UPDATES: RULING LIMITS THRIFT D&O SUITS

WASHINGTON-The federal government will have a harder time suing directors and officers of failed thrift institutions because of a decision handed down last week by the U.S. Supreme Court.

The justices ruled unanimously in Atherton vs. Federal Deposit Insurance Corp. that to recover losses from directors and officers of failed savings and loan associations, federal regulators must prove those officials acted with gross negligence rather than ordinary negligence. Gross negligence is harder to prove than ordinary negligence, but Justice Stephen Breyer wrote for the majority that there is no basis in federal common law for setting a standard of ordinary negligence in such cases.

In the decision, however, Justice Breyer noted that the ruling would not bar states from seeking damages on a finding of ordinary negligence if the state laws permitted the use of that standard in such a circumstance.

The decision sends the case, which involved a suit against the directors and officers of insolvent City Federal Savings Bank of Bedminster, N.J., to a lower court.