620 F.2d 1108 (5th Cir. 1980), 79-3345, United American Bank of Nashville v. Gunter

Docket Nº:79-3345
Citation:620 F.2d 1108
Party Name:UNITED AMERICAN BANK OF NASHVILLE, Plaintiff-Appellant, v. William GUNTER et al., Defendants, Federal Deposit Insurance Corp., Theodore M. Hutcheson and N. Roundtree Youmans, Defendants-Appellees.
Case Date:July 09, 1980
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 1108

620 F.2d 1108 (5th Cir. 1980)



William GUNTER et al., Defendants,

Federal Deposit Insurance Corp., Theodore M. Hutcheson and

N. Roundtree Youmans, Defendants-Appellees.

No. 79-3345


United States Court of Appeals, Fifth Circuit

July 9, 1980

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[Copyrighted Material Omitted]

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Woods, Bryan & Thomas, Larry D. Woods, Nashville, Tenn., for plaintiff-appellant.

Huie, Sterne & Ide, Edgar H. Sims, Jr., Frank A. Lightmas, Jr., Atlanta, Ga., for Youmans.

Sutherland, Asbill & Brennan, John A. Chandler, J. D. Fleming, Jr., H. Wayne Phears, Atlanta, Ga., Myers N. Fisher, Legal Division, Federal Deposit Insurance Corp., Washington, D. C., Robert J. Green, Frank L. Skillern, Jr., Gen. Counsel, for Federal Deposit Ins. Corp.

Appeal from the United States District Court for the Northern District of Georgia.

Before BROWN, TJOFLAT and FRANK M. JOHNSON, Jr., Circuit Judges.


This is an appeal from the entry of final judgment in favor of the Federal Deposit Insurance Corporation, Theodore M. Hutcheson, and N. Roundtree Youmans. 1 For the reasons set out in greater detail in the opinion of the District Judge, United American Bank of Nashville v. Gunter, No. C77-1682A (N.D.Ga., June 9, 1979), the decision was correct. 2 See id. reproduced in Appendix A.


Appendix A


This is an action for damages arising out of the purchase by plaintiff United American Bank of Nashville ("United American") of a participation interest in a loan extended by the Hamilton National Bank of Chattanooga ("Chattanooga Bank") to defendants William L. and Camille S. Gunter. Plaintiff United American alleges that in connection with its purchase of the loan participation, defendants William L. Gunter,

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Camille S. Gunter, Theodore M. Hutcheson, N. Roundtree Youmans, and the Federal Deposit Insurance Corporation ("FDIC"), in its capacity as Receiver of the Chattanooga Bank, violated section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a); section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b); rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated pursuant to section 10(b) of the Exchange Act; section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a); section 29 of the Exchange Act, 15 U.S.C. § 78cc; and "applicable state securities laws and regulations." Presently pending before the Court are defendant FDIC's motions for leave to amend its answer and for summary judgment.

The pertinent facts in this case are as follows. On December 31, 1974, defendants William L. Gunter and his wife, Camille S. Gunter, purchased approximately 61 percent of the outstanding common stock of the Hamilton Bank and Trust Company of Atlanta ("Atlanta Bank") from defendant Theodore M. Hutcheson. In order to buy the stock, the Gunters borrowed $5.5 million from the Chattanooga Bank. The loan from the bank was secured by the stock purchased by the Gunters and was evidenced by two promissory notes, one in the amount of $3.0 million and the other in the amount of.$2.5 million. Only the.$2.5 million note is at issue in the case sub judice. The note bore interest at the lesser of the Chattanooga Bank's "prime rate" or nine percent per annum. The note was payable in full on January 3, 1977.

Also on December 31, 1974, the Chattanooga Bank sold a $1.5 million participation interest (60% interest) in the.$2.5 million note to plaintiff United American, a commercial bank chartered under the laws of the state of Tennessee. 1 At the time of this transaction, the plaintiff was known as the Hamilton Bank of Nashville and was a wholly owned subsidiary of Hamilton Bancshares, Inc. ("HBI"), a Tennessee bank holding company which also owned the Chattanooga Bank. It is undisputed that the decision by the plaintiff to participate in the Gunter loan was made during a telephone conversation on or about December 31, 1974, between an officer of the Chattanooga Bank and either Finis L. Nelson, then chairman of the board of directors of the plaintiff bank, or James M. Denton, then president of the plaintiff bank. Nelson Deposition at 29-35; Denton Deposition at 4.

