UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


LANDRY, MICHAEL D.

v.

FDIC


99-1230a

D.C. Cir. 2000


*	*	*


Williams, Circuit Judge: Congress has given the Federal  Deposit
Insurance Corporation ("FDIC") a variety of weap- ons to use against
individuals whose actions threaten the  integrity of federally insured
banks or savings associations.  Among these is the power to remove a
bank officer from his  position and to bar him from further
participation in the  operations of a federally insured depository
institution. See  12 U.S.C. s 1818(e)(1). On April 30, 1996 the FDIC
notified  Michael D. Landry that it intended to seek such an order 
against him because of his conduct as Senior Vice President,  Chief
Financial Officer, and Cashier of First Guaranty Bank,  Hammond,


As required by statute, the FDIC assigned the matter to  an
administrative law judge for a formal, on-the-record, ad- ministrative
hearing. See 12 U.S.C. s 1818(e)(4); 5 U.S.C.  ss 554, 556. The ALJ
held a two-week hearing and then  issued a decision recommending that
the FDIC issue the  proposed prohibition order.1 Landry filed
exceptions to the  ALJ's recommendation, and the case was forwarded to
the  FDIC's Board of Directors for a final decision. The Board  agreed
with the recommendation and issued an order of  removal and
prohibition. See In re Michael D. Landry,  FDIC 95-65e, May 25, 1999
("Order"), Joint Appendix  ("J.A.") 218, 264-66. Landry filed a timely
petition for  review. The principal issue for review is Landry's
argument  that the FDIC's method of appointing ALJs violates the 




__________

n 1 In the same proceedings, FDIC enforcement counsel also  sought, and
ultimately received, a prohibition order against Alton B.  Lewis, a
member of the Bank's Board of Directors who also did  some legal work
for the bank. Lewis's petition for review is  pending before the
United States Court of Appeals for the Fifth  Circuit. See Lewis v.
FDIC, No. 99-60412 (5th Cir. filed June 18,  1999).


Appointments Clause of the Constitution, Art. II, s 2, cl. 2.  Landry
also argues that the evidence against him did not  meet the statutory
minimum for the remedies against him  and that the FDIC violated
various procedural requirements.  We affirm.


* * *


From the late 1980s to early 1993, First Guaranty was in  serious
financial trouble. In 1990, the FDIC issued a capital  directive
requiring it to obtain a $4.7 million infusion of  capital by January
1, 1991. The Bank tried unsuccessfully  to raise capital through a
stock solicitation, and when the  FDIC completed its 1991 examination
the Bank's position  looked bleaker than ever. Soon afterward, the
FDIC told  the Bank's board of directors that it would seek to
terminate  the Bank's deposit insurance. It agreed, however, to delay 
termination proceedings while further recapitalization plans 
proceeded. In early 1992 the FDIC conducted another ex- amination and
found that the Bank's financial position had  improved slightly, but
that it was still a candidate for near- term failure. After Landry and
others pursued a series of  attempts to add capital to the Bank--some
of which can only  be described as bizarre and desperate--the Bank's
board on  September 17, 1992 accepted an offer of purchase, and in 
December 1992 the Bank received the necessary capital infu- sion.


Landry's alleged malfeasance occurred in connection with a  capital
enhancement plan initially proposed by Rick A. Jen- son, the Bank's
former president, and Scott Crabtree, a  consultant, involving a
corporation called Pangaea. The  FDIC and Landry agree that he had a
role in this plan but  disagree as to the scope of his role, his
motivation, and the  significance of his conduct. The FDIC Board,
adopting the  ALJ's factual findings, found that Landry and his two
associ- ates were the incorporators of Pangaea Corporation, and that 
they planned to use Pangaea to acquire an 80% interest in the  Bank.
They hoped to raise $16 million by selling 30% of  Pangaea's stock,
retaining 70% for themselves. Of the $16  million Pangaea would use
$7.5 million to beef up the Bank's 


capital through purchases of its stock, $6.5 million to form a  limited
partnership to buy real estate from the Bank's portfo- lio, and $2
million to pay Pangaea expenses and to finance  other ventures. They
presented this plan as a means of  finding capital for the Bank, and
obtained approval at an  executive meeting of the Bank's board of
directors on August  8, 1991, but as Landry would later admit, the
board was  misled because the plan was "not presented as a management 
takeover/buyout of the Bank." Instead, the Bank's board was  led to
believe that Pangaea was an arm of the Bank so that a  capital
infusion would entail no genuine change in control of  the Bank. After
board approval, the Bank forwarded a draft  copy of a descriptive
booklet to the FDIC examiners. They  rejected the plan because they
believed it offered no short  term capital infusion and Pangaea had no
serious prospect of  actually raising the $16 million. (The FDIC had
determined  that investors could have acquired complete ownership of
the  entire bank for $5 million, so that investors would not be 
willing to pay $16 million for a 30% interest in an entity  (Pangaea)
that would own only 80% of the Bank.)


Undeterred, Jenson, Crabtree and Landry pursued a vari- ety of
imaginative sources of capital, many of which involved  Pangaea. These
sources included: individuals seeking Unit- ed States citizenship
under a provision of the immigration  laws admitting individuals who
invest $1 million in a new  business venture that creates ten or more
new jobs; pension  funds solicited for the immigration scheme with the
help of an  image-enhancement firm with pension fund contacts; a pre-
ferred stock offering for Pangaea prepared by Funding Place- ment
Services; and an Ecuadorian currency scheme through  which one could
purportedly obtain a 500% return in six  weeks.


Although this "Pangaea plan" never much developed, and  although
Pangaea was unlikely ever to have received approval  to acquire the
Bank from its board of directors or federal  regulators, the FDIC
Board found that Landry's fellow Pan- gaea incorporators--with
Landry's full knowledge and coop- eration--executed enough of the plan
to cause the Bank to  lose substantial sums of money in the form of


expenses, see Order at 14, 17-18, 29-30, J.A. at 231, 234-35,  246-47,
questionable loans, see id. at 14-15, 17, J.A. 231-32,  234, and other
unwise or illegal banking activities, see id. at  13, 16, 20, J.A. at
230, 233, 237, without informing the  directors that their plan was
designed to enrich the incorpo- rators while providing little or no
benefit to the Bank itself.  The Board also found Landry had failed to
satisfy FDIC  rules requiring disclosure of material changes in the
Bank's  operations. See Order at 20, J.A. at 237.


The Board's most compelling evidence came in the form of  a 16-page
letter dated June 3, 1993 that Landry himself  wrote to bank examiner
G. Martin Cooper ("Landry letter"),  and to which he attached more
than 500 pages of supporting  material. The Landry letter described
the activities at issue  here and linked them to Pangaea. Landry's
personal culpa- bility, laid bare in this letter, was reinforced by
Landry's  resignation letter (not accepted by the Bank's board of di-
rectors), in which he described his conduct as "self dealing"  and
"for the good of Pangaea Corporation at the expense of  First Guaranty
Bank," as well as his May 12, 1995 deposition,  in which he admitted
that Pangaea had become a vehicle to  "make money off the bank." After
examining all of the  evidence, the FDIC Board concluded that although
other  wrongdoers may have been more culpable, Landry's conduct  met
the statutory criteria and thus warranted a removal and  prohibition
order. See Order at 21-22, J.A. at 238-39.


