State ex rel. Hettel v. Security Nat. Bank & Trust Co. in Duncan

State ex rel. Hettel v. Security Nat. Bank & Trust Co. in Duncan
1996 OK 53
922 P.2d 600
67 OBJ 1324
Case Number: 82003
Decided: 04/16/1996
Supreme Court of Oklahoma

STATE of Oklahoma ex rel. G.E. HETTEL, Appellant,
v.
SECURITY NATIONAL BANK & TRUST COMPANY IN DUNCAN, a national banking corporation et al., Appellees.

Certiorari to the Court of Appeals Division I.

¶0 On July 6, 1981, the Board of County Commissioners of Grady County, Oklahoma, authorized an election relating to the proposed issuance of general obligation limited tax bonds to provide $3,700,000.00 to secure and develop industry in Grady County. In 1986, the Commissioners issued a bond for $3,500,000.00 to assist Carl-Built, a local steel manufacturing plant, in expanding its facilities. The bond was purchased by the Chickasha Bank. Subsequently, Carl-Built defaulted on the bond. The appellant, G.E. Hettel, a resident taxpayer of Grady County, Oklahoma, filed a qui tam action pursuant to 62 O.S. 1991 §§ 372 and 373 against [922 P.2d 602] Carl-Built's successor Landman Oil & Gas Company, the Chickasha Bank, and four other banks which had acquired portions of loans from the Chickasha Bank through loan participation agreements. Hettel alleged that the proceeds of the 1986 bond issue were fraudulently and unlawfully used to pay Carl-Built's antecedent debt which was owed to the Chickasha Bank and which was unrelated to the purpose of the bond issue. The banks and Landman moved for summary judgment. The trial judge, Honorable Peter Clinton Moore, granted summary judgment to the participating banks and Landman. It denied Chickasha Bank's motion for summary judgment. The Court of Appeals affirmed. We find that the evidentiary materials do not totally eliminate certain implicit fact issues.

CERTIORARI PREVIOUSLY GRANTED; COURT OF APPEALS OPINION VACATED; TRIAL COURT REVERSED.

Phillip W. Redwine, Terry Guy Shipley, and Henry W. Kappel, Norman, for Appellant, State of Oklahoma ex rel. G.E. Hettel.

Robert Todd Goolsby, Oklahoma City, for Board of County Commissioners of Grady County and Rosalee Nath, County Treasurer of Grady County, State of Oklahoma.

Wayne Dabney Chickasha, for Chickasha Bank & Trust Company.

Andrew M. Coats, Oklahoma City, T.M. Weaver and Henry Bonney, Duncan, for Appellee, Security National Bank & Trust Co. in Duncan.

John N. Hermes and Sheryl Barr, Oklahoma City, for Appellees, First National Bank & Trust of Holdenville and Cement Bank.

Robert S. Payne and Stuart A. Knarr, Oklahoma City, for Appellee, Bank of Verden.

Phil W. Gordon, Chickasha, for Appellee, Landman Oil and Gas, Inc.

KAUGER, Vice Chief Justice:

¶1 The issue presented on certiorari is whether the trial court erred in granting summary judgment because the evidentiary materials do not eliminate certain implicit fact issues concerning the legality of the bond issue and the disbursement of the bond proceeds. We find that it did.

FACTS

¶2 This cause concerns a qui tam action

¶3 On July 6, 1981, the Board of County Commissioners of Grady County (Commissioners) authorized an election relating to the proposed issuance of general obligation limited tax bonds to provide $3,700,000.00 to secure and develop industry in Grady County, Oklahoma. An election was held on August 11, 1981, and the proposition was approved by the voters.

¶4 The next year, the Chickasha Bank began a lending relationship with Carl Greene, Jr. (Greene) and with the companies he owned and operated in Chickasha, Oklahoma - Carl-Built, Inc. (Carl-Built), Chickasha Trailer Parts, Inc., Chickasha Superior Coach, and Landman Oil & Gas, Inc. (Landman). Carl-Built manufactured steel products which were used as parts for school bus bodies and Landman engaged in oil and gas development. From the onset of his relationship with the Chickasha Bank and through [922 P.2d 603] September of 1986, Greene and his companies incurred a large amount of debt to the bank through various loans and credit extensions (collectively, the Greene loans). These loans were cross-collateralized so that the bank owned interests in all of Greene's business entities. By mid-1986, Chickasha Bank held over $2,800,000.00 in notes and guaranties from Greene and his companies.

