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Crawford Supply Group, Inc., Feiger ) Family Properties, LLC; the v. Bank of America

August 23, 2011


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


Plaintiffs, the Feiger Family Investment Partnership ("FFIP") and other related entities (collectively, "Feiger"), have sued Defendant Bank of America ("the Bank") for the role played by the bank's predecessor in an embezzlement scheme orchestrated by Feiger's accountant and trustee, Robert Rome. The Bank now seeks partial summary judgment absolving it from liability for eight checks that the Bank paid, between March 2004 and April 2005, from the account of FFIP into the personal account of Robert Rome at Harris Bank.*fn1 The court has previously examined many of the allegations made by Plaintiffs in ruling on Defendant's motion to dismiss, which was granted in part and denied in part. See Crawford Supply Group, Inc. v. Bank of America, N.A., No.09 C 2513, 2011 WL 1131292 (N.D. Ill. March 28, 2011). In that ruling, the court dismissed all of Plaintiff FFIP's claims under the Uniform Commercial Code; to the extent the Bank now seeks summary judgment on those claims, the motion is moot. The Bank's motion argues that FFIP's common law claims are supplanted by the UCC, but the court explained earlier that common law claims survive unless they are inconsistent with the UCC, 2011 WL 1131292, at *15, and the Bank has not yet explained how FFIP's common law claims are inconsistent with the Code. Finally, the Bank argues that there are no disputes of material fact as to whether the Bank acted with actual knowledge of Rome's wrongdoing or ignored it in bad faith and should therefore be shielded from liability by the Illinois Fiduciary Obligations Act ("FOA"), 760 ILCS 65/1 et seq. For the reasons explained herein, the court disagrees and denies the motion for summary judgment.


As noted, Defendant Bank of America's motion focuses on eight checks paid from the Feiger Family Investment Partnership account at its bank into Robert Rome's personal account at Harris Bank. (Def.'s 56.1(a) ¶¶ 12, 16, 17.) The eight checks, signed by Robert Rome and made payable to "Robert Rome, Trustee," are in the following amounts: $17,000, April 18, 2005; $16,000, March 17, 2005; $16,000, February 17, 2005; $17,000, January 17, 2005; $35,000, July 12, 2004; $16,000, June 7, 2004; $16,000, March 17, 2004; $18,000, March 10, 2004. (Id. ¶¶ 15, 16; Def.'s Ex. 1.) The parties agree that two of these checks were flagged for additional review, but eventually cleared. (Def.'s 56.1(a) ¶ 17; Pl.'s Resp. ¶ 17; Def.'s Supp. ¶ 19; Pl.'s Supp. Resp. ¶ 19.) Defendant contends that two of the checks were flagged by "standard industry software" (the name of the software or other details about it are not specified) either because the amount of the checks was greater than the average amount of the checks drawn on that account, or because their serial numbers were "out of range." (Def.'s 56.1(a) ¶ 17.)*fn2 (Id.) According to Defendant, one check, No. 1119, written July 12, 2004, for $35,000, was reviewed by a check analyst and approved without further inquiry; the Bank offers no information concerning the identity of the check analyst, what he/she reviewed it for, or the reason(s) the check was ultimately approved for payment. (Id.) Defendant reports that the second flagged check, Check No. 1095, dated March 17, 2005, and drawn for $16,000, "was apparently referred to the account officer, and he approved it." (Id.) Again, the Bank offers no further details (id. ¶¶ 17), but the check bears the notation "Marcus Montanye 4-7984 - 4-0889" and "SE[]F SIG OK." (Def.'s Supp. Resp. ¶ 21.) Defendant does not explain this notation, but Plaintiffs assert that it was account officer Marcus Montanye who approved the second check, and then in his deposition denied having done so (the court notes Montanye also testified that he does not remember the check). (Pl.'s Resp. ¶ 17; Pl.'s Ex. 14, Deposition of Marcus Montanye, at 46-50.) (Id.) Defendant has not identified who actually reviewed the checks at issue; instead, the Bank asserts that two individuals named June Kroll and Susie Wong would have been the "analyst management team responsible for review" of the flagged checks, but also that a review "would have been performed by all analysts." (Def.'s Supp. Resp. ¶ 19.)

