Calcutt v. Federal Deposit Insurance Corp.

The Federal Deposit Insurance Act permitted the Federal Deposit Insurance Corporation (FDIC) (plaintiff) to impose sanctions on a banker if (1) the banker committed misconduct by engaging in unsafe or unsound practices, (2) the misconduct harmed the banker’s bank, and (3) the misconduct involved personal dishonesty or willful disregard for the bank’s safety. The FDIC brought an enforcement action to impose such sanctions on Harry Calcutt (defendant), the CEO of Northwestern Bank (Northwestern), based on Calcutt’s alleged misconduct regarding loan extensions on certain loans by Northwestern to Neilson Entities (Nielson). The extensions exacerbated losses suffered by Northwestern when Nielson defaulted. An administrative-law judge (ALJ) concluded that Calcutt violated Northwestern’s internal loan policies, misled Northwestern’s directors, and misreported information regarding the relevant transactions on financial statements. Concluding that it was immaterial whether Calcutt’s conduct was the proximate cause of Northwestern’s losses, the ALJ imposed a $125,000 sanction on Calcutt and barred him from working in the banking business. The FDIC upheld the ALJ’s decision, and Calcutt appealed to the Sixth Circuit. The Sixth Circuit concluded that (1) sanctions were appropriate only if a banker’s conduct was the proximate cause of a bank’s harm and (2) Calcutt’s conduct was the proximate cause of only some of Northwestern’s harm. However, the Sixth Circuit nevertheless affirmed the FDIC’s decision, concluding that substantial evidence supported the FDIC’s sanctions even though the FDIC never applied the proximate-cause standard. The United States Supreme Court granted review.