Powell v. American Bank & Trust Co.

• Decision Date: 13 August 1986
• Docket Number: Civ. No. F 85-411.
• Citation: 640 F. Supp. 1568
• Parties: Helen Mary POWELL, et al., Plaintiffs, v. AMERICAN BANK & TRUST CO.; John L. Bell, Jr.; Bell Fibre Products Corp.; and Jack S. Kightlinger, Defendants.
• Court: U.S. District Court — Northern District of Indiana

640 F. Supp. 1568

Helen Mary POWELL, et al., Plaintiffs, v. AMERICAN BANK & TRUST CO.; John L. Bell, Jr.; Bell Fibre Products Corp.; and Jack S. Kightlinger, Defendants.

Civ. No. F 85-411.

United States District Court, N.D. Indiana, Fort Wayne Division.

August 13, 1986.

William C. Barnard, Sommer & Barnard, Indianapolis, Ind., George T. Dodd, Baker & Daniels & Shoaff, Fort Wayne, Ind., for plaintiffs.

Milford M. Miller, Philip L. Carson, Grant F. Shipley, Livingston, Dildine, Haynie & Yoder, Fort Wayne, Ind., for defendants American Bank and Kightlinger.

Richard D. Wagner, James G. McIntire, Mark J.R. Merkle, Krieg, DeVault, Alexander & Capehart, Indianapolis, Ind., Jack W. Lawson, Beckman, Lawson, Sandler, Snyder & Federoff, Fort Wayne, Ind., for defendants Bell and Bell Fibre.

ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on motions to dismiss filed by all defendants. On December 3, 1985, the defendants filed their briefs in support of the motions to dismiss. The plaintiffs filed their brief in opposition on January 31, 1986. Defendants American Bank and John Kightlinger filed their reply on February 27, and defendants John Bell, Jr. and Bell Fibre replied on March 4, 1986. The plaintiffs filed a supplemental brief in opposition on March 10, 1986. The court held a hearing on the motions on May 23, 1986. On August 4, 1986, Bell and Bell Fibre filed a Supplemental Brief in support of their motion to dismiss, which prompted the plaintiffs to file a Supplemental Brief in opposition on August 11, 1986. For the following reasons, the motions to dismiss will be denied.

This cause arises out of the sale of certain stock held in trust for the benefits of the plaintiffs ("Powells"), as well as stock individually owned by some of the plaintiffs, to defendant John L. Bell, Jr. ("Bell"). The Powells claim they were defrauded by the failure of the defendants to disclose allegedly material information about the value of the stock, and that they suffered damages as a result of fraud, breaches of fiduciary duties owed them, and the operation of a racketeering enterprise. They sue under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 of the Securities and Exchange Commission, the Indiana Securities Regulations (I.C. XX-X-X-XX), common law counts of fraud and breach of fiduciary duty, and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq. The Powells seek actual damages of $200,000 and punitive damages of two million dollars. The defendants now seek to dismiss the complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

In deciding a motion to dismiss for failure to state a claim, this court must take the well pleaded factual allegations of plaintiff's complaint as true. Ashbrook v. Hoffman, 617 F.2d 474 (7th Cir.1980). A complaint should be dismissed for failure to state a claim only if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). However, Conley has never been interpreted literally. Sutliff, Inc. v. Donovan Companies, 727 F.2d 648, 654 (7th Cir.1984). The test is whether a complaint contains either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory. Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.1984). This court must consider the complaint in the light most favorable to the plaintiff and must resolve every reasonable doubt in favor of the claimant. Henry C. Beck Co. v. Fort Wayne Structural Steel, 701 F.2d 1221 (7th Cir.1983). "The heavy costs of modern federal litigation ... counsel against launching the parties into pretrial discovery if there is no reasonable prospect that the plaintiff can make out a cause of action from the events narrated in the complaint." Sutliff, 727 F.2d at 654.

Based upon these principles, the facts of this case are as follows. The Powells are the beneficiaries of a testamentary trust ("Trust") established by Verne Powell; plaintiff Helen Powell ("Helen") is the income beneficiary, and her sons, plaintiffs F. Verne Powell ("F. Verne"), George M. Powell ("George"), and Andrew K. Powell ("Andrew") are the remainderman beneficiaries. The plaintiffs are all citizens of Michigan, residing in Traverse City, Michigan. The Trust was established at the Marion National Bank, and the Bank and Helen were named co-trustees. In 1978, Marion National Bank dropped its national bank status and became a state bank known as American Bank & Trust Co. ("ABT"). A company known as Marion National was the holding company for both Marion National Bank and ABT. Bell is the Chairman of the Board for ABT, and is the President, Treasurer and director for Marion National.

