Washington Legal Foundation (WLF) today urged the U.S. Court of Appeals for the Sixth Circuit to vacate a Federal Deposit Insurance Corporation order in an important separation-of-powers case. WLF argues that the FDIC's structure is unconstitutional and that it denied Mr. Calcutt a fair hearing.

The case arises from a lengthy administrative proceeding. After a 2015 hearing, an FDIC administrative law judge recommended a decision. But before the FDIC could act, the Supreme Court ruled that ALJs are inferior officers subject to the Appointments Clause. So the FDIC remanded the case to a new, constitutionally appointed ALJ. Yet that new ALJ did not hold a de novo hearing. Rather, he held a hybrid proceeding that combined the 2015-hearing evidence and the 2019-hearing evidence. The FDIC eventually adopted the new ALJ's recommended decision barring Mr. Calcutt from further participating in the banking industry and imposing significant financial penalties.

In its amicus brief supporting Mr. Calcutt, WLF argues that the FDIC's structure is unconstitutional. First, three FDIC board members--who are principal officers--enjoy for-cause removal protection. Because the FDIC exercises executive power and is not a non-partisan board of experts, this violates the Appointments Clause. FDIC ALJ's, on the other hand, are inferior officers. Yet they enjoy two levels of for-cause removal protection. This too violates the Appointments Clause.

WLF's brief also explains why the FDIC erred by not granting Mr. Calcutt a de novo hearing on remand. The Supreme Court's Lucia decision makes clear that subsequent proceedings must be untainted by the unconstitutionally appointed ALJ's findings. But the new ALJ and FDIC relied on the 2015-hearing evidence. This they could not do without tainting the proceeding. Because the FDIC's structure is unconstitutional and Mr. Calcutt was denied due process of law, WLF urges the Sixth Circuit to vacate the FDIC's order.