Investors Thrift Corporation v. Hunt

• Decision Date: 10 May 1974
• Docket Number: No. FS 68 C-71.,FS 68 C-71.
• Citation: 387 F. Supp. 517
• Parties: INVESTORS THRIFT CORPORATION, an Arkansas Corporation, Plaintiff, v. Joe B. HUNT, Insurance Commissioner of the State of Oklahoma, and Receiver of Community National Life Insurance Company, Substitute Defendant for Community National Life Insurance Company, a corporation, Defendant.
• Court: U.S. District Court — Western District of Arkansas

387 F. Supp. 517

INVESTORS THRIFT CORPORATION, an Arkansas Corporation, Plaintiff, v. Joe B. HUNT, Insurance Commissioner of the State of Oklahoma, and Receiver of Community National Life Insurance Company, Substitute Defendant for Community National Life Insurance Company, a corporation, Defendant.

No. FS 68 C-71.

United States District Court, W. D. Arkansas, Fort Smith Division.

May 10, 1974.

William M. Stocks, and H. Clay Robinson, Pearce, Robinson & McCord, Fort Smith, Ark., for plaintiff.

Don A. Smith, Harper, Young & Smith, Fort Smith, Ark. and James O. Ellison, Boone, Ellison & Smith, Tulsa, Okl., for defendant.

MEMORANDUM OPINION

OREN HARRIS, District Judge.

The plaintiff, Investors Thrift Corporation, an Arkansas corporation (hereinafter referred to as "ITC"), filed this action initially against the Community National Life Insurance Company (hereinafter referred to as "Community National") seeking damages in the sum of Six Hundred Thousand ($600,000.00) Dollars allegedly suffered by the plaintiff as a result of the repudiation by the defendant of certain agreements between ITC, Peoples Loan & Investment Company (hereinafter referred to as "PL&I"), and Community National.

Jurisdiction is based on diversity of citizenship wherein the amount in controversy exceeds $10,000.00, exclusive of interest and costs. The plaintiff is an Arkansas corporation with its principal place of business located in Fort Smith, Arkansas.

Community National, the initial defendant in this proceedings, was an Oklahoma corporation with its principal place of business in Tulsa, Oklahoma. During the pendency of this action, Community National was placed in receivership by appropriate court action in the District Court for Tulsa County, Oklahoma, and Joe B. Hunt, Insurance Commissioner for the State of Oklahoma was appointed receiver. By appropriate action, Joe B. Hunt, as receiver of Community National, was substituted as defendant in this cause.

In its Complaint, the plaintiff alleges that, on or about December 9, 1967, the defendant agreed, for valuable consideration on demand of plaintiff, at any time before December 10, 1970, to purchase all the voting stock in ITC for Six Hundred Thousand ($600,000.00) Dollars providing, that ITC holds Eighty Percent (80%) of the voting stock of PL&I. It was intended that, under the agreement, Community National would acquire at least Eighty Percent (80%) of the voting stock of PL&I, and any other assets that ITC might possess, but that Community National would not incur any of the liabilities of ITC.¹

The agreement between the parties was based on certain commitments entered into by the parties on December 9, 1967, and referred to as Commitments 1015, 1016, and 1017.

Further, the Complaint alleges that the agreement between the parties was conditioned upon PL&I calling upon Community National to purchase authorized, but unissued, stock of PL&I in such quantity of shares of stock at Three and 23/100ths Dollars ($3.23) per share as would result in an aggregate purchase price of One Million Four Hundred Thousand Dollars ($1,400,000.00).

The plaintiff contends that, on January 16, 1968, the condition was performed by PL&I in calling upon Community National to purchase the authorized but unissued stock of PL&I pursuant to the provisions of Commitment 1016. The agreement provided further that Maurice Markham unconditionally agreed to manage Peoples Loan & Investment Company for a minimum of five years from the date of purchase. Further, the Commitment could be exercised by notice in writing at any time on or before December 10, 1970, and Community National would have a period of 120 days in which to comply.²

The commitment allegedly performed by PL&I consisted of a letter dated January 16, 1968, to Mr. Jimmy J. Ryan, President of Community National by John H. Haley, authorized agent of Peoples Loan and Investment Company.³

The plaintiff also contends that, by letter dated April 3, 1968, the defendant purported to rescind its agreement to purchase the PL&I stock, under Commitment #1016, and, at the same time, purported to rescind its agreement to purchase all the voting stock in ITC for Six Hundred Thousand Dollars ($600,000.00) pursuant to Commitment 1017.⁴

Due to the willful breach of the contract, the plaintiff alleges that the defendant misappropriated substantial assets of PL&I resulting in damage to the plaintiff's property, for which plaintiff is entitled to recover.

