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 (firstname.lastname@example.org), Michael White at (478) 749-9921 (email@example.com), or Corrie Hall at (478) 749-9949 (firstname.lastname@example.org).
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EVP, Chief of Staff, Government & Regulatory Relations