FDIC v. American Bank Trust Shares, Inc.

• Citation: 412 F. Supp. 302
• Decision Date: 26 April 1976
• Docket Number: Civ. A. No. 74-1782.
• Court: United States District Courts. 4th Circuit. United States District Court of South Carolina
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. AMERICAN BANK TRUST SHARES, INC. (ABTS), et al., Defendants.

412 F. Supp. 302

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. AMERICAN BANK TRUST SHARES, INC. (ABTS), et al., Defendants.

Civ. A. No. 74-1782.

United States District Court, D. South Carolina, Charleston Division.

April 26, 1976.

Harold W. Jacobs, Columbia, S. C., for American Bank & Trust Shares.

Henry Hammer, Columbia, S. C., Lawrence M. Gressette, Jr., St. Matthews, S. C., for Marshall B. Williams, Douglas R. Bryant, Sr., Dr. James H. Gressette, Jack C. Vallentine, Luther H. Adden, Jr., Augustus T. Allen.

Douglas McKay, A. L. Moses, Columbia, S. C., for H. Ciremba Amick.

Charles W. Wofford, C. T. Wyche, Greenville, S. C., for Howard Lamar, Harry Parker and Albert Odom.

Jeter E. Rhodes, Jr., Thomas E. McCutchen, Columbia, S. C., Terry E. Richardson, Jr., Barnwell, S. C., for Robert B. Fickling.

Charles H. Gibbs, Charleston, S. C., Edward Bransilver, Myers N. Fisher, J. Craig Gilliland, Washington, D. C., and J. R. Pelzer, Columbia, S. C., for F.D.I.C.

William F. Able, Columbia, S. C., for Jimmy L. Martin.

Heyward E. McDonald, Columbia, S. C., for William F. Lambert.

W. Eugene Rutledge, Birmingham, Ala., James D. Pruett, Gadsden, Ala., deRosset Myers, Charleston, S. C., W. Stancil Starnes, Starnes, Starnes & Reddoch, Birmingham, Ala., for Sidney Robinson Bagby, and others.

Francis T. Draine, Columbia, S. C., for Carl Joe Taylor & Class in State Court Action and Sadie G. Schein.

Kermit S. King, Donald W. Tyler, Columbia, S. C., for Forrest K. Abbott.

C. Tolbert Goolsby, Jr., Asst. Atty. Gen. for S. C., Karen LeCraft Henderson, Columbia, S. C., for S. C. Board of Bank Control and Robert C. Cleveland.

Edgar A. Neely, III, Atlanta, Ga., Thomas A. Player, Columbia, S. C., for William H. Moore, Jr.

James B. Richardson, Jr., Columbia, S. C., for Scott M. Waldron.

J. Buford Grier, Rock Hill, S. C., for Banks H. Good, Dick Gregg McTeer, W. H. Grier, Sr., and J. W. Wall, Jr.

Bachman S. Smith, III, Charleston, S. C., for Lloyd I. Hendricks.

Jimmy W. Grimes, Columbia, S. C., for Paul M. Thomas.

Rudolph C. Barnes, Columbia, S. C., C. B. Rogers, Atlanta, Ga., for J. W. Hunt.

W. Duvall Spruill, Columbia, S. C., for Insurance Company of North America.

Frank K. Sloan, Columbia, S. C., for R. Trippett Boineau.

J. Frank Looper, Florence, S. C., for First Provident Corporation of South Carolina.

Augustine T. Smythe, Charleston, S. C., for Union America, Inc.

Claude M. Scarborough, Jr., Columbia, S. C., for Grady Wade.

Charles N. Plowden, Jr., Columbia, S. C., Trammell E. Vickery, Jones, Bird & Howell, Atlanta, Ga., for Price Waterhouse & Co.

James P. Craig, Columbia, S. C., for William H. Southworth.

Joseph R. Young, Charleston, S. C., for American Bank Trust Shares, Inc., and American Mortgage Corporation.

Stancel E. Kirkland, West Columbia, S. C., for Ted O. McGee.

Keith B. Belser, pro se.

Augustine T. Smythe, Charleston, S. C., for Harbor Insurance Company.

ORDER

SIMONS, District Judge.

Pursuant to due notice to all parties in this action, a hearing was held in Aiken, South Carolina, on April 5, 1976. The hearing was on the following motions:

1. Motion to Dismiss by defendant Schein;

2. Motion for Summary Judgment by plaintiff, Federal Deposit Insurance Corporation;

3. Motion for Summary Judgment by "Bagby Defendants"; and

4. Motion for Discovery by "Bagby Defendants".

After reviewing the Motions and accompanying briefs and considering arguments of counsel, this court finds as follows:

1. Federal Deposit Insurance Corporation (FDIC) instituted this action on November 6, 1974, against defendant American Bank Trust Shares, Inc. (ABTS). By virtue of its purchase from the Receiver of American Bank & Trust (AB&T) of all causes of action for harm or wrong done to AB&T, FDIC in this action seeks a declaratory judgment generally to the effect that it owns all such causes of action.

