Independent Bankers Ass'n of Georgia, Inc. v. Dunn, 27611

• Decision Date: 05 March 1973
• Docket Number: No. 27611,27611
• Citation: 230 Ga. 345,197 S.E.2d 129
• Parties: INDEPENDENT BANKERS ASSOCIATION OF GEORGIA, INC. v. Edward D. DUNN et al.
• Court: Georgia Supreme Court

Page 129

197 S.E.2d 129

230 Ga. 345

INDEPENDENT BANKERS ASSOCIATION OF GEORGIA, INC. v. Edward D. DUNN et al.

No. 27611.

Supreme Court of Georgia.

March 5, 1973.

Rehearing Denied March 26, 30, 1973.

Martin, Snow, Grant & Napier, Charles M. Stapleton, Macon, for appellant.

J. Robin Harris, Decatur, Daniel B. Hodgson, Ronald L. Reid, Ben F. Johnson, III, Alston, Miller & Gaines, Philip H. Alston, Jr., Arthur K. Bolton, Atty. Gen., Harold N. Hill, Jr., Executive Asst. Atty. Gen., Robert J. Castellani, Asst. Atty. Gen., Atlanta, for appellees.

Hansell, Post, Brandon & Dorsey, McChesney H. Jeffries, Atlanta, amicus curiae.

Syllabus Opinion by the Court

UNDERCOFLER, Justice.

This suit seeks to compel the Superintendent of Banks of the State of Georgia (now Commissioner of Banking and Finance (Ga.L.1972, p. 1198)) to institute civil action against the Citizens & Southern National Bank and the Citizens & Southern Holding Company to enjoin them from allegedly violating the provisions of the Banking Law of Georgia which restrict the stock ownership or control of other banks. The suit was brought by the Independent Bankers Association of Georgia, Inc., whose membership is composed of 209 independent banks. Joined as defendants in the instant action are the Citizens & Southern National Bank and the Citizens & Southern Holding Company. Also joined as defendants are the following banks in which it is alleged that the Citizens & Southern National Bank and the Citizens & Southern Holding Company either jointly or separately own or control more than the allowable limit of stock: Citizens & Southern Bank of Thomas County, Citizens & Southern Bank of Milledgeville, Citizens & Southern Bank of Hart County, Citizens & Southern Bank of Dalton, Citizens & Southern Bank of South DeKalb, Citizens & Southern Bank of Cobb County, Citizens & Southern Bank of Tifton, Citizens & Southern Bank of Colquitt County, Citizens & Southern Bank of Jackson, and First State National Bank (Bainbridge).

The evidence shows:

1. The Citizens & Southern National Bank owns all of the capital stock of the Citizens & Southern Holding Company. All officers of the Citizens & Southern Holding Company are paid by the Citizens & Southern National Bank. The Citizens & Southern National Bank lends money to the Citizens & Southern Holding Company without interest. At the time of this hearing the amount was $10,000,000. Mills B. Lane, President of the Citizens & Southern National Bank and President of the Citizens & Southern Holding Company for 25 years and now Vice President of the Board of Directors of Citizens & Southern National Bank testified, 'What is the difference, it is all owned by Citizens & Southern . . . when Citizens & Southern lends $10,000,000 to Citizens & Southern Holding Company, it is lending money to itself . . .'

2. The Citizens & Southern Holding Company owns a 5% stock interest in each of the ten five per cent banks named in the complaint.

3. Counsel for Citizens & Southern stipulated, 'Various officers, directors and shareholders of the Citizens & Southern National Bank acquired stock in six of the ten five per cent defendant banks within thirty days subsequent to the Citizens & Southern Holding Company's acquiring five per cent stock ownership in said banks, the six banks being the Citizens & Southern Bank of Thomas County, Citizens & Southern Bank of Hart County, First State National Bank (Bainbridge), Citizens & Southern Bank of Dalton, Citizens & Southern Bank of South DeKalb, and Citizens & Southern Bank of Jackson. Second, a majority of such purchasers of stock in those six banks was funded through loans made by Citizens & Southern banks throughout the State of Georgia, including other associate correspondent banks.'

4. It was stipulated by counsel that, 'The officers and directors of the Citizens & Southern National Bank who acquired stock in the ten five per cent defendant banks were also shareholders in the Citizens & Southern National Bank.'

