Jury Verdict in Failed Bank Legal Malpractice Action

Jury Verdict in Failed Bank Legal Malpractice Action

 As discussed in an article in the Sarasota Herald Tribune (here), on May 22, 2013, a Middle District of Florida jury returned a verdict against Sarasota law firm Icard Merrill, and one of its partners, Robert Messick, in a legal malpractice action arising out of the collapse of the failed First Priority Bank of Bradenton, Florida.

The FDIC had claimed that Messick had represented multiple parties in a single loan transaction that had cause a significant loss to the bank. The FDIC, in its role as receiver for the failed bank, had sought damages of over $4 million, but the jury reduced the damage award to $1.2 million. The trial court is now considering post-trial motions. The May 23, 2013 press release from the law firm that had represented the FDIC in the case can be found here.

According to the FDIC's professional liability lawsuits page on its website (here), legal malpractice cases are among the 51 actions that the agency has authorized above and beyond the actions the agency has authorized to be filed against the former directors and officers of failed banks. As discussed here, in at least one failed bank lawsuit the agency has filed, the agency's complaint named as defendants certain former directors and officers of the bank and also named as defendants the bank's former outside General Counsel and former outside law firm. In addition to negligence, gross negligence and breach of fiduciary duty claims against the former directors and officers, the FDIC's complaint alleged legal malpractice claims against the former General Counsel and his law firm.

While it is clear that the FDIC intends to pursue attorney malpractice claims as part of its litigation approach in the current bank failure wave, the FDIC's pursuit of legal malpractice claims does not seem to as significant component of the agency's litigation strategy as it was during the S&L crisis. Information on the FDIC's website shows that during the S&L crisis, the agency and the RTC filed a total of 205 attorney malpractice suits in connection with 10 percent of all failed institutions. From those cases and some prelitigation settlements, the agencies recovered more than $500 million, averaging about $2.5 million for each suit filed. The primary source of recovery in most of the cases was attorney malpractice insurance policies.

The agency clearly aims to include attorney malpractice claims and recoveries this time around. It just seems that the attorney malpractice claims will not loom as large as part of the agency's failed bank recoveries as they did during the S&L crisis. The agency does not appear to be filing nearly as many legal malpractice claims this time around, either in absolute numbers or as a percentage of bank failures.

In part this decline in the number of failed bank legal malpractice actions may be due to one important change in the relationship between bank's outside counsel and the bank's board. Prior to the S&L crisis, it was quite common for a bank's outside counsel to sit on the bank's board. The potential conflict in responsibilities led to many of the claims that the FDIC and the RTC filed during the last bank failure wave. Since then, it became much less common for outside counsel to serve on bank's boards. So a factor that led to many of the claims during the S&L crisis simply is not present for nearly as many of the bank failures during the current bank failure wave.

Read 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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