Washington Bancorporation v. Said, Civ. A. No. 88-3111(RCL).

• Decision Date: 17 February 1993
• Docket Number: Civ. A. No. 88-3111(RCL).
• Citation: 812 F. Supp. 1256
• Parties: WASHINGTON BANCORPORATION, et al., Plaintiffs, v. Wafic R. SAID, et al., Defendants. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for the National Bank of Washington, Plaintiff, v. Luther H. HODGES, Jr., et al., Defendants.
• Court: U.S. District Court — District of Columbia

812 F. Supp. 1256

WASHINGTON BANCORPORATION, et al., Plaintiffs, v. Wafic R. SAID, et al., Defendants.

FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for the National Bank of Washington, Plaintiff, v. Luther H. HODGES, Jr., et al., Defendants.

Civ. A. No. 88-3111(RCL).

United States District Court, District of Columbia.

February 17, 1993.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

J. Christopher Kohn, Sandra P. Spooner, Frances M. Toole, Matthew S. Rosengart, Bradley H. Blower, James G. Bruen, Jr., Dept. of Justice, Civ. Div., Patricia F. Bak, F.D.I.C., Washington, DC, for plaintiff FDIC.

Bernhardt K. Wruble, Verner, Liipfert, Bernhard, McPherson and Hand, Chartered, Joe Robert Reeder, C. Allen Foster, Patton, Boggs & Blow, Seth P. Waxman, Stuart A. Levey, Miller, Cassidy, Larroca & Lewin, Michael Roger Klein, Robert B. McCaw, N. Scott Fletcher, Wilmer, Cutler & Pickering, William Joseph Smith, Stohlman, Beuchert, Egan & Smith, Washington, DC, for defendants Hodges, Boggs, Hawes, Del Col, Cronin, Jones, McDaniel, Pedas, Raphael and Neitzey.

Defendant Washington, pro se.

MEMORANDUM OPINION

LAMBERTH, District Judge.

This case, now in its fifth year, stems from the failure of the National Bank of Washington (NBW), a federally-insured national bank, chartered in the District of Columbia, which failed in 1990. In August of that year, FDIC was named receiver for NBW, and it is as receiver for NBW that FDIC brings the present suit.

In July of 1992, after an intensive two-year investigation. FDIC brought suit against eleven defendants: ten directors and one officer of NBW. In its forty-two count amended complaint, FDIC brought ten counts each of negligence, gross negligence, breach of fiduciary duty, and breach of contract against various combinations of defendants and one count each of rescission and restitution against former Chairman of the Board and Chief Executive Officer Luther Hodges. The claims are predicated on loans made by NBW to a bank holding company and to a major law firm (sixteen and twelve counts, respectively), board approval and Hodges' acceptance of a "golden parachute" payment (six counts), and profits made by Luther Hodges incident to the purchase of property sold by NBW (eight counts).

Each defendant filed a motion to dismiss or, in the alternative, for summary judgment as to each of the forty-two counts.¹ As to twenty-six of the counts, FDIC opposed the motions. However, FDIC acknowledged that sixteen of the counts, those based upon NBW's loan to Royal Windsor Holding Company, were not ripe; it therefore moved to dismiss these counts voluntarily — and without prejudice — under Fed.R.Civ.P. 41(a)(2). The defendants agreed that the counts should be dismissed, but insisted that the dismissal be done with prejudice. They also moved for the imposition of Rule 11 sanctions against FDIC for bringing these sixteen claims with full knowledge that they were not ripe. In light of defendants' position, FDIC hedged on its motion for voluntary dismissal and asserted 1) that the loan could technically be considered in default; and/or 2) that the claims should be treated as praying for declaratory relief.

As a side issue, the parties also hotly contested the content of the record. In FDIC's oppositions to defendants' motions for dismissal/summary judgment, FDIC did not include affidavits but rather seven non-sworn, non-authenticated documents. Certain defendants² moved to strike this evidentiary submission, as well the Statement of Genuine Issues of Material Fact which it ostensibly supported, claiming that they violated Fed.R.Civ.Pro. 56 and Local Rule 108(h). FDIC responded to this motion by asserting that it needed further discovery of defendants before the court could rule on the summary judgment issues.³

Thus, the case came before the court for oral argument on January 22, 1993, on defendants' motions for dismissal/summary judgment, FDIC's two oppositions, and defendants' replies thereto; defendants' motions for Rule 11 sanctions, FDIC's opposition, and defendants' replies thereto; and defendants' motion to strike FDIC's general issues of material fact, FDIC's combined response and motion to deny summary judgment, defendants' responses, and FDIC's reply. Also before the court are FDIC's motion to strike defendants' affirmative defenses or for summary judgment, defendants' oppositions, and FDIC's reply.

