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Jamaica Citizens Bank, Ltd. v. North American Special Risk Associates

United States District Court, Northern District of Illinois, Eastern Division

November 1, 1996


The opinion of the court was delivered by: Marovich, District Judge.


Now before the Court is Defendants North American Special Risk Associates, Inc.'s ("NASRA") and George A. Mellon's ("Mellon") (collectively "Defendants") motion to dismiss Plaintiff Jamaica Citizens Bank, Ltd.'s ("Jamaica Bank") Complaint pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons herein stated, the Court grants in part and denies in part Defendants' motion.


The following facts are set forth in Jamaica Bank's Complaint. NASRA is a closely-held Illinois corporation. Mellon is, and has been since March 1990, a shareholder, a director, and President of NASRA.

FTA Service Corporation, Inc. ("FTA Service") and FTA Card Services, Inc. ("FTA Card Services"), which is controlled by FTA Service, are closely-held Illinois corporations. FTA Card Services provides MasterCard processing services for banks. Kenneth E. Palmer ("Palmer") is the President of both FTA Service and FTA Card Services.

From 1987 to 1993, NASRA and Mellon were stockholders of FTA Service and FTA Card Services. In fact, by March 1990, NASRA, Mellon and Thomas J. Handler ("Handler"), NASRA's corporate attorney, together owned 69% of FTA Service's common stock and a 69% equity interest in FTA Card Services. Further, Mellon was a member of FTA Service's board of directors from FTA Service's incorporation in 1985 until June 26, 1993.

Jamaica Bank is a limited corporation, organized, existing and licensed to carry on the business of banking under the laws of Jamaica. On or about August 1, 1991, Jamaica Bank and FTA Card Services entered into a written agreement (the "Agreement"), under which FTA Card Services agreed to provide certain administrative and processing services to Jamaica Bank's MasterCard program. The Agreement provided that Jamaica Bank would establish an account at a bank designated by FTA Card Services; Jamaica Bank established the account (the "Account") at Southwest Suburban Bank in Bolingbrook, Illinois. Both FTA Card Services and Jamaica Bank were authorized to withdraw funds from the Account, to be used only as provided by the terms of the Agreement.

According to the Complaint, beginning in January 1993, FTA Service, presumably through FTA Card Services, began withdrawing large sums of money from the Account without the approval of Jamaica Bank and in contravention of the terms of the Agreement. All tolled, during the period from January 1993 to June 1993—the period during which (1) Mellon was a member of FTA Service's board of directors and (2) NASRA, Mellon and Handler owned 69% of FTA Service's common stock—FTA Service allegedly took over $900,000 from the Account.

On May 1, 1993, the directors of NASRA—Mellon, Nicholas J. Tegenkamp ("Tegenkamp"), and F. Donald Fleming ("Fleming")—entered into a resolution providing that NASRA "hereby abandons all right, title, and interest in its corporate stock holdings of FTA Card Services, Inc. and FTA Services Corp. effective immediately, and hereby authorizes the officers to execute any documents and undertake all steps necessary or desirable to carry out the intent and effect of this resolution." (Complaint ¶ 46; Ex. G.)

On June 24, 1993, FTA Service transferred $250,000 allegedly belonging to Jamaica Bank to NASRA and Mellon. This $250,000 payment purportedly was made in satisfaction of a $700,000 debt from FTA Service to NASRA and Mellon arising out of a royalty agreement entered into by FTA Service, Mellon and NASRA prior to 1990. According to the Complaint, none of FTA Service's financial statements for the period March 1990–June 1993 show any debt or obligation from FTA Service to NASRA or Mellon; and, accordingly, "From March 1990 to June 26, 1993, NASRA and Mellon were concealed creditors of FTA Service Corporation." (Complaint ¶ 20.)

On June 26, 1993, letters were sent to Palmer by Mellon and by Tegenkamp, for NASRA, notifying FTA Service that both NASRA and Mellon immediately abandoned any right, title and interest they had in FTA Service stock and stating that all FTA Service stock certificates possessed by Mellon and NASRA had been destroyed.

