FirstCapital Bank requests First Bank & Trust lawsuit against it, Reagor-Dykes, others move to federal court
The attorney for FirstCapital Bank filed a request to move First Bank & Trust's lawsuit against FirstCapital, Reagor-Dykes and several others to federal court.
In last week's filing in the 72nd District Court, First Bank & Trust claims the Auto Group has defaulted on loans, conducted floor plan financing fraud and perpetrated a check-kiting scheme.
Defendants include Reagor Auto Mall, LL, d/b/a Reagor-Dykes Levelland and d/b/a Reagor-Dykes Imports, FirstCapital Bank of Texas, FirstCapital CEO Brad Burgess, FirstCapital Chairman Kenneth Burgess, Bart Reagor, Rick Dykes, former Reagor-Dykes chief financial officer Shane Smith and former Reagor-Dykes controller Sheila Miller.
This filing gives reasons for the case to be moved to the U.S. District Court for the Northern District of Texas, Lubbock Division.
Vista Bank filed a lawsuit against FirstCapital, Brad Burgess and Kenneth Burgess, initially in the 99th District Court. The suit alleged a check kiting scheme, aided by Rick Dykes' close ties to FirstCapital. Vista Bank then moved its action to federal court and raised its demand to more than $12 million in relief. FirstCapital and Brad and Kenneth Burgess have filed motions to dismiss the Vista Bank lawsuit.
Claims in initial suit
The lawsuit filed last week states First Bank & Trust provided a $1 million loan in September 2017 to renew an existing floor plan line of credit at Reagor-Dykes' location in Levelland, and a $2.5 million loan for Reagor-Dykes Imports. First Bank & Trust claims Reagor-Dykes defaulted on these loans.
First Bank & Trust alleges some of its collateral at the Levelland and Imports dealerships has been sold, is missing, or has been "double pledged".
According to the suit, out of 40 vehicles on its Levelland floor plan, 21 have been sold but are still floor planned, allowing Reagor-Dykes to continue to obtain financing while avoiding and/or delaying payment to First Bank. First Bank & Trust claims the amount owed for these 21 vehicles is $420,025. Additionally, one vehicle cannot be found "with no explanation as to its location". This vehicle constitutes $31,750 owed to First Bank.
First Bank & Trust claims there are seven instances of double-flooring within the Levelland inventory.
The suit claims out of 101 vehicles on its Imports floor plan, 43 have been sold but are still floor planned, a value of $1,084,025. And six vehicles are missing, a value of $69,750. First Bank & Trust claims 13 vehicles were double-floored at the Imports location.
The filing states, as of Sept. 7, Reagor-Dykes owes First Bank & Trust more than $3 million, which exceeds the value of the remaining inventory collateral.
First Bank & Trust also claims Reagor-Dykes and several of the defendants were involved in a check kiting scheme. Vista Bank currently has a federal lawsuit against First Capital Bank and Brad and Kenneth Burgess, alleging similar claims.
According to this filing, Reagor-Dykes and its former CFO Shane Smith "perpetrated a massive fraud, including selling inventory vehicles out of trust and not paying First Bank for its loans made against such vehicles, double-pledging vehicle inventory to First Bank which was also pledged to other lenders, taking trade-ins when selling such collateral inventory and using the trade-ins as collateral for new First Bank loans but failing to pay off loans already secured by such trade-ins, and conducting a mulch-million dollar check- kiting scheme. With respect to the check kiting scheme, FirstCapital and the Burgess Defendants conspired with RAM to continue the scheme long enough to shift overdraft losses of over $1.5 million from FirstCapital to First Bank."
This lawsuit also identifies Sheila Miller as Reagor-Dykes' former controller involved in this fraud.
The filing claims Reagor-Dykes "had a practice of regularly writing and depositing a high volume of large denomination checks between its First Bank and FirstCapital accounts."
It continues, "RAM wrote several mulch-thousand dollar checks from a FirstCapital account, deposited these checks into a First Bank account and then issued payments from the First Bank account based on provisional credit obtained from First Bank upon making these deposits to cover obligations or make deposits to its accounts at another financial institution. Given the size of the RAM business and volume of transactions, such account activity did not seem irregular. In doing this, RAM obtained millions of dollars in fraudulent credit from First Bank during the “float” period while First Bank completed the cash letter process with the Federal Reserve and waited for FirstCapital to pay the deposited items."
The suit states when Reagor-Dykes' First Bank & Trust account would be overdrawn, First Bank would contact Smith, who would tell the bank the company was paying off vehicles and needed money would be immediately deposited. "Upon information and belief, this was just Smith’s cover-up of the ongoing RAM check-kiting scheme and was intended to make sure that First Bank kept providing provisional credit to RAM. In fact, just one week before RAM’s check- kiting scheme blew up, Smith contacted First Bank to request additional time for RAM to pay off vehicles it had floored with First Bank."