The corpus of the Trust until August 1984 consisted of sixty shares of common stock in Marion National and 3,499 shares of common stock in ABT (the "Trust stock"). In addition, F. Verne and George individually owned ABT stock, F. Verne owning one hundred eighty-five shares and George owning one hundred eighty-six shares (the "Individual Stock").

For seventeen consecutive sessions of the Indiana General Assembly prior to 1984, attempts had been made to pass legislation allowing cross-county banking, whereby bank holding companies could acquire more than one bank, banks could open branches in contiguous counties, and out of state bank holding companies could acquire Indiana banks and bank holding companies. The concept of cross-county banking was supported by larger Indiana banks, who were represented by the League for Economic Development (League). Smaller banks, represented by the Independent Banking Association of Indiana (IBAI), opposed the concept. The only other major banking organization in Indiana, the Indiana Banking Association (IBA), remained neutral on the subject because its members included both large and small banks. Because of the opposition of IBAI, the attempts at cross-county banking legislation failed in each of the seventeen legislative sessions.

In March 1984, the IBA appointed a committee to examine the issue of cross-county banking and to see whether a compromise between the League and the IBAI could be reached. A compromise was ultimately reached ("the Compromise"), and on June 11, 1984, the IBA directors adopted the Compromise and IBAI announced that it would support the Compromise in the legislature's next session. The June 12, 1984 issues of the Indianapolis Star and the Indianapolis News both carried stories announcing the Compromise and stating that the Compromise would greatly improve the chances that cross-county banking legislation would be passed in 1985.

In April 1984, prior to the announcement of the Compromise but after the IBA began its efforts to seek a compromise, Helen made two trips to Marion, Indiana to meet with Jack S. Kightlinger ("Kightlinger"), a trust officer at ABT who was responsible for administering the Trust. Kightlinger told Helen that Bell was interested in buying the Marion National stock in the Trust. He told Helen that the price of ABT stock was terribly depressed, and that Bell had recently purchased ABT stock at $20 a share. At the second meeting, Kightlinger told Helen that Bell was willing to buy the Marion National stock in the Trust for $110.10 a share and that he might be interested in buying the ABT stock in the Trust for a price higher than what he had recently paid.

On June 14, 1984, two days after the Compromise had been announced, Bell wrote identical letters on the stationery of Bell Fibre, Inc., a company which Bell owned, to George and F. Verne stating that his family had owned the majority of ABT stock and that there had not been a ready market for the stock. Bell offered to purchase any and all of the stock owned individually by George and Verne.

On June 27, 1984, Bell wrote Helen a letter on Bell Fibre stationery stating that Kightlinger had indicated that Helen had not yet reached a decision on Bell's offer to purchase the Marion National stock for $110.10. Bell described how he had purchased several thousand shares of ABT stock for $20 a share, but that if Helen wished to sell both the Marion National and ABT stock in the Trust then Bell would pay $110.10 and $25 a share respectively.

Some time between the receipt of the June 27 letter and the end of July, Helen contacted Kightlinger on the telephone and asked him what he thought of Bell's offer. Kightlinger told Helen that he thought the offer was "the very best we the Trust can do." The plaintiffs decided to accept Bell's offer, both as to the Trust stock and the individual stock, and Helen wrote Kightlinger a letter to that effect.

On August 9, 1984, Kightlinger wrote Helen on ABT stationery stating that he was in receipt of her letter accepting Bell's offer. Kightlinger wrote that, because of Bell's close affiliation with ABT and Marion National, Kightlinger thought it best to petition the probate court for permission to sell the Trust stock. He enclosed two copies of a "Petition to Sell Corporate Stock" and four waivers. Helen signed both copies of the Petition, and the four plaintiffs each signed a waiver.

In none of the communications between the plaintiffs and Kightlinger or Bell was any mention ever made of the existence or the possible effect of the Compromise on the value of the Trust stock or the individual stock.

On August 22, 1984, the Petition and Waivers were filed in the Grant Circuit Court. The court signed an order approving of the sale of the Trust stock. The order stated that the court read the petition and waivers and "heard evidence thereon." The order also stated that the sale was privately negotiated between the plaintiffs and Bell, and that ABT ...