United States District Court, N.D. Illinois, Eastern Division
FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER FOR FIRST UNITED BANK, Plaintiff,
DONALD BOROWSKI; KEVIN GORMAN; WAYNE HAMEISTER; RICHARD LINDEMAN; DONALD OLIVIERI, JR.; and DAVID ZEGLIS, Defendants.
CHARLES P. KOCORAS, District Judge
matter comes before the Court on Defendants Donald Borowski,
Kevin Gorman, Wayne Hameister, Richard Lindeman, Donald
Olivieri, Jr., and David Zeglis' (collectively,
"Defendants") motion to dismiss Plaintiff Federal
Deposit Insurance Corporation as Receiver for First United
Bank's (the "FDIC") complaint filed on June 15,
2016 (the "Complaint") pursuant to Federal Rules of
Civil Procedure 12(b)(6) and 10(b). For the reasons set forth
below, Defendants' motion is denied.
purposes of the instant motion, the following well-pleaded
allegations derived from the Complaint are accepted as true.
Ed Miniat. Inc. v. Global Life Ins. Grp., Inc., 805
F.2d 732, 733 (7th Cir. 1986); Dilallo v. Miller &
Steeno, P.C., et al, No. 16 C 51, 2016 WL 4530319, at *1
(N.D. Ill. Aug. 30, 2016). This principle, however, does not
apply to legal conclusions; the Court will not consider
conclusory claims. Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). The Court draws all reasonable inferences in the
FDIC's favor and construes all allegations in the light
most favorable to it. EdMiniat. Inc., 805 F.2d at
733; Dilallo, 2016 WL 4530319, at *1.
September 28, 2012, the Illinois Department of Financial and
Professional Regulation closed First United Bank, Crete,
Illinois" ("First United"), and appointed the
FDIC as Receiver. Defendants are former First United
directors, officers, or both. The FDIC alleges that from 2003
until early 2009, "Defendants embarked on an overly
aggressive growth program" for First United, which
"included high risk credit facilities." The FDIC
contends that "Defendants ignored proper credit risk
management and failed to engage in underwriting
practices" to safely grow First United's loan
portfolios. Defendants also allegedly failed to sufficiently
staff First United in the areas of lending and credit
administration "to properly underwrite and oversee [its]
rapidly expanding and increasingly complex loan portfolio,
" and failed to implement "appropriate controls in
the lending process" to protect depositors.
September 2007 through February 2009, among other things, the
FDIC claims that Defendants approved ten loans which were
poorly underwritten (the "Subject Loans"). The
Subject Loans include four loans to borrower JMR
Management-the September 2007 and 2008 loans and two February
2009 loans. They also include single loans to the following
borrowers: Grand Central Properties, Stead Corporation, The
Insurance Store, HomeStar Financial, First Personal
Financial, and Trim Creek. The underwriting deficiencies of
the Subject Loans were purportedly obvious from loan
presentations. The Subject Loans supposedly violated First
United's loan policy, which articulated "a goal of
eliminating high risk loans, " and listed certain loans
as "undesirable." The FDIC maintains that the
Subject Loans also violated sensible lending standards and
"safe and sound banking practices" because they had
inadequate debt service coverage ratios, and they were backed
by insufficient collateral. In sum, the FDIC claims that
Defendants "fail[ed] to inform themselves of material
facts necessary to evaluate the merit of each credit
decision." According to the FDIC, the material facts of
which Defendants should have been aware include "the
repayment ability of the borrower, the financial strength of
guarantors, and the sufficiency of underlying collateral to
protect" First United "in the event of a
Complaint contains three counts, alleging: (i) negligence
under Illinois law (Count I); (ii) gross negligence in
violation of 12 U.S.C. § 1821 (k) (Count II); and (iii)
breach of fiduciary duty pursuant to Illinois law (Count
III). Counts I and III are pled in the alternative. The FDIC
seeks "judgment in its favor and against
Defendants" for: "compensatory damages of at least
$8.05 million, and any excess amount as may be proved at
trial, with each Defendant found jointly and severally liable
for the losses on the Subject Loans he approved;"
"costs of suit against all Defendants;" prejudgment
interest; "attorneys' fees and costs for the
investigation and litigation;" and "such other and
further relief as this Court deems just and proper."
August 15, 2016, Defendants filed a motion to dismiss the
Complaint and memorandum in support thereof, raising at least
seven arguments, which are framed as four. First, Defendants
contend that the FDIC uses "improper group pleading,
" violating Rule 10(b) by grouping multiple defendants
and combining "ten separate transactions into single
causes of action" in the Complaint. Second, Defendants
claim that "the FDIC fails to adequately allege
negligence in Count I and breach of fiduciary duty of care in
Count III." Within their second argument, Defendants
contend that: (i) "the FDIC's claims regarding the
September 2007 JMR Management Loan are time barred;"
(ii) Defendants "are shielded from liability for
negligence and breach of fiduciary duty by the Business
Judgment Rule, " (the "BJR"); and (iii)
"the FDIC fails to allege that Defendants' purported
breaches of duty proximately caused damage to the FDIC."
