Resolution Trust Corp. v. Fleischer

Decision Date04 March 1994
Docket NumberNo. 93-2062-JWL.,93-2062-JWL.
PartiesRESOLUTION TRUST CORPORATION, Plaintiff, v. Ernest M. FLEISCHER, et al., Defendants.
CourtU.S. District Court — District of Kansas

H. David Barr, Andrea J. Goetze, Gage & Tucker, Overland Park, KS, William L. Turner, Bernard J. Rhodes, R. Kent Sellers, Charles J. Williams, Jeffrey M. Pfaff, Mike L. Racy, Jean Paul Bradshaw, II, Gage & Tucker, Kansas City, MO, Mira N. Marshall, Resolution Trust Corp., Legal Div.-Prof. Liability Section, Robert H. Plotkin, Resolution Trust Corp., Professional Liability Section, Washington, DC, for plaintiff Resolution Trust Corp. James Borthwick, Michael Thompson, Brian C. Fries, Christopher A. Koster, Blackwell, Sanders, Matheny, Weary & Lombardi, Charles W. German, Brant M. Laue, Robert M. Thompson, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for defendants Ernest M. Fleischer, Mary Louise Greene, indiv. and as co-trustee for Ted H. Greene Family Trusts, John A. Scowcroft.

Renana B. Abrams, Robert P. Wray, Jennifer P. Kyner, Armstrong, Teasdale, Schlafly & Davis, Kathleen A. Hardee, Thomas H. Stahl, Hoskins, King, McGannon & Hahn, Kansas City, MO, for defendant Duane H. Hall.

John R. Toland, Toland & Thompson, Iola, KS, James Borthwick, Michael Thompson, Brian C. Fries, Blackwell, Sanders, Matheny, Weary & Lombardi, Charles W. German, Brant M. Laue, Robert M. Thompson, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for defendants Glenn O. McGuire and Harold Yokum.

Delton M. Gilliland, Coffman, Jones & Gilliland, Lyndon, KS, Charles W. German, Brant M. Laue, Robert M. Thompson, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for defendant Harry T. Coffman.

Richmond M. Enochs, Francis R. Peterson, Wallace, Saunders, Austin, Brown & Enochs, Overland Park, KS, for defendant Thomas R. Weigand.

Thomas R. Weigand, pro se.

Thomas E. Gleason, Jr., Thomas E. Gleason, Chartered, Ottawa, KS, Charles W. German, Brant M. Laue, Robert M. Thompson, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for defendant Lawrence H. Kramer.

John R. Toland, Toland & Thompson, Iola, KS, Charles W. German, Brant M. Laue, Robert M. Thompson, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for defendant Stanley Dreher, Jr.

Greer S. Lang, Leonard B. Rose, Rose, Brouillette & Shapiro, P.C., Charles W. German, Brant M. Laue, Robert M. Thompson, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for defendant Ted Greene, Jr.

Renana B. Abrams, Jennifer P. Kyner, Armstrong, Teasdale, Schlafly & Davis, Kathleen A. Hardee, Thomas H. Stahl, Hoskins, King, McGannon & Hahn, Kansas City, MO, for defendant Ronald L. Pfost.

James Borthwick, Michael Thompson, Brian C. Fries, Christopher A. Koster, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, MO, for defendants Barbara J. Fleischer, as co-trustee for the Ernest W. Fleischer Trust and the Pamela Fleischer Trust and as trustee for the Elizabeth Fredkin Trust and the Judith Fleischer Trust, Boatmen's First Nat. Bank of Kansas City, as co-trustee for the Ted H. Greene Family Trusts, Ernest W. Fleischer, individually and as co-trustee for the Pamela Fleischer Trust, Pamela Fleischer, individually and as co-trustee for the Ernest W. Fleischer Trust, Thomas G. Greene, Larry D. Greene, Gail L. Cluen, Douglas C. Greene, Judith Fleischer, Elizabeth Fredkin.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

I. Introduction

This case involves a suit brought by plaintiff Resolution Trust Corporation ("RTC") against former directors and officers of Franklin Savings Association ("FSA"). The claims asserted by plaintiff against defendants are various state law causes of action arising out of a series of transactions involving tax-exempt revenue bonds known as credit enhancement projects and alleged losses sustained through various broker-dealer subsidiaries of FSA. The matter is currently before the court on defendants' motion for partial summary judgment (Doc. # 205).

Defendants' motion seeks summary judgment on counts IV through IX of the complaint. Those counts involve claims for breach of fiduciary duty, negligence, negligence per se and breach of implied contract against six former FSA directors1 for alleged losses arising from the acquisition, management and control of various broker-dealer subsidiaries of FSA (the "broker-dealer claims"). Defendants contend that the counts should be dismissed because the subsidiary corporations are the proper parties to bring an action for any losses they may have suffered and the RTC, which assumes only the rights of FSA, has no standing to bring an action for losses suffered by the subsidiary corporations. In response, plaintiff RTC argues that it has standing because the claims are asserted on behalf of FSA against the defendants for decisions they made while acting in their capacity as FSA directors regarding the acquisition and funding of the broker-dealer subsidiaries, and that those decisions resulted in losses to FSA. Having thoroughly considered the points raised by all parties and relevant authorities, the court concludes that the RTC has standing to assert the broker-dealer claims contained in counts IV through IX of the complaint, to the extent that such claims are based on breaches of duty to FSA by defendants while acting in their capacity as FSA directors. Accordingly, defendants' motion for summary judgment on those claims is denied.