¶5 In 1984, Greene submitted a proposal to the Grady County Industrial Authority (Authority) alleging that with the assistance of a $1,750,000.00 financing package, he could expand his steel manufacturing business to assemble school buses, thereby increasing employment in Grady County. In 1986, Greene approached the Authority about securing $4,000,000.00 in order to convert and expand his Carl-Built manufacturing plant to assemble school buses. On October 3, 1986, the Authority approved Greene's proposed expansion, and it obtained a $1,000,000.00 commitment for supplemental financing from the Oklahoma Industrial Finance Authority. It also recommended to the Grady County Commissioners that they issue bonds for $3,500,000.00 to assist Carl-Built in its proposed expansion.

¶6 On October 22, 1986, the Commissioners resolved to issue $3,500,000.00 of the $3,700,000.00 in general obligation bonds which had been approved in 1981. The Attorney General of the State of Oklahoma endorsed the bonds on November 26, 1986.

¶7 The participating banks had acquired portions of the Greene loans from the Chickasha Bank through loan participation agreements throughout Greene's relationship with Chickasha Bank.

¶8 Carl-Built defaulted on its 1986 note to Grady County. The New Bus Company, a Delaware partnership bought Carl-Built in 1988, and assumed its obligations, including those under the 1986 note. It also defaulted, and the County was faced with the possibility of levying additional property taxes on its residents to cover the principal and interest on the bonds. In June of 1989, the Commissioners and the Chickasha Bank commenced a foreclosure suit against Greene and his companies. Shortly after the foreclosure suit, Carl-Built merged with Landman.

[922 P.2d 604]¶9 On December 29, 1989, Hettel filed a qui tam action pursuant to 62 O.S. 1991 §§ 372 and 373,

¶10 Hettel sought to rescind the bond issue and the banks moved for summary judgment, arguing that pursuant to 62 O.S. 1991 § 13 the bond's validity was no longer contestable.

¶11 On April 30, 1991, in State of Oklahoma, ex rel. G.E. Hettel v. Winchester, No. 77,129, we again assumed original jurisdiction and issued an order which recognized that the only relief precluded by our December 4, 1990, order was the challenge of the bond's validity. The trial judge was allowed to proceed and adjudicate all other matters raised by the parties and their pleadings. The banks and Landman moved for summary judgment, and on June 28, 1993, the trial court, giving no basis for its ruling, denied Chickasha Bank's motion for summary judgment, but granted summary judgment in favor of the four participating banks and Landman.

[922 P.2d 605] ¶12 Subsequently, the trial court stayed Hettel's qui tam action against the Chickasha Bank pending the appeal of its summary judgment order. The Court of Appeals in an unpublished opinion affirmed the trial court. It found that: 1) Hettel failed to present any evidence that any of the participating banks had any knowledge concerning the legality of the bond issue and the subsequent disbursement of its proceeds; and 2) because Hettel failed to plead a new claim for relief against Landman after our disposition of Chickasha Bank & Trust Co. v. Winchester, No. 76,306, Landman should not remain a party to the cause. We granted certiorari on January 29, 1996, to determine whether the trial court erred in granting summary judgment.

THE EVIDENTIARY MATERIALS DO NOT TOTALLY ELIMINATE CERTAIN IMPLICIT FACT ISSUES

¶13 We note at the outset that this cause presents unusual circumstances because neither the Chickasha Bank, the bank which originated all of Greene's loans, nor its president, Lindell Pettigrew are parties here. The trial court denied their motions for summary judgment, and they have not appealed the trial court's order. Nor has their liability under 62 O.S. 1991 §§ 372 and 373 been determined because the trial court stayed Hettel's claims against them pending the present appeal.

