Possibly as a result of a barrage of recent press criticism for its nonpublic settlements, the FDIC has launched a page on its website to publish details regarding the settlements it has reached in failed bank claims. The page, which can be found here, acknowledges that it is not yet complete. Even in its incomplete state it does reflect information about at least three settlements that as far as I am aware had not previously been publicly available.
First, the background about the questions surrounding the FDIC’s nonpublic settlements. In a March 11, 2013 Los Angeles Times article entitled “In a Major Policy Shift, Scores of FDIC Settlements Go Unannounced” (here) critical of the agency, E. Scott Rickard noted that the FDIC has “opted to settle cases while helping banks avoid bad press, rather than trumpeting punitive actions as a deterrent to others.” The article notes the agency’s willingness to agree, in connection with claims settlements, that the details of the settlements would not be disclosed except in response to a specific inquiry. As a result, claims defendants were able to avoid having settlement details made public.
Indeed, there have been settlements in FDIC failed bank lawsuits that are not publicly available. In report on FDIC litigation as of December 31, 2012, Cornerstone Research noted in connection with failed bank lawsuits that have settled so far, the details of at least two of the six settled cases had not been made publicly available. In addition, I have been advised by many participants in the failed bank claim process that there have been other settlements in which the parties resolved failed bank claims without the FDIC actually filing suit. Details regarding these pre-suit settlements have also not been publicly disclosed.
Perhaps as a reaction to the adverse publicity following the Los Angeles Times article, the FDIC has now added to its website a page on which it has listed at least some settlements with the apparent intention of having the page complete by the end of this month. The page (here) lists only three settlement agreements, all from the state of Florida. As far as I am aware, the details regarding these three settlements previously were not publicly available. At least one of the settlements directly involves the thee settling defendants D&O insurer. None of the three settlements listed relate to the two cases for which Cornerstone Research had been unable to obtain settlement information.
The first of the three settlement agreements posted on the site involves a July 2012 settlement between the FDIC as receiver for the failed BankUnited of Coral Gables, Florida and Michael Orlando. BankUnited failed in May 2009. In May 2012, the FDIC in its capacity as BankUnited’s Receiver filed an action against Orlando and others in the Northern District of California alleging fraud and other misconduct in connection with certain loan transactions. According to the settlement agreement posted on the FDIC’s website, Orlando agreed to settle the FDIC’s claim for payments totaling $1 million. The settlement agreement does not specify whether or not Orlando served as a director or officer of the bank, but certain details of the settlement suggest that he was not. The settlement agreement does not mention D&O insurance.
The second settlement agreement that the FDIC has posted on its website involves the failed First Priority Bank of Bradenton, Florida. First Priority, which closed in April 2008, was one of the first bank’s to fail as part of the current bank failure wave. The settlement agreement, which is dated in April 2012, states that the FDIC as First Priority’s receiver asserted claims against certain former directors and officers of First Priority in connection with certain of the bank’s loans. It does not appear that the agency actually filed a lawsuit against the individuals; rather, it appears that the settlement was negotiated without a suit being filed. In a detail that will be of interest to readers of this blog, it appears that First Priority’s D&O insurer is a party to the settlement agreement and that the insurer, despite apparently disputing whether there was coverage under its policy for the FDIC’s claim, agreed to fund the settlement in the amount of $1,750,000. The insurer apparently received a policy release for its payment, subject to certain specified reservations.
The third settlement agreement list on the FDIC’s website involves the failed Ocala National Bank of Ocala, Florida, which failed in January 2009. The agreement is between the FDIC in its capacity as the bank’s receiver and an entity identified only as The Willoughby Corporation. The FDIC apparently filed a lawsuit against Willoughby, which Willoughby apparently agreed to settle for its payment of $40,000. The settlement agreement does not identify the nature of the FDIC’s claims against Willoughby.
It isn’t clear from the FDIC’s website why all three of the matters referenced on t he website page involve failed Florida banks, nor is it clear why these three particular matters are the ones included on the site – frankly, the three seem like a rather odd assortment, and the absence of information relating to the settlements of the litigated cases seems odd. An optimistic assessment of the information would be that this page is still under construction and the obviously missing information to be added in order to complete the page.
Indeed, the page itself says that the “initial posting of past settlements will occur on a rolling basis as they are processed with the goal to have recent settlement agreements posted by March 31, 2013.” The page also says that “will publish the terms and conditions of all settlements as they become available and the material will be updated on a monthly basis.” It will be interesting to monitor the page as the agency updates it in the coming days, in particular to see whether the agency posts the previously unavailable information about the litigates case settlements, and to see the extent to which the agency includes information regarding pre-litigation settlements.
The agency’s apparently new found interest in settlement transparency could pose some challenges. The agency could face certain constraints in disclosing past settlements to the extent the parties to the settlements had reached understandings that the settlement would remain confidential. Future settlement negotiations could be complicated to the extent that parties to the negotiations want to try to make confidentiality a condition of any possible settlement. Negotiations could also be complicated as information becomes more readily available that might serve as settlement benchmarks or at least reference points. On the other hand, greater transparency will allow a more accurate assessment of what the FDIC’s claims have accomplished and could even afford some insight into the impact of the settlements on D&O insurers. Some observers may also contend that greater settlement transparency will provide deterrent effects as well.