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Independent Trust Corporation v. Stewart Information Services Corporation

February 7, 2011

INDEPENDENT TRUST CORPORATION,
AN ILLINOIS CORPORATION NOW IN RECEIVERSHIP, PLAINTIFF,
v.
STEWART INFORMATION SERVICES CORPORATION,
A DELAWARE CORPORATION; STEWART TITLE GUARANTY COMPANY,
A TEXAS CORPORATION;
AND STEWART TITLE COMPANY, A TEXAS CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Judge John W. Darrah

MEMORANDUM OPINION AND ORDER

Plaintiff, Independent Trust Corporation ("InTrust"), by its receiver Pricewaterhouse Coopers LLP ("PwC"), brought suit against Defendants, Stewart Information Services Corporation ("SISCO"), Stewart Title Guaranty Company ("STG") and Stewart Title Company ("Stewart Title") (collectively, "Stewart"). InTrust's claims relate to a fraud scheme perpetrated by the Intercounty Title Insurance Company of Illinois ("Intercounty"), a company with various ties to Stewart. Before the Court is Stewart's Motion to Dismiss.

BACKGROUND

The following background is taken from Plaintiff's Complaint and is assumed to be true for purposes of this motion.

A ponzi scheme was perpetrated by Laurence Capriotti and Jack Hargrove in the 1980s and 1990s. Capriotti and Hargrove were owners and officers of Intercounty, which was in the business of issuing title insurance policies and providing real estate closing services. As part of the business, Intercounty created and managed an escrow account. Beginning in 1986, Intercounty illegally invested escrow funds in junk bonds in an attempt to increase earnings. Intercounty lost money on its junk bond investment, and by 1989 Intercounty was left with a $25.8 million shortfall in its escrow account. To avoid disclosing these losses, Intercounty operated its escrow account "on the float," using money from new transactions to pay off earlier escrowers.

SISCO, STG and Stewart Title are in the business of underwriting title insurance in connection with real estate transactions.*fn1 Beginning in 1984, Intercounty served as STG's agent in and around Chicago, Illinois. Stewart Title also contractually agreed to insure escrow funds that Intercounty managed as STG's agent. Additionally, Stewart Title had a twenty percent ownership interest in Intercounty. Stewart was aware of Intercounty's investment in junk bonds and its subsequent losses. Stewart allowed Intercounty to fire its independent auditors so that Intercounty's losses and scheme to run the escrow account on the float would not be detected.

At this time, Capriotti and Hargrove were also directors of InTrust, which was the trustee for nearly 20,000 trust accounts, primarily individual retirement accounts, collectively valued at over $1 billion. Hargrove also had an ownership interest in InTrust. To cover the shortfall in Intercounty's escrow account, Capriotti and Hargrove caused InTrust to transfer tens of millions of dollars of InTrust account-holder funds to Intercounty. Intercounty used the transferred funds to pay amounts owed from its escrow account. Had Intercounty not been able to make these payments, Stewart, as insurer of funds escrowed in connection with STG transactions, would have had to cover the losses. Intercounty also used the funds from InTrust to pay insurance premiums and other fees to Stewart. Between December 1990 and the end of 1995, $40.9 million in InTrust account-holder funds were transferred to the Intercounty escrow to cover the losses Stewart had been paid to insure. As much as $27 million of InTrust account-holder funds were transferred directly to Stewart or to third parties for Stewart's benefit.

In 1994, the Illinois Commissioner of the Office of Banks and Real Estate ("OBRE") began investigating InTrust's relationship with Intercounty. However, it was not until February 2000 that the OBRE learned that the funds InTrust had transferred to Intercounty were actually missing. On April 14, 2000, the OBRE took control of InTrust and placed it in receivership. PwC was appointed as receiver. PwC, on behalf of InTrust, pursued civil suits against Capriotti, Hargrove, Intercounty and ITI Enterprises, Inc., a company Hargrove and Capriotti had set up. PwC obtained judgment against all defendants in the amount of $68 million. Although the judgment against Hargrove was overturned on appeal, PwC later settled its claim against Hargrove for $50 million.

In 2003, Capriotti and Hargrove were indicted in federal court. Capriotti pled guilty to a four-count federal indictment in June 2005, admitting, inter alia, that he and Hargrove participated in a scheme to defraud InTrust. In September 2005, following a five-week jury trial, Hargrove was convicted on ten counts of a superseding indictment, which included allegations that Hargrove had participated in a scheme to defraud InTrust.

On July 15, 2010, PwC, on behalf of InTrust, filed the instant five-count Complaint against Stewart. PwC brings claims for Money Had and Received (Count I), Unjust Enrichment (Count II), Vicarious Liability for Intercounty's Tortious Conduct (Count III), Aiding and Abetting Breach of Fiduciary Duty (Count IV) and Conspiracy (Count V).

ANALYSIS

In ruling on a motion to dismiss, the court must accept as true all well-pleaded factual allegations and draw reasonable inferences in favor of the plaintiff. Sprint Spectrum L.P. v. City of Carmel, Ind., 361 F.3d 998, 1001 (7th Cir. 2004). Federal Rule of Civil Procedure 8(a)(2) requires that the complaint contain a "short and plain statement of the claim showing that the pleader is entitled to relief." To meet Rule 8(a)(2)'s requirements, the complaint must describe the claim in sufficient detail to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964 (2007) (Bell Atlantic) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Plaintiff's allegations "must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level'; if they do not, the plaintiff pleads itself out of court." E.E.O.C. v. Concentra Health Serv., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (citing Bell Atlantic, 550 U.S. 544, 127 S. Ct. at 1965, 1973 n. 14).

Stewart moves to dismiss based, in part, on the statute of limitations, which it claims has long since run. A statute-of-limitations argument is an affirmative defense. See Fed. R. Civ. P. 8(c). Thus, a plaintiff need not plead facts to defeat it in the complaint. United States v. Northern Trust Co., 372 F.3d 886, 888 (7th Cir. 2004). However, when a complaint sets out all the elements of a defense, a 12(b)(6) motion should be granted. United States v. Lewis, 411 F.3d 838, 842 (7th Cir. 2005).

The parties entered into a series of agreements that tolled the statute of limitations from October 12, 2001, through the date the Complaint was filed. Thus, the question is whether InTrust's claims were time barred by October 12, 2001. Stewart argues, without objection, that the five-year statute of limitations set out in 735 ILCS 5/13-205 applies to all of InTrust's claims. Stewart also argues, again without objection, that the acts giving rise to InTrust's claims occurred no later than August 1996. Thus, applying the five-year statute of limitations, InTrust's claims ...


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