## Facts

- Cooperative Bank, a North Carolina community bank, shifted in 2002 from traditional residential mortgage lending to rapid growth through commercial real estate (CRE) lending.
- Bank regulators conducted examinations that initially produced satisfactory ratings but repeatedly identified oversight weaknesses and slow corrective action.
- External loan reviews later reported widespread deficiencies in sampled loans, and regulators attributed the bank’s deterioration to its CRE strategy and unresolved risk-management problems.
- During the Great Recession, CRE market stress intensified losses; state regulators closed the bank and appointed the FDIC as receiver.
- The FDIC (as receiver) sued nine former officers and directors, alleging negligent lending and oversight (including approvals without adequate credit review), gross negligence, and breach of fiduciary duty, contending these acts materially contributed to the bank’s failure.
- The bank’s charter included an exculpatory provision eliminating directors’ personal liability for ordinary negligence (but not protecting officers).

## Issues

1. Whether North Carolina’s business judgment rule entitled the bank’s officers to summary judgment on ordinary negligence and breach of fiduciary duty, or whether the FDIC produced evidence sufficient to rebut the presumption of good-faith, informed decision-making.
2. Whether the bank’s charter exculpatory clause barred ordinary-negligence and related fiduciary-duty claims against the directors.
3. Whether the FDIC’s evidence could support a finding of gross negligence (wanton or similarly aggravated misconduct) against officers and directors under North Carolina law.

## Decision

- The court vacated summary judgment for the officers on ordinary negligence and breach of fiduciary duty and remanded those claims.
- The court affirmed summary judgment for the directors on ordinary negligence and breach of fiduciary duty based on the charter’s exculpatory provision.
- The court affirmed summary judgment for all defendants on gross negligence, finding the evidence insufficient under North Carolina’s wantonness-based standard.

## Legal Principles

- Under North Carolina law, the business judgment rule creates a rebuttable presumption that officers and directors act in good faith, with due care, and in the corporation’s best interests; the presumption can be rebutted by evidence of uninformed decision-making, bad faith, or irrational conduct.
- On summary judgment, courts must view evidence and draw reasonable inferences in favor of the nonmovant; if the record could permit a jury to find the presumption rebutted, the business judgment rule does not warrant judgment as a matter of law.
- A valid charter exculpatory clause may bar directors’ personal liability for ordinary negligence (and related duty-of-care theories) but cannot protect against heightened culpability such as bad faith, intentional misconduct, or knowing legal violations.
- Gross negligence in North Carolina requires proof approaching wanton conduct or reckless indifference, not merely poor judgment or inadequate diligence.

## Conclusion

The Fourth Circuit held that the FDIC presented enough evidence to send officers’ ordinary-negligence and fiduciary-duty claims to a jury because the business judgment rule is rebuttable, but directors were shielded from ordinary-negligence liability by a charter exculpation clause, and the record did not support gross negligence against any defendant.


Fed. Deposit Ins. Corp. v. Rippy, 799 F.3d 301 (4th Cir. 2015)