Bank of Louisiana et al v. Federal Deposit Insurance Corporation

Filing 45

ORDERED that the 19 Motion to Dismiss for Lack of Jurisdiction is GRANTED. The plaintiffs' claims against the FDIC are DISMISSED, without prejudice to pursue them in the Fifth Circuit proceedings. Signed by Judge Martin L.C. Feldman on 1/13/17. (clc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
BANK OF LOUISIANA,
G. HARRISON SCOTT,
SHARRY SCOTT, AND
JOHNNY CROW
V.

CIVIL ACTION

NO. 16-13585

FEDERAL DEPOSIT
INSURANCE CORPORATION

SECTION "F"
ORDER AND REASONS

Before the Court is the defendant’s motion to dismiss pursuant
to Rule 12(b)(1) for lack of subject matter jurisdiction. For the
following reasons, the motion is GRANTED.
Background
This motion to dismiss arises out of the Federal Deposit
Insurance Corporation’s investigation and charges against the Bank
of Louisiana for violations of agency regulations. In response to
the FDIC’s enforcement proceedings against the Bank, the Bank and
others filed suit in this Court alleging constitutional violations
against the Bank through the FDIC’s practices.
The Bank of Louisiana is a small, community bank founded in
New Orleans in 1958 by former President G. Harrison Scott, James
Comiskey, and Dr. Nicholas Chetta. The Bank provides banking
services to a small, local, and well-known customer base.
On October 22, 2013, the FDIC filed charges against Sharry
Scott, G. Harrison Scott, and Johnny Crow (the directors) for
violation of Regulation O. The FDIC alleged that the directors
1

illegally approved a loan to a director as well as a loan to an
executive officer. The Regulation O proceeding sought an award of
civil penalties of $10,000 from each of the three directors, as
well as court costs and attorneys’ fees of more than $200,000. The
notice of charge alleged that between October 2009 and November
2011, the directors caused the bank to engage in federal violations
by

providing

favorable

treatment

to

bank

insiders

by

making

improper loans and allowing the insiders to overdraw their accounts
on multiple occasions without collecting overdraft fees. On July
2, 2014, the administrative law judge 1 issued a 29-page recommended
decision

after

full

briefing

and

conducting

an

evidentiary

hearing. The ALJ recommended that each of the three named directors
pay a civil penalty of $10,000. The plaintiffs waited 90 days to
file exceptions to the recommendation. Although the FDIC’s Uniform
Rules

of

Practice

and

Procedure

require

that

a

party

file

exceptions to a recommended decision within 30 days, the FDIC Board
considered and addressed in its decision the untimely exceptions.
On December 22, 2014, the plaintiffs filed a petition for review
of the FDIC Board’s final decision with the United States Court of
Appeals

for

the

Fifth

Circuit.

On

September

16,

2015,

the

plaintiffs filed an unopposed motion to stay the appeal pending
the resolution of the FDIC’s second enforcement proceeding against

1

The ALJ, who is an FDIC
proceedings against the bank.
2

employee,

presided

over

both

the bank; the Fifth Circuit entered an order staying the proceeding
until the conclusion of the enforcement action against the bank. 2
On November 1, 2013, 3 the FDIC filed three separate ceaseand-desist

charges

against

the

bank.

The

cease

and

desist

proceeding sought three cease-and-desist orders and an award of
civil penalties in the amount of $540,000. The notice of charges
alleged that the bank was operating in an unsafe and unsound manner
based on inadequate management, deficient asset quality, deficient
earnings, various violations of law, and compliance violations
with respect to the Bank Secrecy Act, The Electronic Funds Transfer
Act, the Real Estate Settlement Practices Act, the Truth in Lending
Act, the Home Mortgage Disclosure Act, and the National Flood
Insurance Program. This notice sought an order requiring the bank
to cease and desist from these practices and to pay a civil penalty
in the amount of $500,000 for Bank Secrecy Act violations. The ALJ
conducted a six-day trial in March 2015; the parties introduced
evidence, cross-examined witnesses, and filed post-hearing and
reply

briefs.

