November 12, 2010 12:24 PM

FDIC Sues Bryan Cave Over Bank Records

Posted by Brian Baxter

The Federal Deposit Insurance Corporation sued Bryan Cave in federal court in Atlanta on Tuesday, charging the firm with failing to hand over records related to the collapse last month of Overland Park, Kan.-based Hillcrest Bank.

According to the 32-page complaint, the bank regulator, as receiver for Hillcrest, claims it has brought the action against Bryan Cave in order to obtain documents that were in the firm's possession and to stop the potential destruction of those records.

Hillcrest's failure--the bank had $1.6 billion in assets at the time of its collapse--is costing the FDIC at least $330 million and possibly more than $500 million, according to documents submitted as exhibits included with the FDIC complaint.

Schiff Hardin partners Michael Wolensky, Ethan Cohen, Antony Burt, and Linda Stevens are representing FDIC receiver Daniel Bell in the matter. Bell leads an FDIC team tasked with winding down small community banks (his work was covered recently in TIME magazine). Cohen referred a call to FDIC spokesman David Barr, who declined to comment on the suit.

Bryan Cave partners Kathryn Knudson, W. Bard Brockman, and John Bielema, Jr., represented Hillcrest's directors and officers for a month before and three weeks after the bank's failure, according to exhibits attached to the FDIC's complaint. (Click here for a plaintiffs' exhibit detailing conversations between Schiff Hardin and Bryan Cave lawyers.)

According to the FDIC complaint, those directors and officers provided Bryan Cave with a large volume of copied Hillcrest documents that "include private and confidential financial and other information about Hillcrest Bank's customers, confidential 'Suspicious Activity Reports' filed by the bank, FDIC Examination Reports and other confidential regulatory information." The removal of the documents by former executives, the complaint says, "was improper and unlawful."

Bryan Cave subsequently sent the copied records back to its clients, resigned from its engagement representing the D&O's, and allegedly began destroying any electronic copies of those records, the FDIC claims. In addition to the return of those documents, the regulator is seeking additional information on what Bryan Cave did with the records in its possession and who had access to them during the short time the firm was representing the D&O's.

The complaint states that Bryan Cave was retained on September 26--about a month before Hillcrest failed--and resigned on November 5. There is no explanation given in court documents for the firm's decision to resign. Bryan Cave maintains it returned any pertinent documents to its clients and destroyed anything else it had. In a statement provided to The Am Law Daily, the firm says it did nothing wrong.

"Bryan Cave acted properly and appropriately in this matter," said Walter Moeling, coleader of the firm's financial institutions practice. "We maintain strict confidentiality with respect to all client communications and documents, and believe the procedures in the Consent Order should alleviate any concerns on the part of the FDIC."

In a five-page consent order filed with the court on Wednesday and signed by Bryan Cave partner Curtis Romig, the firm seeks to resolve the matter by agreeing to provide sworn declarations about the Hillcrest documents in its possession and by detailing how the records were removed. The firm also will allow a "mutual information technology vendor to inspect the systems and hardware upon which any Hillcrest Bank documents were stored."

The FDIC's complaint states that Bryan Cave received at least $157,213 from Hillcrest to represent the bank's former D&Os before ending its engagement. The regulator is asking the firm to return those disbursements. "Those payments were not properly authorized and were improperly made," the complaint states. "Bryan Cave is not entitled to retain those payments, and its continued retention of them would be unjust."

The FDIC is also seeking reimbursement for its own attorneys' fees from Bryan Cave under the Kansas Trade Secrets Act, which the agency claims the firm violated by acquiring Hillcrest's records for its clients.

Last month Wachtell, Lipton, Rosen & Katz advised Boston-based private equity firm NBH Holdings on the acquisition of $1.54 billion in deposits from Hillcrest. The new NBH unit taking over Hillcrest will share in the bank's losses with the FDIC.

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