5. It was stipulated by counsel that, 'The President of each of the ten five per cent defendant banks was formerly either an officer of the Citizens & Southern National Bank or an officer of another bank in the Citizens & Southern System of banks.' Other than qualifying shares to become a member of the board of directors, each president purchased additional stock, generally about five per cent, which was posted as collateral for loans from the Citizens & Southern National Bank or associate correspondent banks. For the most part these loans were substantial loans on demand notes, the principal of which has not been reduced or substantially reduced. It was also stipulated that each of the ten five per cent defendant banks has one director who is an executive officer of the Citizens & Southern National Bank. Mills B. Lane testified: 'Q. You do know that no president of one of these banks, these five per cent banks would be elected without your approval? A. Up to now this has been so.'

6. The ten five per cent banks participate with the Citizens & Southern National Bank in the following programs: (a) pension plan, (b) employee profit sharing plan, (c) group insurance, (d) educational facilities, (e) recreational facilities, (f) transfer of personnel, (g) trust department and investment counseling, (h) joint printing, and (i) 'anything else that a five per cent bank cannot provide for itself.'

7. The Citizens & Southern Holding Company requires each president of the ten five per cent banks to establish goals and objectives each Fall for the coming year. The performance of each president is evaluated each year and salary increases are recommended based upon this evaluation.

8. In at least some instances the purchase of the stock in the defendant five per cent banks was handled by officers of the Citizens & Southern National Bank and resold to selected individuals. Peyton Anderson, a substantial stockholder of the Citizens & Southern National Bank and a former director of the Citizens & Southern National Bank and the Citizens & Southern Holding Company testified that 2428 shares of stock in the Milledgeville Banking Company once registered in his name were handled as follows: 'What happened was this. I asked Mr. Lane if he would sell me some interest in some of these 5 per cent banks. I had some money to invest. I had seen what they had done under C & S management and as an investor I wanted some stock in these five per cent banks. He came back to me and asked if I would sign a note that some of the banks were in the process of being, coming into the five per cent family and would I give him a note for a million seven hundred fifty thousand dollars to be used for the purchase of these banks and then he, in turn, would let the whole account be handled by Ralph Eubanks. I authorized, I signed the note, and I authorized Ralph Eubanks to handle the complete transaction which I was to get these stocks that I mentioned, that I have bought. The entire transaction was handled by Ralph Eubanks and the only thing that I have seen in connection with it is this letter from Bill Green with the list of things you have got there and I have never looked at any of these other papers you asked for, even though I have them in the office, I have never opened it and looked for it. The only thing that I was concerned about was to do a favor to Mills Lane by signing a note for a million, three-quarters, and in turn, get myself stock in these minority banks and not let it cost me anything. That's what has happened and that's all I know. I haven't seen any certificates. I haven't looked at any certificates and I authorized Ralph Eubanks to handle everything in connection with it.'

Mills B. Lane testified in explanation of this arrangement, 'The Federal Reserve Board asked us not to buy any more stock in the name of Mills B. Lane, Jr., agent, and we asked Robinson-Humphrey to take this price and Robinson-Humphrey said, 'We will do this,' and because of certain New York Stock Exchange requirements I asked Peyton Anderson if he would accommodate me by warehousing the stock. Q. You told him to sign a note for $1,750,000? A. I asked him, I couldn't tell him anything. Q. And that it wouldn't cost him a dime? A. I didn't tell him anything. Q. You didn't tell him that it wouldn't cost him a dime? A. We would give him an interest-free loan to warehouse the stock and an opportunity to buy some of it. Q. And it wouldn't cost him a dime to sign the note? A. Right. Q. You had stock from Robinson-Humphrey issued to Peyton Anderson and had Mr. William E. Green or Rountree Youmans sign for it? A. I don't think I had this done, I was eliminated from the transaction, after this I wasn't involved in it. You knew that it would be handled, you turned it over to Mr. Youmans and Mr. Green? A. I turned it over to Mr. Green.'

Alexander Yearly IV, Chairman of the Board of Directors of Robinson-Humphrey Company which is in the business of buying and selling securities, testified that after July 15, 1969 it purchased 2818 shares of stock of the Milledgeville Banking Company at $230 per share upon the recommendation of Mills B. Lane. Thereafter on July 24, 1969, 500 shares were sold to the Citizens & Southern Holding Company and 2318 to Peyton Anderson. Mr. Yearley stated, '. . . First of all, this is the first time which we ever engaged in a transaction of this kind. The New York-we are members of the New York Stock Exchange. Stock Exchange regulations require that when you buy and own stock as we did in this case, we were the sole owners of it, that you have to seggregate part of your capital to offset that purchase. In normal transactions involving stock, the amount of capital which you must segregate is thirty per cent of the value of the stock. In this particular instance, we brought it to the attention of the Stock Exchange and they said that since this stock had no quoted market, which it didn't-you couldn't find ...