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Federal Deposit Insurance Corp. v. Coleman Law Firm Kevin Flynn & Associates

United States District Court, Northern District of Illinois, Northern Division

March 19, 2015

Federal Deposit Insurance Corporation, as receiver for George Washington Savings Bank, Plaintiff,
v.
The Coleman Law Firm and Kevin Flynn & Associates, Defendants.

MEMORANDUM OPINION AND ORDER

Honorable Thomas M. Durkin, United States District Judge

The Federal Deposit Insurance Corporation (“FDIC-R”), as receiver for George Washington Savings Bank (the “Bank”), has sued defendants The Coleman Law Firm (“Coleman”) and Kevin Flynn & Associates (“Flynn”) to recover retainer payments that the defendants accepted from the Bank several months before the Bank failed. In exchange for the payments, the defendants agreed to defend the Bank’s officers and directors (the “D&Os”) in litigation stemming from actions taken within the scope of their employment. The FDIC-R alleges that the retainer agreements violate 12 U.S.C. § 1828(k)(3) and has sued to recover the payments. The defendants argue that the D&Os are “required” parties under Rule 19(a), but cannot be joined in this lawsuit. They have moved under Rule 12(b)(7) to dismiss the complaint on the grounds that the court cannot “in equity and good conscience” proceed with case in the D&Os’ absence. Fed.R.Civ.P. 19(b). For the following reasons, the Court denies the defendants’ motion to dismiss.

Background

In November 2009, the defendants, the Bank, and certain of the D&Os executed “Advance Payment Retainer Agreements” (the “Retainer Agreements”). R. 132-1 at 2-7. Pursuant to those agreements, the defendants agreed to provide legal services to the D&Os in connection with any lawsuit filed against them in their capacities as officers and directors of the Bank. Id. at 2. In exchange, the Bank agreed to “advance” $150, 000 to Coleman, and $100, 000 to Flynn, on the D&Os’ behalf. Id. at 2, 5. On February 19, 2010, the Illinois Department of Financial and Professional Regulation, Division of Banking, seized the Bank’s assets and appointed the FDIC as receiver. R. 1 ¶ 11. In November 2013, the FDIC-R filed this lawsuit alleging that the prepayments violated 12 U.S.C. § 1828(k)(3):

(k) Authority to regulate or prohibit certain forms of benefits to institution-affiliated parties
[. . .]
(3) Certain payments prohibited
No insured depository institution or covered company may prepay the salary or any liability or legal expense of any institution-affiliated party if such payment is made–
(A) in contemplation of the insolvency of such institution or covered company or after the commission of an act of insolvency; and
(B) with a view to, or has the result of–
(i) preventing the proper application of the assets of the institution to creditors; or
(ii) preferring one creditor over another.

12 U.S.C. § 1828(k)(3). The FDIC-R’s three-count complaint asks the Court to declare that the prepayments were “void ab initio” (Count I) and order Coleman and Flynn to return the payments to the FDIC-R as the Bank’s receiver (Counts II and III).

In July 2014, while this case was still in discovery, the FDIC-R settled separate claims against the D&Os. R. 132-2.[1] In exchange for $2.075 million and a release from the D&Os and their insurer, the FDIC released the D&Os from all claims relating to their performance as directors and officers of the Bank. Id. at 3-4. The Settlement and Release Agreement expressly provided that the FDIC was not releasing its claims against the D&Os’ attorneys. Id. at 6. Fact discovery in this case closed on December 14, 2014, at which point the case appeared ready for summary-judgment briefing or ...


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