Appointments Clause


Landry argues that the FDIC's method for appointing  ALJs violates the
Appointments Clause of the Constitution:


[The President] ... shall nominate, and by and with the  Advice and
Consent of the Senate, shall appoint ...  Officers of the United
States, whose Appointments are  not herein otherwise provided for, and
which shall be  established by Law: but the Congress may by Law vest 
the Appointment of such inferior Officers, as they think 


proper, in the President alone, in the Courts of Law, or  in the Heads
of Departments.


U.S. Const., Art. II, s 2, cl. 2.


Landry would classify ALJs who conduct administrative  proceedings for
the various federal banking agencies as "infe- rior officers" of the
United States. If so, Congress's instruc- tion to the banking agencies
to "establish their own pool of  administrative law judges" to conduct
such hearings, see  Federal Institutions Reform, Recovery, and
Enforcement Act  ("FIRREA"), s 916, 103 Stat. at 486, codified at 12
U.S.C.  s 1818 note, would be unconstitutional because it vests ap-
pointment authority in a set of agencies that are not (accord- ing to
Landry) "departments" under the Appointments  Clause. The FDIC
counters that the ALJs in question need  not be appointed by heads of
departments because they are  employees rather than inferior


The FDIC also makes a preliminary objection--that Lan- dry has shown no
prejudice from any Appointments Clause  violation that may have
occurred. The FDIC itself deter- mined Landry's responsibility after
reviewing the ALJ's rec- ommended decision de novo. See 12 U.S.C. s
1818(h)(1)  (requiring the FDIC to make its own findings of fact when 
issuing its final decision); 12 CFR ss 304.38, 304.40 (requir- ing the
FDIC Board to issue the agency's final decision).  The Supreme Court
has not decided whether an Appoint- ments Clause violation requires
reversal where it appears to  have done a party no direct harm. Ryder
v. United States,  515 U.S. 177, 182-83, 186 (1995). But in Freytag v.
Commis- sioner, 501 U.S. 868 (1991), in reaching the Appointments 
Clause issue despite its not having been raised below, the  Court
classified the clause as "structural," because of its  purpose to
prevent encroachment of one branch on another  and to preserve the
Constitution's structural integrity. Id. at  878-79. Here, of course,
the issue was raised all right; the  problem is that Landry's injury
may be questionable. But  the Court uses the term "structural" for a
set of errors for  which no direct injury is necessary--such as a
criminal  defendant's indictment by a grand jury chosen in a racially


sexually discriminatory manner. See Vasquez v. Hillery, 474  U.S. 254,
261 & n.4, 263 (1986) (race); Ballard v. United  States, 329 U.S. 187,
195 (1946) (sex). In such cases, of  course, the later conviction by a
petit jury supplies virtual  certainty that a properly constituted
grand jury would have  indicted, as the Court has observed in regard
to lesser- ranking grand jury errors. See United States v. Mechanik, 
475 U.S. 66, 70-71 & n.1 (1986). As grand juries do not draft 
opinions for the petit jury, the latter's insulating effect is 
positively surgical compared to the FDIC's action here, how- ever
independent its review of the ALJ's decision.


The Court recently noted its use of the label "structural,"  observing
that only in a limited class of cases has it "found an  error to be
'structural,' and thus subject to automatic rever- sal." Neder v.
United States, 119 S. Ct. 1827, 1833 (1999).  Issues of separation of
powers (including Appointments  Clause matters, Freytag, 501 U.S. at
878), seem most fit to  the doctrine; it will often be difficult or
impossible for  someone subject to a wrongly designed scheme to show
that  the design--the structure--played a causal role in his loss. 
And in Plaut v. Spendthrift Farm, Inc., 514 U.S. 211 (1995),  the
Court gave a further explanation: "[S]eparation of pow- ers is a
structural safeguard rather than a remedy to be  applied only when
specific harm, or risk of specific harm, can  be identified.... [I]t
is a prophylactic device, establishing  high walls and clear
distinctions because low walls and vague  distinctions will not be
judicially defensible in the heat of  interbranch conflict." Id. at
239. For Appointments Clause  violations, demand for a clear causal
link to a party's harm  will likely make the Clause no wall at all.


There is certainly no rule that a party claiming constitu- tional error
in the vesting of authority must show a direct  causal link between
the error and the authority's adverse  decision. In fact, the opposite
is often true. For example, in  a challenge to the authority of a
non-Article III court on the  grounds that the challenger is entitled
to a court enjoying  Article III's exceptional tenure provisions, the
assumption  that inadequate tenure may prejudice the challenger is so 
automatic that it usually goes unmentioned. See Northern 


Pipeline Construction Co. v. Marathon Pipe Line Co., 458  U.S. 50
(1982); Palmore v. United States, 411 U.S. 389 (1973);  Crowell v.
Benson, 285 U.S. 22 (1932). Bowsher v. Synar, 478  U.S. 714 (1986),
extended this principle to general separation- of-powers claims.
Although the union plaintiffs there had  clearly been injured by a
suspension and proposed cancella- tion of their cost-of-living
adjustments, see id. at 721, there  was no showing that the
Comptroller General's exposure to  removal by Congress in any way
increased the probability of  the cuts. Instead, the Court seemed to
presume that subtle  variations in the quality of tenure would affect
conduct. See  also Ryder, 515 U.S. at 182-83, 186-88.


Of course in the above cases there was no de novo review  following the
decision of the (arguably) unlawfully designated  official. (But see
Vasquez v. Hillery, 474 U.S. at 261 & n.4,  263, and Ballard v. United
States, 329 U.S. at 195, reversing  convictions based on indictment by
discriminatorily selected  grand jury, despite later petit jury
verdict, discussed above at  6-7.) Here there is. But Freytag itself
indicates that judicial  review of an Appointments Clause claim will
proceed even  where any possible injury is radically attenuated.
There, the  Court made plain that, had it not found the "inferior
officer"  appointed in a constitutional way, it was ready to throw out
 the Tax Court's decision simply on the ground that special  trial
judges ("STJs") held what it viewed as clearly the  powers of an
"inferior officer" (to make final decisions), even  though the STJ had
not exercised any power to make final  decisions in Freytag's case.
See 501 U.S. at 871-72 & n.2,  882. Indeed, the Court made no attempt
to explain how the  STJ's possession of powers not used in Freytag's
case could  possibly have prejudiced him. Id.


Moreover, Appointments Clause analysis of purely decision- recommending
employees presents a special problem. Sup- pose that a purely
recommendatory power, i.e., one followed  as here by de novo review,
can make an employee an "inferior  officer" within the meaning of the
Appointments Clause--a  hypothesis we must assume at this stage. If
the process of  final de novo review could cleanse the violation of
its harmful  impact, then all such arrangements would escape judicial


review, unless the officer's powers happened fortuitously, as  in
Freytag, to be combined with still greater powers. Recog- nition of
this problem may well explain the Court's statement  in United States
v. L.A. Tucker Truck Lines, 344 U.S. 33  (1952), that a defect in the
appointment of an "examiner"  (precursor of today's ALJ) was, if
properly raised, "an irregu- larity which would invalidate a resulting
order." Id. at 38.  Thus, to refuse to entertain Landry's claim is to
rule, in  effect, that officers holding purely recommendatory powers 
subject to de novo review are not "inferior officers," i.e., it is  to
resolve the merits without purporting to do so.


