U.S. Capital Funding VI, Ltd v. Patterson Bankshares, Inc.

• Citation: 137 F.Supp.3d 1340
• Decision Date: 30 September 2015
• Docket Number: CV 514–93
• Parties: U.S. Capital Funding VI, Ltd, an exempted company with limited liability established under the laws of the Cayman Islands, Plaintiff, v. Patterson Bankshares, Inc., a Georgia corporation, First Southern Bank, formerly known as Patterson Bank, a Georgia corporation, J.P. Barnard, J.r., William Hughes, Ronald Thomas, Community Capital Advisors, Inc., a Georgia corporation, and John Does 1–50, Georgia citizens, Defendants.
• Court: U.S. District Court — Southern District of Georgia

137 F.Supp.3d 1340

U.S. Capital Funding VI, Ltd, an exempted company with limited liability established under the laws of the Cayman Islands, Plaintiff,

v.Patterson Bankshares, Inc., a Georgia corporation, First Southern Bank, formerly known as Patterson Bank, a Georgia corporation, J.P. Barnard, J.r., William Hughes, Ronald Thomas, Community Capital Advisors, Inc., a Georgia corporation, and John Does 1–50, Georgia citizens, Defendants.

CV 514–93

United States District Court, S.D. Georgia, Waycross Division.

Signed September 30, 2015

Jason Carl Pedigo, Ellis, Painter, Ratterree & Adams LLP, Savannah, GA, Kenneth J. Nachbar, Megan Ward Cascio, Shannon E. German, Zi–Xiang Shen, Morris, Nichols, Arsht & Tunnell, LLP, Wilmington, DE, for Plaintiff.

Mark David Johnson, Theresa Davis Beaton, Wallace E. Harrell, Gilbert, Harrell, Sumerford & Martin, PC, Brunswick, GA, William V. Custer, Bryan Cave, LLP, Atlanta, GA, for Defendants.

ORDER

LISA GODBEY WOOD, CHIEF JUDGE, UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF GEORGIA

In this action, Plaintiff U.S. Capital Funding VI, Ltd. ("Plaintiff"), the beneficiary of certain trust preferred securities ("TruPS"), brings claims against the issuer of those securities, Patterson Bankshares, Inc. ("PBI), and several related parties. Specifically, Plaintiff names the following as Defendants in this case: PBI; First Southern Bank (the "Bank"); J.P. Barnard, Jr., William Hughes, and Ronald Thomas ("Barnard, Hughes," and "Thomas," or, collectively, the "Director Defendants"); Community Capital Advisors, Inc. ("Community Capital"); and John Does 1-50. Plaintiff seeks relief from these Defendants on a number of theories, including fraudulent transfer, tortious interference with contract, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, and conspiracy to effect a fraudulent transfer.

Presently before the Court are several Motions to Dismiss separately filed by all of the Defendants, other than the unidentified John Does 1-50, collectively requesting a dismissal of Plaintiff's claims on jurisdictional grounds as well as for failure to state a claim upon which relief may be granted. Dkt. Nos. 16, 20–21, 24, 50–52, 56. Also before the Court is Plaintiff's Request for Oral Argument on the Defendants' Motions. Dkt. No. 36.

As discussed more fully below, the Defendants' Motions to Dismiss premised upon a lack of subject-matter jurisdiction (dkt. nos. 20, 24, 52, 56) are GRANTED in part and DENIED in part as follows: the Motions are GRANTED in that Plaintiff's claims for equitable relief against all Defendants are hereby DISMISSED for lack of subject-matter jurisdiction; the Motions are DENIED in that the Court retains jurisdiction, over Plaintiff's claims for damages against all Defendants; and to the extent that some of these Motions also seek dismissal on the basis of failure to state a claim (dkt. nos. 24, 52, 56), these portions of the Motions also are DENIED.

The Bank's Motion to Dismiss for failure to state a claim (dkt. no. 21) is GRANTED in part and DENIED in part. This Motion is GRANTED with respect to Plaintiff's claim of aiding and abetting breach of fiduciary duty against the Bank, and this claim is hereby DISMISSED. However, the Motion is DENIED as it relates to Plaintiff's fraudulent transfer claim-against the Bank.

The remaining Motions to Dismiss on the basis of failure to state a claim (dkt. nos. 16, 50-51) are DENIED. Plaintiff's Request for Oral Argument (dkt. no. 36) is also DENIED at this time.

FACTUAL BACKGROUND

Plaintiff is a limited liability company organized under the laws of the Cayman Islands, with its principal place of business located in the Cayman Islands, and is a citizen of the United Kingdom. Dkt. No. 49, ¶ 12. When the events giving rise to this action occurred, PBI operated as a bank holding company incorporated in Georgia with Its principal place of business in Georgia, though PBI underwent administrative dissolution prior to the filing of this action. Id. at ¶¶ 9, 14. PBI's primary asset was its ownership interest in its subsidiary, the Bank, which is incorporated in Georgia and continues to maintain its principal place of business in Georgia. Id. at ¶¶ 1, 3, 15.

