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Allstate Insurance Co. v. Regions Bank

United States District Court, N.D. Illinois, Eastern Division

February 4, 2014

ALLSTATE INSURANCE COMPANY, Plaintiff,
v.
REGIONS BANK, Defendant.

OPINION AND ORDER

SARA L. ELLIS, District Judge.

Plaintiff Allstate Insurance Company ("Allstate") filed this diversity action against defendant Regions Bank ("Regions"), alleging that Regions engaged in fraudulent or negligent misrepresentation and fraudulent concealment in connection with certain bonds that Allstate had purchased.[1] Regions has moved to transfer venue to the United States District Court for the Southern District of Alabama pursuant to 28 U.S.C. §§ 1404 or 1406.[2] For the following reasons, Regions' motion [19] is granted.

BACKGROUND[3]

Logan Gewin, a real estate developer, acquired nearly 500 acres of undeveloped land in south Mobile County, Alabama. He planned to develop this land into an upscale, nature-based neighborhood community to be known as the Town of Saltaire ("Saltaire"). To finance and promote Saltaire, Gewin formed Mobile Bay Investments, LLC ("MBI") on February 16, 2006.

John Arendall, a Vice President and Relationship Manager for Regions, became involved early on in the Saltaire project, representing that Regions would be Saltaire's principal financial backer and promising that Regions would provide approximately $20 million in first phase funding. Between December 2006 and December 2007, Arendall arranged for Regions to provide MBI with $6.5 million in provisional loans that were not secured by a first place mortgage. MBI also sought out bond funding by forming the Belle Fontaine Improvement District to fund Saltaire's infrastructure costs. Gardnyr Michael Capital, an investment banking firm, was engaged to help in forming this entity.

In December 2007, Allstate arranged to purchase $12.3 million of infrastructure bonds issued by the Belle Fontaine Improvement District. In anticipation of the bond closing, the bond trustee, at Allstate's direction, and Saltaire's developer, the Saltaire Development Group, which was affiliated with MBI, entered an "Agreement Regarding Use and Requisitioning of Bond Proceeds." Pursuant to the agreement, the bond trustee was not to release more than $1 million of the bond proceeds until Regions, which the agreement stated had a $14.5 million line of credit in favor of Saltaire, reached a $16 million commitment to Saltaire. Although Regions was not a party to the agreement, it became aware of the $16 million requirement through Arendall in January 2008.

After the bond closing on December 26, 2007, the bond trustee released only $1 million to Saltaire in accordance with the agreement. Saltaire, however, ran into cash flow problems soon thereafter, with Regions having determined that it would not provide additional funds until all bond proceeds had been released. As Arendall and Regions knew that Allstate and the bond trustee believed that Regions had already invested $14.5 million in Saltaire, when indeed it had not, in order to obtain the release of the remaining bond proceeds, Regions only had to cause Allstate to think Regions had committed to the $16 million threshold. To do this, Regions issued a $2 million commitment letter in favor of MBI on January 30, 2008, which was provided to the developer and sent to Gardnyr Michael Capital. This letter was then ultimately presented to and accepted by the bond trustee and Allstate as satisfying the requirements of the agreement. The commitment, however, was never funded, but the remainder of the bond proceeds were released to Saltaire. Ultimately, Regions did not fulfill its commitments to Saltaire and Saltaire failed.

ANALYSIS

I. Transfer Pursuant to 28 U.S.C. § 1406

Regions first argues that this Court should transfer this case to the Southern District of Alabama pursuant to 28 U.S.C. § 1406 because venue is improper in this district. Section 1406 provides that, if venue is improper, the Court has the option to dismiss or transfer the suit to a district in which the plaintiff could have filed it initially. Venue is proper in

(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located;
(2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or
(3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court's ...

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