In re Reliance Securities Litigation, MDL 1304.
| Citation | 135 F.Supp.2d 480 |
| Decision Date | 29 March 2001 |
| Docket Number | No. Civ.A. 99-858-RRM.,No. MDL 1304.,MDL 1304.,Civ.A. 99-858-RRM. |
| Parties | In re RELIANCE SECURITIES LITIGATION William Eric Graham, et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. Taylor Capital Group, Inc. f/k/a Cole Taylor Financial Group, Inc., Cole Taylor Bank, Jeffrey W. Taylor, Bruce W. Taylor, Sidney J. Taylor, Lori Cole, Shirley Cole, Cathy Cole Williams, Thomas L. Barlow, Howard B. Silverman, James D. Dolph, J. Christopher Alstrin, Michael Bernick, William S. Race, Ross J. Mangano, Solway F. Firestone, Melvin E. Pearl, Dean L. Griffith, KPMG Peat Marwick, LLP, ABN Amro Inc. f/k/a The Chicago Corp., and Sandler O'Neill Corporate Strategies, Defendants. |
| Court | United States State Supreme Court of Delaware |
R. Bruce McNew, Taylor & McNew, LLP, Greenville, DE, Kevin Gross, Rosenthal, Monhait, Gross & Goddess, P.A., Helen J. Hodges, Jeffrey D. Light, Karen L. Thomas, Milberg Weiss Bershad Hynes & Lerach LLP, San Diego, CA, David B. Kahn, Mark E. King, David B. Kahn & Associates, Ltd., Northfield, IL, Robert F. Coleman, Robert F. Coleman & Associates, Richard Bemporad, Richard Dannenberg, Michelle Rago, Lowey Dannenberg Bemporad & Selinger, PC, White Plains, NY, Daniel Zazove, Barbara Young, Field & Golan, Chicago, IL, for plaintiffs.
James L. Holzman, Bruce E. Jameson, Prickett, Jones & Elliott, Wilmington, DE, Steven P. Handler, Steve Hoeft, David S. Rosenbloom, McDermott, Will & Emery, Chicago, IL, for defendants J. Christopher Alstrin, Jeffrey W. Taylor, Bruce W. Taylor, Sidney J. Taylor, Taylor Capital Group and Cole Taylor Bank.
R. Franklin Balotti, Lisa A. Schmidt, Peter B. Ladig, Richards, Layton & Finger, Wilmington, DE, Thomas I. Matyas, Richard M. Hoffman, Michael A. Kaeding, Wildman, Harrold, Allen & Dixon, Chicago, IL, for defendants Irwin Cole, Lori Cole, Shirley Cole, Cathy Cole Williams.
Arthur L. Dent, Potter Anderson & Corroon, LLP, Wilmington, DE, David Kristenbroker, Joseph Fogel, Leah J. Domitrovic, Theresa L. Davis, Freeborn & Peters, Chicago, IL, for defendant Melvin E. Pearl.
William H. Sudell, Jr., Martin P. Tully, Morris, Nichols, Arhst & Tunnell, Wilmington, DE, Timothy W. Mountz, Baker & Botts L.L.P., Dallas, TX, David D. Sterling, Baker & Botts L.L.P., Houston, TX, James R. Figliulo, Figliulo & Silverman, P.C., Chicago, IL, for defendant KPMG Peat Marwick LLP.
Francis J. Murphy, Murphy Spadaro & Landon, Wilmington, DE, Bruce R. Meckler, James H. Kallianis, Jr., Christopher E. Kentra, Meckler, Bulger & Tilson, Chicago, IL, for defendant Thomas L. Barlow.
Henry E. Gallagher, Jr., Connolly Bove Lodge & Hutz LLP, Wilmington, DE, John W. Rotunno, Stephen J. O'Neil, Sarah K. Johnson, Bell, Boyd & Lloyd LLC, Chicago, IL, for defendants Solway F. Firestone, Dean L. Griffith, Ross J. Mangano, William S. Race.
Richard D. Kirk, Morris, James, Hitchens & Williams LLP, Wilmington, DE, Steven R. Smith, Richard T. Greenberg, William F. Zieske, Ross & Hardies, Chicago, IL, for defendant Howard B. Silverman.
George W. Spellmire, John C. Everhardus, Jonathan S. Goodman, D'Ancona & Pflaum LLC, Chicago, IL, for James D. Dolph.
Michael D. DeBaecke, Blank Rome Comisky & McCauley, LLP, Wilmington, DE, Alton B. Harris, Steven M. Malina, Robert
H. Griffith, Ungaretti & Harris, Chicago, IL, for defendant ABN AMRO Inc., as successor to The Chicago Corporation.
Lawrence C. Ashby, Ashby & Geddes, Wilmington, DE, John L. Hardiman, William L. Farris, Kieran B. Morrow, Sullivan & Cromwell, New York City, for defendants Sandler O'Neill Corporate Strategies, Sandler O'Neill & Partners L.P.
