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

November 1, 1996

JAMAICA CITIZENS BANK, LTD., PLAINTIFF,
v.
NORTH AMERICAN SPECIAL RISK ASSOCIATES, INC. AND GEORGE A. MELLON, DEFENDANTS



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

MEMORANDUM OPINION AND ORDER

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.

BACKGROUND

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 ...


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