2. Shortly thereafter, the defendant Carl Joe Taylor, suing individually and on behalf of all shareholders of ABTS, brought as plaintiff an action in state court against the defendants Lamar, Amick, Lambert, Parker, Good, Allen, Bryant, Fickling, Gressette, McTeer, Vallentine, Williams, Wall, Odom, Grier and Adden, all Directors of either ABTS or AB&T. This court ordered that the defendant Taylor and his class be made a party to this action, and all proceedings in the state court were stayed. Subsequently, the Taylor action in state court was dismissed by the plaintiff.

3. In March, 1975, the defendants Bagby, Bryan, Dwyer, Estate of Ryan, Smith, Getsinger, W. F. Wall, Hightower, Preacher, Purdy, Carroll, H. Wall, Martin, Jarrell, J. W. Wall and Nimmer, suing derivatively on behalf of ABTS, and on behalf of themselves and all other stockholders similarly situated, brought as plaintiffs an action against various officers and directors of ABTS and/or AB&T in the United States District Court for the District of South Carolina, Charleston Division, Civil Action No. 75-401. The plaintiffs in that civil action seek a money judgment against the defendant officers and directors based on mismanagement of AB&T and violations of various federal securities laws. The plaintiffs also seek a money judgment against FDIC and certain declaratory relief. The plaintiffs in that action were made parties defendant in this action and are referred to herein as "Bagby Defendants". Various orders have been issued in that case, including a stay order, an order refusing a three-judge court, an order concerning discovery, and an order denying monetary damages against FDIC. Certain appeals have been taken by the Bagby defendants in that action which were dismissed or abandoned. That action presently is stayed pending a final determination in this action.

4. In March, 1975, the defendant Schein, individually and on behalf of all other subordinated capital noteholders of AB&T, brought as plaintiffs an action against directors of AB&T in state court, alleging fraud and deceit by those defendants in inducing plaintiff and the other note holders to purchase such capital notes. The defendant Schein and her class were subsequently ordered to be made parties defendant in this action, and further proceedings in their state court action were stayed.

5. The motion of Bagby defendants to compel additional discovery relevant to the issue of ownership of causes of action is denied on the ground that discovery on that issue has been available by Order of this court since January 9, 1976. Bagby defendants have not made any effort to pursue discovery under that Order. Their motion coming at a time when this court is prepared to rule on the various motions to dismiss and for summary judgment comes too late and is therefore denied.

6. This court takes judicial notice of the fact that AB&T was closed on September 20, 1974, and FDIC was appointed Receiver for AB&T by the state court. FDIC, the corporation, entered into a purchase agreement with FDIC, the Receiver, on that same day whereby FDIC, the corporation, purchased, among other assets, all claims and causes of action whatsoever belonging to the receivership. The agreement, which was approved by the Court of Common Pleas for Charleston County, expressly transferred from FDIC, the Receiver, to FDIC, the corporation, all claims against directors, officers, employees of AB&T and ABTS, arising out of the non-performance or manner of performance of their duties which resulted in any damage or harm to AB&T.

7. It is well settled under South Carolina law, as well as the law of other jurisdictions, that causes of action for losses sustained because of the mismanagement and negligence of directors, officers, and employees of a bank belong to the bank itself, and not to the stockholders or creditors; and in the event of its liquidation, such causes of action are vested in its receiver; and may be conveyed and sold as any other asset. Fant v. Brissey, 150 S.C. 15, 147 S.E. 632 (1929) (suit by creditors); Gary v. Matthews, 148 S.C. 125, 145 S.E. 702 (1928) (suit by shareholders); Browne v. Hammett, 133 S.C. 446, 131 S.E. 612 (1926); Equitable Trust Co. v. Columbia National Bank, 145 S.C. 91, 142 S.E. 811 (1928); Stewart v. Ficken, 151 S.C. 424, 149 S.E. 164 (1929); Branchville Motor Co. v. Adden, 158 S.C. 90, 155 S.E. 277 (1931); Traynham v. Smith, 158 S.C. 249, 155 S.E. 428 (1930); Daniels v. Berry, 148 S.C. 446, 146 S.E. 420 (1928).

As the South Carolina Supreme Court stated in Fant v. Brissey, supra, at 147 S.E. 635:

There can be no controversy as to the proposition that a cause of action against the directors of a bank for losses to the bank, as a result of the negligent mismanagement of the affairs of the bank by the directors, lies in the corporation, as an asset of the corporation, and that a creditor of the bank can sue only in the right of the corporation, after having taken the necessary steps to induce action by the officers of the corporation.

That doctrine is clearly announced in the case of Browne v. Hammett, 133 S.C. 446, 131 S.E. 612.

FDIC, the corporation, duly purchased for value any cause of action of AB&T from FDIC, the Receiver. Brown v. New York Life Ins. Co., 152 F.2d 246 (9th Cir. 1945), is dispositive of the propriety of such a sale. In that case the FDIC purchased for value, by an express contract with the bank involved, causes of action against bank employees and officials. At 152 F.2d 248-249, the opinion states:

Among the assets so purchased by and assigned to the FDIC was the Bank's claim against Brown which was founded on the loss sustained by the Bank by reason of Brown's speculations while an employee, officer and director of the Bank. FDIC acquired its cause of action herein as a purchaser for value by express contract with the Bank. . . . Whatever right of action the FDIC acquired, it acquired through this purchase and assignment. We view this a transaction for value, and so hold.

Sections 8-274 and 8-276, South Carolina Code (1962, as amended) and 12 U.S.C.A. Section...