Gregory v. Mitchell

• Decision Date: 05 September 1978
• Docket Number: Civ. A. No. 78-43-N.
• Citation: 459 F. Supp. 1162
• Parties: E. A. GREGORY, Vonna Jo Gregory, Thomas L. Brown, M. D., John B. Coleman and First Bank of Macon County, a Banking Corporation, Plaintiffs, v. Dennis M. MITCHELL, Individually and in his capacity as Alabama State Superintendent of Banks and as Chairman and Ex Officio a Member of the Alabama State Banking Board, Herman Watson, A. M. Grimsley, Jr., Feagin Rainer, M. R. Crump, H. T. Strother, and Hayse McGahey, Individually and as Members of said Banking Board, First Alabama Bancshares, Inc., a Bank Holding Corporation, First Alabama Bank, N. A., a Banking Corporation located in Notasulga, Alabama, Federal Deposit Insurance Corporation, a corporation created and existing under and by virtue of an Act of Congress, and United States of America, all Individually and Jointly, Defendants.
• Court: U.S. District Court — Middle District of Alabama

459 F. Supp. 1162

E. A. GREGORY, Vonna Jo Gregory, Thomas L. Brown, M. D., John B. Coleman and First Bank of Macon County, a Banking Corporation, Plaintiffs, v. Dennis M. MITCHELL, Individually and in his capacity as Alabama State Superintendent of Banks and as Chairman and Ex Officio a Member of the Alabama State Banking Board, Herman Watson, A. M. Grimsley, Jr., Feagin Rainer, M. R. Crump, H. T. Strother, and Hayse McGahey, Individually and as Members of said Banking Board, First Alabama Bancshares, Inc., a Bank Holding Corporation, First Alabama Bank, N. A., a Banking Corporation located in Notasulga, Alabama, Federal Deposit Insurance Corporation, a corporation created and existing under and by virtue of an Act of Congress, and United States of America, all Individually and Jointly, Defendants.

Civ. A. No. 78-43-N.

United States District Court, D. Alabama, N. D.

April 27, 1978.

On Motion for Reconsideration September 5, 1978.

Ira DeMent, James Jerry Wood, and Richard H. Sforzini, Jr., Montgomery, Ala., for plaintiffs.

R. E. Steiner, III, Montgomery, Ala. (Steiner, Crum & Baker), Montgomery, Ala., for defendants Mitchell, Watson, Grimsley, Rainer, Crump, Strother, and McGahey.

Charles M. Crook and T. W. Thagard, Jr., Montgomery, Ala. (Smith, Bowman, Thagard, Crook & Culpepper), Montgomery, Ala., for F. D. I. C., First Alabama Bank, N. A., Notasulga, Alabama, and First Alabama Bancshares, Inc.

Barry E. Teague, U. S. Atty., and Kenneth E. Vines, Asst. U. S. Atty., M. D. Ala., Montgomery, Ala., for the United States.

MEMORANDUM

JOHNSON, Chief Judge.

This is an action brought pursuant to 42 U.S.C. § 1983 by plaintiffs First Bank of Macon County and its major stockholders, E. A. Gregory, Vonna Jo Gregory, Thomas Brown, and John B. Coleman, who allege that their constitutional rights to due process and equal protection were violated when the Macon County Bank was closed and its assets sold. Defendants are Dennis Mitchell, Alabama Superintendent of Banks; the members of the State Banking Board; First Alabama Bancshares, Inc.; First Alabama Bank, N.A.; Federal Deposit Insurance Corporation (FDIC); and the United States of America. Jurisdiction is based on 28 U.S.C. § 1343. The action is submitted for consideration of motions to dismiss, or alternatively for summary judgment, filed by several defendants.

The following facts are undisputed. In 1974, plaintiff E. A. Gregory purchased controlling blocks of stock in several small town, state-chartered banks in Alabama, including plaintiff First Bank of Macon County. On July 16, 1976, M. Douglas Mims, then Superintendent of Banks, wrote to the bank's board of directors, listing various expenses and purchases which, in the opinion of the State Banking Department's legal counsel, constituted "unsafe and unsound banking practices" within the meaning of Ala.Code §§ 5-10-23 and 5-10-24. The directors later agreed to abide by the department's order that such practices be stopped. The FDIC examined the bank in early 1977; the examination report, delivered to the board of directors in June, revealed that the bank still was engaging in unauthorized and illegal practices. As a result, charges were instituted against the bank, and, eventually, a cease and desist order was entered.

When, in December, 1977, all of the bank's non-employee directors resigned, defendant Mitchell, as the Superintendent of Banks, ordered that the bank be examined again. According to the examiner's report, the condition of the bank was "critical." Among other problems, the bank did not have a legally constituted board of directors; it was being operated in "flagrant disregard of applicable laws and regulations;" it had a $207,900 deficit in its capital account; and it was expected to have a negative cashflow for the coming year. On January 17, 1978, Mitchell sent a copy of the examiner's report to the bank's directors, advising them that, based on the report, he had reason to believe the bank "was in an unsafe and unsound condition to transact the business for which it was organized or that it is unsafe for the Bank to continue business." In addition, Mitchell notified the directors that pursuant to Ala. Code § 5-10-24 (authorizing the superintendent to seize the bank upon direction of the state banking board), he was calling a meeting of the State Banking Board on January 26, 1978, to consider the bank's condition, and that they could appear and be heard in person or by counsel. Plaintiffs admit they received this notice.

