Only a handful of lawsuits that erupted from the upheaval at One Bank & Trust continue to wind through the court system.
The cases represent a mix of civil and criminal action put in motion after federal regulators and investigators began shaking up the Little Rock lender more than five years ago.
From a financial standpoint, the case that carries the most potential consequence for the $325 million-asset bank was filed late last year by billionaire Johnelle Hunt.
After landing a $14.7 million default judgment against One Bank’s parent company in September, Hunt’s BHL Financing LLC sued the bank.
The action represents a second lawsuit to collect on financial guarantees made by One Bank’s former owner, Layton “Scooter” Stuart, who died in March 2013.
The guarantees are tied to an October 2002 reworking of $30 million of debt amassed by Stuart in business dealings with Hunt’s husband, J.B. Hunt, namesake founder of J.B. Hunt Transport Services Inc. of Lowell.
The debt restructuring was orchestrated through various Stuart-controlled ventures, including One Bank and its parent company, OneFinancial Corp.
BHL Financing is trying to take possession of a Maumelle office building and $1.2 million worth of trust-preferred shares issued by West Tennessee Bancshares Inc. WTB is the holding company for the $339 million-asset Bank of Bartlett.
The 7,200-SF office building at 4 Country Club Circle carries a value of $655,700 at the Pulaski County Assessor’s office.
The 0.81-acre development and trust-preferred shares were carried on the books of OneFinancial until 2012, when Jerry Pavlas was brought in to replace Stuart as chief executive officer.
While pursuing OneFinancial assets, BHL has extended its collection efforts to OneFinancial’s biggest asset: One Bank. The end game isn’t to take possession of the bank itself but to merely recover assets to satisfy the debt.
The two collection cases cast a shadow on 2016, a year in which One Bank will have to rely solely on its operations for income. Three extraordinary items and an asset sale provided the bank with its only quarterly respites from losses since Stuart was ousted as chairman, president and CEO by the Office of the Comptroller of the Currency on Sept. 29, 2012.
The biggest item was booked in the third quarter 2015 by the Little Rock lender as $6.9 million in noninterest income. That was One Bank’s share of a settlement with Stuart’s estate, the U.S. Treasury and BHL Financing that divided $14.9 million from the life insurance payout on Stuart seized by the government.
Without its cut from the settlement, the bank would’ve posted a $1.3 million loss for the quarter and a $3.6 million loss for 2015.
The other two extraordinary items involving legal action were the repayment in the second quarter of 2014 of $3 million for life insurance premiums on Stuart’s policy and a $1 million insurance settlement in the third quarter of 2014 on coverage for “dishonest actions of employees.”
A $403,000 gain on the sale of mortgages made the difference for a profitable second quarter of 2015.
One Bank has spent more than $800,000 in legal fees annually 2013-15. Much of that was devoted to recouping money, but ongoing legal expenses aren’t likely to help the bottom line. They include defending against the BHL Financing litigation and a 2015 lawsuit filed by a longtime employee against the bank, Pavlas and its chief financial officer, Jim Schnoes.
Adams v. One Bank et al.
Donna Adams, former senior vice president at One Bank, sued the bank, Pavlas and Schnoes in what amounts to a wrongful termination case.
Adams, who worked 17 years at the bank, claims that Pavlas and Schnoes made her professional life so miserable that she was forced to resign in January 2014.
Adams doesn’t want her job back, but she does want her piece of the bank’s supplemental executive retirement plan. She alleges that benefit was wrongfully taken from her by Pavlas.
The bank, Pavlas and Schnoes denied her allegations and asserted that Adams wasn’t entitled to the SERP benefits because she was terminated for “just cause.”
Under SERP guidelines that means: “Theft, fraud, embezzlement and/or gross negligence, willful misconduct causing significant injury to the bank.”
The bank hasn’t specifically identified what constituted just cause termination for Adams. Unlike several of her former coworkers, Adams wasn’t charged with any criminal conduct.
In their counterclaim, One Bank, Pavlas and Schnoes are seeking $2.7 million in damages.
The July 2015 case has gone quiet since November, with a string of pending motions that await judicial ruling in federal court in Little Rock.
“We’re kind of in a holding pattern until the court rules,” said Danny Crabtree, attorney for Adams.
USA v. Gary Rickenbach et al.
Three former One Bank executive vice presidents remain on the firing line for alleged misdeeds that occurred on Stuart’s watch as owner and CEO:
- Michael Heald, who exited One Bank in July 2011;
- Gary Rickenbach, who left in January 2013; and
- Brad Paul, who was gone before year-end 2014.
A four-count indictment against a fourth One Bank executive, Tom Whitehead, was dismissed on Dec. 10. Whitehead, the bank’s former CFO, was shown the door in December 2012.
The criminal case was tied to one very bad $1.5 million loan and a convoluted game to conceal it from regulators. Given the plea-deal winnowing of charges and long line of continuances, motivation to take the case to trial appears to be lacking for the U.S. Attorney.
Rickenbach had four trial dates in 2014 and 2015 before a conditional plea agreement dropped his seven-count indictment to a single count of misprision of a felony. The agreement, still under judicial review as of Thursday, proposes that Rickenbach receive probation in exchange for conceding guilt for failing to report false entries in the financial reports One Bank submitted to federal regulators.
Heald and Paul are currently scheduled for trial beginning May 31.
Albert Solaroli, the Florida businessman who received the $1.5 million loan in question, was allowed to plead guilty to a single count of money laundering and was sentenced Friday to one year and one day in federal prison. His plea deal, which requires restitution of only $120,000, sidesteps allegations that he submitted a false financial statement to get the loan.
Stuart Family v. Debra Hoag
A civil case that Scooter Stuart’s heirs filed against the trustee of the Stuart Family Trusts was settled earlier this month. Debra Hoag, a Chicago insurance broker, was sued for $1.7 million in what was essentially a breach of fiduciary duty case. Hoag, as trustee of the Stuart Family Trusts, allowed Stuart to borrow $1.7 million against the trust’s lone asset: a $20 million life insurance on Stuart.
Stuart wasn’t legally authorized to seek the loan and even managed to cash the loan check at One Bank although it was in the name of “Stuart Family Trust.”
Hoag claimed she worked in good faith with Stuart, believed he would use the loan for the benefit of the trusts and had no way of knowing otherwise.
A secret settlement was reached less than two weeks before the case was set to go to trial on Feb. 22.
“It’s under a non-disclosure agreement,” said Dick Torti, trustee of the Stuart Family Trusts and executor of Stuart’s estate.
Does the settlement bring a close to the estate’s courtroom battles for Torti?
“We think there may be one other party with liability to the estate,” he said.
Torti declined to name that potential defendant.