MVT fights release of internal audit procedures
by Amy McCullough
Published: January 1,2010
In federal bankruptcy court in Jackson Dec. 30, state banks fought with Mississippi Valley Title Insurance Company (MVT) for the release of the title company’s internal audit procedures.
Banks want the knowledge of how and when MVT discovered that one of its approved attorneys, Jackson area resident Charles Evans Jr., was allegedly defrauding banks by issuing fraudulentcertificates of title in a commercial real estate loan-stacking scheme totaling more than $40 million in damages. The alleged fraud began as early as 2003.
MVT filed its original lawsuit against Charles Evans Jr. and his brother Chris Evans in September 2009 in Madison County Chancery Court. Numerous bank lawsuits followed.
The Evans brothers were partners in a scheme in which Chris Evans obtained commercial property loans from Mississippi banks through his various limited liability companies and other entities. Charles Evans Jr. issued title insurance certificates for the loans. Land title for numerous commercial properties was never conveyed to the entities through which Chris Evans obtained the loans. As Evans’ companies defaulted on loans, banks realized the scheme and also realized they would be competing with other banks for the properties, or collateral. Banks are also seeking to recover their claims through MVT.
MVT has only $30 million in claims reserves, which is not enough to pay the 65 claims made by more than 30 banks totaling more than $40 million. The company’s parent, Old Republic National Title Insurance Company (ORNT), jointly issued all of the company’s policies.
Chris Evans filed for bankruptcy in October 2009, which moved the case to federal bankruptcy court.
Rule 2004 Dispute
MVT is proceeding as a victim in the case, but banks are treating the company as a colluder in the alleged illegal activities.
Attorney Jeff Rawlings, on behalf of Merchants & Farmers Bank, filed a motion on Nov. 24, 2009, for a Rule 2004 Examination. In the suit the bank requested information from MVT relevant to Chris Evans as well as manuals, guidelines and procedures regarding internal controls of MVT and ORNT.
A Rule 2004 examination under U.S. Bankruptcy Code is a thorough investigation of a debtor’s estate by a creditor. Under the rule a debtor’s attendance for examination and the production of documents may be compelled. The examination may relate only to the acts, conduct, property, liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor’s estate.
MVT responded in a Dec. 12, 2009, motion calling Merchants & Farmers’ request “inappropriate, improper and overbroad (sic) for numerous reasons.”
Banks that joined in as plaintiffs in the Merchants & Farmers motion are Bank of Forest, First State Bank, State Bank & Trust Company, Community Bank of Mississippi, Cadence Bank, Bank of Yazoo City and Copiah Bank.
MVT lawyer David Clark elaborated on the company’s objections in the court hearing Dec. 30: Clark said the motion “goes way beyond the purpose or scope of the 2004 exam” because some of the requests are not related to the estate of the debtor Chris Evans.
Clark said what the banks are really looking for is proprietary information on any claims the company had paid out to banks. They are also seeking manuals and procedures for internal operations that would have pertained to Charles Evans Jr., who is not the debtor, Clark said. The company’s paying of claims to banks has no place in bankruptcy court, Clark said, because it has nothing to do with the administration of the debtor’s estate.
Clark said any claims paid to banks made no difference: The company would simply become a claimant against the Evans brothers for any claims they had to pay out to banks.
Judge Neil Olack said that if “Bank X” could recover in full, it would then limit its part in the case. Banks will actively participate in the case until they find a way to recover their damages, he said. The administration of the case will be affected by whether banks attempt to recover from Evans or from MVT, Olack said.
Clark said MVT was not going to release its proprietary information about internal procedures to other title companies or agents. Clark said the banks weren’t giving him “any inkling” about what they wanted from the 2004 exam.
Olack said the 2004 exam needed to be limited and asked Rawlings what he wanted besides MVT “giving you every piece of paper in their building.”
Regarding MVT, Rawlings said his client wanted “what they knew, when they knew and why… This (case) has been going on since September, and we don’t know any more now than we did then — other than there were a bunch of bogus loans… They are way ahead of us.”
Lawyer Kristina Johnson, representing the Bank of Forest, First State Bank, Holmes County Bank and State Bank & Trust Company, said her clients wanted the Rule 2004 exam of MVT “because they know more than we know about what happened.” Johnson said they had informally invited MVT to come to a meeting with all the lenders involved in the case, and the company declined.”They’re not talking,” Johnson said.
Parties agreed that a list of:
· properties insured by the title company
· lien position status
· chancery court filings in any county and
would be provided by MVT to the banks.
Olack also ruled that the banks were entitled to information on the “historical relationship” between MVT and Charles Evans Jr. Information on the relationship will include what activities occurred and Evans’ supervision as an approved attorney of the company, Olack said.
Olack told Rawlings that he wasn’t saying the banks would never get the requested MVT manuals and procedures but that they would address those later. Olack said other requests could be addressed later in adversarial suits.
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