FDIC v. Eagle Properties, Ltd.

• Decision Date: 25 September 1985
• Docket Number: No. MO-84-CA-35.,MO-84-CA-35.
• Citation: 664 F. Supp. 1027
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION v. EAGLE PROPERTIES, LTD., Thomas C. Brown, M.W. Branum, J.L. Davis, Charles R. Perry, Gene Sledge, Clint Hurt and Charles Lawrence.
• Court: U.S. District Court — Western District of Texas

664 F. Supp. 1027

FEDERAL DEPOSIT INSURANCE CORPORATION v. EAGLE PROPERTIES, LTD., Thomas C. Brown, M.W. Branum, J.L. Davis, Charles R. Perry, Gene Sledge, Clint Hurt and Charles Lawrence.

No. MO-84-CA-35.

United States District Court, W.D. Texas, Midland-Odessa Division.

September 25, 1985.

COPYRIGHT MATERIAL OMITTED

John Gilliam, Lewis LeClair, Thomas Albright, Jenkins & Gilchrist, Dallas, Tex., for plaintiff.

Seagal Wheatley and Leo Bacher, San Antonio, Tex., Carl D. Adams, Dallas, Tex., Jimmie B. Todd, Odessa, Tex., Jim Choate and Dewey R. Hicks, Jr., Dallas, Tex., Jim Allsup and M.W. Branum, Midland, Tex., for defendant.

OPINION

BUNTON, District Judge.

I.

A.

Every trial is a mosaic of circumstances, personalities, and occurrences. Each case is a recreation by use of recollections and documents of the interplay of how personalities conducted themselves to a set of circumstances. From that, our system of justice requires a factfinder to make factual determinations concerning the propriety of the personalities' conduct. That conduct is gauged by our society's notions and policies of right and wrong.

This case is a suit by a federal corporation on an indebtedness in the amount of $25 million evidenced by promissory notes executed by the Defendants. To understand why these Defendants allegedly undertook such a substantial obligation and why they had chosen to come into this forum to contest the right of the Plaintiff to that sum, one must briefly digress to examine the person of Charles Fraser, the President and Chief Executive Officer of the First National Bank of Midland during most of the time relevant to this case, and to examine the institution itself and the image it earned and sought so desperately to preserve.

Charles Fraser was elevated to the position of president and chief executive officer during a gilded era in the history of the Permian Basin of West Texas. He had come to the First National Bank as a petroleum engineer in the 1960's and worked his way to the presidency of the bank. He was, from various accounts, a knowledgeable, shrewd, assertive individual. He was in one sense demanding and dominating. In another sense, he suffered under the disability of taking too much upon himself. Nevertheless, his friendship or association was sought by businessmen and civic leaders in the Permian Basin.

The First National Bank was a monument in the Permian Basin. It was a large, independently-owned bank. It had weathered in years past the frailties of the Permian Basin economy. Sturdy and strong, the First National Bank was paid perhaps the highest compliment that can be bestowed upon an institution. It was said to be stronger than an acre of garlic.

So, as the decades of the 1970's closed, Charles Fraser headed this bank during a time when the area was experiencing in actuality a boom on top of a boom which had begun in the mid-1970's. However, by 1982, the boom had bottomed, and the bank, which had grown so large, experienced unsettling troubles with its liquidity posture. The sources of these troubles included: an inordinate concentration of loans in the energy and associated industries area; less than careful lending practices; and imprudent growth.

Before the bust, Fraser presided over a bank in an area where even the less efficient and less sophisticated could make money. Times had changed. By 1982, the fate staring the bank president was obviously unbecoming. He, therefore, took steps that he hoped would enable the bank to survive a drain on its deposits until a rebound in the oil and gas industry occurred or the inner dynamics of the bank took over.

The Court, in considering this bank-ground, is reminded of the circumstances and the fate of the captain of the transatlantic liner Titanic. The analogies are poignant.

The First National Bank, like the vessel, was a magnificent, extravagant, enviable camelot. It was regarded as unsinkable, said to be designed and engineered to withstand the formidable forces of natural laws. The bank, like the liner, was doubly-supported, tightly-compartmental. If one of its parts were weakened or damaged, the other sections were designed to keep it afloat.

Each of these monuments attracted the names familiar to business and society pages. Each was revered by those in certain circles.