For this reason our decision here is not inconsistent with  Doolin v.
OTS, 139 F.3d 203 (D.C. Cir. 1998). There we  relied on Mechanik, 475
U.S. at 70-71, to conclude that  although enforcement proceedings
culminating in a "cease  and desist order" were initiated by an
improperly appointed  Director of the OTS and therefore defective, the
ultimate  issuance of the final merits order by a properly appointed 
Director ratified the initiation and cured the error. Doolin  139 F.3d
at 212-14. But Doolin did not present the catch-22  of the present
case, where the government's argument re- quires one to believe that,
even if we assume that a pure  power to recommend is enough to lift an
employee into the  august "inferior officer" realm, it is not enough
to taint the  ultimate judgment and thus give the loser a chance to
raise  the issue.


Finally, we note that in United States v. Colon-Munoz, 192  F.3d 210
(1st Cir. 1999), the First Circuit said that "structur- al" has two
meanings, referring not only to errors related to  the constitutional
structure but also to ones simply deemed so  "fundamental" as to
deprive a criminal trial of basic fairness.  Id. at 217-18 n.9. The
court used the distinction to justify  not applying Freytag's
rejection of the waiver argument, a  problem not before us. But
Colon-Munoz never passed on  the issue that is before us--whether an
issue that is structur- al in the sense that it derives from the
constitutional struc- ture can be reviewed even where the link between
the error  and the party's harm is conjectural.


We now turn to whether a violation of the Appointments  Clause
occurred. The line between "mere" employees and  inferior officers is
anything but bright. See Nick Bravin,  Note, Is Morrison v. Olson
Still Good Law? The Court's  New Appointments Clause Jurisprudence, 98
Colum. L. Rev.  1103, 1114-15 (1998) ("Early Supreme Court attempts to
 define the term 'officer' provide inexact, if any, judicially 
manageable standards"); Edward Susolik, Note, Separation  of Powers
and Liberty: The Appointments Clause, Morrison  v. Olson, and Rule of
Law, 63 S. Cal. L. Rev. 1515, 1545  (1990) ("[A] definitive
understanding of the term 'officer' is  not forthcoming for two simple
reasons: (1) there are too few  cases for any consistent precedential
principle to be articulat- ed, and (2) the few cases that do exist
posit conclusions rather  than arguments and provide little insight to
justify their  results."). In fact, the earliest Appointments Clause
cases  often employed circular logic, granting officer status to an 
official based in part upon his appointment by the head of a 
department. See, e.g., United States v. Mouat, 124 U.S. 303,  307
(1888) ("Unless a person in the service of the Government  ... holds
his place by virtue of an appointment by the  President, or of one of
the courts of justice or heads of  Departments authorized by law to
make such an appointment,  he is not, strictly speaking, an officer of
the United States");  United States v. Germaine, 99 U.S. 508, 510
(1878); United  States v. Hartwell, 73 U.S. (6 Wall) 385, 393 (1867).
In an  attempt to clarify the inquiry, the Court has often said that 
"any appointee exercising significant authority pursuant to  the laws
of the United States is an 'Officer of the United  States,' " Buckley
v. Valeo, 424 U.S. 1, 126 n.162 (1976); see  also Edmond v. United
States, 520 U.S. 651, 662 (1997);  Ryder v. United States, 515 U.S.
177 (1995); Freytag, 501  U.S. at 881-82,2 but ascertaining the test's




__________

n 2 In its Order, the Board seemed to agree with Landry that the  ALJs
were inferior officers but found this status irrelevant because  the
federal banking agencies are "departments" capable of accept- ing
Congress's delegation of appointment power. The FDIC has  abandoned
its apparent concession and now argues that the ALJs  are not inferior
officers. Because we agree that the ALJs in 


requires a look at the roles of the employees whose status  was at
issue in other cases.


In the most analogous case, Freytag, the Court decided  that STJs were
inferior officers. 501 U.S. at 881-82. In so  finding, the Court
relied on authority of the STJs not  matched by the ALJs here. In
particular, the Court noted  that STJs have the authority to render
the final decision of  the Tax Court in declaratory judgment
proceedings and in  certain small-amount tax cases. See id. at 882.
But the  ALJs here can never render the decision of the FDIC. See  12
CFR s 308.38 (noting that ALJs must file a "recom- mended decision,
recommended findings of fact, recom- mended conclusions of law, and
[a] proposed order" (emphasis  added)). Final decisions are issued
only by the FDIC Board  of Directors. See 12 CFR s 308.40(a), (c).
Moreover, even  for the non-final decisions of the type made by the
STJ in  Freytag, the Tax Court was required to defer to the STJ's 
factual and credibility findings unless they were clearly erro- neous,
see Tax Court Rule 183(c), 26 U.S.C. App. (1994);  Stone v.
Commissioner, 865 F.2d 342, 344-47 (D.C. Cir. 1989),  whereas here the
FDIC Board makes its own factual findings,  see 12 U.S.C. s
1818(h)(1); 12 CFR s 308.40(c); see also In  re Landry, FDIC-95-65e,
1999 WL 639568, at *1 (FDIC July  8, 1999) (noting that the FDIC had
given Landry's case "an  exhaustive de novo review"). Landry argues
that the FDIC  Board did not undertake a de novo review of his case,
but his  characterization of the FDIC's work goes only to its careful-


It is, to be sure, uncertain just what role the STJs' power  to make
final decisions played in Freytag. Many of the  features of the STJ
job that the Court found to contribute to  its being covered by the
Appointments Clause have analogues 




__________

n question are not inferior officers we need not decide whether any of 
the federal banking agencies are in fact "departments" for purposes 
of the Appointments Clause. Moreover, because the issue before us 
does not depend on the FDIC's interpretation of the statute or 
exercise of its discretion, there is no problem under SEC v. Chenery 
Corp., 332 U.S. 194, 196 (1947).


here. The office of STJ was "established by Law" (the  threshold
trigger for the Appointments Clause) and the  "duties, salary, and
means of appointment" for the office were  specified by statute, a
factor that has proved relevant in the  Court's Appointments Clause
jurisprudence. Freytag, 501  U.S. at 881. The ALJ position here is
also "established by  Law," as are its specific duties, salary, and
means of appoint- ment. See 5 U.S.C. s 5372 (pay scales for ALJs); 5
U.S.C.  s 3105 (hiring practices); 5 U.S.C. ss 556-557 (functions); 12
 CFR pt. 308 (same). Similarly, both the ALJs here and the  STJs in
Freytag "take testimony, conduct trials, rule on the  admissibility of
evidence, and have the power to enforce  compliance with discovery
orders." Freytag, 501 U.S. at 881- 82. And, the Court observed, "In
the course of carrying out  these important functions, the special
trial judges exercise  significant discretion," id. at 882, rather a
magic phrase under  the Buckley test. Further, the Court introduced
mention of  the STJs' power to render final decisions with something
of a  shrug: "Even if the duties" of STJs involving conduct of non-
final proceedings "were not as significant as we and the two  courts
[Tax Court and Fifth Circuit] have found them to be,  our conclusion
would be unchanged." Id. Only then did it go  on to discuss the STJs'


Nonetheless, in another way the Court laid exceptional  stress on the
STJs' final decisionmaking power. After noting  those powers, the
Court went on to explain why Freytag  could raise the claim even
though in his case the STJ had not  been exercising them:


Special trial judges are not inferior officers for purposes  of some of
their duties under [the enabling statute], but  mere employees with
respect to other responsibilities.  The fact that an inferior officer
on occasion performs  duties that may be performed by an employee not
sub- ject to the Appointments Clause does not transform his  status
under the Constitution.


