A federal judge in Alexandria has ordered two former top officials of the troubled Equity Programs Investment Corp. (EPIC) real estate empire to pay a shareholder $58,000 in damages after finding that they misled him about the spinoff of a subsidiary.
In a decision handed down yesterday, Judge Albert V. Bryan Jr. said evidence in a two-day trial last month showed that former EPIC executives Tom J. Billman and Clayton C. McCuistion were "guilty of making fraudulent representations" in 1983 about their intentions in setting up a company called EPIC Mortgage Servicing Inc. (EMSI).
The former minority shareholder who filed the suit, William J. Harnett, gave an account of what he was promised at a series of meetings that was far different from the accounts given by Billman and McCuistion.
"The court accepts Harnett's version of the meetings for the most part," the judge said in a 14-page decision.
Bryan ruled that Billman's and McCuistion's misrepresentations to Harnett in 1983 were "sufficiently egregious to constitute a willful and wanton disregard" of Harnett's shareholder rights. Bryan awarded Harnett $23,665 in compensatory damages from Billman and McCuistion, as well as $10,000 in punitive damages from McCuistion and $25,000 in punitive damages from Billman.
Thomas E. Patton, Harnett's lawyer, said, "We're pleased that Mr. Harnett's rights as a shareholder have been vindicated, after a two-year effort."
Billman, McCuistion and their lawyers could not be reached for comment.
EPIC, a Falls Church-based subsidiary of Community Savings and Loan of Bethesda, deepened the Maryland savings and loan crisis when it announced in August that it could not pay its mortgage obligations. Maryland officials have placed EPIC and Community under state control.
Earlier this year, Billman withdrew from the EPIC real estate conglomerate in a complex set of financial transactions. Billman no longer has any formal position at EPIC, which he founded in 1975 and dominated for 10 years.
A few weeks ago, Maryland officials removed McCuistion from his positions at EPIC and Community.
Harnett, chairman of Washington Homes Inc., a Waldorf home builder, invested $5,000 in EPIC when it was formed in 1975, and was a 1 percent owner. Harnett has filed three other lawsuits in Virginia and Delaware against EPIC entities.
For years, an EPIC subsidiary called EPIC Mortgage Inc. had made money in the field of mortgage servicing, which involves collecting mortgage payments, taxes and other fees from property owners and forwarding them to the appropriate recipients.
In February and March 1983, around the time EPIC was merging into Community Savings and Loan, Billman offered Harnett 1,250 shares in a new company, EMSI, which Billman said would perform the mortgage servicing work that EPIC Mortgage Inc. had done. Billman and McCuistion said EMSI also would service EPIC's own rapidy growing mortgage portfolio, according to Harnett's testimony.
Harnett testified that Billman told him that EPIC Mortgage Inc. would transfer a number of employes to EMSI and give it access to powerful computers. He said he agreed to the stock arrangement because of these promises.
Harnett testified that 20 months later, he found out that EMSI's business had not grown at all since its creation in March 1983, and that EPIC Mortgage Inc. was performing EPIC's new mortgage servicing business. In addition, testimony showed that without Harnett's knowledge, EMSI had agreed in a side contract to have EPIC Mortgage Inc. perform EMSI's actual mortgage servicing work -- meaning that EMSI never actually did any work, or had any employes.
The judge wrote that even though Harnett believed EMSI was an active company, "it had no listed telephone, office, stationery or tangible assets."
Billman and McCuistion denied wrongdoing. Billman testified that he never told Harnett that EMSI would perform EPIC's future mortgage servicing. Billman also testified that the mortgage servicing arrangement he set up was "more economical" than the one Harnett thought was in place.
The judge wrote that some of Billman's and McCuistion's explanations are "not convincing," and that he believes Harnett's version over theirs.
The judge wrote that Billman's punitive damages were larger than McCuistion's because Billman is "the more culpable of the two."
Bryan dismissed Harnett's charges of fraud against three EPIC-related companies.