FDIC as Receiver for City Bank vs. Conrad D. Hanson and ...

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Case 2:13-cv-00671 Document 1 Filed 04/15/13 Page 2 of 97 grossly negligent by, among other things, approving, in violation of the City Bank Loan Policy ("Loan Policy") and prudent, safe, and sound lending practices, at least 26 loans between May 2005 and October 2008 ("Loans"). 3. The Defendants' negligence, gross negligence, and breaches of their fiduciary duties caused damages to City Bank. Defendants are jointly and severally liable in an amount to be proven at trial, but not less than $41 million, for the damages the Bank suffered, which includes loss of operating capital, lost investment opportunities, and losses incurred on the Loans that were approved in violation of prudent lending practices and the Bank's Loan Policy. II. PARTIES A. Plaintiff 4. Plaintiff is the Federal Deposit Insurance Corporation ("FDIC") in its capacity as Receiver for City Bank (or the "Bank"), pursuant to 12 U.S.C. §§ 1811-1835a. The FDIC is a federal banking agency, 12 U.S.C. § 1811(a), and the FDIC, as receiver, is charged with the orderly liquidation of failed banks, 12 U.S.C. § 1821(c)(2)(A)(ii). 5. On April 16, 2010, the Washington State Department of Financial Institutions ("WDFI") closed the Bank, and the FDIC-R was appointed as receiver. At that time, the FDIC-R succeeded to all rights, titles, and privileges of the Bank and its depositors, account holders, and stockholders. 12 U.S.C. § 1821(d)(2)(A)(i). B. Defendants 6. Hanson founded the Bank and served as the Bank's President from at least December 15, 1989, until December 31, 2009. From January 15, 2006, until December 31, 2009, Hanson also served as the Bank's Chief Executive Officer. Hanson served on the Bank's Board of Directors (the "Board") from the Bank's founding in April 1974 until it closed. At the Bank's closure, Hanson was Chairman of the Board, and he owned approximately 1,765,403 shares or 10.99 percent of the Bank's stock. 7. Sheehan was the Assistant Vice President of the Real Estate Department from March 1, 1978, until November 30, 1989. From December 1, 1989, until January 14, 2004, he COMPLAINT - Page 2 1652284/1/SKB/105030-0018 ATER WYNNE LLP 601 UNION STREET, SUITE 1501 SEATTLE, WA 98101-3981 (206) 623-4711
Case 2:13-cv-00671 Document 1 Filed 04/15/13 Page 3 of 97 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 was the Senior Vice President and Manager of the Real Estate Department. From January 15, 2004, until the Bank closed, Sheehan was the Executive Vice President of the Construction Loan Department. When the Bank closed, Sheehan owned approximately 211,762 shares or 1.32 percent of the Bank's stock. III. JURISDICTION AND VENUE 8. This Court has subject matter jurisdiction over this case pursuant to 12 U.S.C. § 1819(b)(1) and (2); 12 U.S.C. § 1821(d) and (k); and 28 U.S.C. §§ 1331 and 1345. 9. This Court has personal jurisdiction over Defendants, who at all relevant times were residents of and conducted the business of the Bank in the State of Washington. 10. Venue is proper in this District under 28 U.S.C. § 1391(b) because a substantial portion of the events and/or omissions giving rise to the claims and damages asserted herein occurred in this District. IV. FACTUAL BACKGROUND A. History of City Bank 11. Hanson founded City Bank as a state-chartered nonmember institution on October 23, 1973. The Bank began operations on April 15, 1974. At the time of the Bank's closing, it was headquartered in Lynnwood, Washington and had eight branches in south Snohomish County and north King County. The Bank pursued a community banking business plan that was centered on commercial real estate ("CRE") and, in particular, acquisition, development, and construction ("ADC") lending. 12. By the end of 2005, City Bank's loan portfolio was heavily concentrated in ADC loans as compared to its peer banks. In December 2005, the Bank's ADC loans equaled 233 percent of total capital, compared to 104 percent of total capital among the Bank's peer group. The Bank's ADC loan concentrations continued to increase, and as of December 2006, December 2007, and December 2008, the Bank's ADC loan concentrations were 329 percent, 391 percent, and 421 percent of total capital, respectively. Those numbers significantly outpaced the Bank's peer group, which experienced ADC concentrations of 136 percent, 147 percent, and COMPLAINT - Page 3 ATER WYNNE LLP 1652284/1/SKB/105030-0018 601 UNION STREET, SUITE 1501 SEATTLE, WA 98101-3981 (206) 623-4711
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