FDIC v. Perry Bros., Inc.
| Decision Date | 03 June 1994 |
| Docket Number | Civ. A. No. 9: 91 CV 181. |
| Citation | 854 F. Supp. 1248 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. PERRY BROTHERS, INC., Defendant and Counter-Plaintiff, v. NATIONSBANK OF TEXAS, N.A. f/k/a NCNB Texas National Bank, N.A., Counter-Defendant. |
| Court | U.S. District Court — Eastern District of Texas |
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Mark T. Josephs, Timothy E. Taylor, Dallas, TX, John H. Minton, and James L. Hedrick, Tyler, TX, for plaintiff.
Mark S. Werbner, Lyndon F. Bittle, Dallas, TX, and Don W. Duran, Lufkin, TX, for defendant.
In accordance with the Superseding Amended Final Judgment entered contemporaneously with this Superseding Amended Final Memorandum Opinion and Order, the Court makes the following findings of fact and renders the following conclusions of law with respect to the above styled and numbered case tried before the 646 Court.
1. Perry Brothers and the predecessor banks of NCNB (now NationsBank; hereinafter referenced as NCNB) had a longstanding special relationship of trust and confidence. This longstanding special relationship was assumed and ratified by NCNB after it purchased the assets of the failed First Republic Bank-Lufkin on July 29, 1988.
2. Officers of NCNB knew, as a result of communications with Perry Brothers, that the company had embarked on a multi-year restructuring of its operations, which involved "cash-flow" management rather than the emphasis upon operating profits, through the transition period, and that the company would be financially vulnerable until its transition was completed. NCNB approved of these plans, and assured Perry Brothers that the bank would support the company in its restructuring through this difficult transition period.
3. An oral contract was made by and between NCNB and Perry Brothers in 1988, according to which: (a) Perry Brothers agreed that it would pay NCNB $2,500,000 from the proceeds of a 7-year loan it would receive from the T.L.L. Temple Foundation (Temple Foundation), would use its renewed line of credit with NCNB for seasonal inventory needs, and would continue to be a depository customer of NCNB; and (b) NCNB promised that it would renew at maturity the company's line of credit on essentially the same terms as set forth in the 1988 loan documents — unless the company experienced material, unanticipated, adverse changes in its financial condition — and that the bank would consider renewal each year in the spirit of fairness and good faith that had previously characterized the longstanding relationship between Perry Brothers and NCNB's predecessor bank.
4. NCNB made fraudulent misrepresentations to Perry Brothers regarding the bank's willingness to renew the line of credit on essentially the same terms as in the past — because at the time it made such representations to Perry Brothers, NCNB in fact had no intention of carrying out these promises. Perry Brothers' reliance on these NCNB misrepresentations was reasonable and justifiable under the circumstances.
5. In April, 1989, NCNB actively discouraged Perry Brothers from pursuing alternative financing even though it knew Perry Brothers' line of credit was essential for the company during its transition period and even though in March, 1989, NCNB had in fact secretly changed its credit strategy regarding Perry Brothers to "decrease." The discouragement by NCNB communicated false and misleading information to Perry Brothers regarding NCNB's intentions, on which Perry Brothers reasonably and justifiably relied to its detriment. By the time Perry Brothers learned, in September 1989, that NCNB would not renew the line of credit in good faith on reasonable terms, the company had lost any opportunity to obtain alternative financing.
6. Prior to July 31, 1989, NCNB unambiguously and affirmatively represented to Perry Brothers that there would be "no problem" with the renewal of the company's line of credit. NCNB intended and knew this representation would be relied upon by the company, yet the representation was false and was made by NCNB with knowledge of its falsity, or at least with deliberate indifference to its truth or falsity. NCNB's officers failed to pursue authorization of the renewal prior to maturity in July 1989, despite their knowledge of Perry Brothers' vulnerability and dependence upon the bank's good faith renewal obligation. Such delay, far from conforming with NCNB's avowed obligation of acting according to a basic honesty-duty of good faith toward Perry Brothers, reflected conscious, callous disregard for Perry Brothers' rights, interests, and legitimate expectations.
