Hunt v. AMERICAN BANK & TRUST OF BATON ROUGE, LA.

• Decision Date: 10 April 1985
• Docket Number: No. CV81-H-601-S.,CV81-H-601-S.
• Citation: 606 F. Supp. 1348
• Court: U.S. District Court — Northern District of Alabama
• Parties: W. Larry HUNT as Receiver of Life Insurance Company of America, an Alabama corporation, Plaintiff, v. AMERICAN BANK & TRUST COMPANY OF BATON ROUGE, LOUISIANA, a banking corporation; Calvin Wilson; Rolf McCollister; George E. McNutt, Jr.; Robert A. Holloway; Donald A. Hayden; Donald E. Hinds; George Pihakis; Karl Rodriquez; Jack R. Tanner; Matthew E. Wright; James Pihakis; Benjamin E. Abbott, Jr.; John C. Roth; Don L. Atkins; Sam A. Gallo; each individually and as, or as former directors of Royal American Corporation and/or Pacific American Corporation, and/or Life Insurance Company of America and/or Investors Corporation of America and/or American Bank and Trust Company of Baton Rouge, Louisiana, Defendants.

606 F. Supp. 1348

W. Larry HUNT as Receiver of Life Insurance Company of America, an Alabama corporation, Plaintiff, v. AMERICAN BANK & TRUST COMPANY OF BATON ROUGE, LOUISIANA, a banking corporation; Calvin Wilson; Rolf McCollister; George E. McNutt, Jr.; Robert A. Holloway; Donald A. Hayden; Donald E. Hinds; George Pihakis; Karl Rodriquez; Jack R. Tanner; Matthew E. Wright; James Pihakis; Benjamin E. Abbott, Jr.; John C. Roth; Don L. Atkins; Sam A. Gallo; each individually and as, or as former directors of Royal American Corporation and/or Pacific American Corporation, and/or Life Insurance Company of America and/or Investors Corporation of America and/or American Bank and Trust Company of Baton Rouge, Louisiana, Defendants.

No. CV81-H-601-S.

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

April 10, 1985.

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John N. Pappanastos, Pappanastos & Blanchard, P.C., Montgomery, Ala., J. Gusty Yearout, Joanne Boyd, Yearout, Hardy & Myers, P.C., Birmingham, Ala., for plaintiffs.

Calvin W. Wilson, Pensacola, Fla., W. Ramsey McKinney, Jr., Caine O'Rear, Alex F. Lankford, Hand, Arendall, Bedsole, Greaves & Johnston, Mobile, Ala., for American Bank & Trust.

Jack E. Held, C. Lee Reeves, Sirote, Permutt, Friend, Friedman, Held & Apolinsky, P.A., Birmingham, Ala., for Matthew E. Wright.

Donald E. Hinds, pro se.

James Pihakis, pro se.

Clarence M. Small, Jr., Karen Bowdre, Rives, Peterson, Pettus, Conway, Elliott & Small, Birmingham, Ala., for McCollister, McNutt, Holloway, Hayden, Rodriquez and Gallo.

Ferris S. Ritchey, Jr., Birmingham, Ala., for George Pihakis.

MEMORANDUM OF DECISION

HANCOCK, District Judge.

This cause comes before the court on the June 23, 1983 motion for summary judgment of defendant American Bank & Trust Company of Baton Rouge, Louisiana, (American Bank) and the June 28, 1983 motion for summary judgment of defendants Rolfe H. McCollister, George E. McNutt, Jr., Robert A. Holloway, Donald A. Hayden, Karl E. Rodriguez, and Sam Gallo (the "moving individual defendants") which two motions for summary judgment are addressed to the First, Second, Third and Fourth causes of action set forth in the complaint, as amended August 7, 1981 and as amended March 18, 1983. This cause is also before the court on the January 14, 1985 motions to dismiss of American Bank, the moving individual defendants and defendant Calvin Wilson directed to the Fifth, Sixth, Seventh, Eighth, Ninth and Tenth causes of action set out in the third, fourth and fifth amendments to the complaint. The issues raised by the motions have been ably presently to the court by excellent briefs after ample opportunity for discovery with regard to the issues presented. The motions are ripe for a ruling thereon.

Plaintiff is the Receiver for Life Insurance Company of America (LICA). His complaint, through the fifth amendment, states ten causes of action. Causes First, Second, Fifth and Seventh arise under federal securities laws; causes Third, Fourth, Sixth and Eighth are pendent state law fraud claims; and causes Ninth and Tenth seek to state claims under RICO, 18 U.S.C. § 1961, et seq. In summary, plaintiff complains of three securities frauds, which drained the resources of LICA until it was forced into receivership. The three securities frauds alleged are: (1) the Calvin Wilson transaction; (2) the Transamerican Securities Company, Inc. transaction; and (3) the Advanced Education, Inc. transaction. The various motions now before the court present a variety of issues but this memorandum of decision will address only the affirmative defense of the statute of limitations addressed to the first eight causes of action and the failure of the Ninth and Tenth causes of action to state a claim under RICO upon which relief may be granted.

