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Federal Courts in Georgia and Florida Dismiss Ordinary Negligence Claims

September 13, 2012

Authors

Bard Brockman

Federal Courts in Georgia and Florida Dismiss Ordinary Negligence Claims

September 13, 2012

by: Bard Brockman

We have previously summarized an important district court ruling dismissing the FDIC’s ordinary negligence claims against former directors and officers of Integrity Bank of Alpharetta, Georgia.  The FDIC asked the U.S. District Court for the Northern District of Georgia to reconsider its decision in that case, but the court recently denied that request and reaffirmed its rationale that Georgia’s version of the Business Judgment Rule bars claims for ordinary negligence against corporate directors and officers.  A copy of the court’s recent order in the Integrity Bank case is available here.  Although the district court declined to reconsider its prior dismissal of the ordinary negligence claims, it acknowledged that there was “substantial ground for difference of opinion” on that issue, and it granted the FDIC’s request to certify an order of interlocutory appeal to the Eleventh Circuit Court of Appeals.  Everyone in the D&O defense community, and especially

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FDIC Lawsuits: Avoiding the Worst Outcome

June 26, 2012

Authors

Jim McAlpin and Jonathan Hightower

FDIC Lawsuits: Avoiding the Worst Outcome

June 26, 2012

by: Jim McAlpin and Jonathan Hightower

While the FDIC lawsuits paint a picture of inattentive, runaway directors and officers, a number of the practices that the FDIC found objectionable could be found at many healthy institutions. 

In the wake of over 400 bank failures since the beginning of 2008, the FDIC is well underway with its process of seeking recoveries from directors and officers of failed banks who the FDIC believes breached their duties in the course of managing those institutions. As of mid-May 2012, the FDIC had filed lawsuits against almost 30 groups of directors and officers alleging negligence, gross negligence and/or breaches of fiduciary duties. While the litigation filed by the FDIC tends to sensationalize certain actions of the directors and officers in order to better the FDIC’s case, there are lessons to be learned.

Some of the take-aways from the FDIC lawsuits are fairly mechanical:

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FDIC Weighs in on Director and Officer Removal of Bank Documents

March 19, 2012

Authors

Jake Bielema, Bard Brockman and Jonathan Hightower

FDIC Weighs in on Director and Officer Removal of Bank Documents

March 19, 2012

by: Jake Bielema, Bard Brockman and Jonathan Hightower

Following the failure of over 400 financial institutions since the beginning of 2008, the FDIC has clarified its expectations with respect to collection and retention of bank documents by directors and officers of troubled or failing financial institutions for the purpose of explaining or defending their conduct. The FDIC’s Financial Institution Letter (FIL) released today sets forth the FDIC’s position that “[d]irectors and officers of troubled or failing financial institutions who remove originals or copies of financial institution records under such circumstances breach their fiduciary duty to the institution.” Presumably the FDIC would also object to a director or officer of a healthy bank copying and removing bank documents if the FDIC concludes that it is being done for improper purposes, although the FIL does not specifically address that issue.

Even though the guidance comes late in the game, we believe it is helpful for the FDIC to articulate

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Court Confirms “Gross Negligence” Standard for Bank Director Liabilty in Georgia

February 29, 2012

Authors

Jake Bielema

Court Confirms “Gross Negligence” Standard for Bank Director Liabilty in Georgia

February 29, 2012

by: Jake Bielema

As many readers are aware, Georgia has led the nation in the number of failed financial institutions in the recent financial crisis.   Integrity Bank, of Alpharetta, was one of the first of those banks to fail in Georgia, on August 28, 2008, and drew the first lawsuit filed by the FDIC as receiver against former directors and officers in Georgia.  The lawsuit was filed against former members of the Director Loan Committee of the Bank, and asserted claims against the Defendants based on their alleged pursuit  of an unsustainable rapid growth strategy, involving high risk lending concentrated in speculative real estate and acquisition, construction and development loans.   The suit alleged over $70 million in losses from 21 such loans, between February 4, 2005 and May 2, 2007.

