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Federal Deposit Insurance Corporation v. Pantazelos

United States District Court, Seventh Circuit

September 3, 2013

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for New Century Bank, Plaintiff,
v.
FAYE T. PANTAZELOS, JOHN R. BRINKMAN, GEORGE METZGER, ROBERT GREMLEY, RICHARD J. WHOLEY AND THOMAS J. ROMANO, Defendants.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Judge.

On March 26, 2013, Plaintiff Federal Deposit Insurance Corporation ("FDIC"), in its capacity as Receiver for New Century Bank ("NCB"), filed a six-count Complaint against Defendants Faye T. Pantazelos, John R. Brinkman, George Metzger, Robert C. Germley, Richard J. Wholey, and Thomas J. Romano (collectively, "Defendants"). (R. 1, Compl.) The Complaint alleges the following: Count I - Negligence - Approval of Target Loans; Count II - in the alternative - Breach of Fiduciary Duty - Approval of Target Loans; Count III - in the alternative - Gross Negligence (12 U.S.C. § 1821(k)) - Approval of Target Loans; Count IV - Negligence - Origination, Recommendation, and/or Administration of Target Loans; Count V - in the alternative - Breach of Fiduciary Duty - Origination, Recommendation, and/or Administration of Target Loans; Count VI - Gross Negligence (12 U.S.C. § 1821(k)) - Origination, Recommendation, and/or Administration of Target Loans. Defendants filed a motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6). (R. 22, Mot.) Defendants also filed a motion to seal their memorandum in support of their motion to dismiss. (R. 25, Mot. to Seal.) For the reasons set forth below, the Court grants Defendants' motion to seal and denies Defendants' motion to dismiss.

BACKGROUND

New Century Bank ("NCB"), an Illinois-chartered bank, was founded in 1999 by Defendant Faye T. Pantazelos. (Compl. ¶ 15.) Its main office and two of its branches were located in Chicago, Illinois and a third branch was located in Lincolnshire, Illinois. ( Id. ¶ 16.) On April 23, 2010, the Illinois Department of Financial and Professional Regulation ("IDFPR") closed NCB and appointed the Federal Deposit Insurance Corporation as receiver. ( Id. ¶ 4.) Pursuant to that appointment, the FDIC succeeded to all rights, titles, powers and privileges of NCB and the stockholders, depositors and other parties interested in the affairs of NCB. See 12 U.S.C. § 1821(d)(2)(A)(i) (2010).

The FDIC, as receiver for NCB, filed the instant Complaint against Faye T. Pantazelos, John R. Brinkman, George Metzger, Robert C. Gremley, Richard J. Wholey, and Thomas J. Romano in an effort to recover approximately $33 million in losses that the bank suffered on numerous commercial real estate ("CRE") loans. (Compl. ¶ 1.) Except for Romano, each Defendant was a member of either NCB's Officers Loan Committee ("OLC") or the Directors Loan Committee ("DLC"), or both, at various time periods. ( Id. ¶¶ 5-11.) The OLC and the DLC were responsible for reviewing proposed loans and considering whether and on what terms to extend credit to borrowers. ( Id. ¶ 19.) Pantazelos was the Founder, President, and CEO of NCB from 1999 until the Bank closed. ( Id. ¶ 5.) Pantazelos served on both the OLC and the DLC during her entire tenure at NCB. ( Id. ¶ 5.) Brinkman and Metzger served on both the OLC and the DLC at various time periods. ( Id. ¶ 6-7.) Gremley and Wholey were both Directors of NCB and both served on the DLC. ( Id. ¶¶ 8-9.) The FDIC refers to these Defendants as the "D&O Defendants." ( Id. ¶ 10.) The FDIC alleges that the D&O Defendants acted negligently (Count I), breached their fiduciary duties (Count II), and acted grossly negligent (Count III) by disregarding the Bank's loan policies, prudent lending practices, and regulatory warnings in connection with various CRE and other loans (collectively, the "Target Loans"). ( Id. ¶¶ 113-128.)

Romano was Senior Vice President of Commercial Lending at NCB from 2005 to 2010, but did not serve on either the OLC or the DLC at any time. (Compl. ¶ 11.) Rather, Romano was responsible for originating and recommending potential loans for the OLC and the DLC to consider. ( Id. ¶¶ 11, 22, 131.) The FDIC alleges that Romano acted negligently (Count I), breached his fiduciary duties (Count II), and acted in a grossly negligent manner (Count III) in sourcing and proposing various loans. ( Id. ¶¶ 129-144.)