Id. All this explanation would have been quite unnecessary if  the
purely recommendatory powers were fatal in themselves.  Accordingly,
we believe that the STJs' power of final decision 


in certain classes of cases was critical to the Court's decision.  As
the ALJs hired pursuant to s 916 of FIRREA have no  such powers, we
conclude that they are not inferior officers.


Privilege and Brady/Jencks claims


During pre-trial discovery the FDIC asserted claims of  deliberative
process, law enforcement, and attorney-client  privilege in various
permutations to justify withholding 97  documents. As required by the
FDIC's rules, see 12 CFR  s 308.25(e), FDIC enforcement counsel
produced a privilege  log which briefly described each document and
indicated its  date, author, and recipient and the privileges claimed.
In  addition, enforcement counsel produced the affidavit of Cott- rell
L. Webster, the Memphis regional director of the FDIC's  division of
supervision, claiming to have personally reviewed  each of the
withheld documents, formally invoking the law  enforcement and
deliberative process privileges, and explain- ing how each privilege


The ALJ rejected an initial effort to compel production of  the
documents, and the FDIC denied interlocutory review.  It specifically
rejected Landry's claim that there were docu- ments that Brady v.
Maryland, 373 U.S. 83 (1963), required  the FDIC to disclose. In doing
so it observed that enforce- ment counsel's assurance that no such
withheld documents  existed was enough to defeat Landry's claims in
the absence  of some source of doubt rising above Landry's unadorned 
"suspicions." The ALJ also denied several requests to com- pel
production made during the hearing itself. But when the  hearing was
over, the FDIC Executive Secretary ordered  that the record be
reopened and that FDIC enforcement  counsel submit a more detailed
privilege log. After reviewing  the revised privilege log, the Board
upheld the assertion of  privilege for 44 of the documents but
reopened the record a  second time and ordered enforcement counsel to
produce the  remaining 46 documents (seven had been produced to Landry
 for other reasons) for in camera inspection.


After reviewing the newly submitted documents, the Board  found most of
them not to be privileged but did not order 


disclosure because it found the error harmless in light of the 
cumulative nature of the information withheld. See Order at  5-6,
51-52, J.A. at 223-24, 268-69. The FDIC Board did not  address any of
Landry's claims under Jencks v. United  States, 353 U.S. 657 (1957).
Because the FDIC had not ruled  on Landry's Brady and Jencks claims
for the documents that  it did not review in camera, we ordered the
FDIC to produce  these documents so that we could decide whether
material  had been withheld improperly.


Privilege. We begin with Landry's challenges to the  FDIC's claims of
privilege. His most substantial argument is  that the deliberative
process and law enforcement privileges  were not properly invoked.
Assertion of either of these  qualified, common law executive
privileges requires: (1) a  formal claim of privilege by the "head of
the department"  having control over the requested information; (2)
assertion  of the privilege based on actual personal consideration by
that  official; and (3) a detailed specification of the information
for  which the privilege is claimed, with an explanation why it 
properly falls within the scope of the privilege. See In re  Sealed
Case, 856 F.2d 268, 317 (D.C. Cir. 1988) (noting the  requirements for
invoking the law enforcement privilege);  Northrop Corp. v. McDonnell
Douglas Corp., 751 F.2d 395,  399 (D.C. Cir. 1984) (same for
deliberative process privilege).  Landry's argument is that assertion
merely by the Memphis  regional director of the FDIC's division of
supervision, Cott- rell L. Webster, rather than by the head of the


The argument mistakenly assumes that only assertion by  the head of the
overall department or agency is enough. Our  cases hold to the
contrary. In Tuite v. Henry, 98 F.3d 1411  (D.C. Cir. 1996), we
allowed Counsel to the Justice Depart- ment's Office of Professional
Responsibility, rather than the  Attorney General herself, to assert
the law enforcement  privilege for information obtained during
investigations of  potentially illegal Justice Department recordings
of conversa- tions between a defendant and his lawyer. See id. at
1417.  Similarly, in Friedman v. Bache Halsey Stuart Shields, Inc., 
738 F.2d 1336 (D.C. Cir. 1984), in rejecting enforcement 


counsel's assertion of the law enforcement privilege, we im- plied that
officials other than the head of the department  could assert the
privilege, stating: "the files had not been  examined for this purpose
by responsible members or officers  of CFTC." Id. at 1342 (emphasis
added); see also Kerr v.  United States Dist. Ct. for North. Dist. of
Cal., 511 F.2d 192,  198 (9th Cir. 1975) (finding common law executive
privilege  inapplicable because "[n]either the Chairman of the
[Califor- nia Adult] Authority nor the Director of Corrections nor any
 official of these agencies asserted, in person or writing, any 
privilege in the district court" (emphasis added)), aff'd, 426  U.S.
394 (1976). District courts in this Circuit have also  allowed lesser
officials to assert these privileges. See, e.g.,  Koehler v. United
States, 1991 WL 277542, at *5 (D.D.C. Dec.  9, 1991) (allowing the
head of the U.S. Army Criminal Investi- gation Command to assert
privilege); Alexander v. FBI, 186  F.R.D. 154, 166 (D.D.C. 1999)
(implying that affidavits of FBI  general counsel or inspector general
would have been suffi- cient if they had provided enough information
to assess  whether the law enforcement privilege applied).


For these privileges, it would be counterproductive to read  "head of
the department" in the narrowest possible way. The  procedural
requirements are designed to "ensure that the  privilege[s are]
presented in a deliberate, considered, and  reasonably specific
manner." In re Sealed Case, 856 F.2d at  271. As we have seen, built
into the requirements is the need  for "actual personal consideration"
by the asserting official.  Id. Insistence on an affidavit from the
very pinnacle of  agency authority would surely start to erode the
substance of  "actual personal" involvement. See generally Note, The
Mili- tary and State Secrets Privilege: Protection for the National 
Security or Immunity for the Executive?, 91 Yale L.J. 570,  572 n.18
(1982) (noting widespread belief that official claims of  privilege by
department heads are often made after perfunc- tory review of
subordinates' decisions). Further, both privi- leges advance important
goals; the gains from imposing  demands in the interest of careful
assertion must be balanced  against the losses that would result of


stringent procedures. See United States Dep't of Energy v.  Brett, 659
F.2d 154, 155-56 (Temp. Emer. Ct. App. 1981).


Under our cases, the head of the appropriate regional  division of the
FDIC's supervisory personnel is of sufficient  rank to achieve the
necessary deliberateness in assertion of  the deliberative process and
law enforcement privileges.