First Bank & Trust makes a similar claim to Vista, that FirstCapital used "inside information" from Rick Dykes to unload more than $1.5 million in losses and damages to First Bank & Trust. In response to Vista's lawsuit, FirstCapital has stated "inside information" is not an argument in this setting, between private banks.
The suit also states Smith incorrectly asserted Reagor-Dykes' financial standing was sound and, "in fact, growing more profitable every year."
First Capital response
FirstCapital Bank issued this response late Wednesday, Sept. 19:
“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.”
Note: this suit lists Reagor Auto Mall as a defendant, with abbreviation RAM in quotes above. This story uses "Reagor-Dykes" on several references to remain consistent with our reporting on this complicated matter. The Reagor-Dykes Auto Group is made up of several Ll Cs with various names. Reagor Auto Mall is one of the companies that has not filed for chapter 11 protection.
SEPT. 21: Judge sets schedule, trial date in Vista Bank v FirstCapital Bank lawsuit
SEPT. 21: Former Reagor-Dykes CFO denies late payments, says Vista Bank attacked him, his family
SEPT. 20: Vista Bank sues former Reagor-Dykes CFO, claims loan default
SEPT. 19: Texas DMV: Reagor-Dykes should promptly resolve title issues
SEPT. 19: Brad, Kenneth Burgess file motion to dismiss Vista Bank lawsuit
SEPT. 18: First Capital Bank files motion to dismiss lawsuit
SEPT. 18: Court approves bid process for Reagor-Dykes Auto Group, extends use of cash collateral
SEPT. 17: Ford Credit, GM object to certain aspects of proposed Reagor-Dykes sale
SEPT. 14: Judge sets trial date in Ford Credit lawsuit vs. Reagor-Dykes
SEPT. 14: Reagor denies Ford Credit's claim vehicles sold out of trust
SEPT. 13: Dykes: Former Reagor-Dykes CFO admits he provided false info to Ford Credit
SEPT. 11: Reagor-Dykes Auto Group requests court to allow sale of company
SEPT. 4: Reagor-Dykes Auto Group establishes process to resolve customer problems
AUG. 31: International Bank of Commerce asks for court to allow it to foreclose on Reagor-Dykes dealerships
AUG. 31: More Reagor-Dykes companies, co-owners may soon file for chapter 11
AUG. 30: Court extends Reagor-Dykes employment of CRO; officer discusses potential dealership buyers
AUG. 29 : International Bank of Commerce asks for loan payment in Reagor-Dykes case
AUG. 29: Ford Credit objects to Reagor-Dykes earlier legal team
AUG. 27: Vista Bank doubles relief request in new federal suit against FirstCapital Bank
AUG. 25: Reagor-Dykes chief restructuring officer hires new legal team
AUG. 25: GM proceeding with termination of Reagor-Dykes Floydada
AUG. 23: Landlords demand rent for Reagor-Dykes dealerships in Lubbock, Plainview
AUG. 20: Ford Credit moves ahead with suit against Reagor, Dykes, some R-D companies
AUG. 18: Reagor-Dykes bankruptcy case: Read court order following Aug. 16 hearing
AUG. 17: Auto dealer claims Reagor-Dykes owes $513,000, vehicles may be in consumers' possession
AUG. 16: Vista Bank sues FirstCapital for $6 million, claims Dykes helped perpetrate check kiting scheme
AUG. 16: Bankruptcy court allows Reagor-Dykes continued use of cash collateral, hiring of CRO
AUG. 15: Reagor-Dykes Auto Group issues written apology
AUG. 14: Loss of Reagor-Dykes Chevrolet in Floydada a potential financial pitfall for city
AUG. 14: Vehicle auction company claims Reagor-Dykes owes it $687,000
AUG. 14: Ford Credit claims Reagor-Dykes is not following court orders; court grants extension to file docs
AUG. 13: U.S. Trustee opposes Reagor-Dykes request to hire chief restructuring officer
AUG. 10: Ford Credit: Reagor-Dykes fraud may be among largest of its type in U.S. history; GM files to terminate Floydada dealership
AUG. 9: Reagor-Dykes questions former CFO’s actions; Contractor claims $700,000 due now
AUG. 7: Former Reagor-Dykes employees claim they were not paid
AUG. 6: Customers concerned over Reagor-Dykes 'unwinding' process
AUG. 6: Ford suit against Reagor-Dykes on hold while bankruptcy case proceeds
AUG. 3: Judge approves Reagor-Dykes employee pay
AUG. 2: Mayor: Downtown Lubbock growth to remain strong regardless of Reagor-Dykes future
INITIAL STORY: Ford Motor Credit sues Reagor-Dykes; R-D files for chapter 11 bankruptcy