The D & O Diary
FDIC Files Yet Another Georgia Failed Bank Suit
Though the FDIC has filed failed bank lawsuits in a number of states during the current bank failure wave, the agency has filed a disproportionally large number of suits against former directors and officers of failed Georgia banks. On November 30, 2012, the FDIC filed yet another D&O lawsuit involving a failed Georgia bank, the twelfth the agency has filed involving a failed Georgia bank, out of 40 total lawsuits overall that it has filed.
On November 30, 2012, the FDIC as receiver of The Buckhead Community Bank filed a complaint in the Northern District of Georgia nine former directors and officers of the failed bank. Six of the individual defendants served only as directors, two served as both directors and officers, and one seved only as an officer. The FDIC’s complaint can be found here.
The individual defendants include the bank’s former Chairman, R. Charles Loudermilk, Sr. In addition to serving as the bank’s Chairman, Loudermilk was, according to the complaint, also the largest shareholder of the bank’s holding company. Loudermilk is the 85-year old founder of the rent-to-own company, Aaron’s Inc. Loudermilk was also the founder of Buckhead Community Bank as well.
The bank, which was located in the Buckhead neighborhood of Atlanta, failed on December 4, 2009. The FDIC’s complaint asserts claims against the defendants for negligence and for gross negligence and alleges 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” as “exemplified” by thirteen loans and loan participations the defendants approved that cause the bank damages “in excess of $21.8 million.”
An interesting feature of the lawsuit is that the FDIC has included allegations of ordinary negligence. This is interesting because of the recent decision in the Northern District of Georgia in the Integrity Bank case, applying Georgia law and holding that because of their protection under the business judgment rule, directors cannot be held liable of ordinary negligence. In light of that earlier decision, it would seem that the defendants in the new lawsuit have a basis on which to seek to have the negligence claims against them dismissed.
The FDIC, in anticipation of this argument, has alleged (at paragraph 84 of the complaint), that the individual defendants are not entitled to rely on the business judgment rule because “none of the Defendants’ actions or inactions, which are the basis of the this negligence claim, was taken in good faith, nor were Defendants reasonably well-informed in taking such actions or inactions.”
It should also be noted that the FDIC is pursuing an interlocutory appeal of the court’s order in the Integrity Bank On November 19, 2012, the Eleventh Circuit granted the FDIC’s request for leave to pursue an interlocutory appeal, so there will likely be much more to be heard on this issue in the months ahead.
The FDIC’s lawsuit against the former directors and officers of The Buckhead Community Bank is the 40th failed bank lawsuit the agency has filed as part of the current bank wave. Of these 40 lawsuit, 12 (including this latest suit) have been filed against former directors and officers of failed Georgia banks, or about 30 percent of all of the failed bank D&O suits that agency has filed so far. Georgia has had more bank failures than any other state, but with about 80 failed banks out of the more than 440 failed banks total, Georgia’s bank failures represented only about 18 percent of all failed banks. For whatever reason, Georgia’s failed banks are disproportionately represented among the bank failures that have led to FDIC failed bank litigation.
One final note about this case is that it was filed just days before the third anniversary of the bank’s failure. Because so many banks failure in the fourth quarter of 2009 and the first two quarters of 2010, it seems likely there will be many more suits just ahead. The FDIC has made it clear that further lawsuits are coming. On its website (here), the agency states that as of November 15, 2012, it has authorized suits in connection with 84 failed institutions against 700 individuals for D&O liability. This includes 40 filed D&O lawsuits naming 317 former directors and officers (these figures take this latest lawsuit into account). In other words, the agency has authorized as many as 44 additional lawsuits. For many months now, each time that the agency updates its website, the number of authorized lawsuits increases, so even more lawsuits likely lie ahead.
2000 Auburn Drive, Suite 200, Beachwood, OH 44122, Phone: (216) 378-7817