# Petition for Writ of Certiorari — Barton v. Landmark Land Co. of Carolina, 116 S. Ct. 2582 (1996) (No. 95-1855) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386002_1342%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1996 ## Text OPH Ve Lic GickX In The Supreme Court of the United States October Term, 1995 * GERALD G. BARTON, WILLIAM W. VAUGHAN, III and JOE W. WALSER, Petitioners, LANDMARK LAND COMPANY OF CAROLINA, INC., a Delaware Corporation, et al., Responden t ¢ On Petition For Writ Of Certiorari To The United States Court Of Appeals For The Fourth Circuit * PETITION FOR WRIT OF CERTIORARI ¢ Dawes COookgE, Jr. Rc pert P. Gritton BarNWELL WHALEY PATTERSON & Hetms, LLC id Meeting Street, Suite 300 C.arleston, South Carolina 29401 ‘$953) 577-7700 Attorneys for Petitioners COCKLE LAW BRIEF PRINTING CO., (800) 225-6964 OR CALL COLLECT (402) 342-2831 QUESTION PRESENTED [he question presented in this case is whether the Financial Institutior . Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) confers such broad and preemp tive authority upon the Office of Thrift Supervision (“OTS”) that an OTS-targeted bank’s corporate subsidiary that files for protection under the Bankruptcy Act necessarily precluded ‘rom indemnifying its directors for their legal costs incurred in defending OTS civil proceed ings brought against them as a result of the bankrupt: filing, upon the rationale that the bankruptcy filing wa “a deliberzte attempt to undermine the regulatory authority of a government agency” which “cannot consti tute good faith conduct, even if such actions benefit the corporation,” even though those directors abstained from the corporate vote to file for bankrupt Y protection and even though the bankruptcy action successfully pre served the assets of the corporation for the benefit of it ( reditor: PARTIES TO THE PROCEEDING The principal parties to this Petition are: Gerald G. Barton, William W. Vaughan, III and Joe W. Walser, as Petitioners; Landmark Land Company of Carolina, Inc., a Delaware Corporation, Landmark Land Company of Flor- ida, Inc., a Delaware Corporation, Landmark Land Com- pany of Oklahoma, Inc., an Oklahoma Corporation, Landmark Land Company of California, Inc., a Delaware Corporation, Landmark Land Company of Louisiana, Inc., a Louisiana Corporation, Carmel Valley Ranch, a California Corporation, Clock Tower Place Investments, Ltd., a California Corporation, as Debtor-Respondents; Resolution Trust Corporation, a receiver (formerly con- servator) for Oak Tree Federal Savings Bank as Creditor- Respondent. The complete list of parties to this bankruptcy pro- ceeding are listed on pages 215-262 on the appendix. TABLE OF CONTENTS Page QUESTION PRESENTED........ 7 i PARTIES TO THE PROCEEDING il rABLE OF CONTENTS....-.-+-+>: iii TABLE OF AUTHORITIES Vv | OPINIONS BELOW . ; | iI. JURISDICTION oes tenes 2 il. STATUTORY PROVISIONS INVOLVED . 2 1V. STATEMENT OF THE CASE... om 5 V. REASONS FOR GRANTING THE PETITION ... 6 VI. CONCLUSION ......-. aie ee ~ 12 APPENDICES Appendix A: Opinion of the United States Court of Appeals for the Fourth Circuit, dated February 15, 1996.......--- App. 1 Appendix B: Order on Applications and Fees of Attorneys for Debtor Employees of the United States District Court for the District of South Carolina, dated November 9, 1994......--. App. 34 Appendix C: Order on Attorneys Fees for Debtor Employees and Debtor Officers and Directors of the United States District Court for the District of South Carolina, dated May 27, 1994......----+eeerre ees App. 40 Appendix D: Order of the United States Court of Appeals for the Fourth Circuit, filed April 15, | Cae eee App. 53 TABLE OF CONTENTS Continued Page Appendix E: Order of the United States Court of Appeals for the Fourth Circuit, OG. AGT 2, 1996... 066 scisere- AD, 5 Appendix F: Order on Debtor’s Motion to Reconsider the Court’s May 27, 1994 Order regarding Indemnifica- tion of Officers and Directors of the United States District Court for the District of South Carolina, dated October 5, 1994 App. 200 Appendix G: Order on Motions to Intervene in Motion to Reconsider Order regarding Indemnification of Offi- cers and Directors of the United States District Court for the Dis- trict of South Carolina, dated August 31, 1994 Kad App. 212 TABLE OF AUTHORITIES Page C ASES Fallick v. Kehr, 369 F.2d 899 (2d Cir. 1966)......... 9, 10 In re All Season’s Kitchen, Inc., 145 B.R. 391 (Bankr Di: Wc SON es 5 ee grt ke 10 In re George, 15 B.R. 247 (Bankr.N.D. Ohio 1981) .... 10 In re Kriger, 2 B.R. 19 (Bankr.D. Or 1979) ........... 10 In re Landmark Land Company of Carolina, Inc., 76 Pe ee Se Ee BONS orc bs ceva cia bs ck ae 608 jae In re Tru Block Concrete Products, Inc., 27 B.R. 486 ae aa 10 In re Weitzen, 3 F. Supp. 698 (S.D.N.Y. 1933) . om McAvoy v. United States, 178 F.2d 353 (2d Cir. 1949) .... 11 Merchants and Mechanics Federal Savings and Loan Association v. Lewis, 25 B.R. 422 (Bankr. S.D. CE ED oo ccakia anew s cor bn C40 PEP ErR One ae Ys ae O’Melveny & Myers v. FDIC, __ U.S. ,1145.Ct DG CRT sc ib ted hi wds vecane ohne igs ee CONSTITUTIONS AND STATUTES 11 U.S.C. § 106 (1994) ..... Pa | BGA 11 U.S.C. § 109(a) (1993)........... er One: 12 U.S.C. § 1821(d)(2)(A)(1) (1989) ..... woot coe 28 U.S.C. § 12'54(1) (1993)...... , ee 28 U.S.C. § 1291 (1988) ..... e past iene ee ea 28 U.S.C. § 1334 (1988) ..... epee Vi TABLE OF AUTHORITIES Continued Page Court Fintincs Order of the United States Court of Appeals for the Fourth Circuit filed April 2, 1996. |, 6 Order of the United States Court of Appeals for the Fourth Circuit filed April 15, 1996 1, 6 Order on Applications and Fees of Attorneys for Debtor Employees of the United States District Court for the District of South Carolina dated November 9, 1994 i WAP ee Lk ay ete Spt hy l Order on Attorneys Fees for Debtor Employees and Debtor Officers and Directors of the United States District Court for the District of South Carolina dated May 27, 1994 ............. ai 1,5 Order on Debtor’s Motion to Reconsider the Court’s May 27, 1994, Order regarding Indem- nification of Officers and Directors of the United States District Court for the District of South Carolina dated October 5, 1994...... 2, 5 ~ Order on Motions to Intervene in Motion to Reconsider Order regarding Indemnification of Officers and Directors of the United States Dis- trict Court for the District of South Carolina dated August 31, 1994........... Vek eianeaeen 2 PETITION FOR WRIT OF CERTIORARI Petitioners, Gerard G. Barton, et al., respectfully request that a writ of certiorari issue to review the deci- sion of the United States Court of Appeals for the Fourth Circuit, entered on February 15, 1996 I. OPINIONS BELOW The opinion of the United States Court of Appeals for the Fourth Circuit, in which review is sought is reported at In re Landmark Land Company of Carolina, Inc., 76 F.3d 553 (4th Cir. 1996) and is appended to this petition for writ of certiorari. The Order on Applications and Fees of Attorneys for Debtor Employees of the United States District Court for the District of South Carolina dated November 9, 1994, is unreported and is appended to this writ of certiorari. The Order on Attorneys Fees for Debtor Employees and Debtor Officers and Directors of the United States District Court for the District of South Carolina dated May 27, 1994, is unreported and is appended to this writ of cer- tiorari. The Order of the United States Court of Appeals for the Fourth Circuit filed April 15, 1996, denying the Peti- tioners’ Motion for Reconsideration of the Court’s denial of the Petition for Rehearing is unreported and is appended to this writ of certiorari. The Order of the United States Court of Appeals for the Fourth Circuit filed April 2, 1996, denying the Petition for Rehearing is unreported and is appended to this writ of certiorari The Order on Debtor’s }.otion to Reconsider the Court’s May 27, 1994, Order regarding Indemnification of Officers and Directors of the United States District Court for the District of South Carolina dated October 5, 1994, is unreported and is apyended to this writ of certiorari. The Order on Motions to Intervene in Motion to Reconsider Order regarding Indemnification of Officers and Direc- tors of the United States District Court for the District of South Carolina dated August 31, 1994, is unreported and is appended to this writ of certiorari. II. JURISDICTION The judgment of the Court of Appeals was entered on February 15, 1996. The Court of Appeals denied a Petition for Rehearing on April 2, 1996, and denied a Motion for Reconsideration of the Petition for Rehearing on April 15, 1996. Petitioners invoke this Court's jurisdic- tion under 28 U.S.C. § 1254(1) (1993). Ill. STATUTORY PROVISIONS INVOLVED Notwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a munici- pality, may be a debtor under this title. 11 U.S.C. § 109(a) (1993). The Corporation shall, as conservator or receiver, and by operation of law, succeed to — all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, account holder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution. 12 U.S.C. § 1821(d)(2)(A)(1) (1989). IV. STATEMENT OF THE CASE The issue before the Court arises from a successful, confirmed Chapter 11 bankruptcy case wherein all unsecured creditors have been paid in full. Petitioners were directors of first and second tier subsidiaries (Debtors) of Oak Tree Savings Bank (Bank), which was wholly owned by the Landmark Land Company, Inc. (Landmark). In June 1990 the Office of Thrift Supervision (OTS) determined that the Bank was undercapitalized and had demonstrated a pattern of consistent losses. On January 15, 1991, the Bank agreed that its subsidiaries would not enter into any material transaction without prior approval from the OTS. On October 11, 1991, the Debtors filed bankruptcy petitions in South Carolina. Petitioners, officers and directors both of the Bank and of the Debtors, abstained from voting in the Debtors’ resolu- tions to file for bankruptcy. Two days after the bankruptcy filing, the OTS took control of the Bank and appointed the Resolution Trust Corporation (RTC) as receiver. The Debtors obtained a temporary restraining order and then a preliminary injunction from the bankruptcy court preventing the RTC from replacing their management. The OTS gained con- trol approximately 11 months later when the Court of Appeals lifted the injunction. Meanwhile, the OTS filed civil administrative charges against Petitioners, charging them with breach of their fiduciary duties to the Bank and fining them an initial one million dollars and five hundred thousand dollars for each day that they failed to take all necessary steps to seek dismissal of the bankruptcy proceedings. The OTS alleged that the Petitioners breached their fiduciary duties to the Bank because they knew that the bankruptcy filings of the Debtors would have a substan- tially adverse effect on the Bank’s ability to collect on the secured and unsecured lines of credit to the Debtors. The OTS also claimed that the Petitioners had violated the terms of the Bank’s January 15, 1991 agreement by enter- ing into a material transaction — the filing for bankruptcy on behalf of Bank subsidiaries. The Petitioners hired attorneys to defend them in those administrative actions, which are still pending. During the 11 month period between the filing of bankruptcy and the RTC finally obtaining control of the Debtors, the Debtors resolved to indemnify the Peti- tioners for the legal fees and costs that they incurred defending the OTS charges arising out of the bankruptcy filings. Petitioners abstained from voting on those resolu- tions. On March 26, 1992, the Debtors filed a Reimburse- ment Motion requesting permission to indemnify the Petitioners pursuant to the corporate resolutions. The district court heard the motion and still had it under advisement when the RTC gained control of the Debtors. Once the RTC gained control it did not seek to dis- miss the bankruptcy petitions, but proceeded with the bankruptcy action and actually placed another Bank sub- sidiary into bankruptcy. The RTC did, however, move to withdraw the Reimbursement Motion, but the district court refused because the motion had already been heard. The district court initially granted the reimbursement motion, finding in a May 27, 1994 order “that the evi- dence demonstrates that the off.cers and directors of the Debtor companies sought the protection of the bank- ruptcy court in good faith.” Appendix C. Subsequently, on October 5, 1994 the court clarified its earlier order, holding that Petitioners should be indemnified “if and when [they] prove by a preponderance of the evidence that they have incurred reasonable expenses in defending themselves for actions taken in good faith with the rea- sonable belief that such actions were not opposed to the best interests of the Debtor companies.” Appendix F. This appeal ensued before the district court ever ordered actual reimbursement to the Petitioners. The Fourth Circuit reversed the district court’s reim- bursement orders. The Court of Appeals agreed that under the applicable state corporate codes a corporate agent is entitled to indemnification for costs incurred in defending himself against legal charges if he “could have acted in good faith and in the best interests of the corpo- ration if the charges against the agent turn out to be true.” 76 F.3d at 563. Appendix A. The court held, how- ever, “We cannot conclude that the [Petitioners’] action was taken in good faith. If the OTS charges are accurate, the [Petitioners’] action to place the Debtors in bank- ruptcy was a deliberate attempt to prevent the OTS from exercising control over the Bank’s assets, thus hindering the OTS’s ability to deal effectively with a failing savings and loan.” Id. at 565. “We recognize that the [Petitioners] did not break any law by filing the bankruptcy petitions, 6 and that the OTS has not filed criminal charges against the [Petitioners]. Nonetheless, we find that a deliberate attempt to undermine the regulatory authority of a gov- ernment agency cannot constitute good faith conduct, even if such actions beefit the corporation.” Id. The Court of Appeals denied as untimely Petitioners’ Petition for Rehearing and Suggestion for Rehearing en Banc, and also denied their motion for reconsideration of the Petition. Appendix D and Appendix E. The United States District Court for the District of South Carolina had jurisdiction of the underlying bank- ruptcy matter pursuant to 28 U.S.C. § 1334. The Court of Appeals for the Fourth Circuit had appellate jurisdiction pursuant to 28 U.S.C. § 1291. V. REASONS FOR GRANTING THE PETITION This case presents an important opportunity for the Court to correct the Court of Appeals’ application of FIRREA that broadly preempts not only state-created rights but federal-law rights under the Bankruptcy Act By finding Petitioners guilty of bad faith under the facts of this case the Court of Appeals has laid out a bright line rule which prohibits any resistance, no matter how mea- sured or how well justified, to a takeover action by the OTS. The facts of this case make it an ideal vehicle by which to clarify the limits of FIRREA because of the extreme nature of the Court of Appeals’ interpretation of FIRREA. The Debtor corporations were subsidiaries of the Bank that was the subject of OTS investigation and that was signatory to the Consent Agreement not to engage in material transactions without OTS consent Neither the district court nor the Court of Appeals engaged in any analysis of the Bank-OTS agreement to determine whether the agreement was even intended to let alone able to — preclude Bank subsidiaries from filing for bankruptcy. Though supportive of filing for bank ruptcy, Petitioners personally abstained from the corpo rate votes both to declare bankruptcy and to indemnify them for their legal defense costs. The district court found, and the Court of Appeals did not disagree, that the federal regulators were hampering the Petitioners legitimate efforts to reorganize the companies and that Petitioners sought the protection of the bankruptcy court to protect themselves from an “overrun bureaucracy”. 