¶14 The gravamen of Hettel's qui tam action is not that the stated purpose of the bond issue - securing and developing industry - was illegal. Rather, he claims that the proceeds of the bond were used to retire private, otherwise unrecoverable unrelated antecedent debt incurred by Greene and his affiliates; and that this use was contrary to the bond issue approved by the voters of Grady County to secure and develop industry.

a.

The Participating Banks

¶15 Hettel asserts that the trial court erred in granting summary judgment to the participating banks because material fact questions exist concerning whether each bank had knowledge that the bond proceeds would be used for a fraudulent and unlawful purpose. 10 The participating banks contend that there are no disputed fact issues existing which could support a finding which would establish qui tam liability for any allegedly fraudulent or unlawful bond issue.

¶16 Title 62 O.S. 1991 §§ 372 and 373 provides the authority for qui tam liability. 11 [922 P.2d 606] Section 372 authorizes a triple penalty against state or municipal officers and "every person, having notice of the facts" who either makes a contract with the county or receives a benefit involving the improper payment of money or the improper transfer of property. Section 373 allows resident taxpayers to bring an action to recover the § 372 penalty, or to recover any money expended by the county if the appropriate officer fails or refuses to bring the action after demand by ten taxpayers. The taxpayer bringing the action is entitled under § 373 to one half of the amount recovered as a reward. 12

¶17 The qui tam statutes, like any penal statutes, are strictly construed.

"In an action for the penalty imposed by section 5964, O.S. 1931 (62 Okl.St.Ann. § 372), against one not an officer of the municipality, the burden is on the plaintiff to show that the party receiving the money had notice that the contract under which it was paid, or the payment itself, was unlawful, fraudulent, or void."

The contracts involved here are: 1) the agreement between the Authority and Carl Built to issue the bonds; 2) the bond sale contract between Grady County and the Chickasha Bank; and 3) the 1986 note and related mortgage and security interest.

¶18 Pursuant to Rule 13, 12 O.S. 1991, Ch. 2 App., Rules for the District Courts, a motion for summary judgment may be filed if the pleadings, depositions, interrogatories, affidavits and other exhibits reflect that there is no substantial controversy pertaining to any material fact.

¶19 Hettel presented evidentiary material which alleges that: 1) each of the participating banks had a history of participating in the Greene loans prior to the bond issue; 2) bank officers of Security bank were aware of the financial condition of Greene and his businesses prior to and at the time the bond money was loaned to Carl-Built; 3) Greene's financial ability to pay the Chickasha Bank was questionable, and all of his businesses were cross-collateralized; 4) in addition to being the Chairman of the Grady County Industrial Authority and the president of the Chickasha Bank, Lindell Pettigrew was also the president of the Cement Bank;

¶20 Considering the various circumstantial evidence Hettel presents and the intimate relationships between the banks, we cannot say that it is perfectly clear that these evidentiary materials totally eliminate fact issues concerning the participating banks' access to knowledge of the lawfulness of the bond issue and whether the public was defrauded.

b.

Landman

¶21 Landman argues that summary judgment was proper because although Hettel's original petition sought to cancel and rescind the bonds and all related contract documents, after this Court's order on December 4, 1990, he abandoned his claim for rescission. Hettel has neither asserted any subsequent claim for damages nor any other relief against Landman, and the pretrial conference order does not reflect that damages have been asserted against Landman. Hettel also alleges that the trial court erred when it granted summary judgment in favor of Landman because he was not required to amend his pleadings in order to recover damages from Landman in pursuit of its qui tam claim.

[922 P.2d 608] ¶22 In Hettel's third amended petition, he specifically abandoned any claims for contract recision.

"`[W]e consider them because when a party raises a claim in material filed in opposition to a motion for summary judgment, the district court should treat the filing as a request to amend the pleading. . . .'"

¶23 The rules of pleading both at trial and at appellate levels have been liberalized to allow the court to focus its attention on the [922 P.2d 609] substantive merits of a dispute rather than upon procedural niceties.

