Ex-First Republic execs win dismissal of shareholder suit

A class action lawsuit filed against First Republic Bank’s top executives and auditor after the bank collapsed has been permanently dismissed by a California federal judge, who determined the court did not have the authority to hear and adjudicate the case.

The lawsuit, which accused First Republic Founder James Herbert II and others of making materially false and misleading statements about the bank’s financial situation, leading to investor losses, was dismissed Monday by U.S. District Judge Araceli Martínez-Olguín. She found that the plaintiffs did not exhaust their administrative remedies before filing certain claims.

Such remedies would have involved the Federal Deposit Insurance Corp., which sought the dismissal of the case due to the court’s lack of subject matter jurisdiction, according to the judge’s order. The FDIC — which was not named as a defendant in the original June 2023 complaint against First Republic — was appointed receiver of the failed bank and helped negotiate the sale of its assets and most of its deposits to JPMorganChase.

In determining that the court does not have subject matter jurisdiction, the judge dismissed the lawsuit with prejudice, according to the order.

Attorneys for the plaintiffs and defendants did not immediately respond to requests for comment on Wednesday.

The dismissal comes more than two years after the 2023 failure of San Francisco-based First Republic, one of three regional banks that collapsed in quick succession that spring after experiencing deposit runs that were driven by fears of insolvency.

First Republic, which was built on a business philosophy rooted in providing exceptional customer service, became particularly vulnerable after the collapse of fellow Bay Area lender Silicon Valley Bank.

About a month after First Republic failed, a lawsuit was filed by an individual investor named Alexandra Kusen, who accused executives including Herbert and then-CEO Michael Roffler, as well as the bank’s auditor, KPMG, of misleading investors about the safety and stability of the bank’s business model, its capital and liquidity positions and the concentration of its deposit base.

Later that year, a Swedish pension fund that owned First Republic stock filed its own lawsuits. The pension fund was named the lead plaintiff of the class action lawsuit, which was brought on behalf of all investors who purchased or acquired First Republic securities between Jan. 14, 2021, and April 27, 2023.

According to the order to dismiss the case, the first lawsuit brought by Kusen in June 2023 was filed after the appointment of the FDIC as receiver. Because Kusen’s original claims and the plaintiffs’ claims in the class-action lawsuit all relate to acts or omissions of information by First Republic, the plaintiffs were required to exhaust their claims administratively with the FDIC before seeking judicial review, the court found.

Other defendants named in the lawsuit included Hafize Gaye Erkan, First Republic’s former president and co-CEO until late 2021; its chief accounting officer, Olga Tsokova, who was also acting chief financial officer for a period of time; Michael Selfridge, chief banking officer; and Neal Holland, who served as the bank’s CFO from November 2022 until its demise.