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Crawford Supply Group, Inc. v. LaSalle Bank

January 21, 2010

CRAWFORD SUPPLY GROUP, INC., FEIGER FAMILY PROPERTIES, LLC; THE ESTATE OF MIRIAM FEIGER; JAMES MAINZER, AS CO-TRUSTEE OF THE FEIGER IRREVOCABLE CHARITABLE LEAD TRUST AND THE STEVEN FEIGER CHILDREN'S TRUST, AND AS TRUSTEE OF THE SIEGFRIED-STEVEN 1983 TRUST, THE SIEGFRIED-STEVEN 1985 TRUST, THE JUDITH FEIGER TRUST, THE SIEGFRIED-JUDITH 1983 TRUST, THE SIEGFRIED-JUDITH 1985 TRUST, THE STEVEN-JORDYN FEIGER 1988 TRUST, AND THE STEVEN-ZACHARY FEIGER 1988 TRUST; THE FEIGER FAMILY INVESTMENT PARTNERSHIP; AND JUDITH FEIGER, INDIVIDUALLY, PLAINTIFFS,
v.
LASALLE BANK, N.A., DEFENDANT.



The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

Plaintiffs, a collection of trusts, beneficiaries, and businesses affiliated with the Feiger family, brought this action against Defendant LaSalle Bank, N.A. ("LaSalle") for allegedly facilitating the systematic embezzlement of funds by family accountant Robert Rome. Rome served as executor for Miriam Feiger's estate and as the trustee and fiduciary of the relevant family trusts and other accounts. According to Plaintiffs, Rome looted several checking accounts in his care, absconding with somewhere between $5 million and $6 million of Plaintiffs' money. In this lawsuit, Plaintiffs allege that LaSalle knowingly or in bad faith honored invalid checks from Rome, permitted Rome to improperly deposit trust monies into his personal accounts, executed unauthorized wire transfers on Rome's behalf, and allowed Rome to establish a fraudulent account at LaSalle to conceal his crimes. LaSalle denies these charges and moves to dismiss all claims under FED. R. CIV. P. 12.

For the reasons explained herein, Defendant's motion to dismiss is granted, and the complaint is dismissed without prejudice.

BACKGROUND

As this case comes before the court on a FED. R. CIV. P. 12 motion to dismiss, the court accepts as true all factual allegations of the complaint and draws all inferences in Plaintiffs' favor. See, e.g., Hukic v. Aurora Loan Services, 588 F.3d 420, 434 (7th Cir. 2009). The facts drawn from the complaint are as follows.

Plaintiffs are a group of family trusts, beneficiaries, and businesses affiliated with the family of Siegfried and Miriam Feiger. Siegfried Feiger is the family patriarch and founder of Crawford Supply Group, Inc. ("Crawford"), a plumbing supply business owned by the family and headquartered in Morton Grove, Illinois. Crawford and two related business entities, Feiger Family Properties, LLC, and Feiger Family Investment Properties Partnership, are among the Plaintiffs. Plaintiff James Mainzer is co-trustee of several family trusts established by Siegfried and Miriam Feiger and their children, Steven and Judith Feiger. Judith Feiger, in her individual capacity, and the estate of Miriam Feiger, who died in 1999, are also named as Plaintiffs. (Compl. ¶ 3-8.) Defendant LaSalle Bank is a national bank that has been a citizen of North Carolina since merging with Bank of America, N.A. in October 2008. (Notice of Removal, D.E. 1, at ¶ 2.) At the time that it removed this action to federal court, Defendant asserted that no Plaintiff (nor any member of the Plaintiff LLC) is a citizen of North Carolina. (Id.)*fn1

Seven of the Plaintiffs-the estate of Miriam Feiger, the Steven Feiger Children's Trust, the Lead Trust, Crawford, Feiger Family Properties, Feiger Family Investment Properties, and Judith Feiger-maintained checking accounts with LaSalle during the relevant period. (Compl. ¶ 15.)

Between January 10, 2003 and September 11, 2007, Plaintiffs' fiduciary, Robert Rome, embezzled at least $2.6 million from Plaintiffs' checking accounts at LaSalle. (Id.) Rome also improperly transferred at least $3.1 million in funds to his personal and business accounts at LaSalle from Plaintiffs' accounts at other banks. (Id. at ¶ 17.) Rome was accountant, trustee, executor, and fiduciary to the various Plaintiffs. In those capacities, he was charged with the management of Plaintiffs' funds and authorized to endorse checks and to deposit and transfer monies on Plaintiffs' behalf. (Id. at ¶ 18-19.)

