Temple-Inland Purchased Despite $1 Billion Lawsuit Pending Against It

Pending Lawsuit

The lawsuit recently filed by the liquidation trustee for GFGI Liquidation Trust against Temple-Inland in the Northern District of Texas alleges more than $1 billion in damages. The suit accuses Temple-Inland, which owned Guaranty Bank from the 1980s until 2007, of intentionally burdening Guaranty Bank with risky securities and further injuring the bank by illegally extracting hundreds of millions in dividends, and then spinning off Guaranty Bank as its own corporation destined for certain failure.

The lawsuit further alleges that directors of Guaranty Financial Group breached their fiduciary duties when they repeatedly approved the dividend payments to Temple-Inland, even though Guaranty Bank needed the capital.

Fiduciary Duties Owed by Directors

One of the fiduciary duties allegedly violated by GFG directors was the duty of loyalty. Under Texas law, corporate directors owe a duty of loyalty to the corporation to act in the corporation’s best interest. This duty of loyalty commands a director to act in good faith and to not allow their personal interests to come before the interests of the corporation. A director is considered “interested,” and thus potential violating their duty of loyalty, when they do any of the following:

• They make a personal profit from a transaction directly with the corporation or steal a corporate opportunity
• They buy or sell assets of the corporation
• They transact business in their director capacity with another corporation in which they are also a director or are significantly financially involved with
• They transact corporate business in their official director capacity with a family member

Filing a suit against corporations for fraud can be a complex and difficult process, with claims against officers and directors adding even additional pleading hurdles. It is best to know the law and consult with a knowledgeable attorney before attempting a lawsuit against a corporate entity.