CONCLUSION

¶24 Summary judgment is proper only when the pleadings, affidavits, depositions, admissions, or other evidentiary materials establish that there is no genuine issue as to any material fact, and that the moving party is entitled to a judgment as a matter of law.

¶25 CERTIORARI PREVIOUSLY GRANTED; COURT OF APPEALS OPINION VACATED; TRIAL COURT REVERSED.

¶26 ALMA WILSON, C.J., LAVENDER and OPALA, JJ., and JOHNSON S.J., concur.

¶27 HARGRAVE, SUMMERS and WATT, JJ., concur in part, dissent in part.

¶28 SIMMS, J., dissents.

¶29 JOHNSON, S.J., in lieu of HODGES, J., who disqualified.

Footnotes:

1 A qui tam action is a civil action brought on behalf of a public body under a statute which establishes a penalty for the commission or omission of a certain act, with part of the recovery going to the one bringing the action on behalf of the public body, and the rest going to the public body. State ex rel. Trimble v. City of Moore, 818 P.2d 889, 891 (Okla. 1991).

2 Title 62 O.S. 1991 §§ 372 and 373, see note 11, infra.

3 See, Title 62 O.S. 1991 § 11 which provides that the Attorney General is the state's ex officio Bond Commissioner.

4 A loan participation is a shared loan. One bank, usually referred to as the lead bank divides a large loan into shares and then offers them for sale to other participating banks. The relationship among the lead and participants is governed by the terms of the participation agreement or certificate. Armstrong, "The Developing Law of Participation Agreements," 23 Bus.Law. 689 (1968). See also, Ledwidge, "Loan Participations Among Commercial Banks," 51 Tennessee Law Review 519 (1984); Hutchins, "What Exactly is a Loan Participation?" 9 Rutgers Camden Law Journal 447 (1978).

5 Title 62 O.S. 1991 §§ 372 and 373, see note 11, infra.

6 Hettel through various amendments to his petition asserts claims for injunctive relief, the imposition of a constructive trust on the funds which were paid to the banks, a continuing conspiracy by the banks, security fraud under state and federal law, as well as recovery of the qui tam penalty.

7 Hettel asserts that the bonds were issued in violation of the Okla. const., art. 10 §§ 14, 17, 19 and 35. The Okla. const. art. 10, § 14 provides in pertinent part: 8.

"Taxes shall be levied and collected by general laws, and
for public purposes only . . .

The Okla. Const. art. 10, § 17 provides in pertinent part:

"The Legislature shall not authorize any county
or subdivision thereof, city town, or incorporated
district, to become a stockholder in any
company, association, or corporation, or to
obtain or appropriate money for, or levy any
tax for, or to loan its credit to any corporation,
association, or individual."

The Okla. const. art. 10, § 19 provides in pertinent part:

"Every act enacted by the Legislature, and
every ordinance and resolution passed by any
county, city, town, or municipal board or local
legislative body, levying a tax shall specify distinctly
the purpose for which said tax is levied,
and no tax levied and collected for one purpose
shall ever be devoted to another purpose."

The Okla. const. art. 10, § 35 provides in pertinent part:

"(a) Any incorporated town and any county
may issue, by and with the consent of the
majority of the registered voters of said municipality
or county voting on the question at an
election held for the purpose, bonds in sums
provided by such majority at such election for
the purpose of securing and developing industry
within or near the said municipality or
county holding the election. . . ."

8 Title 62 O.S. 1991 § 13 provides:

 
". . . It shall be the duty of the Bond commissioner
to prepare uniform forms and prescribe
a method of procedure under the laws of the
state in all cases where it is desired to issue
public securities or bonds, in any county,
township, municipality or political or other
subdivisions thereof of the State of Oklahoma;
and it shall be the further duty of said Bond
commissioner to examine into and pass upon
any security so issued and such security, when
declared by the certificate of said Bond commissioner
to be issued in accordance with the
forms of procedure so provided shall be incontestable
in any court in the State of Oklahoma
unless suit thereon shall be brought in a court
having jurisdiction of the same within thirty
(30) days from the date of the approval thereof
by the Bond Commissioner."

