The 55-page civil action was filed on Jan. 25 in the U.S. District Court for the Northern Georgia District, with the attorneys for the Federal Deposit Insurance Corp. demanding a jury trial on the matter.
The filing lists 11 former officers and directors of the First National Bank of Georgia, which closed on Jan. 29, 2010.
Defendants named in the lawsuit are former CEO Howard B. Lipham III; former President Randall F. Eaves; former Executive Vice President Mary M. Covington; and directors Grady W. Cole, Richard A. Duncan, W. Thomas Green Jr., Lemuel G. Joyner, R. David Perry, Thomas T. Richards, J. Thomas Vance and Charles M. Willis Sr.
All of the defendants are residents of Carroll County, except Eaves, who lives in Haralson County. All defendants were leading the bank until its 2010 failing except Willis.
The civil action alleges that the defendants are guilty of negligence — both ordinary and gross — and a breach of fiduciary duties, for failing to follow sound banking practices in approving 14 real estate loans that led to heavy losses.
The 14 acquisition, development and construction (ADC) and commercial real estate (CRE) loans used as examples in the lawsuit were approved from July 2006 through February 2008.
One such example concerns a $2.6 million loan to a limited liability corporation that was approved by nine of the defendants in June 2007. The stated purpose of the loan was to finance the purchase of vacant lots in a subdivision in Paulding County.
The executive loaning committee approved bank policy exceptions for not requiring the borrower and guarantors’ 2006 tax returns, and a loan-to-value ratio of 90 percent, which exceeded the bank policy limit of 75 percent for commercial acquisition and development loans.
The defendants’ attorney, Mary Gill of Alston & Bird of Atlanta, said the claims have no merit and that the officials “proudly served their community for decades as officers and directors of the bank.”
Gill said the defendants “faithfully fulfilled their responsibilities and at all times acted in the best interest of the bank.”
Lipham declined comment, saying Gill had shared the feelings of the defendants.
Ken Barber, CEO of Douglasville-based Metro Bank where Lipham currently works at the bank’s Carrollton office, said the lawsuit is “very common and expected,” and that the FDIC “has to” sue a failed bank to receiving bond or insurance funds.
“They want to get money to pay for the losses,” Barber said. “This is very customary, and these defendants were not doing anything that every other bank director was doing. They ran the bank as best as they could.”
Barber said the best evidence that the lawsuit is not a meaningful one is that Lipham is currently working for a bank.
“[Lipham] works for me,” Barber said. “So if there was a real problem, FDIC wouldn’t let that happen.”
The lawsuit alleges that at least one of the defendants failed to take appropriate steps to address “red flags” with respect to the bank’s lending.
The civil action also accuses the defendants of recklessly and on an uninformed basis causing First National Bank of Georgia to embark on an aggressive growth strategy beginning in February 2005.
“Despite receiving information showing a slowing of housing sales and peaking of home prices in 2006, defendants continued to approve high risk and speculative ADC and CRE loans and loan participations, including the exemplar loans,” the lawsuit reads.“The actions and omissions that give rise to the defendants’ liability include, among other things: (i) originating, recommending, and/or approving loans in violation of the bank’s loan policy; (ii) extending credit to borrowers who were not creditworthy; (iii) extending credit based on inadequate information about the financial condition of prospective borrowers and guarantors and without adequately analyzing cash flow and other critical financial information; (iv) approving and originating speculative commercial real estate loans despite known adverse economic conditions in the local real estate market; (v) permitting unsafe and unsound concentrations of credit; and (vi) failing to supervise, manage, conduct and direct the businesses and affairs of the bank to ensure compliance with prudent principles of banking.”
FDIC accuses the bank officers of having a “routine practice” of approving exceptions to loan policy, which had the “cumulative effect of undermining applicable loan policies.”
“Defendants, as officers and/or directors of FNBG, each owed the bank a duty of care under common law ... to exercise the diligence, care and skill that ordinarily prudent persons would exercise under similar circumstances in the management, supervision and conduct of FNBG’s business and financial affairs, including its lending practices,” the filing reads.
The action was filed by David L. Turner, Joseph L. Kelly and Abby von Fischer-Benzon, of Schulten, Ward & Turner of Atlanta, acting as attorneys for plaintiff FDIC.
First National Bank of Georgia was headquartered in Carrollton and opened for business on Sept. 16, 1946, as a national bank. The institution’s name at the time of the charter was West Georgia National Bank.
On July 1, 2007, the bank acquired First National Bank of Georgia of Buchanan and took that entity’s name.
At the time of its failure, the bank operated 14 full-service locations in three Georgia counties.
The FDIC estimated at the time that its failure would result in a loss of more than $260 million to the FDIC’s insurance fund, the backstop that protects depositors.