We note that decisions involving the more sensitive and  absolute
privilege for state and military secrets have been  more insistent on
assertion at the highest level. See, e.g.,  United States v. Reynolds,
345 U.S. 1, 7-8 n.20 (1953) (quot- ing Duncan v. Cammell, Laird & Co.,
[1942] A.C. 624, for the  proposition that the decision to invoke the
state secrets  privilege should be taken by "the minister who is the
political  head of the department"); Clift v. United States, 597 F.2d 
826, 829 (2d Cir. 1979) (declining to require disclosure where  the
Secretary of Defense did not invoke the privilege because  of a
statute criminalizing such disclosure but noting "the  Government
would be wiser not to put courts to this test in  the future"); Kinoy
v. Mitchell, 67 F.R.D. 1, 9-10 (S.D.N.Y.  1975) (requiring Attorney
General himself to lodge a formally  sufficient claim of privilege);
26 Charles Alan Wright &  Kenneth W. Graham, Jr., Federal Practice and
Procedure  s 5670 (1992). We express no opinion on who may assert 


Landry's claim that the FDIC fell fatally short by not  including the
disputed documents in the record is meritless.  See Vaughn v. Rosen,
484 F.2d 820, 825-26 (D.C. Cir. 1973)  (noting the immense and
unjustifiable cost to the appellate  courts of mandatory review of
documents for privileged mate- rial). But see Kerr v. United States
Dist. Ct. for North. Dist.  of Cal., 426 U.S. 394, 405-06 (1976)
(noting that in camera  review may be used to resolve a privilege


Landry also argues that the FDIC waived its privileges by  initiating
this action. He is mistaken. Here he relies on an  erroneous reading
of In re Subpoena Duces Tecum Served on  the OCC, 145 F.3d 1422 (D.C.
Cir.), reh'g granted, 156 F.3d  1279 (D.C. Cir. 1998). In our first
pass at the case, we said  that the deliberative process privilege was
unavailable where 


"the Constitution or a statute makes the nature of govern- mental
officials' deliberations the issue," offering Title VII  cases as an
archetypal instance. See 145 F.3d at 1424. But  when the government in
petition for rehearing expressed  anxiety that any claim of arbitrary
and capricious decision- making would necessarily call the
government's deliberations  into question, we responded by explaining
that "our holding  ... is limited to those circumstances in which the
cause of  action is directed at the agency's subjective motivation."
156  F.3d at 1280. Because an ordinary enforcement action in no  way
implicates the FDIC's subjective motivations, and Lan- dry makes no
credible claims that improper factors motivated  this enforcement
action, there is no waiver.


Brady/Jencks. In its order the FDIC Board assumed  without deciding
that Brady v. Maryland, 373 U.S. 83 (1963),  applies to enforcement
proceedings, and though the Board's  order did not address Jencks v.
United States, 353 U.S. 657  (1957), FDIC counsel assures us that the
FDIC has the same  view of it. Thus we also assume without deciding
that both  cases apply. Cf. Communist Party of the United States v. 
Subversive Activities Control Bd., 254 F.2d 314, 327-28 (D.C.  Cir.
1958) (holding that in agency adjudications in which the  government
has not claimed privilege, written reports made  at the time of an
event must be produced when the credibility  of the witness on matters
discussed in the report is in  question). After reviewing the
documents alleged to contain  Jencks and Brady material, we find no
reason to disturb the  FDIC's order.


We begin with Brady. After Landry requested that the  FDIC produce all
Brady materials, the government informed  the ALJ and the FDIC Board
that it had reviewed the  contested documents and had disclosed all
exculpatory factual  material. Normally we accept the government's
representa- tions as to whether documents in its possession constitute
 Brady material. See Pennsylvania v. Ritchie, 480 U.S. 39,  59 (1987)
(noting that a prosecutor's decision as to whether  exculpatory Brady
information exists or is material is usually  final); United States v.
Lloyd, 992 F.2d 348, 352 (D.C. Cir.  1993) (same). As the FDIC
observed in denying interlocu-


tory review, it takes more than the adverse party's conclusory 
suspicions to impel the adjudicator to delve behind the gov- ernment's
representation that it has conducted a Brady re- view and found


Landry's Jencks claims have more merit. He argues that  the withheld
reports by Jerry Cox and G. Martin Cooper, the  bank examiners who
testified at his hearing, touch upon the  events and activities
discussed in their testimony and there- fore must be produced. See
Jencks, 353 U.S. at 668. Be- cause the FDIC concedes Jencks's
applicability in this case,  Landry has established a prima facie
violation if the docu- ments in question cover the same territory as
the examiners'  testimony. After examining the documents and the
examin- ers' testimony we find that several of them do so. Even so, a 
privilege might beat the Jencks claim. See Norinsberg Corp.  v. USDA,
47 F.3d 1224, 1229 n.5 (D.C. Cir. 1995) (presuming  that, in a license
revocation hearing in which the agency had  adopted the Jencks Act, a
witness's opinions in a report that  formed part of the deliberative
process would be protected  from Jencks Act disclosure); see also
Communist Party, 254  F.2d at 327. But see Jencks, 353 U.S. at 671-72
(noting that  criminal actions must be dismissed when the government 
chooses not to comply with a court order to produce relevant 
statements or reports on the ground of privilege). But the  FDIC here
makes no claim that privilege defeats its Jencks  obligations--though


The FDIC does, however, claim harmless error, and the  claim is sound.
Because these documents merely duplicate  other evidence in the
record, we find the error harmless even  under the strict application
of harmless error used to assess  Jencks violations. See Norinsberg
Corp., 47 F.3d at 1230;  United States v. Lam Kwong-Wah, 924 F.2d 298,
310 (D.C.  Cir. 1991).


Evidence Satisfying the Statutory Standard


The statute authorizes a prohibition or removal order:


Whenever the [FDIC] determines that--


(A) any institution-affiliated party has, directly or indi- rectly--


... (ii) engaged or participated in any unsafe or unsound  practice in
connection with any insured depository insti- tution or business
institution; or


(iii) committed or engaged in any act, omission, or  practice which
constitutes a breach of such party's fidu- ciary duty;


(B) by reason of the violation, practice, or breach de- scribed in ...
subparagraph (A)--


(i) such ... institution ... has suffered or will proba- bly suffer
financial loss or other damage; ... (iii) such party has received
financial gain or other  benefit by reason of such violation ...;


(C) such violation, practice, or breach--


(i) involves personal dishonesty on the part of such  party; or


(ii) demonstrates willful or continuing disregard by  such party for
the safety or soundness of such ...  institution....


12 U.S.C. s 1818(e)(1) (1994). That is, the statute requires: 
misconduct, with certain adverse effects, committed with a  culpable
state of mind. Landry argues that each of these  three factors is


Misconduct. The Board ruled that Landry's actions consti- tuted both
unsafe and unsound banking practices under  s 1818(e)(1)(A)(ii) and
breaches of his fiduciary duty under  s 1818(e)(1)(A)(iii). Because
there is significant overlap be- tween the two categories, see Kaplan
v. OTS, 104 F.3d 417,  421 & n.2 (D.C. Cir. 1997) (recognizing that
both involve  undue risk and that a fiduciary breach can qualify as an
 unsafe or unsound practice), it is unsurprising that the Board  found
that most of Landry's misconduct fit into both catego- ries. Landry
argues that fiduciary breach is a matter of state 


rather than federal law, an issue we left open in Kaplan v.  OTS, 104
F.3d 417, 421 n.2 (D.C. Cir. 1997); see also Atherton  v. FDIC, 519
U.S. 213, 217-26 (1997), as we do again today:  the evidence is enough
to show his participation in unsafe or  unsound practices.


