01/31/2012 05:14:00 PM EST
FDIC Sues Former Officers of Failed California Bank
In its latest failed bank lawsuit, the FDIC, in its
capacity as receiver of the failed County Bank of Merced, California, has filed
a complaint against five former officer of the bank. The FDIC's complaint was
filed in the United States District Court for the Eastern District of
California on January 27, 2012, just short of three years from the date of the
bank's closure. A copy of the FDIC's complaint can be found here.
County Bank failed on
February 6, 2009 and the FDIC was appointed as its receiver. The FDIC's
lawsuit has been filed against five former officers of the bank, each of whom
served on the bank's Executive Loan Committee. The complaint alleges claims
against them for negligence and breach of fiduciary duty, in connection with 12
loans the bank made between December 2005 and June 2008, which the FDIC says
caused the bank losses in excess of $42 million.
The FDIC alleges that the five defendants caused or
allowed the bank to make "Imprudent real estate loans, typically for the
construction and development of residences." The complaint alleges that the
bank's real estate lending represented "significant departures from safe and
sound practices." The complaint further alleges that the bank's management
"disregarded the Bank's credit policies and approved loans to borrowers who
were not credit worthy and/or for projects that provided insufficient
collateral and guarantees for repayment." The complaint further alleges
that the bank's management "unwisely continued risky commercial real estate
lending in a deteriorating market even after becoming aware of the market
The FDIC filed its complaint only days before the third
anniversary of the bank's closure - that is, just before the expiration of the
statute of limitations period within which the FDIC could bring its
claims. Up until this point during the current bank failure wave, the FDIC
has been proceeding very deliberately, in most cases filing lawsuits only after
two years or more has elapsed since the date of bank closure.
The FDIC's filing of this action just before the end of
the limitations period is reminder that notwithstanding the FDIC's deliberate
pace in filing these lawsuits, the FDIC does face certain absolute time
deadlines. Moreover, this particular bank's closure occurred at a time when the
number of bank closures began to escalate rapidly. The FDIC took control of
increasing numbers of banks as 2009 progressed and on in to early 2010, which
means that the limitations period within which the FDIC will have to file
lawsuits will be about to run out for a host of failed banks in the coming
There were a total of 140 bank failures in 2009, ten in
February 2009 alone, after only 25 bank failures in all of 2008. The numbers of
bank closures escalated even further after February 2009. Indeed, there 95 bank
failures in the last six months of 2009. In other words, as we move through
2012, the FDIC will be approaching the statute of limitations deadline for
increasing numbers of banks.
In light of the approaching limitations deadline the 2009
bank failures, it seems likely that over the next few months we will see a
surge in case filings, many, like the complaint here, filed at the very end of
the applicable limitations period.
In any event, the FDIC's action in the County Bank case
represents the twenty-first failed bank action the agency has filed so far as
part of the current bank failure wave, and already the third so far in 2012.
The FDIC's first two actions this year, both of which were filed in Puerto
Rico, are described here.
Year End Securities Litigation Review
Webinar: On February 1, 2012 at 11:00 am EST, I will be
participating in a year-end securities litigation review webinar sponsored by
Advisen . The webinar will be moderated by Advisen's Jim Blinn and will also
include my good friend David Williams of Chubb. The webinar is free. To
register and for additional information, refer here.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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