Lawyer Retained by a Bank at the Behest of the Comptroller of the Currency to Investigate Possible Insider Fraud and Who Later Criticized OCC's Findings Cannot Sue OCC for Damages under the First Amendment
On January 28, 2020, the U.S. Court of Appeals for the District of Columbia Circuit held in Loumiet v. United States, et. al., No. 18-5020 (D.C. Cir. Jan. 28, 2020) that a lawyer may not sue government officials for damages based upon an alleged violation of the attorney's First Amendment rights.
Carlos Loumiet was retained by Hamilton Bank, N.A. at the suggestion of the Office of the Comptroller of the Currency (OCC) to investigate possible fraudulent concealment by bank insiders of $22 million in losses related to Russian bonds. Loumiet's original report found no convincing evidence that the executives had fraudulently concealed the losses. Due to OCC's skepticism of that conclusion, however, Loumiet prepared a second report that concluded that the disputed transactions were poorly handled but still found insufficient evidence to conclude that the executives had fraudulently concealed the losses. Unconvinced, OCC placed the bank into receivership. Subsequently, several bank executives were indicted. Two executives pled guilty but the third, Hamilton's former chief executive officer, did not and was convicted and sentenced to thirty years of imprisonment.
In 2006, after the bank's CEO was convicted, OCC brought an administrative enforcement action against Loumiet alleging that he breached his fiduciary duty to the bank in conducting his fraud review, which caused or was likely to cause more than a minimal financial loss to Hamilton Bank. Unlike Loumiet's partner who settled with the FDIC for $750,000, Loumiet refused to admit liability. Following an administrative trial, the administrative law judge (ALJ) recommended that the charges be dismissed, concluding Loumiet had not breach a fiduciary duty to the bank. Recommendations of ALJs, however, are subject to the review by the Comptroller. Comptroller John Dugan agreed that the charges should be dismissed although disagreed with the ALJ's conclusion that Loumiet had not breached his fiduciary duty to the bank. Nevertheless, despite breaching his fiduciary duty to the bank, Comptroller Dugan concluded that Loumiet's conduct had not caused more than a minimal harm to the bank and dismissed the enforcement action.
After the enforcement action was dismissed, Loumiet sought fees from OCC under the Equal Access to Justice Act (EAJA). EAJA allows a prevailing private party in action brought by the government to recover fees unless it is determined that “the position of the agency was substantially justified.” Although OCC denied the award of attorney's fees, the D.C. Circuit disagreed and awarded $675,000, holding that there was no substantial justification for the OCC's position. The court reasoned that “even if Loumiet's exoneration of the executives caused the bank to “retain the dishonest officers,” there was no evidence that this harmed the bank.
Loumiet then sued four OCC officials for violation of his First Amendment rights under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971), which held that plaintiffs could sue government officials for damages related to the violation of their Fourth Amendment rights.
Loumiet argued that OCC brought the enforcement action in retaliation for his criticism of OCC'S position. On remand from a previous appeal, the district court denied the government's motion to dismiss the Bivens claim based on the First Amendment.
The D.C. Circuit reversed, holding that the First Amendment does not create an implied cause of action for damages under Bivens. The court stated that over the past forty years, the Supreme Court has not expanded Bivens by recognizing new implied causes of action under the Constitution. The court of appeals noted that in Supreme Court's 2016 decision in Ziglar v. Abbasi, 137 S. Ct. 1843 (2017) established a two-part test for considering whether to create a new implied cause of action under Bivens: (i) a court must consider whether a plaintiff seeks to extend Bivens into a “new context” and (ii) if so, whether there are any “special factors counseling hesitation.” Although conceding that “[t]his case presents a new Bivens context,” the court declined to extend Bivens to First Amendment claims. The court of appeals explained that although the Supreme Court has twice assumed that the First Amendment creates an implied cause of action for damages, it has not held that Bivens extends to First Amendment claims.
In concluding that “special factors counsel hesitation,” the D.C. Circuit observed that where an alternative method of relief is available, a Bivens remedy usually is not. The court pointed to the enforcement-action regime set forth in Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 as constituting a “special factor counseling hesitation” because it imposes civil penalties only for defined offenses and provides for procedural due process. Therefore, the court concluded, FIRREA affords institution-affiliated parties (IAPs)—including lawyers, accountants, and appraisers retained by a bank—an “alternative, existing process for protecting their rights, quoting Abbasi, 137 S. Ct. at 1858 (quotation marks omitted). The court also noted that IAPs are provided recourse under EAJA which is an exception to the American Rule under which a prevailing party is not ordinarily entitled to recover attorney's fees and costs.
Finally, the court of appeals noted that judicial review of OCC's enforcement decisions is “carefully circumscribed,” because it provides an exclusive remedy—review in the D.C. Circuit under arbitrary and capricious standard. “These provisions come close to foreclosing a Bivens action expressly ….” In response to Loumiet's argument that retaliatory enforcement is difficult to prove in an enforcement action, the court observed that “charges of a retaliatory motive is easy to make, hard to disprove, potentially crippling to regulators, and perhaps not unlikely in the context of hotly contested adversarial proceedings.”