Pitman v. Lightfoot
| Citation | 937 S.W.2d 496 |
| Decision Date | 07 August 1996 |
| Docket Number | No. 04-93-00480-CV,04-93-00480-CV |
| Parties | B.F. PITMAN III; Kim I. Manning; J. Brian O'Connor; Michael H. Bertino, M.D.; Fred L. Baker; Lawrence F. Haass; Rodolfo Davila, Trustee of The Rodolfo L. Davila Estate Trust; and Frank Davila II, Appellants, v. O. Waymond LIGHTFOOT, Jr.; William R. Fields, Jr. and His Estate in Bankruptcy through Intervenor John Patrick Lowe, Trustee, Appellees. |
| Court | Court of Appeals of Texas |
Appellees, William R. Fields, Jr. and O. Waymond Lightfoot, Jr., filed suit against appellants, Fred L. Baker, Frank Davila II, Rodolfo Davila, Trustee of the Rodolfo Davila Estate Trust (together, the Davilas), Lawrence F. Haass, J. Brian O'Connor, Kim I. Manning, J. Pat O'Connell, Brian O'Connor, B.F. Pitman III, and others, for breach of contract and other related tort theories. Fields' trustee in bankruptcy, John Patrick Lowe, intervened in the case. Appellees' theories of recovery concern a purported agreement with the appellants to purchase bank holding company stock from the appellees for which payment was not made. After a jury verdict, the trial court granted a judgment in favor of the appellees, from which appellants now bring an appeal raising 104 points of error. We affirm the trial court's judgment in part, and reverse and render in part.
Appellants, appellees, and other individuals were investors in Crown Bancshares, Inc., a bank holding company (Crown Bancshares). Incorporated in June of 1985, Crown Bancshares owned all the stock of Crown Bank, N.A. (Crown Bank). The incorporating officers and directors were Bernard Austin and appellants, Frank Davila II, Lawrence F. Haass, and Brian O'Connor. The Federal Reserve approved Crown Bank's application in August of 1985, and capital stock in Crown Bancshares was privately offered beginning in October of 1985.
Beginning in February of 1986, the bank was capitalized through a series of loans to 28 purchasers of Crown Bancshares stock, including appellants and appellees, in the aggregate amount of $5,066,310.00, from First State Savings Association (First State). Fields purchased 10,000 shares of Crown Bancshares stock (at $10 per share), with $5,000.00 in cash and $95,000.00 borrowed from First State. With a two percent origination fee, Fields' loan was in the amount of $96,900.00. Lightfoot purchased 30,000 shares of Crown Bancshares stock (at $10 per share), with $15,000.00 in cash and $285,000.00 borrowed from First State. With the two percent origination fee, Lightfoot's note to First State was for $290,700.00. The purchasers pledged their Crown Bancshares stock to First State as security for the loans. These agreements also contained cross-default provisions--a default by one borrower equaled a default by all borrowers. 2 In the event of a default, First State could "declare the entire unpaid balance of principal and all earned interest on the Indebtedness immediately due and payable." Each of the borrowers, except Lightfoot and Dr. Richard Rouse, also signed personal guaranty agreements.
A series of agreements were concluded: a voting trust agreement, a stock repurchase agreement, an agreement for funding repurchases of Crown Bancshares, a repurchase agreement concerning the capital stock of Crown Bancshares, and an amendment to the voting trust agreement. Although these agreements were prepared in 1985--1985 is typed on various pages--they were all apparently signed in February of 1986. These agreements were signed by both the appellants and appellees.
The purpose of the voting trust agreement was to maintain Crown Bancshares as a closely-held corporation. The organizers of the bank had determined that a voting trust agreement should be signed so that a majority of the subscribers of Crown Bancshares stock could maintain control over the direction and operation of the bank. Through the voting trust agreement, a majority of the shareholders subscribing to the agreement would control the vote at the shareholders' meeting and elect the directors of Crown Bancshares which, in turn, owned and controlled Crown Bank. The stated purpose of the voting trust agreement was to "secure continuity and stability of policy in management, and to establish constructive administration of the business of the Company...." The voting trust agreement signed by the parties referred to them as "subscribers," but the parties often used the term "Control Group" to describe themselves. All of the appellants (except Rodolfo Davila, individually) and appellees were members of the Control Group.
