INTEGON LIFE INS. v. SOUTHMARK HERITAGE RETIREMENT, 91-G-2313-S.
| Decision Date | 30 December 1992 |
| Docket Number | No. 91-G-2313-S.,91-G-2313-S. |
| Citation | 813 F. Supp. 783 |
| Parties | INTEGON LIFE INSURANCE CORPORATION, Plaintiff, v. SOUTHMARK HERITAGE RETIREMENT CORPORATION; San Jacinto Savings Association, Defendants. |
| Court | U.S. District Court — Northern District of Alabama |
Andrew P. Campbell, Leitman, Siegal, Payne & Campbell, Birmingham, AL, for plaintiff.
Alton B. Parker, Jr., Deborah A. Pickens, Spain, Gillon, Grooms, Blan & Nettles, Birmingham, AL, for defendants.
The action before the court is brought to quiet title to outlying parcels of real estate adjacent to the Mount Royal Retirement Center located in Jefferson County, Alabama. Parties to the suit are Integon Life Insurance Corporation and Resolution Trust Corporation, as Receiver for San Jacinto Savings Association, F.A.
In 1985 Mount Royal Towers, Inc., sold the subject property to Southmark Heritage Retirement Corporation hereinafter Southmark Heritage for $14,000,000.00, $800,000.00 less than the appraised value of the combined improved and unimproved parcels. Southmark Heritage was owned by Southmark Communities, Inc., which was in turn owned by San Jacinto Savings Association hereinafter San Jacinto. San Jacinto was owned by Southmark Corporation hereinafter Southmark, a registered savings and loan holding company. Southmark functioned as an investment advisor for its subsidiaries.
Integon Life Insurance Corporation hereinafter Integon Life is a life insurance company wholly owned by Integon Corporation hereinafter Integon. At the end of 1985 Southmark purchased Integon. Thereafter, Integon and Southmark Heritage were affiliated companies, both being subsidiaries of Southmark. The structure of the companies at that time is set forth below:
SOUTHMARK CORPORATION SOUTHMARK LIFE GROUP, INC. SAN JACINTO INTEGON CORP. SOUTHMARK COMMUNITIES, INC. INTEGON LIFE SOUTHMARK HERITAGE
When Southmark purchased Integon in 1985 it laid off the real estate professionals throughout the Integon structure. Subsequently, Robert Dann,1 Integon staff attorney, functioned as liaison on real estate transactions between Integon and Southmark. William S. Friedman acted in a similar capacity for Southmark. Southmark arranged all of the transactions on behalf of Integon and its subsidiaries.
Mr. Friedman, an attorney, was a controlling shareholder, officer, and director of Southmark. As vice president of Southmark he controlled all of the subsidiaries including San Jacinto, Integon Life, and Southmark Heritage. Mr. Friedman was also a general partner of Southmark Partners I, Ltd.,2 the limited partnership which was the general partner of Mount Royal Associates Limited Partnership hereinafter Mount Royal Associates which bought Mount Royal Towers from Integon Life.
San Jacinto was a first tier subsidiary of Southmark. It was engaged in the syndication of commercial real estate such as Mount Royal to limited partnerships sponsored by its parent, Southmark. San Jacinto provided the financing for these ventures on a long-term basis through purchase money mortgages through limited partnerships. It then showed these mortgages as assets at a valuation at or near the face amount of the mortgages. In 1985 both the SEC and the Federal Home Loan Bank Board attacked these long term financing arrangements contending that San Jacinto was over-valuing its assets.
