FDIC v. Rippy

Case Updates

The U.S. Court of Appeals for the Fourth Circuit affirmed in part and vacated in part a district court decision granting summary judgment to a defendant bank’s officers who had been sued under FIRREA by the Federal Deposit Insurance Corporation (“FDIC”), acting as receiver for a failed financial institution, for alleged gross negligence in making several hundred mortgage loans that ultimately defaulted during the 2008 financial crisis.

The Fourth Circuit agreed with the Chamber's brief that the district court properly interpreted the business judgment rule as constraining director and officer liability for ordinary negligence, but also concluded that the lower court had improperly applied the rule in granting summary judgment as applied to the particular facts of this case.

In its brief, the US Chamber urged the Fourth Circuit to back the district court’s entry of summary judgment in a case concerning the application of the business judgment rule. The FDIC, acting as receiver for an insured financial institution, brought suit against the institution’s former officers and directors under FIRREA, claiming that the officers and directors had engaged in gross negligence in making several hundred mortgage loans that ultimately defaulted due to the contagion unleased by the 2008 financial crisis. The district court entered summary judgment, concluding that no reasonable juror could conclude that the FDIC had overcome the presumption of reasonableness set by the business judgment rule.

The Chamber’s brief argues that a strong business judgment rule is vital for all companies, not just financial institutions, and that the FDIC’s attempt to water down the protections of the business judgment rule would be detrimental to the interests of both the business community and shareholders. The Chamber’s brief further argues that it is particularly appropriate to resolve business judgment rule issues before trial.

John K. Villa, Kannon K. Shanmugam, Ryan Scarborough and Richard Olderman of Williams & Connolly LLP represented the US Chamber of Commerce as co-counsel to the US Litigation Center in this case.