76 F.3d at 564. The filing for bankruptcy was not only legal and in fact specifically provided for by federal bank ruptcy law, but was ratified by the RTC once it seized control of the Debtors, and the bankruptcy was spe: tacularly successful, resulting in all unsecured creditors being paid in full. Despite these facts the Court of Appeals did not so much as remand the reimbursement claim for an eviden tiary hearing or even hold the reimbursement claim in abeyance pending resolution of the OTS civil administra tive proceedings. Instead, the Court of Appeals sum marily declared the filing for bankruptcy to be the legal equivalent of a deliberate criminal act, preclusive per se of a finding of good faith. This case thus starkiy presents the question whether FIRREA confers such broad and preemptive authority upon the OTS that resistance by any means, even by means specifically sanctioned by the Bankruptcy Act, is illegal. The Court of Appeals succinctly summarized its guiding principle as follows: “[w]le recognize that the [Petitioners] did not break any law by filing the bank- ruptcy petitions, and that the OTS has not filed criminal charges against the [Petitioners]. Nonetheless, we find that a deliberate attempt to undermine the regulatory authority of a government agency cannot constitute good faith conduct, even if such actions benefit the corpora- tion.” 76 F.3d at 565. Neither the case law nor the record in this case supports such facile overwriting of the Bank- ruptcy Code. In O'Melveny & Myers v. FDIC, __ U.S. __, 114 S. Ct. 2048 (1994), the Court granted certiorari in order to decide that FIRREA did not require that federal common law supplant state tort law in an action brought by the FDIC against a bank attorney. We believe that the issue presented in this case is equally if not more worthy of review by the Court. The Court of Appeals appears to have concluded, without engaging in the formality of taking evidence on the issue, that Petitioners breached the agreement between the Bank and the OTS that prohibited the Bank and its subsidiaries from engaging in “material transac- tions” without OTS consent. The court evinced no interest in the fact that, though Petitioners signed the agreement, they clearly did so as directors of the Bank, not as direc- tors of the Debtors, or of the fact that Petitioners abs- tained from the Debtors’ votes to file for bankruptcy. Perhaps of even more significance, the Court of Appeals did not examine the question whether the agreement was even intended to — let alone legally could - prevent Debtors from filing for bankruptcy. That comprehensive, twelve-page agreement makes no mention at all of bank- ruptcy. Rather, it prohibits the Bank and its subsidiaries from engaging in “material transactions” without OTS consent. Both in common usage and in the context in which it appears in the agreement, “transaction” con- notes a transitive action between two or more persoiis, not a unilateral action whereby one person submits him- self to the protection of the bankruptcy court. That the Court of Appeals found unnecessary any factual inquiry into whether Petitioners had actually breached the stand- still agreement with the OTS is testament to the breadth and depth of obeisance that the OTS commands under the court’s holding in this case. The Court of Appeals’ holding with regard to the effect of a “breach” of the Bank-OTS standstill agreement sets up a patent conflict between FIRREA and the Bank- ruptcy Act, and in resolving this conflict in favor of eviscerating rights created under the Bankruptcy Act the court has departed from heretofore virtually universally accepted interpretation of the Act. The ability to seek the protection of the bankruptcy court is a statutory right which is generally held to be superior to any rights or obligations created by prior contractual agreements. It has long been held that an agreement to waive the bene- fits of bankruptcy is unenforceable. In re Weitzen, 3 F. Supp. 698 (S.D.N.Y. 1933). To sustain a contractual obliga- tion of this character would frustrate the object of the Bankruptcy Act. Id. The purpose of the Bankruptcy Act is a strong legislative desire that deserving debtors be allowed to get a fresh start. Fallick v. Kehr, 369 F.2d 899, 904 (2d Cir. 1966). “It is well settled principle that an advanced agreement to waive benefits conferred by the ccccsanithsamnsmasiiiiiiamn siassstiennineaeasit TELL 10 bankruptcy laws is wholly void against public policy.” In re Tru Block Concrete Products, Inc., 27 B.R. 486, 492 (S.D. Cal. 1983). See In re Kriger, 2 B.R. 19, 23 (Bankr.D. Or. 1979); In re George, 15 B.R. 247, 248-249 (Bankr.N.D. Ohio 1981) (pre-bankruptcy waivers unenforceable because in conflict with the purposes of bankruptcy laws); Fallick v Kehr, 369 F.2d 899, 904 (2d Cir. 1966). The Court of Appeals’ departure from this principle is all the more dramatic because the court equated the supposed breach of the standstill agreement to a deliberate criminal act. The corporate indemnification statutes clearly require that the corporate agent who is seeking indemnification must have acted in good faith vis-a-vis the corporation. The Court of Appeals transposed this requirement into one of good faith vis-a-vis the OTS, citing authorities that hold only that a corporate agent who has committed a deliberate criminal act cannot be indemnified. 76 F.3d at 565. Nothing in corporate law or the Bankruptcy Act sup- ports the view that government administrative enforce- ment actions are as sacrosanct as the Court of Appeals has held them to be. There is no evidence that in enacting FIRREA Congress intended to divest the bankruptcy courts of jurisdiction to adjudicate matters merely because they fall within the reach of government regula- tors. In re All Season's Kitchen, Inc., 145 B.R. 391, 397 (Bankr. D. Vt. 1992). To the contrary, the Bankruptcy Reform Act of 1994! made explicit Congress’ intent that there be a broad waiver of the government’s immunity 1 The section of the Act amending § 106 applies retroactively Pub. L. No. 103-394. 1] both to monetary recoveries and to declaratory and injunctive relief. 2 Collier on Bankruptcy para. 106.01 Compare McAvoy v. United States, 178 F.2d 353 (2d Cir 1949) (holding prior to the amendment of 11 U.S.C. § 106 (1994) that the bankruptcy court could not enjoin the Smal! Business Administration from intervening in a non bankruptcy proceeding wherein the valuation of the gov ernment’s claim might be determined). Thus, Congress has empowered the bankruptcy courts to adjudicate dis putes between corporations and government agencies. It necessarily follows that it should not be regarded as bad faith per se for a corporation to seek the protection of the bankruptcy courts merely because doing so frustrates the regulatory authority of a government agency. Filing for bankruptcy almost always frustrates someone's legiti mate business objectives, but even a contrived bank ruptcy filing is not necessarily bad faith. See Merchant and Mechanics Federal Savings and Loan Association v. Lew 25 B.R. 422 (Bankr. S.D. Oh. 1982). Nothing in FIRREA purports to exempt the OTS from the Bankruptcy Act The implications of the Court of Appeals’ holding in this case are staggering. Under this holding there can be no resistance to an OTS attack except through supplica tion to the OTS itself, no matter how well justified or how carefully measured such resistance may be. Any director or other agent who, on behalf of his company, resists the OTS in any way is likely to be deemed to have “under mine([d] the regulatory authority of a government agency” and thereby be barred from obtaining indemni fication from the company that he sought to defend. A corporate director whose company 1s threatened by the OTS (or, perhaps, by any government agency) can i] 12 afford to make a difficult decision in defense of his com- pany when the price of making the wrong decision is personal financial ruin. He is forced to choose between what is best for his company and what is safest for him personally. The good faith provision in the corporate indemnification statutes was intended to save corporate agents from just this Hobson’s choice and, by extension, to save corporations from suffering the inevitably unfor- tunate consequences of such choices. Neither FIRREA nor any other regulatory scheme should be construed to para- lyze all resistance by a corporation to governmental intrusion. Likewise, they should not be interpreted to override the congressional mandate that a debtor be allowed to seek reorganization under the Bankruptcy Act. VI. CONCLUSION For the foregoing reasons, Gerald G. Barton, William W. Vaughan, III and Joe W. Walser respectfully request that this petition for a writ of certiorari to the United States Court of Appeals for the Fourth Circuit be granted and the case be set for plenary review Respectfully submitted, M. Dawes Cooxe, Jr. Rosert P. GRITTON BARNWELL WHALEY PATTERSON & Heims, LLC 134 Meeting Street, Suite 300 Charleston, South Carolina 29401 (803) 577-7700 Attorneys for Petitioners Dated: May 14, 1996 App. 1 United States Court of Appeals for the Fourth Circuit In re LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, a Delaware Corporation, et al, Debtors. LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, etc., et al, Debtors-Appellants, Resolution Trust Corporation, a receiver (formerly conservator) for Oak Tree Federal Savings Bank, Creditor- Appellant, v. D. Scott CONE; John Wilson Reed, Respondents-Appellees, Bernard G. Ille, et al, Claimants- Appellees, Jones, Day, Reavis & Pogue; McGlinchey, Stafford & Lang; McNair & Sanford, P.A., Parties in Interest-Appellees, Alpha Nursery, Incorporated, et al, Creditors, 88314 Ontario Limited, et al, Claimants, Bureau of Indian Affairs, et al, Respondents, US Trustee, Trustee. In re LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, a Delaware Corporation, et al, Debtors. LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, etc., et al, Debtors-Appellees, Resolution Trust Corporation, a receiver (formerly conservator) for Oak Tree Federal Savings Bank, Creditor-Appellee, App. 2 v. Gerald G. BARTON, et al, Claimants- Appellants, Jones, Day, Reavis & Pogue; McGlinchey, Stafford & Lang; McNair & Sanford, P.A., Parties in Interest, Alpha Nursery, Incorporated, et al, Creditors, 88314 Ontario Limited, et al, Claimants, Bureau of Indian Affairs, et al, Respondents, US Trustee, Trustee. In re LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, a Delaware Corporation, et al, Debtors. LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, etc., et al, Debtors-Appellees, Resolution Trust Corporation, a receiver (formerly conservator) for Oak Tree Federal Savings Bank, Creditor-Appellee, v. McNAIR & SANFORD, P.A., Party in Interest-Appellant, Jones, Day, Reavis & Pogue; McGlinchey, Stafford & Lang, Parties in Interest, Alpha Nursery, Incorporated, et al, Creditors, 88314 Ontario Limited, et al, Claimants, Bureau of Indian Affairs, et al, Respondents, US Trustee, Trustee. In re LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, a Delaware Corporation, et al, Debtors. aed App. 3 LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, etc., et al, Debtors-Appellees, Resolution Trust Corporation, a receiver (formerly conservator) for Oak Tree Federal Savings Bank, Creditor-Appellee, v. McGLINCHEY, STAFFORD & LANG, Party in Interest-Appellant, Jones, Day, Reavis & Pogue; McNair & Sanford, P.A., Parties in Interest, Alpha Nursery, Incorporated, et al, Creditors, 88314 Ontario Limited, et al, Claimants, Bureau of Indian Affairs, et al, Respondents, US Trustee, Trustee. In re LANDMARK LAND COMPANY OIF CAROLINA, INCORPORATED, a Delaware Corporation, et al, Debtors. LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, etc., et al, Debtors-Appellees, Resolution Trust Corporation, a receiver (formerly conservator) for Oak Tree Federal Savings Bank, Creditor-Appellee, v. JONES, DAY, REAVIS & POGUE, Party in Interest-Appellant, McNair & Sanford, P.A.; McGlinchey, Stafford & Lang, Parties in Interest, Alpha Nursery, Incorporated, et al, Creditors, 88314 Ontario Limited, et al, Claimants, Bureau of Indian Affairs, et al, Respondents, App. 4 US Trustee, Trustee. In re LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, a Delaware Corporation, et