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Federal Deposit Insurance Corp. v. Loudermilk

United States Court of Appeals, Eleventh Circuit

July 22, 2019

FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for the Buckhead Community Bank, Plaintiff - Appellee,

          Appeal from the United States District Court for the Northern District of Georgia, No. 1:12-cv-04156-TWT

          Before TJOFLAT, MARTIN, and ANDERSON, Circuit Judges.


         The directors of Buckhead Community Bank wanted to make Buckhead a "billion dollar bank." So, they set out to execute an aggressive growth strategy. To implement the growth strategy, the directors expanded the Bank's loan portfolio. Many of these loans failed, costing the Bank millions. In late 2009, the Georgia Department of Banking and Finance closed the Bank, and the Federal Deposit Insurance Corporation was appointed as the Bank's receiver.

         As receiver, the FDIC sued several of the Bank's former directors and officers. (We will refer to them as "the directors" for convenience.) The FDIC alleged the directors were negligent and grossly negligent in approving ten risky loans. The case went to trial, and a jury found that the directors were negligent (and thus liable) in approving four of the ten loans. The District Court refused to instruct the jury on apportionment, so the negligent directors were held jointly and severally liable for the damages.

         On appeal, the directors make three arguments. First, they claim that the District Court erred when it refused to instruct the jury on apportionment. Second, they argue that a director can only be on the hook for a loan if he attended the meeting where the loan was presented and affirmatively voted to approve that loan. Thus, they say the District Court erred by not instructing the jury accordingly. Third, they argue that the District Court abused its discretion when it did not allow them to introduce evidence about the Great Recession, which the directors claim was an intervening cause that should absolve them of liability. We reject all three arguments and affirm.



         Under the Bank's policy, the Directors' Loan Committee had to approve all loans above a certain amount, and it did so at weekly meetings. The Directors' Loan Committee was made up of several members, but a quorum of three voting members could approve a loan.[2] Despite this quorum-approval policy, any one member of the Committee could veto a loan all on his own-even if he didn't attend the meeting. Thus, if a member wanted to kill a loan, he had two options. He could veto the loan before it was discussed and voted on at a meeting, or he could attend the meeting and cast his no vote there. By contrast, if a member neither objected before the meeting nor attended the meeting and voted against a loan, he effectively voted to approve it. Even if he didn't attend the approval meeting and cast a yes vote on the record, he still approved the loan by not using his veto power at any point during the approval process.

         The approval process itself went something like this. The lending officer originated a loan and compiled a packet of information about it. The packet included a credit memorandum and a loan submission sheet. As it turns out, the information in the loan packets wasn't always reliable. For example, one of the loans at issue was a loan to buy land; the loan packet for this loan included an appraisal of the land, and the appraisal assumed the land had been rezoned. But this was nothing more than an assumption because the land was not rezoned at the time of the appraisal.[3] A packet for another loan included irrelevant information about the borrowers (such as country club membership) but left out information related to credit-worthiness. After the lending officer compiled the packet, he sent it to the members of the Directors' Loan Committee a day or so before the Committee met.

         At the Loan Committee meeting, the lending officer presented the loan to the Committee members who were present. There could have been as many as eight members present or as few as three due to the quorum-approval policy.


         After the Bank closed and the FDIC took over as receiver, the FDIC sued the former directors.[4] The FDIC alleged that the directors rubber stamped risky loans without properly researching them; the directors were then uninformed when they approved these loans, the FDIC said. As a result, the FDIC argued that the directors were negligent and grossly negligent in approving ten risky loans. The FDIC also alleged that the directors "pursued a common plan or design, or otherwise acted in a common or concerted manner."

         The directors-jointly represented by the same lawyers-moved to dismiss, arguing that Georgia's business judgment rule bars claims for ordinary negligence. The District Court certified that question to the Supreme Court of Georgia, and the Supreme Court held that the business judgment rule bars some but not all claims against directors. FDIC v. Loudermilk, 761 S.E.2d 332, 338 (Ga. 2014) ("Loudermilk I"). Specifically, it held

the business judgment rule . . . forecloses claims against . . . directors that sound in ordinary negligence when the alleged negligence concerns only the wisdom of their judgment, but it does not absolutely foreclose such claims to the extent that a business decision did not involve "judgment" because it was made in a way that did not comport with the duty to exercise good faith and ordinary care.