The Complaint alleges that after transferring the $250,000 to Mellon and NASRA, FTA Service and FTA Card Services possessed insufficient funds to satisfy their $900,000 indebtedness to Jamaica Bank. Further, the Complaint asserts that, at the time of the $250,000 payment, Mellon and/or NASRA knew that FTA Service (1) was in dire financial straits, (2) would be unable to pay NASRA and Mellon $250,000 out of annual net income, and (3) would be unable to repay Jamaica Bank any of the monies improperly withdrawn from the Account, including the $250,000 used to make the payment to NASRA and Mellon.

The Complaint attempts to state claims against Mellon and NASRA for each of the following: fraudulent conveyance of assets in violation of the Illinois Uniform Fraudulent Transfer Act (the "Illinois Act"), 740 ILCS 160/1 et seq. (Count I); fraudulent conveyance of assets in violation of Illinois common law (Count II); tortious interference with business relations (Count III); tortious interference with contract (Count IV); conspiracy to defraud creditors (Count V); and breach of duty (Count VI).


A. Standards for a Motion to Dismiss

When considering a motion to dismiss, the Court examines the sufficiency of the Complaint, not the merits of the lawsuit. Triad Assocs. v. Chicago Hous. Auth., 892 F.2d 583, 586 (7th Cir.1989), cert. denied, 498 U.S. 845 (1990). "[T]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). A motion to dismiss will be granted only if the Court finds that the plaintiff can prove no set of facts that would entitle it to relief. Venture Assoc. Corp. v. Zenith Data Systems Corp., 987 F.2d 429, 432 (7th Cir.1993); Conley v. Gibson, 355 U.S. 41, 45–46 (1957). On a motion to dismiss, the Court draws all inferences and resolves all ambiguities in the plaintiff's favor and assumes that all well-pleaded facts are true. Dimmig v. Wahl, 983 F.2d 86, 86 (7th Cir.), cert. denied, 510 U.S. 861 (1993).

B. Counts I and II

In Counts I and II of its Complaint, Jamaica Bank alleges that FTA Service's $250,000 payment to NASRA and Mellon constituted a fraudulent conveyance of assets in violation of both Illinois common law and the Illinois Act. Initially, Jamaica Bank argues that FTA Service's payment to Defendants constitutes a "fraud in law."

As correctly noted by Jamaica Bank, an asset transfer that is made for no or inadequate consideration, notwithstanding the actual or contemplated existence of an indebtedness against the transferor that is unlikely to be satisfied by the transferor's retained assets, is deemed to be fraudulent in law; fraud is presumed and the actual intent of the transferor is irrelevant. See 740 ILCS 160/6(a); Effingham State Bank v. Blades, 487 N.E.2d 431, 435 (Ill.App.1985). Yet, here, Jamaica Bank has failed clearly (and, consequently, adequately) to allege that FTA Service and/or FTA Card Services made the $250,000 payment for "no or inadequate" consideration. Indeed, the opposite is true; Jamaica Bank repeatedly alleges that, in fact, Mellon and NASRA were "concealed creditors" of FTA Service, possessing a $700,000 claim for royalties, fees and other amounts due pursuant to a royalty agreement between FTA Service and NASRA.

While Jamaica Bank argues in its brief that the purported $700,000 debt was (and is) a sham and points to the Complaint's allegations as to the absence of any entries indicating the existence of such a debt in FTA Service's financial statements to bolster its argument, the allegations contained in, and the structure of, Jamaica Bank's Complaint belie this claim. Throughout the Complaint, Jamaica Bank consistently refers to the absence of entries in FTA Service's financial statements in support of its claim that FTA Service, NASRA and Mellon fraudulently failed to disclose the existence of the royalty obligation to Jamaica Bank prior to Jamaica Bank's signing of the Agreement; indeed, Jamaica Bank states again and again that, "Prior to June 1993, NASRA and Mellon were concealed creditors of FTA Service Corporation and FTA Card Services Inc." (Complaint ¶¶ 68(e), 76(e); see also Complaint ¶¶ 20, 23, 92, 99(a).) If Jamaica Bank is, in actuality, attempting to plead its fraud claims in the alternative, it must set forth its alternative contentions more clearly and understandably, for, as presently drafted, Jamaica Bank's allegations as to the disguised existence of a $700,000 debt from FTA Service to NASRA and Mellon defeat the "fraud in law" claim.