In January 2003, more than a year before the first of the checks at issue was paid by the Bank, the Bank conducted a field audit of a company with which Rome was affiliated named Northwestern Golf, to which the Bank had loaned $20 million. (Def.'s Supp. Resp. ¶¶ 24, 26.) That audit "identified a complete break-down of controls, a complete lack of proper reporting procedures, computer system manipulation, and severe accounting regularities." (Id.) The Bank concluded that "[t]hese issues have cast a serious doubt about the current management's ability to exercise prudent and proper decision making ability" and raised serious questions as to "the ability of the business to continue as an on-going business concern." (Id.) Bank representatives met with Northwestern Golf representatives, who "maintained that these were all unintentional accounting system issues and not intentional fraud." (Id. ¶ 25.) Mitch Rasky, a loan officer in the Bank's asset-based lending group, nevertheless believed that one accounting regularity-characterizing past due receivables as current receivables-was intentional on Northwestern Golf's part. (Id.)

In February 2003, these irregularities were brought to the attention of LaSalle Bank CEO Norm Bobins, who said he "would like to work with this client as long as possible. I do not believe they are dishonest, but I do believe they have made mistakes. I have particular confidence in their accountant, Bob Rome." (Id. ¶ 26.) Four months later, however, on June 17, 2003, Rasky wrote a memo recommending that the Bank "immediately bring in a forensics accountant who can help us build up a case against management and Rome & Assoc (their accountant) for what appears to be gross irregularities." (Id. ¶ 27.) On February 25, 2005, LaSalle Business Credit, an entity affiliated with the Bank, sued Rome, Rome Associates, and a number of other individuals involved with Northwestern Golf for fraud, alleging that they had "engaged in a lengthy and clandestine scheme in which they falsified numerous financial statements, Collateral Reports and other financial reports and documents." (Id. ¶ 28.)

Before the first of the checks at issue in this case were deposited, Bank officials began investigating a second business with which Rome was involved. On March 4, 2004, accountant Craig Graff executed an affidavit related to Builders Plumbing & Heating Supply Co., which had declared bankruptcy in December 2003. (Id. ¶¶ 32, 33.) Graff stated that his review of Builders' financial books revealed that Builders' bankruptcy estate "may be entitled to recover substantial damages from [Builders'] independent auditor, Rome Associates" because Rome Associates lacked independence from its client, and because the October 30, 2003, financial statement it certified "contain[ed] material misrepresentations." (Id. ¶32.) Graff also concluded that Builders and one of its subsidiaries had delivered "kitchen cabinets, fixtures and appliances" to Rome worth more than $500,000 over the course of several years, that neither Rome nor anyone else paid for these goods, and that there had been a "fictitious" payment from Rome to Builders of $225,000. (Id. ¶ 34.) On June 22, 2005, the bank sued Rome, Rome Associates, and another individual for $14.6 million for accounting malpractice in connection with the Builders Plumbing & Heating bankruptcy, and eventually settled the case with Rome's insurance carrier for $2 million. (Id. ¶ 38.)

The Builders bankruptcy and the Northwestern Golf lawsuit threatened the financial situation of Rome and Rome Associates. As of January 12, 2004, the Bank recognized that Rome Associates "ha[d] about $1.1 [million] of accounts receivable of which $235,000 was from KDA [another company that had gone into bankruptcy] and Northwestern Golf, and $270,000 additionally [was] over 120 [days] past due." (Id. ¶ 43.) On April 1, 2004, the bank downgraded Rome Associates' credit, and a week later Bruce Lubin, the head of commercial banking at Defendant's bank, wrote an e-mail acknowledging that "we are clearly aware and concerned about the viability of the firm." (Id. ¶¶ 43, 48.) At around this same time, the Bank issued a notice of default to Rome Associates and entered into a forbearance agreement in exchange for an agreement to shift $240,000 in term debt to Rome's personal mortgage. (Id. ¶ 43.) This step was apparently insufficient to resolve the Bank's concerns; on September 2, 2004, the Bank asked the firm to move its banking business to another financial institution. (Id.) In October 2004, the Bank identified, as a "key risk issue" for Rome Associates, that the firm had "failed to pay most of its payroll tax obligations during the first six months of the year" and that Robert Rome "has effectively exhausted his access to capital." (Id. ¶ 52.) The Bank arranged to shift $242,348 of Rome Associates term debt to Rome's personal mortgage with ABN AMRO Mortgage Group, an affiliate of the Bank, and refinance Rome's $600,000 home equity line of credit, resulting in an increase in that personal mortgage from $1.6 million to $2.475 million. (Id. ¶ 54.) This brought Rome's principal and interest payment to approximately $14,000 per month (id. ¶ 55), in a year which Rome and his wife reported income of only $160,413. (Pl.'s Supp. ¶ 56.)*fn3