Although it was originally intended that the trustee under the voting trust agreement was to have all the stock of Crown Bancshares issued in his name as trustee, with the trustee then issuing voting trust certificates to the various shareholders to evidence their stock ownership, the stock of the holding company was not issued that way. No stock was tendered into the voting trust. Instead it was issued separately in the name of each subscriber. First State required that all such stock, upon the closing of the loan to purchase, be physically pledged to First State and that each subscriber sign an "irrevocable stock power" as to the stock and deliver it to First State at the time they signed the other loan documents. The voting trust agreement was signed only by members of the Control Group; neither Crown Bancshares nor First State were parties to the agreement. The subscribers to the voting trust agreement appointed Dwight L. Lieb--the largest Crown Bancshares stockholder--as the voting trustee.
The voting trust agreement defined the powers and duties of the voting trustee. The agreement contained a "Grant of Irrevocable Proxy and Power of Attorney," which reads as follows:
In addition to all other rights and powers granted under this Agreement, during the term hereof each Subscriber by execution of this Agreement irrevocably names, constitutes and appoints Trustee (or successor Trustee) his true and lawful attorney and agent with full power of substitution, to vote all shares of stock deposited with Trustee by such Subscriber, subject to the requirements of Section 4 hereof, at any and all regular and special meetings of the Company's shareholders whenever and wherever held during the term of this Agreement, or at any adjournment thereof, and hereby ratifies and confirms all that the said Attorney might do. DURING THE TERM HEREOF, THE PARTIES HERETO AGREE THAT THE PROXY HEREBY GRANTED IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE.
An amendment to the agreement further provided:
Any Trustee then serving shall have the power and authority to designate agents, and in such connection, to execute and deliver Powers of Attorney designating any person or group of persons to act in his full place and stead, to have and perform any and all powers, duties, acts and discretions as set forth in such written Power of Attorney to the fullest extent permitted by applicable law. Any person dealing with said Trustee shall be entitled to rely upon such Power of Attorney as fully authorizing the exercise of such powers, acts and discretions as therein set forth.
(Emphasis added).
The Control Group comprised nearly 75 percent ownership of Crown Bancshares. The voting trust subscribers selected the board of directors of Crown Bancshares. The directors of the holding company then elected the directors of Crown Bank who, in turn, selected a slate of officers for the bank. Most, if not all, of these individuals were members of the Control Group.
Sometime after agreeing to participate in the bank's formation, appellees decided to withdraw from the enterprise. During the trial of this case, Lightfoot testified that he first decided to sell his Crown Bancshares stock in the latter part of 1985 or early 1986. According to Lightfoot's testimony, he approached the president of Crown Bancshares, Brian O'Connor, and told him that, due to personal and business difficulties, he could no longer bear the financial cost of purchasing and paying for 30,000 shares of stock. O'Connor asked Lightfoot to wait because a sale by an incorporating bank director might impede final regulatory approval of the bank.
When Lightfoot again raised the question of a stock repurchase, Lieb, the voting agreement trustee, said he would call a meeting of the board of directors of Crown Bancshares and convey Lightfoot's need to sell the shares. The first indication of an agreement to repurchase Lightfoot's stock is found in the minutes of a June 9, 1986 Crown Bancshares Board of Directors meeting, which read in part as follows:
Mr. [J. Brian] O'Connor informed the Board that Director O. Waymond Lightfoot has offered 25,000 shares of Crown Bancshares stock for sale to the holding company as prescribed by the repurchase agreement. The Board waived the corporation's right to purchase the stock and determined that it was in the best interest of the holding company to offer the stock to outside investors. A recommendation was made to the signatories of the Crown Bancshares, Inc. stock repurchase plan to waive their right to purchase the stock and make it available to new investors.
On June 27th the Board met again. The minutes of the board meeting state that
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