On January 19, 1978, the bank's attorney wrote to Mitchell, requesting a continuance on the grounds that Gregory had been subpoenaed to appear for a deposition in Florida and that Gregory's attorney was scheduled to appear in court on another matter. In response Mitchell advised the attorney that the hearing could be rescheduled for January 25, 1978. The attorney refused this offer. Subsequently, the attorney delivered a second letter to Mitchell, reiterating his request for a continuance. The attorney further requested that any action by the banking board be deferred until Gregory had a "reasonable opportunity to sell the bank to new owners." These requests were denied.

The State Banking Board met as scheduled on January 26, 1978. Counsel for the bank attended and participated. However, neither Gregory nor any other bank director or officer appeared. At the hearing, the Board discussed with Gregory's attorney the reasons why no officials or other representatives for the bank were in attendance, the bank examiner's report on the condition of the bank, and the Gregorys' prospects of selling the bank. In addition, the Board heard testimony from Richard Doughty, who was in charge of the bank examination. Shortly after the hearing adjourned about noon, the bank's attorney called Gregory, informing him that the Banking Board was "adamant about closing the Bank." Gregory said, if the board desired, he could be in Montgomery by 2:30 p. m. with the bank's president, vice-president, and secretary to the board of directors. When Gregory's request was relayed to the Board, it unanimously voted not to wait for Gregory's belated arrival before making a decision because, as stated in the minutes of the Banking Board, "the hearing had already been held." The bank's attorney then called Gregory to tell him of the Board's decision not to wait, and, in addition, to tell him the Board was particularly concerned with the number of "out of territory" loans issued by the bank. Gregory promised that he would "move out" all such loans if given ten more days. His request for more time was denied by the Board.

Shortly thereafter, the Banking Board unanimously voted to authorize Mitchell to seize the bank, which he did at 4:30 p. m. Pursuant to Ala.Code §§ 5-10-34, 5-8-3, Mitchell appointed FDIC as his agent in the liquidation of the bank and as the bank's receiver. FDIC accepted the appointment as authorized by 12 U.S.C. § 1821(e). To confirm its status as receiver, FDIC filed an ex parte petition in the Circuit Court of Macon County, Alabama, which was granted on January 27, 1978. The following day, the court also approved an ex parte sale of the bank's assets made to First Alabama Bank, N.A., pursuant to a "purchase and assumption transaction" set up by FDIC.

Plaintiffs contend that, by seizing the bank and selling its assets, Superintendent Mitchell and the members of the State Banking Board, as part of a conspiracy with defendants FDIC, the United States, First Alabama Bancshares, Inc., and First Alabama Bank, N.A., deprived them of their property without notice and an opportunity to be heard, in violation of the due process clause of the Fourteenth Amendment and 42 U.S.C. § 1983. Plaintiffs further contend that they were denied equal protection of the laws and substantive due process¹ because the report of the examination of the bank relied upon by the Banking Board was prepared by biased examiners, who knowingly applied "stricter standards" to the bank than to other banks, and because the attorney for the Banking Board overzealously urged the Board to seize the bank. Moreover, plaintiffs assert various contentions arising under state law. The following relief is requested: (1) a declaration that their constitutional rights have been violated; (2) $10,000,000 damages; and (3) an order voiding the sale of the bank's assets.

Each of the defendants has moved for dismissal, or, with the exception of the United States, alternatively for summary judgment. Upon consideration of these motions, supporting affidavits, the parties' briefs, and other pleadings, it is the conclusion of this Court that the motions to dismiss filed by FDIC and the United States and the motions for summary judgment filed by the other defendants should be granted.

It is well established that neither officers nor stockholders, even controlling stockholders, can maintain an action to redress an injury to the corporation even though the value of their stock is impaired as a result of the injury. Schaffer v. Universal Rundle Corp., 397 F.2d 893 (5th Cir. 1968); Erlich v. Glasner, 418 F.2d 226 (9th Cir. 1969) (action based on 42 U.S.C. § 1983). Since only the bank has allegedly suffered any injury in this case, all of the individual plaintiffs must be dismissed.² Moreover, the bank should also be dismissed since, as plaintiffs concede in their brief filed March 30, 1978, "any action to be maintained on behalf of the Bank is properly to be brought by the State Superintendent or the FDIC." Plaintiffs request that they be given leave to amend their complaint in order to file a derivative action pursuant to Rule 23.1, Federal Rules of Civil Procedure. Yet, to permit plaintiffs so to amend their complaint would but permit them to do a futile act; even if plaintiffs were properly before the Court, it affirmatively appears from the record that they would not be entitled to any relief. Accordingly, leave to amend will be denied.³

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