Opinion ID: 1142705
Heading Depth: 2
Heading Rank: 2

Heading: Gray's Defenses

Text: Gray's argument in reply is laced with implied references to the business judgment rule. He insists he acted in subjective good faith at all times, and of this there is little doubt. USB does not seriously contend otherwise. The Chancery Court in effect found Gray had no interest in any of the credits at issue. See Principles of Corporate Governance, § 1.23. He points to reasonably current financial statements of the several debtors and beyond these to his personal knowledge of their backgrounds and circumstances. Gray reminds us as well all of these credit extensions  to LK & R, Bigelow and Piecara  were reflected on USB's internal records which his superiors were charged to review, implying they found nothing wrong with his business judgments until things turned sour. Gray insists he reasonably believed all five debtors would respond to their obligations in a reasonably timely fashion. Beyond this, Gray makes a more practical plea. It begins by reminding us that Lowery, Kantor, Riggan, Bigelow and Piecara were all established customers and borrowers at the Branch before USB first talked to BOM about the purchase. He tells us further USB selected and assumed nine other loans to these men or their businesses, with an aggregate balance outstanding on July 2, 1984, of $399,287.03. By this he was hardly on notice he should not do business with these men. Even after July 2, Gray insists he thought the risks reasonable and, where unsecured, backed by adequate financial statements. Reports of these loans, their terms, and periodic status were routinely available to Clarksdale, which offered nothing but praise until a state bank examiner's probe in January, 1985. These are not irrelevancies. They are evidence that Gray may have acted with reasonable business judgment. Most assuredly, the duty of care holds no truck with Monday morning quarterbacking, and the business judgment rule stands to prevent this. A loan officer is no guarantor of the success of each credit extension. By no means should anything said here be taken to suggest he has personal exposure every time a loan proves uncollectible. The prudence of the practice is judged objectively in the circumstances then existing and reasonably knowable by the officer. Principles of Corporate Governance, § 4.01(c); Miss. Code Ann. § 79-4-8.42 (rev. 1989). The defense ultimately founders. The Chancery Court abundantly found the facts against Gray on the critical issues and from there impliedly found unreasonable Gray's belief regarding the extent to which he should have informed himself at the time regarding these debtors. Further, the Court impliedly found there was no rational basis for a belief that his handling of each of these matters was in USB's best interest. Each of these implied findings is more than supported by substantial evidence in the record.
Undaunted, Gray presses us that the losses in issue were caused or contributed to by USB's senior management. If Gray was negligent, so too were his superiors who acted or failed to act on behalf of USB. If Gray was reckless, so were these experienced executives and directors for USB. A major factual premise of the point is that Gray was an unsuspecting underling whom USB placed in a position beyond his abilities. As he puts it in his brief: On July 2, 1984, at 35 years of age, Gray was placed in charge of the USB branch bank at Olive Branch acquired by it from [BOM] on that date... . At the time, he was the youngest of the branch managers in any of the ten branches in the USB system. While a college graduate, he had majored in accounting. He had one Freshman course in Banking. Unlike other managers of USB banks, he had not attended or graduated from the three-year Louisiana State University School of Banking. At the time he was placed in charge of Olive Branch by USB, he had approximately two years of bank lending experience, while other USB branch managers had on average some eighteen years of experience, all with USB. Most of the work experience of Gray after leaving college was in the bank accounting area which did not involve the making or assessing of the quality of bank loans. We find this theme trailing along on practically every page thereafter. Gray goes on to charge he was negligently supervised by USB senior executives, and that his prior experience and the conduct of his seniors with USB led him to think he was doing fine in his post-July 2, 1984, capacity. The premise is fundamentally flawed. The duty of care the law devolves upon a corporate officer states an objective standard general in scope. Offenses may not be excused by any alleged inexperience or lack of skill and training as a loan officer. 3A Fletcher, Cyclopedia of Corporations, § 1060, p. 1061, (1986 Rev.); 18B Am.Jur.2d, Corporations, § 1727, p. 580 (1985). Nor does it matter Gray's offenses occurred during the early days of his new service, before USB's ninety-day probationary period had expired. The law of corporate governance provides no incompetence defense to officers called to account on their duty of care. Perhaps the notion may be captured in the phrase assumption of risk. One who seeks corporate office assumes the risk he may not be up to the job. The law does not allow that a person may seek and accept corporate office and, upon charge of default, plead he was not qualified for the job and that the corporation should never have hired him in the first place. Gray charges that senior vice president Edward P. Peacock, III, had oversight responsibilities for the Branch and was substantially neglectful in that regard. He points particularly to the $300,000.00 letter of credit issued for the benefit of Piecara's Mirage Construction in July of 1984. Gray did discuss the matter with Peacock, and it appears uncontradicted each used his $150,000.00 loan authority to issue the letter of credit. The same obtains with the Bigelow and LK & R credits. Gray reminds us the details of these credits were a part of the Branch's open records and reports which were surely read and approved by Clarksdale. This may be so, but it may not belie the fact that Gray was the officer who initiated these credits, was most familiar with their details, and without whose sanction no funds would have been released. The short answer is, it is no defense to the charge that Gray breached his duty of care owed USB in this and other matters, that Peacock or someone else may also have breached a duty owed USB. [9] Nor is there a contributory negligence defense to a corporate officer's breach of the duty of care. Neither may he defend on grounds other officers with superior authority negligently failed to detect or deter his defaults. This is not a case where a superior officer ordered Gray to extend the bad credits that have spawned this suit. It is not even a case  with one exception  where he claims his superior knew or should have known what he was doing before the fact and did not stop him. If we understand his plea, Gray is saying, after the fact, his superiors knew or should have known of the loans he was making and didn't criticize him. But by then the horse was gone. Within Gray's first six weeks of service as USB's Branch president, most of the damage was done.
Gray's defense has a further dimension. Gray urges the evidence shows after his departure, USB was seriously neglectful in its management of the LK & R loans and, had it prudently pursued Messrs. Lowery, Kantor and Riggan, USB could have effected a much greater recovery on its notes. Gray points to $6,004,600.00 combined net worth of LK & R as reflected on their 1984 financial statements. Lowery is said to have a steady $100,000.00 annual salary, a portion of which was surely available. Riggan is supposed to have had an equity in an interest in 1718 acres of farmland in Tunica County. Gray says USB missed a chance to get a deed of trust on this land and, more generally, let all of the LK & R assets slip away by not suing on the notes and obtaining and enrolling lien-generating judgments. USB retorts this is so much fancy. Suits and judgments would only have forced Lowery and Riggan into bankruptcy. Besides, Gray made no credible proof there were assets of consequence a judgment lien might have seized. USB says its patience in working with Lowery and Riggan resulted in a $130,000.00 plus recovery that would otherwise have been lost, though this was applied to other, older debts. More generally, USB sounds a lot like Gray when it says it made a reasonable business judgment how it ought pursue collection and that judgment ought not now be second guessed. The Chancery Court heard this evidence and held Gray's defaults the sole proximate cause of the losses endured. Though USB's post-Gray collection strategy is not given express mention, we have here a circumstance for implied findings. We may from this record infer with confidence the Court below thought USB had made reasonable collection efforts and this is all the law asks.