Thomas v. North 40 Land Development, Inc.

• Decision Date: 26 January 2005
• Docket Number: No. 2004-CA-0610.,2004-CA-0610.
• Citation: 894 So.2d 1160
• Parties: Elton THOMAS and Judy T. Routzahn, Individually and on Behalf of all Other Shareholders of North 40 Land Development, Inc. v. NORTH 40 LAND DEVELOPMENT, INC. and Darold D. Sercovich, Sr., Kim Chandler and Jesuit Bend Lands, Inc.
• Court: Louisiana Supreme Court

894 So.2d 1160

Elton THOMAS and Judy T. Routzahn, Individually and on Behalf of all Other Shareholders of North 40 Land Development, Inc. v. NORTH 40 LAND DEVELOPMENT, INC. and Darold D. Sercovich, Sr., Kim Chandler and Jesuit Bend Lands, Inc.

No. 2004-CA-0610.

Court of Appeal of Louisiana, Fourth Circuit.

January 26, 2005.

COPYRIGHT MATERIAL OMITTED

Robert A. Mathis, Newman, Mathis, Brady & Spedale, APLC, Metairie, Counsel for Defendants/Appellees (Iberiabank and Iberia Jesuit Property, Inc.).

Geoffrey H. Longenecker, Longenecker & Associates, Ltd., Covington, Francis J. Lobrano, Joyce Cossich Lobrano, Lobrano & Lobrano, Belle Chasse, Counsel for Defendants/Appellants (Gary T. Sercovich, Individually, and on Behalf of North 40 Land Development, Inc.).

Court composed of Judge CHARLES R. JONES, Judge PATRICIA RIVET MURRAY, Judge DENNIS R. BAGNERIS, Sr.

MURRAY, J.

This is a shareholders' derivative action. This action was brought originally by two of the three shareholders of North 40 Land Development, Inc. ("North 40"), Elton Thomas and his daughter, Judy Routzahn, against, among others, the third North 40 shareholder, Darold Sercovich, Sr. ("DD"); Kim Chandler, an officer of North 40; and DD's wholly owned corporation, Jesuit Bend Lands, Inc. ("Jesuit Bend")(the "Thomas Derivative Action"). The Thomas Derivative Action culminated in a settlement agreement, which partially resolved the suit. Following the settlement, Gary Sercovich ("GS"), DD's brother, intervened in the suit as either a pledgee or an owner of DD's North 40 stock. In his intervention, GS named as additional defendants Iberiabank Corporation ("Iberiabank") and Iberia Jesuit Property, Inc. ("Iberia Jesuit")(collectively the "Iberiabank Defendants"). Among the claims he asserted against the Iberiabank Defendants were conspiracy to commit fraud and racketeering. GS appeals the trial court's decision granting the Iberia Defendants' motion for partial summary judgment dismissing those two claims. For the reasons that follow, we affirm.

FACTUAL BACKGROUND

This case arises, in general, out of the on-going banking relationship between Iberiabank and Jesuit Bend, and, in particular, out of the December 12, 1997 loan transaction between them. To place this matter in context requires a detailed review of the facts.

In March 28, 1996, North 40 issued three stock certificates. Two of the certificates were for 125 shares and represented a 25% interest in North 40. Those two certificates were issued to Mr. Thomas and his daughter, Ms. Routzahn. The third certificate was for 250 shares and represented a 50% interest in North 40. The third certificate was issued to DD. On October 15, 1997, DD pledged his certificate to his brother, GS. As noted, GS intervened in this action as either a pledgee or an owner of DD's certificate.

Both North 40 and Jesuit Bend (DD's wholly owned corporation) are in the real estate development business. In 1996, North 40 borrowed $3.4 million from Whitney National Bank to develop the Pleasant Ridge Estates, which consisted of eighty-five lots (the "Pleasant Ridge Project"). In July 1997, Jesuit Bend borrowed $1,325,000 from Iberiabank to develop the Riverbend Place Subdivision (the "Riverbend Project").¹ In December 1997, DD approached Iberiabank about funding Jesuit Bend's take over of North 40's Pleasant Ridge Project. At that time, forty-two of the eighty-five Pleasant Ridge lots had been sold, leaving forty-three unsold lots, and the Whitney Bank loan had a balance of about $1.1 million.

The Iberiabank loan officer who handled both the Pleasant Ridge and the Riverbend loan was Gary Gilbert. In his December 2, 1997 memorandum labeled "Officer's Comments," Mr. Gilbert noted the following pertinent background information regarding the Pleasant Ridge loan:

• In September 1996, the principal, DD, began the development of Pleasant Ridge Estates in Belle Chase, Louisiana. The company which presently owns the development is North 40. This company is owned by DD (75%) and by Mr. Thomas (25%).² This company obtained a $3.4 million development loan at the Whitney to establish an 85 lot upscale residential development. Since January 1997, the company has sold 42 lots, and it has reduced the principal balance on the loan to $1.4 million currently.

