Judge Thomas Thrash, a veteran federal judge in the Northern District of Georgia, recently released a most interesting opinion involving the application of the business judgment rule to directors and officers of a failed bank. The case was brought in November 2012 by the FDIC as receiver of The Buckhead Community Bank. The FDIC’s complaint alleged that the bank’s former directors and officers were negligent and grossly negligent in carrying out their duties. The complaint asserted that the defendants engaged in “numerous, repeated, and obvious breaches and violations of the Bank’s Loan Policy, underwriting requirements and banking regulations, and prudent and sound banking practices,” including 13 loans in particular that cost the bank more than $21.8 million.
The defendants moved to dismiss the negligence claim on the basis that bank directors cannot be held liable for ordinary negligence under Georgia’s business judgment rule. Judge Thrash refused to dismiss the case, however, writing in his Nov. 25, 2013, opinion: “There is every reason to treat bank officers and directors differently from general corporate officers and directors. In general, when a business corporation succeeds or fails, its stockholders bear the gains and losses…. But when a bank, instead of a business corporation fails, the FDIC and ultimately the taxpayer bear the pecuniary loss. The lack of care of the officers and directors can lead to bank closures which echo throughout the local and national economy. To some extent, the failure of bank officers and directors to exercise ordinary care led to the very financial crisis that continues to affect the national economy.”
Judge Thrash was “not convinced that Georgia law affords the Defendants the protection of the business judgment rule in a lawsuit by the FDIC.” He certified to the Georgia Supreme Court the question whether the business judgment rule should be available to the bank’s directors and officers in this case. He also denied the defendant’s motion to dismiss the allegations that the directors and officers were grossly negligent. The Georgia Supreme Court’s decision will certainly have an impact on efforts to pursue claims against directors and officers of failed banks.
Lawyers at Beasley Allen who work in the firm’s Consumer Fraud Section continue to handle claims against banks, as well as claims against corporate directors and officers, who are typically covered by special “D&O” insurance coverage. If you need more information on this subject, contact Archie Grubb, a lawyer the Section, at 800-898-2034 or by email at Archie.Grubb@beasleyallen.com.
Source: http://www.dandodiary.com, blog post on 12/3/13 by Kevin LaCroix
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