SUPREME COURT OF THE UNITED STATES
HARRY C. CALCUTT, III v.
DEPOSIT INSURANCE CORPORATION
on petition for writ of certiorari to the
united states court of appeals for the sixth circuit
No. 22–714. Decided May 22,
The Federal Deposit Insurance Corporation (FDIC)
brought an enforcement action against petitioner, the former CEO of
a Michigan-based community bank, for mismanaging one of the
bank’s loan relationships in the wake of the “Great
Recession” of 2007–2009. After proceedings before the
agency concluded, the FDIC ordered petitioner removed from office,
prohibited him from further banking activities, and assessed
$125,000 in civil penalties. Petitioner subsequently filed a
petition for review in the Court of Appeals for the Sixth Circuit.
That court determined that the FDIC had made two legal errors in
adjudicating petitioner’s case. But instead of remanding the
matter back to the agency, the Sixth Circuit conducted its own
review of the record and concluded that substantial evidence
supported the agency’s decision.
That was error. It is “a simple but
fundamental rule of administrative law” that reviewing courts
“must judge the propriety of [agency] action solely by the
grounds invoked by the agency.” SEC
, 332 U.S.
, 196 (1947). “[A]n agency’s discretionary order
[may] be upheld,” in other words, only “on the same
basis articulated in the order by the agency itself.”
Burlington Truck Lines, Inc.
v. United States
, 169 (1962). By affirming the FDIC’s sanctions
against petitioner based on a legal rationale different from the
one adopted by the FDIC, the Sixth Circuit violated these commands.
We accordingly grant the petition for certiorari limited to the
first question presented; reverse the judgment of the Sixth
Circuit; and order that court to remand this matter to the FDIC so
it may reconsider petitioner’s case anew in a manner
consistent with this opinion.
Under §8(e) of the Federal Deposit
Insurance Act (FDIA), 12 U. S. C. §1818(e), as
amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, §903, 103Stat. 453, the FDIC may
remove and prohibit individuals from working in the banking sector
if certain conditions are met. First, the FDIC must determine that
an individual committed misconduct. That occurs when, as relevant
here, the individual has “engaged or participated in any
unsafe or unsound practice,” or breached his “fiduciary
duty.” §§1818(e)(1)(A)(ii)–(iii). Second, the
FDIC must find that a bank or its depositors were harmed, or that
the individual personally benefited, “by reason
of ” the individual’s misconduct.
§1818(e)(1)(B). Finally, the individual’s misconduct
must “involv[e] personal dishonesty” or
“demonstrat[e] willful or continuing disregard
. . . for the safety or soundness” of the bank.
In this case, the FDIC brought an enforcement
action under these provisions against petitioner Harry C. Calcutt,
III. From 2000 to 2013, Calcutt served as CEO of Northwestern Bank,
headquartered in Traverse City, Michigan. During Calcutt’s
tenure, the Bank developed a lending relationship with the Nielson
Entities, a group of 19 family-owned businesses that operate in the
real estate and oil industries. In 2009, the lending
relationship—by then, the Bank’s biggest—began to
sour. On September 1 of that year, facing financial difficulties
due to the Great Recession, the Entities stopped paying their loans
outright. At the time, they owed the Bank $38 million.
A few months later, the parties reached a
multistep agreement known as the Bedrock Transaction to bring all
of the Entities’ loans current. That agreement stabilized the
Nielson lending relationship for the following year. But on
September 1, 2010, the Entities again stopped making their loan
payments. Another short-term agreement was reached, allowing the
Entities to continue servicing their debt for the next few months.
But in January 2011, the Entities once more stopped making their
loan payments. They have remained in default ever since.
On April 13, 2012, the FDIC opened an
investigation into the Bank’s officers for their role in the
Nielson matter. The investigation concluded on August 20, 2013, at
which time the agency issued a notice of intention to remove
petitioner as well as two other Bank executives from office, and to
prohibit them from further participation in the banking industry.
The agency also issued a notice of assessment of civil penalties.