The FDIC contends that the D&O Defendants each voted to approve four or more of the Target Loans and that Romano "originated, recommended, and/or administered the Pine Ridge Club, Harp Des Plaines, GCC Merrillville Venture, and Eagle American/18 Leasing Target Loans." (Compl. ¶ 22.) The FDIC alleges that between April 2005 and July 2008, the Defendants furnished "numerous loans in violation of the Bank's loan policy and sound and prudent banking practices." ( Id. ¶ 21.) Specifically, the FDIC argues that "each Target Loan exhibited one or more of the following violations of the Bank's loan policy: (i) failing to establish adequate debt repayment programs; (ii) extending credit in excess of permitted LTV ratio limits; (iii) failing to adhere to required debt-to-income ratios; (iv) permitting debt service coverage ratios below minimum requirements; (v) relying on outdated, unverified, and inadequate financial information for borrowers and guarantors; and (vi) extending credit outside the Bank's normal trade area." ( Id. ¶ 21.)

Four of the Target Loans - AG Marketplace, AG Las Vegas, Gull Brothers South Beach, and Tam Drive - financed projects in Las Vegas, Nevada. (Compl. ¶¶ 23, 35, 41, 82.) The FDIC alleges that these loans violated NCB's loan policies because, among other things, the collateral's location was outside of NCB's target geographic region. ( Id. ¶¶ 24, 36, 42, 83.) The FDIC also alleges that the Pine Ridge Club, GCC Merrillville Venture, and 600 Waukegan loans violated the Bank's policies and sound banking practices because repayment was highly speculative. ( Id. ¶¶ 48, 70, 108.) Furthermore, the repayment of the loans approved for the Harp Des Plaines, Madison Racine, Regency of Park Ridge, and Lincolnwood Town Plaza I was highly speculative, in violation of the Bank's policies, because repayment was dependent on to-be-obtained construction loans. ( Id. ¶¶ 58, 77, 89, 95.) The FDIC alleges that the Canzorini Enterprises and Normantown Prairie loans violated NCB's policies because the guarantors' debt to income ratio exceeded the Bank's 40% policy limit. ( Id. ¶¶ 30, 64.) Also, according to the FDIC, the Eagle American/18 Leasing loan violated the Bank's policies because the guarantors lacked sufficient assets to provide an adequate source of repayment for the loan. ( Id. ¶ 102.)

LEGAL STANDARD

"A motion under Rule 12(b)(6) tests whether the complaint states a claim on which relief may be granted." Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir. 2012). Under Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citation omitted). Under the federal notice pleading standards, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Put differently, a "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570). "In evaluating the sufficiency of the complaint, [courts] view it in the light most favorable to the plaintiff, taking as true all well-pleaded factual allegations and making all possible inferences from the allegations in the plaintiff's favor." AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011).

ANALYSIS

I. Motion to Seal

The Court grants Defendants' motion to seal their memorandum in support of their motion to dismiss.[1] Defendants cite to documents identified as "Confidential" pursuant to the Agreed Protective Order. (Mot. to Seal ¶¶ 2-3.) The FDIC agrees that these documents are confidential. (R. 38, Seal Resp. at 2, n. 2.) The FDIC, however, contests the sealing on the basis that the documents are not properly before the Court on Defendants' motion to dismiss. ( Id. at 2.) The FDIC's argument, therefore, relates to whether the Court should consider these documents when ruling on Defendants' motion to dismiss - which the Court addresses below - not whether they should be sealed. To protect the sensitive information from the confidential documents, pursuant to the Agreed Protective Order, Defendants may file their memorandum under seal.

II. Motion to Dismiss

A. Documents Considered

Defendants attempt to utilize numerous exhibits to dismiss the FDIC's Complaint by pointing out purported contradictions between those documents and the FDIC's allegations. These documents, however, do not warrant dismissal.

The law is clear that a motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the pleadings, and as such, the Court's "consideration of matters outside the pleadings is not generally permitted, " unless the Court converts the motion into one for summary judgment pursuant to Rule 12(d). See Mclntyre v. McCaslin, No. 11 C 50119, 2011 WL 6102047, at *4 (N.D. Ill.Dec. 7, 2011) (citing Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998)). An exception to this general rule exists where the parties present records "to which the Complaint ha[s] referred" and that are "concededly authentic, " and "central" to the claims presented. Santana v. Cook Cnty. Bd. of Review, 679 F.3d 614, 619 (7th Cir. 2012) (citing Hecker v. Deere & Co., 556 F.3d 575, 582 (7th Cir. 2009)). Another exception includes documents that are attached to the complaint. See Fed.R.Civ.P. 10(c) ("A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes."); see also Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002) ("Because the letter was attached to the complaint, it became a part of it for all purposes, and so the judge could consider it in deciding ...


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