799 F.3d 301 (4th Cir. 2015), 14-2078, FDIC v. Rippy

Docket Nº:14-2078
Citation:799 F.3d 301
Opinion Judge:GREGORY, Circuit Judge.
Party Name:FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Cooperative Bank, Plaintiff - Appellant, v. RICHARD ALLEN RIPPY; JAMES D. HUNDLEY; FRANCES PETER FENSEL, JR.; HORACE THOMPSON KING, III; FREDRICK WILLETTS, III; DICKSON B. BRIDGER; PAUL G. BURTON; OTTIS RICHARD WRIGHT, JR.; OTTO C. BUDDY BURRELL, JR., Defendants -- Appellees. NORTH CAROLINA COM
Attorney:James Scott Watson, FEDERAL DEPOSIT INSURANCE CORPORATION, Arlington, Virginia, for Appellant. Thomas E. Gilbertsen, VENABLE LLP, Washington, D.C., for Appellees. Mary L. Wolff, Douglas A. Black, WOLFF ARDIS, P.C., Memphis, Tennessee; Colleen J. Boles, Assistant General Counsel, Kathryn R. Norcro...
Judge Panel:Before GREGORY and HARRIS, Circuit Judges, and HAMILTON, Senior Circuit Judge. Judge Gregory wrote the opinion, in which Judge Harris and Senior Judge Hamilton joined.
Case Date:August 18, 2015
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
SUMMARY

The FDIC-R filed a civil action against several officers and directors of a North Carolina bank, Cooperative Bank, alleging that the officers and directors were negligent, grossly negligent, and breached their fiduciary duties, resulting in the failure of the Bank. On appeal, the FDIC-R argued that the district court erred in finding that North Carolina’s business judgment rule shields the... (see full summary)

 
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799 F.3d 301 (4th Cir. 2015)

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Cooperative Bank, Plaintiff - Appellant,

v.

RICHARD ALLEN RIPPY; JAMES D. HUNDLEY; FRANCES PETER FENSEL, JR.; HORACE THOMPSON KING, III; FREDRICK WILLETTS, III; DICKSON B. BRIDGER; PAUL G. BURTON; OTTIS RICHARD WRIGHT, JR.; OTTO C. BUDDY BURRELL, JR., Defendants -- Appellees.

NORTH CAROLINA COMMISSIONER OF BANKS, Amicus Curiae, THE CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; AMERICAN ASSOCIATION OF BANK DIRECTORS; INDEPENDENT COMMUNITY BANKERS OF AMERICA; THE CLEARING HOUSE ASSOCIATION, LLC; AMERICAN BANKERS ASSOCIATION; ALABAMA BANKERS ASSOCIATION; ALASKA BANKERS ASSOCIATION; ARIZONA BANKERS ASSOCIATION; ARKANSAS BANKERS ASSOCIATION; CALIFORNIA BANKERS ASSOCIATION; COLORADO BANKERS ASSOCIATION; CONNECTICUT BANKERS ASSOCIATION; DELAWARE BANKERS ASSOCIATION; FLORIDA BANKERS ASSOCIATION; GEORGIA BANKERS ASSOCIATION; HAWAII BANKERS ASSOCIATION; HEARTLAND COMMUNITY BANKERS ASSOCIATION; IDAHO BANKERS ASSOCIATION; ILLINOIS BANKERS ASSOCIATION; ILLINOIS LEAGUE OF FINANCIAL INSTITUTIONS; INDIANA BANKERS ASSOCIATION; IOWA BANKERS ASSOCIATION; KANSAS BANKERS ASSOCIATION; KENTUCKY BANKERS ASSOCIATION; LOUISIANA BANKERS ASSOCIATION; MAINE BANKERS ASSOCIATION; MARYLAND BANKERS ASSOCIATION; MASSACHUSETTS BANKERS ASSOCIATION; MICHIGAN BANKERS ASSOCIATION; MINNESOTA BANKERS ASSOCIATION; MISSISSIPPI BANKERS ASSOCIATION; MISSOURI BANKERS ASSOCIATION; MONTANA BANKERS ASSOCIATION; NEBRASKA BANKERS ASSOCIATION; NEVADA BANKERS ASSOCIATION; NEW HAMPSHIRE BANKERS ASSOCIATION; NEW JERSEY BANKERS ASSOCIATION; NEW MEXICO BANKERS ASSOCIATION; NEW YORK BANKERS ASSOCIATION; NORTH CAROLINA BANKERS ASSOCIATION; NORTH DAKOTA BANKERS ASSOCIATION; OHIO BANKERS LEAGUE; OKLAHOMA BANKERS ASSOCIATION; OREGON BANKERS ASSOCIATION; PENNSYLVANIA BANKERS ASSOCIATION; PUERTO RICO BANKERS ASSOCIATION; RHODE ISLAND BANKERS ASSOCIATION; SOUTH CAROLINA BANKERS ASSOCIATION; SOUTH DAKOTA BANKERS ASSOCIATION; TENNESSEE BANKERS ASSOCIATION; TEXAS BANKERS ASSOCIATION; VERMONT BANKERS ASSOCIATION; VIRGINIA BANKERS ASSOCIATION; UTAH BANKERS ASSOCIATION; WASHINGTON BANKERS ASSOCIATION; WASHINGTON FINANCIAL LEAGUE; WEST VIRGINIA BANKERS ASSOCIATION; WISCONSIN BANKERS ASSOCIATION; WYOMING BANKERS ASSOCIATION, Amici Supporting Appellees

