Are Bank Directors and Officers Individually Liable Under Georgia Banking Law?

November 24, 2014 | Charles Bowen

Georgia Banking Law - Liability and Bank OfficersThe Questions:

  1.  Does a bank director or officer violate the standard of care established by  O.C.G.A. § 7-1-490 when he or she acts in good faith but fails to act with “ordinary diligence” as that term is defined in O.C.G.A. § 51-1-2?

  2. Can a bank officer or director be held individually liable if they are shown to have been ordinarily negligent in performing their professional duties or to have otherwise breached a fiduciary duty?

The Answer to Both Questions:  

YES

A bank director or officer acting in good faith can still be liable (even individually) for failure to abide by the appropriate standard of care. The Supreme Court of Georgia advised that a bank director or officer violates the standard of care established in O.C.G.A. § 7-1-490 if he or she “fails to exercise the diligence, care, and skill of ‘ordinarily prudent men [acting] under similar circumstances in like positions.’” (See Fed. Deposit Ins. Corp. v. Loudermilk, 761 S.E.2d 332 (Ga. 2014)).  The Court went on to state that bank officers and directors can be held individually liable for such a violation (See FDIC v. Skow, Arnold, et al).

 

Background Information

Integrity Bank of Alpharetta, Georgia went into receivership in 2008 after losing more than $70 million due to risky loans.  The FDIC was appointed the bank’s receiver and sued the bank’s director and officers in U.S. District Court for ordinary negligence, gross negligence and breach of fiduciary duty based on ordinary and gross negligence.  

The case was originally heard by U.S. District Judge Steve C. Jones.  Issues from that case were certified for interlocutory appeal to the 11th Circuit.  The 11th Circuit Court of Appeals ruled that liability of bank directors and officers for claims of ordinary negligence was “debatable under Georgia law” and thus certified the following two questions to the Supreme Court of Georgia:

  1. Does a bank director or officer violate the standard of care established by O.C.G.A. § 7-1-490 when he acts in good faith but fails to act with “ordinary diligence” as that term is defined in O.C.G.A. § 51-1-2?

  2. In a case like this one, applying Georgia’s business judgment rule, can the bank officer or director defendants be held individually liable if they are shown to have been ordinarily negligent or to have breached a fiduciary duty based on ordinary negligence in performing professional duties?

In light of FDIC v. Loudermilk, 761 S.E.2d 332 (2014), the Supreme Court of Georgia held that “a bank director or officer may violate the standard of care established by O.C.G.A. § 7-1-490 even when acting in good faith…”.  It similarly ruled that the bank officer and defendants may be held individually liable if they are shown to have violated this standard of care.

Bottom Line / Quick Info You Can Use

A bank director or officer acting in good faith can still be liable for failure to abide by appropriate standard of care.   

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Topics: Georgia Banking Law