In Kaplan we suggested that an "unsafe or unsound prac- tice" was one
that posed a "reasonably foreseeable" "undue  risk to the
institution." 104 F.3d at 421. Other courts seem  to have agreed,
using slightly different language. The Third  Circuit in In re
Seidman, 37 F.3d 911 (3d Cir. 1994), for  example, said that an
"imprudent act ... pos[ing] an abnor- mal risk to the financial
stability of the banking institution"  would qualify. Id. at 928. We
trust that "undue" risks are  abnormal in the banking industry, so we
see no difference  there. Plunging ahead with such a risk where its
character is  "reasonably foreseeable" surely constitutes the


The acts attributable to Landry meet both parts of the test.  The ALJ's
and the Board's findings leave no doubt as to their  imprudence. After
a thorough review of the transactions we  summarized above, the Board
correctly concluded: "The list  of misguided and aborted projects and
relationships that  management entered into with minimal information
and virtu- ally no expertise is shocking." That these activities
exposed  the Bank to abnormal risk is also unassailable. Conduct 
attributable to Landry included substantial involvement in at  least
one large loan to an uncreditworthy out-of-territory  borrower,
long-term contracts with consultants whose fees  were "proportionately
greater than the services rendered,"  and the use of Bank funds for
travel and related expenses in  pursuit of breathtakingly
irresponsible schemes. In the  Bank's weakened condition, these
expenditures created an  undue and abnormal risk of insolvency. As the


[R]ather than preserve the Bank's few remaining assets,  Landry chose
to dissipate them in furtherance of his  personal takeover of the
Bank.


... [Landry] failed to disclose that Bank funds were  being spent in
furtherance of Pangaea and IAIS [a  partnership intended to be used
for the immigration law  scheme]. He failed to disclose the contracts
and certain  uncreditworthy loans to which he or Jenson had commit-
ted the Bank, or the fee-splitting arrangements, which  benefited him
and Pangaea to the Bank's detriment.


Order at 26, J.A. at 243.


Landry argues that the continuing profitability of the Bank  during the
relevant period forecloses a finding of undue risk,  but in so arguing
he misconstrues the concept of risk, which  is independent of the
outcome in a particular case. Just as a  loss, without more, does not
prove that an act posed an  abnormal risk, see Johnson v. OTS, 81 F.3d
195, 204 (D.C.  Cir. 1996), a profit does not establish its absence.


Effects. The Board found that Landry's misdeeds had the  forbidden
effects, see Order at 29-30, J.A. at 246-47, because  they caused both
financial loss to the Bank, see 18 U.S.C.  s 1818(e)(1)(B)(i), and
personal financial gain for Landry, see  id. s 1818(e)(1)(B)(iii). The
losses consisted of $278,000 in  expenses paid by the Bank in
promoting Pangaea, and  $174,900 in loan write-offs. Order at 29, J.A.
at 246. (Al- though relatively small in relation to large-scale
banking  transactions, these expenses constitute over 12% of the 
amount ultimately used to recapitalize the bank.) Landry  argues that
none of the loans that yielded losses are properly  attributed to him,
but his method is simply to show that most  of the misconduct at issue
consisted of actions more directly  attributable to his
co-incorporators. Section 1818(e) autho- rizes punishment for actions
taken "directly or indirectly."  So long as the misconduct at issue
meets the stringent  preconditions for a removal order it doesn't
matter that  Landry engaged in many of the proscribed acts only
indirect- ly, though knowingly, and certainly not that others may have


Landry also argues that his expenses cannot be considered  losses
because they were approved by the appropriate Bank  officers and the
Bank's shareholders. But these approvals  were tainted, even assuming
they could otherwise salvage the 


expenses. Landry's own letters show that he understood that  his
expenses and those of his co-incorporators were incurred  on behalf of
Pangaea to the detriment of the Bank, without  the shareholders'
having understood the fact.


Culpability. The Board found that Landry's misconduct  doubly satisfied
the culpability prong because it involved both  personal dishonesty,
see 12 U.S.C. s 1818(e)(1)(C)(i), and  willful or continuing disregard
for the safety or soundness of  the Bank, see id. s
1818(e)(1)(C)(iii). The courts of appeals  that have examined the
question are in agreement that both  standards of culpability require
some showing of scienter.  See Kim v. OTS, 40 F.3d 1050, 1054-55 (9th
Cir. 1994)  (collecting cases). We have no trouble upholding the
finding  of personal dishonesty. In his letters and deposition
testimo- ny Landry repeatedly admitted that he solicited money for 
Pangaea in the guise of seeking capital for the Bank. See  Order at
31-32, J.A. at 248-49. Knowing participation in a  scheme that used
the Bank's funds for personal gain while  representing the scheme as
the Bank's own, above-board plan  to recapitalize itself qualifies as
personal dishonesty. See  Greenberg v. Board of Governors of the Fed.
Reserve Sys.,  968 F.2d 164, 171 (2d Cir. 1992) (finding that failure
to  disclose insider transactions provided ample support for a 
finding of personal dishonesty); Van Dyke v. Board of Gover- nors of
the Fed. Reserve Sys., 876 F.2d 1377, 1379 (8th Cir.  1989) (accepting
the Board's definition of personal dishonesty  which included
"deliberate deception by pretense and stealth"  and "want of fairness
and [straightforwardness]" (alteration  in original)).


Landry offers two arguments against this finding. First,  he claims
that a requirement that a bank control transaction  must secure
approval by the bank's directors and by regu- lators "provide[s] the
ultimate assurance of fairness that  precludes a sanction against
Landry," citing Kaplan, 104 F.2d  at 424. In Kaplan, however, we said
only that when a  director cast a vote in favor of an arguably risky
transaction,  his anticipation of the need for board and regulatory
approval  afforded "reasonable assurance that an unfair transaction 
would not take place." Id. There the vote was completely 


independent of a later scheme by others to circumvent the  OTS's and
the S&L board's approval processes. Id. at 422.  Here, Landry and his
co-incorporators' conduct, when viewed  ex ante, was far from
blameless. Instead, it accomplished the  step missing in Kaplan by
disguising wrongdoing from the  regulators and the Bank's board of
directors and directly  misleading both.


Second, Landry argues, once again, that the Bank's approv- al of his
expenses, and the failure of its board of directors and  the FDIC to
seek to remove him after fully initially examin- ing the transactions
at issue here, proves that he did not act  dishonestly. But neither
the independent audits commis- sioned by the Bank after the
recapitalization, nor Landry's  cooperation with the 1993 examination,
eliminate his prior  involvement as a co-incorporator and participant
in the  scheme. His later honesty, forthrightness, and integrity are 
to be commended, and his continued employment at the Bank  show that
its management found that his role in the Pangaea  scheme was
outweighed by the benefits he offered the Bank.  But we do not have
the power to substitute our judgment--or  the Bank's management's--for
that of the FDIC. Once we  conclude that Landry's conduct satisfies
the statutory precon- ditions, we must uphold its decision.