al, Debtors. LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, etc., et al, Debtors-Appellants, Resolution Trust Corporation, a receiver (formerly conservator) for Oak Tree Federal Savings Bank, Creditor- Appellant, v. D. Scott CONE; John Wilson Reed, Respondents-Appellees, Bernard G. Ille, et al, Claimants- Appellees, Jones, Day, Reavis & Pogue; McGlinchey, Stafford & Lang; McNair & Sanford, P.A., Parties in Interest- Appellees, ~ Alpha Nursery, Incorporated, et al, Creditors, 88314 Ontario Limited, et al, Claimants, Bureau of Indian Affairs, et al, Respondents, US Trustee, Trustee. Nos. 94-2475, 94-2490 through 94-2493 and 94-2550. United States Court of Appeals, Fourth Circuit. Argued June 8, 1995. Decided Feb. 15, 1996. Appeals from the United States District Court for the District of South Carolina, at Charleston. Falcon B. App. 5 Hawkins, Chief District Judge. (CA-91-5287- CA-91-3287-2-1, BK-91-5814, CA-91-5386- CA-91-3286-2-1, BK-91-5815, CA-91-5291- CA-91-3291- CA-91-3290- CA-91-3289- CA-91-2288- BK-92-77109) *A-91-5290- 'A-91-5289- ‘A-91-5288- "A-92-3548-2-1, 1, BK-91-5816, -1, BK-91-5817, -1, BK-91-5819, -1, BK-91-5818, Nm NNN WN . Nm NON NY WN py ‘ ‘ ' ‘ ' ’ Fe on et a ARGUED: Henry Robbins Lord, Piper & Marbury, Baltimore, Maryland, for Appellants. John Wilson Reed, New Orleans, Louisiana; Patrick Michael Duffy, McNair & Sanford, P.A., Charleston, South Carolina, for Appel- lees. ON BRIEF: Stephen H. Kaufman, Piper & Marbury, Baltimore, Maryland; Nathan B. Feinstein, Daniel J. Car- rigan, Timothy P. Branigan, Kimberly E. Wolod, Piper & Marbury, Washington, D.C.; Kevyn D. Orr, Resolution [rust Corporation, Washington, D.C., for Appellants. Richard L. Tapp, Jr., McNair & Sanford, P.A., Charleston, South Carolina; M. Dawes Cooke, Jr., Robert Gritton, Barnwell, Whaley & Stevenson, Charleston, South Caro- lina; Craig Caesar, Timothy Scott, McGlinchey, Stafford & Lang, New Orleans, Louisiana; Paul O’Hearn, R. Matthew Martin, Jones, Day, Reavis & Pogue, Atlanta, Georgia; Evan Park Howell, III, Metairie, Louisiana, for Appell! es. Before RUSSELL, NIEMEYER, and MICHAEL, Cir- cuit Judges. Affirmed in part and reversed in part by published opinion. Judge DONALD RUSSELL wrote the opinion, in which Judge NIEMEYER and Judge MICHAEL joined. App. 6 OPINION DONALD RUSSELL, Circuit Judge: This case comes before this Court at the twilight of the Debtors’ bankruptcy proceedings. The Resolution Trust Corporation (“RTC”) has already taken control of the Debtors and has liquidated their assets. The bank- ruptcy proceedings have proven to be successful, with the debtors-in-possession paying each claim in full. On this appeal, the second to this Court, we consider only whether the debtors’ estates must indemnify several of the Debtors’ former directors, officers, and employees for their costs in defending themselves against civil proceed- ings brought by the Office of Thrift Supervision (“OTS”) in connection with the bankruptcy filings. The district court found that the Debtors’ estates must indemnify these directors, officers, and employees for their defense costs. We affirm in part and reverse in part. A. The OTS Charges On October 11, 1991, the Debtors (with one excep- tion) filed for bankruptcy.' The Debtors were first- and 1! The Debtors are Landmark Land Company of Carolina, Inc. (“Landmark Carolina”), Landmark Land Company of Oklahoma, Inc. (“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. App. 7 second-tier subsidiaries of Oak Tree Savings Bank, 5.5.B (“Bank”). At the top of the corporate structure was Land- mark 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 lower, which in turn was the holding company and whole owner of Landmark Carolina, Landmark Okla- homa, 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, RBarton’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 man- agement 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 com- panies 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 facili- ties. During this time, the Bank loaned the subsidiaries more than $986 million App. 8 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 consistent 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 bank ruptcy 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.? See Financial Institutions Reform, Recov- ery, and Enforcement Act of 1989 (“FIRREA”), Pub.L. No. 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, ncluding its wholly owned subsidiaries. The OTS then appointed the RTC as conservator for New Oak Tree. App Y 101-73, 103 Stat: 183 (1989) (codified in scattered section 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 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 to seek dismissal ot the bankruptcy proceed Ings On November 18, 1991, the OTS amended it charges to add allegations that the Directors had mi handled certain large loans. The Directors hired attorne s ‘ in to defend themselves against the OTS charge 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,* 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 Cone died during the yuurse of this litigatior represented by his estate App. 10 Motahari, Trapani, and Braun became employees of Land- mark Louisiana soon after the Debtors’ filed for bank rupt Vy 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 B The Reimbursement Motion Although the RTC took control of the Bank, the origi nal boards of directors remained in control of the Debtors until September 1992. Once the RTC was appointed con- servator of the Bank, it immediately moved the district court to lift the temporary restraining order so that it could call a shareholders meeting and exercise its owner- ship rights over the Debtors. However, the district court, acting as the bankruptcy court, denied the RTC’s motion and converted the temporary restraining order into a preliminary injunction. See Landmark Land Co. of Caro- lina v. Resolution Trust Corp. (In re Landmark Land Co. of Okla.), 134 B.R. 557 (D.S.C.1991), rev’d 973 F.2d 283 (4th Cir.1992). The RTC was not able to take «ontrol of the subsidiaries until this Court lifted the injunction on August 18, 1992. See In re Landmark Land Co. of Okla., 973 F.2d 283 (4th Cir.1992). On September 12, 1992, the RI boards (’ took control of directors, and fired the Debtors’ oft APP 1] the Debtors, terminated the original attorney . During the eleven-month interim when the original board controlled the Debtors, the Directors arranged for the Debtors to pay for the fees and costs of defending themselves against the OTS charges. On March 26, 1992, the making the motion, several of the Debtors’ Debtors file da Reimbursement Motion permission to fund the Directors’ indemnification directors met to approve the indemnification Oklahoma met to discuss and vote on indemnification ()n April 3, 1992, the ho rd of dire¢ tors for [ Walser and Ille three members [hompson but the two constituted a quorum Landmark Oklahoma’s board consisted Barton, Lowery Only Roselle and 4ea Roselle. and Bill requesting After boards of andmartk ror of .) Thompson were present They found that Wal ser and Ille “had acted in good faith and in a manner the: reasonably believed to be in, or not opposed to, the best interests of [Landmark Oklahoma} board lower met voted in favor of On April 21, 1992. the board to dis« uSS and vote Barton and Vaughan ( indemnification lock Ot on directors Accordingly, ror ¢ indemnification the Loe k ror Tower’s board consisted of five members: Barton, Vaughan, Roselle, Thompson, and a director had resigned and had not yet been replaced other four members of the board were present, fifth director At the time of the meeting, the ; fifth The onstitut ing a quorum. The board found that Barton and Vaughan “had acted in good faith and in a manner they reasonably believed to be in, or not opposed to, th s 1e [Clock Tower].” Roselle and Thompson voted in favor of best interests of App. 12 indemnification, and Barton and Vaughan abstained from the vote. Although the Employees were not included in the Reimbursement Motion, the board of directors for Land- mark Louisiana met on April 21, 1992 to discuss and vote on indemnification for the Employees. Landmark Louisi- ana’s board consisted of five members: Barton, Vaughan, Cone, Roselle, and Thompson. Cone was not present, but the other four directors constituted a quorum. The board found that the Employees had acted in good faith and in the best interests of Landmark Louisiana, and they voted unanimously to indemnify the Employees for their expenses. Barton and Vaughan participated in the vote. On June 3, 1992, the district court held a hearing on the Reimbursement Motion. The court did not rule on the motion at the time, and the motion remained dormant for almost two years. On August 27, 1992, the Debtors amended their Reimbursement Motion to include the Employees’ legal expenses. Even before this formal application, however, the Debtors had already begun indemnifying the Employees. In March 1992, Clock Tower paid $21,825 toward Motahari’s legal expenses, and Landmark Louisi- ana paid $1,000 toward Braun’s expenses. In June 1992, Clock Tower paid $35,398.48 toward Cone’s, Motahari’s, and Trapani’s legal expenses. Thus, Clock Tower paid more than $57,000 toward the Employees’ legal expenses, even though its board never voted to indemnify them. In total, the Debtors have paid $122,493.20 of the Employees’ legal expenses. App. | 5 ( The RTC-controlled Debtors The RTC took control of the Debtors on September 12, 1992, and replaced the boards of directors. On November 5, 1992, the RTC-controlled Debtors sought, by means of a consent order, to withdraw the Reimburse ment Motion. The district court denied the withdrawal because it had already heard argument on the motion and had taken the motion under advisement. The district court also recognized that the beneficiaries of the Reim bursement Motion namely, the Directors and the Employees — were not represented in the proposed con sent order The RTC. once it took control of the Debtors, decided that it was advantageous to operate the Debtors in bank ruptcy and chose not to withdraw the Debtors from the bankruptcy proceedings The RTC even decided to place another Bank subsidiary, Carmel Valley Ranch, in bank ruptcy. The RTC filed a reorganization plan for the Debtors that was approved by the district court Meanwhile, the OTS settled its civil administrative actions against some of the Directors and Employees. On October 30, 1992, the OTS dropped its charges against Cone and Motahari in exchange for their consent to orders (1) prohibiting them from participating in the affairs of any insured depository institution and (2) debarring them from practicing before the OTS. Although Cone and Motahari accepted prohibition and debarment, neither admitted, and both specifically disputed, the OTS charges. On April 1, 1993, the OTS dropped the charges against Ille with only the mildest rebuke: [lle had to sign App. 14 a cease and desist order, prohibiting him from engaging in unsafe and unsound banking practices and from breaching fiduciary duties to a federally insured deposi- tory institution. In other words, Ille agreed to follow diligently in the future the standard of conduct already required of him. Ille received this lenient treatment because he did not participate in the bankruptcy filings. He learned of the decision to place the Debtors in bank- ruptcy during a telephone call from Barton on the eve- ning of October 10, 1991, the day before the bankruptcy filings; that same evening, he resigned from his position as a director of the Bank. At most, Ille failed only to follow the affairs of the Bank more diligently. As of the date of this opinion, the OTS proceedings against Barton, Vaughan, and Walser remain unresolved. D. The District Court’s Orders On May 27, 1994, more than two years after the filing of the motion, the district court granted the Reimburse- ment Motion. The district court found that “the evidence demonstrates that the officers and directors of the Debtor companies sought the protection of the bankruptcy court in good faith.” In re Landmark Land Co. of Okla., Civ. Action No. 2:91-5286-1, order at 12 (D.S.C. May 27, 1994) (J.A. 1278). It also concluded that the RTC-controlled Debtors “ratified the decision to reorganize under the protection of the bankruptcy court, demonstrating that the placement of the Debtors into bankruptcy is reason- ably viewed as being in the best interests of the Debtors.” Id. Thus, the district court ordered the Debtors’ estates to indemnify the Directors and Employees for their defense i é App. 15 costs, and it granted the applications for payment from the Employees’ attorneys. The RTC-controlled Debtors filed a motion for recon sideration on June 6, 1994. When the Debtors filed this motion, the following parties moved to intervene: 1. the Directors; 2. McNair & Sanford, P.A. (“McNair”), the attorneys for the Debtors before the RTC took control; 3. Jones, Day, Reavis & Pogue (“Jones Day”) and McGlinchey, Stafford & Lang (“McGlinchey”), the Directors’ former OTS defense attorneys; 4. John W. Reed (of Glass & Reed), attorney for Cone; David Popper (of Popper & Popper), attorney for Motahari; Herbert V. Larson, Jr., attorney for Motahari; Robert H. Habans, attor- ney for Trapani; and William R. Campbell, Jr., attorney for Braun. The district court granted their motions to intervene on August 31, 1994. The Employees themselves did not move to intervene. On October 5, 1994, the district court denied the Debtors’ motion for reconsideration with respect to the indemnification of the Directors. The district court did, however, grant the motion for reconsideration with respect to the applications of the Employees’ attorneys. In a separate order on November 9, 1994, the district court approved the applications for payment from the Employees’ attorneys. App 16 The RTC and the RTC-controlled Debtors appeal from the district court’s orders I] The RTC and the RTC-controlled Debtors raise a host of arguments challenging the district court’s granting of the Reimbursement Motion. Rather than addressing all of their arguments, we address the issue most troubling to us about the district court’s decision: the district court's finding that the Directors acted in good faith and in the best interests of the Debtors. We conclude that the district court clearly erred in finding that the Directors, with the exception of Ille, acted in good faith.4 A California, Oklahoma, and Louisiana have similar statutes regarding the indemnification of officers and * At least one court has held that the good faith determination is a question of fact reviewed under a clearly erroneous standard. Plate v. Sun-Diamond Growers of Calif., 225 Cal.App.3d 1115, 275 Cal Rptr. 667, 672 (1990) (holding that the “question of whether a corporate agent acted in good faith and for the best interests of the corporation| ] appears to be an essentially factual question for the trial court”). The good faith determination strikes us as a question of law, or at least a mixed question of law and fact; although the facts supporting the good faith determination should be reviewed for clear error, an appellate court should review de novo whether or not those facts lead to the conclusion that the agent acted in good faith Nonetheless, we need not at this time decide the appropriate standard of review for the good faith determination because our reasoning applies under either standard. > App. 17 directors for the costs and expenses of legal proceedings.