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FINANCIAL GEN. BANKSHARES v. METZGER

UNITED STATES DISTRICT COURT, DISTRICT OF COLUMBIA


July 31, 1981

FINANCIAL GENERAL BANKSHARES, INC., Plaintiff,
v.
Eugene J. METZGER, Defendant

The opinion of the court was delivered by: GASCH

MEMORANDUM

On November 19, 20, and 21, 1980, trial was held on allegations that defendant Eugene J. Metzger breached fiduciary and ethical obligations owed to plaintiff Financial General Bankshares, Inc. (FG). Plaintiff charges that while serving as counsel to FG, Metzger engaged in several undisclosed attempts to seize or sell control of his client corporation. Plaintiff seeks $ 80,000 in compensatory damages, the amount alleged to have been paid for Metzger's legal services. FG also seeks punitive damages. The pertinent allegations are set forth in the fourth and fifth causes of action in plaintiff's May 19, 1980 supplemental amended complaint.

 I. HISTORY OF LITIGATION.

 Plaintiff began this action on February 17, 1978 with a complaint and a motion for a preliminary injunction. The complaint set forth six causes of action based on the Securities Exchange Act of 1934 (1934 Act) (Counts I, II, and III), the Virginia Take-over Bid Disclosure Act (Count VI), and common law (Counts IV and V). In addition to Metzger, the complaint named as defendants Bert Lance; the Bank of Credit and Commerce International (BCCI); *fn1" Agha Hasan Abedi (Abedi), the president of BCCI; and Stephens, Inc. and its president, Jackson Stephens (collectively, the Stephens defendants). *fn2" Five Middle Eastern investors alleged to be clients of BCCI were named as defendants by amended complaint filed March 21, 1978. *fn3" These are Sheikh Kamal Adham (Adham); Faisal Saud Al-Fulaij (Al-Fulaij); His Royal Highness Sheikh Sultan Bin Zaid Al-Nahyan (Sultan); Abdullah Darwaish (Darwaish), in his individual and representative capacities; and His Royal Highness Sheikh Mohammed Bin Zaid Al-Nahyan (Mohammed), a minor. Plaintiff charged, in essence, that defendants had formed a secret group in 1977 to acquire control of FG and by January of 1978 had purchased approximately twenty percent of FG's outstanding common shares, without filing the disclosure statements required by federal and state law.

 On April 27, 1978, the Court granted plaintiff's motion for a preliminary injunction, finding that FG had shown a likelihood of prevailing on its claim that the defendants had violated section 13(d) of the 1934 Act, 15 U.S.C. ยง 78m(d) (Count I). The five Middle Eastern investors and Stephens, Lance, Metzger, Abedi, and BCCI were enjoined from acquiring any further interest in or proxies for FG common stock until they offered rescission to the shareholders from whom they had purchased FG stock on the open market during December of 1977 and January of 1978. The Court dismissed plaintiff's causes of action arising under sections 14(d) and (e) and 10(b) of the 1934 Act (Counts II and III) and the Virginia Take-Over-Bid Disclosure Act (Count VI). See Financial General Bankshares, Inc. v. Lance, (1978 Transfer Binder)Fed.Sec.L.Rep. (CCH) P 96,403 (D.D.C. Apr. 27, 1978).

 Plaintiff filed a supplemental amended complaint on May 19, 1980, naming six additional defendants. *fn4" Two months later, all defendants remaining in the case, except Metzger, settled with FG and were dismissed by stipulation and order. *fn5"

 On August 2, 1980, the Court entered summary judgment for Metzger on causes of action based on section 13(d) of the 1934 Act. The Court retained pendent jurisdiction over allegations of breach of fiduciary and ethical duties, the fourth and fifth causes of action in the supplemental amended complaint.

 Thus, by the time of trial Metzger was the sole remaining defendant. At trial plaintiff sought to prove that from June of 1977 through January of 1978, while acting as counsel for FG, Metzger secretly (1) plotted to seize control of FG with other large shareholders; (2) attempted to generate interest in a plan to sell FG to a foreign bank at an enormous personal profit; (3) acted as agent for a group of Middle Eastern investors seeking to acquire a controlling share of FG stock; and (4) used a list of FG shareholders to identify and contact large shareholders potentially willing to sell to the Middle Eastern investors.