On

May

17,

2016,

the

ALJ

issued

a

decision,

recommending a $500,000 civil penalty; the bank filed exceptions
to the recommended decision with the FDIC Board. The Board’s final

2

The second enforcement proceeding against the bank has
concluded since the filing of this motion to dismiss.
3
The defendant’s motion states that this notice of charges was
filed on November 4, 2013; however, the plaintiffs’ complaint and
the record indicates this notice was filed on November 1, 2013.
3

order affirms the ALJ’s recommendation and imposes a $500,000 civil
penalty against the bank for Bank Secrecy Act violations and an
order to cease and desist for various statutory and regulatory
violations. The plaintiffs have now filed a timely appeal of that
decision with the Fifth Circuit, with no decision yet.
The plaintiffs filed suit in this Court. The plaintiffs’
amended complaint asserts four causes of action: (1) a permanent
injunction to stop the FDIC Board from issuing a final decision in
the

then-pending

enforcement

proceeding;

(2)

a

request

for

declaratory judgment that the FDIC violated various statutes and
constitutional

provisions

in

conducting

both

enforcement

proceedings; (3) damages; and (4) sanctions. 4 In support of the
constitutional violations, the plaintiffs allege that the bank and
the directors were subject to age discrimination, retaliation,
ridicule, and mockery, and were denied procedural due process
rights

guaranteed

Specifically,

the

under

the

plaintiffs

United
allege

States

that

an

Constitution.
assistant

FDIC

director embarked on a vendetta campaign to unseat the bank’s

4

On November 18, 2016, the Board issued its final order in the
cease and desist proceeding. Therefore, the plaintiffs assert that
they abandon their request for injunctive relief to enjoin the
cease and desist proceedings as moot. Additionally, the plaintiffs
abandon their claims for damages because of their ability to move
for sanctions should this Court find it has subject matter
jurisdiction and enter judgment in favor of the plaintiffs.
Therefore, the only claim before the Court for purposes of this
motion to dismiss is the request for declaratory judgment that the
FDIC violated the plaintiffs’ constitutional rights.
4

president. The mission of the alleged vendetta, according to the
plaintiffs, was to remove the chairman and president of the bank,
G. Harrison Scott, because he was too old. The plaintiffs also
allege that the ALJ unconstitutionally kept Scott from conferring
with counsel during an overnight recess at the cease and desist
hearing, in violation of the bank’s constitutional rights to
counsel and to free speech, and was wrongfully denied the right to
make a proffer of evidence. The plaintiffs assert that this Court
has jurisdiction for the age discrimination and constitutional
violations because without this Court’s intervention, these claims
will escape a meaningful judicial review.
The defendant moves the Court to dismiss this case for lack
of

subject

matter

jurisdiction.

In

response,

the

plaintiffs

contend that 12 U.S.C. § 1818(h) and Free Enterprise Fund v. Public
Company Accounting Oversight Board, 561 U.S. 477 (2010) allow this
Court to exercise subject matter jurisdiction for these allegedly
“wholly

collateral”

constitutional

claims.

The

Court

now

determines whether Congress has foreclosed its jurisdiction to
hear these constitutional claims.
I.
Motions filed under Rule 12(b)(1) of the Federal Rules of
Civil Procedure allow a party to challenge the Court’s subject
matter jurisdiction.

Fed. R. Civ. P. 12(b)(1). "As a court of

limited jurisdiction, a federal court must affirmatively ascertain
5

subject-matter

jurisdiction

before

adjudicating

a

suit.

The

district court should dismiss where it appears certain that the
plaintiff cannot prove a plausible set of facts that establish
subject-matter

jurisdiction."

Venable

v.

Louisiana

Workers'

Compensation Corp., 740 F.3d 937, 941 (5th Cir. 2014)(citations
and internal quotations omitted).
Contrary to a 12(b)(6) motion, the Court may find a plausible
set of facts to support subject matter jurisdiction by considering
any of the following: “(1) the complaint alone; (2) the complaint
supplemented by undisputed facts evidenced in the record; or (3)
the complaint supplemented by undisputed facts plus the court's
resolution of disputed facts.”

Spotts v. United States, 613 F.3d

559, 565-66 (5th Cir. 2010)(citation omitted). "The burden of proof
for a Rule 12(b)(1) motion is on the party asserting jurisdiction."
Alfonso v. United States, 752 F.3d 622, 625 (5th Cir. 2014)(quoting
In re FEMA Trailer Formaldehyde Prods. Liab. Litig., 646 F.3d 185,
189

(5th

Cir.

2011)(internal

citation

and

quotation

marks

omitted)).
The 12(b)(1) standard is similar to that applicable to motions
to dismiss under Rule 12(b)(6).

See Williams v. Wynne, 533 F.3d

360, 364-65 n.2 (5th Cir. 2008)(observing that the Rule 12(b)(1)
and Rule 12(b)(6) standards are similar, but noting that applying
the Rule 12(b)(1) standard permits the Court to consider a broader
range of materials in resolving the motion). "'[T]he central issue
6

[in deciding a motion to dismiss] is whether, in the light most
favorable to the plaintiff, the complaint states a valid claim for
relief.'"

Gentilello

v.

