Opinion ID: 2595410
Heading Depth: 1
Heading Rank: 15

Heading: counts 12-14: the water companies

Text: ¶ 67 In 1981, the First National Bank and Trust Co. of Ponca City, as trustee for bondholders, sued the Eufaula Utilities Authority for failure to make payments on its 1968 series revenue bonds and sought to foreclose on the property securing the bonds. Among that property were undeveloped residential lots in two developments, one known as River Oaks Estates and the other as Eagle Bluff Estates, and a water distribution system. Judgment was granted to the trustee bank in 1988 and the court ordered the assets sold at sheriff's sale. ¶ 68 Mayor Johnson, Randy Bridges, a Eufaula businessman and friend of Johnson's (Bridges), and Kenneth Lackey, the Eufaula city attorney and attorney for the Eufaula Utilities Authority (Lackey), agreed that Bridges would attend the sheriff's sale and bid on the property. [62] The sale was held in April 1989 and Bridges purchased the property for $40,000.00. An order was entered approving the sale and ordering the sheriff to issue deeds to the lots and a bill of sale for the water distribution system to Bridges. On the same day, Bridges and Lackey executed a note at State National Bank in Eufaula (SNB) for $45,000.00 for the stated purpose of purchasing a business. The River Oaks Land Company was also listed as a borrower. Three days later, Bridges, Lackey, and Mayor Johnson's wife, filed articles of incorporation with the Oklahoma Secretary of State, forming four companies: the River Oaks Land Company, the River Oaks Water Company, the Eagle Bluff Land Company, and the Eagle Bluff Water Company. The assets purchased by Bridges at the foreclosure sale were transferred to these four companies. The River Oaks Water Company and the Eagle Bluff Water Company purchased water from the City of Eufaula and re-sold it to residents of the two residential developments bearing their names. ¶ 69 Mayor Johnson did not co-sign the SNB note nor did he sign the documents incorporating the four companies. Johnson testified before the PRT that he did not believe he owned stock in any of them. The companies' accountant testified that Johnson did not own any stock in the water companies, but that he did own one-third of the stock in the land companies. Whatever Johnson's ownership interest may have been on paper, it is clear that he exercised many of the incidents of ownership in the water companies. Johnson maintained in his testimony to the trial panel that he never intended to own an interest in the water companies, but conceded that his conduct indeed made it appear that he did. Because the water companies did business with the City of Eufaula, Mayor Johnson's interest in them constituted an illegal conflict of interest. ¶ 70 Kenneth Lackey was stricken with cancer shortly after the land and water companies were formed and decided to sell his interest. Johnson offered respondent the opportunity to buy into all four companies for $3,000.00, with the apparent understanding that respondent would take care of the day-to-day management of the companies and perform any needed legal services. Respondent agreed and purchased Lackey's interest in early 1991. Respondent also became vice-president of the companies.