Calcutt v. FDIC

P R E L I M I N A R Y P R I N T
Volume 598 U. S. Part 2
Pages 623–630
OFFICIAL REPORTS
OF
T H E S U P R E M E C O U R T
May 22, 2023
REBECCA A. WOMELDORF
reporter of decisions
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623 OCTOBER TERM, 2022
Syllabus
CALCUTT v. FEDERAL DEPOSIT INSURANCE
CORPORA
TION
on petition for writ of certiorari to the united
states court of appeals for the sixth circuit
No. 22–714. Decided May 22, 2023
The Federal Deposit Insurance Corporation brought an enforcement ac-
tion against petitioner, the former CEO of a Michigan-based community
bank, for mismanaging the bank's loan relationships with a group of
family-owned businesses operating in the real estate and oil industries.
As relevant here, Congress has granted the FDIC the power to sanction
individuals working in the banking sector if it fnds three conditions are
met: The individual has “engaged or participated in any unsafe or un-
sound practice,” or breached his “fduciary duty,” 12 U. S. C. §§ 1818(e)
(1)(A)(ii)–(iii); a bank or its depositors were harmed, or the individ-
ual personally benefted, “by reason of ” the individual's misconduct,
§ 1818(e)(1)(B); and the individual's misconduct involved personal dishon-
esty or disregard for the soundness of the bank, see § 1818(e)(1)(C).
After conducting an investigation and holding an evidentiary hearing,
the FDIC concluded that petitioner's conduct with respect to the loan
relationship satisfed these standards. It accordingly ordered that peti-
tioner be barred from the banking industry and assessed a $125,000
civil penalty. Petitioner fled a petition for review in the Sixth Circuit,
identifying purported errors in the FDIC's decision. The Sixth Circuit
agreed that the FDIC had misapplied the “by reason of ” requirement
in § 1818(e)(1)(B) by concluding that a showing of proximate cause was
not needed. The Sixth Circuit also held that petitioner could not be
held liable for all of the harms to the bank that the FDIC had identifed.
The Sixth Circuit nevertheless affrmed the FDIC's decision, concluding
substantial evidence supported the sanctions that it ordered.
Held: By affrming the FDIC's sanctions against petitioner based on a
legal rationale different from the one adopted by the FDIC, the Sixth
Circuit violated the “fundamental rule of administrative law” that re-
viewing courts “must judge the propriety of [agency] action solely by
the grounds invoked by the agency.” SEC v. Chenery Corp., 332 U. S.
194, 196. “[A]n agency's discretionary order [may] be upheld” only “on
the same basis articulated in the order by the agency itself.” Burling-
ton Truck Lines, Inc. v. United States, 371 U. S. 156, 169. Thus, after
fnding that the FDIC had erred in adjudicating petitioner's case, the
Sixth Circuit should have remanded the matter back to the agency for

624 CALCUTT v. FDIC
Per Curiam
further consideration. And although remand may be unwarranted in
circumst
ances where “[t]here is not the slightest uncertainty as to the
outcome” on remand, NLRB v. Wyman-Gordon Co., 394 U. S. 759, 766,
n. 6, that narrow exception does not apply here, where the issue of what,
if any, sanctions to impose is a discretionary judgment committed to the
agency. Pp. 624, 628–630.
Certiorari granted; 37 F. 4th 293, reversed and remanded.
Per Curiam.
The Federa l Deposit Insurance Cor porati on (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. Af ter proceedings before the
agency concluded, the FDIC ordered petitioner removed
from offce, prohibited him from further banking activities,
and assessed $125,000 in civil penalties. Petitioner subse-
quently fled 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 v. Chenery Corp., 332 U. S. 194, 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, 371 U. S. 156, 169 (1962). By affrming the
FDIC's sanctions against petitioner based on a legal ration-
ale different from the one adopted by the FDIC, the Sixth
Circuit violated these commands. We accordingly grant the
petition for certiorari limited to the frst question presented;
reverse the judgment of the Sixth Circuit; and order that
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625 Cite as: 598 U. S. 623 (2023)
Per Curiam
court to remand this matter to the FDIC so it may recon-
sider
petitioner's case anew in a manner consistent with
this opinion.
I
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, 103
Stat. 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 “fduciary duty.”
§§ 1818(e)(1)(A)(ii)–(iii). Second, the FDIC must fnd that a
bank or its depositors were harmed, or that the individual
personally benefted, “by reason of ” the individual's miscon-
duct. § 1818(e)(1)(B). Finally, the individual's misconduct
must “involv[e] personal dishonesty” or “demonstrat[e] will-
ful or continuing disregard . . . for the safety or soundness”
of the bank. § 1818(e)(1)(C).
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 North-
western Bank, headquartered in Traverse City, Michigan.
During Calcutt's tenure, the Bank developed a lending rela-
tionship with the Nielson Entities, a group of 19 family-
owned businesses that operate in the real estate and oil in-
dustries. In 2009, the lending relationship—by then, the
Bank's biggest—began to sour. On September 1 of that
year, facing fnancial diffculties 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 agree-
ment known as the Bedrock Transaction to bring all of the
Entities' loans current. That agreement stabilized the Niel-
son lending relationship for the following year. But on Sep-
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626 CALCUTT v. FDIC
Per Curiam
tember 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 re-
mained in default ever since.
On April 13, 2012, the FDIC opened an investigation into
the Bank's offcers 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 offce, and to pro-
hibit them from further participation in the banking indus-
try. 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 relation-
ship in various ways: The Bedrock Transaction failed to com-
ply 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 fnancial 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 tes-
tifed. 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, frst,
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 v. FDIC, 687 F. 3d 337, 352 (CA7 2012)).

