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Georgia Supreme Court Weighs in on Director Liability

The Supreme Court of Georgia issued its latest opinion on March 13, 2019 in the continuing litigation over whether former directors and officers of the now defunct Buckhead Community Bank can be held liable for financial losses from commercial real estate loans.

The Georgia Supreme Court had previously advised a Georgia federal court, where the case was filed by the FDIC, that the directors and officers of the bank could be held liable if they were negligent in the process by which they carried out their duties. Following that opinion, rendered in 2014, the case returned to federal court, and a trial was ultimately held in 2016. In that trial, the jury concluded that some of the directors and officers were negligent in approving some loans and awarded the FDIC $4,986,993 in damages.

The trial judge in the case found that the defendants were “jointly and severally liable” for the award, meaning that the entire verdict could be collected from any one of the defendants. The defendants appealed contending that joint and several liability had been abolished by the General Assembly in 2005. The defendants also argued that the trial court should have given the jury the opportunity to apportion the damages among each of the defendants according to their respective degrees of fault. In considering the appeal, the United States Court of Appeals for the Eleventh Circuit again sought direction from the Supreme Court of Georgia on this new issue of law.

On Wednesday, in a 39-page opinion, the Georgia Supreme Court responded, providing answers to some, but not all, of the questions raised by the Eleventh Circuit. The Georgia Supreme Court held that joint and several liability can still be imposed in Georgia on defendants “who act in concert insofar as a claim of concerted action involves the narrow and traditional common-law doctrine of concerted action based on a legal theory of mutual agency and thus imputed fault.” The Supreme Court indicated that this was a very narrow exception to the usual rule that damages must apportioned among defendants.

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Do you have an ATM-oriented board in an increasingly iPhone-oriented world?

In the run up to the Fourth of July holiday, you may have missed that June 27 was the 50th anniversary of the first ATM and June 29 was the 10th anniversary of the first iPhone.  I was struck by the coincidence of these two anniversaries occurring in the same week.  It also caused me to revisit in my mind a concern that has been growing for some time.

During several recent bank board retreats and strategic planning sessions, I’ve witnessed the challenging dynamics that occur when leaders begin the process of “board refreshment.”  Board refreshment is the current euphemism being used by consultants (and by the proxy advisory firms) to refer to the need for a closer match between the strategic goals of banks and the skill sets of board members.  This need is especially apparent in the boards of many mid-sized regional and community banks.

We are living in a time of increasing change in the demographics (gender, race and age) of the customer base of banks, coupled with rapid technological developments which impact the ways in which commercial customers conduct their businesses and interact with other businesses, including with their banks.  The typical board of a mid-sized regional or community bank, however, consists of men in their mid to upper-sixties who share similar backgrounds and whose perspectives were shaped during a different era for both business and banking.  The concern I have is that continued adherence by banks to such board composition will result in competitive disadvantage.

I’ve been practicing law and advising banks for over 30 years, and for most of that period I don’t think it mattered as much how strong the typical community bank board was.  What mattered was the strength and competency of the CEO, and it was a bonus if the bank had an energetic and engaged board of directors.  I believe there is now an increasing need for stronger boards.  Take a moment and consider how well equipped your board is to help guide your bank through the period of rapid change that is on the near term horizon.

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Eleventh Circuit Will Hear Appeal on Scope of Georgia’s Business Judgment Rule

In August, the Northern District of Georgia reaffirmed its prior ruling in the Integrity Bank case that Georgia’s version of the Business Judgment Rule shields former directors and officers from FDIC claims for ordinary negligence. Our discussion of that ruling can be found here. In doing so, the district court acknowledged that there was “substantial ground for difference of opinion,” on the issue, and it granted the FDIC’s request to petition the Eleventh Circuit Court of Appeals for an interlocutory appeal.

On November 16th, the Eleventh Circuit granted the FDIC’s petition, paving the way for an interlocutory appeal on the district court’s ruling. The parties will brief their respective arguments in the coming weeks, and it is likely that several interested non-parties will also seek to file amicus (“friend of the court”) briefs. The Eleventh Circuit may elect to hear oral argument on the issue, but it is not required to do so. A decision will likely come down within the next year.

The Eleventh Circuit’s ruling is expected to have a significant impact on the scope of claims that the FDIC may assert against former directors and officers of failed banks in Georgia. If the Court affirms the district court below, then the FDIC will be limited to prosecuting claims for gross negligence, which involves a much higher standard of care. If the Eleventh Circuit reverses, then the FDIC will continue to pursue D&O claims for ordinary negligence based on a lower threshold of negligent conduct. Either way, the Eleventh Circuit’s decision should be a significant turning point for FDIC claims in Georgia.

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