Federal Deposit Ins. Corp. v. Allen

• Decision Date: 17 April 1984
• Docket Number: No. Civ. 1-83-422.,Civ. 1-83-422.
• Citation: 584 F. Supp. 386
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its separate corporate capacity, Plaintiff, v. Mike R. ALLEN, et al., Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

584 F. Supp. 386

FEDERAL DEPOSIT INSURANCE CORPORATION, in its separate corporate capacity, Plaintiff, v. Mike R. ALLEN, et al., Defendants.

No. Civ. 1-83-422.

United States District Court, E.D. Tennessee, S.D.

April 17, 1984.

James R. Buckner and Douglas T. Johnson, Miller & Martin, Chattanooga, Tenn., for plaintiff.

Jess Campbell, Banks & Campbell, Knoxville, Tenn., for Valley Machinery Rental and Mike R. Allen.

Paul Jennings, Waddey & Newport, Nashville, Tenn., for Valley Machinery Corporation.

Richard P. Jahn, Sr., Tanner, Jahn, Atchley, Bridges & Jahn, Chattanooga, Tenn., and Frank B. Bird, Bird, Navratil & Bird, Maryville, Tenn., for Hal Y. Roe.

MEMORANDUM

MILBURN, District Judge.

This action came on for trial on April 11, 1984, without the intervention of a jury. When the case was called, it was announced to the Court that counsel for the corporate defendants had agreed that a consent judgment could be entered against defendants Valley Machinery Rental & Leasing, Inc., and Valley Machinery Corporation.

The trial continued on April 12, 1984, and at the end of all proof the Court heard argument of counsel and then took this matter under advisement. After considering the testimony of the witnesses, the exhibits filed in the record, argument of counsel and the entire record herein, the Court makes the following findings of fact and conclusions of law.

FINDINGS OF FACT

1. The present action was instituted by the United American Bank in Hamilton County ("UAB-C") upon May 13, 1983, to recover upon a note in the principal amount of $404,000 executed in its favor upon September 16, 1982, as follows:

Valley Rental & Leasing Co., Inc.

By: Mike R. Allen

2. On May 25, 1983, the Commissioner of Banking of the State of Tennessee assumed possession and control of UAB-C pursuant to T.C.A. § 45-2-1502. Subsequently on May 27, 1983, the Receivership for the UAB-C was tendered to the FDIC pursuant to T.C.A. § 45-2-802 which appointment was accepted. Thereafter, and as approved by the Chancery Court of Hamilton County, Tennessee, on May 27, 1983, the Receiver sold to the plaintiff certain notes including the note of Valley Rental & Leasing, Inc., described above.

3. Subsequently, the FDIC was substituted as the plaintiff in this action and removed the case to this Court upon August 16, 1983.

4. The now insolvent UAB-C was a state bank whose deposits were insured by the FDIC. From about July, 1981, until its insolvency, UAB-C was controlled by Jacob ("Jake") F. Butcher. Jake Butcher now resides in Sweetwater Oaks, Florida, which is just outside Orlando.

5. Jacob F. Butcher and his brother, C.H. Butcher, owned or controlled 27 banks in the States of Tennessee and Kentucky, including: United American Bank in Hamilton County, United American Bank in Knoxville, City & County Bank of Knox County, City & County Bank of Roane County, City & County Bank of Anderson County, City & County Bank of Washington County, City & County Bank of Union County, Bank of Commerce of Morristown, and United American Bank in Nashville.

6. On December 5, 1977, Bull Run Oil Company, Incorporated ("BRO-# 2") was incorporated under the laws of Tennessee. This was the second of three corporations to be so named. Subsequently, upon June 17, 1982, BRO-# 2 changed its name to Valley Management Corporation ("Valley Management"). The directors of BRO-# 2—Valley Management have included: Jacob F. Butcher, his wife, Sonya Butcher, and Jesse Barr.

Its officers have included Jacob F. Butcher —President, Jesse Barr—Vice President, and Sonya Butcher—Secretary.

From Jake Butcher's financial statements, BRO-# 2—Valley Management appears to have been primarily a holding company with an asset being General Equipment Company.

7. Jesse Barr worked as a management consultant with the firm of Management Associates which was owned by his wife. Management Associates was paid $2,000 per month by Valley Machinery for financial consulting. He is involved in numerous other dealings with Jake Butcher and was convicted around 1976 of embezzling over 30 million dollars from Union Planters Bank. Union Planters has an unsatisfied civil judgment against Barr in the amount of 17.6 million dollars. While at Union Planters, Barr loaned Jake Butcher approximately 5 million dollars for the acquisition of First and Farmers Bank at Somerset and City and County Bank of Lake City. In 1975 when Barr was fired by Union Planters, he was hired by Jake Butcher. As a convicted felon, Barr is prohibited from holding employment with an insured bank pursuant to 12 U.S.C. § 1818 and 12 C.F.R. § 308.58.

8. General Equipment Corporation ("GEC") was incorporated about March 10, 1972, under the laws of Tennessee by William C. Pendleton. GEC was at all relevant times the John Deere equipment dealer for the Knoxville, Tennessee area. As more fully described below, BRO-# 2 acquired all the stock of GEC on or about November 2, 1979 and subsequently amended the name of the corporation to Valley Machinery Corporation ("Valley Machinery").

