Remmels Made Decision to Sell, Herrington Says

Phil Herrington offered a profound apology when the owners of Rebsamen Insurance Co. learned in October 2000 that he had been in talks for months about selling the company to Regions Financial Corp.

A longtime family financial adviser and member of Rebsamen’s board of directors, Herrington pushed for Ruth Rebsamen Remmel and her family to sell to the Birmingham, Ala., bank. The Ruth Remmel Revocable Trust and the other family members agreed and sold the company in February 2001 for $40.2 million.

Just over two years later, the trust and the Remmel family have filed a $20 million lawsuit accusing Herrington and Rebsamen CEO Allen J. McDowell of duping them into selling the company just before business improved dramatically so they could share more than $2.5 million in incentives.

Herrington received about $1.25 million and McDowell received more than $1 million, the family said.

The family has also named Regions as a defendant in the suit.

Herrington and McDowell, in court filings, have denied any wrongdoing.

Herrington said in his response filed last week that, regardless of the sales pitch, the bottom line is the family agreed to the sale.

Regions has asked Pulaski County Circuit Court Jay Moody to enforce an arbitration clause in the sale contract. The family’s attorney, James H. Penick III of Little Rock, said he had anticipated Regions might make that legal argument.

“That will be addressed in due course,” he said.

The acquisition by Regions occured during the same month the bank paid $789 million for brokerage firm Morgan Keegan Inc. of Memphis. It was the first major rollup of cross-sector financial industry firms by a traditional southern bank, a move made possible by The Gramm-Leach-Bliley Act of 1999.

The Act repealed most of the 1933 Glass-Steagall Act and the 1956 Bank Holding Company Act, which fragmented commercial and investment banking and insurance as a hedge against another domino collapse of the financial markets after the Great Depression.

The Morgan Keegan division is apparently not involved in the new litigation.

Herrington Inc.

At the center of the lawsuit is Herrington, the 50-year-old CEO and president of Herrington Inc. of Little Rock, a private equity firm that has developed golf courses and country clubs across the country.

The Remmel and Herrington versions of events in the case are so far apart they don’t even agree on what year Herrington became a member of Rebsamen’s board of directors.

The family said he started in 1986, while Herrington said it was in 1987.

In either case, Herrington joined a company that was well known for its professional and consistent performance as a regional private broker of insurance products.

Ruth Remmel’s father, Raymond Rebsamen, founded Rebsamen Insurance Corp. in Little Rock in 1928. By 2001, it was the state’s largest independent insurance agency with annual revenue of $26 million.

After Herrington joined as a board member, he quickly became the Remmel family’s trusted financial adviser. The family said Herrington’s relationship with them was extensive and pervasive; he acted as a personal “watchdog” over the family’s financial interests.

The roots of the deceit, as the Remmel family sees it, started sometime in the last half of 1999, when Herrington and McDowell, who was hired as CEO in 1991, secretly contacted potential buyers of Rebsamen, including Marsh & McLenna, Aon Insurance and Stephens Inc.

In August 1999, Herrington encouraged his fellow board members to approve a better employment contract for McDowell. The new package included a $50,000 raise to $375,000 annually and a $500,000 bonus in the event Rebsamen was sold. McDowell also was set to receive another $537,000 annually for three years from Rebsamen if the company was sold.

At no time did Herrington or McDowell tell shareholders or board members of any potential buyers of the company, the family said. The Remmels weren’t interested in selling, but “Herrington and McDowell, however, had their own interests and agenda to consider, at the expense of the plaintiffs,” the family said in its lawsuit.

In late February 2000, Herrington and McDowell learned that Regions wanted to dive into the Arkansas insurance market and it had an interest in buying Rebsamen, the family said.

But Regions’ interest in the company was not revealed to Rebsamen’s board.

Herrington and McDowell also released the company’s confidential financial information to Regions without consent from the shareholders or the board, the family said.

At that point, Herrington and McDowell, neither of whom owned stock in Rebsamen, stopped chasing other companies and focused solely on Regions, the family said.

Discovery

The board said it “was shocked” to learn in October 2000 — during a board discussion of a search for a successor to McDowell, who was planning on retiring — that Herrington and McDowell had been in talks with Regions about a possible sale.