The bases for the proposed sanctions were the agency’s
allegations that petitioner had, in violation of §1818(e),
mishandled the Nielson Entities lending relationship in various
ways: The Bedrock Transaction failed to comply with the
Bank’s internal loan policy; the Bank’s board of
directors was misled or misinformed of the nature of the
Transaction; petitioner failed to respond accurately to FDIC
inquiries about the Transaction; and the Transaction was
misreported on the Bank’s financial statements.
On October 29, 2019, an FDIC Administrative Law
Judge (ALJ) began a 7-day evidentiary hearing into
petitioner’s conduct. Petitioner was among one of 12
witnesses who testified. On April 3, 2020, the ALJ issued his
written decision, recommending that petitioner be barred from the
banking industry and be assessed a $125,000 civil penalty based on
his mishandling of the Nielson Loan relationship. Petitioner
appealed the ALJ’s decision to the FDIC Board.
The FDIC Board began its review by determining,
first, whether petitioner had engaged in an unsafe or unsound
banking practice. Such a practice, according to the Board,
“is one that is ‘contrary to generally accepted
standards of prudent operation’ whose consequences are an
‘abnormal risk of loss or harm’ to a bank.” App.
to Pet. for Cert. 150a (quoting Michael
F.3d 337, 352 (CA7 2012)). The Board held that standard satisfied,
concluding that “the record in this matter overwhelmingly
establishes that [petitioner] engaged in numerous unsafe or unsound
practices.” App. to Pet. for Cert. 150a.
The Board then addressed the issue of causation.
In doing so, the Board concluded that an individual “need not
be the proximate cause of the harm to be held liable under section
, at 160a. With that understanding in mind,
the Board found that petitioner had caused the Bank harm in three
ways: First, the Bank had to charge off (i.e.
$30,000 of one of the loans made in the Bedrock Transaction;
second, the Bank suffered $6.4 million in losses on other Nielson
Loans; and third, the Bank incurred investigative, auditing, and
legal expenses in managing the Bedrock Transaction and its fallout.
, at 159a–166a.
Finally, the Board turned to the issue of
culpability. It found that the record “well supported”
the ALJ’s conclusions that petitioner “persistently
concealed . . . the true common nature of the Nielson
Entities Loan portfolio, [and] problems with that portfolio.”
, at 167a–168a. The Board also found that
petitioner “falsely answered questions presented to him
during examinations,” “concealed documents showing the
true condition of the loans,” and “falsely testified
that Board members had been fully apprised of the nature of the
Nielson Loan portfolio.” Ibid.
Based on these findings, the Board issued a
final decision imposing the penalties that the ALJ had recommended.
, at 184a–185a.
Petitioner then filed a petition for review in
the Sixth Circuit, identifying several purported errors in the
Board’s decision. Two are relevant here.
First, petitioner contended that the Board had
misapplied the FDIA’s “by reason of ”
requirement by concluding that a showing of proximate cause was not
needed. 12 U. S. C. §1818(e)(1)(B). The Sixth
Circuit agreed. The court “observed that [t]he Supreme Court
has repeatedly and explicitly held that when Congress uses the
phrase ‘by reason of ’ in a statute, it intends to
require a showing of proximate cause.” 37 F. 4th 293,
329 (2022) (some internal quotation marks omitted); see also
(citing for that proposition Hemi Group, LLC
City of New York
, 559 U.S.
, 9 (2010), and Holmes
v. Securities Investor
, 503 U.S.
, 268 (1992)).
Second, petitioner argued that he had not
proximately caused the harms that the Board had identified or, in
the alternative, that those harms did not qualify as harmful
effects as a matter of law. See §1818(e)(1)(B). The Sixth
Circuit agreed in part. Petitioner had indeed proximately caused
the $30,000 charge off on one of the Bedrock Transaction loans, the
court held, because he had “participated extensively in
negotiating and approving the Bedrock Transaction.” 37
F. 4th, at 330. But the $6.4 million in losses on other
Nielson Loans were a different matter. Petitioner could be held
responsible only for “part” of that harm, the court
explained, because “[t]he Bank probably would have incurred
loss no matter what Calcutt did.” Id.
