WASHINGTON (CN) — A banker fighting punishment for lending misconduct was granted temporary reprieve from the Supreme Court on Thursday.
In an order on the court’s emergency docket, Justice Brett Kavanaugh temporarily blocked a ruling fining and banning Harry Calcutt, a former president, CEO and chairman of the board of directors at Northwestern Bank, from banking. The order stays the lower court ruling while Calcutt submits a petition to the high court.
The Federal Deposit Insurance Corporation is an independent agency supervising the nation’s financial system. The agency is managed by a five-member board, all of whom are appointed by the president and serve a six-year term. The FDIC imposes penalties against bank officers to ensure the integrity of the banks it insures. These penalties include removing officers from their positions and imposing fines.
Calcutt worked at Northwestern until 2013. During that time, the bank loaned a group of family-owned companies known as the Nielson entities around $38 million. These loans were not personally guaranteed by the Nielson family or cross-collateralized against one another.
By the end of 2009, the Nielson entities fell on hard times and stopped repaying the loans. Around the same time, Northwestern and the Nielson entities created the so-called “Bedrock transaction” where the bank gave the companies a $760,000 loan to cover loan payments through the middle of 2010. The bank entered this transaction without the required financial information from Nielson or approval from its board.
The Nielson entities defaulted on their loans in September 2010, leading the bank to release $690,000 in secured funds. The companies defaulted again in January 2011 and have remained in default since.
In 2013, the FDIC began trying to remove Calcutt from office and prevent him from further banking activities. An administrative law judge recommended that Calcutt be prohibited from banking and pay a $125,000 fine. In December 2020, the FDIC accepted the judge’s findings.
Calcutt asked the Sixth Circuit to review his case and grant an emergency stay of the FDIC’s order. The Cincinnati-based appeals court granted the stay but then upheld the FDIC’s order in a 2-1 decision. Calcutt asked for an en banc rehearing but was denied.
Asking the high court for a stay last week, Calcutt urged the justices to step in. He claims the FDIC imposed “the death penalty of administrative sanctions” in an order riddled with serious legal errors.
“In administrative law as elsewhere, with great power comes great responsibility,” Sarah Harris, an attorney with Williams & Connolly representing Calcutt, wrote in the application. “Agencies can impose career-ending bans and ruinous monetary penalties through in-house agency proceedings. To wield their immense authority, agencies must follow the law and operate within our constitutional structure.”
On Wednesday, the government weighed in on the case and asked the court to grant Calcutt’s request.
“Under the foregoing authorities, there is a reasonable probability that this Court will grant review and a fair prospect that it will hold that the Sixth Circuit erred by declining to apply the ordinary remand rule,” Solicitor General Elizabeth Prelogar wrote in the agency’s brief.
If the court denies Calcutt’s certiorari petition, the stay will be terminated. The stay will be in place until the court issues its final opinion if the justices add the case to their docket.
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