Three years ago, we referred to Georgia as the elephant graveyard of community banks. As an unfortunate result of that status, three years later Georgia is leading the country in the number of FDIC lawsuits against former directors and officers of failed banks.
In a blog post today, Kevin LaCroix discusses (among other matters) some disturbing aspects about this trend.
This latest lawsuit is the tenth that the FDIC has filed as part of the current bank wave involving directors and officers of a failed Georgia bank. Because the FDIC has not updated its online litigation page in over a month, I am not completely sure of the current overall number of lawsuits filed, but I believe that this latest suit represents the 35th that the agency has filed against directors and officers of failed banks so far. In other words, over 28 percent of all the D&O lawsuits the FDIC has filed so far have been filed in Georgia. Of the approximately 440 banks that have failed during the current bank failure wave, about 80 were in Georgia, or about 18 percent of the total. For whatever reason, the FDIC’s D&O litigation activity is disproportionately concentrated in Georgia. By contrast, Florida, which also has seen a significant number of bank failures as part of the current bank failure wave, has only seen one lawsuit – so far.
Kevin also links to an article in the Atlanta Journal-Constitution by the always excellent Scott Trubey about the latest lawsuit. Scott has been following the community banking meltdown in Georgia since its earliest days.
Kevin notes that, because the lawsuit was filed well beyond the expiration of the three-year statute of limitations, the defendants most likely signed a tolling agreement. Whether or not such agreements should be signed can be a tough call. In this case, it didn't benefit the defendants.
Kevin also points out the consistency of the FDIC in repeatedly alleging both gross negligence and ordinary negligence against both officers and directors of failed banks, notwithstanding the fact that a recent decision by a federal district court in Georgia has held that, because of the business judgment rule, directors cannot be held liable for ordinary negligence, and the fact that another federal district court judge in Georgia held that the business judgment rule applies to officers, as well as to directors.
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, undoubtedly anticipating this argument, included in its complaint specific allegations asserting that the defendants are not entitled to rely on the business judgment rule, at paragraph 55.)
Until an appellate court of final jurisdiction rules on the issue, the FDIC is apparently going to continue to pitch ordinary negligence claims and hope that it can get one of them to stick. At some point, you would think Rule 11 might present a deterrent; however, that day has not arrived. Until it does, defendants in Georgia will have to pay their lawyers to file (and win) motions to dismiss claims of ordinary negligence.