9 The banks argue that the bond issue was for a legitimate public purpose like the sales tax which was levied in Burkhardt v. City of Enid, 771 P.2d 608, 611 (Okla. 1989) to purchase a private university. However, Burkhardt is not dispositive because Hettel's claims include allegations that the public was defrauded by the Chickasha Bank and its president because the proceeds of the bond were used for purposes contrary to the bond issue. Because Hettel's claims against the Chickasha Bank and Pettigrew have not proceeded past summary judgment, their liability has not been determined. Clearly, at least reasonable inferences can be drawn from Hettel's evidentiary material that the public was defrauded and that the use of the bond proceeds was unlawful. Similarly, reasonable inferences can be drawn that the participating banks had the requisite knowledge to establish qui tam liability.

10 Hettel also asserts that the participating banks are liable under an agency relationship with the Chickasha Bank through the participation agreements. However, because we find that summary judgment was improper, independent of any agency status of the participating banks, we need not address this issue.

11 Title 62 O.S. 1991 § 372 provides in pertinent part:

"Every officer of the state and of any county
. . . who shall hereafter order or direct the
payment of any money or transfer of any property
belonging to the state or to such county
. . . in settlement of any claim known to such
officers to be fraudulent or void, or in pursuance
of any unauthorized, unlawful or fraudulent
contract or agreement made or attempted
to be made, for the state or any such county
. . . by any officer thereof, and every person,
having notice of the facts, with whom such
unauthorized, unlawful or fraudulent contract
shall have been made, or to whom, or for
whose benefit such money shall be paid or
such transfer of property shall be made, shall
be jointly and severally liable in damage to all
innocent persons in any manner injured thereby,
and shall be furthermore jointly and severally
liable to the state [or] county for triple the
amount of all such sums of the money so paid,
and triple the value of property so transferred,
as a penalty, to be recovered at the suit of the
proper officers of the state or such county . . .
or of any resident taxpayer thereof, as hereinafter
provided."

Title 62 O.S. 1991 § 373 provides in pertinent part:

"Upon the refusal, failure, or neglect of the
proper officers of the state or of any county . . .
after written demand made upon them by ten
resident taxpayers of the state or such county
. . . to institute or diligently prosecute proper
proceedings at law or in equity for the recovery
of any money or property belonging to the
state, or such county . . . paid out or transferred
by any officer thereof in pursuance of
any unauthorized, unlawful, fraudulent, or
void contract made, or attempted to be made,
by any of its officers for the state or any such
county . . . or for the penalty provided in the
preceding section, [372] any resident taxpayer
of the state or such county . . . affected by such
payment or transfer after serving the notice
aforesaid and after giving security for cost,
may in the name of the State of Oklahoma as
plaintiff, institute and maintain any proper action
which the proper officers of the State [or]
county . . . might institute and maintain for the
recovery of such property, or for said penalty;
and such municipality shall in such event be
made defendant, and one-half the amount of
money and one-half the value of the property
recovered in any action maintained at the expense
of a resident taxpayer under this section,
shall be paid to such resident taxpayer as a
reward. "

References to §§ 372 and 373 are to their current versions. Prior to 1982, § 372 provided for double, rather than triple damages. Section 373 has remained unchanged since 1955.

12 State ex rel. Schones v. Town of Canute, 858 P.2d 436, 439 (Okla. 1993); State ex rel. Trimble v. City of Moore, see note 1 at 894, supra; State ex rel. Remy v. City of Norman, 642 P.2d 219, 223 (Okla. 1981).

13 State ex rel. Twist v. Bailey, 295 P.2d 763, 764 (Okla. 1956); State ex rel. Woods v. Elk City, 178 Okla. 521, 62 P.2d 1203, 1204 (Okla. 1937).

