ABA Banking Journal
No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
SUBSCRIBE
ABA Banking Journal
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
No Result
View All Result
No Result
View All Result
ADVERTISEMENT
Home Uncategorized

U.S. Supreme Court reverses FDIC disciplinary order against bank exec

May 31, 2023
Reading Time: 4 mins read

Administrative Review
Calcutt v. Federal Deposit Insurance Corporation
Date: May 22, 2023

Issue: Whether the Sixth Circuit erred in affirming the Federal Deposit Insurance Corporation Board’s disciplinary order against Northwestern Bank executive Harry Calcutt, despite the FDIC Board using an incorrect legal standard.

Case Summary: In an unsigned per curiam opinion, the U.S. Supreme Court reversed a Sixth Circuit decision upholding an FDIC disciplinary order against former Northwestern Bank executive Harry Calcutt.

Under section 8(e) of the Federal Deposit Insurance Act (FDIA), FDIC may ban individuals from the banking industry if certain conditions are met. First, FDIC must determine an individual committed misconduct, which occurs when an individual engaged in an unsafe or unsound practice or breached a fiduciary duty. Second, FDIC must determine a bank or its depositors were harmed, or the individual personally benefited, “by reason of” the individual’s misconduct. Finally, the individual’s misconduct must “involve personal dishonesty” or “demonstrate willful or continuing disregard for the safety or soundness” of the bank.

On Aug. 20, 2013, FDIC announced a notice of intention to remove Calcutt and two other bank executives from office and ban them from banking industry. Calcutt served as CEO of Northwestern Bank in Traverse City, Michigan. During his 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. Northwestern Bank loaned the Nielson Entities over $38 million. But the Nielson Entities defaulted on their loan repayments to Northwestern on multiple separate occasions and had to reach agreements, such as the bedrock transaction, to bring their loans current.

FDIC investigated the bank’s officers for their role in the Nielson matter. FDIC alleged Calcutt violated the FDIA by mishandling the Nielson Entities lending relationship in various ways. According to FDIC: the Bedrock Transaction flouted the bank’s internal loan policy; the bank’s board of directors was misled or misinformed of the nature of the transaction; Calcutt failed to respond accurately to FDIC inquiries about the transaction; and the transaction was misreported on the bank’s financial statements. On Oct. 29, 2019, an FDIC administrative law judge (ALJ) began a seven-day evidentiary hearing into Calcutt’s conduct. The ALJ issued a written decisions recommending Calcutt’s removal from the banking industry and assessed a $125,000 civil penalty.

Afterward, the FDIC Board reviewed the ALJ’s decision. The FDIC Board determined Calcutt engaged in unsafe or unsound banking practices. Addressing causation, the FDIC Board concluded an individual “need not be the proximate cause of the harm to be held liable under section 8(e).” The FDIC Board found that Calcutt caused the bank harm in three ways. First, the bank charged off $30,000 for a bedrock transaction loan. Second, the bank suffered $6.4 million in losses on other Nielson loans. Third, the bank incurred investigative, auditing and legal expenses in managing the bedrock transaction and its fallout. Addressing culpability, the FDIC Board found that Calcutt persistently concealed the truth about the Nielson Entities loan portfolio. Calcutt filed for review in the Sixth Circuit.

In a 2-1 decision, a Sixth Circuit panel affirmed. Calcutt contended the FDIC Board misapplied the FDIAs “by reason of” requirement when it concluded proximate cause is unnecessary to prove liability. The panel agreed, concluding the FDIC Board used an incorrect legal standard to decide to sanction Calcutt. According to the panel, Congress intended a showing of proximate cause in FDIA section 8(e). However, the panel upheld the order against Calcutt, concluding substantial evidence supported the FDIC Board’s sanctions determination, even though it did not apply the proximate cause standard.

The U.S. Supreme Court reversed the panel’s decision, finding the agency’s legal analysis was flawed. The Court emphasized the panel erred by allowing the order against Calcutt to stand, despite the legal error. According to the Court, “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.” The Court explained an agency’s discretionary order must be upheld on the same basis articulated in the order by the agency itself. By affirming FDIC’s sanctions against Calcutt based on a legal rationale different from the one adopted by FDIC in the administrative record, the Court concluded the Sixth Circuit erred.

