Opinion ID: 1454365
Heading Depth: 1
Heading Rank: 8

Heading: twenty-seventh cause of complaint

Text: In this cause the Bar alleged that Griffith violated former disciplinary rules, DR 1-102(A)(3), (4) and (6), supra. Specifically, the Bar alleged: (1) The state and federal law prohibited a person, persons or an entity, directly or indirectly, or acting through or in concert with one or more other persons or entities, from owning, controlling or having the power to vote 25 percent or more of the stock of Columbia Pacific Bank without prior regulatory approval. (2) At all material times Griffith's law firm collectively through the Lawyers' Retirement Trust owned 24.98 percent of the stock of Columbia Pacific. (3) Prior to March 10, 1980, Wolf was denied prior regulatory approval for the purchase of additional stock in Columbia Pacific through the law firm's trust. (4) On March 10, 1980, at the direction of Wolf and with the knowledge of Griffith, Brookens and Hardy purchased 20,000 shares of Columbia Pacific stock which were conveyed to First Northwest, but not recorded on the books of the bank. (5) Griffith and Wolf, acting in concert, had voting power and control over the 20,000 shares of Columbia Pacific stock owned by First Northwest, but had not obtained prior regulatory approval for the purchase of the stock. (6) Griffith knowingly engaged in or failed to exercise reasonable care to prevent Wolf and Accused from engaging in the conduct set forth in this Cause of Complaint. Griffith's answer: (1) admitted that he was beneficiary of the Lawyer's Retirement Trust, but denied that any individual beneficiary had the right to control or vote the stock of Columbia Pacific; (2) admitted that Brookens and Hardy purchased 20,000 shares of stock in Columbia Pacific, and that they issued stock powers thereon to First Northwest, but alleged that he had no knowledge of whether or not the stock transfer was recorded with Columbia Pacific, and (3) admitted that he did not attempt to obtain regulatory approval of the stock transfer but alleged that he had no knowledge whether Wolf did or did not attempt to obtain such approval. Otherwise, Griffith admitted the basic facts but denied that their legal effect resulted in a violation of the disciplinary rules. The Trial Panel found Griffith guilty of violating former DR 1-102(A), (3), (4) and (6) in this cause of complaint. Its opinion in part said: Accused would have exercised his control of First Northwest so as to vote the shares of stock owned by First Northwest as directed by Wolf.    [T]here is clear and convincing evidence that the Accused knowingly failed to prevent Wolf from violating Federal and State banking regulations; that the Accused, acting in concert with Wolf, had voting power and control of more than 25% of the outstanding stock of Columbia Pacific, and that the Accused knew that the said control of stock without prior regulatory authorization violated Federal and State Banking regulations. In this court Griffith argues that the purchase of the 20,000 shares of Columbia Pacific stock did not violate the state or federal law, but even if it did he was not aware of the violation. The relevant portions of the Federal Deposit Insurance Act, 12 U.S.C. § 1817(j), provide: (1) No person, acting directly or indirectly or through or in concert with one or more other persons, shall acquire control of any insured bank through a purchase, assignment, transfer, pledge or other disposition of voting stock of such insured bank unless the appropriate Federal banking agency has been given sixty days' prior written notice of such acquisition.    (8) For the purposes of this subsection, the term  (A) `person' means an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of entity not specifically listed herein; and (B) `control' means the power, directly or indirectly, to direct the management or policies of an insured bank or to vote 25 per centum or more of any class of voting securities of an insured bank. In Federal Deposit Ins. Corp. v. D'Annunzio, 524 F. Supp. 694 (N.D.W.Va. 1981), the court found that the defendants had violated the above quoted portions of 12 U.S.C. § 1817(j) and issued an injunction preventing them from voting the stock they had acquired. The defendants D'Annunzio and Delaney were both directors of the Lowndes Bank in West Virginia. They purchased the stock of the largest stockholder in the West Union Bank and divided it into parts. One part was registered in the name of D'Annunzio's son, another in the name of an officer of the Lowndes Bank, and a third in the name of a company which was the nominee of the trust department of the Lowndes Bank. The court said: From all the evidence it is apparent that there was no willful violation of the statute involved. If at all, a violation occurred through ignorance of the parties, counsel, financial institutions and others, of the requirements of the CBCA [Change in Bank Control Act of 1978] and the regulations promulgated pursuant thereto. The absence of willfulness, however, is not crucial nor even relevant to the resolution of this case. Instead, what is important is the power to control. All of the facts here, though susceptible to different inferences in different persons' minds, would clearly indicate to this Court that if `push came to shove' the fifty-three hundred shares of stock purchased by D'Annunzio and Delaney would have been voted intact. 524 F. Supp. at 699. The last half of 12 U.S.C. § 1817(j)(8)(B) is relevant to the complaint against Griffith. The Bar contends that the statute prevented Griffith acting in concert with Wolf to acquire control of the Columbia Pacific Bank by obtaining the power to vote more than 25 percent of the stock. Although D'Annunzio was decided under the first half of 12 U.S.C. § 1817(j)(8)(B), it is still helpful in deciding this case. To borrow a phrase from the D'Annunzio case, we conclude that if push came to shove there is clear and convincing evidence that the 4.89 percent of Columbia Pacific stock owned by First Northwest and the 24.98 percent owned by Lawyer's Retirement Trust would have been voted intact. We reach this result because of a combination of these facts: (1) It was well known to the beneficiaries of the Lawyer's Retirement Trust that it could not lawfully acquire more stock in Columbia Pacific; (2) In January 1980, Columbia Banshares, Inc. was incorporated for the purpose of becoming a bank holding company which would allow it to acquire more than 25 percent of the stock in Columbia Pacific. Griffith was a member of the board of directors of Columbia Banshares. See note 3 supra; (3) The Federal Reserve Board denied Columbia Banshares' application in February, 1980; (4) In March, 1980 Griffith participated as a lawyer in the sale of the 20,000 shares of Columbia Pacific from Baxter to Brookens and Hardy who in turn transferred the stock to First Northwest; (5) The purchase of the 20,000 shares was kept secret and was not registered on the books of Columbia Pacific; (6) During the early part of 1980, Wolf was negotiating to sell Columbia Pacific to out-of-state investors at a substantial profit; (7) Wolf and Griffith had a close relationship. It was acknowledged by Griffith, Brookens and Hardy that Wolf was the dominant person in their business relationship. The Bar alleged that Griffith knowingly engaged in    the conduct set forth in this cause of complaint. Although D'Annunzio, holds that the violation need not be willful we hold the Bar to its allegation and it must prove that Griffith knew the conduct was unlawful. We hold that the seven factors set out above also prove by clear and convincing evidence that Griffith knew that his conduct of acquiring in concert with Wolf over 25 percent of the voting power of the outstanding stock of Columbia Pacific without prior approval was unlawful. We agree with the Trial Panel that Griffith is guilty of the twenty-seventh cause of complaint by violating former DR 1-102(A)(3), (4) and (6).