Federal Deposit Ins. Corp. v. Stanley

• Decision Date: 19 July 1991
• Docket Number: Civ. No. F 87-325.
• Citation: 770 F. Supp. 1281
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity, Plaintiff, v. V. Edgar STANLEY, Robert Marcuccilli, Judith Stanley, David DeHart, Dan Stanley, Gilbert Bierman, and John Boley, Defendants.
• Court: U.S. District Court — Northern District of Indiana

770 F. Supp. 1281

FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity, Plaintiff, v. V. Edgar STANLEY, Robert Marcuccilli, Judith Stanley, David DeHart, Dan Stanley, Gilbert Bierman, and John Boley, Defendants.

Civ. No. F 87-325.

United States District Court, N.D. Indiana, Hammond Division.

July 19, 1991.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Charles E. Greer, Fred R. Biewecker, Ice Miller Donadio & Ryan, Indianapolis, Ind., C. Erik Chickedantz, Miller Carson & Boxberger, Fort Wayne, Ind., for plaintiff.

John R. Wilks; Wilks & Kimbrough, Fort Wayne, Ind., for Bierman.

F. Walter Riebenack, Linda J. Peters, Wyss McNellis Riebenack & Myers, Fort Wayne, Ind., for other defendants.

MEMORANDUM DECISION AND ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court for a decision on the merits following a bench trial. On November 25, 1987, the FDIC filed an action against defendants V. Edgar Stanley, Robert Marcuccilli, Judith Stanley, David DeHart, Wayne Roe¹, Dan Stanley, Gilbert Bierman, and John Boley. In this suit, the FDIC alleged that defendants, from March 1982 through May 1984, while members of the Board of Directors of the Allen County Bank (Bank), breached various fiduciary duties they owed to the Bank in the management, supervision, and direction of the Bank. The FDIC's complaint alleges that as a direct and proximate result of the defendants' breach of fiduciary duties, the Bank suffered substantial losses and impairment of its assets. The complaint further alleges that the FDIC, in its corporate capacity as purchaser and assignee of certain assets of the Bank, has been damaged as a direct result of the defendants' breaches of fiduciary duties. After two years of struggling through a multitude of pre-trial motions, the parties commenced a lengthy and complicated trial before the court on December 6, 1989. Final arguments were heard on May 15, 1990 and on June 6, 1990 and post-trial briefs were filed thereafter. The following Findings of Fact and Conclusions of Law are entered pursuant to Federal Rule of Civil Procedure 52(a), after having carefully reviewed the entire record, which consists of over 2,000 pages of testimony and more than 1,500 exhibits consisting of over 7,500 pages, and after having determined the credibility of the witnesses.

GENERAL FACTUAL BACKGROUND

Prior to November 22, 1985, the Allen County Bank and Trust Company was a banking institution organized and existing under the laws of the State of Indiana. As a state chartered bank that was not a member of the Federal Reserve System, the Allen County Bank was periodically examined by the FDIC and by the Indiana Department of Financial Institutions (DFI).

On August 19, 1981, the FDIC began an examination of Allen County Bank. Defendants Bierman, Boley, and DeHart were on Allen County Bank's Board of Directors at that time. After examining the Allen County Bank, the FDIC issued a Report of Examination which stated that the Bank's classified assets had risen to 124.2 percent of total capital and reserves, a figure described as "staggering." The report also stated that the Bank's loan portfolio was in a "very serious condition," and that "concerted effort must be made to improve the quality of the loans being placed upon the books." The report concluded that "it is imperative the directorate adequately monitor the lending function."

In October 1981, a special audit of the Allen County Bank was conducted as a result of the discovery that the Bank's president, Vincent Hansen, had been making fraudulent nominee loans. The auditors reported to the Bank's Board of Directors that Hansen had made the loans in violation of the Bank's lending policy, that the loans had not been accurately presented to the Board, and that loans had been made to borrowers with whom Hansen had personal financial dealings.

On February 10, 1982, the FDIC and the DFI entered into a Memorandum of Understanding with the Allen County Bank. The measures agreed to in the Memorandum of Understanding included increasing total capital and reserves by not less than $450,000, reducing the volume of loans classified substandard by 50 percent within 360 days, and provided detailed loan servicing and collection policies. Defendants Bierman, Boley, and DeHart were members of the Allen County Bank's Board of Directors at the time this Memorandum of Understanding was signed.