This is a securities class action. The dispute arises from the corporate restructuring and subsequent bankruptcy of the Cole Taylor Financial Group ("CTFG") in 1997 and 1998.
In 1981, Irwin Cole and Sidney Taylor formed CTFG as a holding company for a group of commercial banking institutions. It remained a private corporation until 1994 when the company made an initial public offering of its stock. In 1997, at the time of the corporate restructuring, CTFG operated as a holding company for three wholly owned subsidiaries: Cole Taylor Bank, a commercial bank based in Chicago, Illinois; Reliance Acceptance Corporation ("RAC"), a finance company specializing in subprime auto loans based in San Antonio, Texas; and CT Mortgage Company, Inc., a mortgage company that provided subprime residential real estate loans.
On February 12, 1997, after a vote of the shareholders, CTFG spun off Cole Taylor Bank and CT Mortgage Company and retained control of RAC.1 On February 9, 1998, less than a year later, CTFG filed for bankruptcy protection in Delaware.
In early 1998, shareholders of CTFG filed a number of class action lawsuits in the Western District of Texas, the Northern District of Illinois, and Delaware Chancery Court against officers, directors, accountants, financial advisors, subsidiaries of CTFG, and other entities formed in the split-off transaction, alleging violations of § 10(b), § 14(a), and § 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(a), and 78t(a), as well as various state law claims.
On September 4, 1998, David Allen, the estate representative of the chapter 11 estate of CTFG and its subsidiaries, filed two adversary bankruptcy proceedings in the United States Bankruptcy Court for the District of Delaware asserting state law fraudulent transfer claims, fiduciary duty claims, professional malpractice claims, and related common law claims against many of defendants named in the Texas and Illinois lawsuits. On March 12, 1999, a number of defendants in the adversarial proceedings moved to withdraw the reference to the bankruptcy court and on June 23, 1999 moved to consolidate the cases. On July 15, 1999 the court granted the motion to consolidate and on July 22, 1999 granted the motion to withdraw the reference to bankruptcy court.
On December 9, 1999, the Judicial Panel on Multidistrict Litigation transferred the Texas and Illinois lawsuits to this court to consolidate discovery and other pre-trial matters with the adversarial proceedings in the bankruptcy.
In early 2000, defendants moved to dismiss the securities class action complaint pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(6) and § 21D(b) of the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b)(1, 2). On April 19, 2000, this court denied defendants' motions to dismiss. See Graham v. Taylor Capital Group, Inc. (In re Reliance Securities Litigation), 91 F.Supp.2d 706 (D.Del.2000).
Since that opinion, a number of defendants have moved separately for summary judgment. This is the court's decision on those motions.
The court draws the following facts from the pleadings and publicly filed documents, as well as the depositions, affidavits, and answers to interrogatories filed by the parties in support of their motions. Summary judgment is proper if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.Pro. 56(c). A fact is material if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). There is a genuine issue as to a material fact "if a reasonable jury could return a verdict for the nonmoving party." Id.
In the early 1980's, Irwin Cole and Sidney Taylor formed CTFG as a banking and consumer loan business. By the time of the split-off transaction, CTFG operated solely as a holding company through its wholly owned subsidiaries: Cole Taylor Bank, Reliance Acceptance Corporation, and CT Mortgage Company, Inc. In 1994, CTFG made an initial public offering of its stock. The Cole and Taylor families remained the largest shareholders, each retaining 25% of the outstanding shares.
Cole Taylor Bank is a commercial bank, based in Chicago, with a record of sustained profitability, but slow growth. Irwin Cole and Sidney Taylor purchased Cole Taylor Bank in 1969 as Main State Bank. In 1978, Irwin Cole and Sidney Taylor purchased Drovers National Bank and in 1984, CTFG became the holding company for the two banks. By 1992, CTFG had purchased four additional suburban Illinois banks and merged all of the individual institutions into Cole Taylor Bank. In 1997, the bank operated through ten branch offices and provided a full range of commercial and consumer banking services to individuals and companies around Chicago, Illinois.
In 1992, CTFG incorporated Reliance Acceptance Corp. as a wholly owned subsidiary. RAC commenced operations in January 1993. It purchased and serviced sales finance contracts in connection with the sale of automobiles. Principally, RAC purchased subprime loans, loans in which the borrowers had substandard or nonexistent credit histories. RAC bought the loans at a discount from the car dealers. On September 30, 1996, the Finance Company operated through 47 branch offices in 16 states and had approximately 400 full time employees.
CT Mortgage Company was formed in 1995. It provided residential loans in the subprime market.
CTFG's board took affirmative steps to provide oversight of the financial reports of the subsidiary companies. CTFG had an Internal Audit Department that examined the policies and procedures in place at CTFG and its subsidiaries. This department produced periodic reports on its findings. Maria Tabrizi served as the head of CTFG's Internal Audit Department.
CTFG also established an Audit and Examining Committee, which consisted of three outside directors. Tabrizi served as the committee's secretary. The committee's charter...
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