Top Plaintiffs' Verdicts by Dollar/Top Plaintiff's Verdicts by Impact — FDIC as Receiver for IndyMac Bank v. Van Dellen

The key to winning a verdict of more than $168 million in the first major trial against bank officers over the real estate crisis was to make a very complicated case simple.

"It was one big puzzle with lots of pieces that had to fit together," said David Graeler, one of the three lead trial attorneys at Nossaman LLP who represent the Federal Deposit Insurance Corp. against top officers of Pasadena-based IndyMac Bank.

How complicated? The team of Nossaman lawyers spent 18 months investigating IndyMac's lending, including going through millions of documents, Graeler said. Eventually, they produced a complaint that was 309 pages long and covered 66 loans.

Then came another 18 months of litigation and five weeks of trial.

Yet the jury came back with its multimillion-dollar verdict in about four hours.

The Nossaman attorneys appealed to the jurors' common sense, said Patrick J. Richard, another trial lead. "It was common sense that these loans should not have been made."

The FDIC's lawsuit accused top officials of IndyMac's homebuilder division of negligence in making risky loans worth $5 million to $55 million on dubious developments just as the housing bubble was about to burst. The agency sued as receiver of the now-defunct IndyMac, the first of many banks to collapse during the recession.

The trial ended up limited to just 23 loans, but that was still a lot. "How do you present evidence on 23 different loans, each with distinct facts?" Graeler said. "That's hard."

The lawyers' approach in part used demonstrative evidence to present the loan details in three categories, showing that each loan was in a risky market, each project had specific problems and each borrower wasn't credit-worthy.

The Nossaman lawyers also put on evidence that IndyMac rewarded the bankers with bonuses for making loans. "The evidence that they had taken unacceptable risks for a buck was powerful," Richard said.

But simplification started well before trial. In motions, the Nossaman team knocked out all of the IndyMac officers' affirmative defenses, Graeler said. Most important, they blocked the argument that the defendants' decisions were protected by the business judgment rule. That meant they had to prove only that the defendants committed ordinary negligence in making the loans, rather than meeting the much tougher standard of gross negligence, he said.

The team also won a pretrial ruling that kept the FDIC from having to show it earned a good return as IndyMac's receiver that would mitigate its damages.

To the attorneys for the three defendants, the simplification went too far. The verdict was "the result of a deliberate effort by the government to scapegoat a few men" for the collapse of the housing market, Kirby D. Behre of Paul Hastings LLP said in a statement.

In a separate statement, defense attorney Damian J. Martinez of Corbin, Athey & Martinez LLP said the FDIC "employed a 'blame greedy bankers' strategy" that "urged the jury to hold the bankers accountable for the financial crisis."

He said the plaintiff's attorney told the jury during closing argument that "the world was watching."

Nossaman's Richard said a theme in the trial was in fact that "most Americans don't want bankers taking the same risks as venture capitalists."

Despite simplification efforts, some significant complications remain in the case - including whether the $168 million can be paid. In a related case before trial, U.S. District Judge R. Gary Klausner ruled IndyMac's insurers wouldn't have to pay the verdict or even for the bankers' defense. That ruling is on appeal to the 9th U.S. Circuit Court of Appeals. XL Specialty Insurance Co. v. Perry, 12-56350 (9th Cir., filed July 23, 2012)

And U.S. District Judge Dale S. Fischer hasn't yet reduced the verdict to a final judgment because the remaining 43 loans in the complaint haven't been litigated, Graeler said.

But there is little question the verdict, the second largest in California in 2012 has had an impact. In December, former IndyMac CEO Michael W. Perry agreed to quit banking and pay the FDIC $1 million. The agency will seek another $11 million from insurers.

Since the FDIC filed the IndyMac case in July 2010, the agency filed 44 additional lawsuits against bankers that so far have produced four settlements, including Perry's, the agency said in a report. It has authorized lawsuits involving a total of 95 failed lenders, hinting at another 51 lawsuits or settlements yet to come.

- DON J. DEBENEDICTIS

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