In a step outsiders are calling "a line in the sand," the federal agency charged with monitoring Georgia's failed banks filed a motion for a judge to either reconsider his ruling or let the FDIC appeal in federal court.
In late March, the Federal Deposit Insurance Corp., which safeguards customer deposits, takes over failed banks and manages their final affairs, is pursuing damages in at least seven failed Georgia banks against former bank insiders they claim acted in a way that harmed the institution prior to closure.
The regulator challenged a ruling by U.S. District Court Judge Steve Jones.
Jones said earlier this year that bank directors and officers from Alpharetta-based Integrity Bank are protected from claims of simple negligence by Georgia’s Business Judgment Rule. Directors and officers can be held liable for gross negligence, a much higher standard.
In their appeal, which is not automatic since the case is not over, the FDIC is asking for one of two things: For Judge Jones to reconsider his ruling and reverse it; or to give the FDIC permission to directly petition the United States Court of Appeals for the 11th Circuit. The 11th Circuit covers Georgia, Alabama and Florida.
If both fail, the FDIC would have to wait until the case is over to file a formal appeal. Georgia has had more failed banks than any state since 2008.
"It is clear to me, what the FDIC is doing. This is a big deal to them," said Atlanta lawyer and former banker Henry Turner. "This is not only affecting what is going on in Georgia, but if they can get the 11th Circuit to reverse Judge Jones, that would be binding throughout those three states. I am convinced that this is a serious enough issue for the FDIC -- if for no other reason that Georgia has more bank failures than anyplace else -- that if this is not reversed, they would take it to the Supreme Court."
Gross negligence is defined in Georgia as lacking the care "which every man of common sense, however inattentive he may be, exercises under the same or similar circumstances," according to Jones' ruling. Negligence is a decision lacking "what an ordinarily prudent man would do under the same circumstances."
The Federal Deposit Insurance Corp., which sued the former officers and directors of Integrity Bank for $70 million claiming that the defendants were negligent, grossly negligent and breached their fiduciary duties, will now have to prove those officers and directors were grossly negligent in their duties before the bank failed in August 2008.
The FDIC is hoping to collect money either from the bank officials or from insurance policies the banks carried.
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