The FDIC, as the receiver of the failed IndyMac Bank F.S.B. (the “Bank”), won a jury verdict in the U.S. District Court for the Central District of California of $168.8 million against three former officers of the homebuilders division (the “Division”) of the Bank. None of the officers were directors of the Bank. The jury found that the three defendant officers of the Division – the President and chief executive, chief lending officer and chief credit officer of the Division – had been negligent and had breached their fiduciary duties with respect to the 23 construction loans that were the subject of the jury verdict.
In the case, FDIC v. Van Dellen et al., the FDIC alleged that the defendant officers failed to implement appropriate internal controls to manage the business of the Division, failed to require borrowers to provide adequate collateral for the loans, ignored other elements of the Division’s credit policy and departed from safe and sound banking practices. Attorneys for the defendant officers argued that the losses suffered by the Bank in connection with the 23 loans at issue resulted from the unforeseen and unprecedented widespread collapse of housing values in 2007.
The case was the first case to be filed by the FDIC against directors and officers of a failed bank in connection with the recent U.S. financial crisis and is also the first such case to go to trial.
The defendant officers and their legal counsel have not yet stated whether they will file appeals with respect to findings made by the Judge prior to the jury rendering its verdict. One potential issue is the Judge’s finding that the three defendant officers (who, as noted above, were not directors of the Bank) could not, under California law, rely on the business judgment rule as a defense.
Subsequently, in a separate matter, the FDIC settled its suit against Michael Perry, the former Chief Executive Officer of the Bank for $12 million (with $1 million to be paid from Mr. Perry’s personal funds and up to $11 million to be provided by the Bank’s professional liability insurers). As reported, however, the insurers are not parties to the settlement agreement and, as part of the settlement, Mr. Perry assigned his rights under the insurance policies to the FDIC.