July 12, 2014
Authored 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 a common law principle and refuting the argument that the statute trumps the rule.
The Court explained, however, that the business judgment rule does not automatically rule out claims that sound in ordinary negligence. It distinguished claims alleging negligence in the decision-making process from claims that do no more than question the wisdom of the decision itself. A claim that a directors disregarded their duties by failing to attend meetings, for instance, could survive a motion to dismiss. A claim that the decision itself was negligent, without any allegation relating to the process leading to the decision, will not survive.