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Nesbitt v. Regas

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

March 20, 2015




Plaintiff Diane Goldring Nesbitt (“Goldring”) brings this action against eleven defendants, alleging that each played a role in a fraudulent scheme that resulted in substantial losses to Goldring. She asserts violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act Section 1962(c) against all defendants (“Count I”), RICO conspiracy claims against James Regas, Christian Nesbitt, Regas, Frezados & Dallas LLP, and Adams Valuation Corporation (“Count II”), as well as four state law counts relating to the alleged fraud. The Court has stayed briefing on the state law counts, and pending before the Court are a motion to dismiss filed by James Regas (Dkt. 24), a motion to dismiss filed by Allyson Regas (Dkt. 27), a joint motion to dismiss filed by Douglas Adams and Adams Valuation Corporation (Dkt. 30), and a joint motion to dismiss by Peter Regas, Peter G. Frezados, William D. Dallas, and the law firm Regas, Frezados & Dallas, LLP (Dkt. 32). Also pending is Goldring’s motion for default judgment against Suzanne Regas (Dkt. 68) as well as Suzanne Regas’s motion to quash service or to dismiss (Dkt. 73).

For the reasons that follow, the motions by Allyson Regas (Dkt. 27) and Regas, Frezados & Dallas, LLP (Dkt. 32) are granted, and both Count I and Count II are dismissed against these movants without prejudice. Suzanne Regas’s motion (Dkt. 73) is denied with respect to quashing service, but granted with respect to dismissing Count I against Suzanne Regas without prejudice. The motions by James Regas (Dkt. 25) and Adams Valuation Corp. (Dkt. 30) are granted in part, with respect to dismissing Count I without prejudice, and denied in part, with respect to Count II. Goldring’s motion for default judgment (Dkt. 68) is denied. Accordingly, Count I is dismissed without prejudice as to James Regas, Allyson Regas, Suzanne Regas, Peter Regas, Peter Frezados, William Dallas, Regas, Frezados & Dallas LLP, Douglas Adams, and Adams Valuation Corp. Count II is dismissed without prejudice as to Regas, Frezados & Dallas LLP.


This case arises out of two bank failures caused by an unlawful insider loan scheme. In 2009, the Illinois Department of Financial and Professional Regulation closed Mutual Bank of Harvey (“Mutual Bank”), and the Federal Deposit Insurance Corporation (“FDIC”) was appointed its receiver. Also in 2009, the Office of the Comptroller of the Currency (“OCC”) restricted the operations of Western Springs Bank and Trust Co. (“WS Bank”), and entered into a consent decree. Eventually, in 2011, the FDIC shut down WS Bank, as well. Investigation of the records of both banks revealed extensive use of unlawful insider loans involving James Regas and his family members, who were insiders for both banks. James Regas was Chairman of WS Bank and Vice-Chairman of Mutual Bank, as well as outside general counsel for both banks.

The insider loans scheme involved Regas[2] using his position within the banks to approve illegal insider loans while obscuring the creditworthiness of the borrowers, concealing his own interest in the loans, inflating the appraised values of the real property securing the loans, and siphoning off funds for his own use. In order to do so, Regas and his longtime business partner Christian Nesbitt arranged for the law firm of Regas, Frezados, and Dallas, LLP (“RFD”) to create business entities nominally under the control or ownership of Regas’s children or Nesbitt’s wife, Plaintiff Diane Goldring.[3] In reality, however, these entities were not legitimate business entities at all, and were instead sham entities under the control of Regas and Nesbitt. Nesbitt and Regas arranged for these entities to purchase real properties using funds loaned by the victim banks, using Regas’s position as an insider at these banks. Nesbitt and Regas also arranged for Adams Valuation Corporation (“Adams Valuation”) and its president Douglas Adams to systematically overvalue these real properties in its appraisals so that the sham entities could qualify for larger loans. Also, Nesbitt and Regas would arrange for Regas’s son Dean Regas and Nesbitt’s wife Goldring to unwittingly sign guarantees for these loans without knowing that the property values were inflated, that the loans did not go through proper underwriting procedures, or that the banks were unaware of Regas’s self-dealing. Regas would ensure that the banks approved the loans without following proper underwriting procedures by using his influence, with fellow bank officers Allyson Regas and Jerry F. Miceli, to pressure bank employees into approving the loans without following proper procedures. RFD would then represent all parties (the victim banks, guaranty victims like Goldring and Dean Regas, and the sham entities) in performing the legal work relating to the purchase and financing of these overvalued properties. Nesbitt and Regas would then skim off funds from the sham entities for their own personal use.