9. Hal Y. Roe is a sophisticated forty-four year old who presently works as an insurance agent in Sevierville, Tennessee. While in school at the University of Tennessee in Knoxville, Roe was a fraternity brother of Jake Butcher. He obtained a B.S. Degree with a major in Business Administration from Tennessee Wesleyan College, Athens, Tennessee, formerly managed a jewelry store, and has as well served as a plant superintendent for a sand and gravel company. In 1976, Roe became dissatisfied with his job and contacted Jake Butcher. Butcher gave Roe a job in public relations at his flagship bank, United American Bank of Knoxville ("UAB-K"). Roe had no previous public relations experience. When Jake Butcher ran for governor of Tennessee in 1978, Roe also served as the Nashville office manager of his campaign. Then on November 2, 1979, at Roe's suggestion, Butcher decided to purchase the stock of GEC. Butcher caused BRO-# 2 to purchase the stock of GEC. Roe was named President and served as a director of GEC. The other director of GEC was Jake Butcher. Sonya Butcher served as Secretary/Treasurer. Ray Milton served as Controller. Milton had previously worked with David Crabtree's accounting firm. Crabtree served as C.H. Butcher's accountant and is presently under indictment for attempting to take 1.3 million dollars out of the country while in bankruptcy in violation of 18 U.S.C. § 152. Helen Kimbrough and Judy Franklin also served as Assistant Secretary and Treasurer and were Jake Butcher's secretaries in the UAB-K office building in Knoxville, Tennessee.

10. In order to acquire the premises occupied by GEC as a tenant, a limited partnership by the name of Pellissippi Parkway, Ltd., was formed on November 1, 1979, with Hal Y. Roe as general partner and 25% owner while William Shumate served as trustee for the 75% limited partner. This limited partner was Jake Butcher. William Shumate was a partner in the law firm of Ridenour, Ridenour, Ridenour, Bowers and Shumate. This firm also served as general counsel of UAB-K and apparently for BRO-# 2 and GEC as well.

11. On November 2, 1979, Hal Y. Roe signed a $1,000,000 note as the general partner of Pellissippi Parkway, Ltd. at the C & C Bank of Knox County for the stated purpose of purchasing real property ("Loan 1"). Also on November 2, 1979, Jacob F. Butcher as president of BRO-# 2 signed a $500,000 note at the C & C Bank of Anderson County for the stated purpose of purchasing GEC stock ("Loan 2").

12. The $500,000 proceeds from Loan 2 was transferred to BRO-# 2's account at C & C Bank of Anderson County, thence to UAB-K and thence to BRO-# 2's account at C & C Bank of Knox County. Then also on November 2, 1979, BRO-# 2 issued its check in the amount of $400,000 payable to Hal Y. Roe and signed by Jake F. Butcher. BRO-# 2 also issued its check signed by Jake Butcher in the amount of $100,000 payable to GEC on November 2, 1979, apparently for working capital.

13. The $1,000,000 proceeds from Loan 1 were deposited in the account of Pellissippi Parkway, Ltd. at C & C Bank of Knox County. Then also on November 2, 1979, Hal Y. Roe as general partner of Pellissippi Parkway, Ltd. wrote a check in the amount of $900,865.35 payable to himself. These funds together with the $400,000 from BRO-# 2 were deposited in Roe's personal account at UAB-K on November 2, 1979. Pellissippi Parkway, Ltd. was left with nearly $100,000 in working capital in its account.

14. From his personal account, Roe wrote check # 1101 to the Ridenour law firm for $4,225.50. Roe also wrote his personal checks # 1102 in the amount of $746,639.85 and # 1103 in the amount of $550,000.00 to United American Bank of Knoxville. These checks were dated November 1, 1979. In return, Roe received UAB-K cashier's checks dated November 1, 1979. One check in the amount of $746,639.85 was payable to Pioneer Fuel Sales Co., Inc., while the other for $550,000.00 was payable to W.C. Pendleton.

15. In return for the $550,000 cashier's check, it appears that William Pendleton transferred his ownership of 100% of the stock of GEC to BRO-# 2. In return for the $746,639.85 cashier's check, it appears that Pioneer Fuel Sales transferred its ownership of the "Pellissippi Parkway" property to Hal Y. Roe on November 1, 1979. This Pellissippi Parkway property is the real estate where GEC was located. Later, but also on November 1, 1979, Roe transferred ownership of the "Pellissippi Parkway" property to Pellissippi Parkway, Ltd.

16. On or about May 16, 1980, Hal Y. Roe executed a $250,000 note at C & C Bank of Roane County on behalf of GEC. ("Loan 3"). Of the $250,000 deposited in GEC's UAB-K account, $89,493.15 went to pay interest on Pellissippi Parkway's $1,000,000 loan at C & C Bank of Knox County, Loan 1.

17. On or about December 22, 1980, Hal Y. Roe executed a $300,000 note at C & C Bank of Washington County on behalf of H & R Machinery ("Loan 4"). These proceeds...