Rege,

627

F.3d

540,

544

(5th

Cir.

2010)(citation omitted).
II.
A. Federal District Courts’ Original Jurisdiction
In

general,

federal

district

courts

have

“original

jurisdiction of all civil actions arising under the Constitution,
laws, or treaties of the United States” pursuant to 28 U.S.C. §
1331. However, “Congress may choose to limit a district court’s
jurisdiction over the actions of a federal administrative agency.”
Congress usually chooses to remove certain claims from a district
court’s

general

jurisdiction

to

place

these

claims

into

a

systematic statutory review scheme. Elgin v. Dep’t. of Treasury,
132 S. Ct. 2126, 2141 (2012). “[W]hen Congress creates procedures
designed to permit agency expertise to be brought to bear on
particular

problems,

those

procedures,”

which

often

include

procedures for judicial review of agency decisions, “are to be
exclusive.” Free Enter. Fund v. Pub. Co. Accounting Oversight Bd.,
561 U.S. 477, 489 (2010) (internal quotations omitted). However,
this rule is not absolute. See id.
B. FDIC Jurisdictional Statute
12 U.S.C. § 1818(h)(2) specifically addresses judicial review
of an FDIC final order. Section 1818(h)(2) provides that:
7

Any party to any proceeding . . . may obtain a review of
any order . . . by filing in the court of appeals of the
United States for the circuit in which the home office
of the depository institution is located, or in the
United States Court of Appeals for the District of
Columbia Circuit, within thirty days after the date of
service of such order, a written petition praying that
the order of the agency be modified, terminated, or set
aside. . . . Upon the filing of such petition, such court
shall have [exclusive] jurisdiction . . . to affirm,
modify, terminate, or set aside, in whole or in part,
the order of the agency.
(emphasis added). The parties before this Court do not dispute
whether the Court of Appeals has exclusive jurisdiction to hear
challenges to an FDIC final order. The parties do, however, dispute
whether

a

district

court

has

jurisdiction

to

hear

age

discrimination and due process violation claims stemming from an
FDIC enforcement proceeding. The issue is whether these challenges
are so related to an agency proceeding that the challenges fall
under the exclusive purview of the agency with review through the
Court of Appeals. The Court believes it does.
III.
At the current stage in the proceedings, the plaintiffs seek
a declaratory judgment from this Court and reserve the right to
pursue sanctions or damages if appropriate at a later stage. The
defendant suggests that the first step in determining whether the
Court has jurisdiction is to rely on § 1818(i)(1), which states
that “no court shall have jurisdiction to affect by injunction or
otherwise the issuance or enforcement of any notice or order . .

8

. .” (emphasis added). The Fifth Circuit has determined that
“injunction
precise

or

relief

Comptroller

of

otherwise”
the

encompasses

plaintiffs

Currency,

573

seek.
F.2d

declaratory
See

889,

Groos
895

relief;

Nat’l

(5th

Bank

Cir.

the
v.

1978).

Therefore, the FDIC urges that the plaintiffs’ request for a
declaratory

judgment

to

hold

the

FDIC’s

proceedings

unconstitutional would undoubtedly affect the “enforcement” of an
order issued by the FDIC board. It is therefore the FDIC’s position
that the plaintiffs’ request is barred by the statutory language
and the Fifth Circuit’s interpretation of that language. The FDIC
urges that the proceedings are final at the agency level; and that
declaring the final orders unconstitutional would interfere with
the “enforcement” of these finals orders. Holding the proceedings
unconstitutional would, the FDIC correctly submits, affect the
enforcement of FDIC final orders because there would be no final
order to enforce. The Court agrees that, by virtue of the statute’s
clear

language,

Congress’

intent

to

preclude

jurisdiction “was ‘fairly discernable.’” 5

5

district

court

Elgin, 132 S. Ct. at

The plaintiffs make a textual argument that Congress did not
strip federal district courts of jurisdiction. In support, the
plaintiffs rely on 15 U.S.C. § 78y. The Free Enterprise Court
interpreted Section 78y, which states that a person aggrieved by
final order of the Commission . . . may obtain review of the order
in the United States Court of Appeals, to not bar the federal
district court of jurisdiction. However, the Court reached that
conclusion by applying the three-factor test, not merely by
interpreting this section of a statute. Similarly, § 1818(h) states
that a party may obtain a review of any final order by filing in
9