Jamaica Bank next argues that its Counts I and II state a cause of action for fraudulent conveyance under a "fraud in fact" theory. See 740 ILCS 160/5(a)(1); Crawford County State Bank v. Doss, 528 N.E.2d 436, 440–41 (Ill.App.1988). An asset transfer fraudulent in fact is one that is made with a "specific intent to 'disturb, delay, hinder or defraud' a creditor." Regan v. Ivanelli, 617 N.E.2d 808, 813 (Ill.App.1993) (quoting Gendron v. Chicago & North Western Transp. Co., 564 N.E.2d 1207 (1990)).

Defendants contend that Jamaica Bank's Counts I and II fail to plead a claim for "fraud in fact" with the specificity required by Fed.R.Civ.P. 9(b) because Jamaica Bank does not allege facts (1) demonstrating the source of Mellon's and NASRA's awareness of FTA Service's $900,000 debt to Jamaica Bank and (2) identifying when or how Defendants learned of FTA Service's "weak financial condition"; yet, Rule 9(b) does not require that these facts be alleged with the particularity sought by Mellon and NASRA. Rather, Rule 9(b) specifically provides that, "Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Thus, Jamaica Bank's allegation of certain facts constituting "badges of fraud"—that is, facts which, when viewed together, may give rise to an inference that Mellon and/or NASRA actually intended to defraud Jamaica Bank by authorizing the $250,000 payment to NASRA, see 740 ILCS 160/5(b); In re FBN Food Services, Inc., 185 B.R. 265, 275 (N.D.Ill.1995), aff'd, 82 F.3d 1387 (7th Cir.1996)—, along with its general allegations concerning Mellon's and NASRA's knowledge of the $900,000 debt, intent to deceive and/or defraud, and awareness of FTA Service's poor financial health, are (barely) sufficient to state legally cognizable claims for fraudulent transfer of assets under the Illinois Act and Illinois common law.

C. Counts III and IV

In Count III, Jamaica Bank asserts against Defendants a claim for tortious interference with business relations; and, in Count IV, Jamaica Bank attempts to state a cause of action for tortious interference with contract. In support of these tortious interference claims, Jamaica Bank alleges the following: (1) the existence of a valid contract/business relationship between Jamaica Bank and FTA for the provision of administrative and processing services for Jamaica Bank's MasterCard program; (2) NASRA's and Mellon's knowledge of the existence of this contract/business relationship; (3) that Mellon and NASRA, acting for their own benefit, knowingly and intentionally caused FTA Service to breach its contract/undermine its business relationship with Jamaica Bank by causing FTA to withdraw a total of $900,000 from the Account without Jamaica Bank's approval and to transfer $250,000 of that money to NASRA and Mellon; and (4) that following the $250,000 transfer, FTA Service possessed insufficient funds with which to satisfy their $900,000 indebtedness to Plaintiff. Thus, on its face, Jamaica Bank's Complaint alleges facts that, if proved, would seem to entitle Jamaica Bank to relief for tortious interference with contract/business relations.

Defendants suggest in their brief, however, that as a director of FTA Service, Mellon "cannot be deemed an outsider intermeddling maliciously in the business affairs of the corporation." (Def. Reply Brief, p. 11.) In short, Defendants suggest that Mellon was "privileged" to interfere with FTA Service's contract with Jamaica Bank.

While it is certainly true that a corporate officer or director "may, for a proper business purpose and in good faith, influence the actions of the corporation," this "qualified privilege does not apply where officers act solely for their own gain or solely for the purpose of harming plaintiff since such conduct is not under taken to further the corporation's interest." Mittelman v. Witous, 552 N.E.2d 973, 987 (Ill.1989) (citations omitted). Hence, a corporate officer or director who acts maliciously or without justification may be liable for tortious interference. Id.; see also MGD, Inc. v. Dalen Trading Co., 596 N.E.2d 15, 18 (Ill.App.1992); Langer v. Becker, 531 N.E.2d 830, 833 (Ill.App.1988). As succinctly stated by the Seventh Circuit:

Corporate officers are not outsiders intermeddling maliciously in the business affairs of the corporation. They are privileged to act on behalf of their corporations, using their business judgment and discretion.... In light of [the policies sought to be served by immunity], Illinois law requires—to state a cause of action against corporate officers for interfering with their corporate principal's contract—the allegation of facts which, if true, establish that the officers induced the breach to further their personal goals or to injure the other party to the contract, and acted contrary to the best interest of the corporation.

