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Mortgage industry lawsuit news and mortgage litigation coverage. Stories about legal settlements, judgments and mortgage class actions.

Colonial Directors Seek Defense Funds

Request to bankruptcy court for additional $1.5 million

June 4, 2010

By staff

Directors of the former parent of failed Colonial Bank are asking the bankruptcy court for more money to pay their legal defense fees as litigation mounts.

In a filing yesterday with the U.S. Bankruptcy Court for the Middle District of Alabama, current and prior directors of The Colonial BancGroup Inc. -- including former chairman and chief executive officer Robert E. Lowder and chairman Simuel Sippial Jr. -- asked the court to approve additional expenditures for their defense in multiple cases.

Colonial Bank failed on Aug. 14, 2009, and the parent company filed for Chapter 11 bankruptcy 11 days later.

The filings said the directors have been named as defendants in lawsuits. A motion by the directors to dismiss securities litigation was denied on May 14.

They are also fighting ERISA litigation, defending against derivative litigation and involved in ongoing government investigations. In addition, they have been made the subject of a demand for civil charges and have been giving testimony.

"The above-listed matters are ongoing and have caused the insured persons to continue to incur legal fees and expenses," the filing stated. "The securities litigation alone covers a purported class period of from April 18, 2007, to Jan. 27, 2009, and involved hundreds of millions of dollars of claimed damages."

The filing additionally outlined more than $115 million in civil damages that the group has been made the subject of.

The filing requests that the cap for post-October expenditures be raised by $1.5 million.

It's the second time the bankruptcy court was asked to release defense funds. The first time was in November 2009 for $750,000 to cover legal fees up to Oct. 31 and another $750,000 for fees incurred after Oct. 31. But all of the defense funds have been expended and $75,000 remains unpaid.

In re The Colonial BancGroup Inc.
Chapter 11 Case No. 09-32303-DHW,
Aug. 25, 2009 (U.S. Bankruptcy Court for the Middle District of Alabama).

In re Colonial BancGroup Inc. Securities Litigation.
Case No. CV 3:09-cv-00104-MHT-WC (U.S. District Court for the Middle District of Alabama).

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