Goldring alleges that this basic scheme was executed multiple times. In October 2001, Regas directed RFD to create Baybrook Bristol LLC for the purpose of holding title to 32 acres of land, which was used to secure a loan from either Mutual Bank or WS Bank. In October 2004, Regas formed Hanover Capital Group, Inc. to purchase and purportedly develop 110 acres of land using loans from WS Bank or Mutual Bank. In November 2004, Regas formed Jefferson Capital Group, Inc. to purchase and develop 925 Edgemere Court in Evanston, Illinois, which was used to secure $5.7 million in loans from Mutual Bank. Ultimately, the Edgemere property was sold with a loan deficiency of $3.2 million. In December 2004, Regas created 1104 Sheridan LLC with plans to devote $1 million to develop a property at 1104 Sheridan.[4] In January 2005, Regas created SDAR LLC for development of multiple pieces of property in St. Francis, Wisconsin, and arranged for loans from Mutual Bank or WS Bank. In June 2005, Regas created 7500 Kenosha to purchase and develop property in Bristol, Wisconsin, and arranged for a $2.5 million loan from Mutual Bank. In May 2006, Regas formed 913 Forest-Evanston LLC, which purchased a $2.2 million property (“Forest Property”) that was used to secure a $3.0 million purchase loan, which was later expanded to $3, 425, 500. Ultimately, the Forest Property was sold with a loan deficiency of $3.4 million. Also in May 2006, Regas formed Damen, Fullerton, Clybourn LLC to purchase and develop a property in Chicago. In September 2007, Regas formed 917 Edgemere LLC to purchase a property in Evanston, Illinois.

While executing this multi-year scheme, Regas and Nesbitt once arranged for Goldring to guarantee another loan under false pretenses and to personally lend $200, 000 to her husband- which was falsely listed in bank records as a “correction offset, ” presumably to conceal the broader scheme. Eventually, the victim banks collapsed, and government investigators pieced together much of the information relating to the scheme. In June 2012, the federal government indicted Regas for his participation in the scheme. Regas pled guilty to lying to government agents and admitted that between 2004 and 2009 he repeatedly arranged for unlawful insider loans so that he could use bank funds for his own benefit while concealing the improper conflicts of interest.

After the banks collapsed, Goldring discovered that she was exposed to considerable guaranty liability on these loans, which she discovered were undersecured because of the inflated appraisal values on the collateral.[5] As a result, Goldring suffered losses in the form of three seven-figure judgments (Goldring has to date paid $200, 000 in settling two out of the three judgments), the $200, 000 personal loan to Nesbitt, approximately $150, 000 in legal fees and costs, and approximately $25, 000 in other indebtedness caused by the scheme. Goldring filed this lawsuit, alleging a substantive civil RICO claim (Count I), RICO conspiracy claim (Count II), claim under Illinois Deceptive Business Practices Act (Count III), Fraudulent Inducement (Count IV), Fraud (Count V), and Aiding and Abetting a Fraud (Count VI). Defendants James Regas, Allyson Regas, and Suzanne Regas have each moved individually to dismiss the complaint.[6] RFD, Peter Regas, Peter Frezados, and William Dallas (“the Law Firm Defendants”) have moved jointly to dismiss the complaint, as have Adams Valuation and Douglas Adams (“the Appraiser Defendants”).[7]


I. Service of Process on Suzanne Regas

The Court first turns to the preliminary question of whether Defendant Suzanne Regas was properly served. Goldring filed her complaint on November 15, 2013. Goldring’s attorneys sent requests for waivers of service to all the defendants in this case, pursuant to Fed.R.Civ.P. 4(d). Suzanne Regas did not return a waiver of service, although she was aware of the pending lawsuit. On December 20, 2013, Suzanne Regas sent a letter to her insurer and attached a copy of the complaint and summons in this case, explaining that she had not been personally served and had “no intention of waiving service.” Suzanne Regas Letter, Dkt. 75-3, at 1. Goldring hired a process server, who attempted service at Suzanne Regas’s home (which is also registered as her address with the Illinois Attorney Registration and Disciplinary Commission (“ARDC”)), on five different occasions between February 26 and March 12, 2014. See Kirby Aff., Dkt. 75-4, at ¶¶ 5-7, 9, 11. Each time, the process server encountered a doorman at Suzanne Regas’s residential building, and Suzanne Regas did not answer the doorman’s phone calls. In addition, the process server attempted service once at her parents’ home and once at her former place of employment. The time limit prescribed by the Federal Rules of Civil Procedure expired on March 15, 2014, 120 days after the complaint was filed. See Fed. R. Civ. P. 4(m).

