Presumed Innocent? Financial Institutions, Professional Malpractice Claims, and Defenses Based on Management Conduct

Sunday, January 1st, 1995 at 12:00 am by Matthew G. Dore
Matthew G. Dore, Presumed Innocent? Financial Institutions, Professional Malpractice Claims, and Defenses Based on Management Conduct, 1995 Colum. Bus. L. Rev. 127

Judge Stanley Sporkin’s now famous question about the role of professionals at Charles Keating’s Lincoln Savings, and the broader contention that lawyers, accountants and other professionals are partly to blame for the savings and loan crisis, remain controversial. Even as nationally prominent accounting firms and law firms settle malpractice claims brought by the FDIC or the RTC on behalf of failed financial institutions, or civil enforcement proceedings brought by the OTS, the firms routinely disclaim liability and contend they were unfairly targeted as deep pockets.

Hundreds of professional malpractice suits are pending. While the money at stake in this litigation is substantial, the liability standards those sums represent are more significant. For assignment of financial responsibility will ultimately determine whether these professionals, and the savings and loan managers they advised, acted properly. And because most failed thrifts were organized as corporations, these cases will establish duties for corporate management and for corporate advisers generally.

Much of the commentary on professionals and the savings and loan crisis focuses on new sources of liability for lawyers and accountants as “institution-affiliated parties,” a statutory aider and abettor theory created by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). Federal regulators have also sparked scholarly debate with potentially broader liability theories. This Article addresses a different but equally important issue–the proper role of defenses when a financial institution sues a professional for malpractice. Specifically, this Article examines when a professional should be allowed to defend a financial institution’s malpractice claim with “imputation” defenses– defenses that hold the institution vicariously liable for the conduct of directors or officers who mismanaged it.

Author Information

Associate Professor of Law, Drake University