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Willmott v. Federal Street Advisors

December 19, 2006

PETER S. WILLMOTT, PLAINTIFF,
v.
FEDERAL STREET ADVISORS, INC. AND BANK OF AMERICA, N.A., DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff Peter S. Willmott ("Willmott" or "Plaintiff") brings suit against Federal Street Advisors, Inc. ("Federal Street") and Bank of America, N.A. ("BOA") for various state law violations in contract and in tort. The Complaint against Federal Street and BOA arises as a result of embezzlement from Willmott's accounts by Rose Erwin ("Erwin"), Willmott's personal secretary, that resulted in Erwin's criminal conviction. Willmott now seeks to recover against Federal Street and BOA for violations of their agreements with Willmott that Willmott alleges facilitated Erwin's criminal conduct.

BOA has filed two motions pursuant to Federal Rule of Civil Procedure 16(c) to address specific legal issues that BOA alleges bar Plaintiff's claims.*fn1 First, BOA moves for a determination that any damages Plaintiff seeks in Count VI of Plaintiff's Amended Complaint - breach of contract -are properly characterized as consequential damages and are not recoverable. Because some of the damages are direct and some of the damages are consequential, and consequential damages are barred by the terms of the contract, the Motion is granted in part and denied in part. Second, BOA moves to eliminate all the claims against it claiming that they are barred by the Illinois Fiduciary Obligations Act. Because the Court finds that a genuine material fact exists as to whether Erwin was acting as Willmott's authorized fiduciary, this Motion is denied.

Facts

Willmott is a resident of Illinois who has been a director of various large companies since the 1970's. BOA's Statement of Undisputed Facts ("BOA 56.1 Facts") at ¶ 1, 5. Willmott used BOA's "Private Bank" services and maintained checking and deposit accounts, lines of credit, and custodial accounts with collateral for the lines of credit. Id. at ¶ 6. Willmott had two separate lines of credit at the Bank, each established pursuant to written loan agreements (the "Loan Agreements"). Id. at ¶ 15; Willmott's Statement of Additional Undisputed Facts ("Willmott 56.1 Facts") at ¶ 11. Willmott also had a checking account #5423309 (the "Checking Account") through BOA. BOA 56.1 Facts at ¶ 10. Several employees at BOA worked in the Private Bank division and worked with Willmott's various accounts, although the parties dispute the scope of their relationship with Willmott's finances. Willmott 56.1 Facts at ¶¶ 1-6.

In December 1998, Willmott hired Erwin as his executive assistant.Am. Cmplt. at ¶ 10. Willmott hired Erwin to replace Joan Noble, his prior executive assistant, in whom he had given substantial authority over his financial affairs. BOA 56.1 Factsat ¶ 9. Willmott expected Erwin to provide the same services as Ms. Noble. Id. Two months after Erwin had been hired, Willmott executed and delivered an unconditional power of attorney that empowered Erwin to write checks on the Checking Account. Id. at ¶ 10. The terms of the Checking Account agreement with BOA required Willmott to review his monthly statements and report any unauthorized transactions to BOA. Id. at ¶ 13.

According to Willmott, from February 1999 through May 2004 Erwin abused her authority by writing $11 million in checks drawn on the Checking Account for the benefit of herself and her family. Id. at ¶ 11. Willmott fired Erwin immediately when he discovered the fraud in May 2004. Id. at ¶ 12. Erwin pled guilty to criminal prosecution for embezzlement and is currently serving a prison term. Id.

During the period from February 1999 through May 2004, BOA disbursed advances on Willmott's lines of credit of approximately $18 million, over the course of 120 separate draws. Id. at ¶ 16. Willmott claims that BOA breached the Loan Agreements by honoring Erwin's draw requests because the Loan Agreements prohibited BOA from permitting advances on the lines of credit without a written authorization on file, and Erwin did not have Willmott's written authorization. Id. at ¶ 18. Willmott executed two letters to BOA around the same time as he granted full authorization to Erwin to draw on the Checking Account, each of which granted Erwin "Power of Attorney over my accounts to sign checks, do wire transfers, and wire funds" and included a list of some account numbers and some prior loan confirmation numbers. Id. at ¶ 19.

Willmott admits that some of the advances on the lines of credit were authorized by him, but disputes that the two letters gave blanket authorization to Erwin to draw on the lines of credit. Id. at ¶ 20, BOA's Second Statement of Material Facts ("BOA Second 56.1 Facts") at ¶ 16. The two employees who were responsible for the banking relationship when Willmott hired Erwin testified that they believed Erwin was authorized to make requests for draws from the lines of credit. BOA Second 56.1 Facts at ¶ 12. All of the BOA employees who dealt with Erwin testified that prior to May 2004 they never had any suspicions about Erwin. Id. at ¶ 11.

All of the advances on the lines of credit (other than rollovers from previous loans) were deposited into the Checking Account. BOA 56.1 Facts at ¶ 21. Erwin embezzled the funds by writing checks from the Checking Account, for which she had authorization. Id. at ¶ 11. Willmott has asserted that the damages from Erwin's conduct can be calculated by assessing the difference between the amount Erwin advanced from the lines of credit and the amount of credit Willmott legitimately needed, calculated as the difference between his legitimate expenses over the period and his deposits over the same period. Id. at ¶ 24.

Discussion

BOA moves for Rule 16(c) clarification via two separate motions. The first motion seeks to clarify as a matter of law that the money Erwin embezzled from the Checking Account is properly characterized as consequential damage from any breach of the Loan Agreements, and to clarify that Plaintiff cannot recover consequential damages from BOA because the terms of the Loan Agreements bar suits to recover consequential damages. The second motion seeks to eliminate all of the counts against BOA - breach of contract, breach of fiduciary duty, negligence, and deceptive trade practices - on the theory that the claims are barred by the Illinois Fiduciary Obligations Act, 760 ILCS 65/1 et seq. Because the second motion potentially disposes of all claims, including the claim at issue in the first motion, the second motion is addressed first.

Rule 16(c)(1) allows a court to take any action regarding "the formulation and simplification of the issues, including the elimination of frivolous claims or defenses." Fed. R. Civ. P. 16(c)(1). The Advisory Committee Notes regarding subsection (c) clarify that "formulation" of issues "is intended to clarify and confirm the court's power to identify the litigable issues. . . in the hope of promoting efficiency and conserving judicial resources by identifying the real issues prior to trial, thereby saving time and expense for everyone." Comments to Rule 16(c); see also Premier Transport, Ltd. v. Nextel Communications, Inc., 2003 WL 21267096 (N.D. Ill. June 2, 2003) (addressing a Rule 16(c)(1) motion to dismiss plaintiff's consequential damages claim). The parties have completed the discovery necessary to reach the merits of the particular claims at issue in these motions and have filed statements of material facts in accordance with the standards governing summary judgment. Therefore, the motions will be treated as motions for partial summary judgment pursuant to the requirements of Rule 56. Accord Premier Transport, 2003 WL 21267096 at *2.

Motions pursuant to Rule 56(c) shall be granted if "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed R. Civ. P. 56(c). Summary judgment is appropriate where there is no genuine issue as to any material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). This Court views evidence and draws all reasonable inferences in favor of the non-moving party. Michas v. Health Cost Controls of Ill, Inc., 209 F.3d 687, 692 (7th Cir. 2000). Once a moving party has demonstrated that summary judgment is appropriate, the opposing party must do more than "simply show that there is some metaphysical doubt as to material facts" to ...


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