Bank D&O Liability: FDIC Litigation Update
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Presenting a live 90-minute webinar with interactive Q&A Bank D&O Liability: FDIC Litigation Update Leveraging Developments in Standards of Liability, Statute of Limitations and Adverse Domination, Discovery, Insurance Coverage, and ESI THURSDAY, OCTOBER 9, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Mary C. Gill, Partner, Alston & Bird, Atlanta Steven C. Morrison, Counsel, Professional Liability/Financial Crimes Group, FDIC, Jacksonville, Fla. Kirsten C. Jackson, Kasowitz Benson Torres & Friedman, Los Angeles The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. F.D.I.C. v. Skow, 741 F.3d 1342 (2013) 24 Fla. L. Weekly Fed. C 885 officers seeking to recover losses that bank suffered as result of defendants' alleged negligent 741 F.3d 1342 conduct, certification of question to Georgia United States Court of Appeals, Supreme Court was warranted, as to whether Eleventh Circuit. bank director or officer violated standard of care FEDERAL DEPOSIT INSURANCE when he acted in good faith but failed to act CORPORATION, as receiver for Integrity Bank with “ordinary diligence,” since question was determinative of case and no clear controlling of Alpharetta, Georgia, Plaintiff–Appellant, precedent from Supreme Court of Georgia v. existed. West's Ga.Code Ann. §§ 7–1–490(a), Steven M. SKOW, Alan K. Arnold, 15–2–9, 51–1–2. et al., Defendants–Appellees. Cases that cite this headnote No. 12–15878. | Dec. 23, 2013. Synopsis [2] Federal Courts Background: Federal Deposit Insurance Corporation Particular questions (FDIC), as receiver for failed bank, commenced civil In civil action brought Federal Deposit Insurance action against former bank directors and corporate officers, Corporation (FDIC), as receiver for failed bank, seeking to recover losses that bank suffered as result of against former bank directors and corporate defendants' alleged negligent conduct. Defendants asserted officers seeking to recover losses that bank various affirmative defenses. The United States District Court suffered as result of defendants' alleged negligent for the Northern District of Georgia, Steve C. Jones, J., 2012 conduct, certification of question to Georgia WL 8503168, granted, in part, defendants' motions to dismiss Supreme Court was warranted, as to whether and denied FDIC's motion for partial summary judgment to applying Georgia's business judgment rule, strike defendants' affirmative defenses, but certified issues for could bank officer or director defendants be held interlocutory appeal, 2012 WL 8503178. FDIC appealed. individually liable if they, in fact as alleged, were shown to have been ordinarily negligent or to have breached fiduciary duty, based on Holdings: The Court of Appeals held that: ordinary negligence in performing professional duties. West's Ga.Code Ann. § 15–2–9. [1] certification of questions to Georgia Supreme Court was Cases that cite this headnote warranted and [2] federal court could not apply “no duty” rule to bar [3] Federal Courts affirmative defenses asserted against FDIC, as receiver for State Courts and Their Decisions in General failed bank, when it was advancing claims. When resolving issues of state law on which the state's highest court has not spoken, a federal court must give proper regard to relevant rulings Affirmed in part; questions certified. of other courts of the State. Cases that cite this headnote West Headnotes (9) [4] Negligence Ordinary care [1] Federal Courts Particular questions Under Georgia law, failure to exercise ordinary diligence constitutes ordinary negligence. In civil action brought Federal Deposit Insurance Corporation (FDIC), as receiver for failed bank, Cases that cite this headnote against former bank directors and corporate © 2014 Thomson Reuters. No claim to original U.S. Government Works. 1 F.D.I.C. v. Skow, 741 F.3d 1342 (2013) 24 Fla. L. Weekly Fed. C 885 Federal common law [5] Federal Courts A federal court may create federal common law Withholding Decision; Certifying only in the few and restricted cases in which there Questions exists a significant conflict between some federal Substantial doubt about a question of state law policy or interest and the use of state law. upon which a particular case turns should be resolved by certifying the question to the state Cases that cite this headnote supreme court. Cases that cite this headnote Attorneys and Law Firms [6] Federal Courts Withholding Decision; Certifying *1343 Minodora D. Vancea, J. Scott Watson, Federal Questions Deposit Insurance Corporation, Arlington, VA, Dustin R. Bagwell, Kyle M. Keegan, Christopher D. Kiesel, Keegan, Pursuant to Georgia statute, an unresolved Denicola, Kiesel, Bagwell, Juban & Lowe LLC, Baton question of state law may be certified to the Rouge, LA, Christopher Dean Balch, The Balch Law Group, Supreme Court of Georgia if the question is PC, Jeanne Simkins Hollis, Simkins