SAN FRANCISCO--(BUSINESS WIRE)--This year’s Federal Deposit Insurance Corporation litigation activity associated with failed financial institutions is already exceeding that of the previous three years. According to Characteristics of FDIC Lawsuits against Directors and Officers of Failed Financial Institutions—September 2013, a new report by Cornerstone Research, the FDIC has filed at least 32 D&O lawsuits as of August 8, 2013, compared with annual totals of 26 in 2012, 16 in 2011, and two in 2010.
This year’s increase in lawsuits stems from financial institution failures between the third quarter of 2009 and the third quarter of 2010, when failures were most common. Of the 32 lawsuits filed so far in 2013, nine were against institutions that failed in 2009 and the remaining 23 were against institutions that failed in 2010. Additional lawsuits are expected to be filed through the rest of the year, given the three-year statute of limitations for tort lawsuits and the likely existence of tolling agreements allowing the FDIC additional time to determine if it will file a lawsuit.
“As expected, the FDIC’s filing of D&O lawsuits has picked up this year,” said Katie Galley, a senior vice president of Cornerstone Research and one of the report’s authors. “Of the institutions that failed in 2009 and 2010—the peak years of the FDIC’s seizures—the directors and officers of nearly one third have been sued or negotiated settlements with the FDIC prior to the filing of a lawsuit. We expect this will increase as the year progresses.”
- Of the 76 filed lawsuits, 10 have settled and one has resulted in a jury verdict. Three settlements have occurred this year, with four in 2012, and three in 2011.
- Chief executive officers continue to be the most commonly named defendants. They have been named in 88 percent of all filed complaints and 28 of the 32 lawsuits in 2013. Filed complaints named outside directors, along with inside directors, in 75 percent of all filed complaints and 24 of the 32 lawsuits filed in 2013.
- To date, the FDIC has claimed damages of $3.6 billion in the 69 lawsuits that have specified a damages amount. Average damages amounted to $53 million, with a median value of $27 million. Lawsuits filed in 2013 have had a lower average claim than lawsuits filed in 2011 and 2012. In the aggregate, the largest claims have related to the failure of California institutions, while the largest number of D&O lawsuits have targeted failed institutions in Georgia.
- The directors and officers of 57, or 41 percent, of the financial institutions that failed in 2009 either have been the subject of FDIC lawsuits or have settled claims with the FDIC prior to the filing of a lawsuit. That compares with 39, or 25 percent, so far for institutions that failed in 2010.
- FDIC seizures of financial institutions continued to decline in 2013 compared with 2012. After only four seizures in the first quarter of 2013, there were 12 in the second quarter and four in the third quarter through August 27, 2013. In total, the FDIC has seized 20 institutions so far in 2013 compared with 51 in 2012. Since 2007, 488 financial institutions have failed.
Details can be found in the full report.
About the Authors and Cornerstone Research
Abe Chernin, Catherine J. Galley, Yesim C. Richardson, and Joseph T. Schertler are authors of the report. Abe Chernin is a principal in the San Francisco office of Cornerstone Research, Catherine J. Galley is a senior vice president in the firm’s Los Angeles office, Yesim C. Richardson is a vice president in the firm’s Boston office, and Joseph T. Schertler is a senior consultant in the firm’s Menlo Park office.
For more than 25 years, Cornerstone Research staff have provided economic and financial analysis of complex issues arising in commercial litigation and regulatory proceedings. During this time, we have worked on behalf of defendants in lawsuits brought by the FDIC and Resolution Trust Corporation. Cornerstone Research has 450 staff and offices in Boston, Chicago, Los Angeles, Menlo Park, New York, San Francisco, and Washington.