On April 1, 2004, Lubin sent an e-mail to (unidentified) other bankers, asking whether it would be appropriate to advise other clients of Rome's that Rome Associates' credit had been downgraded. (Id. ¶ 59.) Brian Greenblatt, a division head at the Bank, sent Lubin, by e-mail, a list of clients, including Plaintiff Crawford Supply Group, and suggested in the e-mail message, "Let's discuss a strategy." (Id. ¶ 60.) On July 11, 2005, Lubin asked several other employees whether they believed that Crawford Supply Group "would fire Rome as their auditor." (Id. ¶ 61.) Greenblatt replied: "Unfortunately no. And with all the potential litigation I think we need to stay silent." (Id.)

Plaintiffs claim that on June 1, 2004, Marcus Montanye, the Bank employee who Plaintiffs allege made a notation suggesting that he reviewed one of the flagged checks, sent an e-mail message to other bankers containing an article in which Crain's Chicago Business reported that the F.B.I. and U.S. Attorney's Office were investigating the Builders Plumbing fraud. (Pl.'s Supp. ¶ 36.) Defendant insists that while Montanye had a "relationship" with Crawford Supply Group and Feiger Family Properties, LLC, he did "not have any involvement with Feiger Family Investment Partnership," but Defendant admits that Montanye sent an article from Crain's on or about June 1, 2004, to Bruce Lubin. (Def.'s Supp. Resp. ¶ 36.)

Plaintiffs contend that Defendant benefitted from Rome's embezzlement scheme. For example, Plaintiffs allege that Rome embezzled a $45,750 check from one of the Plaintiffs' accounts (not the FFIP account) on December 15, 2003; deposited that check in his personal account at Defendant's bank, which previously had a balance of only $1,939; and then used those deposited funds to make his $13,443 mortgage payment to ABN AMRO. (Pl.'s Supp. ¶ 66.)


Defendant seeks partial summary judgment with regard to eight checks drawn on the Feiger Family Partnership account held at Defendant's bank and deposited into Rome's account at Harris Bank between March 2004 and April 2005. Defendant urges that it is shielded from liability by the three-year statute of limitations, because it is a holder in due course, and by the Fiduciary Obligations Act.

Before addressing those arguments, the court pauses to note that its earlier ruling disposes of any claims regarding the eight FFIP checks that arise under the Uniform Commercial Code. In that earlier ruling, the court dismissed all claims in Count I, alleging violations of UCC § 4-401, except for those related to the Judith Feiger account, because § 4-401 "requires a check to be 'deposited only in the account of the named payee,' and that account allegedly did not belong to Judith Feiger."*fn4 Crawford Supply Group, 2011 WL 1131292, at *12. No claims related to the FFIP checks remain in Count I. With respect to Plaintiffs' conversion claim in Count II, the court concluded that those claims were governed by UCC ยง 3-307, and dismissed such claims for all checks not deposited at Defendant's bank or deposited prior to April 13, 2006. Id. at *13. The eight FFIP checks at issue here fall into both categories. With respect to the common law claims asserted in Counts III, IV, and VI-breach of contract, negligence amounting to bad faith, and aiding and abetting Rome's breach of fiduciary duty-the court acknowledged that the UCC may displace such claims, but declined to dismiss them because Defendant did not explain how and why thecommon law claims were in fact ...

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