Hollis Law Group, determinative of the case and no clear controlling Atlanta, GA, for Plaintiff–Appellant. precedent from the Supreme Court of Georgia exists. West's Ga.Code Ann. § 15–2–9. *1344 Robert Riles Ambler, Jr., Jennifer Saffold Collins, James E. Connelly, John Gregory Perry, Stanley Harold Cases that cite this headnote Pollock, Haskell Slaughter Young & Rediker, LLC, Womble Carlyle Sandridge & Rice, LLP, Jeffrey Ronald Baxter, [7] Banks and Banking James B. Manley, Jr., McKenna Long & Aldridge, LLP, Powers, functions and dealings in general Ellen Claire Carothers, Tracy Klingler, David L. Balser, Federal court could not apply “no duty” rule Merritt Ellen McAlister, King & Spalding, LLP, Atlanta, to bar affirmative defenses asserted against GA, Frank M. Young, III, Timothy Dylan Reeves, I Kirk FDIC, as receiver for failed bank, when it was Debardeleben Smith, Haskell Slaughter Young & Rediker, advancing claims, since there was no established LLC, Birmingham, AL, Jeffrey S. Bucholtz, King & and long-standing federal common law rule to Spalding, LLP, Washington, DC, for Defendants–Appellees. exempt FDIC from defenses under state law, and Appeal from the United States District Court for the Northern federal common law was basically complete and District of Georgia. closed. Before MARCUS and EDMONDSON, Circuit Judges, and 1 Cases that cite this headnote VINSON, * District Judge. [8] Federal Courts PER CURIAM: Banks and banking CERTIFICATION FROM THE UNITED STATES Matters not addressed by FIRREA are governed COURT OF APPEALS FOR THE ELEVENTH generally by state law; however, one exception CIRCUIT TO THE SUPREME COURT OF is where a previously established and long- GEORGIA, PURSUANT TO O.C.G.A. § 15–2–9. TO standing rule of federal common law predated THE SUPREME COURT OF GEORGIA AND ITS FIRREA's enactment. Federal Deposit Insurance HONORABLE JUSTICES: Act, 12 U.S.C.A. § 1811 et seq. This interlocutory appeal arises from a civil action filed Cases that cite this headnote by the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Integrity Bank (“Bank”), against former Bank directors and corporate officers (“Defendants”). The FDIC [9] Federal Courts seeks to recover losses that the Bank suffered as a result of © 2014 Thomson Reuters. No claim to original U.S. Government Works. 2 F.D.I.C. v. Skow, 741 F.3d 1342 (2013) 24 Fla. L. Weekly Fed. C 885 Defendants' alleged negligent conduct. Because this appeal as they applied to the FDIC's post-receivership conduct in its presents a determinative issue of state law that has not yet role as receiver. 5 In doing so, the district court rejected the been addressed definitively by Georgia's highest court, we FDIC's argument that Defendants' affirmative defenses were certify questions to the Georgia Supreme Court. For the issue barred as a matter of law by a federal common law “no duty” presented of federal law, we affirm the district court's denial rule. of the FDIC's motion for partial summary judgment to strike Defendants' affirmative defenses. The district court certified both issues for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b). I. Background As members of the Bank's Director Loan Committee, II. Discussion Defendants were responsible for overseeing and maintaining the Bank's credit function, which included approving loans A. Georgia's Business Judgment Rule in excess of $500,000. The FDIC alleges that Defendants [1] [2] On appeal, the FDIC first challenges the district were negligent in pursuing an unsustainable growth strategy, court's dismissal of the FDIC's claims for ordinary negligence engaging in high risk lending practices, and in approving and for breach of fiduciary duty based on ordinary negligence. loans which resulted in losses exceeding $70 million. The Bank ultimately closed in 2008, and the FDIC was appointed In concluding, as a matter of state law, that ordinary as the Bank's receiver. negligence claims are not viable against bank directors and officers because of Georgia's business judgment rule, the Acting as the Bank's receiver, 1 the FDIC filed this civil district court relied heavily on language from two Georgia action against Defendants, asserting—among other things— Court of Appeals opinions. In Flexible Products Co. v. Ervast, claims for ordinary negligence and for breach of fiduciary the state appellate court said, in dicta, that Georgia's business judgment rule “forecloses liability in officers and directors for duty based on ordinary negligence. 2 In response to the ordinary negligence in discharging their duties.” 284 Ga.App. action, Defendants asserted various affirmative defenses, 178, 643 S.E.2d 560, 564 (2007). including (1) the FDIC's failure to mitigate damages, (2) 3 reliance, and (3) estoppel. Two years later, the state appellate court again wrote about whether corporate officers and directors may be held liable *1345 In the light of Georgia's business judgment rule, for claims of ordinary negligence.