No. 14-2078

United States Court of Appeals, Fourth Circuit

August 18, 2015

Argued May 13, 2015

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Appeal from the United States District Court for the Eastern District of North Carolina, at Wilmington. (7:11-cv-00165-BO). Terrence W. Boyle, District Judge.

AFFIRMED IN PART, REVERSED IN PART, VACATED IN PART, AND REMANDED.

ARGUED:

James Scott Watson, FEDERAL DEPOSIT INSURANCE CORPORATION, Arlington, Virginia, for Appellant.

Thomas E. Gilbertsen, VENABLE LLP, Washington, D.C., for Appellees.

ON BRIEF:

Mary L. Wolff, Douglas A. Black, WOLFF ARDIS, P.C., Memphis, Tennessee; Colleen J. Boles, Assistant General Counsel, Kathryn R. Norcross, Senior Counsel, Steven C. Morrison, Counsel, FEDERAL DEPOSIT INSURANCE CORPORATION, Arlington, Virginia, for Appellant.

Ronald R. Glancz, Meredith L. Boylan, VENABLE LLP, Washington, D.C.; Camden R. Webb, Kacy L. Hunt, WILLIAMS MULLEN P.C., Raleigh, North Carolina, for Appellees.

Katherine M.R. Bosken, Raleigh, North Carolina, for Amicus North Carolina Commissioner of Banks.

Kate Comerford Todd, Steven P. Lehotsky, U.S. CHAMBER LITIGATION CENTER, INC., Washington, D.C.; John K. Villa, Kannon K. Shanmugam, Ryan Scarborough, Richard Olderman, WILLIAMS & CONNOLLY LLP, Washington, D.C., for Amicus The Chamber of Commerce of the United States of America.

Michael A.F. Johnson, Nancy L. Perkins, Elliott C. Mogul, Joanna G. Persio, ARNOLD & PORTER LLP, Washington, D.C., for Amici American Bankers Association, Alabama Bankers Association, Alaska Bankers Association, Arizona Bankers Association, Arkansas Bankers Association, California Bankers Association, Colorado Bankers Association, Connecticut Bankers Association, Delaware Bankers Association, Florida Bankers Association, Georgia Bankers Association, Hawaii Bankers Association, Heartland Community Bankers Association, Idaho Bankers Association, Illinois Bankers Association, Illinois League of Financial Institutions, Indiana Bankers Association, Iowa Bankers Association, Kansas Bankers Association, Kentucky Bankers Association, Louisiana Bankers Association, Maine Bankers Association, Maryland Bankers Association, Massachusetts Bankers Association, Michigan Bankers Association, Minnesota Bankers Association, Mississippi Bankers Association, Missouri Bankers Association, Montana Bankers Association, Nebraska Bankers Association, Nevada Bankers Association, New Hampshire Bankers Association, New Jersey Bankers Association, New Mexico Bankers Association, New York Bankers Association, North Carolina Bankers Association, North Dakota Bankers Association, Ohio Bankers League, Oklahoma Bankers Association, Oregon Bankers Association, Pennsylvania Bankers Association, Puerto Rico Bankers Association, Rhode Island Bankers Association, South Carolina Bankers Association, South Dakota Bankers Association, Tennessee Bankers Association, Texas Bankers Association, Utah Bankers Association, Vermont Bankers Association, Virginia Bankers Association, Washington Bankers Association, Washington Financial League, West Virginia Bankers Association, Wisconsin Bankers Association, and Wyoming Bankers Association.

