FDIC v. Loudermilk: Breaking Down the New Georgia Supreme Court Opinion

By James Bates Brannan Groover LLP

On March 13, 2019, the Georgia Supreme Court issued a new opinion in FDIC v. Loudermilk, et. al.,  the  FDIC’s  case  against  former  directors  and  officers  of  The  Buckhead  Community  Bank  (“BCB”).  The Georgia Supreme Court’s opinion focused on whether directors and officers can be held jointly and severally liable for damages, or whether such damages should be apportioned relative to individual fault.  This opinion is ground-breaking because the court concluded that if directors and officers act “in concert” –where  the  acts  of  one  are  the  acts  of  another  – that  all  directors  and  officers  can  be  held  jointly  and  severally liable, even if one or more was not actually at fault.  However, this opinion left open the door onwhether the FDIC actually proved joint and several liability in this case, an issue that will be determined in the underlying appeal.  This new opinion, and the underlying case history, is important to understand so that bank directors and officers know how to best situate themselves to defend against potential claims.   

On October 25, 2016, the jury in Loudermilk found the former BCB directors and two BCB loan officers liable for $5 million of the $21 million in damages claimed by the FDIC.  These damages were tied to ten loans reviewed and approved by the defendants.  Interestingly, in the jury’s verdict, the jury did not find the two former BCB officers liable on certain loans.  Regardless, the district judge entered a final judgment for  the  full  amount  of  damages and  held  each  former  BCB  director  and  officer  jointly  and separately liable for the acts of all the other former BCB directors or officers, regardless of actual fault.  The district court did so on the basis that all former BCB directors and officers had acted in concert with each other in approving each loan on behalf of BCB.   

On appeal to the United States Court of Appeals for the Eleventh Circuit (“Eleventh Circuit”), the former BCB directors and officers sought a retrial, arguing that the jury should have been instructed that any damages should be apportioned between each of the former directors and officers according to their individual fault.  If the jury had been instructed to do so, any one of the former BCB directors or officers not  at  fault  in  the  making  of  a  loan  would  not  have been  held  liable  for  the  amount  of  the  judgment  entered  for  damages  on  that  loan.    This makes sense, particularly in a loan committee or board meeting context, where a director or officer may vote against a specific action.  However, the district judge deniedtwo requests by the former BCB directors’ and officers’ request for apportionment.

The  Eleventh  Circuit  recognized  that  the  issues  of  apportionment  or  joint  and  several  liability  needed to be answered by the Georgia Supreme Court.  This  led to the Georgia Supreme Court’s review of  the  case  and  its    March  13,  2019  opinion.    In  its  opinion,  the  Georgia  Supreme  Court  held  that  Georgia’s apportionment statute does apply to cases where monetary losses are caused by the negligence of more than one person, such as in the Loudermilk case.  However, the Georgia Supreme Court also held that Georgia’s  apportionment  statute  had  not  eliminated  Georgia  common  law  on  joint  and  several  liability if negligent parties acted in concert with each other.  In other words, the Georgia Supreme Court recognized  that  if  the  FDIC  had  proven  that  all  of  the  former  BCB  directors  and  officers  had  acted  in concert  together, that  all  former  BCB  directors  and  officers  could  be  held  liable  jointly,  as  well  as  individually, for all damages arising from each loan. 

The  Georgia  Supreme  Court’s  opinion did  not  outline  parameters  of  “in concert”  action  in  this  specific  case.    The  lingering  question  then, for  many  banks  now,  is  what  actions  taken  by  directors  or  officers are “in concert”, thus creating joint and several liability.  For example, if a director votes against or abstains from a vote, as in Loudermilk,  but the majority of directors vote to approve the loan, is this an “in  concert”  action  extending  liability?Importantly,  the  Georgia  Supreme  Court  declined  to  answer  whether “in concert” action had taken place in the underlying case, reserving that issue for the Eleventh Circuit. 

The Eleventh Circuit will have to consider whether the FDIC actually proved that all former BCB directors and officers acted in concert when they approved the loans.  This will be interesting to watch, particularly  as  the  jury  did  not  find  two  of  the  former  BCB  officers  at  fault  in  approving  several  of  the  loans.   This  is  a  key  outstanding issue,  one  worth  following.    The  outcome  of  the  Eleventh  Circuit’s  review may heighten risk for director or officer liability if “in concert” action was actually proven.   

It  is  worth  mentioning  that  the  Georgia  Supreme  Court’s  opinion  specifically  discussed  an available remedy for any director or officer not at fault, but who is held jointly and severally liable for in concert action.  This remedy is known as contribution; contribution is the idea that a party who is not at fault,  but  is  held  jointly  and  severally  liable  with  other  at-fault  parties,  may  sue  the  at-fault  parties  for reimbursement  of  any  damages  imposed  on  the  party  not  at  fault.    It  is  worth  noting  that  while  this  remedy is available, the costs of suit and recovery would be expensive.

​Should your bank want to discuss this case or the issues raised in this article, please contact Dan Brannan   at   (404)   997-6023   (dbrannan@jamesbatesllp.com),   Michael   White   at   (478)   749-9921 (mwhite@jamesbatesllp.com), or Corrie Hall at (478) 749-9949 (chall@jamesbatesllp.com).

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