In a lawsuit filed Friday in U.S. District Court in Seattle, the Federal Deposit Insurance Corp. seeks $46 million in damages, alleging that 12 former officers and directors of Frontier Bank, including its founder, breached fiduciary duties and were negligent in issuing 11 poorly vetted real-estate loans to named and unnamed borrowers in 2007 and 2008.
The loans, the lawsuit states, were made in violation of the bank's own lending rules and common sense, given the state of the market.
Founded in 1978, Frontier Bank and its 47 branches in Washington and Oregon was closed by the state Department of Financial Institutions, seized by the FDIC and sold to Union Bank of San Francisco on April 30, 2010. Bad loans had led the bank to become critically undercapitalized.
Earlier this month, the FDIC sued two former executives of defunct City Bank of Lynnwood, seeking $41 million. Both lawsuits were filed just in time to beat a three-year statute of limitations for professional-liability lawsuits.
The defendants this time include Frontier Financial Corp. founder and longtime executive Robert J. Dickson of Everett, who was chairman of the board at the time the 11 loans were made. Also named are Dickson's son, John J. Dickson, also of Everett, who was at times chief executive officer and president.
Other Frontier Bank defendants are former executives Michael J. Clementz of Indianola, Randy E. Deklyen of Bothell, David A. Dorsey of Everett, James W. Ries of Everett, Robert W. Robinson of Bainbridge Island and Lyle E. Ryan of Everett.
Also named are former members of the board Lucille M. DeYoung of Woodinville, William H. Lucas of Everett, Darrell J. Storkson of Mukilteo and Mark O. Zenger of Edmonds.
John Dickson on Sunday said he has seen the lawsuit but has been advised by his lawyer not to comment until the case is resolved. Other defendants could not be reached.
The case outlined by the FDIC in the lawsuit is similar to that for City Bank, except that Frontier board members, as well as executives, are named as defendants. All of the Frontier defendants, including the board members, are named as being directly involved in approving one or more of the bad loans.
The lawsuit says Frontier was the biggest commercial bank headquartered in Western Washington at the time of its failure, with $3.6 billion in assets and $3.1 billion in deposits. "Defendants' acts and omissions," the FDIC alleges, "caused Frontier to suffer damages in excess of $46 million."
Like City Bank, Frontier had adopted an aggressive growth plan that focused on what is known as ADC lending -- loans for acquisition of property, development and construction. From 2005 to 2007, Frontier's real-estate loans increased by more than 58 percent -- by $1.2 billion, the lawsuit says.
The bank pursued this strategy despite recognition and discussion by board members and executives of an increasingly precarious housing market and limited capital for lending, the government says.
In 2007 and 2008, the FDIC alleges, the bank issued 11 multimillion-dollar loans to various borrowers who later defaulted, including a $22 million loan to a borrower whose liabilities to Frontier would then exceed $53.8 million.
Another loan involved a complicated $5.5 million deal to support development of Streamline Tower in Las Vegas, a later-troubled 21-story luxury condominium project.
Naming John Dickson, Dorsey, Ries, Robinson and Ryan in the Streamline Tower loan, the lawsuit says that "had the defendants on this loan insisted on the required underwriting and credit analysis, it would have demonstrated, among other things, that there was no adequate source of repayment, the repayment sources identified were speculative and vulnerable to a deteriorating housing market, the borrowers' creditworthiness did not support the loan amount, the collateral was illiquid and overvalued" and the loan "should not have been approved." The borrowers eventually defaulted.
Chuck Taylor: 425-339-3429; email@example.com.