A California judge gave former IndyMac Bancorp. Chief Executive Michael Perry time to appeal a ruling that puts him in the crosshairs of a $600 million lawsuit accusing him of negligence for signing off on risky mortgages at the time of the housing collapse.
In an order filed Tuesday with the U.S. Bankruptcy Court in Los Angeles, Judge Otis D. Wright II said the litigation against Perry should be halted while he appeals, because the decision could impact important parts of the case.
A lawyer for Perry didn't immediately respond to requests for comment.
Perry is sparring with the Federal Deposit Insurance Corp. over claims he contributed to IndyMac's collapse by allowing the thrift to buy up risky loans in the dying days of the housing bubble. He wants an appellate court to consider his request to dismiss the case, and Wright's Tuesday decision will halt the FDIC case while he tries to do that.
Wright wrote, "a ruling on appeal in defendant's favor would at least re-focus this litigation on whether Defendant acted with gross negligence as opposed to mere ordinary negligence and thereby alter the scope of discovery."
FDIC spokesman David Barr said the agency doesn't comment on litigation.
The FDIC sued Perry in July of last year, alleging he "acted negligently" in allowing IndyMac to pool some $10 billion in low-quality loans the company was unable to sell in the secondary market. The FDIC, which took over receivership of the thrift after authorities seized it in July 2008, said it was left with losses on the pool of more than $600 million.
Perry's lawyers sought dismissal of the suit, arguing the so-called business-judgment rule shielded him from personal liability for business decisions. That rule has long shielded directors and officers from lawsuits for management decisions that didn't work out.
Judge Wright late last year said the law only applied to directors--not officers--in California, prompting the appeal. Perry's lawyers said the law is unsettled, and think the Ninth Circuit Court of Appeals or the California Supreme Court should decide the issue before the lawsuit proceeds any further.
Perry, who also served as chief executive of bank parent IndyMac Bancorp., is one of the few mortgage executives sued by the regulator in the wake of the financial crisis.
During the housing boom, IndyMac specialized in so-called Alt-A loans, for which borrowers often had to produce very little evidence of income or assets. As the mortgage market spiraled downward in 2007, the bank suffered big losses. IndyMac Bank was seized by federal regulators in the summer of 2008 and parent IndyMac Bancorp filed for Chapter 7 protection shortly thereafter. At the time of IndyMac's takeover by the FDIC, it was the third-largest bank failure in U.S. history.
The banking operations, now known as OneWest Bank FSB, were sold to a new ownership group, whose members included hedge-fund managers John Paulson and George Soros along with Dell Inc. CEO Michael Dell.
Since the onset of the financial crisis, the FDIC authorized lawsuits against 391 directors and officers of failed banks seeking $7.7 billion in claims.
So far, the agency has sued former officials of just 19 failed banks, including IndyMac. It recently settled a $900 million suit against former executives at Washington Mutual Inc., the nation's biggest bank failure, for just a fraction of that amount. The FDIC estimates IndyMac's failure alone will cost its insurance fund $13 billion.