Garner v. Pearson

• Decision Date: 14 June 1973
• Docket Number: No. 72-416 Civ. T-K.,72-416 Civ. T-K.
• Citation: 374 F. Supp. 580
• Parties: Graham C. GARNER and Sydney Morris, as Official Liquidators of The British-American Bank, Ltd., a Bahamian banking company (in compulsory liquidation), Plaintiffs, v. Tazwell W. PEARSON, Individually and as Trustee for Philip Theodore Pyfrom et al., Defendants.
• Court: U.S. District Court — Middle District of Florida

374 F. Supp. 580

Graham C. GARNER and Sydney Morris, as Official Liquidators of The British-American Bank, Ltd., a Bahamian banking company (in compulsory liquidation), Plaintiffs, v. Tazwell W. PEARSON, Individually and as Trustee for Philip Theodore Pyfrom et al., Defendants.

No. 72-416 Civ. T-K.

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

June 14, 1973.

Dixon, Dixon, Lane & Mitchell, Miami, Fla., Brown, Dixon, Shear, Brown & Stephenson, Tampa, Fla., for plaintiffs.

Holland & Knight (Stephen H. Grimes), Bartow, Fla., for Exchange Bancorporation.

Thomas A. Clark, of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, Tampa, Fla., for William E. Bassett, E. Wayne Johnson.

Burton R. Levey, Miami, Fla., for Dr. Federico Cruz.

John L. Riley, St. Petersburg, Fla., for Forrest Pearson & Frank J. Valdes.

Marvin E. Barkin, of Trenam, Simmons, Kemker, Scharf & Barkin, Tampa, Fla., for John L. Riley.

H. Rex Owen, St. Petersburg, Fla., for Donald R. Baker and Tazwell W. Pearson.

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

Masterson, Sundberg & Rogers, St. Petersburg, Fla., for T. W. Pearson.

Gordon & Maney, P. A. (David A. Maney), Tampa, Fla., for Robert Bussey.

Michael L. Kinney, of Fowler, White, Gillen, Kinney, Boggs & Villareal, P. A., Tampa, Fla., for Tazwell W. Pearson and Donald R. Baker.

MEMORANDUM OPINION AND ORDER

KRENTZMAN, District Judge.

This Bahamian Bank case is again before the Court on various pending motions. A memorandum opinion and order entered November 7, 1972, disposed of prior motions relating to jurisdiction. Sub nom., B. Gadd v. T. W. Pearson, 351 F.Supp. 895 (M.D.Fla.1972). Jurisdiction is not, however, a bridge which this Court has yet managed to cross. Numerous aspects of diversity jurisdiction continue to haunt the Court.

Diversity jurisdiction, for all its salutory origins, is oftentimes a deceptively simple territory in which a network of fissures may open up to swallow unsuspecting parties and courts. The instant case has managed to collect every such crevass which has appeared in prior cases dating back to 1806, thus making the going very treacherous.

Concurrent state and federal jurisdiction was the form of federalism worked out by the founding fathers in long debates in the summer of 1787. Being a product of both history and debate, federal jurisdiction has never been amenable to hornbook analysis. As Hamilton hopefully stated in The Federalist Papers:

"Tis time only that can mature and perfect so compound a system, can liquidate the meaning of all the parts, and can adjust them to each other in a harmonious and consistent WHOLE."

Federalist No. 82.

Such, unfortunately, has not been the case with diversity jurisdiction. Replete with Erie questions, with matters of state citizenship, and other convoluted and oftentimes parochial problems, diversity jurisdiction has not been federalism's finest manifestation.

Turning to the instant case, six months have passed since this Court's prior order. That time period has seen nineteen motions relating to jurisdiction, the filing of a second amended complaint, and another hearing on all pending motions. This order is directed to a portion of those pending motions. A concurrent order, separately entered, disposes of the other pending motions.

The facts as alleged by plaintiffs are summarized in this Court's prior order. Sub nom., 351 F.Supp. 895, 898-899 (M. D.Fla.1972). The second amended complaint, however, is more detailed, and some amount of recapitulation is necessary.

Plaintiffs are the official liquidators of the Bahamian bank British-American Bank Ltd. (B-A Bank or the Bank).¹ The subsidaries of B-A Bank, as alleged in the second amended complaint, are British-American Holdings, S. A. (Holdings) and British-American Bancorporation (Bancorp). Holdings was formerly known as British-American Investment Fund, S. A. Bancorp allegedly held ownership to two Florida banks, American National Bank & Trust Company of South Pasadena (Am. Nat'l), and Citizen's Bank of Clermont, Florida (Citizens).

On October 25, 1971, ownership in B-A Bank was transferred to Dr. Federico Cruz. At some time after that, B-A Bank was placed into involuntary liquidation by the Bahamian government.

