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The Passavant Memorial Area Hospital Association, An Illinois v. Lancaster Pollard & Co.

April 2, 2012

THE PASSAVANT MEMORIAL AREA HOSPITAL ASSOCIATION, AN ILLINOIS NOT-FOR-PROFIT CORPORATION, PLAINTIFF,
v.
LANCASTER POLLARD & CO., AN OHIO CORPORATION; LANCASTER POLLARD ASSET MANAGEMENT, LLC, AN OHIO LIMITED LIABILITY COMPANY; AND STEVEN W. KENNEDY, JR., DEFENDANTS AND THIRD PARTY PLAINTIFFS,
v.
JASON L. GEORGE AND PECK, SHAFFER & WILLIAMS, LLP, THIRD PARTY DEFENDANTS.



The opinion of the court was delivered by: Byron G. Cudmore, U.S. Magistrate Judge:

E-FILED

Tuesday, 03 April, 2012 02:35:47 PM

Clerk, U.S. District Court, ILCD

OPINION

This matter comes before the Court on Plaintiff, The Passavant Memorial Area Hospital Association's (Passavant) Motion for Leave to File a Third Amended Complaint (d/e 80) (Motion). Passavant seeks to add direct claims against third party Defendants Peck, Shaffer & Williams, LLP (Peck, Shaffer), and Jason L. George. Peck, Shaffer oppose the Motion on the grounds that the amendment would be futile and that the amendment is an improper attempt to add Peck, Shaffer as a non-diverse party that would destroy diversity jurisdiction. Peck, Shaffer disputes whether its joinder would destroy diversity, but argues that if the Court would so find, then the joinder is improper. Passavant argues that the claims against George and Peck, Shaffer are not futile and that joinder is proper even though joinder will destroy diversity jurisdiction. As explained below, Passavant's claims against George and Peck, Shaffer are not futile, and Peck, Shaffer's joinder will not destroy diversity. Thus, the Motion is ALLOWED.

BACKGROUND

A Original Complaint

Passavant's original Complaint alleges claims against Defendants Lancaster Pollard & Co., Lancaster Pollard Asset Management LLC (collectively Lancaster), and Steven Kennedy. Notice of Removal (d/e 1), Exhibit 1, Complaint and Request for Jury Trial (Complaint). Passavant alleges that it is a not-for-profit corporation located in Jacksonville, Illinois. Complaint, ¶ 1. Lancaster provides financial advisory and bond underwriting services. Lancaster is located in Columbus, Ohio. Kennedy is a Vice President and investment banker at Lancaster. Kennedy is a resident of Ohio.

Passavant alleges that the Defendants acted as Passavant's financial advisor and bond underwriter. Attached to the Complaint is the Investment Advisory Agreement between Lancaster and Passavant. Complaint, Exhibit E, Lancaster Pollard Investment Advisory Group Investment Advisory Agreement dated December 14, 2006 (Lancaster Agreement). Under the Lancaster Agreement, Lancaster provided financial advisory and asset management services to Passavant. Lancaster Agreement, ¶ 1.*fn1

The Lancaster Agreement set forth Lancaster's fiduciary relationship with Passavant:

7. Fiduciary Responsibilities. It is agreed that the sole standard of care imposed upon [Lancaster's Investment Advisory Group] by this Agreement is to act with care, skill, prudence, and diligence under the circumstances then prevailing that a prudent investor acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character with like aims.

Lancaster Agreement, ¶ 7. Defendant Kennedy managed Lancaster's relationship with Passavant. Complaint, ¶ 5.

Defendants also provided bond underwriting services in connection with a bond issue in 2006. Id. ¶ 8. As part of the bond issue, and upon Kennedy's advice, Passavant entered into a bond interest rate swap agreement (Passavant Swap Agreement) with Lehman Brothers Special Financing, Inc. (Lehman), on September 21, 2006. The Swap Agreement was a hedge agreement that limited Passavant's exposure to changes in interest rates. Id. ¶¶ 11-12.

On September 15, 2008, Lehman filed bankruptcy. On October 1, 2008, Lancaster and Kennedy allegedly prepared letters for Passavant's signature giving Lehman notice that the filing of bankruptcy constituted a default under the Passavant Swap Agreement. Lancaster and Kennedy allegedly instructed Passavant to sign the prepared letter and to ...


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