Landry also argues that the FDIC reached its decision  without taking
account of exculpatory evidence. It is well  established that the
substantial evidence rule requires consid- eration of the evidence on
both sides; evidence that is sub- stantial viewed in isolation may
become insubstantial when  contradictory evidence is taken into
account. See Universal  Camera Corp. v. NLRB, 340 U.S. 474, 488
(1951); Johnson v.  OTS, 81 F.3d 195, 204 (D.C. Cir. 1996). But here
the  evidence to which Landry points is not exculpatory; it shows  no
more than that Landry had a lesser role than others in the  individual
actions taken in furtherance of the illegal scheme  and that many of
his actions were approved by the Bank.  The FDIC Board did consider
these factors, however, and its  findings on all relevant facts are
adequately supported by  record evidence, including Landry's own


Last, Landry says that the Board failed to provide ade- quate record
citations for its factual findings. Indeed, Lan- dry is correct that
several critical findings lack record cita- tion. Such omissions might
render an agency's reasoning  incomprehensible, possibly requiring a
remand. See general- ly SEC v. Chenery Corp., 332 U.S. 194, 196 (1947)
("If the  administrative action is to be tested by the basis upon
which  it purports to rest, that basis must be set forth with such 
clarity as to be understandable."). But here the FDIC Board 
explicitly adopted the ALJ's findings of fact which, in turn, 
contained ample record citations for the factual findings that  Landry


* * *


For the foregoing reasons, Landry's petition for review is


Denied.


Randolph, Circuit Judge, concurring in part and concur- ring in the
judgment: I join the court's opinion except for its  disposition of
Landry's claim under the Appointments Clause  of the Constitution. In
my view, Freytag v. Commissioner,  501 U.S. 868 (1991), cannot be
distinguished. The Adminis- trative Law Judge who presided over
Landry's case was as  much an "inferior Officer" under Article II, s
2, cl. 2 of the  Constitution as the special trial judge in Freytag. I
never- theless would sustain the FDIC's decision and order because 
Landry suffered no prejudicial error.


Rather than paraphrase the critical portion of Freytag, I  will quote
it in full:


Petitioners argue that a special trial judge is an "inferior 
Office[r]" of the United States....


The Commissioner, in contrast to petitioners, argues  that a special
trial judge ... acts only as an aide to the  Tax Court judge
responsible for deciding the case. The  special trial judge, as the
Commissioner characterizes his  work, does no more than assist the Tax
Court judge in  taking the evidence and preparing the proposed
findings  and opinion. Thus, the Commissioner concludes, special 
trial judges ... are employees rather than "Officers of  the United


"[A]ny appointee exercising significant authority pur- suant to the
laws of the United States is an 'Officer of  the United States,' and
must, therefore, be appointed in  the manner prescribed by s 2, cl. 2,
of [Article II]."  Buckley [v. Valeo, 424 U.S. 1, 126 (1976)]. The two
courts  that have addressed the issue have held that special trial 
judges are "inferior Officers." The Tax Court so con- cluded in First
Western Govt. Securities, Inc. v. Commis- sioner, 94 T.C. 549, 557-559
(1990), and the Court of  Appeals for the Second Circuit in Samuels,
Kramer &  Co. v. Commissioner, 930 F.2d 975, 985 (1991), agreed.  Both
courts considered the degree of authority exercised  by the special
trial judges to be so "significant" that it  was inconsistent with the
classifications of "lesser func- tionaries" or employees. Cf. Go-Bart
Importing Co. v.  United States, 282 U.S. 344, 352-353 (1931) (United 
States commissioners are inferior officers). We agree 


with the Tax Court and the Second Circuit that a special  trial judge
is an "inferior Office[r]" whose appointment  must conform to the
Appointments Clause.


The Commissioner reasons that special trial judges  may be deemed
employees in subsection (b)(4) cases  because they lack authority to
enter a final decision. But  this argument ignores the significance of
the duties and  discretion that special trial judges possess. The
office of  special trial judge is "established by Law," Art. II, s 2, 
cl. 2, and the duties, salary, and means of appointment  for that
office are specified by statute. See Burnap v.  United States, 252
U.S. 512, 516-517 (1920); United  States v. Germaine, 99 U.S. 508,
511-512 (1879). These  characteristics distinguish special trial
judges from spe- cial masters, who are hired by Article III courts on
a  temporary, episodic basis, whose positions are not estab- lished by
law, and whose duties and functions are not  delineated in a statute.
Furthermore, special trial  judges perform more than ministerial
tasks. They take  testimony, conduct trials, rule on the admissibility
of  evidence, and have the power to enforce compliance with  discovery
orders. In the course of carrying out these  important functions, the
special trial judges exercise  significant discretion.


Even if the duties of special trial judges [just de- scribed] were not
as significant as we and the two courts  have found them to be, our
conclusion would be un- changed [because they may be assigned to
conduct other  types of proceedings and render independent judg-
ments].... Special trial judges are not inferior officers  for
purposes of some of their duties ... but mere  employees with respect
to other responsibilities.


501 U.S. at 880-82.


There are no relevant differences between the ALJ in this  case and the
special trial judge in Freytag. Both held offices  "established by
Law," Art. II, s 2, cl. 2; 501 U.S. at 881. In  both instances, "the
duties, salary, and means of appointment  for that office are
specified by statute." Id.; see maj. op. at 


12. Both "take testimony, conduct trials, rule on the admissi- bility
of evidence, and have the power to enforce compliance  with discovery
orders." 501 U.S. at 881-82; Samuels, 930  F.2d at 986; see 12 C.F.R.
s 308.5 (defining the ALJ's  duties). "In the course of carrying out
these important  functions," both the special trial judge in Freytag
and the  ALJ in this case "exercise significant discretion." 501 U.S.
at  882.


The majority attempts to distinguish Freytag on two  grounds. Neither
survives close attention. First, the majori- ty says that the Tax
Court, in reviewing the special trial  judge's "non-final decision" in
Freytag, gave deference to  factual and credibility findings pursuant
to Tax Court Rule  183(c), whereas the FDIC reviewed the ALJ's
decision de  novo. Maj. op. at 11. It would be odd for the
constitutional  status of a special trial judge to depend on an
internal rule of  procedure, particularly since the Tax Court had
discretion to  pick whatever standard of review it saw fit. See 26
U.S.C.  s 7443A(c). Odd or not, the Supreme Court in Freytag  decided
that Tax Court Rule 183 and its deferential standard  were "not
relevant to our grant of certiorari"--and the Court  granted the writ,
so it explained, in order "to resolve the  important questions the
litigation raises about the Constitu- tion's structural separation of
powers." 501 U.S. at 874 n.3,  873.1 The majority's first distinction
of Freytag is thus no  distinction at all. The fact that an ALJ cannot
render a final  decision and is subject to the ultimate supervision of




__________

n 1 There was doubt, despite this court's decision in Stone v. 
Commissioner, 865 F.2d 342, 344-47 (D.C. Cir. 1989), whether the  Tax
Court had authority to provide by rule that it would give  deference
to special trial judge decisions rendered after an assign- ment
pursuant to 26 U.S.C. s 7443A(b)(4). The Tax Court derived  its
rulemaking authority from s 7443A(c), but on its face that  provision
applied only to assignments under (b)(1) through (b)(3).  Hence, the
petitioners in Freytag argued that "Congress did not  intend for Tax
Court supervision of special trial judge findings and  opinions in
(b)(4) cases to be appellate in nature." Brief for  Petitioners, 1991
WL 521270, at *22, Freytag v. Commissioner, 501  U.S. 868 (1991) (No.
90-762). The Supreme Court avoided deciding  the issue by deeming Rule
183 irrelevant to its disposition.


FDIC shows only that the ALJ shares the common character- istic of an
"inferior Officer." "[W]e think it evident that  'inferior officers'
are officers whose work is directed and  supervised at some level by
others who were appointed by  Presidential nomination with the advice
and consent of the  Senate." Edmond v. United States, 520 U.S. 651,
663 (1997).


