GeorgiaOn October 25, 2016, in one of the few failed bank lawsuits remaining from the bank failure litigation wave that followed the global financial crisis, and one of the very few failed bank lawsuits to go all the way to trial, a civil jury returned a verdict of $4.98 million in the Northern District of Georgia against several former directors and officers of the failed Buckhead Community Bank of Buckhead, Georgia. While the jury returned a verdict in favor of the FDIC as receiver of the failed bank on four of the loans at issue in the case, the jury found the defendants not liable for six other loans for which the FDIC sought recovery.


A copy of the jury’s October 25, 2016 verdict form can be found here. A copy of the judgment entered by the clerk of court on October 26, 2016 can be found here. An October 26, 2016 article from The Daily Report about the jury verdict can be found here (subscription required).


Buckhead Community Bank failed on December 4, 2009. As discussed here, in November 2012, the FDIC, as the failed bank’s receiver, filed a civil action in the Northern District of Georgia against certain of the failed bank’s former directors and officers. The FDIC’s complaint asserted 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.” (By the time the case went to trial, there were ten loans in dispute.)


The defendants included a number of prominent members of the Atlanta business community. The defendants included the bank’s founder, Charles Loudermilk, who was also the bank’s former chairman and CEO of national leasing company, Aaron’s Inc. The other defendants included: Hugh “Buddy” Adredge, Sr., the former president and chairman of the Squire Inn motel chain and former President of the Atlanta Country Club; David Allman, founder of Buckhead real estate company Regent Partners; Marvin Cosgray, the bank’s former president and CEO; Louis J. Douglas, president and CEO of LJD Partners and LJD Resource Group and past chairman of two Georgia chambers of commerce; and Larry Martindale, chairman and CEO of Northlake Foods, Waffle House’s largest franchisee.


The case was closely watched by the Georgia banking community as well as the Georgia bar, not only because of the prominence of the individuals named as defendants, but also because of the issues it presented. In its pre-trial phase, the case had actually made its way to the Georgia Supreme Court for consideration of certain questions that the federal trial judge had certified to the court. The Georgia Supreme Court was asked to determine whether or not under Georgia law the business judgment rule insulates directors from liability for merely negligent acts.


As discussed here, in July 2014, the Georgia Supreme Court held that the common law of Georgia recognizes the business judgment rule and that the rule has not been superseded by Georgia statutory law. But while the Court found that the rule insulates directors and officers from claims of negligence concerning the wisdom of their judgment, it does not foreclose negligence claims against them alleging that their decision making was made without deliberation or the requisite diligence, or in bad faith.


The case finally went to trial on October 12, 2016. As discussed in an October 13, 2016 Daily Report article (here), in his opening statement, counsel for the defendants told the jury that there would be no evidence that the defendants committed fraud, lined their own pockets, or engaged in self-dealing, and that if they were guilty of anything it was failing to predict the future. Counsel for the FDIC argued that the defendants together owned as much as 30 percent of the bank’s outstanding shares and stood to profit if the bank achieved its goal of becoming a “billion-dollar bank.” The FDIC argued that in their effort to make this goal, the defendants approved risky loans in violation of bank policies and state and federal banking regulations and of prudent banking practices.


The jury began its deliberations late last week. In its verdict form, the jury found some of the defendants liable for some of the loans (checking or not checking boxes next to each of the defendant’s names with respect to each of the loans) but finding them not liable as to others of the loans on which the FDIC sought to rely.


The Clerk of Court entered judgment in the case on October 26, 2016. The defendants now must decide whether they will appeal; for that matter, the FDIC will have to consider whether, if the defendants appeal, it will cross appeal. There still could be much further to go in this case and much more of the story to be told.


The one thing that is not clear to me is why this case went to trial. According to the FDIC’s website, of the 109 lawsuits its filed  against former directors and officers of failed banks as part of the financial crisis failed bank wave 99 had settled (as of date), and only one other case had gone to trial. As noted here, in December 2012, a civil jury returned a $168.8 million verdict in the failed bank lawsuit involving certain former directors and officer of the IndyMac bank. The IndyMac bank failure was one of the largest bank failures during the bank failure wave and the fifth largest bank failure in U.S. history. As I discussed in my blog post about the verdict, the trial in that case was largely a reflection of the underlying insurance coverage issues (in very simple terms, the FDIC was hoping to establish that the claims it was asserting as the failed bank’s receiver triggered not one but two towers of insurance), which would explain at least in part why that prior case went to trial.


I am not sure why this case went to trial; I can speculate that one reason it might have gone to trial is the defendants were wealthy enough to fight and they felt like fighting. It might also have something to do with the Georgia Supreme Court’s ruling. The holding that the directors could be liable for negligence at least in certain circumstances notwithstanding the business judgment rule may have changed the settlement dynamic.


As I noted in my recent retrospective about the bank failure wave, Georgia was the state with the highest number of failed banks (89). It was also the state with the highest number of failed bank lawsuits (25). Obviously many of these cases have now been resolved. However, the Buckhead Community Bank seems likely to continue to grind on.