LUBBOCK, TX (KCBD) - FirstBank & Trust has filed a lawsuit against Reagor Auto Mall, Ltd. d/b/a Reagor-Dykes of Levelland and d/b/a Reagor-Dykes Imports, FirstCapital Bank of Texas, Bart Reagor, Rick Dykes, Shane Smith, Sheila Miller, Brad D. Burgess, and Kenneth L. Burgess.
Ken and Brad Burgess, Chairman and Chief Executive Officer of FirstCapital Bank of Texas are also being sued by Vista Bank to recover more than $6 million in damages. Vista claims FirstCapital inflicted the damages through inside information they obtained through their close relationship with Rick Dykes. Dykes is an insider of both Reagor-Dykes and FirstCapital. The documents say the inside information allowed FirstCapital to benefit from the Reagor-Dykes' check kiting scheme at Vista’s expense. The lawsuit says Reagor-Dykes “perpetrated a multi-million dollar check kiting scheme and conspired with FirstCapital to impose the resulting losses, totaling over $6,000,000.”
On Friday afternoon, Bart Reagor and Reagor Auto Mall both filed responses to the lawsuit. He says FirstBank & Trust’s actions breached agreements with Reagor Auto Mall (RAM) and Bart Reagor that have been modified through the course of conduct between FirstBank, RAM and Bart Reagor. He also says FirstBank’s actions improperly impaired the value of the security for the claims upon which it seeks recovery from RAM and Bart Reagor. As a result, RAM and Bart Reagor are entitled to set off the amount of any such impairment against any of FirstBank’s claims against them.
Bart Reagor also says FirstBank & Trust engaged in a course of conduct with Shane Smith, the former Chief Financial Officer for Reagor-Dykes Auto Group, that damaged RAM’s ability to pay its debt to FirstBank, which damaged Bart Reagor.
Reagor says FirstBank has failed to mitigate the damages that it asserts against Bart Reagor and their claims are barred in whole or in part because of their failure to exercise ordinary care.
Another response says, “Plaintiff’s claims are barred by the doctrine of unclean hands.”
When the lawsuit was initially filed on September 18, FirstCapital Bank of Texas released the following statement:
“This lawsuit is fundamentally flawed and without merit. Any allegation that FirstCapital Bank of Texas or its officers participated in a check kiting or other fraudulent scheme is patently untrue and will be proven as such in a court of law. At every step, we have acted in accordance with good banking practices and in the best interest of our shareholders, customers, and depositors. We will continue to do so.”
The document filed from FirstBank alleges the defendants have breached their agreements and are in default for, among other things, selling vehicles pledged as collateral to FirstBank, failing to remit the required payments for those vehicles to FirstBank, falsely reporting the sales status and location of the collateral, and overdrawing Reagor Auto Mall’s checking account at FirstBank.
FirstBank & Trust is seeking the recovery of monetary relief of more than $1 million, but states it is owed more than $3 million.
The lawsuit states Reagor Auto Mall maintained an active deposit account at FirstBank. At times when the account would become overdrawn, officials would contact RAM’s then CFO, Shane Smith, who assured the bank that RAM was simply paying off vehicles and the money to cover the overdrawn amounts would immediately be deposited. The document says, "This proved to be false, as RAM has now overdrawn its FirstBank account by more than $1.5 million. "
The documents say Reagor Auto Mall (RAM) got a loan from FirstBank & Trust on September 29, 2017 for use in renewing an existing floor plan line of credit at its Levelland locations. Reagor Auto Mall also executed a promissory note payable to FirstBank in the principal amount of $1 million. Also on September 29, 2017, RAM executed another promissory note payable to FirstBank in the principal amount of $2,500,000.
According to the lawsuit, in August 2018, FirstBank, began investigating the status of RAM’s inventory at its Levelland and Imports (the “Dealerships”) locations in an effort to monitor vehicle sales information and to identify whether RAM was falsely reporting sales data and inventory status. Through the investigation, officials discovered some of FirstBank’s collateral had been sold, was missing, or had been double pledged.
The lawsuit also says there were numerous vehicles sold out of trust, others that were simply missing from the floor plan, and others that were double-floored.
The investigation revealed that of the 40 vehicles on the Levelland floor plan, 21 have been sold, but still floor planned, allowing RAM to continue to obtain financing payments from FirstBank while avoiding and/or delaying paying FirstBank the amounts owed to it for the sold inventory. The payoff amount that RAM owes FirstBank for these 21 vehicles is $420,025. In addition, one vehicle is missing from the floorplan with no explanation as to its location. For this missing vehicle, RAM owes FirstBank $31,750. There are also seven instances of RAM “double-flooring” vehicles pledged as collateral to FirstBank. In other words, RAM applied for financing from FirstBank and from Ford Motor Credit on these seven vehicles, thereby obtaining double financing on them.
During the investigation of the Imports location, the inspection revealed that of the 101 units on the Imports floor plan, 43 have been sold, but still floor planned, allowing RAM to continue to obtain financing payments from FirstBank while avoiding and/or delaying paying FirstBank the amounts owed to it for the sold inventory, according to the lawsuit. The payoff amount that RAM owes FirstBank for these 43 vehicles is $1,084,025.00. The inspection also revealed that six of the 101 units are "inexplicably missing from the floorplan and 13 units were double-floored. For these six vehicles, RAM owes FirstBank $69,750.
The document states, “RAM’s false representations regarding the status of the pledged inventory allowed it to avoid and/or delay paying FirstBank the amounts it is owed for such inventory. These misrepresentations show that RAM has experienced a material adverse change in its financial condition, giving rise to FirstBank’s good faith belief that it is insecure under its agreements with RAM."
The lawsuit also states as of September 7, 2018, after applying all credits and offsets, the estimated amount FirstBank believes to be owed by RAM on the RD-Levelland Agreements and the RD Imports Agreements is $3,057,045.47 (approximately $966,825 on the Levelland floor plan and approximately $2,090,220.47 on the Imports floor plan).
Sheila Miller was listed as the Controller for the Reagor Dykes Auto Group from December 2015 to August 2018. She was listed as Office Manager from December 2007 through December 2015. She was previously a supervisor with Ford Motor Company.
Ken Burgess presently serves as Chairman of the American Bankers Association. He previously served as chairman of ABA’s Community Bankers Council and as chairman of the advisory board of the Corporation for American Banking, LLC, an ABA subsidiary. He is a past chairman of the Texas Bankers Association, the Midland Chamber of Commerce, the Permian Basin Petroleum Museum, the Texas Banker’s Association Service Company and the RAWLS College of Business Advisory Board at Texas Tech University.