         The case moved through discovery and pretrial motion practice. Two of the District Court's pretrial rulings are relevant on appeal. The first relates to one of the directors' affirmative defenses. After discovery, the FDIC moved for summary judgment on the directors' sixth affirmative defense, which alleged that intervening causes or events caused the alleged damages. In response, the directors withdrew the affirmative defense, and the District Court entered an order saying it would prevent the directors from introducing evidence related to the withdrawn defense. Later, the directors proposed introducing evidence on intervening cause, and the Court granted the FDIC's pretrial motion to exclude it.

         The second relevant pretrial ruling relates to the directors' proposed jury instructions. Before trial, the directors asked for a jury instruction that would require the jury to apportion fault by percentage for any director that the jury found was negligent and thus liable. The directors also asked for an instruction that said a director could be held liable for a loan only if he attended the meeting where that loan was presented and approved. The District Court found that apportionment did not apply and sustained the directors' objection to that instruction. The Court did not make a pretrial ruling on the proposed attendance instruction.

         The case went to trial, and the evidence reflected the approval process that we described above. Although each member of the Directors' Loan Committee had complete power to veto a loan, none of them used this power to kill any of the loans at issue here. At the close of evidence, the District Court held an instruction conference. The directors again asked for the apportionment instruction and the attendance instruction, and the Court rejected both. The jury found that the directors were negligent (and thus liable) in approving four of the ten loans.[5] The District Court entered judgment and did not apportion the nearly $5 million in damages.

         The directors appealed and challenge three of the District Court's decisions: (1) its decision rejecting their proposed apportionment instruction, (2) its decision rejecting their proposed attendance instruction, and (3) its decision excluding evidence about the Great Recession.


         "We review jury instructions de novo to determine whether they misstate the law or mislead the jury" and prejudice the objecting party. Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233, 1283 (11th Cir. 2008) (alteration omitted) (quoting United States v. Campa, 529 F.3d 980, 992 (11th Cir. 2008)). "We review a district court's evidentiary rulings for abuse of discretion." Proctor v. Fluor Enters., Inc., 494 F.3d 1337, 1349 n.7 (11th Cir. 2007).

         We take up each of the directors' arguments separately.


         First, we consider whether the jury instructions-which did not allow the jury to apportion damages based on percentage of liability-misstated Georgia law or misled the jury. We hold that it would have been impossible for the jury to divide fault among the liable directors. Therefore, Georgia's apportionment statute did not apply in this case, and the jury instructions neither misstated Georgia law nor misled the jury.

         As relevant here, Georgia's apportionment statute says this: "Where an action is brought against more than one person for injury to . . . property, the trier of fact . . . shall . . . apportion its award of damages among the persons who are liable according to the percentage of fault of each person." O.C.G.A. § 51-12-33(b). Whether the apportionment statute applied was a major issue both before and during trial. If it applied, the FDIC could not pursue joint and several liability. If it did not apply, however, the FDIC could pursue joint and several liability and potentially hang the entire judgment on the liable director who was most able to pay.

         As the parties were preparing for trial, both sides submitted proposed verdict forms. The directors' proposed verdict form required the jury to assign a percentage of fault to each liable defendant, while the FDIC's proposed verdict form took an all-or-nothing approach and didn't allow the jury to assign fault percentages. After the FDIC objected to the directors' proposed verdict form, the District Court took up the apportionment issue the week before trial.

         Without clear guidance from the Georgia courts, the District Court held that the apportionment statute did not apply. FDIC v. Loudermilk, No. 1:12-CV-4156-TWT, 2016 WL 7364770, at *2–3 (N.D. Ga. Oct. 6, 2016) (order denying apportionment). The Court looked to another Georgia statute that deals with director liability and concluded that "Georgia law presumes that the directors of a bank are acting in concert." Id. at *3.[6] The District Court explained that the directors are "tortfeasors acting in concert," and it correctly pointed out that Georgia case law says apportionment statutes don't apply to concerted action. Id.

         But even putting this legal barrier to apportionment aside, the District Court concluded that the jury would be left guessing if it tried to apportion liability. The Court noted that the directors' defense was that they "collectively did not breach any duty to the Bank." Id. Based on this defense, and the directors' own concession that they would "offer no evidence or argument as to the relative liability of the individual" directors, the Court found that the jury would have no reasonable basis for apportioning liability among the liable directors. Id. Thus, the District Court held that apportionment did not apply. Id.

         At the instruction conference, the directors again requested their proposed verdict ...

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