We have previously summarized an important district court ruling dismissing the FDIC’s ordinary negligence claims against former directors and officers of Integrity Bank of Alpharetta, Georgia. The FDIC asked the U.S. District Court for the Northern District of Georgia to reconsider its decision in that case, but the court recently denied that request and reaffirmed its rationale that Georgia’s version of the Business Judgment Rule bars claims for ordinary negligence against corporate directors and officers. A copy of the court’s recent order in the Integrity Bank case is available here. Although the district court declined to reconsider its prior dismissal of the ordinary negligence claims, it acknowledged that there was “substantial ground for difference of opinion” on that issue, and it granted the FDIC’s request to certify an order of interlocutory appeal to the Eleventh Circuit Court of Appeals. Everyone in the D&O defense community, and especially those here in Georgia, is anxiously awaiting to learn if the Eleventh Circuit will accept interlocutory appeal of the case.
In the meanwhile, district courts in two other cases have weighed in on whether the Business Judgment Rule bars claims for ordinary negligence. The first of these also comes from the Northern District of Georgia, and specifically from the FDIC’s lawsuit against certain former directors and officers of Haven Trust Bank. (We have previously summarized the Haven Trust complaint.) Utilizing the same rationale set forth in the Integrity Bank rulings, the court here ruled that the FDIC’s claims for ordinary negligence are not viable by virtue of the Business Judgment Rule. Furthermore, the court ruled, to the extent that the FDIC’s claims for breach of fiduciary duty are based on the same alleged acts of ordinary negligence, those claims are foreclosed by the Business Judgment Rule as well. The ruling was not a complete victory for the D&O defendants, however, as the court declined to dismiss the FDIC’s claims for gross negligence under FIRREA. Specifically, the court held that the FDIC had alleged, in a collective fashion, sufficient facts on which a jury might reasonably conclude that the defendants had been grossly negligent. Despite that holding, the court took the unusual step, “in the interest of caution,” of ordering the FDIC to replead the gross negligence claim with specific allegations as to each defendant’s involvement or responsibility for the alleged wrongful acts. A copy of the court’s ruling can be viewed here.
The second ruling comes from the FDIC’s lawsuit against the former directors of Florida Community Bank of Immokalee, Florida. (We have previously summarized the Florida Community Bank complaint.) In that case, the Middle District of Florida held that Florida’s statutory version of the Business Judgment Rule, at Fla. Stat. § 607.0831, conditions director liability on “something beyond ordinary negligence.” Consequently, the court dismissed the FDIC’s claims for ordinary negligence. The court declined to dismiss the FDIC’s claims for gross negligence under FIRREA, however. Here, the court ruled that the FDIC’s specific allegations about the directors’ disregard of regulator warnings and the bank’s own loan policy were sufficient to state a claim for gross negligence. To view a copy of the Middle District of Florida’s ruling, click here.
It is important to note that the Middle District of Florida’s decision addresses the viability of claims for ordinary negligence against directors only. It does not address whether the FDIC can assert Florida state law claims ordinary negligence claims against officers.
These three decisions could very well change the legal landscape on the FDIC’s ability to assert state law claims for ordinary negligence in D&O cases. If the Eleventh Circuit accepts interlocutory review of the Integrity Bank case, then we should have some appellate guidance on that issue – at least in Georgia – within the next 12 months. An appeal of the Florida decision may not be far behind. We will continue to monitor these cases and to report on any significant developments