Fifth Circuit Rejects Constitutional Challenge to OCC Enforcement Proceeding

Summary

On September 8, 2025, the Fifth Circuit issued its opinion in Ortega v. Office of the Comptroller of the Currency, 2025 WL 2588495 (5th Cir. Sept. 8, 2025). Petitioners, former directors of a national bank, challenged the OCC's authority to seek civil money penalties in an administrative proceeding before an administrative law judge (ALJ). The challenge followed the U.S. Supreme Court's decision last summer in SEC v. Jarkesy, where the Court held that the SEC's use of an administrative proceeding to impose civil penalties in securities fraud cases violated the Seventh Amendment right to a trial by jury.

The Fifth Circuit concluded that Jarkesy's reasoning does not apply to the OCC's statutory scheme under 12 U.S.C. § 1818 and upheld the OCC's ability to seek civil penalties-including prohibitions and fines-in administrative proceedings. The Circuit held that the OCC's regulations fell within an exception to the Seventh Amendment acknowledged in Jarkesy, under which "public rights" like banking regulation can be handled by the legislative and executive branches. Practically, this preserves the OCC's ability to bring enforcement actions administratively and use the favorable posture as leverage in settlement negotiations. Still, with similar challenges to the OCC's use of administrative enforcement pending in different circuits, the issue may ultimately require Supreme Court resolution.

Background

Jarkesy

In 2013, the SEC charged George Jarkesy Jr. and his firm with securities fraud, alleging misrepresentations to investors and inflated valuations. Pursuant to its authority under the Dodd-Frank Act, the SEC utilized an administrative proceeding, pursuant to which it imposed civil monetary penalties, disgorgement, and an industry bar.

On appeal, the Fifth Circuit held that the SEC's use of administrative proceedings to impose civil penalties violated the Seventh Amendment right to a jury trial. The Supreme Court affirmed, reasoning that securities fraud actions are analogous to common law fraud and that civil penalties are quintessential legal remedies. Because such claims historically required jury trials and did not fall within the "public rights" exception, the SEC could not compel administrative adjudication. The public rights exception is a narrow exception to the Seventh Amendment that exempts certain types of matters from the right to a jury trial when they "historically could have been determined exclusively by [the executive and legislative] branches."[1] While the Supreme Court has not "definitively explained" what divides public from private rights, it has provided examples of "historic categories of adjudication" occurring outside federal courts: including, revenue collection, foreign commerce, immigration, tariffs, tribal relations, public lands, public benefits, and patents.[2]

Ortega

After Jarkesy, challenges spread to other regulatory regimes, including banking law. Chapter 12, Section 1818 of the U.S. Code authorizes the OCC to bring enforcement actions-including those seeking civil penalties-against banks, thrifts, and institution-affiliated parties (IAPs, including directors, officers, and employees) in administrative proceedings before ALJs. Unlike the SEC, the banking agencies do not have the authority to bring actions in federal district court.

In 2017, the OCC issued a Notice of Charges against Saul Ortega and David Rogers Jr., directors of First National Bank, alleging unsafe banking practices, breaches of fiduciary duty, and inaccurate filings. An ALJ recommended the OCC impose civil monetary penalties, but against an industry ban. The Comptroller adopted the civil monetary penalties and added an industry ban for both individuals.

On appeal, Ortega and Rogers argued that Section 1818's scheme, like the SEC's in Jarkesy, violated the Seventh Amendment. The OCC countered that its statutory scheme fell within the public rights exception to the Seventh Amendment.

In upholding the OCC's authority under the public rights exception, the Fifth Circuit emphasized the long history of banking regulation being handled by the political branches at the initial adjudicatory levels, without the federal court's involvement, and noted that federally chartered banks and related causes of action have no historical common law analogues. In fact, these types of actions were not seen until Congress authorized them with administrative proceedings in the latter half of the 20th century. In contrast, the SEC scheme in Jarkesy involved a cause of action substantially similar to the historic common law fraud claim, and a claim for securities fraud, like common law fraud, had to be brought before federal courts until 2010 when the Dodd-Frank Act allowed such claims to be brought in administrative proceedings.

Implications

The decision preserves the ability of the OCC (and other federal banking regulators) to pursue penalties in administrative proceedings. The only recourse for parties is to challenge the agency's administrative findings in the Court of Appeals (after the proceeding before the ALJ and the agency is completed). District courts do not have jurisdiction to hear challenges to an order issued by an agency under Section 1818.[3]

Going forward, parties faced with OCC enforcement will continue to face pressure to settle, rather than challenge the claims under an ALJ proceeding and face a lengthy appellate review process. In 2024, for example, the OCC initiated 36 formal enforcement actions; only seven proceeded to contested ALJ hearings.

The ruling also signals caution for parties regulated by other agencies. Some enforcement regimes besides the SEC's have been found unconstitutional since Jarkesy. For example, the Fifth Circuit invalidated the FCC's administrative imposition of a $57 million fine against AT&T as a violation of the Seventh Amendment, because the claims were legal in nature and did not involve a public right.[4] Unlike in Ortega, the Court found that the public rights exception did not apply to AT&T for numerous reasons, including that suits against common carriers have a long history in common law, predating the nation's founding.[5]

In contrast, Ortega shows that where claims lack common law analogues and historically have been resolved outside the courts, the public rights exception may have teeth. Under the Fifth Circuit's reasoning, this exception would likely apply to the FDIC and the Federal Reserve's enforcement schemes, because they share a common enforcement framework with the OCC based on Section 1818.

It remains to be seen whether other federal Courts of Appeals will rule similarly. There is also some possibility that the Fifth Circuit will decide to rehear the Ortega case en banc. Ultimately, the question of the application of Jarkesy to bank regulatory enforcement actions may need to be resolved by the Supreme Court.