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MARC DEV. v. WOLIN

October 23, 1995

MARC DEVELOPMENT, INC., an Illinois corporation, KEITH-MARC PROPERTIES, LTD., an Illinois limited partnership, and BROWN LEASING, INC., f/k/a CAPITOL LEASING COMPANY, Plaintiffs,
v.
PHILIP A. WOLIN, BRIAN McLAUGHLIN, GERALD J. DeNICHOLAS and ALEX M. VERCILLO, Defendants.



The opinion of the court was delivered by: MORAN

 Plaintiffs Marc Development, Inc. ("MDI"), Keith-Marc Properties, Ltd. ("KMPL") *fn1" and Brown Leasing, Inc. ("Brown Leasing" or "Brown") *fn2" brought this action against Philip A. Wolin, Brian McLaughlin, Gerald J. DeNicholas and Alex M. Vercillo under § 503 of the Federal Reserve Act, 12 U.S.C. § 503, and under Illinois common law torts of intentional interference with contract, intentional interference with prospective business advantage, fraud and conversion. Before us now are defendants Wolin and DeNicholas' motions for summary judgment on those claims that remain against them. *fn3" Jurisdiction is proper under the rules of federal subject matter and supplemental jurisdiction. 28 U.S.C. §§ 1331, 1367. For the reasons set forth below, defendant DeNicholas' motion is granted, and defendant Wolin's motions are granted in part and denied in part.

 FACTS

 In the summer of 1989, Cosmopolitan National Bank ("Cosmopolitan") and Brown Leasing entered into two unrelated contracts, one of which resulted in Brown's participation in Cosmopolitan's funding of MDI/KMPL's real estate development in Utah ("Utah participation agreement"), and the other in Cosmopolitan's participation in four notes held by Brown ("four participations"). At issue here is Cosmopolitan's application of one of MDI/KMPL's loan repayments to Brown's share of the loan under the Utah participation agreement, and the Bank's subsequent setoff of the payment against Brown's obligations under the four participations. Plaintiffs allege that the application and setoff were fraudulent, tortious and in breach of contract and, further, that the Bank acted at the direction of Cosmopolitan's legal counsel (defendant Wolin), Cosmopolitan's executive vice-president, chief financial officer and director (defendant DeNicholas), Cosmopolitan's senior officer (defendant McLaughlin), and Cosmopolitan's president, chief operating officer and director (defendant Vercillo), all of whom were acting to further their own personal interests.

 The Utah participation agreement was part of a financing arrangement that Terry Brown, the principal of Brown Leasing, and Marc Kaplan, the principal of MDI/KMPL, took to Cosmopolitan in 1989. MDI/KMPL entered into a $ 5 million loan agreement with the bank, secured by three trust deeds ("Utah loan"). Brown Leasing was, in turn, going to participate in the loan, and it did enter into the Utah participation agreement with Cosmopolitan. There were, thus, two agreements. One was set forth in the rather voluminous Utah loan documents executed by MDI/KMPL and Cosmopolitan. The other was a form Certificate of Participation entered into between Brown Leasing and Cosmopolitan. Under the Utah participation agreement, Brown Leasing participated with Cosmopolitan up to the amount of $ 3.354 million of the up to $ 5 million loan to MDI/KMPL for development of property near the Deer Valley Ski Resort in Utah. Upon complete repayment of the Utah loan, or, as plaintiffs contend, repayment of Cosmopolitan's share, the Bank was to release the three trust deeds that had been used by MDI/KMPL to secure its indebtedness. The plaintiffs contend, and the record supports, that the parties anticipated that the Bank share of the loan would be repaid prior to Brown Leasing's share. This was plaintiffs' suggestion, according to Terry Brown, in order to make the loan more attractive to Cosmopolitan: the Bank was to advance its funds only after Brown Leasing advanced its funds and the Bank was to be paid first. Neither the Utah loan agreements nor the Utah participation agreement, however, so provided, and in practice the Bank was the first in rather than last in, although the initial repayments were credited solely to Cosmopolitan.

