Resolution Trust Corp. v. Acton

• Decision Date: 01 February 1994
• Docket Number: Civ. No. 3:92-CV-0624-H.
• Citation: 844 F. Supp. 307
• Parties: RESOLUTION TRUST CORPORATION, in its corporate capacity, Plaintiff, v. Charles D. ACTON, David Clayton, William F. Courtney, Richard L. Davidson, and John R. Rittenberry, Defendants.
• Court: U.S. District Court — Northern District of Texas

844 F. Supp. 307

RESOLUTION TRUST CORPORATION, in its corporate capacity, Plaintiff, v. Charles D. ACTON, David Clayton, William F. Courtney, Richard L. Davidson, and John R. Rittenberry, Defendants.

Civ. No. 3:92-CV-0624-H.

United States District Court, N.D. Texas, Dallas Division.

February 1, 1994.

COPYRIGHT MATERIAL OMITTED

Jack M. Englert, Jr., Anthony L. Joseph, Denise S. Maes, Holland & Hart, Denver, CO, Robert L. Schell, Virginia Adair Nelson Hammerle, Hammerle & Couch, Denton, TX, David L. Finney, Resolution Trust Corp., Legal Div., Dallas, TX, for Resolution Trust Corp.

Paul Edward Coggins, William A. Roberts, Patricia Marie King, Meadows Owens Collier Reed Cousins & Blau, Brian Carl Jobe, Wimer & Jobe, Cheryl B. Wattley, Law Office of Cheryl Wattley, Linda Jean Barbour, Law Offices of Linda J. Barbour, Dallas, TX, for Charles D. Acton.

Edward P. Perrin, Jr., Hubert Adair Crouch, III, James C. Carlson, Crouch & Hallett, Dallas, TX, for David Clayton.

Gary Dale Elliston, Eric Duane Wewers, DeHay & Elliston, Dallas, TX, for William F. Courtney.

Edward P. Perrin, Jr., Hubert Adair Crouch, III, James C. Carlson, Crouch & Hallett, Dallas, TX, for Richard L. Davidson.

James E. Lobert, Rohne Hoodenpyle Lobert & Myers, Arlington, TX, for John R. Rittenberry.

John R. Rittenberry, pro se.

Maxel (Bud) Silverberg, pro se.

Maureen Powers, Atty. Gen. of Texas, Finance Div., Austin, TX, for Dan Morales.

MEMORANDUM OPINION AND ORDER

SANDERS, Chief Judge.

Before the Court are the following: Defendants Clayton and Davidson's Motion for Partial Summary Judgment and Brief in Support, filed September 15, 1993; William F. Courtney's Motion for Summary Judgment, filed September 24, 1993; the RTC's Response in Opposition to the Motions for Partial Summary Judgment of Clayton, Davidson, and Courtney, filed October 4, 1993; Defendants Clayton and Davidson's Reply Brief in Support of Motion for Summary Judgment, filed October 18, 1993; and Defendant William F. Courtney's Reply to the RTC's Response in Opposition, filed October 18, 1993.

Also before the Court are Defendants Clayton and Davidson's Motion for Reconsideration and Brief in Support, filed December 29, 1993; Defendants Clayton and Davidson's Motion for Summary Judgment and Brief in Support, filed December 30, 1993; Defendant William F. Courtney's Motion for Reconsideration and Memorandum in Support, filed January 3, 1994; Defendant William F. Courtney's Third Motion for Summary Judgment and Brief in Support, filed January 3, 1994; Defendant Acton's Motion for Summary Judgment and Brief in Support, filed January 4, 1994; the RTC's Response in Opposition to the Directors' Motions for Reconsideration and Motions for Summary Judgment, filed January 6, 1994; Defendants Clayton and Davidson's Reply Brief in Support of Motions, filed January 13, 1994; and Defendant William F. Courtney's Reply to the RTC's Response to Directors' Motions, filed January 13, 1994.

In addition, the Court has received a Motion to Intervene and Brief in Support from the Attorney General for the State of Texas, filed January 24, 1994.

I. BACKGROUND

Defendants are former directors of HeritageBanc Savings Association ("HeritageBanc"), a state-chartered, federally insured savings and loan institution based in Duncanville, Texas. On April 5, 1989, the Federal Home Loan Bank Board placed HeritageBanc into conservatorship and appointed the Federal Savings and Loan Corporation ("FSLIC") to be the bank's conservator. On August 9, 1989, the Resolution Trust Corporation ("RTC") succeeded FSLIC as HeritageBanc's conservator. When the bank was placed into receivership on April 27, 1990 by the Office of Thrift Supervision, the RTC was appointed its receiver and became its successor in interest. The RTC in its corporate capacity purchased certain of HeritageBanc's assets, including the claims asserted in this action. See First Amended Complaint, filed August 6, 1992 at 2-3.

On April 1, 1992, the Resolution Trust Corporation ("RTC") in its corporate capacity¹ brought this case against five members of HeritageBanc's board of directors. In its First Amended Complaint, the RTC asserts claims against Defendants for breach of fiduciary duty, negligence, and gross negligence. See First Amended Complaint ¶¶ 30-41, alleging breach of fiduciary duty; ¶¶ 42-49, alleging negligence; and ¶¶ 50-59, alleging gross negligence.

