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Fourth Circuit Upholds FDIC’s Ordinary Negligence Claims

October 6, 2015

Authors

Michael Carey

Fourth Circuit Upholds FDIC’s Ordinary Negligence Claims

October 6, 2015

by: Michael Carey

The United States Court of Appeals for the Fourth Circuit, which governs North and South Carolina as well as Virginia, West Virginia and Maryland, has issued an important ruling in FDIC v. Rippy, a lawsuit  brought by the FDIC against former directors and officers of Cooperative Bank in Wilmington, North Carolina.  As it has done in dozens of cases throughout the country, the FDIC alleged that Cooperative’s former directors and officers were negligent, grossly negligent, and breached their fiduciary duties in approving various loans that caused the bank to suffer heavy losses.  The evidence showed the FDIC had consistently given favorable CAMELS ratings to the bank in the years before the loans at issue were made.  The trial court entered summary judgment in favor of all defendants, criticizing the FDIC’s prosecution of the suit as an exercise in hindsight.  The Fourth Circuit, however, vacated the ruling as it applied to

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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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A Rundown on Georgia’s FDIC Failed Bank Litigation

June 11, 2013

Authors

Michael Carey

A Rundown on Georgia’s FDIC Failed Bank Litigation

June 11, 2013

by: Michael Carey

As we have reported before, Georgia has the unfortunate distinction of leading the nation in bank failures since the onset of the late-2000s financial crisis.  Georgia has also seen far more FDIC bank failure lawsuits than any other state:  15 of the 63 bank failure cases brought by the FDIC since 2010 involve Georgia banks and are currently pending in Georgia federal courts.  While some allegations vary from case to case, the general thrust of all of these lawsuits is that the former directors and/or officers of the banks were negligent or grossly negligent in pursuing aggressive growth strategies, with these strategies usually involving a high concentration of risky and speculative speculative real estate and acquisition, construction and development loans.  Here is a rundown of the most interesting and significant developments to date:

The most heavily litigated issue has been whether the business judgment rule insulates bank directors and officers

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FDIC Starts Posting Settlement Agreements

March 26, 2013

Authors

Bryan Cave

FDIC Starts Posting Settlement Agreements

March 26, 2013

by: Bryan Cave

The FDIC has begun posting copies of its settlement agreements on its website.  It recently came under fire after the L.A. Times printed an article criticizing the FDIC for not being more transparent on the issue of whether its litigation efforts are bearing fruit.  The FDIC responded to that criticism by posting the settlement agreements on its website.  This website will likely be updated from time to time with new settlement agreements.

Not all of the settlement agreements posted on the FDIC’s site are from D&O cases.  At least a few of them are from claims against brokers, lawyers or accountants for the failed banks.  At this time, we don’t see any particular trends or patterns based on the settlement agreements on claims against former D&Os.

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FDIC Sues Former D&Os of Community Bank of West Georgia

November 20, 2012

Authors

Bard Brockman

FDIC Sues Former D&Os of Community Bank of West Georgia

November 20, 2012

by: Bard Brockman

The FDIC has filed its fifth professional liability lawsuit since early October. Its most recent lawsuit is against the former directors and officers of Community Bank of West Georgia (Villa Rica, Georgia), which went into receivership in June 2009. A copy of the FDIC’s complaint is attached here.

Community Bank of West Georgia (the “Bank” or “Community Bank”) opened in March 2003. The FDIC alleges that the Bank’s original business plan was to grow its assets for a planned sale within five years. Towards this end, the FDIC contends, the Bank focused on increasing its real estate lending, primarily in ADC and CRE loans and purchase of loan participations.