° Under the California statute (as well as the other stat- utes), indemnification is mandatory if a corporate agent successfully defends himself in any proceeding. In such a case, the corporation has a duty to indemnify the agent for his costs and expenses, and the agent can sue the corporation if it fails to do so Even where the litigation does not result in a com- plete vindication for the agent, “[{a] corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any pro ceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation “ Cal.Corp.Code § 317(b) hus, the statute allows for indemnification even where the agent was negligent or committed some error, as long as the agent acted in good faith and in the best interests of the corporation. Plate v. Sun-Diamond Growers of Calif., 225 Cal App.3d 1115, 275 Cal Kptr. 667, 672 (1990) In such circumstances, indemnification is only permis- sive: the corporation does not have a duty to indemnify the agent but simply has the option to indemnify as long as the good faith requirement is satisfied > California law applies to Barton and Vaughan, Oklahoma law to Walser and Ille, and Louisiana law to the Employees Because the indemnification statutes are substantially similar, compare Cal.Corp Code § 317 with Okla. Stat. tit. 18, § 1031 and La.Rev.Stat.Ann. § 12:83, we focus on the California statute for purposes of this discussion. cat CL CC LLL LLL LLL LLL i a App. 18 Indemnification is never allowed where the agent acted in bad faith and against the best interests of the corporation. As one California court has stated: Indemnification, if permitted too broadly, may violate . . . basic tenets of public policy. It is inappropriate to permit management to use cor- porate funds to avoid the consequences of wrongful conduct or conduct involving bad faith. A director, officer, or employee who acted wrongfully or in bad faith should not expect to receive assistance from the corporation for legal or other expenses and should be required to satisfy not only any judgment entered against him but also expenses incurred in connection with the proceeding from his personal assets Any other rule would tend to encourage socially undesirable conduct Plate, 275 Cal.Rptr. at 672 (citing 2 American Bar Assoc., Model Business Corp. Act Ann., introductory cmt to chapter 8, at 1082 (3d ed. 1987 supp.)).° Thus, there are two requirements for permissive indemnification under § 317(b): (1) the corporation must authorize the indemnification, and (2) the agent must have acted in good faith and in the best interests of the corporation. It is not clear, however, whether the good faith determination should be made by a court or by the corporation itself. Section 317(e) provides that, before a ¢ The most recent supplement to the Model Business Corporation Act Annotated contains similar but slightly different language. See 2 American Bar Assoc., Model Business Corp. Act Ann., introductory cmt. to subchapter E of chapter 8, at 8-289 to 8-290 (3d ed. 1995 supp.). App 19 corporation can authorize indemnification, the corpora tion must determine that the agent has acted in good faith and in the best interests of the corporation. The corpora tion can make this determination in anv of the following ways: (1) A majority vote of a quorum consisting of directors who are not parties to such proceed ing (2) If such a quorum of directors is not obtain able, by independent legal counsel in a written opinion (3) Approval of the shareholders , with the shares owned by the person to be indemnified not being entitled to vote thereon Cal.¢ orp.Code § 317(e). At first glance, § 317(e) sug gests that the corporation’s finding of good faith settle: the matter, and that the court’s role is limited to ensuring that the corporation made its finding of good faith by proper procedures ’ The California Code also provides a fourth way in whic! a corporation can determine that an agent has acted in good faith and in the best interests of the « orporation: (4) The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person opposed by the corporation. Cal.Corp.Code § 317(e)(4). Thi fourth option, which is not found in the Oklahoma or Louisiana statutes, is actually an exception. It provides that an agent can receive indemnification over the corporation’s opposition if the court in the proceedings for which the agent seek indemnification found that the agent acted in good faith and in the best interests of the « orporation App. 20 We do not agree that the court’s role is so narrow. Although a corporation has to find that the agent acted in good faith before authorizing indemnification, nothing in § 317(e) restricts a court’s authority under § 317(b) to make an independent assessment of the agent’s good faith. Section 317(b) allows permissive indemnification where the agent has acted in good faith, not where the corporation finds that the agent has acted in good faith Reading § 317(b) together with § 317(e), we conclude that the issue of an agent’s good faith is a question for the courts to decide. In making the good faith determination, however, a court cannot ignore the factual findings made during the underlying proceeding for which the agent seeks indem- nification. If the court or administrative panel in the underlying litigation made factual findings relevant to the determination of the agent’s good faith, the indemni- fication court cannot reevaluate the evidence and reach the opposite conclusion. Even the findings of an adminis- trative agency have collateral estoppel effect on the indemnification court. As the Supreme Court has stated: When an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose. United States v. Utah Construction & Mining Co., 384 U.S. 394, 422, 86 S.Ct. 1545, 1560, 16 L.Ed.2d 642 (1966). Furthermore, where a court decides the question of indemnification before the completion of the underlying proceeding, the court must tread even more carefully. In App. 21 determining whether or not the agent acted in good faith and in the best interests of the corporation, the indemni- fication court should not make any factual or legal deter- minations that are properly before the court or administrative panel in the underlying proceeding. The indemnification court should not base its good faith determination on its own conclusions about the merits of the charges in the underlying proceeding. The indemnification court, however, does not need to postpone its determination until after the completion of the underlying proceeding. The indemnification court should consider whether the agent could have acted in good faith and in the best interests of the corporation if the charges against the agent turn out to be true.® If the indemnification court finds that the agent could have acted in good faith even if the charges were true, it should grant indemnification because the indemnification determination is not contingent on the result of the underlying proceeding. On the other hand, if the indem- nification court finds that the agent’s alleged misconduct, if true, demonstrates that the agent acted in bad faith, the indemnification court should deny permissive indemni- fication; it should hold its indemnification decision in abeyance until the completion of the underlying proceed- ings and then grant indemnification only if the agent 5° The indemnification court does not need to consider the agent's good faith if the charges turn out to be false. If the agent succeeds on the merits in the underlying proceeding, he is entitled to mandatory indemnification. See Cal.Corp.Code § 317(d). In such a situation, the issue of permissive indemnification would be moot, thus rendering the good faith determination unnecessary App. 22 succeeds on the merits. For instance, an agent defending himself against charges of negligent conduct should receive indemnification if the indemnification court finds that the agent, even if he were negligent, acted in good faith. However, an agent defending himself against charges of intentionally wrongful conduct should receive indemnification only if he succeeds on the merits. In the instant case, it is not clear whether the district court — the indemnification court in this case — recognized the proper scope of its “good faith” determination. In finding that the Directors acted in good faith and in the best interest of the Debtors when they filed the petitions for bankruptcy, the district court offered little explanation on how it reached its finding. In its May 27, 1994 order, it simply stated: [T]his court finds that the evidence demon- strates that the officers and directors of the Debtor companies sought the protection of the bankruptcy court in good faith. Further this court finds that the Debtors’ new management ratified the decision to reorganize under the protection of the bankruptcy court, demonstrat- ing that the placement of the Debtors into bank- ruptcy is reasonably viewed as being in the best interest of the Debtors. In re Landmark Land Co. of Okla., Civ. Action No. 2:91-5286-1, order at 12 (D.S.C. May 27, 1994) (J.A. 1278). Neither in this order nor in any of its subsequent orders did the district court articulate how the evidence demon- strated the Directors’ good faith. More importantly, the district court did not explain how the Directors could App. 23 have acted in good faith if the OTS charges filed against them were true. Apparently, the district court’s finding of the Dire tors’ good faith stems from its belief that the OTS charges had no merit. From the very beginning of the bankruptcy proceedings, the district court found that the Directors “possesse[d] the requisite expertise to continue managing the debtors’ estates in a manner most profitable for the preservation of corporate assets.” Landmark Land Co. of Carolina v. Resolution Trust Corp. (In re Landmark Land Co. of Okla., 134 B.R. 557, 560 (D.S.C.1991), rev’d 973 F.2d 283 (4th Cir.1992)). It found that “the RTC ha[d] acted with complete disregard of the efforts of management to keep the debtor companies afloat.” Id. It seems that the district court believed that federal regulators were ham pering the Directors’ legitimate efforts to reorganize the companies, and that the Directors sought the protection of the bankruptcy code to protect themselves from an overrun bureaucracy. The district court thought little of the OTS charges, referring to them as an attempt by the OTS to “seek[ | atonement from the named Debtor offi cers for placing the Debtor companies in bankruptcy.” In re Landmark Lanz Co. of Okla., Civ. Action No 2:91-5286-1, order at 8 (D.S.C. Oct. 5, 1994) (J.A. 2452 Furthermore, it found that the Directors had the best interests of the Debtors in mind when they filed for bankruptcy because the RTC ratified the Directors’ action by keeping the Debtors in bankruptcy once it obtained control over them. Even if the district court was correct that the OTS was inept and overbearing, the Directors’ action to file for bankruptcy was a deliberate attempt to circumvent App. 24 the regulatory authority that Congress had clearly given to the OTS. Congress created the OTS in 1989 in response to the crisis in the savings and loan industry, which occurred when the insolvency of a large number of sav- ings and loans bankrupted the Federal Savings and Loan Insurance Corporation. Although the majority of savings and loans were healthy financial institutions, Congress found that the thrift crisis was concentrated in the roughly twenty-five percent of the industry having capi- tal, measured under generally accepted accounting prin- ciples, of less than three percent. H.R.Rep. No. 101-54(1), 101st Cong., Ist Sess. 303 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 99. Congress found that, “[t]o a consid- erable extent, the size of the thrift crisis resulted from the utilization of capital gimmicks that masked the inade- quate capitalization of thrifts. . [I]f a crisis of this nature is to be prevented from happening again, thrifts must be adequately capitalized against losses.” H.R.Rep. No. 101-54(1), 101st Cong., Ist Sess. 310 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 106. Congress invested the OTS with broad regulatory powers to oversee financial institu- tions and ensure that they were adequately capitalized. By placing the Debtors in bankruptcy, the Directors intended to prevent the OTS from enforcing the minimum capitalization requirement against the Bank. According to the OTS charges, the OTS investigated the Bank on June 4, 1990 and found that the Bank was inadequately cap- italized and had demonstrated a pattern of repeated losses. The OTS directed the Bank to infuse sufficient capital to meet the minimum capitalization requirement, but the Bank did not submit an acceptable plan. Because of the Bank’s inability to meet the requirement, the OTS App. 25 forced the Bank directors to sign a Consent Agreement on January 15, 1991, signalling to the Directors that an OTS takeover was imminent. Instead of working with the OTS to correct the Bank’s capitalization problem, the Directors filed the bankruptcy petitions to prevent the OTS from exercising control of the Bank’s subsidiaries We cannot conclude that the Directors’ action was taken in good faith. If the OTS charges are accurate, the Director's action to place the Debtors in bankruptcy was a deliberate attempt to prevent the OTS from exercising control over the Bank’s assets, thus hindering the OTS’s ability to deal effectively with a failing savings and loan Despite the district court’s findings that the federal regu- lators had interfered with the Directors’ efforts to keep the Debtors afloat, the fact remains that the Bank could not comply with the minimum capitalization require- ment, and the OTS therefore had a statutory duty to force the Bank’s management to comply with the capitalization requirement. The Directors acknowledged the OTS’s reg- ulatory authority when they signed the Consent Agree ment and agreed that the Bank’s subsidiaries would not enter into any material transaction without prior approval from the OTS. When the OTS threatened to take control of the Bank, however, the Directors’ used the bankruptcy code to stymie the OTS, even though their action breached the Consent Agreement with the OTS and violated their fiduciary duties to the Bank. We cannot condone the Directors’ blatant attempt to circumvent the OTS’s regulatory authority by holding that they acted in good faith Even if the bankruptcy filings benefitted the Debtors, we still could not conclude that the Directors acted in App. 26 good faith. An agent who has intentionally participated in illegal activity or wrongful conduct against third per- sons cannot be said to have acted in good faith, even if the conduct benefits the corporation. Plate, 275 Cal. Rptr at 672. “For example, corporate executives who partici- pate in a deliberate price-fixing conspiracy with compet- ing firms could not be found to have acted in good faith, even though they may have reasonably believed that a deliberate flouting of the antitrust laws would increase the profits of the corporation.” 