On August 29, 2014, Goldring filed a motion for service by publication. In that motion, Goldring outlined the five attempts to serve Suzanne Regas at home and the two attempts to serve her at other associated addresses. Mot. to Serve, Dkt. 65, at 2. The motion also brought to the Court’s attention that Suzanne Regas was accused of evading service in another case relating to insurance coverage for Goldring’s claims in this case. See Mot. for Service by Publication, Wesco Ins. Co. v. Regas, No. 14 C 716, Dkt. 12 (describing ten attempts to serve Suzanne Regas at home in April 2014); Mot. for Service by Publication, No. 14 C 716, Dkt. 26 (describing nine attempts to serve a cross complaint in May and June 2014). Further, the complaint in the Wesco Insurance case showed that Suzanne Regas was actually aware of this case. Goldring argued that further attempts to locate and personally serve Suzanne Regas “would be impractical and futile without assistance from the Court.” After a hearing, the Court granted Goldring’s motion with the additional requirement that Goldring also attempt service by overnight mail to Suzanne Regas’s residence of record and to her parents’ home address. See Minute Order, Dkt. 67.

After providing the alternative notice authorized by the Court, Goldring moved for a default judgment against Suzanne Regas. See Motion, Dkt. 68. A few days later, an attorney entered an appearance in this case on behalf of Ms. Regas, and she subsequently filed a motion to quash service of process (or, in the alternative, to dismiss the complaint). See Motion, Dkt. 73.

Ms. Regas argues that service was insufficient under federal and Illinois law. She first asserts that Rule 4(m) of the Federal Rules of Civil Procedure requires that the Court dismiss this case, because Goldring is not able to demonstrate “good cause” for an extension past the 120-day limit and did not move to extend the time limit before the time expired. This “good cause” argument need not be considered, because even “[i]f the plaintiff cannot show good cause, then the decision to grant an extension is left to the discretion of the district court.” United States v. Ligas, 549 F.3d 497, 501 (7th Cir. 2008) (citing Henderson v. United States, 517 U.S. 654, 662-63 (1996)). Further, plaintiffs are entitled to request (and courts have discretion to grant such requests) even after the 120-day time limit has already expired. See United States v. McLaughlin, 470 F.3d 698, 701 (7th Cir. 2006) (“When delay in service causes zero prejudice . .., the granting of extensions of time for service, whether before or after the 120-day period has expired, cannot be an abuse of discretion”). In the absence of any prejudice to Ms. Regas (her motion identifies none), the Court was well within its discretion to extend the 120-day service period.

Second, Suzanne Regas argues that even if the Court did not abuse its discretion in failing to dismiss the case after the 120-day deadline, the manner of service was insufficient under the Federal Rules and Illinois law. The Federal Rules permit plaintiffs in this Court to effect service by following Illinois law. See Fed. R. Civ. P. 4(e)(1). Illinois law generally requires personal service or abode service, 735 ILCS 5/2-203(a), but also allows special service by court order when either personal service or abode service is impractical. See 735 ILCS 5/2-203.1. Special service may be authorized when two conditions are met: the plaintiff must show that “a diligent inquiry as to the location of the individual defendant was made and reasonable efforts to make service have been unsuccessful.” Id.

As to the first condition, Goldring performed a “diligent inquiry as to the location of the individual defendant, ” id., when she relied on Suzanne Regas’s residence of record with the ARDC, [8] and when the doorman at the building confirmed that Suzanne Regas lived at that address. See Kirby Aff., 65-2, at 3-4. All parties agree that Goldring’s process server had the correct address for Suzanne Regas’s residence. See, e.g., Suzanne Regas Decl., Dkt. 74-1, at ¶ 3. Further, Goldring performed a diligent inquiry by exhausting the possibilities of attempting service at Suzanne Regas’s former employer and her parents’ home. Id.

