Jury Verdict for FDIC vs. Failed Bank Directors, Officers Upheld

The Eleventh Circuit may have closed the final chapter in the long-running litigation over the failure of the Buckhead Community Bank by affirming a $5 million jury verdict against a group of the bank’s former directors and officers.  FDIC v. Loudermilk, 2109 WL 3282609 (11th Cir. July 22, 2019).  A previous, related court decision during the controversy had disrupted settled assumptions about the liabilities of directors and officers under Georgia law.  FDIC v. Loudermilk, 761 S.E.2d 332 (Ga. 2014).

In a typically lengthy opinion from Judge Tjoflat, the court rejected arguments seeking to overturn the jury’s finding that the defendants were jointly and severally liable for negligently approving four bad loans made by the bank.  The appellants’ first argument was the district court erred in not instructing the jury on apportionment of responsibility among the defendants, a question of Georgia law.  Reasoning that the statute did not apply to concerted action and that Georgia law presumes directors are acting in concert, the district court (Thrash, J.) held that the Georgia apportionment statute, O.C.G.A. § 51-12-33(b), did not apply.  The court also concluded that the defense offered no evidence as to the relative liability of each defendant.  Thus, there was no evidentiary basis for the requested instruction, even if it were a correct statement of the law.

On appeal, the Eleventh Circuit felt obliged to review the tangled history of the case, in which it had previously certified three questions concerning apportionment to the Georgia Supreme Court.  FDIC v. Loudermilk, 826 S.E.2d 116 (Ga. 2019).  The Supreme Court responded that the Georgia apportionment statute applied to tort claims for purely pecuniary losses against bank officers and directors, but held that there was a concerted action exception to its applicability, which was one instance where the fault is not divisible.  Applying this standard, the Eleventh Circuit held that the evidence showed that it was impossible to divide fault among the liable defendants without speculation.  The court found that the evidence was that all of the directors “followed the same defective process.”  The court noted that its holding did not rest on the premise that the defendants acted in concert (on which the jury wasn’t instructed), but on the Georgia Supreme Court’s observation that concerted action isn’t the only route to show that fault is indivisible.  The Eleventh Circuit held that the district court erred in concluding that Georgia law presumes that the directors acted in concert, but that this error was harmless.  In a footnote, the court noted that even with joint and several liability, pro rata, no-fault contribution among defendants might still be available.

But the court wasn’t finished with the subject of apportionment, offering the rather pointed observation that the case “has been infected with a conflict of interest from the moment the directors decided before trial to pursue an apportionment theory of liability.”  The commonly-represented defendants would necessarily be pitted against each other.  The court stated that the conflict of interest continued on appeal.

The second issue on appeal was whether the district court erred in not instructing the jury that a defendant could not be liable for a loan approved at a meeting that he did not attend.  The court found that the directors were responsible for approval, because each director approved it by “sitting on his veto power.”  The failure to use the veto power, the court held, was an implicit stamp of approval on the loan and allowed it to move through the approval process.

Finally, the court held that the district court did not abuse its discretion in excluding evidence related to the Great Recession, as an intervening cause of the harm to the bank.  Critically, at the summary judgment stage, the defendants had withdrawn the affirmative defense of intervening cause.  The district court ruled that the issue was therefore moot, and prohibited evidence at trial relating to this defense.  On appeal the defendants argued that they withdrew the defense because it was not their burden to disprove causation.  But the court found that because the defendants never challenged the court’s pretrial evidentiary ruling to exclude the evidence, there was no abuse of discretion in enforcing it later in the proceedings.

Posted by Tom Byrne.

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