Third, Defendants argue that "the FDIC fails to
adequately allege gross negligence under" The Financial
Institutions Reform, Recovery, and Enforcement Act
("FIRREA") in Count II. Fourth, Defendants claim
that the FDIC does not make any "allegations with
respect to certain defendants regarding certain subject
response, first, the FDIC contends that "the Complaint
states claims against all Defendants, " and that it
"alleges all elements of every claim, " arguing
that "Defendants mischaracterize the applicable pleading
standard, " which only demands "notice of a
plausible right to relief." Second, the FDIC asserts
that the Court should not dismiss any claim because
"claims based on the first JMR Management Loan are
timely, " and the "application of the [B]R] cannot
be resolved on a motion to dismiss." The FDIC cites to
ample recent, on-point Northern District of Illinois cases
where the FDIC as Receiver "sued officers and/or
directors of several other failed Illinois banks, bringing
the very same claims alleged here . . . based on similarly
detailed allegations setting forth comparable factual
scenarios, " arguing that we should not "deviate
from the unanimous, well-reasoned, and legally sound
precedent in this District." We agree, and find no reason
to deviate therefrom.
12(b)(6) motion to dismiss '"tests the sufficiency
of the complaint, not the merits of the case.'"
McReynolds v. Merrill Lynch & Co., 694 F.3d 873,
878 (7th Cir. 2012) (quoting McReynolds v. Merrill Lynch
& Co., No. 08 C 6105, 2011 WL 1196859, at *2 (N.D.
Ill. Mar. 29, 2011), aff'd 694 F.3d 873 (2012)).
The allegations in a complaint must set forth "a short
and plain statement of the claim showing that the pleader is
entitled to relief." Fed.R.Civ.P. 8(a)(2). A plaintiff
must "give the defendant 'fair notice of what the .
. . claim is and the grounds upon which it rests.'"
E.E.O.C v. Concentra Health Servs., Inc., 496 F.3d
773, 776 (7th Cir. 2007) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 545 (2007)). A plaintiff need not
offer "detailed factual allegations, " but he or
she must provide enough factual support "to raise a
right to relief above the speculative level."
Twombly, 550 U.S. at 555. "Determining whether
a complaint states a plausible claim for relief is "a
context-specific task that requires the reviewing court to
draw on its judicial experience and common sense."
Iqbal, 556 U.S. at 679.
The Complaint in its Entirety
Court begins with an analysis of Defendants' arguments
that pertain to the Complaint as a whole, first addressing
their grievances regarding the general manner in which the
FDIC pleads its allegations against Defendants in Parts LA
and LB, prior to discussing Defendants' count-specific
arguments in Part II.
contend that the FDIC violates Rule 10(b) by grouping
multiple defendants and combining "ten separate
transactions into single causes of action" in the
Complaint. According to Defendants, "there is no
equitable basis for allowing the FDIC to circumvent"
Rule 10(b), and the Complaint is problematic because: (i) it
is unclear "which Defendants are alleged to have engaged
in which allegedly tortious conduct and pursuant to which
standard of care;" (ii) "the FDIC seeks aggregated
damages-stemming from all ten Subject Loans-against all
Defendants in contradiction of the allegations in the
Complaint;" and (iii) it "unfairly precludes
Defendants from being able to challenge . . . the sufficiency
of the FDIC's claims on a loan-by-loan basis."
doing so would promote clarity, each claim founded on a
separate transaction or occurrence . . . must be stated in a
separate count or defense." Fed.R.Civ.P. 10(b). However,
as this Court has stated before, we continue to hold:
"courts in this district do not dismiss a claim for
failure to comply with Rule 10(b) unless the complaint is not
understandable and does not provide the defendant with fair
notice of the claims against him." Plohocki v. Chi.
Sch. Reform Bd. of Trustees, No. 99 C 6710, 2000 WL
150748, at *6 (N.D. Ill. Feb. 4, 2000). The Court finds that
the FDIC has provided Defendants with fair notice. In fact,
with six Defendants, ten underlying transactions, and three
causes of action, the Complaint's structure is an attempt
Defendants argue that the Complaint is unclear
"regarding which Defendants are alleged to have engaged
in which allegedly tortious conduct and pursuant to which
standard of care, " citing Pennsylvania Chiropractic
Association v. Blue Cross Blue Shield Association, among
others. This case is different from Pennsylvania
Chiropractic Association where, in the Complaint,
plaintiffs simply included a "sentence stating that each
plaintiff brings his claim only against that defendant that
harmed him." See No. 09 C 5619, 2010 WL
3940694, at *3 (N.D. Ill. Oct. 6, 2010) (maintaining that
plaintiffs' second amended complaint containing "a
single sentence purporting to clarify that each individual
plaintiff seeks only to recover against the individual
defendant that injured him" is insufficient to correct
plaintiffs' errors where they "treat[ed] the claims
as one collective claim, " sought "to represent a
single class . . . against all the [named] defendants, "
and sought collective damages). Here, while Counts I-III are
pled against "Defendants, " they also re-allege and
reincorporate the preceding paragraphs. The prior paragraphs
break down the transactions by Subject Loan, "explicitly
identif[y] which . . . Defendants voted for each loan, "
and allege actions and omissions by specific Defendants
purportedly leading to breaches of duties. See McDougall
v. Donovan,552 F.Supp. 1206, 1209 (N.D. Ill. 1982)
("Under Rule 10(b), where the gist of the complaint is a
scheme, plan or course of conduct, there is no requirement
that each claim be stated separately merely because all the
defendants may not be involved in each act or
transaction."). This sufficiently provides ...