In re Landmark Land Co. of Carolina, Inc.

Landmark Land Company, Inc. (Landmark Land) (debtor) was a holding company that wholly owned Oak Tree Savings Bank, S.S.B. (Oak Bank). Various subsidiaries of Landmark Land (the Landmark subsidiaries) (debtors) used substantial loans from Oak Bank to invest in real estate. The financial position of Landmark Land and the Landmark subsidiaries deteriorated. Consequently, the Office of Thrift Supervision (OTS) launched an investigation, which revealed that Oak Bank was undercapitalized. Gerald Barton, William Vaughan III, Joe Walser, and Bernard Ille (the directors) were directors of Oak Bank. Although Barton, Vaughan, and Walser also played roles in Landmark Land or at least some of the Landmark subsidiaries, Ille did not, as he was an employee of a subsidiary of one of the Landmark subsidiaries. The investigation forced Oak Bank’s directors to agree that Landmark Land and the Landmark subsidiaries would refrain from any material transaction without OTS’s prior approval. Notwithstanding, Landmark Land and the Landmark subsidiaries filed for bankruptcy without OTS’s prior approval and, in anticipation of OTS’s takeover of Oak Bank, obtained a temporary restraining order (TRO) that prevented Oak Bank from removing and replacing corporate management. Ille resigned as director once he learned of the bankruptcy filings. Meanwhile, OTS filed civil administrative charges against the directors. With the TRO in effect, the Landmark subsidiaries found that the directors had acted in good faith and approved indemnification for the directors’ legal expenses. Once the TRO was lifted, OTS appointed the Resolution Trust Corporation (RTC) to act as receiver for and to take control of Oak Bank and control of Landmark Land and the Landmark subsidiaries (the RTC-controlled entities). OTS dropped the charges against Ille. The district court granted the directors’ request for indemnification. The RTC-controlled entities appealed.