627 Cite as: 598 U. S. 623 (2023)
Per Curiam
The Board held that standard satisfed, concluding that “the
record
in this matter overwhelmingly establishes that [peti-
tioner] 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 8(e). ” Id., 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.,
forgive) $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 investi-
gative, auditing, and legal expenses in managing the Bedrock
Transaction and its fallout. Id., 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.” Id., 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 testifed that
Board members had been fully apprised of the nature of the
Nielson Loan portfolio.” Ibid.
Based on these fndings, the Board issued a fnal decision
imposing the penalties that the ALJ had recommended. Id.,
at 184a–185a.
Petitioner then fled a petition for review in the Sixth Cir-
cuit, identifying several purported errors in the Board's deci-
sion. 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 “ob-
served that [t]he Supreme Court has repeatedly and explic-
itly held that when Congress uses the phrase `by reason of '
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628 CALCUTT v. FDIC
Per Curiam
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 ibid. (citing for that proposition
Hemi Group, LLC v. City of New York, 559 U. S. 1, 9 (2010),
and Holmes v. Securities Investor Protection Corporation,
503 U. S. 258, 268 (1992)).
Second, petitioner argued that he had not proximately
caused the harms that the Board had identifed or, in the
alternative, that those harms did not qualify as harmful ef-
fects as a matter of law. See § 1818(e)(1)(B). The Sixth Cir-
cuit agreed in part. Petitioner had indeed proximately
caused the $30,000 charge off on one of the Bedrock Transac-
tion loans, the court held, because he had “participated ex-
tensively in negotiating and approving the Bedrock Transac-
tion.” 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 some loss no matter what Calcutt did.” Id., at 331.
Finally, none of the investigative, auditing, and legal ex-
penses incurred in dealing with the Nielson Entities could
qualify as harms to the Bank, because those expenses oc-
curred as part of the Bank's “normal business.” Ibid.
Despite identifying these legal errors in the Board's analy-
sis, the Sixth Circuit nevertheless affrmed the Board's deci-
sion 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 identifed. See id., at 333–335.
We now reverse.
II
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 rele-

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629 Cite as: 598 U. S. 623 (2023)
Per Curiam
vant factors, . . . the proper course, except in rare circum-
st
ances, is to remand to the agency for additional investiga-
tion or explanation.” Florida Power & Light Co. v. Lorion,
470 U. S. 729, 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 conclu-
sions based on such an inquiry.” Ibid. For if the grounds
propounded by the agency for its decision “are inadequate or
improper, the court is powerless to affrm the administrative
action by substituting what it considers to be a more ade-
quate or proper basis.” Chenery, 332 U. S., at 196; see also
Smith v. Berryhill, 587 U. S. 471, 488 (2019) (“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 frst 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 fnding that the Board had
erred was to remand the matter back to the FDIC for fur-
ther consideration of petitioner's case. “[T]he guiding prin-
ciple, violated here, is that the function of the reviewing
court ends when an error of law is laid bare.” FPC v. Idaho
Power Co., 344 U. S. 17, 20 (1952); see also Gonzales v.
Thomas, 547 U. S. 183, 187 (2006) (per curiam) (remanding
to agency based on failure by Court of Appeals to “appl[y]
the ordinary remand rule” (internal quotation marks omit-
ted)); INS v. Orlando Ventura, 537 U. S. 12, 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 (quoting NLRB v. Wyman-Gordon Co., 394
U. S. 759, 766, n. 6 (1969) (plurality opinion)). It is true that

630 CALCUTT v. FDIC
Per Curiam
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 ap-
plied 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 Inc. v. Public Util. Dist.
No. 1 of Snohomish Cty., 554 U. S. 527, 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 discretion-
ary judgment. And that judgment is highly fact specifc and
contextual, given the number of factors relevant to petition-
er's ultimate culpability. To conclude, then, that any out-
come in this case is foreordained is to deny the agency the
fexibility in addressing issues in the banking sector as Con-
gress has allowed.
***
The petition for writ of certiorari is granted limited to
the frst question presented. The judgment of the Court of
Appeals for the Sixth Circuit is reversed, and the case is
remanded for fur ther proceedings consistent w ith th is
opinion.
It is so ordered.
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Reporter’s Note
The attached opinion has been revised to refect the usual publication
and citation style of the United States Reports. The revised pagination
makes available the offcial United States Reports citation in advance of
publication. The syllabus has been prepared by the Reporter of Decisions
for the convenience of the reader and constitutes no part of the opinion of
the Court. A list of counsel who argued or fled briefs in this case, and
who were members of the bar of this Court at the time this case was
argued, has been inserted following the syllabus. Other revisions may
include adjustments to formatting, captions, citation form, and any errant
punctuation. The following additional edits were made:
None