Opinion ID: 2966345
Heading Depth: 3
Heading Rank: 1

Heading: The OTS Charges

Text: On October 11, 1991, the Debtors (with one exception) filed for bankruptcy.1 The Debtors were first- and second-tier subsidiaries of _________________________________________________________________ 1 The Debtors are Landmark Land Company of Carolina, Inc. (Landmark Carolina), Landmark Land Company of Oklahoma, Inc. 8 Oak Tree Savings Bank, S.S.B. (Bank). At the top of the corporate structure was Landmark Land Company, Inc. (Landmark Land), a publicly traded company. It was a holding company and whole owner of the Bank, which was the whole owner of Clock Tower, which in turn was the holding company and whole owner of Landmark Carolina, Landmark Oklahoma, Landmark Florida, Landmark Louisiana, and Landmark California. Gerald G. Barton and William W. Vaughan, III, were prominent figures in the Landmark corporations. Barton was the chairman of the board of directors of Landmark Land, the Bank, and all of the subsidiaries. He was also the chief executive officer of Landmark Land and the Bank, and a 29% shareholder of Landmark Land. Vaughan, Barton's son-in-law, was a director and officer of the Bank and most of the subsidiaries. An attorney, he was the general counsel to the subsidiaries. Joe W. Walser played a less prominent role in the Landmark hierarchy, but he served as a director of the Bank and some of the subsidiaries. Bernard G. Ille served as a director of only the Bank, but he did not participate actively in the management of the Bank or the subsidiaries. He was employed by First Life Assurance Company, a subsidiary of Landmark Oklahoma. Prior to the bankruptcy filings, the subsidiary companies invested profitably in real estate using the Bank's funds to finance their operations. They developed, owned, and managed residential resort communities, complete with golf courses, tennis courts, and polo facilities. During this time, the Bank loaned the subsidiaries more than $986 million. The financial position of the Landmark organization eventually deteriorated. An OTS investigation on June 4, 1990 revealed that the Bank was undercapitalized and had demonstrated a pattern of consis_________________________________________________________________ (Landmark Oklahoma), Landmark Land Company of Florida, Inc. (Landmark Florida), Landmark Land Company of Louisiana, Inc. (Landmark Louisiana), Landmark Land Company of California, Inc. (Landmark California), and Clock Tower Place Investments Ltd. (Clock Tower). Carmel Valley Ranch did not file for bankruptcy at this time and is not involved in this indemnification dispute. 9 tent losses. Despite several attempts, the Bank was unable to submit to the OTS an acceptable plan for meeting the minimum capital requirements. On January 15, 1991, the directors of the Bank signed a Consent Agreement with the OTS in which they agreed that the Bank's subsidiaries would not enter into any material transaction without prior approval from the OTS. The Consent Agreement indicated that the Bank was near failure and that an OTS takeover was imminent. Despite the terms of the Consent Agreement, the subsidiaries filed for bankruptcy. Anticipating that the OTS would act quickly to take control of the Bank, the Debtors immediately sought and obtained from the bankruptcy court a temporary restraining order preventing the Bank from exercising its shareholder rights to remove and replace the management of the Debtors. The bankruptcy filings did not receive a pleasant reception from the OTS. On October 13, 1991, as expected, the OTS took control of the Bank and appointed the Resolution Trust Corporation (RTC) to act as receiver for the Bank.2See Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183 (1989) (codified in scattered sections of 12 U.S.C.). More importantly, the OTS filed civil administrative charges against Barton, Vaughan, Walser, and Ille (collectively, the Directors). The OTS alleged that the Directors breached their fiduciary duties to the Bank because they knew that the bankruptcy filings would have a substantially adverse effect on the Bank's ability to collect on the secured and unsecured lines of credit to the Debtors. The OTS also charged the Directors with violating the terms of the Consent Agreement by having the Debtors enter into a material transaction--the filing for bankruptcy--without receiving OTS approval. The OTS assessed a fine of one million dollars against the Directors, and it fined Landmark Land $500,000 for each day it failed _________________________________________________________________ 2 The RTC then organized, and the OTS chartered, Oak Tree Federal Savings Bank, F.S.B. (New Oak Tree). Pursuant to a purchase and assumption agreement, New Oak Tree purchased all of the RTC's right, title and interest in Oak Tree's assets, including its wholly owned subsidiaries. The OTS then appointed the RTC as conservator for New Oak Tree. 10 to seek dismissal of the bankruptcy proceedings. On November 18, 1991, the OTS amended its charges to add allegations that the Directors had mishandled certain large loans. The Directors hired attorneys to defend themselves against the OTS charges. As the OTS continued its investigation into the Bank's affairs, several members of the Bank's accounting department became subjects of investigation. D. Scott Cone,3 although he was an officer and director of Landmark Louisiana, headed the Bank's accounting department. Mohamed Motahari was a vice-president and the comptroller of the Bank. Gina Trapani was a vice-president, assistant comptroller, and tax manager of the Bank. Gary Braun was an accountant for the Bank. Motahari, Trapani, and Braun became employees of Landmark Louisiana soon after the Debtors' filed for bankruptcy. By March or April 1992, Cone, Motahari, Trapani, and Braun (collectively, the Employees), believing that the OTS might take action against them, retained counsel. On April 21, 1992, the OTS filed civil administrative charges against Cone and Motahari. The OTS alleged that, in monthly reports to federal regulators, they had misrepresented that the Debtors' debt to the Bank was secured, even though it was actually unsecured. The OTS never brought charges against Trapani or Braun.