An investor in Regions Financial (RF) who is locked in a legal dispute with the bank over the title to a 45-foot class racing boat is claiming his case illustrates broader concerns about its corporate governance and oversight.
Charles Burnett 3rd, a philanthropist and racing enthusiast, sent an open letter to shareholders describing his personal dispute over a motor yacht called the Rum Runner and urging more scrutiny of how the bank resolves legal disputes.
Burnett urged shareholders to exercise "caution" in the election of the bank's 14 board members who are up for re-election at Regions' annual meeting on Thursday.
"This is an issue both of corporate governance and the proper stewardship of an organization which prides itself on its 'values' and its 'customer-driven strategy,'" Burnett wrote. "It is also most acutely an issue of the appropriate use of scarce capital resources."
In the letter to shareholders, Burnett also took issue with the company's recent decision to give Chief Executive Grayson Hall the additional title of chairman, arguing that banks that merge the titles of CEO and chairman "usually limit long-term shareholder returns compared to companies that split the roles."
Regions declined to comment on the legal fight with Burnett, which dates back to 2010 when Burnett sued the bank in the Southern District of Florida to gain quiet title to the racing boat. Burnett bought the fiberglass Cigarette Racing Team pleasure craft for $420,000 in cash in 2008 from a boat broker not knowing that the racing boat still had a mortgage on it, according to court documents.
The boat's original owner got a $562,000 loan in 2004 from Memphis-based Union Planters Bank, which was acquired that same year by Regions. Regions continued to receive mortgage payments on the boat until late 2010, when the borrower defaulted, court documents show.
Though Regions got a default judgment against the original borrower for roughly $360,000 plus interest, attorney's fees and costs, it also countersued Burnett and sought to foreclose on the racing boat as collateral against the loan.
In October, U.S. District Judge William Dimitrouleas ruled that although Burnett had legal title to the racing boat, it was subject to Region's mortgage and Region's was given the go-ahead to foreclose. The bank ultimately seized a four-year-old engine that was located in Florida but the boat's hull remains in a warehouse in Texas and the judge declined to allow Regions to foreclose on it, court records show. Burnett was ordered to pay $4,304 to Regions in legal fees.
Timothy Schulz, a West Palm Beach, Fla., lawyer who represents Burnett, said he has tried repeatedly to settle the legal dispute, even offering to pay an additional $150,000 to Regions, but has been repeatedly rebuffed.
"The frustration is this could result in more litigation and it just makes no sense at all," Schulz says, adding that Burnett is "frustrated, angry, bewildered and wants to point out to shareholders what's going on here."
Schulz claims the lawsuit resulted in a finding in which Judge Dimitrouleas ruled that the Federal Ship Mortgage Act does not preempt a valid defense under Florida's Uniform Commercial Code, thereby opening the door for further litigation between boat buyers and lenders over title and ownership issues.
Burnett could not be reached for comment because he is traveling abroad, Schulz said. But in the letter he wrote:
"Management has engaged me in a legal dispute without any seemingly rational objective." It is unclear how long he has been an investor in Regions or how many shares he owns.
He also alleged that Regions used "police state-like tactics to break down doors under cover of darkness to repossess a boat Regions does not have legal title to," referring to an arrest warrant the bank obtained in Galveston, Texas, to seize the boat.
"Regions' conduct on this matter seems to have no commercially reasonable motive," Burnett wrote. "All I want to do is enjoy my boat."