On July 13, 2012, after a lull of nearly two months during which the FDIC did not file any new failed bank lawsuits, the FDIC filed two new lawsuits against former directors and officers of failed banks. The FDIC also updated the number of authorized failed bank lawsuits as well.
The first of the two lawsuits was filed in the Northern District of Georgia against six former directors, one of whom was also an officer, of the First Piedmont Bank of Winder, Georgia, which failed on July 17, 2009. The FDIC’s complaint, which can be found here, asserts claims for negligence and for negligence in connection with “nine speculative and high risk acquisition, development and construction (ADC) transactions” that the defendants approved between October 18, 2005 and July 24, 2007. The complaint alleges that the defendants approved the loans “on an uninformed basis,” and “allowed irresponsible and unsustainable rapid asset growth concentrations in high-risk ADC transactions, without implementing and adhering to adequate underwriting and credit administration policies and practices.”
The second of the two July 13 lawsuits was filed in the District of Arizona against seven former directors and officers of the Community Bank of Arizona, of Phoenix, Arizona, which failed on August 14, 2009. Three of the seven defendants were both officers and directors of the failed bank; the remaining four were directors only. The complaint, which can be found here, asserts claims against all defendants for gross negligence and for breach of fiduciary duty and asserts claims of ordinary negligence against the officer and director defendants as well. The FDIC alleges that the defendants improperly “rubber stamping” the purchase of interests in numerous loans that had been originated at the bank’ “sister bank” – the Community Bank of Nevada, which also failed on August 14, 2009 – without the Arizona bank conducting its own underwriting of the loans and in reliance on the sister bank’s “outdated or inadequate” underwriting. The FDIC seeks to recover damages of at least $11 million.
In addition to the fact that both of these complaints were filed on July 13, 2012, these complaints also have in common the fact that they were both filed as the end of the three year statute of limitations period approached. In the case of the First Piedmont Bank lawsuit, the FDIC filed its complaint almost at the very end of the three year period. Given how many banks failed in the second half of 2009, there could be a host of other bank failures that in the coming months will be approaching the end of the three year period following their closure.
Indeed the high number of 2009 bank failures had been one of the reasons that some commentators (including me) had predicted that this would be a very active year for FDIC lawsuit filings. Indeed, through about the middle of April of this year, the FDIC had been very active. But since mid-April, the FDIC had only filed one additional lawsuit before it filed these two complaints on July 13. It is hard to tell from here whether or not the filing of these two lawsuits means the short lull is over.
There are further lawsuits to come at some point, that much is clear. The FDIC has updated its website to indicate that the number of authorized lawsuits has increased. As of July 17, 2012, the FDIC has authorized suits in connection with 68 failed institutions against 576 individuals for D&O liability. This figure is inclusive of the 32 D&O lawsuits that the agency has already filed naming 266 former directors and officers. In other words, there are as many as 36 further lawsuits in the pipeline, involving an additional 310 individuals. There are going to be a lot more lawsuits before all is said and done.
One interesting difference between the two July 13 lawsuits is that the Arizona lawsuit seems to have been crafted so as to avoid asserting ordinary negligence claims against the director defendants, while the Georgia lawsuit actively asserts ordinary negligence claims against the director defendants. 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 director defendants in the new Georgia case have a basis on which to seek to have the negligence claims against them dismissed.
Despite the recent lull, there have still been a total of 14 FDIC failed bank lawsuits filed this year, and 32 overall as part of the current bank failure wave. Eight of the 32 total lawsuits, or a quarter of all lawsuits, have involved failed Georgia banks, the highest number for any state, which is hardly surprising since Georgia has had the highest number of bank failures of any state. However, the 80 Georgia banks that have failed since August 2008 represent substantially less than a quarter of the approximately 440 bank failures during that same period, so the Georgia bank failures seem to be attracting litigation at an unexpectedly elevated rate, at least so far.
Scott Trubey’s July 18, 2012 Atlanta Journal Constitution article about the new Georgia lawsuit can be found here.
Advisen Webinar on Securities Litigation Developments: On Thursday, July 19, 2012 at 11:00 am EDT, I will be participating in free, one-hour webinar sponsored by Advisen and entitled “Second Quarter Securities Litigation Review.” The webinar will be chaired by Advisen’s Jim Blinn and will also include Terence Healy of the Reed Smith law firm. Further information and registration instructions for the webinar can be found here. I hope all blog readers will listen in, this should be a lively webinar. There is a lot to talk about.
Advisen’s quarterly report on 2Q12 corporate and securities litigation can be found here.