Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

In re Corus Bankshares

United States District Court, N.D. Illinois

April 23, 2013

In re CORUS BANKSHARES, INC., Debtor, SALVATORE A. BARBATANO, not individually but as Litigation Trustee, Plaintiff,

For Robert Glickman, Appellant: Steven Craig Florsheim, LEAD ATTORNEY, Bruce S. Sperling, Claire Perona Murphy, Robert David Cheifetz, Sperling & Slater, Chicago, IL; Matthew H Rice, Sperling & Slater PC, Chicago, IL.

For Tim Taylor, Appellant: Corey B. Rubenstein, Stetler, Duffy & Rotert, Ltd., Chicago, IL.

For Salvatore A. Barbatano, not individually but as Litigation Trustee, Appellee: Jeffrey L. Widman, LEAD ATTORNEY, Joseph Lawrence Cohen, SHAW FISHMAN GLANTZ & TOWBIN LLC, Chicago, IL.


Page 45


Gary Feinerman, United States District Judge.

Salvatore Barbatano brought this adversary proceeding in his capacity as Litigation Trustee in the Chapter 11 bankruptcy of Corus Bankshares, Inc. (" CBI" ), In re Corus Bankshares, Inc., No. 10-26881 (Bankr. N.D. Ill.) (Hollis, J.). The six-count complaint alleges that Robert Glickman, the CEO and a director of CBI, and Tim Taylor, CBI's chief financial officer, breached various fiduciary duties they owed to CBI and violated the National Bank Act, 12 U.S.C. § 21 et seq. ; the complaint also asserts a claim against Glickman for money had and received. Doc. 1-3 at pp. 4-29. Defendants filed a motion to withdraw the reference, Doc. 1, which this court granted, Doc. 13. Defendants now move to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). Doc. 14. The motion is granted. Counts I, III, V, and VI of the complaint are dismissed with prejudice, while Counts II and IV are dismissed without prejudice and with leave to replead.

Page 46


In considering the motion to dismiss, the court assumes the truth of the complaint's factual allegations, though not its legal conclusions. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012). The court also must consider " documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice," along with additional facts set forth in the Trustee's brief opposing dismissal, so long as those facts " are consistent with the pleadings." Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). The following facts are set forth as favorably to the Trustee as permitted by the complaint and the other materials that must be considered on a Rule 12(b)(6) motion. See Gomez v. Randle, 680 F.3d 859, 864 (7th Cir. 2012).

The bankrupt in the underlying Chapter 11 proceeding, CBI, is a Minnesota corporation. Doc. 1-3 at ¶ 8. Corus Bank, N.A. (" Bank" ), a national banking association, was at all relevant times a wholly owned subsidiary of CBI, which operated as the Bank's holding company. Id. at ¶ ¶ 5, 8. The complaint unhelpfully refers to CBI by several names--" Debtor," " Corus," " the Company," id. at ¶ 1--and also appears at times to refer to the Bank as " Corus," which generates ambiguities. These ambiguities will prove significant in the discussion below, but for now it suffices to note that the following factual account may contain errors attributable to the ambiguities. Because the court will order the Trustee to replead the claims afflicted by the ambiguities, any such errors should not affect the ultimate disposition of this case.

Glickman was at all relevant times the President, the CEO, and a director of both CBI and the Bank. Id. at ¶ 9. Glickman resigned from these posts in April 2009, by which time the demise of CBI and the Bank had become obvious. Ibid. As of his resignation date, Glickman and his family owned approximately 43% of CBI's outstanding shares. Ibid. This gave Glickman effective control over who sat on CBI's and the Bank's boards, which allowed him to exercise authority over all major decisions pertaining to CBI and the Bank during the relevant period. Ibid. Taylor was at all relevant times the Executive Vice President and CFO of CBI. Id. at ¶ 10. Taylor oversaw the Bank's financial affairs and reported to Glickman. Ibid.

The lengthy complaint contains numerous allegations intended to convey that Defendants " failed to properly manage and supervise [CBI] and its commercial real estate lending program." Id. at p. 4. Because most of the specific allegations are irrelevant to the disposition of this motion, the court will rely for the most part on the following summary from the complaint, while supplying additional details as needed during the discussion of the Trustee's claims:

Defendants are former senior officers of [CBI], who held their respective positions during the operative events. Each defendant, as officers (and Glickman also as a director) of [CBI], owed fiduciary duties to [CBI] to act in good faith, with fair dealing and the due care that an ordinarily prudent individual in a similar position would exercise under similar circumstances. These duties include, but are not limited to, the obligation to act in the best interest of [CBI] and not themselves, to ensure that effective internal controls were in place over Corus' loan processes, underwriting procedures, appraisal policy, risk management and accounting, and to present [CBI's] board of directors ... with accurate financial information so as to allow the Board to make informed decisions.

