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The John Ernest Lucken Revocable Trust v. Heritage Bancshares Group, Inc.

United States District Court, N.D. Iowa, Western Division

August 15, 2017

THE JOHN ERNEST LUCKEN REVOCABLE TRUST, and JOHN LUCKEN and MARY LUCKEN, TRUSTEES, and JOHN LUCKEN, Individually, and MARY LUCKEN, Individually, Plaintiffs,
v.
HERITAGE BANCSHARES GROUP, INC., HERITAGE BANK NATIONAL ASSOCIATION, THOMAS GEIGER and GARY GEIGER, directors of Heritage Bank, ROBERT MATHIASEN, Chief Credit Officer of Heritage Bank, and DOES 1-100, Defendants.

          OPINION AND ORDER REGARDING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

          MARK W. BENNETT U.S. DISTRICT COURT JUDGE NORTHERN DISTRICT OF IOWA

         TABLE OF CONTENTS

         I.INTRODUCTION AND BACKGROUND ............................................................. 2

         A. Factual Background ..................................................................................... 2

1. Parties and principal actors .............................................................. 3
2. John Lucken ...................................................................................... 3
3. Dirks Motor's Financing .................................................................. 4
4. Luckens' involvement in Dirks Motor's financing .......................... 6

         B. Procedural Background ............................................................................... 8

         II. LEGAL ANALYSIS ................................................................................................. 9

         A. Summary Judgment Standards .................................................................... 9

         B. Plaintiffs' Fraud Claim .............................................................................. 11

1. Elements of fraud claim .................................................................. 11
2. Plaintiffs' fraud claim ..................................................................... 11
3. Analysis of claim ............................................................................. 13
a. Floor plan financing representations .................................. 13
b. Knowledge of falsity and with intent to deceive ................................................................................... 13
c. Damages ............................................................................... 15

         C. Bank Tying Claim ....................................................................................... 16

         D. Officer and Director Liability .................................................................... 18

         E. Unjust Enrichment Claim .......................................................................... 18

         F. Breach of Duty to Disclose ......................................................................... 21

         G. Rescission Claim ......................................................................................... 23

         III. CONCLUSION ...................................................................................................... 26

         This case results from the fallout of the Great Recession on a longstanding rural Iowa automobile dealership and plaintiffs' last-ditch efforts to come to that dealership's financial rescue. Plaintiffs contend that the defendants, the automobile dealership's bank and its officers, committed a wide array of torts against them to shield the bank from the blowback of the automobile dealership's failure. Defendants now seek summary judgment on all of plaintiffs' claims against them.

         I. INTRODUCTION AND BACKGROUND

         A. Factual Background

         I will not attempt here an exhaustive dissertation on the undisputed and disputed facts in this case. Rather, I will set forth sufficient of the facts, both undisputed and disputed, to put in context the parties' arguments concerning the defendants' Motion for Summary Judgment. Unless otherwise indicated, the facts recited here are undisputed, at least for purposes of summary judgment. Additional factual allegations and the extent to which they are or are not disputed or material will be discussed, if necessary, in my legal analysis.

         1. Parties and principal actors

         Plaintiffs John and Mary Lucken (“the Luckens”) are Iowa citizens and residents of Akron, Iowa. The Luckens' home serves as the principal office of the John Ernest Lucken Revocable Trust (“The Trust”).

         Defendants Heritage Bank (“Heritage Bank”) and Heritage Bancshares Group, Inc. (“Heritage Bancshares”) are headquartered in Spicer, Minnesota. Prior to June 30, 2011, Heritage Bancshares owned and controlled Heritage Bank National Association, Holstein, Iowa (“Heritage Holstein”) and Heritage Bank National Association, Spicer, Minnesota (“Heritage Spicer”). Heritage Holstein maintained a branch in Sioux City, Iowa (“Heritage Sioux City”).

         Defendant Robert Mathiasen is the Chief Banking Officer and Chief Loan Officer for Heritage Bank. In 2009, Heritage Sioux City's predecessor bank hired Sterling Crim (“Crim”) as its lender and branch manager. After Heritage Bank acquired the Sioux City bank, Crim remained on staff there. He left Heritage Sioux City in October 2012, when he was terminated. Crim currently works as an agricultural and commercial lender for Pinnacle Bank.

         Richard E. Dirks was the principal owner of Dirks Motor Company (“Dirks Motor”) from 1960 until it was sold to Total Motors, a dealership in LeMars, Iowa. Dirks's father and two uncles started Dirks Motor in 1923, and the business remained in the Dirks family for 93 years. Dirks sold 50 percent of the business to his two sons in the late 1990's.

         2. John Lucken

         John Lucken lived in Akron, Iowa, until he graduated from high school in 1957. Following high school, he obtained a bachelor of science and masters' degrees in engineering. After college, he went to work for Mobil Oil in Casper, Wyoming. He subsequently provided consulting services to energy companies, as an exploration geologist, in their search for oil. John Lucken also invested in MAJR, a company that bought and financed “Class B loans.” The Luckens were employed by MAJR for a period. John Lucken's role with MAJR was to raise capital.

         The Luckens moved back to Akron in April 2000. In 2004, John Lucken began investing in oil exploration with a group based in San Antonio, Texas. In addition to being fiscally sophisticated themselves, the Luckens have a financial adviser, CPA, and a business consultant, Bill Petersen. Since 1996, John Lucken has also invested with Petersen.

         John Lucken currently has investments in Natural Innovative Renewable Energy (“NIRE”), an Iowa L.L.C., which was formed to build a plant that would produce biodiesel from animal waste. Lucken has also made loans to two local Akron businesses, and has donated a house and farmland to the City of Akron to enable it to build a new care center. He has made charitable donations to other Akron groups.

         3. Dirks Motor's Financing

         In April 2007, Dirks Motor and/or Dirks and his two sons, took out loans from three local banks: First National Bank Akron, First American Bank, and People's Bank. Additional loans were taken out in 2008. By 2009, the balances on these loans totaled $1, 412, 739. In late 2008, or January 2009, Dirks approached Heritage Bank about obtaining a consolidation loan backed by a Small Business Administration (“SBA”) guarantee.

         Dirks worked with Crim in obtaining the loan backed by the SBA. On October 6, 2009, the SBA authorized an “SBA 7(a) Guaranteed Loan” to Dirks Motor for $1, 775, 000.The SBA loan had an interest rate of 6 percent and monthly payments of $13, 900. The SBA loan required the following “collateral conditions” of Heritage Bank:

         Lender must obtain a lien on 100% of the interests in the following collateral and ...


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