First State Bank of Floodwood v. Jubie

886 F. Supp. 1482, 1995 U.S. Dist. LEXIS 11098, 1995 WL 307775
CourtDistrict Court, D. Minnesota
DecidedMarch 31, 1995
DocketCiv. 5-91-86
StatusPublished

This text of 886 F. Supp. 1482 (First State Bank of Floodwood v. Jubie) is published on Counsel Stack Legal Research, covering District Court, D. Minnesota primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
First State Bank of Floodwood v. Jubie, 886 F. Supp. 1482, 1995 U.S. Dist. LEXIS 11098, 1995 WL 307775 (mnd 1995).

Opinion

ORDER

ERICKSON, United States Magistrate Judge.

I. Introduction

This matter came before the undersigned United States Magistrate Judge, pursuant to the consent of the parties as authorized by Title 28 U.S.C. § 636(c)(3), upon the Plaintiffs’ Motions for Judgment as a Matter of Law, for a New Trial as to Damages, and for attorneys’ fees.

A Motion on the Hearings was conducted on June 2, 1994, at which the Plaintiffs appeared by John F. Bonner, III, and Bradley A. Kletscher, Esqs., and the Defendants appeared by Keith M. Brownell, Esq. Post-Hearing filings were submitted by both parties.

For reasons which follow, we deny the Motion for Judgment as a Matter of Law and for a New Trial as to Damages, and we grant the Motion for attorneys’ fees.

II. Factual and Procedural Background

In the year or more that preceded August 8, 1988, the Plaintiffs and the Defendants engaged in extensive negotiations concerning the Plaintiffs’ purchase of the common stock of the First State Bank of Floodwood (“Bank”) from the Defendants. 1 The parties’ preliminary negotiations led to an initial Purchase Agreement, which the parties entered on October 9, 1987. Reflective of the deep financial distress that the Bank was experiencing, the Purchase Agreement afforded the Plaintiffs an expansive opportunity to examine the books, records and accounts of the Bank. The Record reflects that the Plaintiffs, who are experienced businessmen and Certified Public Accountants, accepted the opportunity afforded by surveying the Bank’s accounts and, in holding two positions on the Bank’s then existing Board of Directors, the Plaintiffs had occasion to micro-analyze the Bank’s financial state.

The Bank was not merely experiencing financial difficulties, however, as the Bank’s Officers and Directors were under investigation by Federal and State banking regulators — an investigation that had proceeded for the two-year period prior to the Bank’s ultimate purchase by the Plaintiffs. As a result of that investigation, on January 4, 1988, the Federal Deposit Insurance Corporation (“FDIC”), issued an Order which prohibited the Defendant Jerry J. Jubie (“Jubie”), who had been the President, Chairman of the Board and the principal shareholder of the Bank, from “serving as an officer or director of, or in participating in any manner in the conduct of the affairs of, any bank insured by the FDIC,” without prior written approval of the appropriate Federal Banking Agency.

On February 1, 1988, the FDIC also issued a Cease and Desist Order which directed the Bank’s Officers and Board to follow a series of remedial means to rectify the Bank’s prior “unsafe and unsound banking practices and violations of law and regulations.” The Plaintiffs admit to being informed about the Cease and Desist Order, but they deny any knowledge of the FDIC’s Order precluding Jubie from Federal banking activities — at least at any time prior to the date on which the sale of the Bank was consummated. The Defendants have vehemently contended that the Plaintiffs were fully informed of all of the activities of the FDIC, and that they had contractually authorized the Plaintiffs’ “ac *1485 cess to all State and Federal regulatory agency records, studies, audits and other information, including those performed by or on behalf of FDIC.”

For a number of reasons, including the ongoing Federal regulatory investigation and the need to secure the regulator’s approval of any change in the Bank’s ownership and management, the initial date for the sale of the Bank was continued, from October of 1987, until August of 1988. During that period of delay, the parties continued in their negotiations and, on July 28, 1988, they entered an “Addendum to Purchase Agreement,” which modified a number of the terms and conditions of their prior Agreement. Among other changes, the Addendum established the purchase price of the Bank at $528,582.00, which was 95% of the book value of the Bank, as disclosed by the Bank’s financial statements for the period ending as of June 30, 1988. This purchase price was subject to certain “usual and customary month-end adjustments,” which were to be made by the Defendants’ accountant. The Plaintiffs have contended that the Defendants manipulated a number of the month-end adjustments so as to over-value the worth of the Bank and, resultantly, its purchase price. The Defendants have denied any such wrongdoing and they have presented evidence to that effect.

In addition, the Addendum required the Defendants to pay-off, pay-down, or to guarantee the payment of a series of loans to the Jubie family members, so as to assure the repayment of a series of reputed “bad debts.” As security for these guarantees, the Defendants pledged the proceeds from a Retirement Agreement that the Bank had extended to Jubie in March 10, 1987, in consideration for his 21 years of “faithful service” to the Bank. Athough the parties’ original Purchase Agreement, and its Addendum, are rife with references to this Retirement Agreement and, particularly, its status as security for the Defendants’ pledges, the Plaintiffs have contended, after the Bank was purchased, that the Retirement Agreement either had not received the approval of the Bank’s Board of Directors and/or of the pertinent- regulatory authorities, or that any such approval was ultra vires. Aong with nearly every other factual issue at trial, the legitimacy of the Retirement Agreement was hotly contested, and was the subject of substantial, conflicting testimony. For the Defendants, and in particular Mr. and Mrs. Jubie, who were the immediate beneficiaries of the Retirement Agreement, the continuation of monthly pension payments from the Bank was a critical component in ascertaining the purchase price of the Bank. As the evidence, albeit contested, at trial reflected, the value of the Retirement Agreement to the Jubies was in the hundreds of thousands of dollars.

Following the closure of the Bank’s sale, which occurred on August 9, 1988, the Plaintiff’s began to uncover what they regarded as anomalies in the Bank’s financial accounts. According to the parties’ Agreements, the Bank’s books were to be maintained according to “generally accepted accounting practices.” The Plaintiffs have asserted that the Defendants did not merely violate the terms of the Purchase Agreements, but that they engaged in a pattern of fraud that was accomplished “through insider loans, under col-lateralization of loans [which were] not in conformance with generally accepted banking practices, and [by] not properly recording information on the Bank’s financial statement.” As a result of the Defendants purported wrongdoing, the Plaintiffs presented evidence that they were required to invest in the Bank some $424,000 in additional capital in order to satisfy the applicable regulatory requirements, and that they had suffered losses in the amount of $349,745.47. These claims of loss were fervently challenged by the Defendants’ evidence.

Subsequently, the Plaintiffs commenced this action which alleges, in a lengthy Amended Complaint, that the Defendants 2 *1486

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Bluebook (online)
886 F. Supp. 1482, 1995 U.S. Dist. LEXIS 11098, 1995 WL 307775, Counsel Stack Legal Research, https://law.counselstack.com/opinion/first-state-bank-of-floodwood-v-jubie-mnd-1995.