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Maryland’s Business Judgment Rule Bars FDIC’s Ordinary Negligence Claims

March 31, 2015

Authors

Michael Carey

Maryland’s Business Judgment Rule Bars FDIC’s Ordinary Negligence Claims

March 31, 2015

by: Michael Carey

Another court has weighed in on the question of whether the FDIC can sue former directors and officers of failed banks for ordinary negligence.  The latest decision comes from a federal court in Maryland, which held that a gross negligence standard must be applied when evaluating the conduct of directors and officers under Maryland’s business judgment rule.  FDIC v. Arthur, Civil Action No. RDB-14-604 (D. Md. Mar. 2, 2015).

The facts of FDIC v. Arthur follow a now-familiar pattern.  Baltimore-based Bradford Bank failed on August 28, 2009 and the FDIC was appointed as its receiver.  The four defendants are the bank’s former president, a senior loan officer and two directors who served on the bank’s loan committee.  The FDIC alleged that the defendants were negligent, grossly negligent and breached their fiduciary duties to the bank in connection with seven commercial loan transactions, resulting in losses in excess of $7

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Georgia Supreme Court Confirms Business Judgment Rule

July 12, 2014

Authors

Michael Carey

Georgia Supreme Court Confirms Business Judgment Rule

July 12, 2014

by: Michael Carey

The Georgia Supreme Court issued its long-awaited decision in FDIC v. Loudermilk  on Friday, addressing whether the FDIC’s ordinary negligence claims against former directors and officers of failed banks are precluded by the business judgment rule.  There is a lot to digest in the Court’s 34-page opinion, but here are our initial thoughts.

The upshot for bank directors and officers in Georgia is that the business judgment rule is very much alive, and applies to banks to the same extent as other corporations.  That itself is big news—the Georgia Supreme Court had never addressed whether the business judgment rule exists in any context, and the FDIC had argued that if the rule existed at all, it did not apply to banks because the Banking Code imposes an ordinary negligence standard of care.  Much of the Court’s opinion is devoted to explaining how the business judgment rule developed as

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FDIC Sues Former Chairman and Senior Officers of La Jolla Bank

February 20, 2013

Authors

Bard Brockman

FDIC Sues Former Chairman and Senior Officers of La Jolla Bank

February 20, 2013

by: Bard Brockman

Last week the FDIC filed its 51st lawsuit against former directors and officers of failed banking institutions since July 2010. This most recent suit is against the former chairman, former CEO and former Chief Credit Officer of La Jolla Bank, which failed and went into FDIC receivership on February 19, 2010. A copy of the lawsuit is available here.

Many of the central themes in the FDIC’s complaint are consistent with its other recent D&O lawsuits – the Bank pursued an aggressive growth strategy fueled by heavy concentrations in commercial real estate lending, with insufficient underwriting and loan policy compliance, and without regard to deteriorating market conditions. What makes this case different is the FDIC’s theory that the Bank’s CEO and COO gave preferential loan treatment to certain Friends of the Bank (“FOB”). The senior officers, both of whom were compensated in large part based on loan production, allegedly

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FDIC Sues Former Fla. Bank Directors for Gross Negligence

February 13, 2013

Authors

Bard Brockman

FDIC Sues Former Fla. Bank Directors for Gross Negligence

February 13, 2013

by: Bard Brockman

For the first time since the advent of the Great Recession, the FDIC has filed an action against former bank directors based only on theories of gross negligence. The lawsuit was filed against the former directors of Orion Bank (“Orion” or the “Bank”) of Naples, FL, which failed and went into receivership in November 2009. A copy of the FDIC’s complaint is available here.

The FDIC’s central case theory focuses on the defendant directors’ completely lack of oversight over Orion’s President and CEO, Jerry Williams. According to the complaint, Mr. Williams became such a dominant decision-maker that the defendant directors generally approved any and all of his proposals with little, if any, scrutiny. Their alleged abdication of responsibility bled over into role as members of the Board Loan Committee, and they “blithely rubberstamped” any loan that Mr. Williams proposed without any meaningful review or deliberation. The

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FDIC Sues Former Officers and Directors of Two Failed Georgia Banks in October 2012

December 10, 2012

Authors

Jake Bielema

FDIC Sues Former Officers and Directors of Two Failed Georgia Banks in October 2012

December 10, 2012

by: Jake Bielema

As has been noted on this blog before, the State of Georgia has the dubious distinction of leading the nation in the number of failed financial institutions. In the month of October 2012, the number of lawsuits against former officers and directors of those failed institutions increased by two (2).

In the first lawsuit, filed on October 17, 2012, the FDIC brought suit in its capacity as Receiver for American United Bank of Lawrenceville, Georgia against two former officers and 6 former directors of the bank. (A copy of the complaint can be found here.)  In that suit, the FDIC alleged both ordinary negligence and gross negligence in connection with the management of the lending function of the bank. The FDIC alleged that the failure of American United caused a loss to the Federal Deposit Insurance Fund in the amount of $45.2 million, and, through alleged damages

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FDIC Files Second D&O Lawsuit in Florida

December 4, 2012

Authors

Bard Brockman

FDIC Files Second D&O Lawsuit in Florida

December 4, 2012

by: Bard Brockman

Despite having more than its fair share of failed banks, Florida has not been a hotbed of D&O litigation. On November 9th, the FDIC filed only its second lawsuit against former directors of a failed banking institution. The defendants here are former directors of Century Bank, FSB (Sarasota, FL), which was placed into receivership in mid-November 2009.  A copy of the FDIC’s complaint is available here.

 The FDIC’s complaint is consistent with most of its prior D&O lawsuits, with typical allegations of negligent overconcentration in ADC and CRE, as well as various failures to follow the Bank’s loan policy or to exercise safe and sound banking practices. What makes this complaint a little different is that it focuses on ten specific loan transactions which were approved after it was apparent that the Bank was in “dire financial condition” and not meeting regulatory capital requirements. 

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Eleventh Circuit Will Hear Appeal on Scope of Georgia’s Business Judgment Rule

November 28, 2012

Authors

Bard Brockman

Eleventh Circuit Will Hear Appeal on Scope of Georgia’s Business Judgment Rule

November 28, 2012

by: Bard Brockman

In August, the Northern District of Georgia reaffirmed its prior ruling in the Integrity Bank case that Georgia’s version of the Business Judgment Rule shields former directors and officers from FDIC claims for ordinary negligence. Our discussion of that ruling can be found here. In doing so, the district court acknowledged that there was “substantial ground for difference of opinion,” on the issue, and it granted the FDIC’s request to petition the Eleventh Circuit Court of Appeals for an interlocutory appeal.

On November 16th, the Eleventh Circuit granted the FDIC’s petition, paving the way for an interlocutory appeal on the district court’s ruling. The parties will brief their respective arguments in the coming weeks, and it is likely that several interested non-parties will also seek to file amicus (“friend of the court”) briefs. The Eleventh Circuit may elect to hear oral argument on the issue, but it

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