In a blow to the banking industry, the U.S. solicitor general is opposing Supreme Court review in a director and officer liability case.
The industry had hoped the justices would use Atherton v. Federal Deposit Insurance Corp. to resolve the long-simmering dispute over whether a standard of gross or simple negligence would be applied in such cases.
The government has claimed it may sue under a simple negligence standard, which means it only has to prove bank officials erred in making a lending or management decision. The industry, however, has argued that the government should be required to use the harder-to-prove gross negligence standard, which requires it to show officials made decisions they should have known were wrong.
Solicitor General Drew S. Days III wrote in a March 6 brief that the justices should return the case to the lower courts, which he said should clarify their views on the dispute. The justices normally follow the solicitor general's suggestions, making review of the case unlikely.
The government won the Atherton case before the U.S. Court of Appeals for the Third Circuit in Philadelphia, although it has lost similar cases before other federal appeals courts.
The government has kept the negligence dispute alive by bringing new cases in jurisdictions that have not yet weighed in on the debate. A Supreme Court decision in favor of the industry would prevent the government from continuing this strategy.
Industry officials said they were disappointed by the decision. "The issue has to get resolved, and this will just mean more litigation until it does get resolved," said Michael Crotty, the deputy director for litigation at the American Bankers Association. "That doesn't do the government any good and it doesn't do the litigants any good."
Ronald Glancz, a partner at the Washington law firm of Venable, Baetjer, Howard & Civiletti, said the industry is tired of arguing about the issue.
"You have thousands of directors out there who do not know what the standard of care is and whether they get the protections all other directors get," said Mr. Glancz, who represents one of the directors in the case.
Atherton v. FDIC stems from the 1989 failure of City Federal Savings Bank, Bedminister, N.J. The Resolution Trust Corp. sued City Federal's former officers and directors in 1991, charging they were negligent for approving $100 million in bad loans.
A final decision on whether the justices will take the case is expected in June.