In re Hamilton Bank (of Atlanta) Securities Litigation

OPINION AND ORDER

PER CURIAM.

This litigation consists of three actions pending in two federal districts — two in the Northern District of Georgia and one in the Eastern District of Tennessee. The principal actors in this litigation are Hamilton National Bank of Chattanooga (Chattanooga bank); Hamilton Factors, a company engaged in the business of establishing pools of accounts, notes and obligations of other persons and selling participations in those pools; Hamilton Mortgage Corporation; Hamilton Bancshares, a bank holding corporation which allegedly owned the stock of the above entities (collectively referred to as the Hamilton family of institutions); officers and directors of the above entities; the accountants for Hamilton Bancshares; Hamilton Bank and Trust Co. (Atlanta bank); William L. and Camille S. Gunter, individual investors in the Atlanta bank; and the Federal Deposit Insurance Corporation (FDIC), in its capacities as receiver and liquidator for the Chattanooga bank and as successor in interest to the Atlanta bank. The members of the Hamilton family of institutions are presently in bankruptcy proceedings, and are therefore not named as defendants in any of the actions before the Panel. Eighteen individuals are each named as defendants in all three actions, nineteen individuals are each named as defendants in two of the three actions, and several other individuals are named as defendants in only one action.

One of the Georgia actions was filed by the Atlanta bank under the federal securities laws, Georgia securities laws and principles of common law fraud against certain officers and directors of Hamilton Factors and Hamilton Bancshares. The Atlanta bank states that it purchased certain loan participations from Hamilton Factors in September 1974 and May 1975. In each instance, the Atlanta bank alleges, it was a passive investor in the loan pool and, in making the decision to invest, relied on prospectuses and oral communications concerning the operation of the loan pool and the quality and security of the loans in the loan pool. Subsequently, the Atlanta bank alleges, it discovered that those prospectuses and oral communications contained material misrepresentations and that therefore it had been fraudulently induced to invest in the loan pool. The Atlanta bank seeks rescission of the purchase of the loan participations, or, in the alternative, damages of $700,000.

The other Georgia action (Gunter) was filed by William and Camille Gunter under, inter alia, the federal securities laws, Georgia securities laws and principles of common law fraud against certain officers and directors of the Chattanooga bank and Hamilton Bancshares. The Gunters state that on December 30, 1974, they were induced by the defendants to purchase 302,-373 shares of common stock in the Atlanta bank for a total of $5.5 million. In payment for the stock, the Gunters allege that they executed notes payable to the Chattanooga bank in the amounts of $2.5 million and $3 million. The Gunters allege that in making their decision to invest they relied on the representations of the defendants concerning, among other factors, the financial condition of the Atlanta bank and the soundness of certain loan participations which the Atlanta bank had acquired from Hamilton Factors. Plaintiffs allege that subsequent investigation has revealed that the representations made to induce them to invest were fraudulent; that the Atlanta bank has since failed; and that they have suffered substantial damages. The Gunters seek to rescind the purchase contract, or alternatively, they seek damages from the defendants. The complaint in the Gunter action has been amended to add the FDIC as a defendant.

The Tennessee action was filed by the trustee in bankruptcy for Hamilton Bancshares under, inter alia, the federal securities laws and principles of negligence and breach of fiduciary duties. Defendants are officers and directors of Hamilton Bancshares, Hamilton Mortgage Corp. and the Chattanooga bank; and the accountants for Hamilton Bancshares. The action is brought by the trustee for the benefit of the creditors and stockholders of those three Hamilton entities. Plaintiff alleges that mismanagement of the three Hamilton entities by the officers and directors and failure by the accountants to ascertain and report accurately the financial condition of those entities resulted in the failure of the Hamilton family of institutions. Plaintiff seeks damages in the amount of $150 million, the alleged losses of the creditors and stockholders.

Pursuant to 28 U.S.C. § 1407(c)(i) and Rule 8, R.P.J.P.M.L., 65 F.R.D. 253, 258-59 (1975), the Panel issued an order to show cause why these three actions should not be transferred to a single district for coordinated or consolidated pretrial proceedings.¹ All responding parties except the trustee for Hamilton Bancshares oppose transfer.

Although we recognize the existence of some common questions of fact among these actions, we find that transfer under Section 1407 would not necessarily serve the convenience of the parties and witnesses or promote the just and efficient conduct of these actions. Accordingly, the order to show cause is vacated.

The trustee stresses that there is an overlap among the defendants in these three actions; that certain areas of factual inquiry concerning the activities of those defendants and others in connection with the failure of the Hamilton family of institutions, and the alleged misrepresentations by those defendants and others concerning the financial condition of the Hamilton family of institutions, will be common to these actions; and that transfer of these actions to a single district pursuant to Section 1407 is therefore appropriate.

We disagree. Only three actions in two districts are involved here. Viewing the record before us in the light most favorable to the advocate of transfer, we realize that these three actions may share some questions of fact regarding the operation of Hamilton Factor’s loan pools and some of the allegedly intertwined activities of the Hamilton entities. The Tennessee action, however, is much broader in scope than the Georgia actions. The complaint in the Tennessee action alleges general mismanagement of several Hamilton entities. In contrast, the complaints in the two Georgia actions focus on alleged misrepresentations concerning specific transactions involving fewer of those entities. In any event, we are simply not persuaded at the present time that the common factual questions that may be present are complex enough to justify transfer under Section 1407. See In re Scotch Whiskey, 299 F.Supp. 543, 544 (Judicial Panel Multidistrict Litigation 1969). Our decision is made without prejudice to the right of any party to move for transfer at a later date if it believes future circumstances so require.

IT IS THEREFORE ORDERED that the order to show cause regarding the actions listed on the following Schedule A be, and the same hereby is, VACATED, without prejudice to the right of any party to move for transfer under Section 1407 at a later date if it believes future circumstances so require.

Schedule A MDL-288

Northern District of Georgia

The Hamilton Bank & Trust Co. v. T. Wendell Holliday, et al.

Civil Action No. C76-1558A

William L. Gunter, et ux. v. Theodore M. Hutcheson, et al.

Civil Action No. C76-1702A

Eastern District of Tennessee

Kyle R. Weems, Trustee v. N. Roundtree Youmans, et al.

Civil Action No. 1-77-30

1 . One party suggests that, in the event transfer is ordered in this litigation, the Panel also transfer a fourth action — Batchelor, et al. v. Hamilton Bancshares, Inc., et al., W.D. Tennessee, Civil Action No. C-75-511. Since we are denying transfer in this litigation, that request is moot.