The pace of FDIC lawsuits against former bank directors and officers picked up considerably in the second half of April. Between April 15th and the end of the month, the FDIC filed eight D&O lawsuits. Each of the lawsuits relate to bank failures allegedly arising from an overconcentration in CRE and ADC loans. In six of the eight cases, the FDIC’s complaint was filed only days before the expiration of the 3-year limitations period. Here is a short synopsis of each new case:
- The first lawsuit was filed against the former senior officers of Riverside National Bank of Florida (Ft. Pierce, FL). The bulk of the FDIC’s complaint in that case focused on failed loans that had been secured by stock of Riverside’s affiliated holding company. We previously summarized the lawsuit in our April 24, 2013 blog post.
- Later on April 15th, the FDIC sued two former senior officers of City Bank (Lynwood, WA). According to the FDIC’s complaint, City Bank’s president and CEO alone had loan approval authority of up to $42 million, which was equal to the legal lending of the Bank. The complaint seeks the recovery of $41 million arising from the failure of 26 separate loans.
- The FDIC’s lawsuit against the former directors and officers of Bank of Wyoming is an interesting one. Here, the D&O carrier, BancInsure, apparently denied coverage for the FDIC’s pre-suit claim. Prior to the filing of the FDIC’s complaint, the former D&Os negotiated a settlement with the FDIC that provided for: (i) a “confession of judgment” in the amount of $2.5 million; and (ii) an assignment of the D&Os’ coverage claims against BancInsure in favor of the FDIC. The filing of the lawsuit on April 23rd was a mere formality to allow the court to enter the judgment.
- On April 25th, the FDIC sued the former D&Os of Peninsula Bank of Florida. The lawsuit was filed in the Middle District of Florida, which as we reported in our September 13, 2012 blog post, has held that Florida’s statutory version of the Business Judgment Rule insulates corporate directors from claims for ordinary negligence. Consistent with that ruling, the FDIC sued the former directors of Peninsula Bank for gross negligence, but sued the former officers for ordinary negligence. The complaint seeks the recovery of $48 million.
- The FDIC took a similar approach in its lawsuit against the former directors and officers of Frontier Bank (Everett, WA). It sued the former officers for ordinary negligence and the former directors for gross negligence, presumably because of the protections afforded by Washington State’s Business Judgment Rule. The complaint seeks the recovery of $46 million in connection with 11 loans.
- The FDIC’s complaint against the former directors of Eurobank is the third such suit filed in connection with the failure of a bank in Puerto Rico. As it did in the previous two suits, the FDIC took advantage of a Puerto Rican statute which permits it to also assert a direct action against the directors’ D&O carrier. The complaint seeks the recovery of more than $55 million in connection with 12 failed credits.
- The FDIC sued the former D&Os of Champion Bank (Creve Coeur, MO) on April 29th. The bulk of the FDIC’s complaint centers on seven out-of-state loan participations that Champion Bank had purchased from a lead bank for real estate projects in Nevada, Arizona and Idaho. According to the FDIC’s complaint, one of the former officers negligently represented that the lead bank would repurchase the participations upon Champion Bank’s request. The other D&O defendants negligently relied on that representation, as there was no such agreement with the lead bank. The lawsuit seeks the recovery of $15.56 million in damages.
- Finally, on April 30th, the FDIC filed a complaint against the former D&Os of Midwest Bank and Trust Company (Elmwood Park, IL). This lawsuit has two very distinct sets of legal theories. The first set of claims is asserted against the former D&Os in connection with their approval of six failed loans that resulted in damages of at least $62 million. The second set of claims is asserted against the former directors in connection with their alleged violation of the Bank’s investment policy. Specifically, the FDIC alleges that the former directors failed to sell preferred stock of Fannie Mae and Freddie Mac that it held for investment purposes, despite its auditor’s adverse classification of the stock. The FDIC seeks a separate award of damages in the amount of $66 million in connection with this set of claims.