1 Harold Marsh, Jr. and R Roy Finkle, Marsh’s California Corporation Law (3d ed.) § 10.43, at 751; see Plate, 275 Cal.Rptr. at 672 (citing same language from second edition). We recognize that the Directors did not break any law by filing the bankruptcy petitions, and that the OTS has not filed criminal charges against the Directors. Nonetheless, we find that a deliber- ate attempt to undermine the regulatory authority of a government agency cannot constitute good faith conduct, even if such actions benefit the corporation. The Directors intentionally breached their fiduciary duties to the Bank and their Consent Agreement with the OTS in order to prevent the OTS from exercising the powers granted to it under FIRREA. The Directors knew the impropriety of their actions, and one of the Directors - Ille — resigned his position when he learned of the scheme. We therefore conclude that the Directors did not act in good faith when they placed the Debtors in bankruptcy B. We do not reach the same conclusion with respect to Ille. Because the OTS and Ille entered into a settlement App 27 and the OTS has dropped its charges against Ille, we have the benefit of the factual admissions contained in the settlement agreement. That agreement confirms that Ille had no part in the filing of the bankruptcy petitions. He learned of the decision to place the Debtors in bank ruptcy on the evening of October 10, 1991, the day before the bankruptcy filings. Ille resigned his directorship later that same evening. In the settlement agreement, III admitted knowing of numerous serious underwriting deficiencies on loans approved by the Bank, and that he i if relied on representations by the Bank’s management tha these deficiencies were being addressed instead of hi independently investigating the deficiencies known to him. At most, Ille failed only in his duties to follow the affairs of the Bank more diligently. The OTS, recognizing lile’s minimal participation, dropy ed the charges against him with only a mild punishment: it required Ille to sig: a cease and desist order prohibiting him, in effect, fron his breaching fiduciary duties in the future The terms of Ille’s settlement agreement inforn decision regarding whether Ille acted in good faith and 1 the best interests of the corporation The settlemer agreement confirms that Ille committed no intentior wrongful act. Most importantly, upon realizing that the other Directors had schemed to circumvent the OTS authority by placing the Debtors into bankruptcy, hs immediately resigned from his position as a Bank dir tor. We find that Ille acted in good faith and in the best interests of the Debtors We conclude, however, that Ille innot receive indemnification from Landmark Oklahoma because he was not an agent of that corporation. Ile was not App. 28 member of the boards of directors of Landmark Okla- homa or any of the Bank’s other subsidiaries. He was a director only of the Bank, and as the settlement agree- ment shows, he was not an active participant in the management of either the Bank or the subsidiaries. Ille’s only connection to Landmark Oklahoma is that he was employed by First Life Assurance Company (“First Life”), a subsidiary of Landmark Oklahoma. His employment status, however, does not make him an agent of Land- mark Oklahoma, especially because First Life has no involvement whatsoever in the bankruptcy filings or this litigation. Because Ille was not an agent of Landmark Oklahoma, he would have to seek indemnification from the Bank. Hence, Ille is not entitled to indemnification from Landmark Oklahoma. Although Ille has not sought indemnification from the Bank, we note that, under Louisiana law, Ille would likely be entitled to mandatory indemnification from the Bank.? The Louisiana indemnification statute provides for mandatory indemnification of an agent to the extent that he “has been successful on the merits or otherwise in defense” of the OTS charges. La.Rev.Stat.Ann. § 12:83(B). Ille never received an adjudication on the merits, but courts in other jurisdictions have interpreted similar lan- guage to require indemnification when a settlement agreement demonstrates that the agent succeeded on the merits. See Wisener v. Air Express Int’l Corp., 583 F.2d 579, 583 (2d Cir.1978) (holding, under Illinois law, that the phrase “on the merits or otherwise” is “surely . . . broad ? The Louisiana indemnification statute would apply to the Bank because it was chartered under Louisiana law. a App. 29 enough to cover a termination of claims by agreement without any payment or assumption of liability.”); Wal- tuch v. Conticommodity Servs. Inc., 833 FSupp. 302, 310-11 (S.D.N.Y.1993) (following Wisener in interpreting Delaware law, although ultimately concluding that plain- tiff was not successful on merits); B & B Investment Club v. Kleinert’s, Inc., 472 F.Supp. 787, 790-91 (E.D.Pa.1979) (interpreting Pennsylvania law). But see American Nat’ Bank & Trust Co. of Eau Claire, Wis. v. Schigur, 83 Cal.App.3d 790, 148 Cal.Rptr. 116, 117-18 (1978) (holding, under California law, that mandatory indemnification requires a judicial determination of the merits of the agent’s defense).'° The settlement agreement strongly suggests that Ille successfully defended himself against the OTS charges. Nevertheless, we cannot reach the issue of mandatory indemnification because the Bank is not a 10 The reasoning of the California court in American Nat’l Bank & Trust does not apply to Louisiana law. The mandatory indemnification provision in most states follows the language of the Model Business Corporations Act, which provides for mandatory indemnification of an agent who “has been successful on the merits or otherwise in defense” of any action 1 Model Business Corporations Act Ann 2d § 5; see, e.g., La.Rev.Stat.Ann. § 12:83(B). The California statute, however, does not include the words “or otherwise,” suggesting “a legislative intent that mandatory indemnification should depend upon a judicial determination of the actual merits of the agent’s defense .. ” American Nat’l Bank & Trust, 148 Cal.Rptr. at 118. Therefore, the American Nat’l Bank & Trust court’s interpretation of California law has no bearing on Louisiana law App. 30 defendant and has not had an opportunity to argue against mandatory indemnification." IT] We next consider the district court’s finding that the Employees acted in good faith and in the best interests of the Debtors. The district court found that: There is no evidence before this court that the employees had any reason to believe that their efforts in taking the company into bankruptcy were opposed to the best interests of the corpo- ration. While Cone and Motahari were investi- gated for criminal conduct and the OTS brought administrative charges for breach of fiduciary duty against them, they were never found guilty of any charge. Braun and Trapani were never even named in any administrative or criminal proceeding. They were only questioned con- cerning actions taken in the discharge of their duties of employment. In re Landmark Land Co. of Okla., Civ. Action No 2:91-5286-1, order at 5 (D.S.C. Nov. 9, 1994) (J.A. 2518) (footnote omitted). We find the district court’s reasoning to be somewhat illogical. The Employees had no involve- ment in the Directors’ decision to take the subsidiaries into bankruptcy. The OTS investigated the Employees to 1! We note that Ille has not paid any portion of his defense costs. In his deposition of April 9, 1992, he testified that the Directors’ attorneys represented him in defense of the OTS charges. Because his position was different from the other three Directors, he hired a personal attorney. He never received the bills from this attorney, who was paid by Barton. See J.A. 259-60 App. 31 determine whether, in conducting the business of the Bank, they participated in unsafe and unsound business practices or violated banking laws and regulations. The charges brought against Cone and Motahari focused on their representations to federal regulators that the Debtors owed to the Bank over $950 million in secured debt, when in fact the debt was unsecured. The govern ment has never alleged that any of the Employees partici pated in the decision to place the Debtors into bankrupt¢ y We therefore conclude that the district court’s hold ing that the Employees acted in good faith and in the best interests of the Debtors was clearly erroneous, at least with respect to Cone and Motahari. The OTS alleged that Cone and Motahari engaged in unsafe and unsound busi ness practices by arranging for the Bank to loan over $950 million to its subsidiaries without securing the debt for the Bank. The OTS further alleged that they misrepre sented to federal regulators that the loans were secured Although Cone’s and Motahari’s settlement agreement stated that they continue to dispute the OTS charges against them, they accepted prohibition from practicing in the affairs of any insured depository institution and debarment from practicing before the OTS. In other words, the OTS kicked them out of the profession. Unlik« the district court, which stated that the settlement agree ment should not connote Cone’s and Motahari’s guilt, In re Landmark Land Co. of Okla., Civ. Action No 2:91-5286-1, order at 5 n. 4(D.S.C. Nov. 9, 1994) (J.A. 2518 App 32 n. 4), we conclude that their punishment is strong evi dence that they acted in bad faith.' With respect to Trapani and Braun, we see little evi dence in the record on which to base a “good faith” determination, and therefore conclude that the district court’s finding of good faith was clearly erroneous Nonetheless, Trapani and Braun have a right to manda- tory indemnification because they succeeded on the merits. Like Cone and Motahari, the OTS investigated [Irapani and Braun for possible violations of banking statutes and regulations and for any participation in unsafe or unsound business practices. After this investi- gation, the OTS subpoenaed Trapani and Braun and made them give depositions under circumstances that were clearly adversarial. The OTS never filed any charges against Trapani and Braun. Under these circumstances, we conclude that they succeeded on the merits in their defense and are thus entitled to mandatory indemnifica tion under La.Rev.Stat.Ann. § 12:83(B) We therefore reverse the district court’s granting of the Reimbursement Motion with respect to Cone and Motahari, and we affirm on different grounds the district court's granting of the motion with respect to Trapani ind Braun We note that some of the subsidiaries have already indemnitied Cone and Motahari for a substantial portion of their defense costs. The government represented at oral argument that it sought only prospective relief and that it was not demanding that Cone and Motahari repay the amounts rea 7y recely ed We conclude that the district court erred in finding that Barton, Vaughan, Walser, Cone, and Motahari acted in good faith and in the best interests of the Debtors Furthermore, we find that Ille, although he acted in good faith and in the best interests of the Bank, was not an agent of Landmark Oklahoma and could not receive indemnification from that entity. Therefore, we reverse the district court’s granting of the Reimbursement Motion with respect to those parties We conclude also that Trap ani and Braur succeeded on the merits in their defense and were entitled to mandatory indemnification from their employer, Landmark Louisiana. We therefore affirm, on different grounds, the district court’s granting of the Reimbursement Motion with respect to Trapani and Braun Because of the grounds upon which we base our onclusions, we need not reach the numerous other issue raised by the parties AFFIRMED IN PART AND REVERSED IN PART We note that the appellees nave filed a motion to dism! this appeal Because our decision in this case renders this motion moot, we take no action on the motior App. 34 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF SOUTH CAROLINA CHARLESTON DIVISION IN RE: LANDMARK LAND COMPANY OF OKLAHOMA, INC. an Oklahoma Corporation, Debtor. IN RE: LANDMARK LAND COMPANY OF CAROLINA, INC a Delaware Corporation, Debtor. IN RE: CLOCK TOWER INVEST- MENTS, LTD., a California