7. NCNB's subsequent, surprise refusal to renew Perry Brothers' line of credit following maturity in July, 1989 was not motivated by good faith, reasonable banking concern about Perry Brothers' financial condition or the company's ability to service its debt. Rather, this refusal was driven by an internal bank policy of "putting" as many loans as possible into NCNB's "Special Asset Bank" (the division of NCNB for "bad risk" credits) — in order to receive compensation from the Federal Deposit Insurance Corporation (hereinafter referenced as the FDIC) for the bank's private management of the loans.2
8. NCNB acted arbitrarily and in bad faith in rapidly, without warning, downgrading and classifying the Perry Brothers credit as "substandard" in September, 1989, and in "putting" the Note into the Special Asset Bank in March, 1990.
9. Perry Brothers executed the September 1989 loan documents in issue (which were made effective July 31, 1989) under duress — i.e., as a result of the economically coercive and threatening behavior of NCNB. NCNB knew that Perry Brothers was vulnerable to such coercion at that time, lacking means to protect itself from the bank's threatened actions without incurring substantial harm because of an economic predicament fostered by NCNB which made it then virtually impossible for Perry Brothers to obtain alternative financing. The NCNB-fostered conditions creating this Perry Brothers duress continued to exist past the maturity date of January 31, 1990, and lasted throughout 1990.
10. NCNB's classification of the Perry Brothers Note as "substandard" in the fall of 1989 and its transfer of the Note to the Special Asset Bank in the Spring of 1990 was communicated to vendors and others with whom Perry Brothers did or sought to do business who routinely made inquiry of NCNB regarding Perry Brothers' credit strength — which effectively conveyed false, misleading, and disparaging information about the company to these third parties, resulting in substantial damages to Perry Brothers. In this respect, the Court credits especially the testimony of Perry Brothers' Chairman Ray Baldwin, Perry Brothers' President and Chief Operating Officer Jack Simpson, and Arthur Temple of the T.L.L. Temple Foundation — each of whom attested to the fact that the "putting" of the Perry Brothers Note into the Special Asset Bank disparaged Perry Brothers' good business name. The Court credits also the statement of Stanley Knitting Mills, Inc., to the effect that one of the reasons it withdrew its credit from Perry Brothers was that Perry Brothers' loans were in the "high risk" section of NCNB.
11. Perry Brothers was induced by NCNB to execute the August 31, 1990 negotiation letter in issue without consideration — by vice of the bank's dishonesty and coercion.
12. NCNB-Lufkin and NCNB's Special Asset Bank division promised Ray Baldwin of Perry Brothers in 1990 that during the parties' workout negotiations, NCNB would not exercise control over the Perry Brothers checking accounts and would not take the company's money (i.e., "setoff" Perry Brothers' bank accounts). These promises constituted misrepresentations of NCNB's actual intentions, and were made merely to induce Perry Brothers not to move its large, profitable, depository accounts to a competitor bank — thereby removing the funds from NCNB's ready reach. Perry Brothers reasonably relied on these promises, ultimately to its substantial detriment, by continuing to deposit funds in its NCNB accounts and utilizing the bank's "ACH" cash concentration system while the company negotiated in good faith with NCNB.3
13. The subsequent actions of NCNB — in freezing accounts and seizing the funds of Perry Brothers on November 27-28, 1990 — were done to maximize the personal (illicit) profits desired by NCNB and its individual officers, with conscious disregard for the holiday-season, economic effect on Perry Brothers (with whom it had promised to deal in good faith). These actions were taken with deliberate indifference to the rights, interests and legitimate expectations of Perry Brothers.
14. Indeed, throughout 1988, 1989, and 1990, NCNB maintained a "hidden agenda" in its dealings with Perry Brothers, pursuant to which it often told Perry Brothers one thing with the intention of inducing Perry Brothers to remain a customer of the bank, while it internally implemented a contradictory strategy designed to force Perry Brothers' credit into the Special Asset Bank, where the bank might collect for itself as much money as possible, as fast as possible. The bank did this even though it knew Perry Brothers was relying on NCNB's promised good faith and even though it knew the line of credit was essential for Perry Brothers' business.
15. On or about November 28, 1990, NCNB returned unpaid ("bounced") approximately $130,000 in checks drawn on Perry Brothers' NCNB checking accounts. However, at the time these checks were presented to NCNB, Perry Brothers' accounts contained sufficient funds from which the checks could and should have been paid.
16. Again, NCNB disparaged the business reputation of Perry Brothers...
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