331. Finally, none of the investigative, auditing, and legal
expenses incurred in dealing with the Nielson Entities could
qualify as harms to the Bank, because those expenses occurred as
part of the Bank’s “normal business.”
Despite identifying these legal errors in the
Board’s analysis, the Sixth Circuit nevertheless affirmed the
Board’s decision by a 2-to-1 vote. The court concluded that
substantial evidence supported the Board’s sanctions
determination, even though the Board never applied the proximate
cause standard itself or considered whether the sanctions against
Calcutt were warranted on the narrower set of harms that the Sixth
Circuit identified. See id.
, at 333–335.
We now reverse.
It is a well-established maxim of
administrative law that “[i]f the record before the agency
does not support the agency action, [or] if the agency has not
considered all relevant factors, . . . the proper course,
except in rare circumstances, is to remand to the agency for
additional investigation or explanation.” Florida Power
& Light Co.
, 470 U.S.
, 744 (1985). A “reviewing court,” accordingly,
“is not generally empowered to conduct a de novo
inquiry into the matter being reviewed and to reach its own
conclusions based on such an inquiry.” Ibid.
the grounds propounded by the agency for its decision “are
inadequate or improper, the court is powerless to affirm the
administrative action by substituting what it considers to be a
more adequate or proper basis.” Chenery
U. S., at 196; see also Smith
U. S. ___, ___ (2019) (slip op., at 15) (“Fundamental
principles of administrative law . . . teach that a
federal court generally goes astray if it decides a question that
has been delegated to an agency if that agency has not first had a
chance to address the question”).
As both petitioner and the Solicitor General
representing respondent agree, the Sixth Circuit should have
followed the ordinary remand rule here. That court concluded the
FDIC Board had made two legal errors in its opinion. The proper
course for the Sixth Circuit after finding that the Board had erred
was to remand the matter back to the FDIC for further consideration
of petitioner’s case. “[T]he guiding principle,
violated here, is that the function of the reviewing court ends
when an error of law is laid bare.” FPC
, 344 U.S.
, 20 (1952); see also Gonzales
, 187 (2006) (per curiam
) (remanding to agency based
on failure by Court of Appeals to “appl[y] the ordinary
remand rule” (internal quotation marks omitted)); INS
v. Orlando Ventura
, 537 U.S.
, 18 (2002) (per curiam
The Sixth Circuit, for its part, believed that
remand was unnecessary because it “would result in yet
another agency proceeding that amounts to ‘an idle and
useless formality.’ ” 37 F. 4th, at 335
v. Wyman-Gordon Co.
, 394 U.S.
, 766, n. 6 (1969) (plurality opinion)). It is true
that remand may be unwarranted in cases where “[t]here is not
the slightest uncertainty as to the outcome” of the
agency’s proceedings on remand. Id.
, at 767,
n. 6. But we have applied that exception only in narrow
circumstances. Where the agency “was required
to take a particular action, we have observed, “[t]hat it
provided a different rationale for the necessary result is no cause
for upsetting its ruling.” Morgan Stanley Capital Group
v. Public Util. Dist. No. 1 of Snohomish Cty.
, 544–545 (2008).
That exception does not apply in this case. The
FDIC was not required
to reach the result it did; the
question whether to sanction petitioner—as well as the
severity and type of any sanction that could be imposed—is a
discretionary judgment. And that judgment is highly fact specific
and contextual, given the number of factors relevant to
petitioner’s ultimate culpability. To conclude, then, that
any outcome in this case is foreordained is to deny the agency the
flexibility in addressing issues in the banking sector as Congress
* * *
The petition for writ of certiorari is granted
limited to the first question presented. The judgment of the Court
of Appeals for the Sixth Circuit is reversed, and the case is
remanded for further proceedings consistent with this opinion.
It is so ordered.