The Court also declared if the grounds propounded by the agency for its decision are inadequate or improper, a court is powerless to affirm the administrative action by substituting what it considers to be the more proper basis. In the Court’s view, after the Sixth Circuit ruled the FDIC Board erred, the proper course for the Sixth Circuit was to remand the case to FDIC for further consideration. While the Court acknowledged “narrow circumstances” exist where remand is unwarranted, after finding agency error, that exception did not apply. The Court pointed out the decision to sanction Calcutt was “a discretionary judgment” and “highly fact specific and contextual.”

The Court acknowledged remand may be unwarranted when “there is not the slightest uncertainty as to the outcome.” However, the Court emphasized the exception does not apply. The Court explained at the Sixth Circuit, questions remained on whether to sanction Calcutt and the severity and type of sanctions that could be imposed. Further the judgment was highly fact specific and contextual. According to the Court to conclude any outcome was “foreordained” was to deny the agency flexibility in addressing issues in the banking sector as Congress has allowed.

Bottom Line: The Court’s reversal returns the case to the FDIC Board for further review.

Documents: Opinion

ADVERTISEMENT
Tags: Banking Docket
ShareTweetPin

Related Posts

Terrorism and money laundering aggregates published: April through June 2024

Terrorism and money laundering aggregates published: April through June 2025

Uncategorized
July 7, 2025

The FinCEN 314(a) Updates section is published on a periodic basis to better capture the trend line for 314(a) usage. The following is an update from April through June 2025.

Recent news from Treasury’s Office of Foreign Assets Control: April 5

Recent news from Treasury’s Office of Foreign Assets Control: July 7

Uncategorized
July 7, 2025

The Office of Foreign Assets Control announced the following sanctions action last week.

ABA files coalition amicus brief urging Supreme Court to reject class certification for uninjured class members

U.S. Supreme Court declines to address class certification for uninjured members

Uncategorized
July 1, 2025

U.S. Supreme Court dismissed Labcorp’s appeal as “improvidently granted,” effectively letting stand the Ninth Circuit’s ruling that upheld class certification despite including uninjured members.

Capital One agrees to pay $425 million to resolve 360 Performance Savings Account allegations

Virginia federal court trims influencers lawsuit against Capital One

Uncategorized
July 1, 2025

A Virginia federal court partially granted a motion to dismiss filed by a class of social media influencers alleging Capital One’s coupon-search browser extension stole from content creators.

First Circuit rules federal law does not preempt Puerto Rico’s credit card surcharge law

First Circuit rules federal law does not preempt Puerto Rico’s credit card surcharge law

Uncategorized
July 1, 2025

In a unanimous decision, a First Circuit panel ruled that Puerto Rico’s Law 150 is not preempted by the Cash Discount Act or the Durbin Amendment.

U.S. Supreme Court grants petition to examine post-judgment relief in Hamas banking lawsuit

U.S. Supreme Court rejects Hamas victims’ attempt to revive bank lawsuit

Uncategorized
July 1, 2025

In a unanimous decision written by Justice Clarence Thomas, the U.S. Supreme Court ruled that relief under Federal Rule of Civil Procedure 60(b)(6) applies only in “extraordinary circumstances,” even where the movant seeks to reopen a case to...

NEWSBYTES

ABA donates to Texas flood relief efforts, urges bankers to contribute

July 10, 2025

Mortgage rates rise

July 10, 2025

Fed seeks public input on large bank rating system revision

July 10, 2025

SPONSORED CONTENT

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

July 1, 2025
AI Compliance and Regulation: What Financial Institutions Need to Know

Unlocking Deposit Growth: How Financial Institutions Can Activate Data for Precision Cross-Sell

June 1, 2025
Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

April 25, 2025
Outsourcing: Getting to Go/No-Go

Outsourcing: Getting to Go/No-Go

April 5, 2025

PODCASTS

Breaking down the bank-related provisions in the big budget bill

July 10, 2025

Podcast: Inside ABA’s new Treasury Check Verification System API

June 25, 2025

Podcast: Staying close to clients amid tariff-driven volatility

June 18, 2025
ADVERTISEMENT

American Bankers Association
1333 New Hampshire Ave NW
Washington, DC 20036
1-800-BANKERS (800-226-5377)
www.aba.com
About ABA
Privacy Policy
Contact ABA

ABA Banking Journal
About ABA Banking Journal
Media Kit
Advertising
Subscribe

© 2025 American Bankers Association. All rights reserved.

No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive

© 2025 American Bankers Association. All rights reserved.