I. FACTS.

In addressing a party's motion to dismiss, the court must construe all facts in the light most favorable to the non-moving party. Therefore, it is customary for a court to use plaintiff's complaints as the basis for its statement of facts. With this in mind, in each of the following sections, the first portion of the statement of facts is drawn from FDIC's amended complaint.

However, FDIC's complaint incorporated a selective recital of the facts and omitted a significant number of highly relevant details which are, needless to say, very favorable to defendants. Many of these facts, made part of the record by defendants in their motions for dismissal/summary judgment, make clear that FDIC's version of the facts is not only incomplete but also quite misleading as to several key elements of the charged transactions. Therefore, after relating FDIC's statement of the facts, the court also summarizes defendants' version. As these facts have not been controverted by FDIC, the following may be treated as findings of fact for Rule 56 purposes.

1. Mr. Hodges, Mr. Wall, and the "Special Fund."

FDIC: Luther Hodges was CEO and Chairman of the Board of NBW from 1980 to January 31, 1990. During that time, Mr. Hodges participated in decisions to extend credit to two companies controlled by, among others, E. Craig Wall, Jr., a friend and business associate of Mr. Hodges. Mr. Wall also controlled an account at North Carolina National Bank, sometimes termed the "Special Fund." This fund loaned money to Luther Hodges, allegedly on favorable terms.

Defendants: The Special Fund, an outgrowth of Mr. Wall's investments, served as Mr. Hodges primary account beginning in the 1970s and continuing in the 1980s. It served as Mr. Wall's investment vehicle, and funds were shifted among the investments of Mr. Wall and the other investors in the Special Fund. The Special Fund treated Mr. Hodges like any other investor. The court will not further detail the workings of the Special Fund as the fund is not charged in the complaint.

2. The Blind Trust.

FDIC: In January of 1986, Mr. Hodges created a blind trust controlled by Mr. Wall. The trust invested in four entities, each of which was a customer of NBW at some time. Mr. Hodges provided Mr. Wall with confidential information regarding one of the companies, Envipco, which NBW's Audit Committee found to be a violation of NBW's code of ethics. Mr. Hodges did not reveal the existence of the blind trust to NBW until it was revealed in discovery in this litigation in September 1989.

Defendants: Two of the companies in which the trust invested became customers of NBW only after they were part of the blind trust; both paid their loans in full. Upon learning of the blind trust, several of NBW's outside directors asked outside counsel, including John Olsen of Gibson, Dunn & Crutcher, to examine the matter; his reports were made to special meetings of the NBW and WBC boards in October and November of 1989. During the same months, NBW informed the Office of the Comptroller of the Currency ("OCC") about the blind trust; OCC and its counsel did not take action — or even suggest that action should be taken — against Mr. Hodges. The Audit Committee, using a memorandum which was prepared by NBW's general counsel (Kathleen Collins, the author of NBW's code of ethics) and based upon a joint analysis prepared by Gibson, Dunn & Crutcher and Wilmer, Cutler & Pickering, found that the blind trust did not constitute a violation of the code of ethics; it further determined that disciplinary action was inappropriate.

3. The Green Line Transaction.

FDIC: In 1984, NBW received a tract of land in connection with a work-out of a failed loan. It was termed the Green Line property because of its anticipated future use: as a station on Washington's Metro system. The property was received by NBW at a value of approximately $2 million. Mr. Hodges brought the property to Mr. Wall's attention, and Wall Associates purchased the property for $3.75 million on December 30, 1985, even though an October 15, 1985, appraisal had set the value of the property at $6.62 million. Several years later, Wall Associates resold the property for approximately $7.6 million, netting Mr. Hodges (who had acquired an interest in the property from Mr. Wall) a profit of $360,000.

Defendants: G. William Hollar, NBW's Senior Vice President and Manager of its Real Estate Division, determined that the $6.62 million appraisal was severely over-valued; his evaluation revealed a value of about $3.8 million. (Mr. Hollar has not been charged by FDIC for underrepresenting the value of the land.) Under OCC regulations, NBW was required to sell the Green Line land promptly, and no later than a time when it could recoup the amount of the original loan plus any expended costs. Mr. Hollar contracted to sell the land to Conrad Monts in October 1984 for $3.75 million, but the deal fell through. One year later, Mr. Hollar attempted to sell the land to another group of investors for $3.75 million, but again the deal failed. Finally, Wall Associates purchased the land for the same $3.75 million. The sale thus kept NBW within OCC regulations and netted to NBW a profit of over $1 million.

4. Royal Windsor Transaction.

FDIC: In 1987, a group of investors, including defendants Del Col and Hawes, formed Royal Windsor Holding Company ("RWHC") in order to purchase a troubled Louisiana bank, Jefferson Guaranty Bank ("JGB"). On July 15, 1987, at a WBC⁴ board meeting at which several defendants were present (including Messrs. ...