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Bank Directors', Officers', and Lawyers' Civil Liabilities, Second Edition

Bank Directors', Officers', and Lawyers' Civil Liabilities, Second Edition

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Overview

Bank Directors', Officers', and Lawyers' Civil Liabilities, Second Edition is an essential resource for any attorney who is litigating or attempting to settle cases brought by the federal and state banking regulators against directors, officers, and legal counsel of financial institutions. It provides current analysis of the new law emerging from the courts, the Supreme Court's landmark decision in O'Melveny & Myers v. FDIC and the demise of the federal common law regarding failed financial institutions. Directors' and officers' liability insurance and bank fidelity bonds are also covered in detail. John K. Villa guides you through the complexities of litigating an action - and discusses ways to reduce the chances of litigation - with strategic recommendations for all key players. This authoritative treatise answers essential questions such as:

 

  • When is a bank director indemnified?
  • How is the statute of limitations applied?
  • What added responsibilities does a lawyer assume by becoming a bank director; does federal or state law control?
  • What are acceptable courses of conduct for the bank?
  • What must agencies prove before a court will enforce an administrative subpoena for financial data?
  • How does the Sarbanes-Oxley Act of 2002 affect those banks that constitute a public company?
Last Updated 05/01/2018
Update Frequency Updated semi-annually
Product Line Wolters Kluwer Legal & Regulatory U.S.
ISBN 9781454801085
SKU 10046645-7777
Table of Contents

CHAPTER 1. FIDUCIARY DUTIES OF DIRECTORS

Common Law Breach of Fiduciary Duty

  • What Law Applies?

Statutory Bases for Liability

  • 12 U.S.C. §§93 and 503
  • 12 U.S.C. §501a
  • 12 U.S.C. §1833a
  • Other Banking Statutes
  • Sarbanes-Oxley Act of 2002

CHAPTER 2. LIABILITIES OF BANK AND THRIFT COUNSEL

Introduction

  • FDIC Investigations, the Decision to Sue and Settlement
  • Document Demands and Administrative Subpoenas

Malpractice

Aiding and Abetting Breach of Fiduciary Duty

Fraud

Attorney-Director

  • The Standard of Care Applicable to Attorney-Directors
  • Conflict of Interest Issues
  • Defense Considerations
  • Policy Considerations

Theories Based on Breaches of State Attorney Conduct Rules

  • Ethical Rules as a Basis for Liability Generally
  • Conflicts of Interest
  • Duty to Disclose or “Blow the Whistle”
  • Duty to Withdraw
  • Going “Up the Ladder”—Model Rule 1.13—Disclosure Within the Client Entity

Liability Based on Breaches of the SEC's Reporting Requirements

  • Attorneys Subject to Reporting Obligations
  • Conduct Triggering the Reporting Requirements
  • Extent of Reporting Obligations
  • Relationship to State Disciplinary Rules

Actual and Constructive Knowledge

Scope-of-Representation Issues

  • Generally
  • Kaye Scholer

Proximate Cause

Affirmative Defenses

  • Affirmative Defenses Based on the Conduct of the Agency as Receiver or Assignee
  • Affirmative Defenses Based on the Conduct of the Regulators
  • Statute of Limitations

Damages

CHAPTER 3. ADMINISTRATIVE ENFORCEMENT

Definitions

  • Individuals Subject to Administrative Actions
  • “Violation”
  • “Appropriate Federal Banking Agency”
  • “Unsafe or Unsound Practices”
  • “Any Written Agreement Entered into with the Agency”

Civil Money Penalties

  • Civil Money Penalties After FIRREA
  • General Civil Money Penalty Authority
  • General Civil Money Penalty Practice and Procedure
  • Violations of the Federal Reserve Act
  • Violations of the National Bank Act
  • Violations of the Change in Control Act
  • Violations of the Bank Tying Act
  • Holding Company Act Violations
  • Other Civil Money Penalty Authority

Cease and Desist Orders

  • Jurisdiction for Cease and Desist Orders
  • Current Cease and Desist Authority
  • Cease and Desist Order Disclosure Obligations
  • Temporary Orders to Cease and Desist
  • Capital Directives
  • Penalties for Violations of Cease and Desist Orders or Capital Directives
  • Asset Freezes

Removal and Prohibition/Suspension Orders

  • Pre-FIRREA Statute
  • 12 U.S.C. §§1818(e), (g), (j) After FIRREA
  • Consequences of Suspension, Removal or Prohibition Order—And Failure to Comply
  • Persons Under Indictment or Convicted of Crimes

Other Administrative Tools to Influence the Composition of the Board and Management

  • Agency Disapproval of Directors and Senior Executive Officers of Certain Depository Institutions
  • Prompt Corrective Action

Administrative Hearings

  • Hearing Rules of Practice and Procedure
  • Review of Final Agency Decisions

CHAPTER 4. DIRECTORS' AND OFFICERS' INSURANCE

Introduction

  • Duties of Bank Officers and Directors
  • State Indemnification Laws

Directors’ and Officers’ Liability Insurance: A Definition

  • History of D&O Insurance

D&O Insurance: Liability Versus Indemnity

  • Characteristics of Liability Insurance
  • Characteristics of Indemnity Coverage
  • Characteristics of D&O Insurance