On February 27, 2012, in response to motions to dismiss filed by the defendants, and motions to strike certain affirmative defenses

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Bank Buildings: When Directors Are the Landlords

December 7, 2011

Authors

Jonathan Hightower

Bank Buildings: When Directors Are the Landlords

December 7, 2011

by: Jonathan Hightower

Are any of your bank branches and offices owned by directors? That could spell trouble but it can be handled well. Here’s how.

During the mid-2000’s, it was commonplace for a bank, particularly a de novo bank, to lease some or all of their bank facilities from an entity controlled by the bank’s directors. At the time, these arrangements truly represented a “win-win” situation. The bank was able to occupy built-to-suit facilities while conserving liquidity so that cash could be deployed through making loans with attractive yields. At the same time, the directors, many of whom were real estate professionals, were able to make a sound real estate investment with the knowledge that a very stable tenant would occupy the property.

As we know, much has changed since the mid-2000’s. Vacancies in commercial properties have caused market lease rates to

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FDIC Criticizes Civil Money Penalty Insurance

December 5, 2011

Authors

Ken Achenbach

FDIC Criticizes Civil Money Penalty Insurance

December 5, 2011

by: Ken Achenbach

In recent exam cycles, bankers have generally been no strangers to heightened scrutiny by FDIC examiners on a variety of topics.  In the past several months, the insurance policies carried by banks have been added to the list of potential hot-button items.

Specifically, FDIC examiners have begun to scrutinize bank insurance policies to determine whether the policies provide coverage for civil money penalties (“CMPs”) that may be assessed against bank officers or directors. If any bank insurance policies are found on examination to contain an endorsement extending coverage for CMPs to officers or directors, the FDIC is citing such policies as being in violation of Part 359 of the FDIC’s Rules and Regulations.

Part 359, among other things, prohibits banks and affiliated holding companies from making certain “prohibited indemnification payments.” These prohibited payments include any payment or agreement to pay or reimburse bank

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FDIC Sues Three Former Washington Mutual Executives and Their Wives

April 1, 2011

Authors

Jake Bielema

FDIC Sues Three Former Washington Mutual Executives and Their Wives

April 1, 2011

by: Jake Bielema

On March 16, 2011, the FDIC brought suit in the United States District Court in Seattle against three top executives of the failed Washington Mutual Bank, alleging that those executives’ “gross negligence and breaches of fiduciary duty” caused WaMu to lose “billions of dollars.”  In a further sign that the FDIC intends to be aggressive in such matters, the FDIC named as defendants two of the executives’ wives, alleging that they improperly received transfers of property before and after WaMu’s September 2008 failure.

The lawsuit represents the sixth lawsuit to date filed by the FDIC against former directors and/or officers of failed banks following the recent economic downturn.  It is significant because WaMu represented the largest bank failure in U.S. history, with assets that stood at more than $300 billion dollars when it failed.

The complaint does not set a specific amount of damages sought, but the damages

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Can You Improve Your D&O Insurance Coverage?

March 28, 2011

Authors

Bryan Cave

Can You Improve Your D&O Insurance Coverage?

March 28, 2011

by: Bryan Cave

There is a common presumption among community banks, and their directors, that D&O insurance coverage is a commodity.  That presumption is inaccurate; there can be significant differences in the scope and quality of D&O coverage between policies and among carriers.  D&O insurance policies can, and should, be negotiated to improve the coverage for directors and officers.

On March 24, 2011, the ABA’s Banking Journal published an article by Bryan Cave attorney Jim McAlpin, “How good is your bank’s D&O policy?

In the article, Jim highlights ten possible enhancements that you may be able to obtain in your D&O coverage, including:

  • limiting the definition of “Application” in the policy to public filings for the past 12 months;
  • expanding the definition of “Claim” in the policy;
  • obtaining non-rescindable Side A coverage;
  • limiting insured vs. insured carve-backs for derivative suits and bankruptcy;
  • carving back defense costs from regulatory exclusions; and
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