Page 12 - John Hundley 2013

POD Beneficiary Change Effective Without Bank Acceptance

A depositor’s change of beneficiary on a payable-on-death (“POD”) bank account, if made in the form
customarily acceptable to the bank, need not be accepted by the bank before that depositor dies, an
Appellate Court panel in Southern Illinois has held.

At issue in Fairfield Nat’l Bank v. Chansler, 2013 IL App (5th) 110530, was the portion of the Illinois
Trust & Payable on Death Accounts Act (205 ILCS 625) which provides that unless otherwise agreed in
writing “[a]ny holder during his or her lifetime may change any of the designated beneficiaries to own the
account at the death of the last surviving holder . . . by a written instrument accepted by the institution[.]”
205 ILCS 625/4(a).

In Fairfield, the depositor completed and mailed the change-of-beneficiary form, but died before it was
received by the bank.

Personal Liability to FDIC Requires “Very Great Negligence”

To impose personal liability upon officers and directors of a failed bank the Federal Deposit Insurance
Corp. (“FDIC”) must allege that they committed “very great negligence,” but it need not plead that they
were reckless, a federal court in Chicago has held.

At issue in FDIC v. Giannoulias, __ F.Supp.2d __, 2013 WL 170003 (N.D. Ill. 2013), were the FDIC’s
attempts to recover some $114 million in losses suffered in the well-publicized collapse of
Chicago’s Broadway Bank. After FDIC was appointed receiver for the failed bank, it sued
seven directors and two officers under the Financial Institutions Reform Recovery &
Enforcement Act, which authorizes suits “for gross negligence, including any similar conduct
or conduct that demonstrates a greater disregard of a duty of care (than gross negligence)
including intentional tortious conduct, as such terms are defined and determined under
applicable State law.” 12 U.S.C. § 1821(k).

In Giannoulias, defendants argued that that definition in essence imposed a recklessness standard
which the complaint did not meet, but the court rejected that position. “[G]ross negligence is commonly
understood to encompass ‘very great negligence, *** (b)ut it is something less than the willful, wanton and
reckless conduct’,” it said, quoting Black’s Law Dictionary.

The court also rejected arguments that the bank’s losses really stemmed from the economic downturn.
Noting the current motion was one to dismiss for failure to state a claim, the court said the FDIC would
ultimately have to prove that the defendants’ conduct was a “substantial factor” contributing to the bank’s
losses, “[b]ut it is not required to prove its claims at this stage”.

Finally, the court said defendants’ reliance on the “business judgment” rule and on the
Illinois Banking Act (205 ILCS 5) did not require dismissal. A condition of the business
judgment rule is that the directors used due care, so that rule becomes inapplicable in cases
of gross negligence, it ruled. As for the Banking Act, while the court noted that 205 ILCS
5/16(7)(b) might give directors a right to rely on information received from bank officers, it
treated that matter as a potential affirmative defense and said FDIC was not required to
“plead around this statute in order to state a claim for relief”.

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