Georgia’s Supreme Court is pondering questions posed by a federal appeals court that could determine whether a $5 million verdict against the directors of the defunct Buckhead Community Bank is ultimately overturned.
Attorneys for the Federal Deposit Insurance Corp. and former members of the bank’s loan committee faced off Tuesday in oral arguments before the high court over whether the $5 million verdict, handed down by a federal jury in 2016, should have been apportioned among each of the defendants.
The jury held that eight bank directors and officers demonstrated negligence and gross negligence when they approved four of the 10 multimillion-dollar defaulted loans that precipitated its collapse.
The FDIC, which guaranteed customers’ deposits when Buckhead collapsed, originally sought to claw back more than $22 million in losses stemming from a string of risky, high-dollar real estate development loans that turned sour as the housing market collapsed. The FDIC shut down the bank in 2009.
In appealing the U.S. District Court’s verdict, attorneys for the bank directors argued that Chief Judge Thomas Thrash erred when he refused to instruct the jury to apportion the monetary damages among the defendants.
Thrash decided that, in issuing the loans, the bank directors and officers who were members of the loan committee acted in concert in approving the bad loans.
A federal appellate panel that included Eleventh Circuit Judges Gerald Tjoflat and Judge Beverly Martin and Senior Judge Robert Lanier Anderson asked the state justices in April to decide whether Georgia’s apportionment statute applies strictly to personal injury and tangible property losses, or also implicitly includes monetary losses.
The appellate panel wants clarification on whether Georgia’s apportionment law applies to defendants who are found to have acted in concert. The panel also wants to know whether state law allows a finding that the bank defendants could be held jointly as well as individually or severally liable, if they acted in concert.
A finding that they are jointly and severally liable would mean the FDIC can pursue collection of a judgment against any or all of the defendants. The defendants, in turn, would be left to sort out their own individual responsibility and payoff. It also would mean that, if one or more defendants are unable to pay an equal share, a winning plaintiff could seek the balance from the other defendants.
FDIC attorneys argued Tuesday that the state apportionment statute is limited to injury and tangible property, not to financial losses, and that the apportionment statute did not abolish joint and individual liability for defendants who were found to have been negligent after acting in concert.
FDIC lawyers also argued that the defendant bank directors never presented evidence suggesting their responsibility and liability varied depending on their individual roles in approving the loans that defaulted. Instead, FDIC lawyers contended that the defendant bank directors presented a united defense at trial, and were represented by the same lawyers who argued to the jury that the loan committee acted “as a team.”
Before the trial, the defendant bank officers asked that the verdict form require jurors to apportion liability, but Thrash turned down the request.
FDIC lawyers also contend the defaulted loans were approved by a single loan committee whose members repeatedly breached the bank’s loan policy and underwriting requirements, banking regulations and prudent banking practices in approving or failing to object to the loans in question.
But lawyers for the defendants countered that financial losses also are a form of property loss and urged justices to make that determination.
They also argued there’s no basis under state law to find the defendants acted in concert, and cited the FDIC’s decision to sue each bank director and officer on the basis of their individual decisions and conduct.
Alston & Bird partner Robert Long, lead counsel for the defendants, argued there was ample evidence presented at trial that would have allowed a jury to apportion fault among the defendants if Thrash permitted that.
On Tuesday, several justices seized on two key issues. The first—what constitutes property under Georgia law and whether millions of dollars in financial losses sustained by the bank that ultimately threw it into receivership could be considered an apportionable property loss akin to a theft. The second—whether a finding that the bank defendants acted in concert means they remain jointly and as well as individually liable.
Justice Charles Bethel queried whether any bank board members who might have voted against a loan could be included as acting in concert with those who did.
“No,” FDIC attorney Scott Watson replied. “They wouldn’t be liable at all. They wouldn’t have breached a duty.”
Justice Keith Blackwell also pushed Long for what constituted the actual property loss in the Buckhead bank litigation.
“There is less money in the bank’s coffers if the money is loaned out and you don’t get it back,” Long replied.
Justice Nels Peterson said the real question is what the Legislature knew when it used the term property.
“If it looked out in the world of case law, and property clearly meant one thing that would be different. … But, clearly, property has been defined in a number of ways,” Peterson said.
“This is a little different than stealing money out of a bank account,” he added. “It’s taking an action that has the effect of causing you loss.”