Federal Deposit Insurance Corporation as received for Bradford Bank v. Arthur (Maryland U.S.D.C.)

Filed: March 2, 2015

Opinion by: Richard D. Bennett

Holding:  In a claim against officers and directors of a Maryland corporation, a plaintiff may only overcome the business judgment rule with a showing of gross negligence. 

Facts: Plaintiff was appointed receiver for a Bank and brought suit against four former officers of the Bank.  Plaintiff alleged Defendants were negligent, grossly negligent and breached fiduciary duties to the Bank by ignoring the Bank’s loan policy and failing to exercise due care in approving seven loan transactions. 

Analysis:  The Court first enforced a Tolling Agreement that was executed by and between the Plaintiff and each of the Defendants (and extended five times) to suspend operation of the statute of limitations under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).  The Court noted that a defendant who enters into a contract while believing the contract is enforceable cannot be said to be acting in good faith. 

The Court then addressed the correct standard of liability for director and officer conduct under the FIRREA and Maryland law.  The Court stated that the FIRREA provides that a director or officer of an insured depository institution may be held personally liable for monetary damages for gross negligence, as such term is defined under applicable state law. 

Plaintiff argued that negligence applied to the conduct of corporate officers and directors under Maryland law due to the codification of the business judgment rule.  The Court disagreed and cited Parish v. Maryland & Virginia Milk Producers Ass’n and Billman v. State of Md. Deposit Ins. Fund Corp. as precedent from the Court of Appeals and the Court of Special Appeals, prior to and after codification of the business judgment rule, that applied a gross negligence standard.  

The opinion is available in PDF.