In this suit, plaintiffs, as liquidators, are pursuing actions against the Bank's former directors, officers, and shareholders, charging them with breach of fiduciary duties owed to the bank. Also sued are two individuals and a bank holding company who are the present owners of stock in the two banks, Am. Nat'l and Citizens, which, under the allegations, were originally owned by Bancorp, B-A Bank's subsidiary (through the subsidiary Holdings).

On April 20, 1973, and with leave of Court, plaintiffs filed a second amended complaint, much more detailed than the prior two complaints, and divided into seven counts. As the nature of the claims against the various defendants differ, it is proper that the complaint is divided into separate counts.

Count I alleges that defendants Pearson, Robert Bussey, and Baker entered into an agreement to transfer ownership of B-A Bank to Dr. Cruz and another individual (Thor Brunskow, now deceased). The Count charges these three defendants with breach of fiduciary duties owed to B-A Bank. This breach was occasioned by their failure to inquire into the background of Dr. Cruz, and by various other activities regarding the extension of credit, transfer of subsidaries, and other allegedly improper acts. The Count further alleges that these defendants allowed the transfer of Am. Nat'l and Citizens to themselves and other defendants for inadequate consideration, through fraud, or alternatively without accounting to the Bank for the transfer. Finally, the complaint alleges that Pearson, Bussey, and Baker improperly attempted to transfer the Bank's subsidiary Holdings to other corporations or individuals. Plaintiffs as liquidators of the Bank, seek $10 million in damages, and request that a constructive trust be imposed on any proceeds received in violations of their fiduciary duties.

Count II charges that defendant William Bussey, who was allegedly a director and manager of Holdings and an officer and/or director of Am. Nat'l and other subsidaries, breached his fiduciary duties to these companies. The Count seeks both damages and a constructive trust.

Count III is directed against defendant Valdes, who was allegedly an accountant and who worked with the other defendants in attempting to defraud the Bank. Valdes allegedly hid the transfer of certain assets and incorrectly stated the financial status of the Bank and its subsidaries. Plaintiffs seek damages against defendant Valdes.

Count IV is a claim against Dr. Cruz, alleging a breach of his fiduciary duties to the Bank by his improper operation of the Bank and by activities connected with his alleged wrongful withdrawals of deposit monies from the Bank. Plaintiffs seek damages, an accounting, and a constructive trust.

In Count V, plaintiffs bring a claim against all of the above defendants. Plaintiffs allege that the activities described above caused the Bank to be placed in compulsory liquidation with insufficient assets to meet the demands of creditors and depositors. Damages, accounting, and a constructive trust are sought against the defendants.

Counts VI and VII are directed against the alleged present owners of Am. Nat'l and Citizens, the two banks which were the assets of Bancorp and which were involved in allegedly improper transfers. In Count VI, Bassett and Johnson are alleged to have acquired stock in Am. Nat'l as non-bona fide purchasers from other defendants who held wrongful title to the stock. The bank was allegedly acquired from Bussey, Pearson, Baker, Bancorp, and Britton Holdings (a Florida corporation owned and controlled by Pearson, Bussey and Baker). Plaintiffs seek a constructive trust on the stock in Am. Nat'l or its equivalent which is held by Bassett and Johnson as non-BFP's.

In Count VII, Exchange is alleged to have acquired the stock in Citizens from Pearson, Bussey, and Baker as a non-BFP under circumstances similar to the events surrounding the transfer of Am. Nat'l. A constructive trust is sought against Exchange for the Citizens stock or its equivalent.

The defendants fall into two broad categories with regard to the legal issues. The first group of defendants, Pearson, R. Bussey, Baker, Valdes, and Cruz, were all either directors, officers or principal shareholders of B-A Bank or Holdings. The second group of defendants, Bassett, Johnson and Exchange, were recipients of Am. Nat'l and Citizens stock from some of the defendants in the second group.

Bahamian or Florida Law — Derivative or Direct Action

The legal issue most strongly contested by the parties to this suit is the nature of plaintiffs' claims against the defendants. The defendants contend that the suit is essentially one pursuing a derivative remedy against the defendants on behalf of the subsidiary corporations of the Bank. In the order of November 7, 1972, this Court stated that the answer to this question may be determined by the law of the Bahamas under the rule of comity. On December 14, 1972, the Court directed the parties to submit proof on the Bahamian law governing the right of a liquidator to maintain a direct action in circumstances similar to the alleged facts in the instant case. The parties have submitted extensive legal memoranda and affidavits on this issue.

The basis for this Court's decision regarding choice of law is partially set out in the prior order of this Court. The law of the forum controls the remedy by which a party enforces his rights and his cause of action, regardless of where his cause of action arose. Nevertheless, the law of the place where the cause of action arose or the transaction occurred governs matters going to the basis of the right of action itself. Hausman v. Buckley, 299 F.2d 696 (2 Cir. 1962);...