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 granted oral approval of FOB loans, pressured lower-level bank personnel to recommend FOB loans with little or no underwriting, and concealed FOB loans that had gone into troubled status. Seven such FOB loans went into default, and the FDIC is seeking damages in excess of $57 million in connection with those loans.

Perhaps the most significant aspect of this case is that the FDIC is not seeking to hold most of the directors liable for the Bank’s losses. That decision is likely rooted in both the facts of the case and California’s version of the Business Judgment Rule. The factual allegations in the complaint suggest that the Chairman had actual knowledge of the Bank’s lax underwriting and loan policy compliance, and that the other directors may not have known about those deficiencies until much later. Ordinarily, the FDIC might still seek to hold the other directors liable for ordinary negligence. However, as several district courts have already ruled, California’s version of the Business Judgment Rule shields directors from claims for ordinary negligence. The FDIC therefore was limited to claims for gross negligence under FIRREA. It has asserted a gross negligence claim against the Chairman, but it apparently determined that the facts of the case do not support such a claim against the other directors.