 By November 1990, the amount outstanding under the Utah loan was approximately $ 1.78 million, all of which had been advanced by Cosmopolitan. At this point the Bank, which was experiencing financial difficulty, indicated that it would provide no more money under the Utah loan. Although Brown Leasing loaned an additional $ 2.239 million to MDI/KMPL for the project in 1991, plaintiffs contend that this sum was neither intended nor construed to be part of the Utah loan, as evidenced by separate promissory notes issued by MDI/KMPL to secure the loans. Defendants counter with a number of documents, some signed by plaintiffs themselves, which characterize Brown's loans as being part of the Utah loan in fulfillment of its obligations under the Utah participation agreement.

 In a wholly separate June 1989 transaction, Cosmopolitan purchased from Brown undivided participations and interests in four notes held by Brown. Allegedly at the direction of Cosmopolitan, Brown took most of the proceeds from these four participations and loaned them to Jerome Cosentino, a state politician ("Cosentino loan"). Plaintiffs allege that Cosmopolitan guaranteed the Cosentino loan, despite the fact that the guaranty document was drafted on the letterhead of Cosmopolitan's parent company, Cosmopolitan Bancorp Inc., rather than on Cosmopolitan's letterhead. By late 1990, the Cosentino loan was in default and Cosmopolitan, the alleged guarantor, had not bought back the loan. Brown ceased paying Cosmopolitan its obligations under the four participations and initiated a lawsuit against Cosmopolitan to compel it to comply with the guaranty agreement and release Brown's interests in the four participations. During this period, Cosmopolitan alleges that Brown received approximately $ 325,000 from the owner of one of the notes, proceeds which Brown did not share with Cosmopolitan despite the mandate of the four participations agreement. Brown contends that its obligations to Cosmopolitan were not due when the Bank performed the setoff at issue here.

 On or around the day of the wire transfer, and one week prior to the setoff, Cosmopolitan had received a letter from the law firm of Kwiatt & Silverman, Brown's attorneys, demanding that MDI/KMPL's $ 858,000 payment be applied in one of the following two ways ("Kwiatt & Silverman demand letter"):

 
1. Pay Brown . . . its " . . . pro rata share of that portion of the payment of collection which is attributable to principal at the rate stated" in the [Utah] Participation Agreement (a sum we calculate to be approximately $ 575,000);
 
2. Or for Cosmopolitan to forthwith release all right, title and interest it may have in and to the collateral referred to in said Participation Agreement since Cosmopolitan's interest therein has been fully satisfied and Cosmopolitan is therefore barred from asserting further claims in and to the Collateral referred to in the said Participation Agreement.

 Although the letter states that Kwiatt & Silverman represented MDI, as well as Brown, MDI/KMPL contends that it never authorized Kwiatt & Silverman to prepare the demand letter on its behalf and it was sent without its advance knowledge or approval. Plaintiffs further assert that Cosmopolitan's setoff did not comply with the language or spirit of either option.

 The application and setoff had a dual effect. First, MDI/KMPL's collateral was not returned because Cosmopolitan claimed that money was still owed under the Utah loan. Second, plaintiffs allege that by applying the MDI/KMPL payment to the four participations, defendants were able to report to federal regulators that there was an outstanding amount due on the MDI/KMPL loan and that the four participations -- which had formerly been labeled troubled assets because of the pending lawsuit over the parties' obligations -- were now performing assets. Plaintiffs allege that defendants purposely misrepresented the status of both loans in an attempt to injure Brown, MDI and KMPL, and to inflate the assets of Cosmopolitan to avoid closure of the bank by federal regulators.

