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FDIC v. WELLS

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION


June 26, 1995

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for The Cosmopolitan National Bank of Chicago, Plaintiff,
v.
JAMES E. WELLS, GERALD J. DENICHOLAS, MICHAEL CARELLI, PAUL V. CARELLI, IRVING NAIDITCH, ROBERT BURSTEIN, ALEX M. VERCILLO, MYRON ALCOCK, ROBERT G. CUNNINGHAM, FRED R. REISEMAN, SAMUEL C. MADONIA, RICHARD ROSENOW and JAMES S. STEFO, Defendants.

The opinion of the court was delivered by: MARVIN E. ASPEN

MEMORANDUM OPINION AND ORDER

 MARVIN E. ASPEN, District Judge:

 Presently before the court is plaintiff Federal Deposit Insurance Corporation's ("FDIC") motion to strike an affirmative defense of defendants Rosenow, Stefo, Alcock, Madonia, Naiditch, DeNicholas, and Vercillo. *fn1" For the reasons set forth below, plaintiff's motion is granted.

 I. Discussion

 The FDIC brought this action, alleging that defendants, former directors and officers of the Cosmopolitan National Bank of Chicago, were grossly negligent in approving loans and transactions and in failing to supervise the Bank's lending function, despite repeated warnings from banking regulators. In response, the above-named defendants filed an affirmative defense, alleging that they relied in good faith upon federal banking regulators for advice and counsel regarding the loans. It is well established, however, that "'FDIC's own conduct cannot be used to defeat or reduce a recovery to the insurance fund because the FDIC does not act to benefit bank officers and directors.'" FDIC v. Bierman, 2 F.3d 1424, 1439 (7th Cir. 1993) (quoting FDIC v. Isham, 782 F. Supp. 524, 532 (D. Colo. 1992)) and cases cited therein. Further quoting from Isham, the Bierman court stated, "'Moreover, the FDIC's conduct in fulfilling its mandate involves discretionary decisions that should not be subjected to judicial second guessing.'" Id. Defendants suggest that Bierman is inapplicable because that case dealt with post-closing activities of the FDIC, namely, the FDIC's alleged failure to mitigate damages after it stepped in as receiver. The reasoning of Bierman and the several cases upon which it relies, however, applies more broadly than defendants suggest. See, e.g., Bierman, 2 F.3d at 1439 n.17. Indeed, in Isham, the court expressly struck several defenses related to the FDIC's pre-closing regulatory conduct, including ratification, consent, acquiescence, and reliance on banking regulators. Isham, 782 F. Supp. at 532. See also FDIC v. Cheng, 832 F. Supp. 181, 186 (N.D. Tex. 1993) (finding "affirmative defenses based on federal regulatory conduct before or after the failure of Guaranty Federal . . . legally insufficient"). *fn2"

 Defendants also attempt an end-run of this significant body of caselaw, suggesting that they are not attempting to blame the FDIC, or hold it liable for the losses at issue in the present action, and that the above cases are thus inapposite. We find this argument a bit disingenuous. In effect, defendants are suggesting that, because the banking regulators advised them that their actions were acceptable, they should not be held liable for gross negligence. While this may not amount to seeking to hold the FDIC liable, it is clearly an attempt to shift the blame for any improprieties from defendants to the FDIC. Such an attempt is, of course, inconsistent with the cases cited above.

 Defendants also suggest that, if they are able to prevail on the merits of their "reliance" argument, they will not be found to have been grossly negligent. While this may be true as a practical matter, it is certainly not true as a legal matter, and the latter is our concern. See RTC v. Gallagher, 1992 U.S. Dist. LEXIS 18281, No. 92 C 1091, 1992 WL 370248, at *3-4 (N.D. Ill. Dec. 2, 1992) (motions to strike are appropriate when defense cannot succeed as a matter of law). That is, although the FDIC's allegations relating to defendants' alleged gross negligence include their purported failure to heed the regulatory warnings, its allegations supporting the claim of gross negligence are not limited to that failing; they also include approving insider loans, approving unsafe third-party loans, and failing to supervise the bank's lending function. And failure to heed is neither an element of, nor necessary to a finding of, gross negligence. In light of these facts, defendants' unsupported argument is simply empty. While defendants are free to deny the FDIC's allegation regarding their reliance, or lack thereof, on federal banking regulators, and to submit proof with respect to that issue, there is simply no basis for the putative affirmative defense. Accordingly, the defense must be stricken.

 II. Conclusion

 For the reasons set forth above, any affirmative defense relating to the corresponding defendant's purported reliance on federal banking regulators is stricken. It is so ordered.

 MARVIN E. ASPEN

 United States District Judge

 Dated June 26, 1995


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