Loophole Could Permit Simple-Negligence Suits

By Seiberg, Jaret | American Banker, February 12, 1997 | Go to article overview
Save to active project

Loophole Could Permit Simple-Negligence Suits

Seiberg, Jaret, American Banker

A recent Supreme Court decision making it harder to successfully sue directors and officers for negligence contains a major loophole.

Lawyers who analyzed the January decision said the justices left open the possibility that the Office of the Comptroller of the Currency and the Office of Thrift Supervision could adopt rules subjecting top bank officials to simple negligence suits.

For a finding of simple negligence, plaintiffs need to prove merely that directors and officers erred in a decision, while a finding of gross negligence requires proof the officials made a decision they knew would cause the institution to lose money.

Simple negligence stood at the center of a decade-long fight between the banking industry and the Federal Deposit Insurance Corp., which had claimed the right to bring simple negligence suits against officers and directors of failed institutions.

That fight was supposed to have ended last month when the Supreme Court ruled in the so-called Atherton case.

Under the decision, the FDIC may bring any gross-negligence suit it wants. For the agency to charge officers or directors with simple negligence, however, the bank must be in a state that expressly allows such suits. A 1994 study found that only four states allow simple negligence suits.

Industry lawyers initially hailed the ruling, saying it protects directors and officers from expensive litigation. Government lawyers, however, said the Comptroller's Office or thrift supervisors could use their regulatory power to circumvent the decision.

Neither agency is planning any rule changes, but government lawyers, who asked to remain anonymous, said pressure could mount to adopt a simple negligence standard if financial institutions once again start failing in great numbers.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Loophole Could Permit Simple-Negligence Suits


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?