[Watchdogs] Texland and Cattleman's legal dispute - brief historyand status

Sat Apr 25 12:27:15 CDT 2009

David Collins:  Thanks so much for all the details of the "Texland-money" matter.  We have all wondered what was going on with those funds.  Thanks too to the Directors of PEC, Scanlon, Williams and Cox who have worked so hard to settle this mess.  I suppose we should also thank the Directors of the Cattleman's Bank, Felps and Smith for their valuable help.  
Regards, Paul Langston

  ----- Original Message ----- 
  From: Dave Collins 
  To: Watchdogs 
  Cc: Kathy Scanlon Office ; Patrick Cox - PEC ; James Williams 
  Sent: Saturday, April 25, 2009 10:27 AM
  Subject: [Watchdogs] Texland and Cattleman's legal dispute - brief historyand status

  Fellow PEC members,

  The legal dispute between the corporate entity "Texland" and Cattleman's Bank has arisen recently among Watchdog subscribers. It is important for members to have an accurate understanding of how that dispute came to be and where matters now stand.

  As a result of the Navigant investigation and the honorable actions of a PEC employee, it was learned that approximately $565,000 of PEC member money had been on deposit, in a non-interest bearing account, for many years. Those funds were placed on deposit by the shell corporation, Texland; that corporation being a collaboration between the PEC and Bluebonnet Cooperative. Upon learning of these funds, PEC management alerted the boards of both cooperatives and action began.

  The first critical step was reconstituting a valid governing board for Texland - some of its members having been forced to resign from PEC and others no longer employed by either coop. Three PEC directors were named to that board, Kathy Scanlon who serves as Texland President, James Williams and Patrick Cox. Bluebonnet also named new Texland board members.

  In a fairly standard - but clearly unnecessary - legal action, Cattleman's Bank filed suit in District Court, asking that the court make a determination as to the rightful owner of the funds in question. That Cattleman's had, for years, sent monthly statements to Texland at its address of record - PEC headquarters - is clear indication that bank well knew the rightful owner of those funds. Subsequent to that filing, the new Texland board, acting on advice of newly retained counsel, counter-sued, seeking a determination of what interest should have accrued to Texland had the funds been placed in an interest bearing account (as is a standard and appropriate business practice). That the Cattleman's Bank had failed to advise its customer - Texland - that these funds should be in such an interest bearing account was argued to be a failure on the part of Cattleman's board to meet its fiduciary responsibilities. The suit requested that the court order that Cattleman's pay Texland the amount of lost interest, in an amount to be established by the court. The court has yet to rule on either the ownership of the funds or the question of interest.

  The Texland board also asked the court, who agreed, to have the funds removed from Cattleman's and placed in an interest bearing account at the Johnson City National Bank. That board also sought and obtained the records regarding Texland held by Cattleman's and by the Moursund law firm. Those records date to 1987 and were provided to Navigant to aid in their efforts. The information was used to make as complete an accounting as possible of the funds that flowed through Texland over the years and establish what corporate entity - Bluebonnet, LCRA or PEC  -should receive money from this residual amount.

  Cattleman's Bank has exercised its rights under the law to make various counter claims and arguements which have had the effect of prolonging the litigation and increasing legal fees for all parties. Texland, as it is legally obligated to do, has made response to these various claims and diversions. It has not introduced additional issues in the matter beyond the initial counter claim seeking lost interest payments, securing the funds in a neutral bank, and obtaining records of Texland.

  On Friday, April 17, a court hearing was held on the matter of Cattleman's claim for legal fees.  Cattleman's argues that Texland should pay the bank's legal fees. Judge Dan Mills promised a ruling in this matter "within days." Those present at the hearing did not seem to think the judge found much merit in Cattleman's claim, but it is always somewhat foolish to try and second guess a judge. Unless additional matters are raised by Cattleman's, it is likely that the case will finally be disposed of in the near future. 

  Legal costs incurred by Texland are not currently known as the matter is still before the court. However, based on the status of those charges as of a short while back, it seems unlikely that those fees will exceed roughly 10% of the$565,000, unless Cattleman's undertakes additional delaying tactics. Both LCRA and Bluebonnet have filed formal statements with the court relinquishing any claim on those funds.

  As PEC directors, our representatives to the Texland board, like those of Bluebonnet, have a fiduciary obligation to seek recovery of the funds and the unpaid interest. To have failed to do so would have constituted misfeasance. The actions of Cattleman's Bank are quite obviously beyond the control or influence of the Texland board and the motives of its board are unknown to PEC members, though they may be known by two former Cattleman's directors on the PEC board, Mr. Smith and Mr. Felps.

  So, as it stands, there is a reasonable probability that PEC members will recover about 90 cents on the dollar, should the claim for interest be denied. It would have been nice had Cattleman's simply said, "you're right, those funds belong to Texland, the newly constituted board of Texland is the valid governing body for that corporation - here is your check." That they chose to make a fight of the matter is unfortunate but for Texland's board to have simply walked away would have been highly irresponsible.

  All PEC members owe a special "thanks and job well done" to President Scanlon, Mr. Williams and Dr. Cox for their efforts. Let's keep in mind that they performed that service on our behalf without compensation. Although PEC Board President Felps sought a board vote to grant such compensation, Scanlon, Williams, and Cox declined.

  Dave Collins
  PEC member
  Johnson City

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