Barnard, Hughes, and Thomas, who reside in Georgia, comprised the board of directors of both PBI and the Bank at all relevant times. Id. at ¶¶ 5, 16, 18, 20. When the events giving rise to this action occurred, Hughes also held the position of Chief Executive Officer of the Bank, and Thomas, a practicing attorney, served as legal counsel to PBI and the Bank. Id. at ¶¶ 18, 20-21. Community Capital is a consulting firm that provides financial services to community banks and is incorporated in Georgia with its principal place of business in Georgia. Id. at ¶ 22. John Does 1-50 are the individuals who have purchased stock in the Bank and whose identities and places of residence are not yet known to Plaintiff. Id. at ¶ 23.

I. TruPS Issuance

In 1996, the Federal Reserve Bank authorized bank holding companies to use trust preferred securities ("TruPS") to raise their tier-1 capital to the level required by banking regulators for the bank holding companies to operate their banking businesses. Id. at ¶¶ 1, 27.¹ TruPS qualify as debt for tax purposes, so a bank holding company may deduct interest payments on TruPS while also using the capital raised through the issuance of TruPS to satisfy the tier-1 capital requirements. Id. at ¶ 28. In addition, the proceeds of a TruPS issuance may go back into the bank as equity, further adding to the bank's tier-1 capital. Id. at ¶ 29. Issuers of TruPS can defer quarterly interest payments for up to twenty consecutive quarters, but all deferred payments must be paid at the end of the deferral period, with accrued interest. Id. at ¶ 30. Thus, according to Plaintiff, TruPS are a "low-cost alternative to issuing common stock as a way to raise and maintain capital for holding companies and banks." Id. at ¶ 29.

In 2007, PBI issued TruPS securities through the Patterson Bankshares Capital Trust I (the "Trust"), a statutory business trust created pursuant to title 32, chapter 38 of the Delaware Code. Id. at ¶ 31. The Trust was established through a Declaration of Trust dated June 25, 2007, but is currently governed by an Amended and Restated Declaration of Trust dated June 27, 2007 (the "Declaration of Trust"). Id. at ¶ 32; see also Dkt. No. 49–2. PBI owns 100% of the residual common equity of the Trust, and Wilmington Trust Company serves as trustee (the "Trustee"). Dkt. No. 49, ¶¶ 33-34.

To acquire tier-1 capital, PBI caused the Trust to sell 3,000 TruPS with a liquidation amount of $1,000 per capital security; a fixed distribution rate per annum of 7.006% to be paid quarterly; and a variable distribution rate per annum, reset quarterly, equal to the London InterBank Offered Rater (LIBOR) plus 1.49% for each interest period after September 2012. Id. at ¶ 35. The TruPS mature in 2037. Id.

Plaintiff purchased, and thus became the beneficial owner of, 100% of the TruPS issued by PBI through the Trust. Id. at ¶ 36. As beneficial owner, Plaintiff is entitled to all funds paid pursuant to the TruPS, and, according to Plaintiff, it is the only party with an economic interest in the TruPS. Id. Upon Plaintiff's purchase of the TruPS, the Trust delivered the funds obtained from Plaintiff to PBI by purchasing a corresponding amount of debt securities (the "Debt Securities") issued by PBI. Id. at ¶ 37. PBI's payment obligations to the Trust under the Debt Securities mirror the Trust's payment obligations to Plaintiff under the TruPS. Id. As the Debt Securities are the only assets of the Trust, PBI's payments on the Debt Securities held by the Trust are the Trust's only source of income from which to make payments on the principal and interest owed to Plaintiff. Id. at ¶ 38. When PBI makes a. payment of principal and interest on the Debt Securities to the Trust, the Trust then uses those funds to make a payment to Plaintiff. Id. at ¶ 45.

According to Plaintiff, because the TruPS represent the undivided beneficial ownership interest in the assets of the Trust, and the Trust's only assets are the Debt Securities purchased from PBI, the TruPS reflect an-ownership interest in the Debt Securities, which are maintained by the Trust for the benefit of Plaintiff. Id. at ¶ 39. Plaintiff alleges that its investment in the TruPS was intentionally structured by PBI to depend on PBI's financial ability, supported by its ownership of a regulated banking business, to satisfy the payment obligations. Id. at ¶ 46. Plaintiff maintains that it relied on this structure in deciding to invest in the TruPS, which was marketed to, and perceived by, Plaintiff as a "low-risk, low-return, fixed income investment[ ]." Id. at ¶ 47.

The Debt Securities that the Trust purchased from PBI are governed by an Indenture dated June 27, 2007 (the "Indenture"). Id. at ¶ 40. The Trustee of the Trust is also the trustee of the Indenture. Id. at ¶ 41. The Indenture details PBI's obligations as the issuer of the Debt Securities, id. at ¶ 42, and discusses the immunity of PBI's directors and officers as follows:

ARTICLE XIII

Immunity of Incorporators, Stockholders, Officers and Directors

Section 13.01. Indenture and Debt Securities Solely Corporate Obligation .

No recourse for the payment of the principal of or premium, if any, or interest on any Debt Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture, or in any such Debt Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer, director, employee or agent, as such past, present or future, of the Company or of any predecessor or successor corporation of the Company, either directly or through the Company or any

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