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Federal Deposit Ins. Corp. v. Willetts

United States District Court, E.D. North Carolina, Southern Division

September 10, 2014

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for COOPERATIVE BANK, Plaintiff,
v.
FREDERICK WILLETTS, III, et al., Defendants

Page 845

For Federal Deposit Insurance Corporation, as Receiver for Cooperative Bank, Plaintiff: Douglas A. Black, Mary L. Wolff, LEAD ATTORNEYS, Wolff Ardis, P.C., Memphis, TN; Ruth M. Allen, Ruth M. Allen, Attorney, Raleigh, NC.

For Richard Allen Rippy, Otto C. Buddy Burrell, Jr., Ottis Richard Wright, Jr., Paul G. Burton, Dickson B. Bridger, Fredrick Willetts, III, Horace Thompson King, III, Frances Peter Fensel, Jr., James D. Hundley, Defendants: Camden R. Webb, LEAD ATTORNEY, Kacy Lynn Hunt, Williams Mullen, Raleigh, NC; David W. Goewey, Thomas E. Gilbertsen, LEAD ATTORNEYS, Meredith L. Boylan, Ronald R. Glancz, Venable LLP, Washington, DC.

Page 846

ORDER

TERRENCE W. BOYLE, UNITED STATES DISTRICT JUDGE.

This matter is before the Court on plaintiff's motion for partial summary judgment [DE 97], defendants' motion for summary judgment [DE 101], defendants' motion to exclude [DE 95], plaintiff's motion to strike [DE 117], and parties' various motions to seal [DE 104, 105, 113, 115, 120]. For the following reasons, the motions to seal are GRANTED, defendants' motion to exclude is GRANTED, plaintiff's motion to strike is DENIED AS MOOT, defendants' motion for summary judgment is GRANTED and plaintiff's motion for summary judgment is DENIED AS MOOT.

BACKGROUND

Cooperative Bank (" Cooperative" ) was a commercial banking institution charted under North Carolina law with deposits insured by the Federal Deposit Insurance Corporation (" FDIC" ). In June 2009, the North Carolina Commissioner of Banks (" NCCB" ) declared Cooperative insolvent and named the FDIC as Receiver of the Bank. Pursuant to 12 U.S.C. § 1821(d)(2)(A)(i), the FDIC succeeded to all rights, titles, powers, and privileges of Cooperative and Cooperative's shareholders with respect to Cooperative, including, but not limited to, Cooperative's claims against Cooperative's former directors and

Page 847

officers for negligence, gross negligence, and breaches of fiduciary duty or other legal duties.

The FDIC filed this suit against former officers and directors of Cooperative for negligence, gross negligence, and breaches of fiduciary duty in connection with their approval of 86 loans made between January 5, 2007 and April 10, 2008 (" Subject Loans" ). In approving the Subject Loans, the complaint alleges and the FDIC submits that the proof at trial will show that defendants deviated from prudent lending practices established by Cooperative's loan policy, published regulatory guidelines, and generally established banking practices, such as obtaining and verifying current financial information, adhering to minimum loan-to-value (" LTV" ) ratios and adhering to maximum debt-to-income (" DTI" ) ratios. In addition the complaint alleges defendants, in approving the Subject Loans, ignored prior regulatory criticisms and warnings pertaining to imprudent underwriting practices such as the failure to require hard borrower equity, the failure to analyze and consider borrowers' and guarantors' contingent liabilities, the failure to perform a global cash flow analyses of borrowers and guarantors with multiple entity relationships, and the failure to perform proper debt service coverage analyses.

In conjunction with the closure of Cooperative, the FDIC engaged in an established practice of allowing other institutions to bid for the right to assume Cooperative assets and liabilities. The successful bidder, referred to as the Acquiring Institution (" AI" ), entered into a Purchase and Assumption Agreement (" P& A" ) with the FDIC pursuant to which it agreed, among other things, to pursue collection of the Subject Loans in a commercially reasonable manner. The P& A included a shared loss agreement (" SLA" ) in which, after all collection efforts were exhausted, if the value of the loan assets deteriorated further than the book value at the date of closing within the five years after close the FDIC would absorb 80% of the loss and the AI would absorb 20% of the loss on the Subject Loans. The FDIC's 80% share of the loss on the Subject Loans is approximately $40 million for which it seeks recovery in this action.

DISCUSSION

I. MOTIONS TO SEAL.

The parties have filed several unopposed motions to seal pursuant to Fed.R.Civ.P. 26(c), Local Rule 79.2 and the May 21, 2013 Amended Stipulated Protective Order and Non-Waiver Agreement [DE 71]. The motions concern several memoranda and exhibits which reflect documents that either plaintiff or defendants have designated as protected under the Protective Order and/or documents that may reveal confidential information. For good cause shown Court GRANTS these motions and the Court orders the sealing of documents and exhibits as follows. Pursuant to motion to seal [DE 104], the Court orders that DE 102 and associated exhibits nos. 9, 11, 15-36, 39-56, 60, and 62 be SEALED. Pursuant to motion to seal [DE 105], the Court orders that the entirety of DE 97, DE 98, DE 99, and DE 100, including all exhibits therein be SEALED. Pursuant to motion to seal [DE 113], the Court orders that DE 111 and associated exhibits B, D, E, G, and H, as well as exhibits 1-55 of ...


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