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Federal Deposit Insurance Corporation, As Receiver For George v. the Coleman Law Firm and Kevin Flynn & Associates

November 7, 2012

FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR GEORGE WASHINGTON SAVINGS BANK, PLAINTIFF,
v.
THE COLEMAN LAW FIRM AND KEVIN FLYNN & ASSOCIATES, DEFENDANTS.



The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge

MEMORANDUM OPINION AND ORDER

Federal Deposit Insurance Corporation, as Receiver for George Washington Savings Bank ("FDIC-R") has brought a motion for judgment on the pleadings on its Complaint Counts II and III pursuant to Fed. R. Civ. P. ("Rule") 12(c). Counts II and III seek the return of $250,000 that George Washington Savings Bank (the "Bank") paid to The Coleman Law Firm ("Coleman") and Kevin Flynn & Associates ("Flynn") for not-yet-rendered legal services. FDIC-R alleges that the payment was made in violation of the Federal Deposit Insurance Act ("Act"), more specifically 12 U.S.C. §1828(k)(3).*fn1 For the reasons set forth in this memorandum opinion and order, FDIC-R's motion is denied.

Standard of Review

For purposes of a Rule 12(c) motion that seeks to dispose of the case on its substantive merits, "the appropriate standard is that applicable to summary judgment, except that the court may consider only the contents of the pleadings"*fn2 (Alexander v. City of Chi., 994 F.2d 333, 336 (7th Cir. 1993)). All well-pleaded allegations in the non-movant's pleadings must be taken as true, and all facts and reasonable inferences from those facts must be construed in the light most favorable to the non-movant (id.). Legal characterizations of the facts by the non-movant, however, are not binding (Nat'l Fid. Life Ins. Co. v. Karaganis, 811 F.2d 357, 358 (7th Cir. 1987)).

In terms of this case, not only Complaint allegations that Coleman and Flynn have admitted but also allegations to which Coleman and Flynn had an opportunity to respond but that they have not contested are taken as true (Flora v. Home Fed. Sav. & Loan Ass'n, 685 F.2d 209, 211 (7th Cir. 1982)). Conversely, allegations that Coleman and Flynn have denied properly will, for purposes of the present motion, be considered false (Austad v. United States, 386 F.2d 147, 149 (9th Cir. 1967)).

As to allegations to which Coleman and Flynn have filed a Rule 8(b)(5) disclaimer asserting a "lack of knowledge or information sufficient to form a belief," FDIC R. Mem. 5 argues that they are "uncontested factual allegations" under Rule 8(b)(6) and "[a]ccordingly, for purposes of FDIC-R's 12(c) Motion, this Court should consider as true all relevant allegations in response to which Defendants claimed they lack knowledge." That contention flies in the face of Rule 8(b)(5) itself (emphasis added):

A party that lacks knowledge or information sufficient to form a belief about the truth of an allegation must so state, and the statement has the effect of a denial."

There are to be sure limited exceptions to that principle, such as a case where the matters disclaimed under Rule 8(b)(5) are matters of public knowledge or where the defendants could have informed themselves on the issues in question "with the slightest effort" (Exch. Nat'l Bank of Chi. v. Brown, No. 84 C 10801, 1985 WL 2274, at *2 (N.D. Ill. Aug. 9)). But this is not certain to be such a case. Most of the disclaimed allegations here concern meetings or conversations between Bank directors or between Bank directors and FDIC officials in the months before Coleman and Flynn were retained (see Compl. ¶¶29-36), matters of which Coleman and Flynn by definition can have no first-hand knowledge.

True enough, the required disclaimer hurdle under Rule 8(b)(5) is much higher than the absence of actual knowledge--for example, any lawyer who comes onto the scene after an event occurs and becomes involved in developments that grow out of that event would certainly seem most likely to be provided with enough information to form a belief about the occurrences that antedated his or her involvement. If then the facts when developed in this case were to establish such a scenario, one or both defendants might perhaps become vulnerable under Rule 11(b) or even 28 U.S.C. §1927 for having improperly brought Rule 8(b)(5) into play.

But no such speculative possibility can justify a judicial rewriting of that rule to convert a deemed denial into an admission. Instead the Complaint's allegations that Coleman and Flynn have disclaimed under Rule 8(b)(5) will be considered as false for purposes of the present motion (Cagan v. Intervest Midwest Real Estate Corp., 774 F. Supp. 1089, 1091 nn. 1 and 2, 1093 (N.D. Ill. 1991)).

Statement of Facts*fn3

On November 19, 2009*fn4 Bank directors George and Mark Weigel ("the Weigels") executed an Advance Payment Retainer Agreement (the "Coleman Retainer Agreement") with Coleman (Compl. ¶22 and Ex. 1). That Agreement stated that Coleman would represent the Weigels and "advise, counsel and defend [the Weigels] in any action, suit or proceeding, . . . in which [the Weigels] are made, or are threatened to be made, a party to, or a witness in, such action, suit or proceeding by reason of the fact that he is or was an officer, director or employee" of the Bank (id.). Next day the Bank paid Coleman $150,000 pursuant to the Coleman Retainer Agreement (Compl. ¶24).

On November 30 the Bank executed a similar Advanced Payment Retainer Agreement with Flynn (the "Flynn Retainer Agreement") (Compl. ¶25 and Ex. 2). That Agreement was similar to the Coleman Retainer Agreement, except that Flynn was to provide legal services to Grant Currie, John Kovatch, Marty Lucas and other directors and officers of the Bank (the "Outside Directors") (Compl. ¶25 and Ex. 2). On December 2 the Bank paid Flynn $100,000 pursuant to the Flynn Retainer Agreement (Compl. ¶27).

Crucially, each of the Retainer Agreements (collectively "the Agreements") contained this language (id. ΒΆ28 and ...


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