2132 (quoting Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 207
(1994)).
However, this Court’s inquiry does not end there. In Free
Enterprise the Supreme Court wrote:
Generally, when Congress creates procedures designed to
permit agency expertise to be brought to bear on
particular problems, those procedures are to be
exclusive. But [there is a presumption] that Congress
does not intend to limit jurisdiction if a finding of
preclusion would foreclose all meaningful judicial
review; if the suit is wholly collateral to a statute’s
review provisions; and if the claims are outside the
agency’s expertise.
Free Enterprise, 561 U.S. at 489 (internal quotation marks and
citations omitted); see also Thunder Basin, 510 U.S. at 212-13.
Notwithstanding the clear text of the statute, the Court also looks
to whether the plaintiffs’ claims satisfy the three factor Free
Enterprise test, which would trump Congress’ intent for exclusive
jurisdiction within the agency and the Courts of Appeal for the
plaintiffs’ constitutional allegations.
IV.
Free Enterprise Application
A. Whether a Finding of Preclusion Forecloses All Meaningful
Judicial Review

the court of appeals. The plaintiffs suggest this Court should
reach the same conclusion as Free Enterprise based on the
similarity of the statutes’ wording. Because this textual argument
does not in itself require the Court to find it has jurisdiction,
the Court also considers the factors set forth in Free Enterprise.
10

In Thunder Basin, the statute in that case tracked language
similar to the statute at issue here; both statutes stated that a
petitioner may challenge adverse decisions in the appropriate
court of appeals, whose jurisdiction shall be exclusive. 12 U.S.C.
§ 1818(i)(1); Thunder Basin, 510 U.S. at 208. The Supreme Court
held that the petitioner’s constitutional claim, though generally
“beyond the jurisdiction of administrative agencies,” was not
reason to grant the district court subject matter jurisdiction.
Thunder

Basin,

510

U.S.

at

215.

The

body

reviewing

the

constitutional claim, however, was not the agency itself; an
independent commission exercised the power to adjudicate that
agency’s disputes. Id. The Court did note, however, that even if
the

reviewing

statutory

and

body

was

not

constitutional

independent,
claims

“the

[could]

be

petitioner’s
meaningfully

addressed in the Court of Appeals.” Id.
Gupta v. S.E.C. held that a district court had jurisdiction
to hear the plaintiff’s equal protection claim. Gupta v. S.E.C.,
796 F. Supp. 2d 503, 514 (S.D.N.Y. 2011). The district court
reasoned that the plaintiff’s equal protection claim did not affect
whether he committed the acts the agency alleged. Id. The plaintiff
sought

declaratory

and

injunctive

relief;

however,

the

jurisdictional statutes in Gupta did not include the “injunctive
or otherwise” bar, such that declaratory and injunctive relief
were barred remedies. See 15 U.S.C. § 78y; Gupta, 796 F. Supp. 2d
11

at 506. But see 12 U.S.C. § 1818(i)(1). Therefore, underlying the
court’s strained holding is a finding that a potential grant of
such

injunctive

relief

would

not

be

contrary

to

a

statutory

limitation. See Gupta, 796 F. Supp. 2d at 506, 514. Gupta is not
a helpful guide, much less precedent for this Court.
The Seventh Circuit has observed that, even if an agency’s
fact finding capability is more limited than a district court’s,
these

capabilities

are

“sufficient

for

meaningful

judicial

review.” Bebo v. S.E.C., 799 F.3d 765, 773 (7th Cir. 2015); see
also Hill v. S.E.C., 825 F.3d 1236, 1249-50 (11th Cir. 2016).
In this case, the plaintiffs contend that without this Court’s
intervention, meaningful judicial review is foreclosed because the
FDIC’s administrative process provides no reasonable mechanism for
pursuing

such

constitutional

claims.

The

plaintiffs’

claims

require investigation of FDIC personnel practices, and they argue
the discovery that would be necessary to elicit admissible evidence
corroborative of such claims has not been allowed. Additionally,
the plaintiffs note that the FDIC is inherently conflicted in
assessing

such

a

constitutional

claim

against

itself.

This

inherent conflict, the plaintiffs argue, is the precise reason
which makes appealing this constitutional issue to the Fifth
Circuit not a meaningful avenue of relief. The Court disagrees.
The fact that an agency may potentially have to review a claim
against itself under Congress’ statutory scheme does not as a
12

matter of law divert jurisdiction to a federal district court. The
Court

accepts

that

the

plaintiffs

validly

argue

there

is

an

inherent conflict with the process it faces. But Congress has
spoken, the statutory text is straightforward, and the Supreme
Court has agreed that opportunity for review of such constitutional
claims is sufficient through the Court of Appeals. This Court is
not at liberty to rewrite its authority. That is for Congress.
B. Whether the Suit is “Wholly Collateral” to the Statute’s
Review Provisions
Claims are not wholly collateral where “it serves as the
‘vehicle by which’ a party seeks to prevail in an administrative
proceeding.” Tilton v. S.E.C., 824 F.3d 276, 287 (2d Cir. 2016)
(quoting Elgin, 132 S. Ct. at 2139-40). Without further, concrete
guidance from the Supreme Court, circuit courts interpret this
requirement to mean that a constitutional claim is not wholly
collateral
procedurally

