Opinion ID: 1142705
Heading Depth: 1
Heading Rank: 10

Heading: bom's (lack of) participation in gray's breach of duty of loyalty: in re lk & r only

Text: USB ultimately argues, at least in the LK & R matter, BOM had a knowing participation in Gray's breach of his duty of loyalty. We are told BOM took more than a fair advantage of the faith USB placed in Gray. The USB-drafted findings include [BOM] ... through its Chairman of the Board, Woodrow Martin, by his silence colluded with Gray to his breach of fiduciary duty to USB. The reason this is so is BOM knew Gray was considering paying the LK & R note with a new USB loan and [BOM] ... knew that the only way Gray could take .. . [BOM] off the LK & R risk was to breach his fiduciary duty of loyalty to USB. USB stretches the finding and insists Martin and Ishee and BOM knew the only way Gray could manage to get BOM paid was to make LK & R a new USB loan, and there was no way Gray could do this without breaching his duty of loyalty to USB. Without doubt, BOM on June 26, 1984, held a valid and enforceable note from LK & R. BOM had no choice but to honor the letter of credit when First South presented it on June 5, and we find no consequence in the fact BOM did not evidence the debt by an LK & R note for some three weeks. The question is what BOM knew then and did thereafter, whether BOM was involved albeit passively in the forbidden features of Gray's July 23 decision to make LK & R a new USB loan and thus pay in full the June 26 note BOM held from LK & R. A corporation may ordinarily be taken to know what its officers know. Parmes v. Illinois Central Gulf Railroad, 440 So.2d 261, 265 (Miss. 1983); 18B Am.Jur.2d, Corporations, § 1671, 1675. Board Chairman Woodrow W. Martin, Jr., President Jerry Ishee, and Director/Branch President Gray were the only BOM officers who knew anything of the June 26 LK & R note and its aftermath. Ishee's knowledge is all post-July 2. We know Gray told Martin of the facts and figures of the LK & R matter at a BOM Board meeting on June 27, 1984. Martin became concerned about the risks BOM faced, and Gray readily saw this. Gray advised Martin in good faith he expected LK & R to pay the note shortly. Gray told Martin that, if this did not happen, Gray would take ... [BOM] out of the risk by making LK & R a new loan through USB, which would enable them to pay BOM. Martin told Gray to work it out. Gray well knew, prior to his June 30, 1984, resignation as an officer and director of BOM, that it just might take a new USB loan to get BOM's note paid within the near future. Post-July 2, 1984, Ishee admits he was expecting Gray would take care of the matter though he never talked to Gray about it. It is fairly inferrable that Gray considered he had gotten BOM into the LK & R risk, and it was his responsibility to get his old bank out of it. We have read and reread the Gray testimony. We impute to BOM everything Gray knew on or before June 30, 1984, and everything Martin and Ishee knew at any time. We find nothing supporting the sweeping conclusory findings of collusion [13] and BOM participation in Gray's breach of his duty of loyalty to USB. There is no evidence of BOM-USB contact or communication about the matter after July 2, 1984. The mere fact BOM knew it had a risky loan and that Gray had represented he would likely make a USB loan to pay BOM does not import collusion or other improper conduct. BOM had no reason to know or expect Gray would make the USB-LK & R loan without complying fully with USB's internal loan policies. Nothing before us charged BOM with knowledge Gray would exceed his USB lending limits. Gray had been serving two masters for five months, protecting the interests of each without compromising the interests of the other. Nothing suggests BOM had reason to know or expect Gray would neglect his duty of loyalty to USB any more than he had since February of 1984. We have held Gray on July 23, 1984, breached his duties of care and loyalty, but neither breach was intentional, as the findings of no fraud, dishonesty or profit make clear. If Gray's conduct was not purposefully wrongful, an inference BOM colluded with him becomes far fetched. Just because BOM had reason to expect Gray would see that BOM suffered no loss is no basis for inferring Gray would do so improperly. Still, USB insists BOM knew there was no way Gray could have made the USB loan to LK & R, paying BOM's note, without breaching his duty of loyalty to USB. But that won't wash. Gray could have made the new LK & R loan the same way he handled the Piecara letter of credit (which may still have breached his duty of care). He could have called Senior Vice President Peacock or some other senior officer in Clarksdale and obtained approval. It is certainly possible, in law and in fact, consent would have been given. We know that USB had expressly assumed other BOM unsecured loans to Lowery and Riggan and their associates, and in substantial sums. There is no evidence USB rejected the (pre-June 5, 1984) BOM letter of credit to First South on ground it considered Lowery and Riggan a pook risk. USB decided to decline contingent liabilities across the board, and this happened to include the First South/LK & R letter of credit. Besides, USB knew these men. They had on file financial statements on their face reflecting an aggregate net worth in excess of $6,000,000.00. No one in USB besides Gray knew of their eight figure loan guarantees on the Belvedere and Wagner Place properties. USB's main office in Clarksdale had made prior loans to Kantor and Riggan. Kantor is from Clarksdale. Riggan had in-laws from Clarksdale. As late as January of 1985, when the USB-LK & R loan had been criticized by state bank examiners, CEO C. Willis Connell, Jr., informed USB's loan committee he believed the LK & R notes would be paid. USB made a new $70,000.00 loan to Riggan as late as July 11, 1988, albeit with two co-makers and security. In July of 1984, Gray acting for USB certainly could in law have made the BOM-satisfying loan without breaching his duty of loyalty, and it is not beyond the realm of possibility Clarksdale may have granted the requisite approvals. It was not a fact that the only way Gray could take BOM off the LK & R risk was to breach his duty of loyalty to USB, and, if it was not, BOM may hardly be charged with knowing the unknowable. This USB-worded conclusory fact fails flatly and deflates the entire collusion theory. So seen BOM's July 23 enrichment is hardly unjust. The evidence before us, considered most favorably to USB but without speculation or wishful thinking, meets no refinement of unjust enrichment USB has cited or that we have been able to find on independent research. BOM is not required to disgorge the $407,210.96 it received from USB on July 23, 1984, in satisfaction of the LK & R note on grounds it gave no consideration therefor. Similarly, BOM is not required to repay USB $100,000.00 because Gray, acting for USB in January of 1985, issued a new $100,000.00 letter of credit to Walter E. Heller & Company for the benefit of Jess Bigelow.