II. Factual Background

Franklin Savings Association ("FSA") was a creature born of the deregulation of the savings and loan industry in the 1980's. In June of 1985, FSA was a sleepy thrift based in Ottawa, Kansas with assets of approximately $2.0 billion. However, by June of 1988, through the aggressive leadership of Ernest M. Fleischer and by branching out into a multitude of nontraditional thrift investments, FSA's total assets had grown to approximately $13.4 billion, making FSA the largest savings and loan association in the state of Kansas.

The parties have stipulated to the following facts. FSA is a stock savings and loan association and was at all relevant times a federally insured depository institution. At all material times, more than 90% of the outstanding stock of FSA was owned by Franklin Savings Corporation ("FSC"). FSC filed consolidated federal income tax returns which included FSA and various FSA subsidiaries, including Franklin Financial Services, Inc. ("FFS").

FFS was incorporated in the state of Kansas on February 16, 1984. All of the outstanding stock of FFS was, at all relevant times, owned by FSA. FFS was a service corporation for FSA. FFS owned a number of subsidiaries, including Franklin Acquisition Company, Inc.; Underwood, Neuhaus & Company, Inc.; L.F.R. Acquisition Company, Inc.; Franklin Mortgage Capital Corporation; Franklin Insurance Agency, Inc.; Savers Life Insurance Company of America; Savers Property & Casualty Insurance Company; and Franklin Finance, Inc. At all relevant times, Duane H. Hall was the sole director of FFS. During this same period, Mr. Hall was also the president of FSA and a member of its board of directors. From 1986 to 1988 FFS acquired three broker-dealer subsidiaries. It is the counts relating to losses suffered from the acquisition of these three broker-dealer subsidiaries that are the subject of defendants' motion for summary judgment.

At a September 17, 1986 meeting, the board of directors of FSA discussed the possible acquisition of Stern Brothers & Company ("Stern Brothers"). On November 6, 1986, Franklin Acquisition Company, Inc., a wholly-owned subsidiary of FFS, was formed for the purpose of acquiring Stern Brothers. Ernest M. Fleischer was the sole director of Franklin Acquisition Company, Inc. Mr. Fleischer was a member of the board of directors of FSA. Mr. Fleischer was not a director, officer or employee of FFS.

On November 14, 1986, Mr. Fleischer, as the sole director of Franklin Acquisition Company, Inc., authorized the execution of the asset purchase agreement with Stern Brothers. On November 26, 1986, Franklin Acquisition Company, Inc. acquired certain assets and certain liabilities of Stern Brothers pursuant to an asset purchase agreement. The name of Franklin Acquisition Company, Inc. was changed to Stern Brothers & Company on December 5, 1986. The corporation is now known as LM Consolidated Financial Corp.

At a March 25, 1987 meeting, the board of directors of FSA discussed the possible acquisition of Underwood, Neuhaus Corporation, an investment banking firm in Houston, Texas. After a thorough discussion, the FSA board of directors unanimously voted that negotiations with Underwood, Neuhaus be conducted with the intent that negotiations reach an agreement to purchase the investment banking firm with all necessary regulatory approvals.

On June 3, 1987, Duane H. Hall, as the sole director of FFS, authorized the execution of an asset purchase agreement with Underwood, Neuhaus Corporation. On June 10, 1987, Mr. Hall, again in his capacity as the sole director of FFS, approved a motion that FFS, as sole shareholder of Underwood, Neuhaus & Company, Inc. (a wholly-owned subsidiary of FFS created for the purpose of acquiring Underwood, Neuhaus Corporation), approve the asset purchase agreement with Underwood, Neuhaus Corporation. On July 31, 1987, Underwood, Neuhaus & Co., Inc. acquired certain assets and assumed certain liabilities of Underwood, Neuhaus Corporation and certain of its subsidiaries pursuant to an asset purchase agreement entered into by FFS, Underwood, Neuhaus & Co., Inc., and Underwood, Neuhaus Corporation. Underwood, Neuhaus & Co., Inc. is now known as 909 Corporation.

At a February 21, 1988 meeting of the FSA board of directors the FSA directors discussed an opportunity for Stern Brothers to acquire L.F. Rothschild, a major investment banking company located in New York. After two and one-half hours of deliberation by the FSA board of directors and the Stern Brothers board of...

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    ...standing to sue on a parent corporation. K-B Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148, 1154 (10th Cir.1985); RTC v. Fleischer, 848 F.Supp. 917, 923 (D.Kan.1994). Plaintiffs' amended complaint is somewhat vague concerning the causal connection between Classic Communications' injury an......
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    ...has published three opinions in connection The district court provides the following facts: with the case. See Resolution Trust Corp. v. Fleischer, 848 F.Supp. 917 (D.Kan.1994) (motion for partial summary judgment); Resolution Trust Corp. v. Fleischer, 835 F.Supp. 1318 (D.Kan.1993) (motion ......
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