Goldring also satisfied the second requirement of making “reasonable efforts to make service, ” 735 ILCS 5/2-203.1, through a process server trying on multiple occasions to effect service at Suzanne Regas’s home, each time unsuccessfully trying to call Suzanne Regas and leaving a business card with the building’s doorman. Unlike a single family house, Suzanne Regas’s fourteenth-floor residence would not give a process server any external indicators of whether a resident is home. Further, the building doorman and lack of public access to Suzanne Regas’s unit increase the practical difficulty of service. As required by 735 ILCS 5/2-203.1, Goldring filed with her motion for special service the process server’s affidavit of diligence, outlining the attempts at her home, at her parents’ home, and at her former place of employment. See Dkt. 65-2. Based on the record in this case of five unsuccessful attempts to serve Suzanne Regas, as well as ten unsuccessful attempts to serve a summons and nine separate unsuccessful attempts to serve a cross complaint in case number 14 C 716 in this Court, the Court determined that further efforts to attempt personal service or abode service on Suzanne Regas would be futile and therefore impractical. See People ex rel. Waller v. Harrison, 348 Ill.App.3d 976, 804, 810 N.E.2d 589, 594 (Ill.App.Ct. 2004) (“[T]he statute does not require futile attempts to serve a defendant . . . .”); compare Glens of Hanover Condominium Ass’n v. Carbide, 2012 IL App (2d) 120008-U, at ¶ 29 (Ill.App.Ct. 2012) (unpublished opinion) (disapproving of special service when process server made no effort to find defendant in places other than defendant’s home). Suzanne Regas’s post hoc argument that further attempts would not in fact have been futile and that she could have been served with further attempts is insufficient to show that the Court’s earlier order was invalid. See Waller, 348 Ill.App. at 804-05, 810 N.E.2d at 594-95 (implicitly placing the burden on the defendant to show that a different course of action would have been successful in effecting service[9]). Therefore, this Court was authorized by Illinois law to grant service by special order under 735 ILCS 5/2-203.1.

Once personal or abode service are found to be impractical, “[t]he court order may order service to be made in any manner consistent with due process.” 735 ILCS 5/2-203.1. In the context of service of process, due process requires only that the court provide “notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Jones v. Flowers, 547 U.S. 220, 226 (2006) (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950)). Several factors lead the Court to believe that overnight mail to her home could reasonably be expected to provide actual notice. First, Suzanne Regas registered her home address with the Illinois ARDC, which indicates that her home address is the best place to contact her regarding attorney licensing and that she consents to service by mail at that address for ARDC proceedings. See ILCS S.Ct. Rule 765(a) (authorizing service for ARDC proceedings “by delivery of any such notice . . . to the address listed on the master role for the attorney”); ILCS S.Ct. Rule 765 committee comments (explaining that the rule was revised to provide for service “by lawful means other than personal service on an attorney”). Obviously, this proceeding is not an ARDC proceeding, but consent to being served by mail at an address for other matters suggests that this method can be “reasonably calculated” to provide actual notice of this proceeding. Jones, 547 U.S. at 226; see also Sato v. Demos, 2012 IL App (1st) 1112968-U, at ¶ 34 (Ill.App.Ct. 2012) (unpublished opinion) (holding that service pursuant to § 2-203.1 by mail to a P.O. Box where a landlord receives rent checks is sufficient to serve the landlord). Another factor suggesting that Suzanne Regas would have actual notice of this suit is that several of her family members and her former employer are defendants in this matter. Also, Suzanne Regas was already aware of this case and had already filed a claim with her insurance provider.[10] In addition, the method used to serve Suzanne Regas was also the method used to notify her as to Goldring’s motion for default judgment, to which she promptly responded and appeared.[11] Finally, Suzanne Regas did not suffer any prejudice in this case. Despite appearing later than the other defendants, she is not in a different position from her co-defendants. With her motion to quash, she also filed a motion to dismiss, which is granted on the merits below. Therefore, the Court concludes that service by overnight mail to Suzanne Regas’s ARDC-registered address, when combined with service by overnight mail to her parents’ home and service by publication, when Suzanne Regas already had actual notice of the suit, comported with the requirements of due process.[12]

In summary, the Court concludes that the manner of service on Suzanne Regas complies with the requirements of Rule 4, 735 ILCS 5/2-203.1, and the Due Process Clause, and that this Court may therefore exercise personal jurisdiction over Suzanne Regas. Accordingly, Suzanne Regas’s Motion to Quash Service, Dkt. 73, is denied with respect to quashing service of process, dismissing the complaint for lack of personal jurisdiction, or dismissing the complaint for insufficient service of process. On the other hand, because Suzanne ...

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