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Federal Deposit Insurance Corp. v. Loudermilk

United States District Court, N.D. Georgia, Atlanta Division

November 25, 2013

FEDERAL DEPOSIT INSURANCE CORPORATION as receiver for the Buckhead Community Bank, Plaintiff,
v.
R. CHARLES LOUDERMILK, SR., et al., Defendants

Decided November 22, 2013

For Federal Deposit Insurance Corporation, as receiver for, The Buckhead Community Bank, Plaintiff: Charles B. Lee, Laura Elisabeth Ashby, LEAD ATTORNEYS, Miller & Martin-Atl, Atlanta, GA; Ellis A. Sharp, LEAD ATTORNEY, PRO HAC VICE, Stokes, Williams, Sharp & Davies, Knoxville, TN; Michael Paul Kohler, LEAD ATTORNEY, Miller & Martin, PLLC-Atl, Atlanta, GA.

For R. Charles Loudermilk, Sr., Hugh C. Aldredge, David B. Allman, Marvin Cosgray, Louis J. Douglass, III, Gregory W. Holden, John D. Margeson, Larry P. Martindale, Darryl L. Overall, Defendants: Elizabeth Gingold Greenman, Alston & Bird, LLP - Atl, Atlanta, GA; Robert R. Long, IV, Alston & Bird, LLP-GA, Atlanta, GA.

OPINION

Page 1355

OPINION AND ORDER

THOMAS W. THRASH, JR., United States District Judge.

The Federal Deposit Insurance Corporation, acting as receiver for the Buckhead Community Bank, claims that former officers and directors of the bank were negligent and grossly negligent in their management of the bank's loan portfolio, leading to the bank's failure. The Defendants seek to dismiss the claims. They argue that, in Georgia, the business judgment rule precludes ordinary negligence claims against officers and directors of a bank as a matter of law. The Court is not convinced that the business judgment rule in Georgia should be applied to bank officers and directors, and is not convinced that Georgia law is settled on the issue. Accordingly, the Court will deny the Defendants' motion to dismiss and certify the question of the applicability of the business judgment rule to the Supreme Court of Georgia.

I. Background

In 2005, the Buckhead Community Bank (the " Bank" ) began to implement a new, aggressive growth strategy. The Defendants, R. Charles Loudermilk, Sr., Hugh C. Aldredge, David B. Allman, Marvin Cosgray, Louis J. Douglass III, Gregory W. Holden, John D. Margeson, Larry P. Martindale, and Darryl L. Overall, served on the Bank's Loan Committee and oversaw the aggressive growth strategy. Pursuant to the strategy, the Bank opened three new branches and expanded its loan portfolio. (Am. Compl. ¶ ¶ 2-4, 23).

The Loan Committee actively pursued commercial real estate (" CRE" ) and acquisition, development, and construction (" ADC" ) loans in expanding the Bank's loan portfolio. According to the FDIC, the Loan Committee took unreasonable risks and violated Bank policy by approving speculative loans without adequate information. The Loan Committee also participated in loan purchases from other banks without independently reviewing the loans, again in contravention of Bank policy. (Id. ¶ ¶ 2-4, 25, 43-44).

The Loan Committee's new strategy was ultimately a total failure. From 2005 to 2007, the Bank's loan portfolio increased 240%, mostly from gains in its high-risk real estate and construction loans. At the same time, however, the Bank's adversely

Page 1356

classified assets went from accounting for 12.62 percent of tier 1 capital to 236 percent of tier 1 capital. (Id. at ¶ 32). The changes in the Bank's loan portfolio brought the ire of regulators, and the Bank was repeatedly warned about its excessive concentrations in high-risk loans and about its poor underwriting and credit administration policies. (Id. at ¶ 37). On December 4, 2009, the Bank failed, the Georgia Department of Banking and Finance (" GDBF" ) closed it, and the FDIC took over as receiver. (Id. at ¶ 11).[1]

The FDIC contends that the Defendants -- nine former officers and directors of the Bank -- were negligent and grossly negligent " in their numerous, repeated, and obvious breaches and violations of the Bank's Loan Policy, underwriting requirements, banking regulations, and prudent and sound banking practices." (Id. at ¶ 5). The FDIC's amended complaint details twelve representative loan transactions that it contends were improperly approved or renewed by the Loan Committee (the " Loss Loans" ). The FDIC contends these Loss Loans caused damage to the Bank in excess of $21.8 million. The Defendants contend they were not negligent and suggest that the FDIC is simply seeking to recover for losses caused by the recent and unanticipated financial crisis. Further, they argue that bank directors and officers cannot be held liable for ordinary negligence under Georgia's business judgment rule.

II. Motion to Dismiss Standard

A complaint should be dismissed under Rule 12(b)(6) only where it appears that the facts alleged fail to state a " plausible" claim for relief. Ashcroft v. Iqbal,556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009); Fed.R.Civ.P. 12(b)(6). A complaint may survive a motion to dismiss for failure to state a claim, however, even if it is " improbable" that a plaintiff would be able to prove those facts; even if the possibility of recovery is extremely " remote and unlikely." Bell Atlantic v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In ruling on a motion to dismiss, the court must accept the facts pleaded in the complaint as true and construe them in the light most favorable to the plaintiff. See Quality Foods de Centro America, S.A. v. Latin American Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th Cir. 1983); see also Sanjuan v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994) (noting that at the pleading stage, the plaintiff " receives the benefit of imagination" ). Generally, notice pleading is all that is required for a valid complaint. See Lombard's, Inc. v. Prince Mfg., Inc., 753 F.2d 974, 975 (11th Cir. 1985), cert. denied, ...


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