D&O Insurance Distinguished from Fidelity Bonds

Typical Policies

  • Major Underwriters
  • Structure

General Rules of Construction

Coverage

  • Wrongful Act
  • Loss
  • Calculating “Loss”
  • Discovery Period
  • Retroactive Coverage and Retroactive Dates
  • Coverage of Potential Claims: “Notice of Circumstances”

Standard Exclusions

  • The Dishonesty Exclusion
  • Personal Profit
  • Short Swing Trading Profits
  • Other Insurance or Failure to Maintain Insurance

Recently Developed Exclusions

  • “Insured vs. Insured” Exclusion
  • The Regulatory Exclusion
  • Hostile Takeover Exclusion
  • Prior Notice Exclusion
  • Prior Litigation Exclusion

Making a Claim

  • Timing
  • Adequacy: The Notice/Prejudice Rule and Notice of Circumstances Provisions

Reservation of Rights

  • Requirements
  • Purpose

Advancement of Attorneys' Fees and Costs of Litigation

  • Defense Costs As Additions to the Limit on Liability
  • Coverage of Criminal Attorneys' Fees
  • Allocation

Cooperation

  • In General
  • Invoking the Fifth Amendment
  • Attorney-Client Privilege

Settlements

  • Insurer's Duty to Settle
  • Policy Provisions
  • Collusion
  • Bad Faith
  • Settlement By Less Than All Insureds
  • Allocation

Suits To Establish Coverage

  • Declaratory Relief
  • Effect of the No-Action Clause
  • Direct Actions Against the Insurer

Rescission

  • Misrepresentation
  • Effect on Other Directors

Cancellation

  • Grounds, Notice, and Limitations
  • Non-Renewal

Subrogation of Insurer

  • Insurer's Subrogation Rights Against Outside Third Parties

Priority of RTC or FDIC to D&O Proceeds

CHAPTER 5. FIDELITY BOND CLAIMS

Definition and Development of the Financial Institution Bond

  • Definition
  • Development

Overview of Standard Bond Form 24

  • Standard Form 24
  • Loss-Sustained Bonds
  • Duration of the Bond
  • Rules of Construction and Waiver

FIB Definitions

  • Employees
  • Forgery
  • Loans
  • Property

Exclusions

  • Forgery Exclusion
  • Civil Disturbance and Nuclear War
  • Director Exclusion
  • Loan Exclusion
  • Losses Based on Customer Services
  • Trading Losses
  • Exclusions Resulting from Bank Errors
  • Uncollected Funds
  • Credit Card and ATM Losses
  • Extortion
  • Exclusions Restricting the Basic Insuring Agreements
  • Potential Income
  • Damages
  • Expenses
  • Miscellaneous

Who Is Insured: Changes in Control and Other Considerations

  • Changes in Control
  • Joint Insureds
  • Ownership

Financial Considerations

  • Limit of Liability
  • Deductible
  • Valuation
  • Effect of Other Insurance
  • Apportionment of Excess Recoveries

Causation

Discover

  • Pre-1980 Efforts to Define Discovery
  • A Definition of Discovery
  • When Will Discovery Be Imputed to the Bank?

Notice of Loss

  • Mechanics
  • Proof of Loss
  • Effect of Inadequate Notice
  • Collecting Indemnity
  • Notice of Legal Proceedings and Election to Defend

Cooperation

Misrepresentation and Its Effects

Termination and Cancellation

  • Termination of the Bond in Its Entirety
  • Termination Upon Discovery

Subrogation

  • Definition
  • Subrogation Rights Against a Banks' Officers and Directors
  • Timing of the Subrogation Remedy

Coverage of Third-Party Claims

Insuring Agreement (A): Dishonesty

  • Individuals Covered
  • Conduct Covered
  • The Financial Benefit Requirement and Typical Employee Benefits
  • Financial Benefit Test in Loan Losses

Other Coverages Provided Under Standard Form 24

  • Insuring Agreement (D): Check Forgery
  • Insuring Agreement (E): Securities Forgery
  • Insuring Agreements (B) and (C): Property Losses
  • Insuring Agreement (F): Counterfeit Currency

CHAPTER 6. INDEMNITY

Overview

  • Indemnification Defined
  • Purpose
  • Public Policy Constraints
  • Insurance Distinguished

History

  • Early State Laws
  • Delaware and the Model Act
  • Delaware and Model Acts Diverge
  • Impact of Director Liability Crisis on State Indemnification Statutes

The Delaware Indemnification Statute

  • Overview
  • Coverage
  • Scope
  • Procedures for Awarding Indemnification
  • Advance Indemnity Payments
  • Authority to Purchase D&O Insurance
  • Nonexclusivity

Federal Regulatory Limitations on Indemnification for Financial Institutions

  • OCC Indemnification Requirements
  • OTS Regulations
  • FDIC's Indemnification Role Also Contains Over 50

Appendices—Including Policy Statements, Guidelines, and Key Primary Source Documents

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