Supreme Court Overturns Lifetime Ban for Michigan Bank Executive

Supreme Court Overturns Lifetime Ban for Michigan Bank Executive
The Supreme Court held a special sitting on Sept. 30, 2022, for the formal investiture ceremony of Associate Justice Ketanji Brown Jackson. (Collection of the Supreme Court of the United States/Getty Images)
Matthew Vadum

The Supreme Court on May 22 unanimously reversed a lower court’s order that a Michigan banker be banned from the financial services industry for life.

Harry C. Calcutt III was president and CEO of Traverse City, Michigan-based Northwestern Bank before it was purchased by a competitor.

The government alleged that Calcutt participated in improper lending practices that led the small bank to incur millions of dollars in losses.

The Federal Deposit Insurance Corp. (FDIC) brought an enforcement action against Calcutt for allegedly mismanaging one of the bank’s loan relationships in the wake of the “Great Recession” of 2007–09. After an FDIC administrative law judge made a recommendation, the agency ordered Calcutt removed from his position, prohibited him from further banking activities, and assessed $125,000 in civil penalties under the Federal Deposit Insurance Act, according to the Supreme Court.

“[Calcutt] engaged in unsafe and unsound banking practices and breached his fiduciary duties to the Bank by increasing the Bank’s exposure to its largest borrower relationship to enable the borrowers to make payments on their existing loans, while concealing the true nature of the transactions from the Bank’s board of directors and its regulators,” reads an FDIC enforcement order dated Dec. 15, 2020.

Calcutt appealed to the U.S. Court of Appeals for the 6th Circuit, which found that the FDIC had made two legal errors in adjudicating his case. But instead of returning the case to the agency, the 6th Circuit carried out its own review and concluded that substantial evidence nevertheless supported the agency’s decision.

“That was error,” the Supreme Court ruled in an unsigned opinion (pdf) in Calcutt v. FDIC, court file 22-714.

It’s a “simple but fundamental rule of administrative law” that reviewing courts must judge the propriety of an agency’s action based “solely on the grounds invoked by the agency,” the nation’s highest court stated. By deciding the case on a legal rationale different from the one offered by the FDIC, “the Sixth Circuit violated these commands.”

The Supreme Court reversed the judgment of the 6th Circuit and remanded the case to that court. It also ordered the 6th Circuit “to remand this matter to the FDIC so it may reconsider [Calcutt’s] case anew in a manner consistent with this opinion.”

The Supreme Court simultaneously granted Calcutt’s request seeking review while skipping over the oral argument phase when the merits of the case would have been considered. Some lawyers call this process GVR, which stands for grant, vacate, and remand.

Calcutt had also asked the Supreme Court to consider his constitutional challenge to the structure of the FDIC. Because the FDIC’s officials are appointed by the president to fixed terms but may only be removed for cause, they aren’t politically accountable, which calls into question the constitutionality of the agency’s structure.

The 6th Circuit had ruled that the FDIC administrative law judge was properly appointed.

But in Calcutt’s case, the Supreme Court declined to take up the constitutional question.

A similar issue was raised in Seila Law LLC v. U.S. Consumer Financial Protection Bureau (CFPB), which the Supreme Court decided in a 5–4 ruling on June 29, 2020.

The CFPB was designed to be free of the influence of the president. Federal law blocked the president from dismissing its director, who has to be confirmed by the U.S. Senate, before that person’s five-year term lapses, unless the termination is for “inefficiency, neglect of duty, or malfeasance in office.”

The Supreme Court decision held that the president has the authority to fire the director at will but refused to strike down the statute authorizing the creation of the CFPB. The ruling was a victory for the Trump administration at the time.

Calcutt’s attorney, Sarah Harris of Williams and Connolly, and the U.S. Department of Justice, which represented the FDIC, didn’t respond by press time to a request by The Epoch Times for comment.