Frank William Bonan, II v FDIC, 24-3296
U.S. Court of Appeals, Seventh Circuit Civil Administrative Law
Holdings
- Seventh Circuit holds Jarkesy's public rights exception covers FDIC breach-of-fiduciary-duty and unsafe/unsound-practice claims, permitting agency adjudication without a jury
- Court declines to decide Article II removal-restriction constitutionality because petitioner failed to show compensable harm under Collins v. Yellen
- Essential reading for banking regulatory defense counsel and administrative law practitioners litigating post-Jarkesy separation-of-powers and jury-trial challenges to agency enforcement
Summary
This case arose from an FDIC administrative enforcement action against Frank Bonan for misconduct related to his role at Grand Rivers Community Bank, centered on a problematic loan (the 618 Holdings loan) that caused significant losses. After a six-day hearing, an ALJ recommended sanctions, and the FDIC Board ultimately imposed a prohibition order under 12 U.S.C. § 1818(e) and a $105,000 civil money penalty under § 1818(i)(2)(B). Bonan petitioned the Seventh Circuit for review, raising constitutional and evidentiary challenges.
The court rejected Bonan's Seventh Amendment jury-trial claim, applying SEC v. Jarkesy's two-step framework. Although the penalties were 'legal' in nature (satisfying step one), the court held that the underlying claims—breach of fiduciary duty and unsafe or unsound banking practices—lack a common-law analogue at the time of the Founding and thus fall within the public rights exception under Atlas Roofing, permitting non-jury agency adjudication. The court also declined to resolve Bonan's Article II removal-restriction challenge to FDIC Board members and ALJs, holding that under Collins v. Yellen he was required to, but failed to, demonstrate that the restriction caused compensable harm to his specific case, and rejected his argument that such defects constitute automatic structural error. The court further rejected due process claims based on the FDIC's combined prosecutorial/adjudicative role, denial of pretrial depositions, and service issues, finding no constitutional violation or prejudice.
On the merits, the court found substantial evidence supported both the prohibition order and civil penalty, based on Bonan's orchestration of a loan to unqualified, personally-connected borrowers that caused foreseeable losses to the bank. The decision is significant for attorneys litigating post-Jarkesy challenges to administrative enforcement schemes, particularly in banking regulation, and clarifies the circuit's approach to removal-restriction and due process challenges in agency adjudications.
In short
1. Both the civil money penalty under § 1818(i) and the prohibition order under § 1818(e) implicate the Seventh Amendment because they are legal in nature, satisfying Jarkesy step one. However, at step two, the claims for unsafe or unsound practices and breach of fiduciary duty do not trace their ancestry to common law at the Founding and thus fall within the public rights exception under Atlas Roofing rather than Jarkesy. Therefore, Congress could constitutionally assign adjudication of these claims to the FDIC without a jury. Petition denied on this ground. (affirmed (agency order upheld; petition denied))
2. The court declined to resolve whether the removal restrictions on the FDIC Board and ALJs are unconstitutional because, under Collins v. Yellen, Bonan was required to show compensable harm caused by the restrictions and failed to do so, relying only on speculation. The court also rejected Bonan's argument that an unconstitutional removal restriction constitutes structural error requiring automatic reversal. (affirmed (agency order upheld; petition denied))
3. Bonan failed to overcome the presumption of honesty and integrity of administrative adjudicators under Withrow v. Larkin, as the combination of investigative and adjudicative functions alone does not violate due process, and adverse rulings alone are not evidence of bias. There is no constitutional right to pretrial discovery in administrative proceedings, and Bonan was not prejudiced since he deposed unavailable witnesses and cross-examined others. Bonan waived his service argument by not disputing it below and did not dispute it before the court. (affirmed (agency order upheld; petition denied))
4. Substantial evidence supported the Board's finding that Bonan breached his fiduciary duty of care to Grand Rivers through his conduct regarding the 618 Holdings loan, satisfying the misconduct, effects (financial loss 'by reason of' the breach), and culpability (willful disregard) prongs required for a § 1818(e) prohibition order. The court did not need to resolve whether the record supported the separate 'unsafe or unsound practice' finding. (affirmed)
5. Substantial evidence supported the Board's finding that Bonan's role in the 618 Holdings loan breached his fiduciary duty and caused more than a minimal loss to Grand Rivers, sufficient on its own to support the second-tier civil money penalty, making it unnecessary to reach the alternative Rig 23 grounds. (affirmed)
This summary was drafted by AI and verified against the slip opinion. It may contain errors and is not legal advice — always read the original before relying on it.