Plaintiffs allege that LaSalle knew that Rome acted in a fiduciary capacity for Plaintiffs' funds. Copies of all trust agreements establishing the Plaintiff trusts, which identified Rome as trustee and instructed that Rome was to manage the trusts solely for the benefit of the trust beneficiaries, were on file with LaSalle. (Id. at ¶ 19.) Rome wrote checks from Miriam Feiger's estate to the order of "Robert Rome -- Executor" and the estate account named Rome as executor. Rome regularly referred to himself as Plaintiffs' trustee when drafting or endorsing checks and other documents sent to LaSalle on Plaintiffs' behalf. (Id.) The signature cards on all of Plaintiffs' accounts identify Rome as a fiduciary. (Id.) Though they do not explain how, Plaintiffs also allege that LaSalle was on notice that Rome's firm, Rome Associates, served as Plaintiffs' accountant. (Id.)

On 70 separate occasions, LaSalle accepted checks endorsed by Rome or transferred funds at Rome's instruction from Plaintiffs' accounts to Rome's personal accounts and business accounts for Rome Associates. (Id. at ¶ 15.) Plaintiffs assert that Rome was not authorized to make these transactions and that the checks accepted by LaSalle were therefore not properly payable. (Id. at ¶ 21.) Plaintiffs further assert that LaSalle permitted Rome to fraudulently open a joint checking account in the name of Judith Feiger, without Feiger's knowledge or consent, which Rome then used to launder some of the funds he embezzled from Plaintiffs' other accounts.*fn2 (Id.) To establish that account, which was held jointly in Rome's name, Plaintiffs allege that Rome forged Feiger's signature on deposit agreements and signature cards. (Id. at ¶ 27.) LaSalle never verified Feiger's identity or confirmed her authorization to open the account. (Id. at ¶ 29.)

Plaintiffs allege that LaSalle knew or should have known that Rome was breaching his fiduciary obligations to Plaintiffs by diverting funds for his own purposes, and that LaSalle's behavior amounted either to knowing assistance of Rome's crimes or bad faith on the part of the bank. (Id. at ¶ 22.) Plaintiffs assert that the checks and transfer records reveal on their face that Rome was diverting funds to his personal accounts, and, on certain occasions, Rome endorsed checks payable to him as trust fiduciary by signing only his own name. (Id.) Plaintiffs contend that Rome's transfer of Plaintiff's funds to his personal accounts "was indicative of malfeasance," and the frequency and size of the checking transactions and wire transfers that Rome directed were red flags that should have alerted LaSalle to Rome's embezzlement. (Id.) LaSalle neither investigated nor notified Plaintiffs of Rome's activities, however. Rome himself was actively lying to Plaintiffs by falsifying reports and account statements. (Id. at ¶ 31.) According to Plaintiffs, Rome's concealment and LaSalle's failure to investigate "prevented Plaintiffs from discovering the full extent of the embezzlement and LaSalle's participation." (Id. at ¶ 32.) The complaint gives no hint as to what has become of Rome, and he is not named as a party to this action.

Plaintiffs' complaint sets forth six claims for relief against LaSalle. First, Plaintiffs contend that LaSalle's conduct violates Section 4-401 of the Illinois Uniform Commercial Code, 810 ILCS 5/4-401, because the checks honored by the bank were neither authorized nor properly payable. (Compl. ¶ 34.) Next, Plaintiffs assert a common law conversion claim against LaSalle, claiming that the bank improperly assumed control over the funds deposited at Rome's direction and that the bank "engaged in a scheme, plan, or conspiracy to allow Rome to loot Plaintiffs' checking accounts." (Id. at ¶ 44.) Third, Plaintiffs assert what appears to be a common law negligence claim against LaSalle, which Plaintiffs characterize as "negligence amounting to bad faith," contending that "LaSalle breached its duties of reasonable care and good faith" by improperly following Rome's directions in honoring checks, wiring and accepting funds, and establishing a joint account for Judith Feiger without her knowledge or consent. (Id. at ¶ 52.) Fourth, Plaintiffs assert that LaSalle violated the Illinois Fiduciary Obligations Act, 760 ILCS 65/1 et seq., because the bank "was aware of facts sufficient to show that Rome was breaching his fiduciary duties," but the bank deliberately refrained from investigating further in a manner that amounted to bad faith. (Id. at ¶ 80.) In the complaint's remaining two counts, Plaintiffs assert a breach of contract claim against LaSalle and accuse LaSalle of tortiously aiding and abetting Rome's breach of fiduciary duty.

In July 2009, LaSalle moved to dismiss all counts of the complaint. Defendant contends that several of the Plaintiffs lack standing to bring this suit, and that the bank owed no duty at all to those parties who were not its customers. LaSalle further argues that Plaintiffs have failed to allege essential elements of their claims and that Plaintiffs' claims are precluded by the Illinois ...


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