The FDIC’s claims for negligence and gross negligence are rooted in many of the same types of general allegations that have become part of the FDIC’s standard pleading mantra: (i) failure to

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FDIC Sues Former Directors of Benchmark Bank (Aurora, Illinois)

November 9, 2012

Authors

Bard Brockman

FDIC Sues Former Directors of Benchmark Bank (Aurora, Illinois)

November 9, 2012

by: Bard Brockman

On October 2nd, the FDIC filed its 33rd lawsuit against former directors or officers of failed banking institutions since the beginning of the current economic recession.  This suit is against the former directors of Benchmark Bank (“Benchmark” or the “Bank”) of Aurora, Illinois, which was placed into FDIC receivership on December 4, 2009.  For a copy of the FDIC’s complaint, click here.

A central theme of the FDIC’s complaint is that the director defendants, all of whom served on the Director’s Loan Committee, embarked on a strategy of aggressive growth through the approval of high-risk acquisition, development and construction (“ADC”) and commercial real estate (“CRE”) loans.  The director defendants approved the high-risk loans, the FDIC alleges, “without analysis of their economic viability or a complete evaluation of the creditworthiness of borrowers and guarantors”.   Even after the real estate market declined, the FDIC contends, the director defendants exacerbated the

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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 Sues Former Directors and Officers of Community Bank of Arizona

July 25, 2012

Authors

Bard Brockman

FDIC Sues Former Directors and Officers of Community Bank of Arizona

July 25, 2012

by: Bard Brockman

On July 13, 2012, the FDIC filed its 31st professional liability lawsuit since the advent of the current economic downturn.  This suit was filed against seven former directors and officers of Community Bank of Arizona (“CBOA” or the “Bank”), all of whom served on the Bank’s Board Loan Committee.  CBOA had four branches in metropolitan Phoenix before it was closed and placed into receivership on August 14, 2009.  For a copy of the FDIC’s complaint, click here.

As it has in prior D&O lawsuits, the FDIC generally alleges here that the defendants: (i) took unreasonable risks with the Bank’s asset portfolio; (ii) violated the Bank’s own loan policies and procedures when approving the acquisition of loans; (iii) ignored warnings regarding risky real-estate and constructions loans, and (iv) knowingly permitted poor underwriting in contravention of the Bank’s policies and reasonable industry standards.

The FDIC’s sharpest criticisms of the defendants

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FDIC Sues Former Bank Officer for Fraud

July 18, 2012

Authors

Bard Brockman

FDIC Sues Former Bank Officer for Fraud

July 18, 2012

by: Bard Brockman

On May 23, 2012, the FDIC filed an action against the former directors and select former officers of Innovative Bank (“Innovative” or the “Bank”).  Innovative was based in Oakland, California, and it had four other branches in the state when it was closed by the FDIC in April 2010.  For a copy of the FDIC’s lawsuit, click here.

The FDIC’s complaint in this case contains the same hallmark claims for negligence, gross negligence and fiduciary breach that we have come to expect from its D&O suits.  But this case is unique in that the FDIC also asserts a direct claim for fraud.

The alleged fraud was rooted in the Bank’s high-volume SBA lending program.  According to the complaint, the senior vice president in charge of SBA lending, Jimmy Kim, had free rein to originate, recommend and approve SBA loans, all with virtually no supervision by senior management or

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​FDIC Sues Former D&Os of First Bank of Beverly Hills

June 25, 2012

Authors

Bard Brockman

​FDIC Sues Former D&Os of First Bank of Beverly Hills

June 25, 2012

by: Bard Brockman

The latest drama from Beverly Hills is not a revival of Beverly Hills 90210 or a sequel to Beverly Hills Cop, but rather a 42-page complaint filed against the former directors and officers of First Bank of Beverly Hills (“FBBH” or the “Bank”).  FBBH was closed and put into receivership on April 24, 2009.  The FDIC’s lawsuit was filed on April 20, 2012, just days before the expiration of the three-year limitations period.  For a copy of the FDIC’s complaint, click here.

According to the complaint, the director and officer defendants pursued an “unsustainable business model” focused on rapid asset growth through the extension of high-risk CRE and ADC loans.  At the same time, the FDIC alleges, the defendants were weakening the Bank’s capital position by approving large quarterly dividend payments (based on “false profits” from problematic loans) to the Bank’s parent corporation, in which many of the

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