Gadd v. Pearson

• Decision Date: 14 December 1972
• Docket Number: Civ. No. 72-416.
• Citation: 351 F. Supp. 895
• Parties: Bernard GADD, as Official Liquidator of the British-American Bank, Ltd., a Bahamian banking company, Plaintiff, v. Tazwell W. PEARSON, Individually, and as Trustee for Philip Theodore Pyfrom and Lissay Pyfrom, minors, et al., Defendants.
• Court: U.S. District Court — Middle District of Florida

351 F. Supp. 895

Bernard GADD, as Official Liquidator of the British-American Bank, Ltd., a Bahamian banking company, Plaintiff, v. Tazwell W. PEARSON, Individually, and as Trustee for Philip Theodore Pyfrom and Lissay Pyfrom, minors, et al., Defendants.

Civ. No. 72-416.

United States District Court, M. D. Florida, Tampa Division.

November 7, 1972.

On Motion to Dismiss Amended Complaint December 14, 1972.

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Dixon, Dixon, Lane & Mitchell, Miami, Fla., and Brown, Dixon & Shear, Tampa, Fla., for plaintiff.

Holland & Knight, Bartow, Fla., for Citizens Bank of Clermont, Fla., and Exchange Bancorporation, Inc.

Carlton, Fields, Ward, Emmanuel, Smith & Cutler, Tampa, Fla., for William E. Bassett, E. Wayne Johnson and Am. Natl. Bank & Trust.

Burton R. Levey, P. A., Miami, Fla., for Cruz.

John L. Riley, St. Petersburg, Fla., for Forrest Pearson and Frank J. Valdez.

Don M. Stichter, Tampa, Fla., for Britton Plaza, Inc.

H. Rex Owen, St. Petersburg, Fla., for Donald R. Baker.

Shackleford, Farrior, Stallings & Evans, Tampa, Fla., for Southeast Bancorporation.

Leonard W. Cooperman, St. Petersburg, Fla., for William M. Bussey.

MEMORANDUM OPINION AND ORDER

KRENTZMAN, District Judge.

This is an action brought by a Bahamian bank liquidator seeking an accounting, a constructive trust, and damages against former bank directors, officers, and stockholders of British-American Bank, Ltd., and its subsidiaries. Various defendants have filed motions to dismiss and a motion to quash service of process. The resolution of the complicated legal issues involved herein ultimately rest on a thorough understanding of the convoluted factual relationships among the fourteen defendants. Accordingly, the factual setting must be developed in some detail.

These matters are before the Court on motions to dismiss. The complaint will therefore be construed in the light most favorable to plaintiff, and its allegations will be taken as true. Jenkins v. McKeithen, 395 U.S. 411, 421-422, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969).

I. FACTS AS ALLEGED

British-American Bank, Ltd., (B-A Bank) is a Bahamian banking company located in Nassau. Prior to October 25, 1971, B-A Bank owned as a wholly owned subsidiary a Luxembourg company, British-American Holdings, S.A. (Holdings). Holdings owned all or controlling stock in Britton Plaza, Inc. (Britton). Holdings also owned as a wholly owned subsidiary a Florida bank holding corporation, British-American Bancorporation, Inc. (B-A Bancorp). B-A Bancorp, in its turn, owned 73% of the stock of American National Bank & Trust Company of South Pasadena (Am. Nat'l), and 88% of the stock of Citizens Bank of Clermont, Florida (Citizens)

T. Pearson, W. Bussey, and R. Bussey oversaw this corporate structure as principal directors, officers, and stockholders of B-A Bank, Holdings, and B-A Bancorp. Defendant Frank Valdes was the accountant of B-A Bank and some of its subsidiaries.

The other individual defendants, Donald Baker, William Bassett, E. Wayne Johnson, and Forrest Pearson, were directors, officers and stockholders in Am. Nat'l, Citizens and Britton.

On October 25, 1971, this corporate family tree was shaken to its roots, eventually resulting in the instant suit. On that day, T. Pearson, on behalf of all the stockholders of B-A Bank, completed negotiations with Dr. Federico Cruz concerning the transfer of 100% ownership in B-A Bank to Dr. Cruz. Stocks were shifted around among the defendants; the assets of the bank and the various subsidiaries, including Am. Nat'l and Citizens, were somewhat depleted.

The complaint alleges that T. Pearson, W. Bussey, and R. Bussey breached their fiduciary obligations to B-A Bank in consummating this "deal" with Dr. Cruz by:

1. Failing to inquire as to Dr. Cruz's dubious background (Dr. Cruz was allegedly a convicted felon who had conducted a series of unsuccessful business ventures in the Caribbean area);

2. lending Dr. Cruz the entire purchase price from the assets of the bank ($3,800,000), accepting in return Cr. Cruz's notes secured by stock in a non-existent, non-licensed, and non-operational airline;

3. accepting credit of $2 million in return for transferring to B-A Bank the stock in Britton (owned by its subsidiary, Holdings);

4. ordering B-A Bank to transfer to them over $4 million without sufficient consideration or accounting, and in preference to claims of creditors and depositors;

5. permitting T. Pearson to acquire another company, paying with assets of B-A Bank without sufficient consideration or accounting; and

6. permitting transfer of Am. Nat'l and Citizens stock to themselves and to Baker, Johnson, Bassett, and F. Pearson individually, or in the alternative, failing to account for and turn over to B-A Bank, Holdings, and B-A Bancorp the money paid by Baker, Johnson, Bassett, and F. Pearson, or in the alternative, permitting the purchase of said stock for an inadequate consideration.

