BCLP Banking Blog

Bank Bryan Cave

Officer Liability

Main Content

Georgia Supreme Court Confirms Business Judgment Rule

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.

Read More

FDIC Sues Former Officers of Riverside National Bank of Florida

Last week the FDIC sued eight former senior officers of Riverside National Bank of Florida (Ft. Pierce, FL). The suit was filed on April 15th, one day prior to the expiration of the three-year limitations period. For a copy of the complaint, click here.

Riverside National Bank of Florida (“RNB”) was opened in 1982, and it grew to 60 branches in 10 counties before it was put into receivership on April 16, 2010. The FDIC estimates that the material loss to the Deposit Insurance Fund arising from RNB’s failure is approximately $492 million.

According to the FDIC, RNB was affiliated with at least two other non-public bank holding companies, one of which owned a Florida bank that had failed in 2009. This corporate affiliation is a central theme in the lawsuit, as the FDIC focuses exclusively on the defendants’ approval of eight loan transactions that were secured by the holding company stock for either RNB’s parent or one of its affiliated holding companies, all allegedly in violation of RNB’s loan policy. Several of these loans were made to family members of one or more of the defendants. With the acceleration of the economic downturn in 2007, the holding company stock securing these loans lost value, and the loans quickly became non-performing and under-collateralized. The FDIC is seeking damages of approximately $8 million, which is the amount of losses attributable to the eight loan transactions at issue.

To our knowledge, this is the first FDIC lawsuit that focuses on failed loans secured by affiliate holding company stock. Since most community banks are not affiliated with multiple bank holding companies, this is not likely to signal a trend in FDIC litigation theory.

Read More

FDIC Weighs in on Director and Officer Removal of Bank Documents

Following the failure of over 400 financial institutions since the beginning of 2008, the FDIC has clarified its expectations with respect to collection and retention of bank documents by directors and officers of troubled or failing financial institutions for the purpose of explaining or defending their conduct. The FDIC’s Financial Institution Letter (FIL) released today sets forth the FDIC’s position that “[d]irectors and officers of troubled or failing financial institutions who remove originals or copies of financial institution records under such circumstances breach their fiduciary duty to the institution.” Presumably the FDIC would also object to a director or officer of a healthy bank copying and removing bank documents if the FDIC concludes that it is being done for improper purposes, although the FIL does not specifically address that issue.

Even though the guidance comes late in the game, we believe it is helpful for the FDIC to articulate its position on this matter to provide clarity to industry participants. We are disappointed, however, that the FDIC chose to issue this broad guidance through a financial institution letter (which cites no statutory authority or judicial decisions in support of its position) rather than through a formal rulemaking process whereby affected parties could offer comments.

Read More
The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.