Defendant Charles Acton ("Acton") was chairman of the board and president of HeritageBanc from 1962 until its conservatorship, and Defendant John Rittenberry ("Rittenberry") was an executive vice-president and director during that time. The other three Defendants were outside directors and held no management positions within the bank. Defendant David Clayton ("Clayton") was an outside director of HeritageBanc from 1977 until at least March 1989. Defendant William F. Courtney ("Courtney") was an outside director of HeritageBanc from 1975 until October 6, 1988; Courtney also served as the bank's outside counsel. Defendant Richard L. Davidson ("Davidson") was an outside director from 1977 until April 5, 1989. See Stipulated Facts, Joint Pretrial Order, filed April 5, 1993. The RTC's allegations focus on the operation of HeritageBanc between late 1983 and 1988. RTC's Trial Brief at 2.

The RTC's claims center around Defendants' alleged failure to adequately oversee the actions of Acton, the board chairman and president, and members of his family who held positions at HeritageBanc and its subsidiary, Oak Tree Land Development Company, Inc. ("Oak Tree"). See RTC's Supplemental Responses to Courtney's Interrogatories, RTC's January 21, 1993 Response in Opposition, Pl.Exh. 3 at 1-12. In particular, the RTC alleges that Defendants bear ultimate responsibility for their approval of, or failure to object to, a series of imprudent real estate loans. Id. at 15-26; Joint Pretrial Order at 2.

Acton's wife, two daughters, and father-in-law were officers of HeritageBanc and/or Oak Tree. RTC's Trial Brief at 2. Acton's two sons-in-law, Patrick McElroy ("McElroy") and Edward Cummings ("Cummings") were active in the operations of HeritageBanc. The RTC asserts that the Acton family dominated the operation of HeritageBanc. Id. at 2-3.

Cummings formed Oak Tree, which became a wholly owned subsidiary of HeritageBanc as of January 1, 1984. Id. at 3. The RTC maintains that Cummings remained a de facto officer of Oak Tree after its acquisition by HeritageBanc, at which time the bank shifted a significant amount of its resources from home lending to the riskier commercial real estate market. Id. at 3-4.

In April of 1984, the Texas Savings and Loan Department required HeritageBanc to reduce its investment in Oak Tree to below the 10% cap within eighteen to twenty-four months. The RTC maintains that, instead of complying, the bank circumvented the regulation through a number of imprudent transactions, which form the basis of the RTC's allegations.² Id. at 4.

The first of these transactions, the Block A transaction, occurred in mid-1984. Cummings personally owned some tracts in Hollywood Park, a subdivision in which HeritageBanc also owned tracts. Id. HeritageBanc sold one tract to Cummings at $0.64 per square foot and financed his purchase with a 100% loan. The Duncanville Planning Commission then revised its plat, combining Cummings' newly acquired tract with other land he owned into a tract known as Block A. Approximately four months after selling its land to Cummings, HeritageBanc bought Block A from him for $6.50 per square foot, and Cummings realized a substantial profit. Id. at 4-5.

In the second allegedly imprudent transaction, which occurred in 1985, HeritageBanc provided 100% financing for an individual named Ollie Whittern ("Whittern") to buy two tracts of land, one of which was owned by HeritageBanc and one by Cummings. Id. at 5-6. The RTC alleges that this transaction, the Whittern/Turner loan, again facilitated the making of a profit by Cummings, the son-in-law of Defendant Acton. Id. at 6.

The RTC's third allegation involves a series of loans to an officer and employee of Oak Tree named Danny Smith ("Smith"), who also personally owned a small constructions company, Danny Smith Construction. In 1985, HeritageBanc loaned approximately $2.8 million dollars to Smith, thereby providing 100% financing for the purchase and development of a tract of land owned by Oak Tree. At the time, Smith was earning $86,000 per year, and Danny Smith Construction had assets worth only $49,000. HeritageBanc allegedly made representations to Smith that he would face no liability in the event of default. By 1986, Danny Smith Construction had become insolvent, but HeritageBanc loaned the company $374,000. Subsequent loans of $160,000 and $611,576 were made to Smith. The Danny Smith Construction loans. Id. at 6-7.

Finally, a similar transaction was carried out with Chris Escobedo ("Escobedo"), another Oak Tree employee who formed a company called Berkeley Development. HeritageBanc loaned Berkeley Development $4,250,000 to finance the purchase and development of land owned by Oak Tree, allegedly with a commitment to Escobedo of no liability in the event of a default. At the time, Escobedo had an income of $41,960, and Berkeley Development was a start-up company, formed for the purpose of this project. HeritageBanc subsequently loaned another $1,500,000 to Berkeley Development, at a time when its financial statement showed it to be insolvent. Id. at 7-8. According to the RTC, the Berkeley Development loans were the fourth set of transactions that arose from the directors' breaches of their responsibilities to HeritageBanc and its depositors. Id. at 4, 7-8.

Courtney, Clayton, and Davidson (the "Outside Directors") moved for summary judgment on all claims. See Courtney's Motion for Summary Judgment, filed January 4, 1993; Clayton and Davidson Motion for Summary Judgment, filed January 19, 1993. In their motions, they...