In early 1986 David Bradley, supervisory agent for the Federal Home Loan Banking Board hereinafter FHLB,3 negotiated and entered into an Interim Operating Agreement hereinafter the Agreement4 on behalf of San Jacinto with the Federal Savings and Loan Insurance Corporation hereinafter FSLIC that San Jacinto would cease providing financing to syndications sponsored by affiliates of its holding company, Southmark Corporation. The Agreement further required San Jacinto to immediately reduce its investment in real estate.5 The Agreement, however, allowed San Jacinto to sell real estate to a holding company affiliate for cash for the greater of book value in the property or its appraised value. The agreement provided the following:
Pursuant to the Agreement to reduce its real estate holdings San Jacinto/Southmark Heritage sold the Mount Royal property to Integon Life for $18,209,000.006 cash7 in October 1986, executing a deed to Integon Life on October 31, 1986.8 Although both Integon Life and San Jacinto were affiliates of Southmark, the cash sale was more than either the book value of $15,257,911.00,9 or the appraised value of $14,800,000.00.10
Ownership activities at Mount Royal were exempted from the Agreement by the following language:
Integon Life contemporaneously thereafter sold to Mount Royal Towers Limited Partnership Parcels A and E for $5,000,000.00 cash plus a note for $15,000,000.00 to be paid over eleven years.11 Unfortunately, Integon Life never realized the profit of its sale. The limited partnership failed and defaulted on the mortgage, owing Integon Life over $12,500,000.00.12
Integon Life did not convey parcels B, C, D, F, G and H. In an effort to recoup some of its losses it is now seeking to sell the unimproved parcels of the Mount Royal property to MFW for $425,000.00. A title search subsequent to the MFW contract revealed the original deed was not recorded. Evidence shows the deed has been lost. In an effort to clear title Integon Life approached San Jacinto for a replacement deed. At that point Resolution Trust Corporation hereinafter RTC adopted the position that the property was a "found asset," that San Jacinto sold only Parcels A and E13 to Integon Life and kept title to Parcels B, C, D, F, G and H. As Receiver for San Jacinto Savings Association, F.A., RTC now claims title to those parcels.
Integon Life, claiming sole ownership of the property, has brought suit to quiet title14 to those parcels of property pursuant to Ala.Code § 6-6-560 et seq. (1975), pertinent portions of which are set forth below:
When any person, natural or artificial, claims either in his own right or in any representative capacity whatsoever, to own any lands or any interest therein, and is in actual peaceable possession of the land ... or if he, together with those through whom he claims, has held color of title and paid taxes on the land or interest so claimed during the whole of such period of time, ... he may ... file a verified complaint ... to establish the right or title to such lands or interest and to clear up all doubts or disputes concerning the same. (Emphasis added.)
In order to quiet title to the subject property the court must examine the 1986 sale of the Mount Royal property to Integon Life. The sales contract, executed September 15, 1986, by William S. Friedman on behalf of Southmark Heritage, contained the legal description of Parcel A, the parcel containing the Mount Royal Towers Retirement Center, and Parcel E. Mr. Friedman testified by deposition that it was the intention of Southmark Heritage, however, to convey everything acquired from Mount Royal Towers, Inc. That "included both the developed parcels and whatever other adjacent or pertinent land we had."
The court finds credence in Mr. Friedman's testimony. The San Jacinto records reflect the sale of the property. Larry Romero, account officer with San Jacinto Savings Association, F.A., testified that San Jacinto as a corporation knowingly recognized "all" the parcels had been sold. It intended to convey all of the property, considered that it had conveyed all the property, and accepted the appraised price for the entire property. Following the sale San Jacinto/Southmark Heritage failed to list the property as an asset, failed to exercise any incidents of ownership or possession over it, failed to maintain insurance on it, and failed to pay property taxes.
RTC has tried to convince the court that Southmark's lump sum payment of property taxes covered payment of taxes on the subject property on behalf of Southmark Heritage. The evidence indicates that Integon Life, not Southmark Heritage, either paid directly or was charged through Southmark's real estate accounting methods all real estate ad valorem taxes for 1987, 1988, 1989, 1990, and 1991. The San Jacinto structure did not pay taxes on the conveyed property and had no intention of doing so.
The sale was approved pursuant to the contract by certified resolution of the corporation. The court has rejected RTC's argument that the contract language reflected the intent of the parties to transfer parcels A and E only. By its subsequent actions of accepting the benefits of the full purchase price and failing to repudiate any discrepancies between the contract and deed, the Southmark Heritage Board of Directors ratified the transaction. As a director and secretary of the corporation Mr. Friedman reflected thorough knowledge and acquiescence on the part of the directors. The court addressed a similar issue in Ingalls Iron Works Company v. Ingalls, 177 F.Supp. 151, 163 (N.D.Ala. 1959) aff'd 280 F.2d 423 (5th Cir.1960), when it said in part:
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