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Network Holdings, Inc. and Warren G. Mcelwain v. Federal Deposit Insurance Corporation As Receiver For

August 8, 2012


The opinion of the court was delivered by: Judge Joan B. Gottschall


Plaintiffs Network Holdings, Inc., and Warren G. McElwain (collectively "Plaintiffs") filed a First Amended Complaint against Amcore Investment Group, N.A. ("the Trustee"), alleging that the Trustee acted negligently and fraudulently with respect to two land trust agreements, in violation of Illinois law, by executing a note and mortgage on the trust properties and disbursing the loan proceeds. Plaintiffs seek compensatory and punitive damages and the imposition of a constructive trust against the Trustee. The Federal Deposit Insurance Corporation (the "FDIC"), acting as the Receiver for the Trustee, now moves for summary judgment on Counts I, II, III, IV, V, and XIII of the First Amended Complaint.*fn1 Plaintiffs move for summary judgment on Count II of the First Amended Complaint. The court finds that the Trustee did not act negligently, breach its fiduciary duty to Plaintiffs, or fraudulently conceal information from Plaintiffs. The court denies summary judgment for Plaintiffs on Count II of the Complaint and grants summary judgment for the FDIC on Counts I, II, III, IV, V, and XIII.

I. Jurisdiction and Venue

The court has jurisdiction over this matter pursuant to 12 U.S.C. § 1819(b)(2) and 28 U.S.C. § 1441, because the Office of the Comptroller of the Currency appointed the FDIC as the Receiver for the Trustee on April 23, 2010. All rights, titles, powers, and privileges of the Trustee were assigned to the FDIC pursuant to 12 U.S.C. § 1821(c)(3)(A). This case was originally filed in the Circuit Court of the Nineteenth Judicial Circuit in Waukegan, Illinois on December 5, 2008. The FDIC removed it to this court pursuant to the FDIC's power, under 12 U.S.C. § 1819(b)(2), to remove any action from state to district court within 90 days of the date it is substituted as a party. Venue is proper in this court pursuant to 28 U.S.C. §§ 1441(a) and 1446(a) because the state-court action was pending in Lake County, Illinois.

II. Facts

The following facts are undisputed, except where otherwise indicated.*fn2 Plaintiff Warren McElwain is the president and owner of Network Holdings, Inc., a corporation located in Schaumburg, Illinois. Stephen Jouzapaitis is the manager of Parcel One Properties, LLC ("Parcel One") and partnered with McElwain in a number of business ventures. Amcore Investment Group, N.A. is an Illinois corporation located in Rockford, Illinois and was, at all relevant times, the Trustee of Illinois Land Trusts numbered 03-14951 and 05-15552.

A. McElwain and Jouzapaitis's Businesses and Trust Properties

In 1999 or 2000, McElwain and Jouzapaitis created United Land Development, LLC ("ULD"), a limited liability company with its principal place of business in Schaumburg. Each of them owned a 50 percent interest in ULD, and Jouzapaitis was its manager. McElwain and Network Holdings also partnered with Jouzapaitis and Parcel One to purchase various properties.

On or about December 30, 2002, Kemper Lakes Golf Course in Lake County, Illinois, was purchased by the Kemper Lakes Golf Club, LLC ("KLGC"), which was in turn owned by three entities: 1) United Land/Kemper; 2) EPB Properties, LLC; and 3) Crown Golf Properties, Inc. ("Crown Golf"). United Land/Kemper owned a 57 percent share of KLGC and managed the golf course. Jouzapaitis owned 51 percent of United Land/Kemper and was its manager, and McElwain owned 49 percent.

Network Holdings and Parcel One subsequently purchased two additional properties near the golf course (the "Trust Properties"). On June 18, 2003, Network Holdings, Parcel One, and the Trustee executed an Illinois Land Trust Agreement known as Trust No. 03-14951 (the "2003 Agreement"). On June 25, 2003, a parcel of vacant land surrounding the Kemper Lakes Golf Course was conveyed into the 2003 Trust. On October 21, 2005, Network Holdings, Parcel One, and the Trustee executed another Illinois Land Trust Agreement known as Trust No. 05-15552 (the "2005 Agreement").

On November 3, 2005, additional vacant land surrounding the golf course was conveyed into the 2005 Trust.

B. The Trust Agreements and the Power of Direction

The 2003 and 2005 Agreements are identical. Under both Agreements, Network Holdings and Parcel One are the only two beneficiaries of the Trusts, and each has an undivided 50 percent interest in the Trusts. As individuals, Jouzapaitis and McElwain are not beneficiaries of the Trusts.

The Agreements provide in ¶ A that "the interest of any beneficiary hereunder shall consist solely of a power of direction to deal with the title to said real estate and to manage and control said real estate as hereinafter provided, and the right to receive the proceeds from rentals and from mortgages, sales or other disposition of said real estate[.]" The Agreements further state at ¶ H:

AMCORE Investment Group, N.A., will (subject to its rights as Trustee as aforesaid) convey title to said real estate, execute and deliver deeds (including deeds conveying directly to a trust grantee) or otherwise deal with said Trust estate only when authorized to do so in writing and that (notwithstanding any change in the beneficiaries hereunder) it will, on the written direction of: Stephen Jouzapaitis or will, on the written direction of such other person or persons as shall be from time to time named in writing by the beneficiary or beneficiaries or on the written direction of such person or persons as may be the beneficiary or beneficiaries at the time, make deeds for, pay the proceeds thereof, in the manner so directed. . . . [T]he Trustee shall not be required to inquire into the propriety of any such direction. . . . Any person having power of direction whom is not a beneficiary, shall not have the right to assign such power without written consent of all beneficiaries hereunder. (Defs.' Mot. Summ. J. Ex. F & G (2003 & 2005 Agreements), ECF Nos. 52-9, 52-10.)

