Summary Reversal of Sixth Circuit in Calcutt v. FDIC Reaffirms the Importance of Chenery I

A welcome reminder that reviewing courts must judge the propriety of agency actions solely by the grounds invoked by the agency.

The Supreme Court may be slow at issuing opinions in argued cases this term, but it made quick work of Calcutt v. Federal Deposit Insurance Corporation, summarily reversing the U.S. Court of Appeals for the Sixth Circuit's split decision upholding an action by the FDIC. The Sixth Circuit panel of Judges Boggs, Griffin and Murphy unanimously rejected Calcutt's constitutional challenges to the FDIC's action, but split on the statutory claims. Judge Boggs wrote the majority, joined by Judge Griffin. Judge Murphy dissented. The entire decision below topped 90 pages.

The Calcutt case raised a suite of interesting constitutional and administrative law issues, including the application of the Appointments Clause to FDIC administrative law judges (ALJs). But there was one issue upon which the justices could all apparently agree: Under SEC v. Chenery I, courts are to evaluate agency actions based upon the rationale offered by the agency, and not substitute their own analysis. This is an important principle because, among other things, if agencies are expected to engage in reasoned decisionmaking, judicial review must focus on the reasons the agency actually gave when making its decision, and courts should not substitute their own, more persuasive rationales when agency actions come before them. While there may be cases in which agency missteps constitute harmless error, courts should not excuse a failure to engage in reasoned decisionmaking lightly.

Here is how the Supreme Court's brief per curiam opinion begins:

The Federal Deposit Insurance Corporation (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. After proceedings before the agency concluded, the FDIC ordered petitioner removed from office, prohibited him from further banking activities, and assessed $125,000 in civil penalties. Petitioner subsequently filed 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 affirming the FDIC's sanctions against petitioner based on a legal rationale different from the one adopted by the FDIC, the Sixth Circuit violated these commands. We accordingly grant the petition for certiorari limited to the first question presented; reverse the judgment of the Sixth Circuit; and order that court to remand this matter to the FDIC so it may reconsider petitioner's case anew in a manner consistent with this opinion.

The Court expanded on the rationale for summary reversal thusly:

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 relevant factors, . . . the proper course, except in rare circumstances, is to remand to the agency for additional investigation 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 conclusions 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 affirm the administrative action by substituting what it considers to be a more adequate or proper basis." Chenery, 332 U. S., at 196; see also Smith v. Berryhill, 587 U. S. ___, ___ (2019) (slip op., at 15) ("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 first 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 finding that the Board had erred was to remand the matter back to the FDIC for further consideration of petitioner's case. "[T]he guiding principle, 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 omitted)); 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 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 applied 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 discretionary judgment. And that judgment is highly fact specific and contextual, given the number of factors relevant to petitioner's ultimate culpability. To conclude, then, that any outcome in this case is foreordained is to deny the agency the flexibility in addressing issues in the banking sector as Congress has allowed.

Two quick thoughts:

1) There are a bunch of interesting issues buried in this case, so I would not be surprised at all were we to see it reach SCOTUS again after remand to the agency.

2) It is nice to see the justices forcefully reaffirm the principles of Chenery I in this way. I would be even happier were the justices to corral (or cancel) Chenery II when the opportunity arises. For those concerned about the size, scope, and arbitrary power exercised by the administrative state, Chenery II is far more important than Chevron.