Corporation, Debtor. IN RE: LANDMARK LAND COMPANY OF CALIFORNIA, INC., a Delaware Corporation, Debtor. IN RE: LANDMARK LAND COMPANY OF LOUISIANA, INC., a Louisiana Corporation, Debtor. IN RE: LANDMARK LAND COMPANY OF FLORIDA, INC., a Delaware Corporation, Debtor. IN RE: CARMEL VALLEY RANCH, a California Corporation, Debtor. ) ) ) ) ) ) _) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CIV. ACTION NO.2:91-5286-1 BANKRUPTCY CASE NO. 91-05815 CIV. ACTION NO.2:91-5287-1 BANKRUPTCY CASE NO. 91-05814 CIV. *CTION NO.2:91-5288-1 BANKRUPTCY CASE NO. 91-05818 CIV. ACTION NO.2:91-5289-1 BANKRUPTCY CASE NO. 91-05819 CIV. ACTION NO.2:91-5290-1 BANKRUPTCY CASE NO. 91-05817 CIV. ACTION NO.2:91-3291-1 BANKRUPTCY CASE NO. 91-05816 CIV ACT. NO 2:92-3548-1 BANKRUPTCY NO. 92-77109 Consolidated for Purposes of Joint Administration Only Under Chapter 11 App. 35 (Filed Nov. 9, 1994) ORDER ON APPLICATIONS AND FEES OF ATTOR- NEYS FOR DEBTOR EMPLOYEES This matter is before the court on the Debtors’ Motion To Reconsider the Court’s May 27, 1994 Order which granted the applications of certain attorneys for payment of fees incurred in the representation of employees of the Debtors. This court severed recon- sideration of these applications from the reconsideration of the portion of the May 27, 1994 Order which related to the indemnification of officers, directors and employees. By Order dated October 5, 1994, this court denied ‘the Debtors request to reconsider the indemnification of the employees, officers and directors. At this time the court reconsiders the applications for nunc pro tunc employ- ment and for payment of fees filed by William R. Camp- bell, Jr., Robert H. Habans, Jr., Herbert V. Larson, Ir. David Popper, and John Wilson Reed and the law firms of Popper & Popper and Glass & Reed. The original Motion for Indemnification of officers and directors was filed in March of 1992 when Gerald Barton was the chief executive officer of the Debtors. In September of 1992, after the indemnification motion had been heard by the court, the Resolution Trust Corporation took over management of the Debtor companies and replaced The Board of Directors. The new Board attempted to withdraw the indemnification motion. How- ever, as the court had already heard the motion, with- drawal was not permitted. Throughout the formation of the Plan of Reorganization the court considered the indemnification motion to be under advisement pending App. 36 resolution by order of the court. On May 27, 1994 the court ruled by granting the motion for indemnification as well as certain related applications. It is these applica- tions that the court now reconsiders. Landmark Land Company of Louisiana, Inc. resolved that the corporation would indemnify certain employees against all expenses, including attorneys fees, actually and reasonably incurred, in connection with a suit of action brought by a third party relating to actions taken in the discharge of their duties of employment.' Speci- fically, these employees were Gina Trapani, D. Scott Cone, Mohamad Motahari, and Gary Braun. Ms. Trapani? was an assistant to officers of the Debtor. Mr. Cone?® was an officer of Debtors. Mr. Motahari and Mr. Braun were employed by the Debtor Landmark Land Company of Louisiana, Inc. These employees clearly incurred expense in defending themselves against charges brought in con- nection with their “doing their jobs.” In addition to the resolution of the Board of Directors to pay the legal expenses of the four individual employees, under applicable law, Debtors’ officers, agents and employees are entitled to indemnification. This indemnification includes the reimbursement of legal fees, if it is determined that the party acted in good faith and in a manner reasonably believed to be in the best ' See the Minutes of the April 21, 1992 Board of Directors Meeting. 2 Ms. Trapini remained an employee of at least one of the Debtor corporations even after the management was replaced in the September of 1992. 3 Mr. Cone is now deceased. App. 37 interest of the corporation. See Cal. Corp. Code, § 317(b) and Cal. Civ. Code § 2802; See also Del. Code Ann. tit. 8, § 145(a); Fla St. § 607.0850; La. Corp. Code, tit. 12, § 83; Tit. 18, Okla. Stat. § 1031; S.C. Code Ann. § 33-8-560. Mr. Barton, the chief executive officer who managed the Debtors until the RTC took over, testified that the members of the Board of Directors who voted on the resolution to pay the legal expenses of the Debtors’ agents did so in an effort to preserve the management that remained in place during the difficult period imme- diately following the filing of the bankruptcy petitions Post-petition corporate stability is vitally important in a case such as this and certainly includes providing employees with the reassurance that the corporate deci- sion to enter the reorganization process will not subject mid-level employees to the cost of protecting themselves in criminal or quasi-criminal investigations into the Debtors’ activities. Further the Debtors obtained the opinions of the law firm of Berman, Blanchard, Mausner & Kindem of Los Angeles California and of the law firm of Mock, Schwabe, Waldo, Elder, Reeves, & Bryant of Oklahoma City, Okla- homa. Both gave the Debtors their opinions that a corpo- ration has an obligation to indemnify its agents and officers. There is a requirement that those agents acted in a manner “reasonably believed to be in or not opposed to the best interests of” the corporation and had no reason- able belief that their conduct was unlawful. There is no evidence before this court that the employees had any reason to believe that their efforts in taking the company into bankruptcy were opposed to the App. 38 best interests of the corporation. While Cone and Motahari were investigated for criminal conduct and the OTS brought administrative charges for breach of fiduci- ary duty against them, they were never found guilty of any charges.* Braun and Trapini were never even named in any administrative or criminal proceeding. They were only questioned concerning actions taken in the discharge of their duties of employment. Robert N. Habans, Jr. and his law firm, Habans, Bologna & Carrier have applied to this court for reimbur- sement for reasonable attorneys fees, cost and expenses incurred in representing Ms. Gina Trapani for the period from March 13, 1992 through September 12, 1992. Mr. John Wilson Reed and the law firm of Glass & Reed have applied to this court for reimbursement for reasonable attorneys fees, costs and expenses incurred in represent- ing Mr. D. Scott Cone for the period from March 9, 1992 to September 12, 1992. Mr. David Popper has applied to this court for reimbursement for reasonable attorneys fees, costs and expenses incurred in representing Mr. Mamal(aka Mohamad) Motahari for the period from Jan- uary 22, 1992 through June 10, 1992. Mr. Herbert V. Lar- son, Jr. has also applied to this court for reimbursement of reasonable attorney fees, costs and expenses incurred in representing Mr. Mohamad Motahari for the period from March 12, 1992 through September 12, 1992. Finally, Mr. William R. Campbell, Jr. has applied to this court for reimbursement for reasonable attorneys fees costs and expenses incurred for representing Mr. Gary Braun for 4 Both consented to certain prohibitions sought by the OTS, however such settlement should not connote guilt. App. 39 the period from March 14, 1992 through September 12, 1992. Mr. Braun filed a Motion on June 29, 1993, seeking court approval nunc pro tunc of his employment of Mr. Campbell as counsel. Upon reconsideration of the applications of Camp- bell, Larson, Habans, Reed and Popper, and consideration of the objections to those applications, the court finds as it did in its May 27, 1994 Order that all are entitled to be paid for the reasonable Fees and Expense incurred in the representation of the named Debtors’ employees. Addi- tionally the court finds that such applications indicated reasonable fees and expenses. Therefore, the court finds that the sums outstanding as described on pages 11 and 12 of the May 27, 1994 Order should be paid by Debtors’ estates on behalf of the named individual employees. Therefore, it is ORDERED that the applications of Messrs. Habans, Campbell, Larson, Popper and Reed, and the law firms of Popper & Popper, and Glass & Reed for the payment of attorneys fees and costs be and hereby are approved. ORDERED FURTHER, the motion of Gary Braun to employee counsel nunc pro tunc be and hereby is granted AND IT IS SO ORDERED. /s/ Falcon B. Hawkins Falcon B. Hawkins, United States District Judge Charleston, South Carolina November 1994 App. 40 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF SOUTH CAROLINA CHARLESTON DIVISION IN RE: LANDMARK LAND) COMPANY OF OKLAHOMA, ) INC. an Oklahoma Corporation, ) Debtor. IN RE: LANDMARK LAND COMPANY OF CAROLINA, INC. a Delaware Corporation, De -btor. IN RE: CLOCK - TOWE R INVEST- MENTS, LTD., a California Corporation, Debtor. IN RE: LANDMARK LAND COMPANY OF CALIFORNIA, INC., a Delaware Corporation, Debtor. IN RE: LANDMARK LAND COMPANY OF LOUISIANA INC., a Louisiana Corporation, ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Debtor. IN RE: LANDMARK LAND) COMPANY OF FLORIDA, INC., ) a Delaware Corporation, ) Debtor. RANCH, a California Corporation, ) ) IN RE: CARMEL VALLEY ) ) ) Debtor. ) ) CIV. ACTION NO.2:91-5286-1 BANKRUPTCY CASE NO. 91-05815 CIV. ACTION NO.2:91-5287-1 BANKRUPTCY CASE NO. 91-05814 CIV. ACTION NO.2:91-5288-1 BANKRUPTCY CASE NO. 91-05818 CIV. ACTION NO.2:91-5289-1 BANKRUPTCY CASE NO. 91-05819 CIV. ACTION NO.2:91-5290-1 BANKRUPTCY CASE NO. 91-05817 CIV. ACTION NO.2:91-3291-1 BANKRUPTCY CASE NO. 91-05816 CIV ACT. NO. 2:92-3548-1 BANKRUPTCY NO. 92-77109 Consolidated for Purposes of Joint Administration Only Under Chapter 11 App 4) ORDER ON ATTORNEYS FEES FOR DEBTOR EMPLOYEES AND DEBTOR OFFICERS AND DIREC’ TORS (Filed May 27, 1994) On March 26, 1992, the Debtors filed a Joint Motion for an order Authorizing Debtors to Reimburse Certain Costs of Defense Incurred By Officers, Directors and Employees in Administrative Proc eedings. Debtors sought to reimburse certain Debtor personnel who were called upon to defend themselves against charges made in connection with the Debtors’ decision to file for Chap- ter 11 protection. Specifically Debtors sought indemni- fication for Gerald G. Barton, Bernard G. Ille, William W Vaughan, II, and Joe W. Walser, Jr. for the period that each were employed by Debtors, but prior to November 21 1991, when the Office of Thrift Supervision amended its charges against the four named individuals. The Resolu tion Trust Corporation (RTC), acting as Conservator for Oak Tree Federal Savings Bank, filed opposition to Debtors’ joint motion Hearing was held on the matter on June 3, 1992. At the conclusion of the hearing the Court ordered that the record remain open so that the parties could make post- hearing submissions of additional evidence and authority for their positions. Pursuant thereto, the Debtors filed additional evidence and authorities on June 8, 1992. The RTC responded to the Debtors’ post-hearing submission by letter to the court, which was filed as a responsive pleading by the Clerk of Court On or about October 13, 1991, the Office of Thrift Supervision filed administrative charges against Messrs App. 42 Barton, Ille, Vaughan, and Walser. Substantially the Notice of Charges stemmed the decision to place the Debtor corporations under the protection of the bank- ruptcy court. The OTS also issued a Temporary Order to Cease and Desist which, in relevant part, required the directors to “take all necessary steps to cause the with- drawal or dismissal of any and all bankruptcy petition (sic) or complaints filed . . . on or since October 9, 1991.” The Notice of Charges against the directors was Amended on November 21, 1991. Evidence was presented of a document entitled AGREEMENT REGARDING CONFIDENTIAL INFORMATION by and between Fed- eral Deposit Insurance Corporation, acting in its own behalf and as a manager of Resolution Trust Corporation and the Office of Thrift Supervision, dated April 29, 1991. The document memorialized the agreement between the two government agencies to exchange information gath- ered from Debtor employees in the bankruptcy and in the OTS administrative proceedings regarding the activities of the Debtors’ officers, directors, and employees. Sometime after the original administrative proceed- ing began, the Office of Thrift Supervision also filed a Notice of Charges against Mr. D. Scott Cone and Mr. Mohamad Motahari. As a result of the new charges, the Debtors filed a supplemental Motion on August 5, 1992, to be appended to their Joint Motion for the reimburse- ment of legal fees to include the payment of fees on behalf of Mr. Motahari and Mr. Cone. Thereafter, the Office of the United States Attorney for the District of Louisiana instituted a federal grand jury investigation into the activities of the officers, direc- tors, and employees of the Debtors. Four Debtor App. 43 employees, Messrs. Cone and Motahari, and Gary Braun and Gina Trapani, were all questioned in relation to the OTS charges and the grand jury investigation. On August 7, 1992, Oak Tree Federal Savings Bank submitted a Motion to Compel Chapter 11 Debtors to Recover Attorneys fees and Expenses wrongfully paid from the Chapter 11 Debtors’ Estates to Certain Individ- uals and Attorneys. Oak Trees submitted to the court, as an exhibit to its motion, a copy of the Minutes of Meeting of the Board of Directors of Landmark Land Company of Louisiana, Inc., dated April 21, 1992, in which the Board resolved that the corporation would indemnify employees Gary Braun, D. Scott Cone, Mohamad Motahari, and Gina Trapani against all expenses, includ- ing attorneys fees, actually and reasonably incurred, in connection with a suit or action brought by a third party relating to actions taken in the discharge of their duties of employment. The Official Landmark Unsecured Credi- tors’ Committee and the Debtors each filed responses. Messrs. Habans, Campbell, Larson, Popper and Reed, and the law firms of Popper & Popper, and Glass & Reed, also filed opposition to Oak Tree’s Motion to Compel. In addition, Robert N. Habans, Jr. and his law