In the second of three D&O lawsuits filed on successive days in August, the FDIC sued six former directors of Columbian Bank and Trust (Topeka, KS), which was placed into receivership in August 2008.  A copy of the FDIC’s complaint is available here.

The FDIC’s complaint alleges that Columbian embarked on an aggressive commercial and CRE lending program in 2003 to drive up the Bank’s revenues.  In furtherance of this lending program, the FDIC contends, Columbian incentivized its loan officers to generate loans, at the expense of credit quality.  The FDIC further alleges that this “uncontrolled” lending campaign, combined with the defendants’ several other failures — most notably, the failure to heed regulators’ warnings and to follow the Bank’s own loan policies – caused the 40-year-old Columbian Bank to collapse in just five years.

The complaint focuses on losses resulting from loans to twelve sets of borrowers.  The FDIC is seeking to hold the former directors for the total amount of those loan losses, which is over $52 million.

Aside from the FDIC’s contention that the loans at issue violated the Bank’s loan policy and were the product of a negligent underwriting and approval process, the loans bear few common characteristics.  In one example, the FDIC alleges that Columbian made a series of loans ($18 million in total) to a newly-formed LLC to purchase and rehab a commercial office building in Kansas City that had no signed leases or tenants.  Columbian apparently never prepared a DSC or cash flow analysis on the project; nor did it obtain financial statements on the borrower or its guarantors.  The project failed, and the Bank ultimately suffered losses of nearly $8 million.

The FDIC’s complaint presents two case theories: (1) that the defendants were negligent and/or breached their fiduciary duty with respect to approval of the failed loans; and (2) that the defendants were negligent and/or breached their fiduciary duty in connection with their failure to properly supervise the Bank’s officers and employees.  These two case theories are presented in the context of claims for gross negligence (under FIRREA), negligence under state law, and breach of fiduciary duty under state law.

Perhaps the most interesting aspect of the FDIC’s complaint is the allegation that the six defendants, along with “other culpable former directors,” constituted a majority of the Bank’s board.  This clearly suggests that the FDIC has elected not to sue all of the former Columbian directors, despite its assertion that they are “culpable” for the Bank’s failure.

Why the FDIC has chosen not to sue other former directors of Columbian is not clear from the complaint.  One possible explanation is that the defendant directors all served on the Director’s Loan Committee and that the other former directors did not.  This does not seem plausible, however, since Columbian’s own loan policy invests ultimate responsible for all lending activities with the full board.  Other possible explanations could be that the non-defendant directors did not vote for the loan loss transactions at issue in the complaint, or that they voiced concern with Columbian’s aggressive lending strategy.  Regardless of the reason they were omitted from the complaint, we view this as an encouraging sign that the FDIC will not automatically seek to attach liability to any and every person who served as a director of a failed banking institution.