Judge upholds Sonoma Valley Bank settlement

A judge has tentatively rejected a bid from the Federal Deposit Insurance Corp. to scuttle a $2million settlement between holding company directors for the failed Sonoma Valley Bank and a group of shareholders who claimed millions in losses.

In a ruling issued Tuesday, Judge Elliot Daum denied the banking regulator's request to intervene in the settlement. Daum heard additional arguments from both sides late Wednesday and was expected to make a final ruling.

Essentially, Daum found the FDIC actions came too late and that the agency lacked legal standing to vacate the settlement. Also, the judge said there was no evidence to support its contention that the agreement is unsupported by facts or contains an erroneous legal basis.

A lawyer for the shareholders, who sued eight officers including the bank's president and chief executive, Sean Cutting, and former CEO and director Mel Switzer, said Daum's ruling was correct.

"It's what we were hoping for," said attorney Anne Marie Murphy. "In our view, the settlement is done."

An FDIC spokesman, David Barr, declined to comment, saying the decision was not final.

Sonoma Valley Bank was closed in 2010 after a series of commercial real estate loans resulted in millions in losses. Critics blamed bank officers for $55 million in loans to a Marin County developer who later defaulted on a majority of the notes.

Shareholders in the bank's holding company, Sonoma Valley Bancorp, sued two years ago, attempting to recover money from an insurance policy.

Daum dismissed two versions of the lawsuit before the parties agreed to settle the case for $2million.

An FDIC lawyer on Wednesday argued the agency saw no reason to intervene sooner because of the judge's previous stance on the case. Attorney Robert Mullen said he was told the plaintiffs had "thrown in the towel" before learning of the settlement. He argued that because the FDIC repaid depositors after the bank closed, the agency was entitled to the $2million.

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