firm, Habans, Bologna & Carrier have applied to this court for reimbursement for reasonable attorneys fees, cost [sic] and expenses incurred in representing Ms. Gina Trapani for the period from March 13, 1992 through September 12, 1992. Ms. Trapani! was an assistant to Mr. Scott Cone and 1 Ms. Trapani remained an employee of at least one of the Debtor corporations even after the management was replaced in the September of 1992. App. 44 Mr. Joe Olree, officers of the Debtor. Mr. John Wilson Reed and the law firm of Glass & Reed have applied to this court for reimbursement for reasonable attorneys fees, costs and expenses incurred in representing Mr. D. Scott Cone for the period from Marsh 9, 1992 to Septem- ber 12, 1992. Mr. Cone? was an officer of Debtors. Mr. David Popper has applied to this court for reimburse- ment for reasonable attorneys fees, costs and expenses incurred in representing Mr. Mamal Matahari [sic] for the period from January 22, 1992 through June 10, 1992. Mr. Motahari was employed by the Debtor Landmark Land Company of Louisiana, Inc. Mr. Herbert V. Larson, Jr. has applied to this court for reimbursement of reasonable attorney fees, costs and expenses incurred in representing Mr. Mohamad Motahari for the period from March 12, 1992 through September 12, 1992. Mr. Motahari was employed by the Debtor Landmark Land Company of Louisiana, Inc. Finally, Mr. William R. Campbell, Jr. has applied to this court for reimbursement for reasonable attorneys fees, costs and expenses incurred for represent- ing Mr. Gary Braun for the period from March 14, 1992 through September 12, 1992. Mr. Braun was employed by the Debtor Landmark Land Company of Louisiana, Inc. Mr. Braun filed a Motion on June 29, 1993, seeking court approval nunc pro tunc of his employment of Mr. Camp- bell as counsel. On or about September 12, 1992, the Debtors’ man- agement headed by Mr. Barton, was replaced by a direc- torship elected by the RTC, as conservator for Oak Tree Savings Bank, which then owned a majority of the stock 2 Mr. Cone is now deceased. App 45 in the Debtor companies. The new directorship elected to keep the Debtors in Chapter 11 reorganization proceed- ings in this district court. On or about October 7, 1992, Oak Tree Federal Savings Bank filed a stipulation of withdrawal of its Motion to Compel the Chapter 11 Debtors to Recover Attorneys Fees and Expenses Wrong- fully Paid. Under applicable state law, Debtors’ officers, direc- tors, agents and employees are entitled to indemnifica- tion, including the reimbursement of legal fees, if it is determined that the party acted in good faith and in a manner reasonably believed to be in the best interest of the corporation. See Cal. Corp. Code, § 317(b) and Cal. Civ. Code § 2802; see also Del. Code Ann. tit. 8, § 145(a); Fla. St. § 607.0850; La. Corp. Code, tit. 12, § 83; tit. 18, Okla. State § 1031; S.C. Code Ann. § 33-8-560. In addition to the resolution of the Board of Directors Landmark of Louisiana to pay the legal expenses of four individual employees, the Board of Directors of Clock Tower Place Investments, Ltd., authorized the indemnification of Mr. Barton and Mr. Vaughan for expenses incurred in the defense of their action taken on behalf of the corporation. Also, the Board of Directors of Landmark Land Company of Oklahoma, Inc., voted to indemnify Mr. Walser and Mr. [lle for attorneys fees, costs and expenses incurred in defense of their actions taken on behalf of the Debtor corporation Further the Debtors obtained the opinions of the law firm of Berman, Blanchard, Mausner & Kindem of Los Angeles, California and of the law firm of Mock, Schwabe, Waldo, Elder, Reeves, & Bryant of Oklahoma App. 46 City, Oklahoma, which both gave the Debtors their opin- ions as to the a [sic] corporation’s right or obligation to indemnify its agents and officers. An Oklahoma corporation shall have the power to indemnify any person who was or is a party . to any threatened, pending or completed action .. . whether civil, criminal, administrative or investigative . . . by reason of the fact that he is Or was a director, officer ... or agent. . . or is or was serving at the request of the corporation as a director. .. . an agent or employee . against expenses incurred . . . in connection with such action . . . if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corpora- tion .. . and had no reasonable cause to believe his conduct was unlawful. 18 Okla. Stat. § 1301A (1991).3 The legal fees paid on behalf of Barton, Ille, Walser and Vaughan, prior to the OTS amendment of the charges, are reportedly as follows: Law Firm Date of Bill Fees Expenses Jones, Day, 10/91 124,155.00 1,485.40 Reavis & Pogue 11/1-20/91 40,697.50 10,943.95 McGlinchey, 10/91 28,380.00 2,799.01 Stafford, 11/1-20/91 26,390.00 2,803.65 Cellini & Lang Lawrence & 10/91 780.00 46 Ellis 11/91-12/91 1,872.50 7.53 3 The California Code states substantially the same view that a corporation may indemnify an agent of the corporation, including an agent who is serving at the request of the corporation. Cal. Corp. Code § 317{(a). App. 47 Mr. Ille was the President and Chief Executive Officer of a subsidiary of the Debtor Landmark Land Company of Oklahoma, Inc. at the time the Debtors filed for bank- ruptcy protection. The charges brought against Mr. Ille by the OTS are undoubtedly the result of his association with the Debtors and for actions he took at the request of the Debtors. If Mr. Ille acted in good faith and not in a manner opposed to the best interests of the Debtors, at the behest of the Debtors, he is entitled to indemnifica- tion by the Debtors’ estates, for the cost of defending himself for those actions he took on behalf of the Debtor corporations. Mr. Barton, Mr. Vaughan and Mr. Walser were all officers or directors of one or more of the Debtor com- panies at the time of the bankruptcy filings and thereafter when called upon to defend themselves as to actions taken on behalf of the Debtors. Although, much has been made of the fact that Mr. Walser ultimately decided to resign his position with the Debtors voluntarily, Mr. Wal- ser is as entitled to indemnification for his actions just as any other officer or agent of the Debtor. Oklahoma statutory law further states that if a direc- tor or agent of a corporation is successful in the defense of any action under § 1301A, § 1301C requires that the corporation indemnify him for his expenses. Further- more, the fact that an action is terminated by “judgment, order, settlement, conviction, or upon a plea of nolo con- tendere of its equivalent creates no presumption that a person did not act in good faith or in a manner reason- ably believed to be in the best interest of the corporation. Further still, the right to indemnification and advance- ment of expenses continues as to a person who has App. 48 ceased to be a director officer, or agent, and shall also inure to the benefit of the heirs, executors, and adminis- trators of such a person. 18 Okla. Stat. § 1301) (1991). However, in order to advance expenses the corporation must require a written undertaking on behalf of the indemnitee that if it is determined that advancement of expenses was improper that the corporation will be re- paid. The Debtor, Clock Tower Place Investments, is a Cali- fornia corporation. The Board of Clock Tower voted to indemnify Vaughan and Barton. Under the California Labor Code § 2802, an employer is required to indemnify his employee for costs expended by the employee which are directly the consequence of the discharge of his duties or his obedience to the directions of his employer, so long as the employee did not believe at the time of his perfor- mance that his actions were unlawful. Clock Tower sought legal counsel on the issue of indemnification and it was determined that a failure by Clock Tower to agree to indemnify its employees for costs incurred and those to be incurred, as required by California labor law, could subject Clock Tower to a suit for damages for breach of a duty to indemnify. Testimony secured at the hearing shows that Mr. Gerald Barton has paid the legal fees in question on behalf of himself and the three others who were named in the original OTS charges. Mr. Barton also testified that if he were reimbursed by the Debtors for the legal fees incurred for defending himself and the three other indi- viduals, and later it was determined that the actions of those parties in filing for Chapter 11 protection was not taken in good faith on behalf of the Debtors, Mr. Barton App. 49 would re-pay the Debtors’ estates for the monies reim- bursed to him for his legal fees. The evidence presented at the hearing indicated that the three other individuals, for whom Barton paid their legal fees, do not have ade- quate resources to re-pay the Debtors’ estates: but later the Debtors’ supplemental motion papers included state- ments indicating that all were willing to repay the Debtors’ estate if it were determined that they had not acted in good faith on behalf of the Debtors. Mr. Barton further testified that the members of the Board of Directors who voted on the resolution to pay the legal expenses of the Debtors’ agents did so to preserve the management that remained in place during the diffi- cult period immediately following the filing of the bank- ruptcy petitions. Post-petition corporate stability certainly includes providing employees with the reas- surance employees that the corporate decision to enter the reorganization process will not subject mid-level employees to the cost of protecting themselves in crimi- nal or quasi-criminal investigations into the Debtors’ activities. The evidence further shows that costs were advanced to certain individuals on the advice of counsel. Upon consideration of the applications of Campbell, Larson, Habans, Reed and Popper, the court finds that all are entitled to be paid for the reasonable Fees and Expenses incurred in the representation of the named Debtors’ employees, as indicated in their applications, to wit: A pp 50 Applicant Fees Expenses William Campbell 1,612.50 2.81 Herbert Larson 5,077.00 1,728.50 Robert Habans 7,677.00 208.06 David Popper 51,850.00 5397.81 lohn W. Reed 35,550.00 2,391.23 Furthermore, the court finds that certain Fees and expenses have been paid and further that there are sums outstanding and yet to be paid by Debtors’ estates on behalf of the named individual employees, as follows Fees and Applicant E xpenses Incurred Fees Paid Due a = = . Campbell 1,615.31 1,440.31 175.00 Larson 36,805.50 jess $370.0 36,528 .394 -92 89 Habans 7 885.06 7,000.00 RRS 06 Popper 57,247.81 48,113.00 9,134.81 Reed 42,341.23 29,411.50 12,929.73 The court further finds that the Debtors’ estates must indemnify those officers, directors, and agents of the Debtors for the costs of defending themselves for actions taken in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Debtors 4 Mr Larson attests that there was a credit on Mr Motahari’s bil] in the amount of $370.00. If Mr. Larson’s other figures as to “fees and expenses incurred” and “fees paid” are correct, then with a $370.00 credit, Mr. Larson was over paid in the amount of $92.89 seg alpaca ice oe = eS eee ee ae eee rere App. 91 in placing the Debtors in bankruptcy. Further, this court finds that the evidence demonstrates that the officers and directors of the Debtor companies sought the protectior of the bankruptcy court in good faith. Further this court finds that the Debtors’ new management ratified the de: sion to reorganize under the protection of the bankrupt court, demonstrating that the placement of the Debtor into bankruptcy is reasonably viewed as being in the best interest of the Debtors Accordingly, IT IS ORDERED THAT Debtors’ Joint Motion for ar order Authorizing Debtors to Reimburse Certain Costs of Defense Incurred By Officers, Directors and Employes r Administrative Proceedings be and hereby is granted IT IS FURTHER ORDERED THAT the applications of Messrs. Habans, Campbell, Larson, Popper and Kead and the law firms of Popper & Popper, and Blass & Kee for the payment of attorneys fees and costs be and heret are approved IT IS FURTHER ORDERED THAT the motion otf ¢ | Bruan [sic] to employ counsel nunc pro tur Ot hereby is granted IT IS ORDERED THAT Debtors’ estates shali pay costs reasonably incurred by Mohamad Motahari, Gir Trapani, D. Scott Cone, and Gary Braun in any criminal, or investigative proceeding or from any thre. ened or actual charges which are the result of taken as employees in the discharge of their duties or the direction of one of the Debtor companies App. 52 [T IS FURTHER ORDERED THAT the Debtors’ estates shall indemnify Gerald G. Barton, Bernard G. Ille, William W. Vaughan, II, and Joe W. Walser, Jr., for all expenses reasonably incurred by them in the defense of any civil, criminal or administrative charge or other pro- ceeding stemming from their actions as officers, directors and agents of the Debtor companies taken in good faith with the reasonable belief that such actions were not opposed to the best interests of the Debtor companies. IT IS SO ORDERED. /s/ Falcon B. Hawkins Falcon B. Hawkins, United States District Judge Charleston, South Carolina ee ee et ee App 53 FILED: April 15, 1996 UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 94-2475(L) CA-91-5287-2-1 In Re: LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, a Delaware Corporation, et al Debtors LANDMARK LAND COMPANY OF CAROLINA, INCOR- PORATED, d/b/a West Beach Tennis Ranch, d/b/a West Beach Tennis Parking, d/b/a Turtle Point, d/b/a Town Center, d/b/a Osprey Point Golf Course, d/b/a Kiawah Island Beach Resorts, d/b/a Kiawah Island Villa Rental, d/b/a Kiawah Inn, Night Heron Park, d/b/a Marsh Point Golf Course, d/b/a Links Golf Course, d/b/a Conference Center, d/b/a East Beach Tennis Center, d/b/a Dune & Lagoon Lodges, d/b/a Club Conference Center, a Dela- ware Corporation, et al. Debtor - Appellants, RESOLUTION TRUST CORPORATION, a receiver (for- merly conservator) for Oak Tree Federal Savings Bank Creditor - Appellant, versus D. SCOTT CONE; JOHN WILSON REED Respondents - Appellees, App. 54 WILLIAM CAMPBELL, JR.; et al., Claimants - Appellees, MCNAIR & SANFORD, P.A.; JONES, DAY, REAVIS & POGUE; MCGLINCHEY, STAFFORD, & LANG, Parties in Interest - Appellees, HOTEL OF PALM SPRINGS; et al., Creditors, ANDREW M. MASCIARELLA,; et al., Claimants, LANDMARK COMMUNITIES COMMITTEE, INCORPORATED, Intervenor - Plaintiff, PGA WEST RESIDENTIAL ASSOCIATION, INCORPORATED); et al., Respondents, US TRUSTEE, Trustee. ORDER Appellees, Gerald G. Barton, William W. Vaughan, II, and Joe W. Walser filed a motion for reconsideration of the court’s denial of the petition for rehearing with the suggestion for rehearing en banc. The Court denies the motion for reconsideration App 55 Entered at the direction of Judge Russell with the concurrence of Judge Michael and Judge Niemeyer For the Court, s/ Bert M Montague Clerk App. 56 UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT FILED April 2, 1996 No. 94-2475 BK-92-77109 CA-92-3548-2-1 BK-91-5818 CA-91-3288-2- CA-91-5288-2- BK-91-5819 CA-91-3289- CA-91-5829-2- BK-91-5817 CA-91-3290-2- CA-91-5290-2- BK-91-5816 CA-91-3291-2- CA-91-5291-2- BK-91-5815 CA-91-3286-2- CA-91-5386-2- BK-91-5814 CA-91-3287-2-1 CA-91-5287-2-1 In Re: LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, a Delaware Corporation LANDMARK LAND COMPANY OF FLORIDA, INCOR- PORATED, a Delaware Corporation LANDMARK LAND COMPANY OF OKLAHOMA, INCORPORATED, an Oklahoma Corporation LANDMARK LAND COMPANY OF CALIFORNIA, INCORPORATED, a Delaware Corporation LANDMARK LAND COMPANY OF LOUISIANA, INCORPORATED, a Louisiana Corporation NM RO Nm bh ™ Nn Nm NO Nm NO Nm hN POD AE AM Ys 4 ; f 3 { $ 4 4 3 App. 57 CARMEL VALLEY RANCH, a California Corporation CLOCK TOWER PLACE INVESTMENTS, LIMITED, a California Corporation Debtors LANDMARK LAND COMPANY OF CAROLINA, INCORPORATED, d/b/a West Beach Tennis Club, d/b/a West Beach Tennis Parking, d/b/a Turtle Point, d/b/a fown Center, d/b/a Osprey Point Golf Course, d/b/a Kiawah Island Resorts, d/b/a Kiawah Island Villa Rental, d/b/a Kiawah Inn, d/b/a Night Heron Park, d/b/a Marsh Point Golf Course, d/b/a Links Golf Course, d/b/a Conference Center, d/b/a East Beach Tennis Cen- ter, d/b/a Dune & Lagoon Lodges, d/b/a Club Confer- ence Center, a Delaware Corporation; LANDMARK LAND COMPANY OF OKLAHOMA, INCORPORATED, d/b/a Oak Tree Golf Club, d/b/a Oak [ree Properties, d/b/a Caston Lumber Company, a/k/a Oakridge Manor, d/b/a Oak Tree Communications, d/b/ a Oak Tree Country Club, d/b/a Oak Tree Development, d/b/a Oklahoma Business Investments, Incorporated, d/b/a Oak Tree Estates, d/b/a The Waterford Hotel, d/b/a Redlands, an Oklahoma Corporation; LANDMARK LAND COMPANY OF FLORIDA, INCOR- PORATED, d/b/a Palm Beach Polo and Country Club, a Delaware Corporation; : LANDMARK LAND COMPANY OF LOUISIANA, INCORPORATED, d/b/a Oak Tree Realty, d/b/a Oak Harbor Yacht and Country Club, d/b/a Oak Harbor (for- merly Eden Isles), d/b/a Landmark Realty, d/b/a Land- mark Real Estate, d/b/a Landmark Homes, d/b/a Landmark Asset Management Group, d/b/a LML Real Estate Company, d/b/a Belle Terre Golf and Country Club, a Louisiana Corporation; App. 58 LANDMARK LAND COMPANY OF CALIFORNIA, INCORPORATED, d/b/a Mission Hills Resort Condo- miniums, d/b/a Thermal Nursery, d/b/a Stanford Oaks, d/b/a Sanders Real Estate Company, d/b/a Recreational Resort Marketing Venture, Limited, d/b/a PGA West, d/b/a Oak Valley Country Club, d/b/a Oak Valley, d/b/ a Oak Tree Hotels, Incorporated, d/b/a Oak Summit, d/b/a National Car Rental Agency, d/b/a Moreno Valley Ranch Golf Club, d/b/a Moreno Valley Ranch, d/b/a Moreno Valley Auto Mall, d/b/a Mission Hills Tennis Club, d/b/a Mission Hills Resort Golf Club, d/b/a Mis- sion Hills Resort Condominiums, d/b/a Mission Hills Real Estate, d/b/a Mission Hills Real Estate Company, d/b/a Mission Hills Golf Club, d/b/a Mission Hills Gen- eral and Administrative Committee, d/b/a Mission Hills Country Club, d/b/a Mission Hills Corporation, d/b/a Mission Hills Company, d/b/a Landmark Special Events, d/b/a Landmark Real Estate Company, d/b/a Landmark Productions, d/b/a Landmark Mortgage Company, d/b/ a Landmark Land Golf Company, d/b/a Landmark Event Management, d/b/a Landmark Communications, Incor- porated, d/b/a La Quinta National Golf Club, d/b/a La Quinta Leasing, d/b/a La Quinta Hotel Tennis Club, d/b/a La Quinta Hotel Real Estate Company, d/b/a La Quinta Hotel Golf Club, d/b/a La Quinta Hotel Golf and Tennis Resort, d/b/a La Quinta Hotel, d/b/a La Quinta Golf Academy, d/b/a La Quinta Cove, d/b/a La Quinta Air Services, d/b/a LML Real Estate Company, Incorpo- rated, d/b/a LML Mission Hills Corporation, d/b/a LML Construction Co., d/b/a Greenspot, d/b/a Foster Turf Products, d/b/a FTP Wholesale Growers, d/b/a FIP/ Bergen Nurseries, d/b/a Dixie Mortgage Company, d/b/ a Carmel Valley Ranch Real Estate Company, d/b/a Bergen Nursery, d/b/a Acorn Purchasing, a Delaware Corporation; CLOCK TOWER PLACE INVESTMENTS, LIMITED, a California Corporation; wR ae oe, eS a ee ee ee ee eee eee) ee wees tee a re ea ee ee ee ee es eR ET Cee. + App. 59 CARMEL VALLEY RANCH, a/k/a Carmel Valley Ranch Tennis Club, a/k/a Carmel Valley Ranch Resort, a/k/a Carmel Valley Ranch, Incorporated, a California Corpora- tion; Debtor - Appellants RESOLUTION TRUST CORPORATION, a receiver (for- merly conservator) for Oak Tree Federal Savings Bank Creditor - Appellant y D. SCOTT CONE, JOHN WILSON REED, Respondents - Appellees BERNARD G. ILLE, DAVID POPPER, GARY BRAUN, GERALD G. BARTON, GINA TRAPANI, HERBERT V LARSON, JR., JOE W. WALSER, JR., LAW FIRM OF POP- PER & POPPER, LAW FIRM OF GLASS & REED, MOHAMAD MOTAHARI, ROBERT H. HABANS, WIL- LIAM W. VAUGHAN, III, WILLIAM CAMPBELL, JR., Claimants - Appellees IONES, DAY, REAVIS & POGUE, MCGLINCHEY, STAFFORD & LANG, MCNAIR & SANFORD, P.A., Parties in Interest - Appellees ALPHA NURSERY, INCORPORATED, ARVIDA/JMB PARTNERS, BART BOREN, BERNARDO GOUTHIER, BORAL RESOURCES, INCORPORATED, C. M. HUB BARD & SONS, CECIL ROTH FARMS, COASTAL INSTI TUTIONAL DISTRIBUTORS, CRI, INCORPORATED, E MCGRATH APPAREL COMPANY, ERNIE ZIELINSKI FARMS, FARM CREDIT SERVICES OF SOUTHERN CAL- IFORNIA, FLORIDA ROWING CENTERS, INCORPO RATED, GLEN ROTH FARMS, GLEN ZIELINSKI FARMS, GORDON WHEELER GALLERY, HAYWORTH FARMS, App. 60 INCORPORATED, HIGH TECH IRRIGATION, INCOR- PORATED, HOTEL OF PALM SPRINGS, IMAGE NET- WORK, INCORPORATED, ITT ADMINISTRATORS, J. J. KREBS & SONS, INCORPORATED, LAIDLAW WASTE SYSTEMS, INCORPORATED, LOUIS L. KOKKELER, M&D MCKAY FARMS, INCORPORATED, MATT ROTH, MIKE THOMPSON, MULLEN FARMS, an Oregon Part- nership, PALM BEACH POLO AND COUNTRY CLUB PROPERTY OWNERS’ ASSOCIATION, INCORPO- RATED, PAN AMERICAN LIFE INSURANCE COM- PANY, PGA WEST, POHLSCHNEIDER FARMS, INCORPORATED, PRICE WATERHOUSE, PRUDENTIAL INSURANCE COMPANY OF AMERICA, PRUDENTIAL INSURANCE COMPANY, INCORPORATED, QUAIL VALLEY MANAGEMENT, INCORPORATED, QUINN, EMANUEL & URQUHART, SOUTHERN FARM BUREAU, SUNRISE COMPANY, SUSAN VINEYARD, UNSECURED CREDITORS COMMITTEE, Creditors. 88314 ONTARIO LIMITED, 52ND STREET FARM MAR- KETS, A&B BUILDING MAINTENANCE, A. BYRON PERKINS, A. C. HOUSTON LUMBER COMPANY, A.C. NEWMAN & COMPANY INSURANCE, A. C. PUMP SERVICE, INCORPORATED, A. D. FRESHOUR, A. J. AMENDOLA, A. LINC LANCET, A. N. SPENCER, A. WALLY SANDACK, A-1 FIRE EQUIPMENT, A-ALADIN TRAVEL, A-Z OFFICE SUPPLY, AAA RENTALS, INCOR- PORATED, AABACO INDUSTRIES, INCORPORATED, AAR/NEWAY UNIFORM SUPPLY, AB & ASSOCIATES, ABACUS TEMPORARY SERVICES, INCORPORATED, ABLE LAWNMOWER SALES AND SERVICE, ABOUT TRAVEL, INCORPORATED, ABSOLUTE CLEANING COMPANY, ACCENT LANDSCAPING & PAVING, ACE ALTERNATORS, INCORPORATED, ACE HARDWARE, ee ee ee er) 6 ~ al GARI Sy iestraiae a Sella i Oe es CN i cli ed as sl, ee ene App 61 #2786F, ACE PRINTING COMPANY, ACKERLEY AIR- PORT ADVERTISING, ACME DISPLAY FIXTURE COM- PANY, INCORPORATED, ACME RESTAURANT SUPPLY, ADAM J. MICHAEL, ADOHR FARMS, INCORPORATED, ADRIAN GOLDSTEIN, ADRIAN MARSDEN, ADVANCED AMENITIES, ADVANCED TELECOMMU- NICATIONS CORPORATION, ADVANCED TELE- PHONE TECHNOLOGY, ADVANCED DRAINAGE SYSTEMS, INCORPORATED, ADVANTA LEASING CORPORATION, AIRBORNE FREIGHT CORPORATION, AJAX OF LOUISIANA, AJF LEASING, INCORPORATED, a division of AJF Warehouse Distributors, Incorporated, AL PACKER FORD WEST, ALAN C. FURTH, ALAN C. NEWMAN, ALAN D. HIURA, DDS, ALAN H. LAZARUS, ALAN G. DAVIS/AGD INVESTMENTS COR- PORATION, ALAN G. GRAY, ALAN G. PEDERSEN, ALAN H. BEYER, ALANNAH SINCLAIRE, ALBERT G. SIMPSON, JR., ALBERT J. STODDART, ALBERT LEGIT- TINO, ALBERT R. SIMON, ALDO J. TEST, ALEX N. CAMPBELL, ALEX SHERMAN, dba A&S Coffee Services, ALFRED A. LEVIN, ALFRED SHAIN, ALL YOUR NEEDS MET, ALL CLEAR WINDOW CLEANING, INCORPO- RATED, ALLEN H. OGLANDER, ALLEN O. HUFF, ALLEN FREIDSON, ALLEN MERCHANT, ALLEN NEW- TON, M.D., ALLEN T. BROWN, ALLEN W. SHARPE, ALLIE MAE, ALMAR CHEMICAL COMPANY, INCOR- PORATED, ALOE UP PALMS, ALTA DENA CERTIFIED DIARY, INCORPORATED, ALTERMAN STUDIOS, INCORPORATED, ALVIN H. BLAINE, ALVIN L. RUSSO, ALVIN S. MORROW, M.D., ALYS M. BACHLER, AMBAS- SADOR FACTORS DIVISION OF FLEET FACTORS COR- PORATION, AMERICA’S CHOICE COMPANY, AMERICAN COASTAL DEVELOPMENT CORPORA- TION, AMERICAN LINEN SUPPLY COMPANY, AMERI- CAN HOTEL REGISTER COMPANY, AMERICAN EXPRESS TRAVEL RELATED, AMERICAN LUMBER & SUPPLY, ANDERSEN & ASSOCIATES, ANDERSON App. 62 ARMORED CAR SERVICE, INCORPORATED, ANDREW C. SMITH, ANDREW INGRAM, ANDREW J. FENADY, ANDREW KRISTO, ANDREW L. ANDERSON, ANDREW M. MASCIARELLA, ANDREW P. LOMBARD, ANDREW ROSSI, ANDY ZEHNDER, ANGELICA UNIFORM GROUP, ANHEUSER-BUSCH COMPANIES, ANITA FEL- LER, dba Anita’s, ANITA VORHEES JACKSON, ANNABELLE SAFRAN, ANNANDALE GOLF CLUB, ANNENBERG CENTER AT EISENHOWER, ANNELY M. KLINGENSMITH, ANTHONY G. QUADROS, ANTHONY J. CARR,. ANTHONY J. MARTINO, ANTHONY J. PORCELLO; ANTIGUA SPORTSWEAR, INCORPORATED, APPLAUSE, INCORPORATED, APPLIED TECHNOLOGY & MANAGEMENT, INCOR- PORATED, APPLIED SOIL MECHANICS, INCORPO- RATED, AQUA-SERV ENGINEERS, INCORPORATED, ARA SERVICES MAGAZINE & BOOK DIVISION, ARETA B. MCKENZIE TRUST, ARIZONA MANUFAC- TURING & EMBROIDERY, ARMIN F. STEINER, ARREST A PEST, ARROW LANDSCAPES & MAINTENANCE, INCORPORATED, ART & LETTER SERVICE, ARTESIA IMPLEMENT, ARTHUR B. HORTON, ARTHUR C. LIN- NEMEYER, ARTHUR C. SCHULER, ARTHUR E. BRANDT, ARTHUR E. NELSON, ARTHUR L. JACOB- SON, ARTHUR MAGISTER, ASAP ICE, ASHELY D. HOFFMAN, ASHLAND CHEMICAL, INCORPORATED, ASIAN AMERICAN PARTNERS, ASSIST COMPUTER CONSULTANTS, ASSOCIATED UNIFORM RENTAL & LINEN SUPPLY, INCORPORATED ASSUMPTION PAR- ISH, AT ONCE TEMPORARY SERVICES, AT&T, ATKIN- SON POOL COMPANY, INCORPORATED, ATLANTIC SERVICES, INCORPORATED, ATLAS COATING COM- PANY, INCORPORATED, AUBREY DEVINE, AUREUS LIMITED, AVID SPORTSWEAR, INCORPORATED B&C TURF PRODUCTS, INCORPORATED, B&C SEA- FOOD, INCORPORATED, B&M MAPS, B. D. CHAMAS, B. J. BUCHANAN, B. RENEE HAMEL, BAKER AUDIO, App. 63 INCORPORATED, BANCBOSTON FINANCIAL COM- PANY, BANCROFT-WHITNEY LAW PUBLISHERS, BANKSOUTH, N.A., BANNING ACE HARDWARE 5826S, BARBARA EDEN, BARBARA MARCHITELLI, BARBARA ROGERS, BARNEY J. BELLELI, BARRY M. TAYLOR, BARRY PRESSMAN, BARRY W. GENDEL- MAN, M.D., BASE DISTRIBUTORS, INCORPORATED, BAUER TIRE INCORPORATED, dba Goodyear Tire Cen- ter, BAUSCH & LOMB INCORPORATED, BAYLAUREL CORPORATION, a California corporation, BAYSHORE PUBLISHING GROUP, INCORPORATED, BEACH- COMBERS, INCORPORATED, BEAUMONT SAFE & LOCK, BEAUMONT TIRE & MUFFLER SERVICE, INCORPORATED, BELLE POINT DRAINAGE DISTRICT, #1, BELLERIVE COUNTRY CLUB, BELLSOUTH ADVER- TISING & PUBLISHING COMPANY, BELLSOUTH COM- MUNICATION SYSTEMS, INCORPORATED, BEN PON, BEN HOGAN COMPANY, BEN HARRIS, BEN E. KEITH FOOD COMPANY OF OKLAHOMA, BEN ARNOLD COMPANY, INCORPORATED, BEN F. NIEMAN, BEN RASKIN, BENTLEY PRITSKER, BENTON’S PAINT, INCORPORATED, BERIT FALGE, BERKELEY ELECTRIC COOPERATIVE, INCORPORATED, BERKLEY DAVID DESIGNS, BERLE MANUFACTURING COMPANY, BER- MUDA DUNES COUNTRY CLUB, BERNARD A. SCHLI- FKE, BERNARD DICKENS, BERNARD E. MCKUNE, BERNARD P. KIRKPATRICK, BERNICE BUSH-POPE, BERNIE’S CUSTOM CLEANING, INCORPORATED, BERT FULLER, BETSY B. BENNETT, BETTIE GRESHAM YODER, fka Bettie Gresham Glover, BETTY BELDEN PALMER, BEVERLY ANN RILEY, BEVERLY E. HAM- ILTON, BEVERLY F. DAROCZY, Trustee, BIG “A” AUTO PARTS, INCORPORATED, BIG CANYON COUNTRY CLUB, BIGGERS BROTHERS, INCORPORATED, BILL D. CATES, BILL D. SAXON, BILL HAWKS, BILL MORRIS, BILL SIMPKINS, dba Re’Al Sportswear, BILL SLIFER, BILL STUBBS, BILLY G. FIELDER, BILLY R. AUSTIN, App. 64 BILLYE R. AUSTIN, BILLY’S PINESTRAW, BIOTECH PRODUCTS, INCORPORATED, BJARNE QVALE, BLACKIE SERVICES, BLANCHARD MACHINERY COM- PANY, BLP MOBILE PLANT - LA PLACE, BLUE FLAME GAS COMPANY, INCORPORATED OF CHARLESTON, BMI SYSTEMS CORPORATION, BOAST, INCORPO- RATED, BOB G. ALEXANDER, BOB MANFRE, BOBBIE PRECKWINKLE, BOBBY M. CLARK, BOBBY PEULAUD, BOBWHITE SPECIALISTS, INCORPORATED, BOCA TIRES, INCORPORATED, BOHEMIAN DISTRIBUTING COMPANY, BOHICKET YACHT CHARTERS, BOMARC PAPER & PACKAGING INCORPORATED, BOOSE, CASEY, CIFLIN, LUBITZ, MARTIS, MCBANE & O’CON- NELL, BORDELON & HILL, BOSTON TRADING LIM- ITED, INCORPORATED, BOUCHEREAU OIL COMPANY, BOURG SIGNS, BOYD L. JEFFERIES, BOYN- TON PUMP & IRRIGATION SUPPLY, BRADFORD A. CARL, BRADFORD KING KROHA, BRADLEY HEATING & AIR CONDITIONING, INCORPORATED, BRADLEY K. PENCE, BRAUN/A-1 LINEN SERVICE, BRENT S. ENRIGHT, BRIAN MILLEMAN, BRIAN O. SHANNON, BRIAN W. HOLMES, BRIGMAN FOODS, INCORPO- RATED, BRITISH OPEN FOR J&F, BROWNIE’S BLUE- PRINT COMPANY, INCORPORATED, BROWNING FERRIS INDUSTRIES, BRUCE A. KAPLAN, BRUCE C. ANDERSON, BRUCE C. RICHARDS, BRUCE D. GRAY, BRUCE G. SCHWARTZ, BRUCE GALVANEK, BRUCE J. HOESMAN, BRUCE L. DOW, BRUCE M. GALLAHER, BRUCE R. BAUMANN, BRUCE ROLLICH, BRUCE ROTHMAN, BRUCE S. CRAMPTON, BRUCE W. FRANK- LIN, BRUNO A. GIORDANO, BRUNO BURKLIN PHOTO, BRYAN R. GERSTEL, BRYANT FINANCIAL CORPORATION, BUCKHEAD BEEF COMPANY, INCOR- PORATED, BUD D. KLEIN, BUILDERS SQUARE, BUR- BERRY/BIDERMANN INDUSTRIES, BURBERRYS WHOLESALE LIMITED, BUSH BROTHERS PROVISION COMPANY, BUSINESS BASICS, BUTLER BOX & STAKE, App. 65 INCORPORATED, BUTLER NATIONAL GOLF CLUB, BUTLER PAPER COMPANY, BUTTERFLY FLOWER SHOP, BYRON RONALD MILLER C&H DESIGNS, C&S FURNITURE RENTALS, C&S SOVRAN COMMERCIAL CORPORATION, fka C&S Commercial Corporation, C. ANNETTE HARVEY, C. COURTNEY WOOD, C. DWAINE CARVER, C. E. SIN- GLETON, C. KENNETH SUGLER, C. MARVIN MAY, C. R. BROWN, C. W. SPANGLE, CABLE & CONNECTOR WAREHOUSE, INCORPORATED, CACTUS COVE SEA- [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386002_1342%3A1. Public record. Not legal advice.