Supreme Court Reverses Ruling Affirming FDIC Sanctions Against Former CEO
The U.S. Supreme Court recently reversed a Sixth Circuit ruling that had affirmed the FDIC’s sanctions against a former CEO despite the fact that the agency had applied the wrong standard for causation. The Supreme Court also remanded the case to the agency for further proceedings consistent with its opinion.
The FDIC brought an enforcement action against the former CEO of a community bank for allegedly mismanaging one of the bank’s loan relationships. Following the investigation, the FDIC claimed that the former CEO had mishandled certain loan relationships, had violated the bank’s internal loan policy, and had misled and/or misinformed the bank’s board of directors, amongst other allegations. The FDIC issued a notice of intention to remove the former CEO and prohibit him from participating in the banking industry. It also issued a notice of assessment of civil penalties.
Following an evidentiary hearing, an FDIC administrative law judge issued a written decision recommending that the former CEO be barred from the banking industry and be assessed $125,000 in civil penalties. The former CEO appealed the decision to the FDIC Board (Board). In its final decision, the Board concluded that proximate cause was not required to establish causation, and found that the former CEO had caused the bank to charge off $30,000 in loans, suffer $6.4 million in losses, and incur investigative, auditing, and legal expenses.
The former CEO then appealed the Board’s final decision to the Sixth Circuit, arguing that the Board had applied the wrong standard for causation, and that he had not proximately caused the alleged harm to the bank. The Sixth Circuit agreed that the standard for causation was proximate cause, and that the former CEO had not proximately caused the bank to suffer $6.4 million in losses or incur investigative, auditing, and legal expenses. However, it affirmed the Board’s final decision.
On appeal to the Supreme Court, the Court reversed the Sixth Circuit’s ruling. Generally, courts should remand a case to the agency for additional investigation or explanation if the record does not support an agency action, or if the agency has not considered all relevant factors. Remand may not be warranted in cases where the outcome is all but certain. However, in the present case, the Board had applied the wrong standard for causation, and, as a result, attributed alleged harms to the former CEO that it might not have otherwise. Those considerations impacted not only the decision to sanction the former CEO, but also the type and severity of those sanctions.
The case is Calcutt v. FDIC, No. 22-714, 598 U.S. ___ (May 22, 2023).