when

it

is

intertwined

“raised
with,

an

in

response

to,

administrative

and

so

is

proceeding

–

regardless of the claim’s substantive connection to the initial
merits dispute in the proceeding.” Tilton, 824 F.3d at 287.
The plaintiffs contend that their constitutional claims are
wholly collateral to the FDIC’s proceedings because they do not
seek review of the merits of the final orders in this Court.
Instead, the plaintiffs’ requested relief is for a declaratory
judgment that the enforcement proceedings were unconstitutional.
13

The Court accepts that the plaintiffs do not overtly seek a
prohibited review of the final administrative orders on the merits.
However, if the Court were to find merit in the plaintiffs’ claims,
the ultimate remedy sought is nevertheless to displace the final
FDIC orders. The effect of such relief is exactly what Congress
prohibits

federal

district

courts

from

doing:

terminating

or

setting aside the FDIC board’s final orders. See 12 U.S.C. §
1818(i)(1).
C. Whether the Claims Are Outside the Agency’s Expertise
Where a constitutional claim questions the constitutionality
of the agency itself or is so connected to the work and proceedings
of the agency, courts have been quick to find that agency expertise
exists. See Elgin, 132 S. Ct. at 1240; Thunder Basin, 510 U.S. at
214-15; Jarkesy v. S.E.C., 803 F.3d 9, 28 (D.C. Cir. 2015).
The FDIC contends that the plaintiffs’ constitutional claims
are not outside of the FDIC’s expertise. As evidence, it argues
that the FDIC board has already considered and ruled on the same
constitutional claims in the context and scope of the enforcement
proceedings.
The plaintiffs counter that their claims easily satisfy the
last Free Enterprise prong because they are not asking the Court
to interpret the Financial Institution Supervisory Act or review
any merits of the enforcement proceedings. Instead, the plaintiffs
urge their fundamental and constitutional rights were violated and
14

those issues do not fall within the expertise of the FDIC. The
argument fails.
The

plaintiffs

do

not

question

the

constitutionality

or

inherent authority of the FDIC. The plaintiffs do not question the
procedures of the FDIC. Instead, the plaintiffs attack the motives
underlying the FDIC’s decision to initiate the proceedings. 6 No
court has seemingly ruled on a similar issue where the plaintiffs
bring equal protection and due process claims in the context of an
FDIC enforcement proceeding. Therefore, this Court has no helpful
precedent to guide it on how broadly or narrowly the Supreme Court
or

other

courts

construe

the

powers

and

abilities

of

this

particular agency. Being left to turn to similar claims alleged
against other agencies, this Court finds that the agency has the
capability to consider such constitutional claims. Moreover, and
the Court underscores, those claims can be raised on appropriate
appeal to the Fifth Circuit. 7

6

The plaintiffs make serious allegations that should not be
taken lightly. An example of evidence the plaintiffs submit for
the age discrimination claim are communications between FDIC
employees, dated January 29, 2013 at 8:52 a.m. On that date an
FDIC employee states that, “this place will never change until the
old man dies, once you work here, you die here.” There seems to be
no dispute that this statement is referring to G. Harrison Scott
and the Bank of Louisiana. It is troubling and merits close
judicial scrutiny.
7
The Fifth Circuit has the authority to thoroughly consider
the types of constitutional claims raised by the plaintiffs. The
manner in which the record is built may vary, notably
substantially, from that of the district court. This, however,
15

V.
Accordingly, the plaintiffs fail to carry their burden to
establish that this Court has the authority to exercise subject
matter jurisdiction. Not only does Congress limit federal district
courts’ jurisdiction under clear statutory law, but Supreme Court
precedent on similar constitutional claims against administrative
agencies

teach

circumstances

that

under

the

which

plaintiffs’
district

courts

claims
have

do
no

present
statutory

authority to exercise jurisdiction.
IT IS ORDERED that the defendant’s motion to dismiss for lack
of subject matter jurisdiction is hereby GRANTED. The plaintiffs’
claims against the FDIC are DISMISSED, without prejudice to pursue
them in the Fifth Circuit proceedings.

New Orleans, Louisiana, January 13, 2017

______________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE

does not compel a finding that the plaintiffs’ claims would evade
appropriate consideration and review.
16