial judge is an "inferior Office[r]" whose appointment
must conform to the Appointments Clause.
The Commissioner reasons that special trial judges
may be deemed employees in subsection (b)(4) cases
because they lack authority to enter a final decision. But
this argument ignores the significance of the duties and
discretion that special trial judges possess. The office of
special trial judge is "established by Law," Art. II, s 2,
cl. 2, and the duties, salary, and means of appointment
for that office are specified by statute. See Burnap v.
United States, 252 U.S. 512, 516-517 (1920); United
States v. Germaine, 99 U.S. 508, 511-512 (1879). These
characteristics distinguish special trial judges from spe-
cial masters, who are hired by Article III courts on a
temporary, episodic basis, whose positions are not estab-
lished by law, and whose duties and functions are not
delineated in a statute. Furthermore, special trial
judges perform more than ministerial tasks. They take
testimony, conduct trials, rule on the admissibility of
evidence, and have the power to enforce compliance with
discovery orders. In the course of carrying out these
important functions, the special trial judges exercise
significant discretion.
Even if the duties of special trial judges [just de-
scribed] were not as significant as we and the two courts
have found them to be, our conclusion would be un-
changed [because they may be assigned to conduct other
types of proceedings and render independent judg-
ments].... Special trial judges are not inferior officers
for purposes of some of their duties ... but mere
employees with respect to other responsibilities.
501 U.S. at 880-82.
There are no relevant differences between the ALJ in this
case and the special trial judge in Freytag. Both held offices
"established by Law," Art. II, s 2, cl. 2; 501 U.S. at 881. In
both instances, "the duties, salary, and means of appointment
for that office are specified by statute." Id.; see maj. op. at
12. Both "take testimony, conduct trials, rule on the admissi-
bility of evidence, and have the power to enforce compliance
with discovery orders." 501 U.S. at 881-82; Samuels, 930
F.2d at 986; see 12 C.F.R. s 308.5 (defining the ALJ's
duties). "In the course of carrying out these important
functions," both the special trial judge in Freytag and the
ALJ in this case "exercise significant discretion." 501 U.S. at
882.
The majority attempts to distinguish Freytag on two
grounds. Neither survives close attention. First, the majori-
ty says that the Tax Court, in reviewing the special trial
judge's "non-final decision" in Freytag, gave deference to
factual and credibility findings pursuant to Tax Court Rule
183(c), whereas the FDIC reviewed the ALJ's decision de
novo. Maj. op. at 11. It would be odd for the constitutional
status of a special trial judge to depend on an internal rule of
procedure, particularly since the Tax Court had discretion to
pick whatever standard of review it saw fit. See 26 U.S.C.
s 7443A(c). Odd or not, the Supreme Court in Freytag
decided that Tax Court Rule 183 and its deferential standard
were "not relevant to our grant of certiorari"--and the Court
granted the writ, so it explained, in order "to resolve the
important questions the litigation raises about the Constitu-
tion's structural separation of powers." 501 U.S. at 874 n.3,
873.1 The majority's first distinction of Freytag is thus no
distinction at all. The fact that an ALJ cannot render a final
decision and is subject to the ultimate supervision of the
__________
1 There was doubt, despite this court's decision in Stone v.
Commissioner, 865 F.2d 342, 344-47 (D.C. Cir. 1989), whether the
Tax Court had authority to provide by rule that it would give
deference to special trial judge decisions rendered after an assign-
ment pursuant to 26 U.S.C. s 7443A(b)(4). The Tax Court derived
its rulemaking authority from s 7443A(c), but on its face that
provision applied only to assignments under (b)(1) through (b)(3).
Hence, the petitioners in Freytag argued that "Congress did not
intend for Tax Court supervision of special trial judge findings and
opinions in (b)(4) cases to be appellate in nature." Brief for
Petitioners, 1991 WL 521270, at *22, Freytag v. Commissioner, 501
U.S. 868 (1991) (No. 90-762). The Supreme Court avoided deciding
the issue by deeming Rule 183 irrelevant to its disposition.
FDIC shows only that the ALJ shares the common character-
istic of an "inferior Officer." "[W]e think it evident that
'inferior officers' are officers whose work is directed and
supervised at some level by others who were appointed by
Presidential nomination with the advice and consent of the
Senate." Edmond v. United States, 520 U.S. 651, 663 (1997).
According to the majority opinion, the second difference
between this case and Freytag is that here the ALJ can never
render final decisions of the FDIC, whereas special trial
judges could, in cases other than the sort involved in Freytag,
render a final decision of the Tax Court. See maj. op. at 11,
12-13. It is true that the Supreme Court relied on this
consideration; the last paragraph of the opinion quoted above
indicates as much. What the majority neglects to mention is
that the Court clearly designated this as an alternative hold-
ing. The Court introduced its alternative holding thus:
"Even if the duties of special trial judges [just described]
were not as significant as we and the two courts have found
them to be, our conclusion would be unchanged." 501 U.S. at
882 (italics added). What "conclusion" did the Court have in
mind? The conclusion it had reached in the preceding para-
graphs--namely, that although special trial judges may not
render final decisions, they are nevertheless inferior officers
of the United States within the meaning of Article II, s 2, cl.
2. The same conclusion, the same holding, had also been
rendered in Samuels, Kramer & Co. v. Commissioner, 930
F.2d 975, 986 (2d Cir. 1991), a decision the Supreme Court
cited and expressly approved. See 501 U.S. at 881. There
the Second Circuit held that a special trial judge performing
the same advisory function as the judge in Freytag was an
inferior officer; the court of appeals did not mention the fact
that in other types of cases, the judge could issue final
judgments.2
__________
2 The Second Circuit reached this conclusion for the same reasons
given in the third full paragraph of Freytag quoted in the text:
The special trial judges are more than mere aids to the judges
of the Tax Court. They take testimony, conduct trials, rule on
That the ALJ in this case is an inferior officer thus follows
from Freytag. It follows also from the Supreme Court's
recognition that the role of the modern administrative law
judge "is 'functionally comparable' to that of a judge.... He
may issue subpoenas, rule on proffers of evidence, regulate
the course of the hearing, and make or recommend decisions.