Herrington “finally disclosed to the shareholders and full board that there was interest in purchasing Rebsamen,” the family said. And Herrington added that a draft contract was “under review” and that closing could occur in 45-60 days.

Herrington and McDowell recommended the family sell. Up until this time, neither Herrington nor McDowell had given any hint that Rebsamen should be for sale because of market conditions or financial uncertainties in the insurance industry.

“In truth, it was apparently the worst possible time to sell an insurance company, due to the hardening of the insurance market, of which Herrington and McDowell either knew, or should have known, but failed to disclose to the shareholders,” the complaint said.

Another bombshell for the family: Herrington also announced that he was now switching sides from the trusted family investment counselor and board member to broker. He expected to received a 3 percent commission if the sale closed.

At the board meeting on Oct. 16, 2000, “Ruth Remmel specifically stated to the members present that she was very surprised that anyone was thinking about selling Rebsamen and if it was left up to her there would be no sale,” the family said.

The next day, Herrington wrote Ruth Remmel and sent a copy to her children, Mary Remmel Wohlleb and Raymond Remmel saying he was sorry that he didn’t inform them earlier about the offer.

“You feel as a group I have surprised you with a project I had neither the right nor the authority to explore,” he said in a handwritten four-page note. “I accept your judgment on this matter.”

He said he hadn’t thought the talks with Regions were going to lead anywhere and “was surprised Regions moved as quickly as they did.”

He assured the family: “I had no ulterior motive nor any separate agenda.”

Herrington said he felt a responsibility to make sure Regions’ interest was legitimate before revealing the company’s intentions. He also said his mistake should not influence them when considering the offer.

“I also do not want to be the cause of any problems in assessing any of the options before you,” he wrote. “All I want is to see your family enjoy the success you so richly deserve.”

On Herrington and McDowell’s advice, the family sold the company. The sale also included the Rebsamen’s building, which was valued at $4.4 million.

After the family sold, Rebsamen’s business took off, increasing 40 percent in the fall of 2001 over the same period in 2000.

The family believes “that the particular increase was not due to any ‘Regions factor,’ but was simply based on business in place at the time of Regions’ purchase.”

McDowell said in his response that the reason Rebsamen’s business took off after the sale was because Rebsamen acquired Regions’ property and casualty business and a one-time profit of its adjusting company, which was earned as a result of the severe ice storms in Arkansas.

Herrington, McDowell and Regions are being sued on several counts including conspiracy, deceit and unjust enrichment.

The family is seeking at least $20 million in damages.

Herrington’s Side

In an extensive response to the complaint, Herrington said it was Ruth Remmel, the largest shareholder of Rebsamen Insurance Inc., who authorized him — after a lunch meeting in late 1999 — to explore potential prospects for the sale of Rebsamen.

He said he had to keep a lid on the potential sale of the company, though. Publicly placing the company on the auction block would have been viewed as a sign of weakness and could have lowered the value of the company, he said.

But it was the family members who ultimately decided to sell their stock in Rebsamen Insurance after several months of negotiations with Regions, he maintains in his answer.

From October 2000 through February 2001, the trust and family received professional advice from two law firms and an accounting firm before the sale, he said.

The Remmel family was “not pressured to sell their stock, and they sought and received advice concerning various scenarios that included not selling at all, but they ultimately decided that they wanted to sell their stock in return for cash, which they bargained for and received,” Herrington said.

Herrington also said he worked with other advisers to the Remmel family in responding to the family’s requests for information about the sale. And Herrington said it was he who suggested, given some concerns expressed among family members about conflicts of interest among professionals, that family members each obtain separate attorneys.

Herrington said he repeatedly told the Remmel family that the future of Rebsamen Insurance was good. He also advised “that the Remmel family needed to be comfortable with any transaction in which they would sell their stock to Regions Financial Corp., or they should not agree to the transaction,” Herrington said.

Herrington believes the Remmel family, like many investors, suffered significant losses after the Sept. 11, 2001, terrorist attacks.

Herrington didn’t manage any investments for the Remmel family after the sale. In fact, Herrington said he declined repeated requests by Remmel family members to invest in transactions in which Herrington Inc. was involved.

McDowell, in his answer, also denied that he and Herrington “ever set in motion any ‘inducements’ to sell” Rebsamen.

Herrington, McDowell and Regions have asked the judge to dismiss the case.

McDowell has remained at Rebsamen as president.