On July 11, 2014, The Supreme Court of Georgia decided that officers and directors of banks are protected by the business judgment rule, which affords officers and directors a presumption of good faith and ordinary care in the performance of their duties a landmark ruling for officers and directors of Georgia’s financial institutions in the landmark decision of FDIC v. Loudermilk.
FDIC as receiver of The Buckhead Community Bank filed a complaint in the Northern District of Georgia against nine former directors and officers of the failed bank. The FDIC’s complaint asserts claims against the defendants for negligence and for gross negligence and alleges that the defendants engaged in “numerous, repeated, and obvious breaches and violations of the Bank’s Loan Policy, underwriting requirements and banking regulations, and prudent and sound banking practices” as “exemplified” by thirteen loans and loan participations the defendants approved that caused the bank damages “in excess of $21.8 million.”
The defendants moved to dismiss the FDIC‘s ordinary negligence claims against them, relying on several prior decisions in failed bank cases in the Northern District of Georgia that bank directors cannot be held liable for ordinary negligence under Georgia’s business judgment rule.
In a unanimous opinion, Justice Blackwell confirmed that the business judgment rule is a “settled part of our common law in Georgia and that it applies to bank directors and officers to the same extent as it applies to non-bank directors and officers. A series of Georgia cases suggested that, while courts should not second-guess well-intended business decisions that turn out badly, a director cannot abdicate his or her responsibilities to reach business decisions in an informed and deliberative manner and expect to be protected by the business judgment rule.
We believe this is important because it is now now more important than ever for Georgia directors and officers to carefully consider and document the process by which business decisions are reached. While this was a victory for directors and officers in Georgia, the opinion does open the door for directors and officers to face liability for some types of negligence claims.