NEWS - Banking & Finance

by Lou Phelps, SBJ Staff

Jan 23, 2012 - As receiver for a failed financial institution, the Federal Deposit Insurance Corporation (FDIC) may sue professionals who played a role in the failure of the institution in order to maximize recoveries. Potential suits are hanging over the heads of a number of Georgia banking execs, with current suits against four in Georgia announced to date. 

But it can take the FDIC years to bring the suits against the bank executives who ran failed banks   So last week, the FDIC issued a report to explain the process of bringing the suits to recover taxpayers money.

These individuals can include officers and directors, attorneys, accountants, appraisers, brokers, or others. Professional liability claims also include direct claims against insurance carriers such as fidelity bond carriers and title insurance companies.

The FDIC Board must approve before actions are brought against directors and officers.

Professional liability suits are only pursued if they are both meritorious and cost-effective. Before seeking recoveries from professionals, the FDIC conducts a thorough investigation into the causes of the failure. Most investigations are completed within 18 months from the time the institution is closed. Prior to filing the claim, staff will attempt to settle with the responsible parties. If a settlement cannot be reached, however, a complaint will be filed, typically in federal court.

In other words, if a ‘settlement’ is reached, the public is not aware that it has taken place.

As receiver, the FDIC has actually has three years to bring a tort claim, and six years for breach-of-contract claims  - a lot of time to file suit from the time a bank is closed. If state law permits a longer time, the state statute of limitations is followed.

Professionals may be sued for either gross or simple negligence. The Supreme Court has ruled that the FDIC may pursue simple negligence claims against directors and officers if state law permits (Atherton v. FDIC). Federal law preempts state law that insulates directors and officers from gross negligence or worse conduct. Bank directors are allowed to exercise business judgment without incurring legal liability.

Not all bank failures result in Director and Officer (D&O) lawsuits. According to the FDIC, it  brought claims against directors and officers in 24 percent of the bank failures between 1985 and 1992.

From 1986 through 2009, the FDIC and Resolution Trust Corporation collected $6.2 billion from professional liability claims. Over that same time, they spent $1.5 billion to fund all professional liability claims and investigations. Early in the process of professional liability claims, expenses will often exceed recoveries due to the costs incurred in handling new investigations. Professional liability program recoveries lag expenses by several years until settlements occur and judgments are awarded.

As of January 18, 2012, the FDIC has authorized suits in connection with 44 failed institutions against 391 individuals for D&O liability with damage claims of at least $7.7 billion. This includes 19 filed D&O lawsuits (2 of which have been dismissed after settlement with the named directors and officers) naming 161 former directors and officers. The FDIC also has authorized 28 other lawsuits for fidelity bond, insurance, attorney malpractice, appraiser malpractice, and RMBS claims. In addition, 189 residential mortgage malpractice and fraud lawsuits are pending, consisting of lawsuits filed and inherited.

                                    Authorized D&O Defendants Damage Claims*   

Authorized in 2009     11        $   366,000,000

Authorized in 2010     98        $2,122,900,000

Authorized in 2011   264        $5,109,920,000

January 2012              18        $     85,800,000

Total                        391        $7,684,000,000

*Losses typically exceed these amounts and may result in higher damage claims in filed lawsuits. Recovery on these claims is dependent upon available recovery sources, such as insurance and personal assets, and competing claims.

Current D&O Suits Filed:

FDIC as Receiver of Integrity Bank of Alpharetta, GA v. Skow, et al., Case No. 1:11-cv-00111-JEC (U.S. District Court for the Northern District of Georgia Filed Jan. 14, 2011).  BANK WAS CLOSED: 

FDIC as Receiver of Haven Trust Bank v. Briscoe, Case No. 1:11-cv-02303-SCJ (U.S. District Court for the Northern District of Georgia Filed Jul. 14, 2011).  BANK WAS CLOSED: 

FDIC as Receiver for Silverton National Bank, N.A. v. Bryan, Case No. 1:11-cv-02790-JEC (U.S. District Court for the Northern District of Georgia Filed Aug. 22, 2011).   BANK WAS CLOSED: 

FDIC as Receiver for Alpha Bank v. Blackwell, Case No. 11-cv-03423 (U.S. District Court for the Northern District of Georgia Filed Oct. 7, 2011).  BANK WAS CLOSED: 

FDIC as Receiver of Corn Belt Bank and Trust Company v. Stark, et al., Case Number 3:11-cv-03060-SEM-BGC (U.S. District Court for the Central District of Illinois Filed Mar. 1, 2011).

FDIC as Receiver of IndyMac Bank, F.S.B. v. Van Dellen, et al., Case No. 2:10-cv-04915-DSF-CW (U.S. District Court for the Central District of California Filed Jul. 2, 2010).

FDIC as Receiver of Heritage Community Bank v. Saphir, et al., Case No. 1:10-cv-07009 (U.S. District Court for the Northern District of Illinois Filed Nov. 1, 2010).

FDIC as Receiver of 1st Centennial Bank v. Appleton, et al., Case No. 2:11-cv-00476-JAK-PLA (U.S. District Court for the Central District of California Filed Jan. 14, 2011).

FDIC as Receiver for Washington Mutual Bank v. Killinger, et al., Case No. 2:11-cv-00459-MJP (U.S. District Court for the Western District of Washington Filed Mar. 16, 2011).

FDIC as Receiver for Wheatland Bank v. Spangler, et al., Case No. 10-cv-04288 (U.S. District Court for the Northern District of Illinois Filed May 5, 2011).

FDIC as Receiver of IndyMac Bank, F.S.B. v. Perry, Case No. 11-cv-05561-ODW-MRW (U.S. District Court for the Central District of California Filed Jul. 6, 2011).

FDIC as Receiver of Michigan Heritage Bank v. Cuttle, Case No.2:11-cv-13422-BAF-MKM (U.S. District Court for the Eastern District of Michigan Filed Aug. 8, 2011).

FDIC as Receiver of The Columbian Bank and Trust Co. v. McCaffree, Case No. 2:11-cv-02447-JAR-KGS (U.S. District Court for the District of Kansas Filed Aug. 9, 2011).

FDIC as Receiver for Cooperative Bank v. Rippy, Case No. 7:11-cv-00165-BO (U.S. District Court for the Eastern District of North Carolina Filed Aug. 10, 2011).

FDIC as Receiver for First National Bank of Nevada v. Dorris, Case No. 11-cv-01652-GMS (U.S. District Court for the District of Arizona Filed Aug. 23, 2011).

FDIC as Receiver for Mutual Bank v. Mahajan, Case No: 1:11-cv-07590 (U.S. District Court for the Northern District of Illinois Filed Oct. 25, 2011).

FDIC as Receiver for Westsound Bank v. Johnson, Case No. 3:11-cv-05953-RBL (U.S. District Court for the Western District of Washington Filed Nov. 18, 2011).

FDIC as Receiver for Bank of Asheville v. Greenwood, Case No. 1:11-cv-00337-MR-DLH (U.S. District Court for the Western District of North Carolina Filed Dec. 29, 2011).

FDIC as Receiver for R-G Premier Bank of Puerto Rico v. Galán-Alvarez, Case No. 3:12-cv-01029-JAG (U.S. District Court for the District of Puerto Rico Filed Jan. 18, 2012).

The FDIC follows the policies adopted by the FDIC Board in 1992, ‘Statement Concerning the Responsibilities of Bank Directors and Officers,’ that can be found online at http://www.fdic.gov/regulations/laws/rules/5000-3300.html#fdic5000statementct.