See [5 U.S.C.] s 556(c)." Butz v. Economou, 438 U.S. 478,
513 (1978) (emphasis added). Furthermore, the ALJ, in
proposing findings of fact and a recommended decision, which
the FDIC reviewed de novo,3 performed functions essentially
like those of a federal magistrate assigned to conduct a
hearing and to submit proposed findings and recommenda-
tions to a district judge. See 28 U.S.C. s 636(b)(1)(B). When
there is an objection to a magistrate's findings and recom-
mendations, the district judge--like the FDIC--must conduct
de novo review. See 28 U.S.C. s 636(b)(1)(C). Nonetheless,
it has long been settled that federal magistrates are "inferior
Officers" under Article II, which is why they are appointed by
"Courts of Law" under 28 U.S.C. s 631. See Rice v. Ames,
180 U.S. 371, 378 (1901); Go-Bart Importing Co. v. United
States, 282 U.S. 344, 352-54 (1931); Pacemaker Diagnostic
__________
the admissibility of evidence, and have the power to enforce
compliance with discovery orders. Contrary to the contentions
of the Commissioner, the degree of authority exercised by
special trial judges is "significant." See Buckley [v. Valeo, 424
U.S. 1, 126 (1976)]. They exercise a great deal of discretion and
perform important functions, characteristics that we find to be
inconsistent with the classifications of "lesser functionary" or
mere employee. Cf. Go-Bart Importing Co. v. United States,
282 U.S. 344, 352 (1931) (United States commissioners are
inferior officers).
930 F.2d at 986.
3 De novo review does not mean that the ALJ's recommended
decisions are without influence. In this case the FDIC "affirm[ed]
the recommendation of the ALJ and adopt[ed] his Recommended
Decision, Findings of Fact and Conclusions of Law, as discussed
herein." In re Landry, FDIC-95-65e, 1999 WL 440608, at *4
(FDIC May 25, 1999).
Clinic v. Instromedix, 725 F.2d 537, 545 (9th Cir. 1984) (en
banc).
Because the ALJ in this case was an "inferior Officer," the
next question would ordinarily be whether he was duly ap-
pointed by the President, a Court of Law, or the Head of a
Department, as Article II requires. The FDIC assumed that
the ALJ was an inferior officer and ruled that he was
properly appointed, having been hired by the Office of Thrift
Supervision and assigned to this case by the Office of
Financial Institution Adjudication. See In re Landry,
FDIC-95-65e, 1999 WL 440608, at *28 & n.37 (FDIC May 25,
1999). In this court, the FDIC has given up on this claim.
For reasons it did not explain, it expressly abandoned the
argument that the ALJ was appointed by the head of a
department. See Brief for Respondent at 48 n.32. I accept
that as a waiver of the defense. It is true that "one who
makes a timely challenge to the constitutional validity of the
appointment of an officer who adjudicates his case is entitled
to a decision on the merits of the question and whatever relief
might be appropriate if a violation indeed occurred." Ryder
v. United States, 515 U.S. 177, 182-83 (1995). But I do not
take this salutary rule to mean that a court may not accept a
concession from the party defending the appointment.
The remaining question then is what relief is appropriate.
Given the FDIC's de novo review and the majority's thorough
rejection of Landry's various claims of error,4 I am persuaded
that he suffered no prejudice. The Administrative Procedure
Act contains a harmless error rule. See 5 U.S.C. s 706;
Doolin Sec. Sav. Bank, F.S.B. v. Office of Thrift Supervision,
139 F.3d 203, 212 (D.C. Cir. 1998). The majority suggests
__________
4 On some points, the FDIC supplied different rationales to reach
the same conclusions as the ALJ and on other matters the FDIC
reached different conclusions. See, e.g., In re Landry, 1999 WL
440608, at *33 (ordering release of certain documents withheld by
the ALJ under the due process privilege). In the end, the conclu-
sive evidence came from Landry himself. See, e.g., id. at *13-14
(reproducing portions of Landry's resignation letter to the bank).
that harmless error cannot apply because the constitutional
violation is "structural" in nature. But as the majority
acknowledges, in none of the "structural" cases it cites was
there de novo review. See maj. op. at 8. Still, the majority
reasons that "[i]f the process of final de novo review could
cleanse the violation of its harmful impact, then all such
arrangements could escape judicial review." Id. at 8-9. The
majority is not correct about this. The rule in Ryder, quoted
in the preceding paragraph, requires us to decide the Ap-
pointments Clause claim first, before we reach the question of
relief. If we had done so correctly here, our decision would
have been, in effect, a declaratory judgment that an ALJ
sitting on a case such as this had to be appointed by the head
of a department. Such a judgment would have been the
"practical equivalent" of mandamus, as we said in Sanchez-
Espinoza v. Reagan, 770 F.2d 202, 208 n.8 (D.C. Cir. 1985).
If any litigant in the future wished to challenge the ALJ's
status before trial, mandamus would lie. Or a litigant could
refuse to present evidence before an unconstitutional officer,
or refuse to comply with an ALJ's discovery orders, and
bring the case here for review after the FDIC acted. See
Morrison v. Olson, 487 U.S. 654, 668 (1988). Then there
would be real prejudice. Here there is none and I therefore
join in the denial of Landry's petition for judicial review.