The defendant admits there was an agreement between the parties which consisted of Commitments 1015, 1016 and 1017,⁵ but it further consisted of additional agreements entered into by the parties on December 27, 1967.

The defendant affirmatively alleges an additional agreement between the parties referred to as "Agreement Between Peoples Loan And Investment Company and Community National Life Insurance Company", executed December 27, 1967.⁶

Further, the defendant specifically alleges that Commitments 1016 and 1017 were executed upon the basis of certain statements, representations and guarantees by the authorized representative of both the plaintiff, ITC, and PL&I that said statements, representations and guarantees were false, fraudulent and untrue, and were known to be such when they were made and, therefore, constitute fraud and deceit upon the defendant. The defendant contends that the purported agreements are a nullity and are of no force and effect.

The defendant also alleges that representatives of the plaintiff and PL&I concealed and withheld certain material facts which, together with the misstatements, misrepresentations and fraudulent and false guarantees, relied upon by the defendant, constitute fraud and deceit and, therefore, nullify the agreements between the parties.

The case was tried to the Court, without the intercession of a jury, on October 18, 1973.⁷ Prior to the trial the attorneys for the parties had each served and submitted trial briefs. At the conclusion of the trial, following the taking of evidence and the receipt of numberous exhibits, the Court gave the attorneys an opportunity, if they desired, to submit additional, or supplemental briefs, which have been received by the Court and considered along with the original briefs, the record, testimony of the witnesses and exhibits received thereto.

In this diversity action, wherein the plaintiff, ITC, is an Arkansas corporation, and the defendant, Community National, is an Oklahoma corporation, and the amount involved exceeds $10,000.00, excluding interest and costs, jurisdiction is established. 28 U.S.C.A. § 1332.

It is a well known rule of law that a party who asserts a claim has the burden of proving the allegations by establishing the claim against the adversary party. The plaintiff, ITC, having instituted this action has the burden of proving a breach of contract by Community National.

As an affirmative defense, the defendant alleges fraud and misrepresentation on the part of the plaintiff and thus has the burden of proving the allegation.

This is another of a number of related cases involving the parties. See FS 68 C-8, Larry R. McCord, Trustee for PL&I v. Joe B. Hunt, Insurance Commissioner of the State of Oklahoma and Receiver of Community National, et al, November 21, 1971.⁸

Until 1965, PL&I was controlled by Sam Sexton Jr. At that time, PL&I was purchased by the plaintiff, ITC, and controlled by one Maurice Markham. Each of these parties controlled separate corporations through which there were transactions which the Arkansas Bank Commissioner determined to be illegal. Additional transactions were entered into involving some of the same securities questioned by the Commissioner; they were likewise declared by the Arkansas Bank Commissioner to be improper. There were other transactions involving ITC, PL&I, Amco Industries and others, which, for the third time, caused the Bank Commissioner to inform PL&I that such transactions were improper.

In order to extricate itself from these difficulties, and to divest itself of its improper investments, PL&I negotiated a series of agreements with Community National in 1967. Community National agreed to buy authorized but unissued stock at the cost of $1,400,000.00 and the voting stock of ITC for $600,000.00. In re Peoples Loan & Investment Company of Fort Smith, 410 F.2d 851, 855 (8th Cir. 1969).

Maurice Markham was the principal in establishing Markham Homes, Inc., a "shell home business" in Oklahoma in 1960. In 1965, Markham Homes was in need of shell home financing, and Markham contacted a Mr. Austin Gatlin to assist him in this quest. Gatlin formerly owned a majority interest in PL&I. He, Gatlin, advised of establishing a similar financial institution in Arkansas. To secure capital for such an institution, Markham solicited help from certain friends and acquaintances in South Dakota. This resulted in the formation of ITC, with the voting stock controlled by Markham Homes, Inc.

Thinking that it would be easier to purchase a financial institution than to start one, Gatlin presented a letter, on August 10, from Sam Sexton, Jr., one of the owners of American Home Builders, Inc., offering to sell AHB for $500,000.00. AHB held sixty-eight percent (68%) of the voting stock of PL&I. Through these and other transactions, Markham acquired and controlled the voting stock of ITC and PL&I. City Nat'l Bank of Fort Smith, Arkansas v. Vanderboom, 422 F.2d 221, 224 (8th Cir. 1970). In one of the numerous agreements, included as an exhibit to the testimony of Mr. John Haley (Exhibit "C"), Maurice Markham signed as President of both PL&I and ITC.

It is quite apparent from the record that PL&I, owned principally and controlled by ITC, was and had been having difficulty with the Commissioner of the Arkansas State Banking Department. It is also apparent that the defendant was having financial difficulties with the State Banking Commissioner of Oklahoma. Therefore, as an attempted mutual...