After October 25, 1971, Dr. Cruz took control of B-A Bank. After less than four months had passed, however, the operations of B-A Bank were suspended by the Bahamian government, and its banking license was revoked. Thereafter, Dr. Cruz continued to advertise for, and accepted, deposits exceeding $2 million (which he then withdrew from the Bank and deposited elsewhere).

Plaintiff Gadd was appointed by the Bahamian court as the official bank liquidator. His task is to collect and liquidate the various assets of B-A Bank in an attempt to partially salve the wounds of unsatisfied depositors and creditors.

II. THE LAW

In this action, plaintiff seeks to have the various defendants¹ account for the proceeds of the stock transfers involved in the Dr. Cruz "deal". Plaintiff also seeks to impose a constructive trust on those proceeds for the benefit of B-A Bank and its subsidiaries. Plaintiff further requests damages against any defendants guilty of conversion or breach of fiduciary obligations. Plaintiff is met initially with ten motions to dismiss on various grounds and one motion to quash service of process.

A. The Nature of the Action—Derivative or Direct?

Defendants urge that this action is really in the nature of a stockholder's double derivative action, a rare two-headed creature of corporate law. If this action is in fact a derivative action, then plaintiff has failed to allege that he has made a demand on the subsidiary corporations involved, a requisite of Rule 23.1, F.R.Civ.P., and also of Fla. Stat. § 608.131(2), F.S.A.

Before this question can be answered, however, this Court must first determine what law is to be applied. Federal jurisdiction is grounded in diversity of citizenship. Under Erie R. R. Co. v. Tomkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and its progeny, the substantive-procedural dichotomy determines the law to be applied, state or federal.

There can be no doubt that if this action is a stockholder's derivative action, then the procedural rules to be applied must be found in the federal rules, not the state statutes.² Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). But the determination of the nature of this action is a substantive question which depends on the claim plaintiff seeks to articulate and the relief pursued. Hausman v. Buckley, 299 F.2d 696 (2nd Cir., 1962). This "outcome-determinative" question³ must be answered by state law.⁴ Angel v. Bullington, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832 (1947). Thus, applying Florida law, what is the true nature of this action?

Plaintiff's ultimate duty is to collect the assets of B-A Bank, liquidate them, and apply the liquidated assets to the varying demands of creditors and depositors. In carrying out this Bahamian court-ordered function, plaintiff has come into this Court enforcing a cause of action belonging to the bank. Such a chose in action is an asset of the bank. See Spears v. West Coast Builders' Supply Co., 101 Fla. 980, 133 So. 97 (1931).

Defendants urge that this asset of the bank is in the nature of B-A Bank stock in Holdings, and of Holdings stock in B-A Bancorp. Thus, they contend, plaintiff is in actuality suing as a stockholder in Holdings, which is a stockholder in B-A Bancorp, to enforce a right belonging to said subsidiaries (improper transfer of Am. Nat'l, Citizens, and Britton stock).

Courts have on rare occasions been presented with a shareholder's right to enforce claims belonging to subsidiaries of the parent corporation. Such actions are termed double derivative actions. See annot., 154 A.L.R. 1295-1301. In a double derivative action, a stockholder (B-A Bank) of a parent corporation (Holdings) brings suit to redress a wrong allegedly done to a subsidiary corporation owned by the parent (Britton and B-A Bancorp).

In Goldstein v. Groesbeck, 142 F.2d 422 (2d Cir. 1944), that court held that a shareholder could maintain a double derivative action in the federal courts. Thus, if Florida law treats the present action as a derivative suit, there is no impediment to applying the federal rules to such an action. The Goldstein court stated:

"A shareholder's suit in essence is nothing more than a suit by a beneficiary of a fiduciary to enforce a right running to the fiduciary as such; a double derivative suit is one in which the beneficiary is in his turn a fiduciary, and as such refuses to enforce the right which is his as beneficiary of the first fiduciary." Id. at 425

The equitable principles which justify double derivative suits would thus allow the present suit to be maintained. No Florida cases indicate that these principles are contrary to Florida law.

Defendants' argument, however, is predicated on the assumption that this suit is in fact a derivative action. At the hearing on these motions to dismiss, plaintiff admitted that he was seeking to recover assets belonging to a subsidiary. As a liquidator, plaintiff represents not only the shareholders of B-A Bank, but also its...