The following facts are either not in dispute or are stated most favorably from the standpoint of the plaintiff. In the mid-1970s Royal American Corporation (RAC) owned at least 51% and maybe as much as 60% of the common stock of Pacific American Corporation (PAC), which owned 100% of the stock of LICA, which owned 67% of the stock of Investors Corporation of America (ICA), which owned 100% of International Resorts, Inc., which owned a property known as Point Aquarius Country Club. While the officers and directors of the foregoing were not identical, there was sufficient common identity of officers and directors to assume validity to the allegations in the complaint that certain of the defendants who were officers and directors of such corporations, through the dominance and control of other officers and directors who are not defendants, dominated and controlled the corporations. LICA was an insurance company which at all times was subject to the supervision of the Department of Insurance of the State of Alabama.

As stated earlier, the causes of action pursued in the complaint center around three alleged fraudulent transactions.

The Calvin Wilson transaction, as alleged, involved a scheme by all defendants to divert $500,000 from LICA into ICA, a financially troubled company in which LICA owned a two-thirds interest. Since the schemers felt a direct transfer of funds from LICA to ICA might result in an undesirable response by the Alabama Department of Insurance, the object of the scheme was accomplished in June of 1975 through the use of a straw man, Calvin Wilson. Wilson borrowed $500,000 from American Bank and used it to purchase from ICA 1,000,000 shares of its stock, pledging the stock to American Bank as security for the loan. As further security for the loan, the defendants had LICA guaranty payment of the loan. Upon Calvin Wilson's default, LICA paid American Bank the $500,000 and received an assignment of the pledged 1,000,000 shares of ICA stock. Plaintiff's First through Fourth causes of action arise out of the factual setting of the Calvin Wilson transaction and are pursued against all defendants.

The Transamerican Securities Company, Inc. transaction, as alleged, involved a scheme by certain of the defendants to divert funds from LICA to another company which some LICA board members controlled, Transamerican Investment Company, Ltd. This transaction occurred on June 2 and 3, 1977. Transamerican Investment Company, Ltd. is the holding company for Transamerican Securities Company, Inc. LICA, using its demand note, purchased from Transamerican Investment Company, Inc. eight $50,000 debentures (presumably the debentures were issued by Transamerican Securities Company, Inc.) maturing in three years, bearing interest at an annual rate of 10%, payable monthly, beginning July 1, 1977. The demand note used to purchase the debentures was secured by a $400,000 irrevocable letter of credit. Although not alleged, the letter of credit apparently was the outgrowth of a simultaneous delivery by LICA of its $400,000 promissory note to First National Bank of Oxford, secured by a mortgage of real estate (Point Aquarius Country Club) owned by International Resorts, Inc., a corporation wholly owned by ICA. Only one monthly interest payment on the debentures was received by LICA. The debentures have not been located and there is no evidence that LICA was paid for the debentures at the stated maturity thereof. Plaintiff's Fifth and Sixth causes of action arise out of the factual setting of the Transamerican Securities Company, Inc. transaction and are pursued against certain of the moving individual defendants, plus defendants Donald E. Hinds, Jack R. Tanner, Matthew E. Wright and George Pihakis.

The Advanced Education, Inc. transaction, as alleged, involved a scheme by American Bank and certain of the defendants to drain funds from LICA. American Bank was trustee for education bonds sold by Advanced Education, Inc. designed to help parents pay the cost of their children's college educations. At some point in time, American Bank and Advanced Education, Inc. became aware that the Advanced Education, Inc. investment portfolio was insufficient to pay the education bonds as they came due. On or about July 23, 1974, they set out to avoid liability for this discrepancy. Advanced Education, Inc. borrowed $300,000 from American Bank. Advanced Education, Inc. used this $300,000 in cash and the entire Advanced Education, Inc. investment portfolio to purchase a $600,000 convertible debenture from ICA. LICA guaranteed this debenture. Advanced Education, Inc. used this debenture as collateral on its $300,000 loan from American Bank. Apparently simultaneously, Advanced Education, Inc. returned to ICA its $600,000 debenture in exchange for ICA's agreement to assume, unconditionally, all the debts, liabilities and obligations of Advanced Education, Inc. (including the $300,000 note payable to American Bank and the education bonds). LICA guaranteed ICA's assumption of these liabilities. Plaintiff's seventh and eighth causes of action arise out of the factual setting of the Advanced Education, Inc. transaction and are pursued against American Bank, certain of the moving individual defendants and defendants George Pihakis, Matthew E. Wright and Jack R. Tanner.

The financial affairs of LICA became so bad that in late 1978 the Commissioner of Insurance commenced an action in the Circuit Court of Jefferson County, Alabama, seeking the appointment of a receiver for LICA. On December 15, 1978, that court appointed Charles E. Crawford, Chief of Receivership Division of Alabama Department of Insurance, as Receiver "of all the property, assets and estate" of LICA and directed the Receiver "to take immediate possession of said property, including the premises and all rights of action, as well as the books, papers, evidence of debt and all other property of every kind whatsoever belonging" to LICA. The Receiver was expressly authorized by statute and directed by court order to hire legal, clerical, managerial and other employees necessary to discharge his responsibility. Plaintiff W. Larry...