Matthew P. Previn, Joseph J. Reilly, Ali M. Abugheida, BUCKLEY SANDLER LLP, Washington, D.C., for Amici American Association of Bank Directors, Independent Community Bankers of America, and The Clearing House Association, LLC.

Before GREGORY and HARRIS, Circuit Judges, and HAMILTON, Senior Circuit Judge. Judge Gregory wrote the opinion, in which Judge Harris and Senior Judge Hamilton joined.

OPINION

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GREGORY, Circuit Judge.

The Federal Deposit Insurance Corporation, as Receiver for Cooperative Bank (" FDIC-R" ), brought this civil action against the several officers and directors of a failed North Carolina bank, Cooperative Bank (" Cooperative" or the " Bank" ), alleging that the officers and directors were negligent, grossly negligent, and breached their fiduciary duties, resulting in the failure of the Bank. In this summary judgment appeal, the FDIC-R argues that the district court erred in finding that North Carolina's business judgment rule shields the officers and directors from allegations of negligence and breach of fiduciary duty, and that there was insufficient evidence to support claims of gross negligence. For the reasons that follow, we vacate the district court's award of summary judgment to the Bank's officers on the FDIC-R's claims of ordinary negligence and breach of fiduciary duty and remand those claims for further proceedings. We also reverse and remand the district court's order denying as moot the FDIC-R's cross-motion for summary judgment, as well as its order denying as moot the FDIC-R's motion to exclude the declaration of Robert T. Gammill and the attached exhibits. We affirm the district court's judgment with respect to the remaining claims.

I.

Cooperative first opened in Wilmington, North Carolina in 1898 as a community bank and operated as a thrift until 1992. As such, it focused on single-family housing loans. In 1992, the Bank converted to a state-chartered savings bank regulated by the FDIC.1 Cooperative became a state commercial banking institution in 2002, following the board of director's decision to increase the Bank's assets from $443 million to $1 billion by 2005. The Bank's growth strategy focused on commercial real estate lending.

The FDIC and the North Carolina Commission of Banks (" NCCB" ), as Cooperative's regulators, performed annual reviews of the Bank.

During July and August of 2006, the FDIC conducted an annual examination of Cooperative as of June 30, 2006. At the conclusion of the examination, the FDIC issued the Bank's 2006 Report of Examination (" 2006 FDIC Report" ). Cooperative was scored in each of the following

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categories: Capital, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk. The examination categories collectively are commonly referred to by the acronym CAMELS, and are scored on scale from 1-5, with " 1" being the best and " 5" being the worst. Cooperative received a " 2" for each of its CAMELS ratings. The majority of the observations in the 2006 FDIC Report were positive. However, the Report identified deficiencies in credit administration and underwriting, which the FDIC ascribed to oversight weaknesses. Additional problems with audit practices, risk management, and liquidity were also discussed in the Report. Bank management certified that the Report had been reviewed, and the appropriate officials agreed to address the issues.

In September 2007, the NCCB conducted its annual review of Cooperative as of June 30, 2007. At the conclusion of the examination, the NCCB issued its 2007 Report of Examination (" 2007 NCCB Report" ). Like the 2006 FDIC Report, the 2007 NCCB Report awarded the Bank a rating of " 2" for each CAMELS category. Overall, the NCCB concluded that Cooperative was functioning in a satisfactory manner. However, the 2007 NCCB Report also observed that Cooperative's management had been slow to correct deficiencies and weaknesses identified in previous examinations. Such deficiencies included weak credit administration practices, the use of stale financial information in the loan approval process, and problematic audit...

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