During the first nine months of 1982 the Allen County Bank had a net operating loss of $104,000, and on September 11, 1982, the FDIC began examinations of the Allen County Bank, the Leiters Ford State Bank², and the Western State Bank³. The September 11, 1982 Report of Examination for the Allen County Bank reflected continued deterioration in Allen County Bank's condition, including a substantial increase in classified assets (to over $2.8 million), a loan delinquency rate of over 25 percent, numerous loans unsupported by current credit informaiton, and abusive practices concerning insider loans and fees, including loans to, or for the benefit of, Chairman of the Board F. Walter Riebenack and directors Bierman, DeHart, and Marcuccilli.

The September 11, 1982 FDIC Report specifically criticized the Allen County Bank's past lending practices, including "overlending, poor selection of risk, incomplete credit information, self-dealing, failure to establish or enforce liquidation agreements, and lack of supervision." The Report also noted that little or no credit information was maintained for many commercial loans, including "participation loans purchased from affiliated banks." The results of the Allen County Bank examination were discussed in a meeting between the FDIC and the Bank's Board of Directors on October 5, 1982. The formal written Report of Examination was transmitted to the Bank's Board of Directors by letter of November 18, 1982. This letter refers to the "continued deterioration of the bank's condition" and concludes that, "The Board would be well advised to act promptly to effect resolution of all problem areas noted above."

On February 22, 1983, the FDIC and the DFI entered into a second Memorandum of Understanding with the Allen County Bank. Among other things, the Allen County Bank agreed to reduce assets classified substandard by $600,000 by June 30, 1983, and by an additional $600,000 by December 31, 1983. The Bank also agreed to implement an amended written loan policy, acceptable to the regulators, by March 31, 1983.

On November 22, 1985, the DFI initiated liquidation proceedings against the Allen County Bank pursuant to I.C. § 28-1-3.1-1 et seq. The Bank was closed on that same date and the Allen County Superior Court confirmed the appointment of the FDIC as receiver of the Bank, pursuant to I.C. § 28-1-3.1-5. On November 22, 1985, the FDIC as receiver of the Bank, pursuant to I.C. 28-1-3.1-7 and 12 U.S.C. § 1823(c)(2)(A), entered into an agreement under which it sold certain assets of the Bank to the FDIC in its corporate capacity. Among the assets purchased by the FDIC in its corporate capacity were all claims against directors, officers, or employees of the bank arising out of any act or acts of any such persons in respect to the Bank or its property, by virtue of non-performance or manner of performance of their duties.

The FDIC, in its corporate capacity, acquired the loans and leases at issue in this case. The FDIC claims that these loans and leases, which were participated in or made directly by the Allen County Bank, were inappropriate and involved other banks owned and operated by the inside directors. The loans and leases at issue are as follows:

(a) Abbott Coal and Energy Co.;

(b) Edward E. and Linda L. Carper d/b/a Ed Carper & Sons;

(c) James and June Conn;

(d) DeVries Hog & Grain Farms, Inc.;

(e) Leonard and Eileen Diamond;

(f) M & M Designers, Inc.;

(g) Pinkerton Farms, Inc; and

(h) Powell Implement, Inc.

The individual defendants in this case served on the Allen County Bank's Board of Directors at various times. Some of the defendants were also officers of the Allen County Bank and some of the defendants served in various capacities as officers/directors of Leiters Ford State Bank, Counting House Bank, and/or Western State Bank.

Defendant V. Edgar (Ed) Stanley was a member of the Board of Directors of Allen County Bank from March 24, 1982, through May 22, 1984. Ed Stanley also served as President of Allen County Bank from March 24, 1982, through September 13, 1983. Defendant Robert Marcuccilli was a member of the Board of Directors of Allen County Bank from March 24, 1982, through May 22, 1984. Defendant Judith Stanley became a member of the Board of Directors of Allen County Bank on March 24, 1982, a position which she held until May 8, 1984. Defendant David DeHart became a member of the Board of Directors of Allen County Bank on August 11, 1981, a position which he held until May 8, 1984. Defendant Dan Stanley became a member of the Board of Directors of the Allen County Bank on or about May 25, 1982, a position which he held until May 8, 1984. Defendant John Boley was a member of the Board of Directors of Allen County Bank from 1970 through June 16, 1983. At one time, John Boley also served as Secretary to the Board. John Boley attended one Allen County Bank Board meeting between November 9, 1982, and his resignation in June of 1983. Defendant Gilbert Bierman was a member of the Board of Directors of Allen County Bank from May 1978 through April 9, 1984⁴. In 1982, the primary ownership interest in the bank was sold from its then present owners to Ed Stanley and related individuals. Stanley advised Bierman that Bierman no longer had to come to any meetings of the Board of Directors but wished that Bierman's name could still be affiliated with the bank for purposes of continuity and credibility as Bierman was a noted orthopedic surgeon. Gilbert Bierman attended no Allen County Bank Board meetings after October 5,...