• With our loan facility, GS will buyout his partner and refinance the Whitney debt. He is seeking a one-year loan. The principal will be repaid as each lot is sold. Eighty percent of the sales price is applied to the loan balance, five percent goes into an interest reserve account and fifteen percent goes to the borrower to pay commissions and closing costs. At an average sales price of $75,000, the loan, based on the above distribution, will be repaid after the sale of 22 lots.

• In order for the borrower to pledge the Pleasant Ridge property, North 40 must transfer ownership to Jesuit Bend. While the exact procedure has not been finalized, North 40 will probably donate the property on a tax-free basis to Jesuit Bend in exchange for the buyout agreement for Mr. Thomas.

As the latter statement acknowledged, a condition precedent to the Pleasant Ridge loan was that North 40 transfer title to the unsold Pleasant Ridge lots to Jesuit Bend so that Jesuit Bend could pledge those lots as collateral. On this point, Mr. Gilbert's memorandum also stated that "[t]his [transfer] is to be accomplished on a basis which precludes a taxable event." When questioned about these statements regarding the tax-free nature of this transfer from North 40 to Jesuit Bend, Mr. Gilbert replied:

"[T]hat was D.D.'s explanation as to, you know, how the transaction was going to, occur. And that — that what he was dealing with, that Elton [Thomas] was seeking some sort of tax advantage. It really wasn't tax-free. It really should have been tax-deferred — tax-deferred basis — and that was what he was seeking. That was what Elton [Thomas] was seeking according to D.D."

According to Mr. Gilbert's memorandum, the details of the Pleasant Ridge loan transaction were that Jesuit Bend was "seeking to refinance existing debt on the Pleasant Ridge Estates subdivision at the Whitney National Bank in the amount of approximately $1.1 million" and "to buyout his partner [Mr. Thomas] with a combination of cash and lots." Explaining the latter purpose, his memorandum further stated that DD "is seeking to borrow $200,000 to pay this cash portion and designate 10 lots for the partner. This method of payment reduces the amount of cash needed for the buyout." His memorandum further stated that the loan would be collateralized by thirty residential lots that have an aggregate appraised value of $2,534,500, which established a loan-to-value of 51.3%.

Mr. Gilbert's handwritten notes from his initial conversation with DD regarding the Pleasant Ridge loan likewise document that DD's initial request was to borrow $1.3 million for two purposes: (1) to pay off the Whitney loan, and (2) to buy out his partner in North 40. As noted above, the buy-out agreement between Mr. Thomas and DD also called for Mr. Thomas to receive some of the Pleasant Ridge lots. The initial plan was that DD was to retain three lots, Mr. Thomas was to receive ten lots, and Iberiabank was to receive thirty lots as collateral for the loan. By letter dated December 2, 1997, Ms. Chandler identified the particular lots that DD would retain and Mr. Thomas would receive.

Although DD's initial request, as reflected in Mr. Gilberts' memorandum and in his handwritten notes, indicated that only thirty lots would be pledged as collateral, both Jesuit Bend's loan application dated December 3, 1997 and Iberiabank's commitment letter dated December 9, 1997 state that the bank's collateral would be a first security interest on thirty-eight of the Pleasant Ridge lots. The description of the collateral on the first page of the loan application has the number thirty scratched out and the number thirty-eight handwritten in. The third page of the loan application, however, states that the appraised value of the thirty lots is $2,534,500 and that "eight still need values." The change in the collateral from the original thirty to thirty-eight lots was addressed extensively in Mr. Gilbert's depositions. The gist of Mr. Gilbert's testimony was that this change was the result of negotiations between DD and Mr. Thomas regarding the terms of the buyout agreement. However, there is no written documentation explaining this change. Nor was a copy of the buyout agreement ever produced.

On December 12, 1997, the Pleasant Ridge loan was closed. On that date, two interrelated transactions were executed. First, pursuant to an act of cash sale, North 40 transferred thirty-eight Pleasant Ridge lots to Jesuit Bend for a stated consideration of $1.3 million. Pursuant to a corporate resolution dated December 10, 1996, Kim Chandler signed the act of sale as North 40's agent. Second, Iberiabank loaned $1.3 million to Jesuit Bend as evidenced by a promissory note. That note was secured by a collateral mortgage note and collateral mortgage executed by Jesuit Bend, which encumbered the thirty-eight Pleasant Ridge lots it acquired from North 40 on that same date. The HUD settlement statement for the transaction reflects that the $1.3 million loan proceeds were disbursed to pay off the Whitney Bank's first mortgage balance of $1,051,390.02; the loan balance of $229,119.98 was paid to the borrower, Jesuit Bend. According to the loan commitment letter, $200,000 of the amount that Jesuit Bend received was earmarked to buy-out Mr. Thomas' interest in North 40. Neither Mr. Thomas nor his daughter attended the closing. Mr. Gilbert was present.

George Ruppenicker, the attorney for Southern Title, Inc., provided Iberiabank with an opinion letter, as required by the bank's commitment letter, stating that the collateral mortgage was properly executed in accord with the bank's commitment letter and that Jesuit...