Maryland Statute Falls Short on Protecting Bank Directors
AABD’s recent review of state statutes identified Maryland as one state that has carved out a huge exception to the application of the exculpatory clause for bank directors (but not directors of general corporations). Exculpatory clauses afford protection to directors (and, in Maryland, officers) against personal liability (within limits) in actions brought by the bank or shareholders.
Maryland authorizes exculpatory clauses in either a corporation’s Articles of Incorporation or Bylaws. But for bank directors and directors of credit unions or savings institutions and their subsidiaries, the clause affords no protection against an action brought by or on behalf of a “State governmental entity, receiver, conservator, or depositor.” AABD has not yet found any other state that creates this exception.
Bank directors need the protection of the exculpatory clause the most if their bank fails and FDIC sues them. See the decision in the summer of 2015 in the Cooperative Bank (North Carolina) case in which the FDIC sued bank directors of a failed bank but the bank directors were successful in having the case being dismissed against them because of the exculpatory clause.
As far as we know, Maryland is the only state in the Union to gut the exculpatory clause in this way.
AABD urges its Maryland bank director members and others to urge the Maryland Legislature to amend its statutes to repeal the limiting provision.