FEDERAL DEPOSIT INSURANCE CORPORATION, APPELLANT V. JAMES E. MALLEN, ET AL. No. 87-82 In the Supreme Court of the United States October Term, 1987 On Appeal From The United District Court for the Northern District of Iowa Reply Brief for the Appellant Unlike the horse trainer in Barry v. Barchi, 443 U.S. 55 (1979), who had no meaningful opportunity to challenge his suspension, appellee Mallen had two. He had a criminal trial -- a swift and fair opportunity to put the government to its proof of the indictment on which his suspension rested -- but the government successfully bore its burden and he ws convicted. And under 12 U.S.C. 1818(g)(3) he had a swift and fair opportunity to persuade the FDIC that -- notwithstanding the indictment -- his return to the bank would not "pose a threat to the interests of the bank's depositors or threaten to impair public confidence in the bank"; instead of using that opportunity, he brought this suit alleging that Section 1818(g)(3) is unconstitutional on its face. His arguments in this Court do not, however, support that conclusion. 1. Congress deliberately chose to afford a banking agency up to 30 days to commence a Section 1818(g)(3) hearing and up to 60 additional days to reach a decision. The parties agree that whether those outside limits are constitutionally permissible depends, under Mathews v. Eldridge, 424 U.S. 319 (1976), on a weighing of the individual's interest, the governmental interest, and the likelihood of error. We argued in our opening brief that an examination of those factors, in the context of a Section 1818(g)(3) hearing for an indicted bank officer, demonstrates that those limits are plainly permissible. Nothing in appellee's brief refutes that showing. a. Throughout his brief (e.g., Br. 7, 8, 10, 19), appellee treats the fact of an indictment -- the existence of a neutral determination that there is probably cause to believe that the bank officer has committed a felony involving dishonesty or breach of trust -- as if it were merely the occasion for the agency to look at whether he should be suspended. But Congress plainly intended that the indictment would itself be the primary basis, and in appropriate cases the sole basis, for the initial determination that the officer's continued service may pose a threat to depositors or public confidence; upon indictment such a determination was expected to be "virtually routine." /1/ To be sure, the statute then allows the officer an opportunity to show that despite the indictment his continued service will not pose such a threat, but absent such a showing the agency's decision to suspend may rest on the indictment alone, a point appellee implicitly accepts when he concedes (id. at 5-6) that no pre-suspension process is required and (id. at 22 & n.17) that the officer has the burden of proving that he does not pose a threat. Contrary to appellee's apparent assumption (Br. 8), the FDIC's regulation (12 C.F.R. 308.56(a)(2)) stating that its "Board shall not consider the guilt or innocence of the (indicted) individual" does not mean that the indictment merely triggers an agency inquiry in which the grand jury's finding of probably cause is to be ignored. While the word "consider" sometimes means "pay attention to," in this context it obviously means "evaluate." The point of the regulation is that the Board is not to assess the criminal case but to take the grand jury's action as given. A finding of probable cause is of course constitutionally sufficient to support a suspension from a position of trust at a federally insured bank while guilt is being determined by the appropriate criminal processes. See Baker v. McCollan, 443 U.S. 137, 142-143 (1979) (consequences of indictment); Gerstein v. Pugh, 420 U.S. 103 (1975). The assessment of the adequacy of the Section 1818(g)(3) hearing, in light of the three Mathews factors, must therefore take the fact of indictment into account. What the bank officer has at stake at the hearing is not, as appellee would wish (Br. 8-9), an otherwise absolute right to his job, but the opportunity to establish that he should be allowed to hold it, pending completion of the criminal process, because despite the indictment he poses no threat to the bank or its depositors. What the public has at stake is the welfare of the bank and its depositors in the hands of an individual as to whom there is probable cause to believe he committed a felony involving dishonesty or breach of trust. And the role of the Section 1818(g)(3) hearing in choosing between these interests is a very limited one; the primary processes that initially, and then finally, determine whether the officer may hold office are the indictment process and then the criminal trial; the only issue at the Section 1818(g)(3) hearing is whether the officer can show that he poses no threat in the interim. b. Appellee is of course correct (Br. 19 & n.12) that the Section 1818(g)(3) hearing and decision will often take much less than 90 days, particularly in cases where the officer makes a minimal showing and the outcome is unfavorable to him. (Here, the hearing would have commenced 19 -- not 30 -- days after appellee's request (J.S. App. 4a), and we will never know how long a decision would have taken.) But the relevant case, for purposes of assessing the statute on its face, is the case where, despite a serious criminal charge, the officer hopes by making a substantial showing to demonstrate the absence of a threat. It was entirely appropriate for Congress to allow the FDIC staff (which may be wholly unfamiliar with the matter) up to 30 days to prepare to meet that showing, and the hearing officer and Board another 60 days to exercise due care before returning an indicted officer to his bank. c. Finally, there is obviously no merit to the argument (Br. 15-16) that the otherwise