 Plaintiffs further contend that defendants were motivated by personal interests in maintaining the financial viability of Cosmopolitan. They argue that defendants had organized a group named Phoenix Financial to acquire control of Cosmopolitan, with DeNicholas and Wolin acting as principal investors in Phoenix, DeNicholas and Vercillo running it, and McLaughlin waiting for acquisition so he could become an integral part of the new bank management after Phoenix had acquired the Bank. At the time of the setoff and the months preceding it, Phoenix's alleged acquisition attempt was in jeopardy because the Federal Deposit Insurance Corporation (FDIC) had threatened to take the failing financial institution into receivership. Phoenix's alleged fears about FDIC intervention were justified. Shortly after the setoff at issue here the FDIC was appointed receiver of Cosmopolitan, despite defendants' alleged recordkeeping "creativity," and no entity, including Phoenix, was able to acquire it.

 This suit was brought against the four named defendants, all of whom it is alleged acted outside their authority as agents of Cosmopolitan in causing the bank to apply MDI/KMPL's payment to Brown and subsequently set off the payment against the four participations. Defendant Wolin, who advised the bank to engage in the application and setoff, and defendant DeNicholas, who authorized these actions, now move for summary judgment on those claims that remain against them.

 DISCUSSION

 I. Counts I and V: Intentional Interference with Contractual Relations

 A. Privilege

 Initially, however, we address whether Wolin, Cosmopolitan's counsel, and DeNicholas, the Bank's officer, are insulated from the tortious interference claims against them. In Illinois, agents and employees enjoy a qualified privilege to counsel their employers on matters pertaining to contract performance, a privilege which shields them from claims of tortious interference with contract when the advice results in the employers' breach of contract. See Prince v. Zazove, 959 F.2d 1395, 1397 (7th Cir. 1992). The privilege applies both to attorneys advising their clients and officers of corporations acting on their corporations' behalf. See id.; HPI Health Care Services, Inc. v. Mount Vernon Hosp., Inc., 131 Ill. 2d 145, 545 N.E.2d 672, 677, 137 Ill. Dec. 19 (Ill. 1989).

 1. Attorney Wolin's Privilege

 While "an attorney is privileged to advise a client and to take action on a client's behalf," the privilege is lost if the attorney exhibits actual malice toward the plaintiff in advising his client. Prince v. Zazove, 959 F.2d at 1397. See also Salaymeh v. InterQual, Inc., 155 Ill. App. 3d 1040, 508 N.E.2d 1155, 1160, 108 Ill. Dec. 578 (Ill.App. 1987); Nat. Bank v. Arlington Heights Federal Sav. & Ass'n, 37 Ill. 2d 546, 229 N.E.2d 514, 517 (Ill. 1967). Actual malice is found when an attorney possesses a desire to harm, unrelated to the legitimate interest that he was presumably seeking to protect. Prince v. Zazove, 959 F.2d at 1397.

 We note at the outset that the "actual malice" test requires us to consider the intent and motivation of a party, issues that have been held to be inappropriate for summary judgment when they dominate a claim. See White Motor Co. v. United States, 372 U.S. 253, 259, 9 L. Ed. 2d 738, 83 S. Ct. 696 (1963) (summary judgment inappropriate "where motive and intent play leading roles"); Stumph v. Thomas & Skinner, 770 F.2d 93 (7th Cir. 1985) ("summary judgment is improper in a discrimination case where a material issue involves any weighing of conflicting indications of motive and intent"). Furthermore, on a motion for summary judgment "we must view the record and all inferences drawn from it in the light most favorable to the party opposing the motion." Holland v. Jefferson Nat. Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989) (citations omitted). A plaintiff's conclusory statements alone, however, are insufficient to withstand a motion for summary judgment without factual support. See id.; Nat. Bank v. Arlington Heights, 229 N.E.2d at 518 (charge of actual malice must be supported by factual allegations).

 Here MDI/KMPL and Brown Leasing allege that Wolin's actions were malicious because they were harmful, wrongful, and in his personal interests. They assert that Wolin intentionally induced Cosmopolitan's breach of the Utah loan and the Utah participation agreement in order to put his own project, Phoenix Financial, in a more opportune position. Evidence of Wolin's involvement in Phoenix, a group intent on acquiring the very bank for which he was providing counsel, lends factual support to these assertions. We find that plaintiffs have raised a reasonable inference of actual malice.


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