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United States District Court, N.D. Illinois

March 25, 2004.


The opinion of the court was delivered by: JOAN GOTTSCHALL, District Judge



At dispute in this case is payment of a $280,000 cashier's check tendered by defendant Velislav Timotijevic to plaintiff Chicago Title & Trust Co. ("Chicago Title") as part of a real estate transaction on July 25, 2001. The check was indorsed by Timotijevic and drawn on Page 2 Superior Bank, FSB (the "Bank"), which was declared insolvent and immediately put into a receivership managed by the Federal Deposit Insurance Corporation ("FDIC") on July 27, 2001. Chicago Title failed to present Timotijevic's cashier's check for payment prior to the Bank's being declared insolvent, and because of the Bank's insolvency, the FDIC suspended Chicago Title's payment on the check.

  To recover its $280,000 Chicago Title sued Timotijevic for indorser liability under Illinois state law and also submitted a claim to the FDIC as manager of the Bank's receivership estate. Timotijevic subsequently filed a third party complaint against the Bank,*fn1 seeking to recover from the Bank any amount for which this court might find him liable to Chicago Title as the check's indorser. Pursuant to federal law governing the distribution of insolvent banks' assets, the FDIC reviewed and ultimately allowed Chicago Title's claim. See 12 U.S.C. § 1821. In satisfaction, the FDIC issued a check to Chicago Title for the full insured amount, $209,292,38, and a receiver's certificate*fn2 for the remaining uninsured amount, $70,846.73, of the $280,000 cashier's check. To date, the FDIC has paid Chicago Title 54.5% of its outstanding uninsured amount.

  Now before the court are Chicago Title's motion for summary judgment, Timotijevic's motion for summary judgment, and the FDIC's motions to dismiss. The FDIC Page 3 argues in its motions to dismiss that federal law controls this action and through the mandatory administrative review process, it has fulfilled Chicago Title's claim to the fullest extent permitted by the law. Since there are no damages remaining for this court to assess, the FDIC argues, Chicago Title's complaint seeking recovery from Timotijevic, and Timotijevic's complaint seeking recovery from the FDIC, are rendered moot and must be dismissed for failure to state a claim upon which relief may be granted. FED. R. ClV. P. 12(b)(6). Timotijevic argues in his summary judgment motion that he is in no way liable to either Chicago Title or the FDIC for any portion of the check's value. And Chicago Title insists in its motion for summary judgment that a claim still lies against Timotijevic for indorser liability and that it is entitled to recover from him the amount left unpaid by the FDIC distributions. For the following reasons, FDIC's motions to dismiss the complaints are granted, and Chicago Title's and Timotijevic's cross-motions for summary judgment are denied as moot.


  In evaluating a motion to dismiss the court must accept as true all well-pleaded factual allegations and draw all plausible inferences in favor of the plaintiff. Hernandez v. City of Goshen, 324 F.3d 535, 537 (7th Cir. 2003). Dismissal for failure to state a claim is warranted only if the plaintiff can prove no set of facts that would entitle him to relief. Lee v. City of Chicago, 330 F.3d 456, 459 (7th Cir. 2003). The complaints in this case essentially seek to recover payment of a cashier's check indorsed and drawn on a bank that was subsequently declared insolvent. The FDIC argues that because it has fully settled Chicago Title's claim for payment on the check through administrative proceedings mandated by 12 U.S.C. § 1821(d), the factual dispute underlying the complaints has been resolved and no further relief can be Page 4 granted. In opposing the FDIC's motion to dismiss, Chicago Title argues that the Illinois Uniform Commercial Code establishes the rights and liabilities of parties to a commercial paper transaction like the one in this case and that state law permits Chicago Title to maintain an action against Timotijevic for indorser liability. Because federal and not state law controls the disposition of the cashier's check in this case, the court agrees with the FDIC.

  From the moment a federally insured banking institution is declared insolvent and the FDIC is appointed receiver, federal law governs the distribution of the bank's assets. 12 U.S.C. § 1821(c).*fn3 As receiver, the FDIC is responsible for, among other things, liquidating the bank's assets and paying creditors and depositors in an organized and fair manner. See 12 U.S.C. § 1821(d). Further, the declaration of a bank's insolvency not only "trigger[s] the liquidation process," but also "casts in stone the relationship" of creditors to the bank. FDIC v. McKnight, 769 F.2d 658, 661 (10th Cir. 1985). See also American Nat'l Bank v. FDIC, 710 F.2d 1528, 1540 (11th Cir. 1983); Rockford Housing Authority v. FDIC, No. 84 C 6600, 1986 U.S. Dist. LEXIS 16898, at *5 (N.D. Ill. Dec. 4, 1986). In this case it is undisputed that on July 25, 2001, Timotijevic indorsed and tendered a $280,000 cashier's check to Chicago Title and that on July 27, 2001 — before Chicago Title presented the check for payment — the Bank was declared insolvent and the FDIC was appointed the Bank's receiver. Thus, on July 27, 2001, Chicago Title's rights vis a vis the Bank were fixed and defined by federal law. Page 5

  The FDIC avers that it fully complied with federal law when it reviewed Chicago Title's claim for the value of the cashier's check and allowed the claim in full, a fact which is not disputed by either Timotijevic or Chicago Title. Further, Chicago Title concedes that the FDIC paid it in full for the insured portion of the check, issued it a receiver's certificate in full satisfaction of the remainder, and provided payments accounting for about 54% of the uninsured remainder. The FDIC contends that a receiver's certificate is a valid and acceptable manner of payment to a creditor of an insolvent bank, 12 U.S.C. § 1821(d)(10)(a); Battista v. FDIC, 195 F.3d 1113, 1116 (9th Cir. 1999) ("There is no question that the FDIC may pay creditors with receiver's certificates instead of with cash."), and Chicago Title has not provided any legal authority to contradict this contention. Chicago Title advances only one argument for why this court should find that it is entitled to recover from Timotijevic and that is because Timotijevic is liable as an indorser under Illinois rules for negotiable instruments.

  Because federal law controlled the fate of the unpaid cashier's check once the Bank became insolvent, the FDIC assumed liability for paying the check consistent with the statutory provisions of its receivership. When the Bank was declared insolvent, the FDIC converted all of its outstanding and unpaid cashier's checks from negotiable instruments to unclaimed deposits by operation of federal law. See 12 U.S.C. § 1813(1)(4). Once that occurred, the cashier's check at issue here was no longer governed by any "special rules" applicable to negotiable instruments and Timotijevic was no longer liable as the check's indorser under Illinois law. Acevedo v. First Union Nat'l Bank, 357 F.3d 1244, at *7 (11th Cir. 2004). Had Chicago Title presented the cashier's check for payment prior to the Bank's being declared Page 6 insolvent, and had the check been dishonored before the declaration of insolvency, then perhaps Chicago Title would have a claim against Timotijevic. But that is not what happened here.

  Chicago Title understandably wishes to recoup all of its losses, even the uninsured portions, from the $280,000 cashier's check, but federal law does not guarantee dollar-for-dollar recovery from an insolvent banking institution. Instead, Chicago Title must face "the harsh reality and consequences of [the Bank]'s insolvency," McKnight, 769 F.2d at 662, and accept the terms provided by the FDIC for the satisfaction of its claim.


  For the foregoing reasons, the FDIC's motions to dismiss the complaints are granted, and Chicago Title's and Timotijevic's cross-motions for summary judgment are denied as moot.


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