The Supreme Court has let stand an appeals court decision that has the effect of giving federal regulators the upper hand in suing bank and thrift officials when an institution fails.
For mortgage lending institutions, the decision means their officers and directors may be sued for simple negligence in states with that standard as the threshold for liability. In states that have a gross or even higher standard of care, regulators may still sue for gross negligence. The court's decision was on a petition for a writ of certiorari in McSweeney and Stalder vs. FDIC, No. 92-1417.
But lawyers at the Savings & Community Bankers of America say an Illinois case with an opposite result, RTC vs. Gallagher, may soon be petitioned to the high court by the FDIC, presenting a conflict between circuits and allowing the high court to settle the controversy.
McSweeney turns on language in the thrift bailout law of 1989 that says that regulators can sue officers and directors of failed institutions "for gross negligence, including any similar conduct or conduct that demonstrates a greater disregard of a duty of care (than gross negligence)."
One legal specialist in enforcement issues said the real issue here may be the intent of regulators who "want to use the simple negligence as a frightener as a means of having directors and officers settle."