George A. Fuller Co. v. Chicago College of Osteopathic Medicine, 719 F.2d 1326, 1333 (7th Cir.1983) (citations omitted).

Here, Jamaica Bank does allege in its Complaint facts which, if accurate, demonstrate that Mellon caused FTA Service's breach of the Agreement in order to further his own personal interests; accordingly, Jamaica Bank states a potentially valid tortious interference cause of action against Mellon, as well as against NASRA. Yet, the Court sees no reason why Jamaica Bank needs, or is entitled, to pursue two substantially identical tortious interference claims. Consequently, the Court dismisses as duplicative Jamaica Bank's Count III claim for interference with business relations.

D. Count V

Count V of Jamaica Bank's Complaint asserts that Defendants conspired to defraud the creditors of FTA Service—namely, Jamaica Bank—by (1) concealing FTA Service's indebtedness to NASRA and Mellon from Jamaica Bank and (2) causing $250,000 of Jamaica Bank's funds to be transferred from FTA Service to NASRA and Mellon, notwithstanding their knowledge of FTA Service's weak financial condition. While Defendants correctly note that, because the acts of a corporate agent are deemed to be the acts of the corporation itself, a corporation generally cannot conspire with its officers, directors and/or employees, Healy v. CTP, Inc., 1994 WL 46898, at *1 (N.D.Ill. Sept. 22, 1994), an agent and his corporate principal can be liable for conspiracy if it is shown that the agent acted outside the scope of his employment and/or acted to achieve some personal gain. See Nagy v. Riblet Products Corp., 1992 WL 318604, at *5 (N.D.Ind. July 2, 1992); Mehl v. Navistar Int'l Corp., 670 F.Supp. 239, 241 (N.D.Ill.1987). Thus, because Jamaica Bank repeatedly alleges that Mellon acted outside the scope of his employment with NASRA and participated with NASRA in a scheme to defraud Jamaica Bank in order to advance his own financial interests, Jamaica Bank has stated a potentially valid civil conspiracy claim against Mellon and NASRA.*fn1

E. Count VI

Finally, in Count VI of the Complaint, Jamaica Bank claims that Defendants breached their duty to Jamaica Bank by causing FTA Service to make a $250,000 payment to Mellon and NASRA in satisfaction of a concealed debt at a time when Mellon and NASRA knew that such a payment would render FTA Service unable to satisfy its obligations to other creditors, including Jamaica Bank. As noted by Jamaica Bank, " 'Officers and directors of insolvent corporations become trustees with the duty to see that the assets are devoted to the payment of corporate debts, without preferring one creditor over another.' " (Pltf.Resp.Brief, p. 15) (quoting Tigrett v. Pointer, 580 S.W.2d 375, 383 (Tex.Civ.App.1978) (citations omitted)); see also In re Reuscher, 169 B.R. 398 (S.D.Ill.1994); Johnson v. Central Standard Life Ins. Co., 243 N.E.2d 376, 383 (Ill.App.1969); New York Credit Men's Adjustment Bureau v. Weiss, 110 N.E.2d 397, 398 (N.Y.1953). Thus, Jamaica Bank's allegations that Mellon and NASRA, knowing and/or believing FTA Service to be effectively insolvent, used their dominant position at FTA Service to cause FTA Service to make a $250,000 payment in satisfaction of Defendants' debt, to the detriment of Jamaica Bank's ability to recover on its debt, state a cognizable claim for breach of duty.*fn2

In concluding, the Court notes that Jamaica Bank's Complaint is far from a model of clarity—its factual averments often are unclear, if not contradictory; its apparent attempt to plead certain matters in the alternative is, at present, unsuccessful; and its identification and presentation of legal claims is confusing, at best. Thus, while the Court concludes that, with respect to each of the identified causes of action, the Complaint adequately alleges facts which, if true, would entitle Jamaica Bank to relief and, where necessary, sufficiently complies with the dictates of Fed.R.Civ.P. 9(b), the Court suggests that the filing of an Amended Complaint more clearly and carefully setting forth Jamaica Bank's factual allegations and legal claims may be in order.


For the foregoing reasons, the Court denies Defendants' motion to dismiss Counts I, II, IV, V and VI of Jamaica Bank's Complaint. The Court grants Defendants' motion to dismiss Count III. The Court grants Jamaica Bank three weeks from the date of this Memorandum Opinion and Order to file an Amended Complaint, if they so choose.

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