Nelson was certain that either he or Denton authorized the purchase of the participation, but he has no present recollection of the particular telephone conversation during which the purchase was authorized. Nelson Deposition at 31-35. Nelson testified that if he was the person who made the decision, he does not remember the conversation because it was a routine transaction. Nelson Deposition at 32, 34. According to Nelson, it was "fairly routine" for an officer of the Chattanooga Bank to call Nelson or Denton and say "(w)e have a loan to Mr. So and So or to such and such a company there, and we want to we want you to take participation of so much in it." Nelson Deposition at 42. Nelson further testified that he has no present recollection of any false information given to the plaintiff in connection with the participation in the Gunter loan, nor of any information that the Chattanooga Bank failed to give the plaintiff in connection with the participation. Nelson Deposition at 51, 131.

Denton, the only other bank employee who might have authorized the purchase of the loan participation, testified that he could not recall whether or not he spoke to anyone with respect to the Gunter note and participation and could not recall any specific representations made in connection with the note and participation. Denton Deposition at 4. Denton's description of the manner in which the plaintiff bank

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purchased loan participations from the Chattanooga Bank was similar to the "routine" described by Nelson. In his deposition testimony, Denton stated:

A: Generally, we would get a call . . . saying that we were being sent a participation in X loan.

Q: And what would you say, at that point?

A: Send it on. It was generally on the way.

Q: Was that not common that they would notify you of (it) being sent, after they had already made the decision to send it to the Nashville bank?

A: On occasions, that was very true. Very seldom did we make any credit judgments on the front end of anything of that nature.

Q: As a practical matter, did you did the Nashville bank, now known as United American Bank of Nashville, have any choice, when the Chattanooga bank called about these participations?

A: No.

Denton Deposition at 25.

As of December 31, 1974, the date on or about which the plaintiff bank's participation in the Gunter note was approved, the plaintiff did not have a copy of the Gunter note, Gunter's financial statements, or any other documents relating to the participation in the note. Denton Deposition at 8. The plaintiff bank's loan participation was approved on a pro forma basis at an executive committee meeting on January 7, 1975, but the note and participation certificate were not forwarded to the plaintiff until January 21, 1975. Nelson Deposition at 96; Denton Deposition at 8. In addition, Gunter's financial statements were not forwarded to the plaintiff until March 11, 1975, more than two months after the plaintiff's executive committee had approved the plaintiff's participation in the Gunter note. Denton Deposition at 8, 9.

The loan participation certificate mailed to the plaintiff embodied the entire agreement between the plaintiff and the Chattanooga Bank. Nelson Deposition at 40, 41. It specifically provided that the "only obligation of (the Chattanooga Bank) shall be to distribute to Participant its proportionate share of payment of the principal and interest which Bank receives on account of the said note." The participation certificate further provided that the 60% interest in the Gunter note was "transferred and assigned by (the Chattanooga Bank) without recourse or liability on its part." Nelson confirmed in his testimony that the Chattanooga Bank had no duty under the participation certificate other than crediting the plaintiff's account with its proportionate share of any payment received on the Gunter note. Nelson Deposition at 37.

Repayment of the Gunter note was not dependent on the success or failure of the Atlanta Bank, but was a function of the ability of the Gunters to repay the loan and of the collateral available to the Chattanooga Bank. Nelson Deposition at 114-15. The only money the plaintiff expected to receive as a result of its participation in the Gunter note was the principal of $1.5 million that it had advanced plus interest as stated in the Gunter note. Nelson Deposition at 41. The participation did not give the plaintiff the right to share in any profit generated by the Atlanta Bank.

In his testimony, Nelson stated that commercial banks sometimes sell participation interests in loans to correspondent banks in order to avoid exceeding the legal lending limit governing the percentage of loanable funds that can be committed to a single borrower. Nelson Deposition at 19. Nelson also stated that in order for a commercial bank to purchase a participation interest in a loan extended by another bank, the bank must have funds available for lending purposes. Nelson Deposition at 22. Nelson further testified that the plaintiff bank evaluated loan participations in the same manner as it evaluated direct loan applications and that loan participations were treated as direct loans on the bank's books and on the "call statements" filed with regulatory agencies. Nelson Deposition at 24-25, 101. Finally, Nelson distinguished the plaintiff bank's commercial lending activities

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from its investment activities and placed bank participations in the commercial loan category. Nelson Deposition at 100-02.


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