Lawsuit claims Fifth Third ‘hijacked’ millions by ‘carefully timing’ holds on Eastern Livestock accounts
Plaintiffs asking for compensatory and punitive damages
By Lorie Hailey
LEXINGTON, Ky. (Nov. 6, 2012) — Twenty-two cattle producers, auction markets and cattle dealers in Kentucky and several other states are suing Fifth Third Bank of Cincinnati for what they call “a calculated scheme by a major national financial institution at modern-era cattle rustling.”
The lawsuit, filed Friday, Nov. 2 in Allen Circuit Court, stems from the bank’s relationship with New Albany, Ind.-based cattle broker Eastern Livestock, which filed for bankruptcy in December 2010.
The plaintiffs claim Fifth Third, in an effort to enhance its own position, “literally hijacked millions of dollars from the national livestock industry” that was due them and others who sold cattle to Eastern Livestock.
Kristi Moad, director of marketing at Fifth Third Bank in Louisville, said the bank does not comment on litigation.
The suit was filed by DelCotto Law Group of Lexington on behalf of: CPC Livestock, Bluegrass Stockyards, Bluegrass Stockyards of Campbellsville, Bluegrass Stockyards East, Bluegrass-Maysville Stockyards, Bluegrass Stockyards of Richmond, Bluegrass South Livestock Market, Alton Darnell, East Tennessee Livestock Center, Piedmont Livestock Company, Southeast Livestock Exchange, Moseley Cattle Auction, Alabama Livestock Auction, Sealy and Sons Livestock, Ashville Stockyard, Athens Stockyard Billingsley Auction Sale, Carroll County Livestock Sales Barn, Macon Stockyards, Strickland Farms, Robert Rawls Livestock and John Doe. The plaintiffs are from Kentucky, Tennessee, Alabama, Mississippi, Georgia and North Carolina.
In September 2010, Kentucky Attorney General Jack Conway issued indictments for Eastern’s former chief financial officer Steve McDonald, 58; accountant Darren Brangers, 43; affiliate Grant Gibson, 48; and former Eastern Livestock CEO and founder Thomas “Tommy” Gibson, 71.
McDonald, Brangers and Grant Gibson pleaded guilty this spring to engaging in organized crime and multiple charges of theft over $10,000. As part of their guilty pleas, they admitted a criminal collaboration to commit ongoing theft by falsely inflating the balances of Eastern Livestock bank accounts. By using the inflated accounts and check kiting, Eastern and its owners bought cattle from Kentucky producers with essentially non-existent funds, Conway said.
Brangers, McDonald and Grant Gibson were also named in the lawsuit.
In early November 2010, after several examinations of Eastern’s operations, Fifth Third decided to close Eastern’s accounts and dishonor its outstanding checks, according to Conway. This was just days after Eastern had purchased more than $800,000 worth of cattle in Metcalfe County. The result was the collapse of Eastern’s operations and the bouncing of more than $850,000 worth of checks to cattle producers, Conway said.
In December 2010, the cattle brokerage company was forced into bankruptcy, and to date no disbursements have been made to the victims, according to Kentucky Agriculture Commissioner James Comer. A bankruptcy judge was appointed as trustee to manage the payments, but questions regarding his motives and delays have resulted in motions to remove him from the case, Comer said.
The lawsuit claims that Fifth Third’s actions — “the interruption and seizure of cattle payments without rendering payment for the cattle to hundreds of unwitting, unpaid sellers” — was “carefully timed and expressly engineered by Fifth Third to conceal its long-running willful misfeasance and malfeasance in connection with a failed $32.5 million structured financing of Eastern, now a debtor in bankruptcy.”
Fifth Third had total control over Eastern’s entire cash flow, and the bank targeted the height of the national cattle market sales season and permitted Eastern to broker multiple daily ordinary-course cattle transactions, the plaintiffs claim.
“Then, when the tsunami of cash in Eastern’s Fifth Third accounts had crested, and without any notice whatsoever, Fifth Third knowingly and willfully placed an ‘administrative hold’ on all of Eastern’s outgoing cash flow,” the lawsuit alleges.
The bank’s actions were designed to halt the cash outflow by dishonoring checks and refusing to pay invoices, the plaintiffs claim, collecting cattle payment receipts from its cattle customers and buyers across the country, “and asserting exclusive control over all of the collections and other funds in Eastern’s accounts to pay down a major problem loan,” the lawsuit claims.
The result, the plaintiffs say, was the return of approximately $30 million in checks due sellers of cattle, including amounts due to plaintiffs on checks totaling approximately $3.8 million. This excludes approximately $2.1 million due plaintiffs on invoiced cattle sales for which no checks were issued in the days following the bank’s administrative hold on Eastern’s accounts.
— The plaintiffs say beginning in at least 2007, Fifth Third’s check kiting detection computer software repeatedly raised warnings about Eastern, which triggered an investigation into the company’s business affairs. Investigations also were conducted in 2009 and in the spring of 2010, the suit claims. No action was taken as a result of the investigations, according to the plaintiffs.
— The lawsuit says Fifth Third “knew or had reason to know” that Eastern was conducting business improperly and that is repeatedly increased the amount of company’s revolving line of credit.
— Between February 2005 and July 2010, the suit claims, the company’s credit agreement was revised “no less than nine times in a series of short-term extensions, ending with a final 45-day extension in September 2010.”
— The plaintiffs say Fifth Third knowingly funded Eastern outside of the revolver loan with multi-million dollar, undocumented, short-term loans “based on provisional credits in the multiple depository accounts, which steadily ballooned in amount to almost match the $32.5 million amount of the Revolver itself,” the suit claims.
— Fifth Third and Eastern Livestock knew the cattle brokerage was insolvent, the plaintiffs claim. They allege that the bank aided and abetted Eastern Livestock’s fraud and breach of trust relationships, the suit alleges.
The plaintiffs are asking for a jury trial. They are seeking to recover compensatory damages and costs from the Eastern executives for theft by deception, and from Fifth Third for allegedly aiding and abetting theft by deception.
They also are seeking punitive damages from Fifth Third, which they say is liable for the full extent of their damages.
news from across Kentucky