Plaintiffs concede that McElwain's name did not appear in ¶ H of the 2003 and 2005 Agreements at the time of the transactions at issue in this case. Even so, the parties dispute whether Jouzapaitis held the sole power of direction under the 2003 and 2005 Agreements. Jo Ellyn Treadman, a Vice President and Trust Relationship Manager at Amcore Investment Group, N.A., was responsible for transactions involving the Trust Properties. Treadman stated in an affidavit that "the sole holder of the power of direction under the Land Trusts is Ste[ph]en Jouzapaitis." (Defs.' Mot. Summ. J. Ex. H (Treadman Aff.), ECF No. 52-11.) Treadman stated during her deposition that Jouzapaitis's power of direction was not coupled with a beneficiary interest. She testified in her deposition that she did not know what the legal import of that distinction was, nor did it make any difference to her.

Treadman acknowledged in her deposition that ¶ A of the Agreements provided that any beneficiary would have a power of direction. (Shebar Decl. Ex. D (Treadman Dep.) 25:3-10, ECF No. 65.) She then stated that "another part of the agreement . . . actually points out who was given the power of direction by the beneficiaries." (Id. 25:21-23.) Treadman stated that the fact that the beneficiaries were given the power to direct the trust assets was not contradicted by the fact that Jouzapaitis was specifically named as holding the power of direction. (Id. 27:5-14.) She explained, "When we are directed by an agreement that is signed by all beneficiaries, which this is, that says that we will act on the direction of a singular person in this case, that is who we're going to take the direction from. If both beneficiaries direct us to do something, we will also take that." (Id. 28:4-10.)

On June 20, 2006, McElwain, on behalf of Network Holdings as beneficiary, submitted an amended power of direction to the Trustee through his attorney, Robert Hollis. The amendment provided that McElwain, in addition to Jouzapaitis, would hold a power of direction over the Trusts, so that the signatures of both would be required in any dealings concerning the Trust Properties.

Treadman signed the amended power of direction on behalf of the Trustee on June 20, 2006. On July 26, 2006, however, she cancelled the amendment. Treadman testified in her deposition that she was approached by Louise Gorsch, a Land Trust Administrator at Amcore Investment Group, N.A., after the amendment was signed. Gorsch told Treadman that the Trustee needed "the other beneficiary" to sign the amendment. Treadman testified that she reviewed the amendment and determined that it should be cancelled. She "instructed [Gorsch] to call Attorney Hollis and let him know that we were going to cancel it." (Defs.' Resp. to Pls.' SOF Ex. G (Treadman Dep.) 43-45, ECF No. 61-3.) On August 17, 2006, Gorsch wrote a letter to Hollis stating that the amendments were "cancelled" because "all beneficiaries under the trusts did not sign the amendments" and requesting "the additional signature of Stephen Jouzapaitis." (Defs.' Resp. to Pls.' SOF Ex. G (Letter), ECF No. 61-7.)

Jouzapaitis testified in his deposition that he informed the Trustee by phone that he did not consent to put McElwain in a co-power of direction over the trust. (Defs.' Resp. to Pls.' SOF Ex. D (Jouzapaitis Dep.) 28:21-23, 29:13, ECF No. 61-4.)

On August 28, 2006, McElwain's attorney, Hollis, wrote a letter to Treadman. Treadman stated in her deposition that she recognized the letter and that it would have been received on August 30, 2006. (Treadman Dep. 49:13-23.) The letter stated that McElwain was a beneficiary of the 2003 and 2005 Agreements and that:

On June 20, 2006, AMCORE was presented with Amendments to the foregoing Land Trusts which named Warren McElwain as an additional holder of the power of direction in respect to said Land Trusts. The Amendments were accepted by AMCORE on that date and certified copies of the accepted Amendments were provided to me by you on that date. You are hereby put on notice that notwithstanding any attempted action and/or direction to you as Trustee by any other beneficiary of or holder of a power of direction regarding said Land Trusts, Warren McElwain as beneficiary and holder of the power of direction instructs you not to transfer any interest(s) of whatsoever type (whether by deed, assignment, mortgage, etc.) in said Land Trust(s), without the express written consent and direction of Warren McElwain. (Pls.' SOF (Treadman Dep.) Ex. 7, ECF No. 57-7.)

When asked whether, after receiving the letter, she had a sense that the beneficiaries were having disagreements about the trust property, Treadman stated, "I wouldn't be concerned with that." (Treadman Dep. 51:3-8.) Treadman was then asked, "doesn't [the letter] indicate to you that there's some concern on the part of an interested party in the trust about how the trust assets may . . . be used?" She responded, "I'd say yes." (Id. 53:4-17.)

On September 1, 2006, the Trustee's counsel sent Hollis a letter stating that McElwain did not have "a direct 50% beneficial interest in the . . . trusts. . . . Rather, the beneficiary appears to be a limited liability company which Mr. McElwain may have an interest in." The letter stated that "the signature of the other beneficiary, Steve Jouzapaitis" was necessary to name McElwain as an additional holder of the power of direction. (Shebar Decl. Ex. B (Treadman Dep. Ex. 8), ECF 57.)

Jouzapaitis and McElwain eventually agreed to amend the power of direction to add McElwain as a joint holder of the ...

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