 At the conclusion of trial the Court directed counsel for both parties to submit proposed findings of fact and conclusions of law. These have been received as directed.

 II. EVIDENTIARY RECORD.

 The evidentiary record derives from four general sources: pretrial stipulations entered November 17, 1980 (Pretrial Stips. PP 1-71); testimony heard *fn6" and depositions read at trial; *fn7" and the parties' exhibits. *fn8" Based on this evidence and in accordance with rule 52(a) of the Federal Rules of Civil Procedure, the Court makes the following findings of fact and conclusions of law:

 III. FINDINGS OF FACT.

 A. Parties.

 1. Plaintiff is Financial General Bankshares, Inc., a federally chartered bank holding company incorporated in Virginia with its principal place of business in Washington, D.C. Pretrial Stip. P 1. FG has twelve subsidiary banks engaged in commercial banking in Maryland, Virginia, New York, Tennessee, and the District of Columbia. Plaintiff's Exh. 56, at 39-47. *fn9"

 2. Defendant is Eugene J. Metzger, an attorney in the law firm of Metzger, Shadyac & Schwarz (and its predecessor firms) in Washington, D.C. Metzger is a member of the Bar of the District of Columbia. Pretrial Stip. P 2.

 B. Representation of Middendorf Investors.

 3. Metzger's first association with FG was early in 1976 as attorney for a group of investors headed by J. William Middendorf, II.

 4. In March of 1977, Middendorf hired Metzger to represent 28 investors in connection with the proposed acquisition of a block of FG common stock. Pretrial Stip. P 27. *fn10" Middendorf had never met Metzger, but two members of his investment group had recommended Metzger as a good bank attorney on matters involving the Securities and Exchange Commission (SEC) and the Federal Reserve Board. Tr. Vol. I, at 10-11, 151. *fn11"

 5. The Middendorf investment group sought to purchase the FG common stock owned of record by International Bank (IB), FG's largest and controlling shareholder since 1958. Pretrial Stip. PP 3, 27; Defendant's Exh. RR, at 14-16. In March of 1977, IB owned of record 1,204,231 shares, a 22.2% interest. Plaintiff's Exh. 1, at 1. *fn12" IB sought to sell the stock to moot proceedings pending against it by the Federal Reserve Board. Defendant's Exh. RR, at 2. *fn13"

 6. As attorney for the Middendorf group, Metzger prepared all legal documents pertaining to the proposed acquisition. Tr. Vol. I, at 11-13. He suggested that Middendorf obtain proxies from major shareholders and the new investors, drafted a proposed proxy form, contacted new and existing shareholders, and had the proxies signed. Tr. Vol. I, at 13, 153-56; Tr. Vol. III, at 114. *fn14" Metzger prepared and filed with the SEC a Schedule 13D relating to Middendorf's acquisition of control of FG. Tr. Vol. I, at 14-15; Defendant's Exh. XX. He also appeared with certain of the new investors called to testify at Federal Reserve Board hearings on the IB stock purchase. Tr. Vol. I, at 104-06.

  7. The stock acquisition took place on April 29, 1977. The Middendorf investors purchased all of IB's 1,204,231 shares of FG common stock owned of record at a purchase price of $ 12.50 per share. Plaintiff's Exh. 1, at 1. 8. No member of the Middendorf group bought as much as a 5% interest. The major purchasers were: Name Shares Percentage of Vote Stephens, Inc. 268,400 4.9% (held beneficially for Jackson Stephens) J.G.P., Ltd. 240,000 4.4% (held beneficially for Jorge G. Pereira) Eugene J. Metzger 87,991 1.6% Thomas G. Wyman 80,000 1.5% Armand Hammer 80,000 1.5% Cape & Co. 80,000 1.5% (held beneficially for NCNB Corporation)

19810731

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