A federal court in North Carolina ruled against the Federal Deposit Insurance Corp.'s multimillion-dollar loan loss claim against Cooperative Bank.
U.S. District Court, Eastern District of North Carolina Judge Terrence Boyle decided in favor of nine former directors and officers of the Cooperative Bank, whose assets were seized in 2009 and sold at auction by the FDIC incurring roughly $40 million in loan losses, according to the court order.
The FDIC filed a $40 million in loss recovery action complaint against the bank's former executives, who challenged the FDIC's complaint and its allegations that the approval of dozens of commercial real estate loans, and residential lot loans to certain experienced developers in 2007 and 2008 represented "negligence, gross negligence and breach of fiduciary duties."
The court found that "voluminous documentary and testimonial evidence clearly demonstrated that the defendants acted in good faith, exercised due diligence, and employed a rational process" in approving the loans challenged by the FDIC.
The Sept. 10 court decision was based on the principle that "directors and officers who exercise their business judgment in making decisions, even if those decisions later turn out to be problematic, will not be held personally liable," according to the ruling.
The court concluded that the loan approval process implemented by the bank's former officers and directors "could not have been irrational" and does not justify the FDIC's rating of the bank, which eventually led to the bank's closing and sale of its assets. Hence, the ruling dismissed the FDIC's claims in their entirety.
Venable LLP represented the company during the multiyear litigation.