Page 47

Defendants breached the aforementioned duties in multiple respects. By no later than mid 2007, each Defendant knew or should have known that its CRE Lending Program [CRE stands for " commercial real estate" ] and its attendant portfolio of CRE loans were in serious financial trouble and threatening [CBI's] viability. But instead of curtailing CRE lending, working out troubled loans, and preserving capital of [CBI's] wholly owned subsidiary, Corus Bank, N.A. ..., Defendants took acts to conceal the Bank's mounting problems, while draining the Bank of precious capital. Defendants made and approved new CRE loans and renewed and made additional loan advances on existing troubled loans without the benefit of new appraisals, often replenishing " interest reserves," which allowed borrowers to pay interest with more funds borrowed. As such, while the Bank recognized substantial amounts of non-cash income, the Bank's cash reserves were used to fund the payment of incentive awards, stock repurchases and dividends, while not appropriately setting aside reserves for loan losses, which further weakened the financial position of [CBI] causing and then deepening its insolvency.
As a result of Defendants' derelictions, [CBI] suffered millions of dollars in damages as a result of its losses from its CRE Lending Program and at least $28 million in illegal dividends to the Bank's shareholders.

Id. at ¶ ¶ 4-6.

Allegedly as a result of these misdeeds by Defendants, CBI became insolvent and, in June 2010, filed a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code. Id. at ¶ 1. In September 2011, the bankruptcy judge approved CBI's Third Amended Plan of Reorganization. Id. at ¶ 2. The Plan led to the establishment of a Litigation Trust, with Barbatano as its Trustee, to pursue CBI's claims against its former officers and to distribute any proceeds from those claims. Id. at ¶ 7. Pursuant to his authority, the Trustee commenced this adversary proceeding against Defendants. Jurisdiction lies under 28 U.S.C. § 1334(b), which provides that " the district courts shall have original ... jurisdiction of all civil proceedings ... arising in or related to cases under [the Bankruptcy Code]." See Celotex Corp. v. Edwards, 514 U.S. 300, 307-08, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995); Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 161 (7th Cir. 1994) (" The reference to cases related to bankruptcy cases is primarily intended to encompass tort, contract, and other legal claims by and against the debtor, claims that, were it not for bankruptcy, would be ordinary stand-alone lawsuits between the debtor and others but that section 1334(b) allows to be forced into bankruptcy court so that all claims by and against the debtor can be determined in the same forum." ).


The complaint has six counts. Count I claims that Defendants breached the fiduciary duty of care they owed to CBI through a series of acts and omissions related to the Bank's lending program. Doc. 1-3 at ¶ ¶ 98-102. Count II claims that Defendants breached the fiduciary duty of loyalty they owed to CBI by causing the Bank to make high-risk loans " to mask their problems and manipulate Corus' financial statements" when they instead should have acted conservatively and sought to preserve CBI's capital, and also that they provided materially misleading financial statements to CBI's board, thereby preventing it from acting intelligently in CBI's best interests. Id. at ¶ ¶ 106-09. Count III claims that Defendants breached their fiduciary duties to CBI by causing

Page 48

the Bank to issue risky loans, thereby deepening CBI's insolvency and causing waste. Id. at ¶ ¶ 113-15. Count IV claims that Glickman " breached his fiduciary duty by orchestrating a scheme whereby a third party entity, formed and controlled by Corus, purchased condominiums at the above market price of approximately $5 million." Id. at ¶ 119. Count V claims that Defendants caused CBI to issue dividends in violation of § 60 of the National Bank Act, 12 U.S.C. § 60. Id. at ¶ ¶ 122-29. Count VI, for money had and received, seeks to require Glickman to return the money paid to him as a CBI shareholder as a result of those allegedly unlawful dividend payments. Id. at ¶ ¶ 131-32.

Defendants contend that some of the Trustee's claims belong to the Bank rather than CBI, and that those claims therefore must be brought derivatively, which the Trustee has not sought to do and indeed cannot do because the Bank is now in FDIC receivership and only the receiver may pursue claims belonging to the Bank. The Trustee's brief " acknowledges that Counts I and III are derivative in nature and therefore withdraws them." Doc. 18 at 4. Given this concession, those counts are dismissed. The remaining counts are addressed in turn.

I. Count II: Breach of the Fiduciary Duty of Loyalty

After incorporating by reference ¶ ¶ 1-92 of the complaint, Count II alleges as follows:

105. The Defendants owed Corus a fiduciary duty of loyalty to act in a manner reasonably believed to be in ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.