appropriate outside deadlines imposed by Congress on the Section 1818(g)(3) process are unconstitutional because in some cases a criminal trial would be completed in even less time. The suspended officer simply has to ways of bringing his suspension to an end -- by acquittal and by success in a Section 1818(g)(3) review -- and the fact that the former will sometimes pretermit the latter does not make it inadequate. /2/ 2. Appellee makes almost no attempt to defend, and cites no authority for, the district court's conclusion that the Constitution requires that a suspended bank officer be given the opportunity to present live witnesses. His arguments with respect to process at the hearing are devoted largely to matters not mentioned below, and they are in any event without merit. a. Preliminarily, we note that the "procedure" section of appellee's brief (at 22-27), like the "timing" section, wholly ignores the significance of the indictment. It is not true that "pretermination procedures * * * were non-existent" (Br. 24); or that appellee was "without notice of the facts upon which (the FDIC's) conclusions (were) based" (ibid.). The grand jury process is an ancient and honorable "pre-termination procedure," and appellee was fully aware of the indictment and its contents. /3/ The adequacy of the processes at the hearing should not be analyzed as if the suspension were an otherwise baseless act wholly dependent on the showing made at the hearing, or as if an indicted officer had no knowledge of the grounds for this suspension. b. The statute gives a suspended bank officer the opportunity to appear in person or through counsel, to present written materials and oral argument, and in the agency's (here, the hearing officer's) discretion to present oral testimony. As we explain in our opening brief (Gov't Br. 32-33), neither logic nor authority supports the proposition that the lack of an absolute right to present oral testimony denies a bank officer in this situation a meaningful opportunity to be heard. c. Finally, appellee makes several procedural arguments that were not the basis of the decision below: /4/ that it is improper to require him to provide a list of witnesses or to impose time limits on their testimony; that he should have the right to call FDIC witnesses; and that it is improper to deny him the right to cross-examine witnesses presented by the FDIC staff. None of these claims has any merit whatever. The requirement of a witness list and the authorization to the hearing officer to impose time limits on testimony are entirely standard agency procedures in the interests of good order, /5/ and appellee offers not a whisper of argument or authority to invalidate these regulations. The absence of any general right to call members of the FDIC staff as witnesses is consistent with the fact that the purpose of the hearing is not to review the actions of FDIC staff but to give the indicted officer an opportunity to establish that he does not pose a threat to the bank. And the cross-examination argument is based on a false premise: if the FDIC staff does offer testimony, "(e)ach party shall have the opportunity to cross-examine any witness presented by an opposing party." 12 C.F.R. 308.61(e). For these reasons and those stated in our opening brief, the judgment of the district court should be reversed. Respectfully submitted. CHARLES FRIED Solicitor General JOHN L. DOUGLAS General Counsel Federal Deposit Insurance Corporation FEBRUARY 1988 /1/ S. Rep. 1482, 89th Cong., 2d Sess. 2(1966). Appellee argues incorrectly (Br.9) that the district court in Feinberg v. FDIC, 420 F. Supp. 109 (D.D.C. 1976), rejected the argument that Congress intended the suspension to be "virtually routine." The Feinberg court rejected only the contention that Section 1818(g) conferred no discretion at all and therefore created no issue for a hearing (420 F. Supp. at 117 n.19). The 1966 statute reviewed in Feinberg provided for no hearing at all under subsection (g). The passage quoted by appellee (Br. 9) from the Senate Report, stressing the importance of "thorough consideration" of suspensions and removals, concerned neither hearings nor the substantive basis for suspension; nor did it concern the FDIC. The Senate Committee was explaining why, since the Comptroller of the Currency, who oversees national banks, is a single individual, the 1966 amendments provided that suspension and removal of officers of national banks should be decided by a collegial body, the Board of Governors of the Federal Reserve System, with the Comptroller sitting as a voting member (an arranangement which was modified in 1978 (see Financial Institutions Regulatory and Interest Rate Control Act of 1978, Pub. L. No. 95-630, Section 107(d)(1), 92 Stat. 3658)). See S. Rep. 1482, supra, at 9. /2/ Appellee suggests (Br. 21) that a conviction pretermits the Section 1818(g) hearing in the same way an acquittal does, because 12 U.S.C. 1829 imposes an independent bar on service after conviction. As appellee admits (Br. 16 n.11), however, a suspension under Section 1818(g) has consequences broader than the Section 1829 bar. Mallen would, despite his conviction, have received a hearing on his suspension had the district court not intervened. /3/ In this instance, the officer was also very familiar with other FDIC objections to his conduct, as a result of a prior proceeding that produced 1,400 pages of sworn testimony. See Gov't Br. 7 n.4. /4/ Appellee raised none of these arguments in his pleadings or at the hearing before the district court. /5/ E.g., 7 C.F.R. 1.140(a)(1)(iv) (Department of Agriculture; witness lists); 34 C.F.R. 31.6(d)(1)(ii) (Department of Education; witness lists); 10 C.F.R. 110.105(a)(7) (Nuclear Regulatory Commission; time limits); 13 C.F.R. 315.27(c)(4) (Department of Commerce; time limits).