14 Roach v. Atlas Life Ins. Co., 769 P.2d 158, 163 (Okla. 1989); Rule 13, 12 O.S. 1991, Ch. 2 App., Rules for the District Courts, provides in pertinent part:

"a. A party may move for judgment in his
favor on the ground that the depositions, admissions
in the pleadings, stipulations, answers
to interrogatories and to requests for admissions,
affidavits, and exhibits on file . . . show
that there is no substantial controversy as to
any material fact . . .
b. If the adverse party . . . wish[es] to oppose
the granting of the motion, they shall serve on
the moving party and file . . . a concise written
statement of the material facts as to which he
or they contend a genuine issue exists . . . The
adverse party shall attach to the statement
affidavits and other material containing facts
that would be admissible in evidence . . . "

15 Carris v. John R. Thomas & Assoc., 896 P.2d 522, 530 (Okla. 1995); Roach v. Atlas Life Ins. Co., see note 14, supra.

16 Ross v. City of Shawnee, 683 P.2d 535, 536 (Okla. 1984).

17 Erwin v. Frazier, 786 P.2d 61, 62-63 (Okla 1989); Flanders v. Crane Co., 693 P.2d 602, 605 (Okla. 1984).

18 A corporation is generally charged with knowledge which its officer or agent receives or acquires while acting in the course of employment regardless of whether the officer or agent in fact communicates such knowledge to the corporation. Operators Royalty & Producing Co. v. Greene, 173 Okla. 388, 49 P.2d 499, 502 (Okla. 1935). see also, F.D.I.C v. Ernst & Young, 967 F.2d 166, 170 (5th Cir. 1992) (Recognizing that under Texas law, a bank officer's knowledge is imputable to the bank unless the officer acts with an interest adverse to the bank and that whether an employee's fraud is attributable to a corporation depends on whether the fraud was on behalf of the corporation or against it.).

19 Burdens of proof may be met at summary judgment by circumstantial evidence. Indiana National Bank v. State Dept. of Human Services, 857 P.2d 53, 60 (Okla. 1993); Manora v. Watts Regulator Co., 784 P.2d 1056, 1058 (Okla. 1989). Hettel's evidentiary material includes the opinion of an expert witness regarding what the participating banks either knew or should have known. The banks contend that the expert opinion may not be relied upon to determine whether summary judgment was proper. However, we need not address this issue nor the banks motion to strike alleged misstatements by Hettel in his brief in chief because the other evidence presented by Hettel presents a material fact question.

20 Hettel argues that pursuant to 15 O.S. 1991 § 233 (B) no amendment to his pleadings was necessary. Title 15 O.S. 1991 § 233 (B) provides:

"In an action, counter claim, cross claim or
plea in intervention based on the theory of
rescission of a contract, the court shall adjust
the equities between the parties, and although
the action is tried to a jury, the court may
require the party to whom relief based on
rescission is granted to make that compensation
to the other party which may be required.
If the court determines that the relief to which
the party may be entitled, whether or not such
relief is sought in the pleadings."

This statute applies to actions in which recision of a contract is sought. It allows the trial court to grant damages or any other relief the plaintiff may be entitled to, regardless of whether the relief is sought in the pleadings. However, § 233(B) is inapplicable here. In Hettel's third amended petition, he specifically abandoned any claims he made for contract recision.

21 Hettel's third amended petition provides in pertinent part:

". . . Pursuant to the Order of the Oklahoma
Supreme Court entered December 4, 1990,
Plaintiff herein withdraws his request for an
Order of the Court canceling and holding null
and void the general obligation bonds subject
of this action, which said request is made in
paragraph 30a (page 13) and paragraph 2
(page 15) of Plaintiff s original Petition . . ."

22 Hettel's response for summary judgment provides at p. 23:

"H. Plaintiff admits that it originally brought
Landman into this suit for purposes of rescission
and sought no actual damages from this
defunct corporation. Because of the order of
the Supreme Court declaring Plaintiff may not
recover the remedy of recession of the bonds.
which remedy would have forced the rescission
of the underlying contracts, Landman is
correct in its position that Plaintiff cannot recover
a judgment of rescission against it.
Landman is incorrect, however, when it proposes
that no damages may be awarded
against it because damages were not requested
in Plaintiff's prayer for relief. The evidence
submitted and referred herein clearly shows
Landman had knowledge of all the unconstitutional
and fraudulent acts, and received benefit
therefrom. Damages may be awarded. 15