According to the majority opinion, the second difference  between this
case and Freytag is that here the ALJ can never  render final
decisions of the FDIC, whereas special trial  judges could, in cases
other than the sort involved in Freytag,  render a final decision of
the Tax Court. See maj. op. at 11,  12-13. It is true that the Supreme
Court relied on this  consideration; the last paragraph of the opinion
quoted above  indicates as much. What the majority neglects to mention
is  that the Court clearly designated this as an alternative hold-
ing. The Court introduced its alternative holding thus:  "Even if the
duties of special trial judges [just described]  were not as
significant as we and the two courts have found  them to be, our
conclusion would be unchanged." 501 U.S. at  882 (italics added). What
"conclusion" did the Court have in  mind? The conclusion it had
reached in the preceding para- graphs--namely, that although special
trial judges may not  render final decisions, they are nevertheless
inferior officers  of the United States within the meaning of Article
II, s 2, cl.  2. The same conclusion, the same holding, had also been 
rendered in Samuels, Kramer & Co. v. Commissioner, 930  F.2d 975, 986
(2d Cir. 1991), a decision the Supreme Court  cited and expressly
approved. See 501 U.S. at 881. There  the Second Circuit held that a
special trial judge performing  the same advisory function as the
judge in Freytag was an  inferior officer; the court of appeals did
not mention the fact  that in other types of cases, the judge could




__________

n 2 The Second Circuit reached this conclusion for the same reasons 
given in the third full paragraph of Freytag quoted in the text:


The special trial judges are more than mere aids to the judges  of the
Tax Court. They take testimony, conduct trials, rule on 


That the ALJ in this case is an inferior officer thus follows  from
Freytag. It follows also from the Supreme Court's  recognition that
the role of the modern administrative law  judge "is 'functionally
comparable' to that of a judge.... He  may issue subpoenas, rule on
proffers of evidence, regulate  the course of the hearing, and make or
recommend decisions.  See [5 U.S.C.] s 556(c)." Butz v. Economou, 438
U.S. 478,  513 (1978) (emphasis added). Furthermore, the ALJ, in 
proposing findings of fact and a recommended decision, which  the FDIC
reviewed de novo,3 performed functions essentially  like those of a
federal magistrate assigned to conduct a  hearing and to submit
proposed findings and recommenda- tions to a district judge. See 28
U.S.C. s 636(b)(1)(B). When  there is an objection to a magistrate's
findings and recom- mendations, the district judge--like the
FDIC--must conduct  de novo review. See 28 U.S.C. s 636(b)(1)(C).
Nonetheless,  it has long been settled that federal magistrates are
"inferior  Officers" under Article II, which is why they are appointed
by  "Courts of Law" under 28 U.S.C. s 631. See Rice v. Ames,  180 U.S.
371, 378 (1901); Go-Bart Importing Co. v. United  States, 282 U.S.
344, 352-54 (1931); Pacemaker Diagnostic 




__________

n the admissibility of evidence, and have the power to enforce 
compliance with discovery orders. Contrary to the contentions  of the
Commissioner, the degree of authority exercised by  special trial
judges is "significant." See Buckley [v. Valeo, 424  U.S. 1, 126
(1976)]. They exercise a great deal of discretion and  perform
important functions, characteristics that we find to be  inconsistent
with the classifications of "lesser functionary" or  mere employee.
Cf. Go-Bart Importing Co. v. United States,  282 U.S. 344, 352 (1931)
(United States commissioners are  inferior officers).


930 F.2d at 986.


3 De novo review does not mean that the ALJ's recommended  decisions
are without influence. In this case the FDIC "affirm[ed]  the
recommendation of the ALJ and adopt[ed] his Recommended  Decision,
Findings of Fact and Conclusions of Law, as discussed  herein." In re
Landry, FDIC-95-65e, 1999 WL 440608, at *4  (FDIC May 25, 1999).


Clinic v. Instromedix, 725 F.2d 537, 545 (9th Cir. 1984) (en  banc).


Because the ALJ in this case was an "inferior Officer," the  next
question would ordinarily be whether he was duly ap- pointed by the
President, a Court of Law, or the Head of a  Department, as Article II
requires. The FDIC assumed that  the ALJ was an inferior officer and
ruled that he was  properly appointed, having been hired by the Office
of Thrift  Supervision and assigned to this case by the Office of 
Financial Institution Adjudication. See In re Landry,  FDIC-95-65e,
1999 WL 440608, at *28 & n.37 (FDIC May 25,  1999). In this court, the
FDIC has given up on this claim.  For reasons it did not explain, it
expressly abandoned the  argument that the ALJ was appointed by the
head of a  department. See Brief for Respondent at 48 n.32. I accept 
that as a waiver of the defense. It is true that "one who  makes a
timely challenge to the constitutional validity of the  appointment of
an officer who adjudicates his case is entitled  to a decision on the
merits of the question and whatever relief  might be appropriate if a
violation indeed occurred." Ryder  v. United States, 515 U.S. 177,
182-83 (1995). But I do not  take this salutary rule to mean that a
court may not accept a  concession from the party defending the


The remaining question then is what relief is appropriate.  Given the
FDIC's de novo review and the majority's thorough  rejection of
Landry's various claims of error,4 I am persuaded  that he suffered no
prejudice. The Administrative Procedure  Act contains a harmless error
rule. See 5 U.S.C. s 706;  Doolin Sec. Sav. Bank, F.S.B. v. Office of
Thrift Supervision,  139 F.3d 203, 212 (D.C. Cir. 1998). The majority
suggests 




__________

n 4 On some points, the FDIC supplied different rationales to reach 
the same conclusions as the ALJ and on other matters the FDIC  reached
different conclusions. See, e.g., In re Landry, 1999 WL  440608, at
*33 (ordering release of certain documents withheld by  the ALJ under
the due process privilege). In the end, the conclu- sive evidence came
from Landry himself. See, e.g., id. at *13-14  (reproducing portions
of Landry's resignation letter to the bank).


that harmless error cannot apply because the constitutional  violation
is "structural" in nature. But as the majority  acknowledges, in none
of the "structural" cases it cites was  there de novo review. See maj.
op. at 8. Still, the majority  reasons that "[i]f the process of final
de novo review could  cleanse the violation of its harmful impact,
then all such  arrangements could escape judicial review." Id. at 8-9.
The  majority is not correct about this. The rule in Ryder, quoted  in
the preceding paragraph, requires us to decide the Ap- pointments
Clause claim first, before we reach the question of  relief. If we had
done so correctly here, our decision would  have been, in effect, a
declaratory judgment that an ALJ  sitting on a case such as this had
to be appointed by the head  of a department. Such a judgment would
have been the  "practical equivalent" of mandamus, as we said in
Sanchez- Espinoza v. Reagan, 770 F.2d 202, 208 n.8 (D.C. Cir. 1985). 
If any litigant in the future wished to challenge the ALJ's  status
before trial, mandamus would lie. Or a litigant could  refuse to
present evidence before an unconstitutional officer,  or refuse to
comply with an ALJ's discovery orders, and  bring the case here for
review after the FDIC acted. See  Morrison v. Olson, 487 U.S. 654, 668
(1988). Then there  would be real prejudice. Here there is none and I
therefore  join in the denial of Landry's petition for judicial