Each was led by an individual who was said by all as born to command—a captain who had risen through the ranks and left aside other individuals of lesser capabilities and greater disabilities. Each captain was aided by capable, attractive and knowledgeable officers and engineers. Each was asked to take his monument through a routine and pleasant passage. But, as did the captain of the ship, so did the chief of the bank, fail to heed the hints of conditions in the West that suggested the course might be other than propitious. Each, although having received warnings, decided to follow the prevailing practice of relying on a sharp lookout rather than reducing the speed of his camelot. So, each officer saw an unyielding force and ordered a turn of direction. But, the sheer size of what each commanded and the momentum that was carried meant a lapse of time before a turn could be manipulated. Each monument encountered damage and began to lose its buoyancy. The advisors for each group were called and said the unsinkable ship was badly damaged but that her other sections would hold her up. Such was not the case.

Each called to the others in his given profession for help. The calls were answered, but too late. So, each commander's monument sank in the morning hours to the depths of ignominy to the brutal shock of their respective communities.

B.

The Plaintiff, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), brings this action to collect $25 million in notes given by the individual Defendants to EAGLE PROPERTIES, LTD., a Texas limited partnership, and thereafter assigned to the First National Bank of Midland as part of the $75 million stated consideration for the sale and leaseback of the bank's 24-story office building, ten-story parking garage, and drive-in motor facility. The sale leaseback was consummated on December 31, 1982. The remaining $50 million of the purchase price came from two unfunded letters of credit in the amount each of $25 million from InterFirst Bank in Dallas, Texas and Texas Commerce Bank in Houston, Texas. The FDIC acquired the notes upon the closing of the First National Bank on October 14, 1983. In January 1984, the FDIC made a formal demand for the payment of interest purportedly due on the notes. The Defendants refused to make the demanded payment. Acting pursuant to the terms of the notes, the FDIC gave the Defendants notice of acceleration and, on February 22, 1984, instituted this action to collect on the notes by filing a complaint with this Court.

The Defendants, as best the Court ascertains from their pleadings, contend, among other things, that the notes executed by the Defendants are not negotiable instruments under the Uniform Commercial Code. As such, the Defendants also contend that the FDIC is not a holder in due course and is subject to all the personal defenses available to the Defendants. The Defendants further contend that the notes are neither due nor payable under the terms of a subordination agreement. In addition, the Defendants contend that they were fraudulently induced into entering into the sale-leaseback transaction by the alleged misrepresentations of Charles Fraser, then the president of the bank, as to the value of the building and the financial condition of the bank. The Defendants finally contend that they were defrauded into approving the early funding of the two letters of credit.

Trial of this cause was had without a jury.¹ Trial commenced on February 26, 1985, and continued through February 28, 1985, when the Court recessed. Trial resumed on March 6, 1985, and was completed the following day. Upon completion of the trial, the Court permitted each side to submit post-trial briefs.

The Court has reviewed, weighed, and considered the evidence presented at trial. In addition, the Court has considered the positions of the parties as set forth in their ably-done briefs and memoranda. The Court enters this opinion, which will stand and constitute the Court's Findings of Fact and Conclusions of Law as prescribed by Fed.R.Civ.P. 52(a).

II.

EAGLE PROPERTIES, LTD., a limited partnership, was formed under the laws of the State of Texas pursuant to Articles of Limited Partnership executed on December 30, 1982. The Certificate of Limited Partnership for EAGLE PROPERTIES was filed with the Secretary of State of Texas on December 31, 1982. THOMAS C. BROWN and M.W. BRANUM are the general partners of the limited partnership. The limited partners of EAGLE PROPERTIES are J.L. DAVIS, CHARLES R. PERRY, GENE SLEDGE, CLINT HURT, and CARL LAWRENCE.

On December 31, 1982, EAGLE PROPERTIES and the First National Bank entered into an extraordinary sale-leaseback transaction involving numerous documents. Extraordinary not in the sense that it was totally a paper transaction, but in the sense that the vendor went to great lengths to minimize the risks inherent to the vendee in such a transaction. Among the documents was an Agreement of Sale and Purchase of Real Property. Under the agreement, EAGLE PROPERTIES purchased from the First National Bank, the 24-story office building (at that time the tallest building in the city), ten-story parking garage, and drive-in banking facilities, as well as the property on which these structures were located.

The total purchase price was $75 million, subject to an adjustment as provided in the agreement. This was paid first, by the assignment of, with recourse, unsecured three-year promissory notes by the individual partners of EAGLE PROPERTIES in the aggregate principal amount of $25 million bearing interest at the rate of ten percent per annum, and providing payments on December 31 of each year of...