- FDIC Now Filing Professional Liability Lawsuits More Than Three Years After Banks Close
- October 17, 2013 | Author: Robert J. Angerer
- Law Firm: Adams Reese LLP - New Orleans Office
Bank failures resulting from the Great Recession have sparked a number of professional liability lawsuits by the Federal Deposit Insurance Corporation (“FDIC”) against former officers and directors. Historically, if the FDIC did not file suit or seek a tolling agreement within three years of the closure of a bank, it was generally presumed that the directors and officers of the bank would not be sued by the agency. This, however has changed.
FIRREA provision extends limitations period
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) provides the FDIC with authority to bring professional liability lawsuits against individual former directors and officers for losses experienced by failed banks. In these lawsuits, the FDIC generally alleges that banks’ losses were caused by the negligence, gross negligence, and breaches of fiduciary duties of former directors and officers of the failed banks.
While actions based upon fraudulent or criminal behavior may be brought over longer periods of time, FIRREA sets out a three year limitations period for the FDIC to bring actions based upon any professional liability claim. Over the last few years, we have experienced the FDIC’s adamant position that it must sue, or have a tolling agreement executed, prior to that three year period expiring. However, the FDIC has now begun to file professional liability lawsuits under a provision of FIRREA that provides the agency with the option of bringing such a suit within the applicable state law limitations period, if it is longer than three years.
Former directors and officers now at risk
While this is not a new provision in the law, it is a marked shift in enforcement policy by an agency that until recently portrayed itself as forced to take action or toll the limitations period prior to the third anniversary of a bank failure. This change in enforcement policy is evidenced by the FDIC’s recent filing of a professional liability lawsuit nearly four years after the subject bank was closed, without a tolling agreement being requested or executed. This shift in policy means that former directors and officers are now at risk of being the subject of an FDIC professional liability lawsuit even beyond the three years, depending upon the applicable state limitations period. This particular suit was filed in August in Florida, where the tort limitations period is four years. In other states, the limitations period may be longer.
Know your state’s limitations period
Since 2009, the FDIC has authorized professional liability lawsuits against 1,007 former directors and officers from 125 closed financial institutions, and has actually filed 79 such lawsuits naming 593 former officers and directors. Former directors and officers of a bank that was placed into receivership with the FDIC should be aware of the statute of limitations within their particular state.