A recent decision out of the Northern District of Georgia has raised a question as to whether the business judgment rule applies to bank officers and directors. The FDIC sued the officers and directors of Buckhead Community Bank after the bank failed. As is often the case in such suits, the officers and directors moved to dismiss the case relying on the "business judgment rule" that generally grants deference to the business judgment of a company's officers and directors.
Judge Thrash denied the motion to dismiss, and wrote, "There is every reason to treat bank officers and directors differently from general corporate officers and directors. In general, when a business corporation succeeds or fails, its stockholders bear the gains and losses. . . . But when a bank, instead of a business fails, the FDIC and ultimately the taxpayer bears the pecuniary loss."
Based on this difference, Judge Thrash held that the business judgment that provides protection to officers and directors of corporations does not apply to officers and directors of banks, at least under Georgia law. Judge Thrash's decision is not the final say on this matter. We do not know if this will ultimately be the law in Georgia or if other states will adopt this reasoning. This case is one that officers and directors of banks should watch closely. We'll be watching, so stay tuned.
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