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Regas, Frezados & Dallas Llp v. Federal Deposit Insurance Corporation

July 16, 2012

REGAS, FREZADOS & DALLAS LLP, PLAINTIFF,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR MUTUAL BANK, DEFENDANT.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

The law firm of Regas, Frezados & Dallas LLP (Regas) has sued the Federal Deposit Insurance Corporation (FDIC), in its capacity as receiver for Mutual Bank, to recover unpaid legal fees and expenses that Mutual Bank allegedly owed to Regas. Regas currently holds funds in its client trust account that it seeks to retain in partial satisfaction of this debt. The Court previously denied the FDIC's motion to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim. Regas, Frezados & Dallas LLP v. FDIC, No. 10 C 3420, 2011 WL 332545 (N.D. Ill. Jan. 28, 2011) (Regas I). The Court later granted Regas's motion for summary judgment in part, regarding the amount allegedly due. Regas, Frezados & Dallas LLP v. FDIC, No. 10 C 3420, 2011 WL 4738334 (N.D. Ill. Oct. 10, 2011) (Regas II). The Court assumes familiarity with these decisions.

The parties have filed cross-motions for summary judgment. For the reasons stated below, the Court grants both motions in part and denies them in part.

Background

Regas deposited checks $612,591.16 into its client trust account. Regas obtained the checks pursuant to its representation of Mutual Bank in three separate matters. The legal characterization and effect of the manner in which Regas obtained the checks is a disputed issue in this case. Regas seeks a declaratory judgment that it is entitled to retain this money and deposit it into its private account in partial satisfaction of its $831,134.37 claim against Mutual Bank for unpaid legal bills.

The Court draws much of the following factual description from Regas's Local Rule 56.1 Statement. The Court recognizes that the FDIC disputes the description of several of these facts but concludes that those disputes are not material for purposes of the legal arguments discussed below.

A. The disputed funds

Most of the disputed funds derive from what the parties refer to as the Tejany matter. In late 2008, Mutual Bank retained Regas to collect delinquent loans to several entities controlled by Noor Tejany that were secured by mortgages on various hotels, including one in Oakbrook Terrace, Illinois. Around the time that Mutual Bank engaged Regas on this matter, Tejany arranged to sell to J&S Hospitality both the Oakbrook Terrace hotel real estate and the personal property used to operate it. Regas filed an action in state court to foreclose on the mortgage. Regas then worked out a short sale agreement that was accepted by all involved. J&S agreed to purchase the hotel for an increased price, and Mutual Bank agreed to accept the sale proceeds in satisfaction of its loan, so long as the sale closed by February 20, 2009.

In early 2009, the Illinois Department of Employment Security and the Illinois Department of Revenue asserted what the parties describe as tax claims against Tejany and the entities that owned the hotel. The claims appeared to require J&S to retain funds from the hotel sale proceeds that could be used to satisfy outstanding debts. The parties involved in the hotel sale also discovered that various lien claims encumbered some of the property, including a mechanic's lien and a federal revenue lien. J&S was concerned about its potential liability relating to the tax claims, but it "agreed to proceed with [Regas's proposed] strategy if an escrow was set up with Chicago Title so that some of the sale proceeds would be withheld to cover the Tax Claims until it had been confirmed that no liability would attach to J&S." Regas's L.R. 56.1 Stmt. ¶ 7. "Since money was being escrowed for the Tax Claims, [Regas partner William] Dallas obtained direction from [Mutual Bank Board Chairman Pethinaidu] Veluchamy to try to reduce or extinguish the Lien Claims to maximize the amount that Mutual Bank would receive from the sale of the Hotel." Id. ¶ 8. "To that end, Chicago Title agreed to provide a clear owner's title insurance policy to J&S provided that funds were escrowed for the Lien claims pursuant to a title indemnity escrow agreement." Id. After the sale closed on February 20, 2009, "Chicago Title held back $620,989.50 of the sale proceeds pursuant to the escrow agreements established by the parties." Id. ¶ 9. "Under the Escrow Agreements, Chicago Title was not allowed to release any of the escrowed funds to Mutual Bank unless and until the [lien and tax] Claims were released." Id.

