Eleventh Circuit affirms ruling in favor of bank holding company

Jessica M. Karmasek Jul. 26, 2012, 8:45am


ATLANTA (Legal Newsline) - A federal appeals court ruled in a private securities fraud class action this week that the evidence was "insufficient" to support a finding of loss causation, an essential element of such a lawsuit.

On Monday, the U.S. Court of Appeals for the Eleventh Circuit affirmed a decision by the U.S. District Court for the Southern District of Florida in favor of defendant BankAtlantic Bancorp Inc.

State-Boston Retirement System, a shareholder and lead plaintiff in the case, brought a private securities fraud class action against Bancorp.

At trial, State-Boston sought to prove that Bancorp had misrepresented the level of risk associated with commercial real estate loans held by its subsidiary, BankAtlantic.

BankAtlantic Bancorp Inc. is a publicly traded bank holding company incorporated and headquartered in Florida. BankAtlantic is a federally chartered bank that offers consumer and commercial banking and lending services throughout Florida.

From Oct. 19, 2006 to Oct. 25, 2007, State-Boston alleged Bancorp fraudulently misled the public about the deteriorating credit quality of BankAtlantic's commercial real estate portfolio.

That portfolio included land acquisition and development loans; land acquisition, development and construction loans; and builder land bank, or BLB, loans.

Each of these categories comprised loans to investors to buy land for initial development followed by sale for further development.

The BLB loans were made to investors after they had sold options to purchase lots to homebuilders. Non-BLB loans involved no such pre-disbursement option contracts.

After the trial, the district court submitted the case to the jury on a verdict form seeking general verdicts and answers to special interrogatories under Federal Rule of Civil Procedure 49(b).

When the jury returned a verdict partially in favor of State-Boston, Bancorp moved for judgment as a matter of law under Federal Rule of Civil Procedure 50.

Perceiving an inconsistency between two of the jury's interrogatory answers, the district court discarded one of them and granted the motion on the basis of the remaining findings.

Eleventh Circuit Judge Gerald Bard Tjoflat wrote that this was done in error.

"When a court considers a motion for judgment as a matter of law -- even after the jury has rendered a verdict -- only the sufficiency of the evidence matters," he wrote. "The jury's findings are irrelevant."

However, the Eleventh Circuit noted that despite the error, it can affirm the lower court's decision "for any reason supported by the record."

"In this case, we conclude that the evidence was insufficient to support a finding of loss causation, an element required to make out a securities fraud claim under Rule 10b-5," Tjoflat wrote in the court's 35-page ruling.

The Eleventh Circuit explained that to support a finding that Bancorp's misstatements were a "substantial factor" in bringing about its losses, State-Boston had to present evidence that would give a jury some indication -- "however rough" -- of how much of the decline in Bancorp's stock price resulted not from the fraud but from the general downturn in the Florida real estate market.

"None of its evidence excluded the possibility that class members' losses resulted not from anything specific about BankAtlantic's commercial real estate portfolio that Bancorp hid from the public, but from market forces that it had warned of -- and that would likely have caused significant losses for an investor in any bank with a significant credit portfolio in commercial real estate in Florida in 2007," Tjoflat wrote.

"Bancorp is therefore entitled to judgment as a matter of law."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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