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Going the Distance: Application of the Business Judgment Rule

January 11, 2016
Attorney At Law Magazine - Minnesota Edition
Author: Janel M. Dressen

With the number of failed financial institutions increasing in the last decade, bank officers and directors have seen a commensurate increase in claims asserted against them by the Federal Deposit Insurance Corporation (FDIC).

According to the FDIC’s website, the FDIC brought claims against directors and officers (D&O) in 24percent of the bank failures between 1985 and 1992. From Jan. 1, 2009 through Oct. 23, 2015, the FDIC authorized suits in connection with 150 failed institutions against 1,207 individuals for D&O liability. This includes 108 filed D&O lawsuits (70 of which have fully settled, and one of which resulted in a favorable jury verdict) naming 826 former directors and officers. Id.

The Federal Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), allows directors and officers of banks to be held personally liable for gross negligence, unless the state imposes a lesser standard of care, such as simple negligence. 12 U.S.C. § 1821(k); Atherton v. F.D.I.C., 519 U.S. 213, 227 (1997). At least one Minnesota United States Federal District Court has concluded that Minnesota provides for a lower standard of care, that of an “ordinarily prudent person in a like position.” F.D.I.C. v. Milbauer et al., No. 15CV434 PAM/JJK, 2015 WL 4255944 (D. Minn. July 14, 2015), citing Minn. Stat. §§ 302A.251, 302A.361. Read more.