BUTTE — A Butte jury delivered a $52 million verdict Friday against a bank that received billions in federal bailout dollars, but refused to use the money to help a flailing client — an international company that planned to take root in Butte.
The office supply company Masters Group International filed suit against its former bank — Comerica — after the bank reneged on a written forbearance agreement and liquidated the company’s assets while Masters was trying to set up shop in Butte during the recession.
“That act effectively led to the death of the company,” Timothy Strauch, Masters’ attorney told jurors.
Strauch and Mick Taleff — both Missoula-based attorneys — represented Masters during the 10-day trial in Butte district court that resulted in a monetary verdict that Strauch said may be the highest in Montana history.
The suit was initially filed by the Butte Local Development Corp. against Masters, but the business brought the bank in as a third-party defendant. Strauch explained that Masters didn’t have the money it owed the Butte development group because Comerica had breached its contract and taken Masters’ money.
“There are two Americas,” Strauch said in an interview Tuesday. “Comerica — a company in America where the rules don’t apply — and then there’s America, where the rest of us live and the rules do apply.”
In 2006, Comerica offered the start-up company $9.5 million in a revolving line of credit — meaning as long as Masters made its payments, more money could be borrowed.
Strauch argued the bank did so, knowing that Masters was a long way from generating any cash flow. The two-year loan was slated to expire in 2008, and the company borrowed another $1 million from the bank in that time.
Initially, Comerica told Masters it would renew the loan in 2008, but when the recession hit, the bank refused to renew the loan, Strauch said.
When Masters asked for Comerica to use part of its $2.25 billion in federal bailout funds to help it stay afloat, Comerica refused. And Masters was forced to search for an alternative funding source.
“It is not easy . to replace a loan of $10 million or $10.5 million in the middle of a banking crisis,” Strauch said in court.
But the company did find an alternative source, securing a proposal from Wells Fargo to replace Comerica as the operating lender and pay back the $10.5 million borrowed from Comerica. It additionally extended the line of credit to Masters — allowing them an extra $2.5 million “it so desperately had been needing for months to grow and sustain.”
The switch from one lender to the other was slated to occur in February 2009, with the condition that Masters could not be in default with Comerica when Wells Fargo took over. In November 2008, Masters and Comerica signed the forbearance agreement, in which the bank agreed to take no action to collect its loan until February, Strauch said.
But on New Year’s Eve, Comerica took all the money from Masters’ accounts — nearly $9 million — while continuing to charge the company interest, maintenance fees and $82,000 in attorneys’ fees.
“Each time Masters asked the bank for a payoff, it was simply asking how much do we owe you,” Strauch said in his arguments. “Comerica charged it thousands in attorney fees for the simple pleasure of telling Masters how much it owed.”
The result was the destruction of the company — abroad, it shuttered its doors, and it halted any progress in Butte.
After 10 days at trial, the jury spent three hours in deliberation and awarded $41.5 million in compensatory damages and $10.5 million in punitive damages to Masters.
“I think it took a jury in Montana to render this verdict,” Strauch said Tuesday. “Where fair is fair and a deal is a deal.”
In a statement released Tuesday, Comerica CEO Ralph Babb Jr. stated the bank is considering appealing the verdict to the Montana Supreme Court.
Strauch said he is concerned that the bank may appeal the decision. He also expressed frustration that the penalty the company must pay is only a fraction of its entire worth.
“They did something wrong,” Strauch said. “Americans understand that and they are tired of it. This case just exemplifies the division of the haves and the have-nots.”
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