After the closing, pursuant to directions from Veluchamy, Regas "obtained releases or reductions of the Tax Claims and the Lien Claims by representing Mutual Bank in lawsuits, preparing agreements, attending meetings, placing phone calls and sending letters and emails to the various claimants, and negotiating with them to reduce or eliminate their Claims." Id. ¶ 12.

On March 19 and May 29, 2009, Regas arranged for notices to be served on Chicago Title. In the notices, a Regas attorney wrote:

This is a Notice of an Attorneys' Lien pursuant to 770 ILCS 5/1. Mutual Bank has retained us as its attorney and placed in our hands for suit or collection, a claim, demand or cause of action against Chicago Title Insurance Company as escrow agent of the above-referenced escrow.

You are hereby further notified that Mutual Bank has agreed to pay Regas, Frezados & Dallas LLP as compensation for the services rendered or to be rendered in connection with this claim a sum of money on an hourly basis and that a lien is claimed upon such claim, demand or cause in action, and the escrowed funds, for our attorney's fees.

Dallas Dec. Ex. 5-6.

In June 2009, Chicago Title issued three checks jointly payable to Regas and Mutual Bank from the lien escrow amounts, totaling $558,341.68. Chicago Title delivered the checks to Regas, which held but did not deposit the checks.

The remainder of the Mutual Bank-related funds in Regas's client trust account come from two sources. First, Ticor Title Insurance Company delivered a check for $17,237.15 to Regas in connection with the firm's representation of Davenport Estates LLC "in connection with a loan transaction." Regas's L.R. 56.1 Stmt. ¶ 17. Second, the trustee in the Chapter 13 bankruptcy case of Arif Usmani issued several checks during the first half of 2009 in an effort to satisfy the bank's claim against Usmani. After some of these checks went stale, the trustee re-issued them payable to "Mutual Bank c/o Regas Frezados & Dallas."

B. Further proceedings

In May, June, and July 2009, Regas informed Mutual Bank personnel that it was holding the checks from Chicago Title, Ticor Title, and the Usmani bankruptcy "pursuant to our statutory attorney's lien and common law retaining lien." Id. ¶ 27. On July 28, 2009, Dallas sent an e-mail to a Mutual Bank employee stating: "To avoid the checks we are holding from becoming stale dated, we would propose depositing the checks into our client funds account. We will not withdraw these funds from our client funds account without Mutual Bank's approval or court order." Id. ¶29. In response, Mutual Bank authorized Regas to deposit the checks under these terms. Regas deposited three checks totaling $610,870.94 into its client trust account in July and August 2009.

On July 31, 2009, the Illinois Department of Financial and Professional Regulation closed Mutual Bank and appointed the FDIC as receiver. On November 2, 2009, Regas filed a proof of claim for $832,259.62 with the FDIC. Both the proof of claim and the letter Regas sent with it indicated that Regas was asserting a lien over the funds it was holding.

In August and December 2009, Regas sent the FDIC's attorneys notice that it had received two additional checks from the Usmani bankruptcy. Regas stated that it was asserting a lien over the checks and sought "advice from the FDIC on whether [the firm] could deposit one of these checks in [its] client funds account to prevent it from going stale." Id. ¶36. An attorney for the FDIC responded and stated that she had "confirmed with the FDIC that these funds should be deposited in your client trust account for safekeeping until such time as a court order [is] entered or an agreement by the parties is made." Id.

On June 4, 2010, Regas filed suit in this Court seeking an order affirming its claim of $832,259.62 in its entirety. Regas also seeks permission to retain the $612,591.16 in liened funds in partial satisfaction of its claim pursuant to two liens it has asserted against the money. On July 2, 2010, the FDIC issued an administrative ruling on Regas's proof of claim, granting ...


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