Griffin v. Carmel Bank & Trust Co.
| Decision Date | 08 July 1987 |
| Docket Number | No. 06A01-8703-CV-57,06A01-8703-CV-57 |
| Citation | 510 N.E.2d 178 |
| Parties | Ida M. GRIFFIN; Jack W. Griffin; David F. Tudor; Anthony Stroinski; Robert E. Sauer; and Dorothy M. Sauer; On Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellants, v. CARMEL BANK & TRUST COMPANY; Larry R. Mohr; Fred W. Garver; James W. Catton; David H. Markstone; Milton J. Fineberg; James C. Hilliard; and United States Fidelity and Guaranty Company, Defendants-Appellees. |
| Court | Indiana Appellate Court |
John R. Price, P.C., Burroughs & Price, Indianapolis, for plaintiffs-appellants.
Jeffrey R. Gaither, Klineman, Rose, Wolf & Wallack, Indianapolis, for defendants-appellees.
STATEMENT OF THE CASE
Plaintiff-appellants, Ida M. Griffin, et al., as shareholders of the Carmel Bank and Trust Company (Shareholders), appeal an adverse summary judgment in favor of two of the defendants, Milton J. Fineberg (Fineberg) and James C. Hilliard (Hilliard), in a derivative action.
We reverse.
Shareholders, Ida M. Griffin, Jack W. Griffin, David F. Tudor, Anthony Stroinski, Robert E. Sauer, and Dorothy M. Sauer, on behalf of themselves and other owners of common stock in the Carmel Bank and Trust Company, filed a derivative action on May 10, 1985, against Carmel Bank and Trust Company (Carmel Bank), Larry R. Mohr, Fred W. Garver, James W. Catton, David H. Markstone, Fineberg, and Hilliard. In amended complaints other named defendants were dismissed from the action, but on the fifth amended complaint, filed on November 25, 1986, the United States Fidelity and Guaranty Company (USF & G), the surety on Carmel Bank's fidelity bond, was made a party defendant. Proceedings hereafter discussed were raised on the fifth amended complaint.
Count I of the fifth amended complaint alleged that Mohr, Garver, Catton, Markstone, Fineberg, and Hilliard were all officers, directors, members of loan and executive committees, chairmen of the board, and otherwise in control of Carmel Bank. It alleged that there was a continuing conspiracy among the defendants to defraud the bank wherein they violated their fiduciary duty to Carmel Bank by making large loans to themselves, in violation of banking statutes and regulations. These loans, totaling $2,658,000.00, were largely lost. The loans, made at different times, to either themselves or their affiliates, were as follows:
The fifth amended complaint also alleged that Markstone obtained personal loans in the sum of $158,445.00, and a loan for a corporation named Fox Hollow Farms, Inc. in the amount of $107,228.00. Count I sought judgment against only Mohr, Markstone, Garver, and Catton for $2,658,000.00 for the bad loans; $2,000,000.00 for exemplary damages; and $2,000,000.00 for loss of earnings.
Counts II, III, IV, and V all incorporated Count I, and in various ways repetitively advanced different theories against different defendants all revolving around the breach of fiduciary relationships as directors and officers in making the inside illegal loans which caused Carmel Bank's loss and its stock to depreciate. Counts VI and VIII stated claims against USF & G on its fidelity bond.
Count VI, as concerns us here, is against Fineberg and Hilliard only, and incorporates Count I. It alleges that Fineberg and Hilliard were directors and participated in voting in favor of granting the illegal and improper loans, failed to attend a significant number of meetings, and voted dividends that impaired the stock. It alleges that they had duties to use reasonable care, operate the bank in a legal and safe manner, select honest and competent officers, and investigate the loan portfolio. It is also alleged that Fineberg and Hilliard received illegal and unsecured loans at the time they voted the illegal loans to others, although these loans were subsequently repaid. The prayer in Count VI against Fineberg On March 26, 1985, Markstone, his wife, June M. Markstone, Fox Hollow Farms, Inc., and Michael E. Mohr, filed a petition for bankruptcy in the United States Bankruptcy Court for the Southern District of Indiana, Indianapolis Division. Thereafter, on February 4, 1986, the Carmel Bank filed an adversary proceeding, objecting to Markstone's discharge and praying for money damages due to fraud allegedly committed by Markstone on creditors in transferring property, executing releases of security, and making false statements in the bankruptcy proceedings. On June 26, 1986, Carmel Bank, Markstone, and his wife entered into a reaffirmation agreement. Shareholders were neither consulted nor were they a party to it. The agreement recited notes as follows: 1984, two notes evidencing loans in the amounts of $84,300.00 and $7,000.00 respectively; a note executed on January 2, 1985 for $57,939.00; and a note executed by Markstone for Fox Hollow Farms, Inc. in the amount of $107,220.26. The agreement, subject to the approval of the bankruptcy court, provided that Markstone and his wife would reaffirm these debts, execute a new note totaling $256,000.00, payable with interest over 40 years in 480 installments, and give a third mortgage on certain real estate. Paragraph 23 then provided:
and Hilliard was for the loss in value of the stock in the sum of $633,578.00; loss of the loans which affected capital in the amount of $2,658,000.00; and loss of good will in the amount of $2,000,000.00.
"Subject to the Court's approval of this agreement, and effective upon the effective date of this Agreement and the settlement contemplated herein, and in consideration for the Markstones' covenants and obligations...
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