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Federal Deposit Insurance Corp. v. Borowski

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

December 12, 2016

FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER FOR FIRST UNITED BANK, Plaintiff,
v.
DONALD BOROWSKI; KEVIN GORMAN; WAYNE HAMEISTER; RICHARD LINDEMAN; DONALD OLIVIERI, JR.; and DAVID ZEGLIS, Defendants.

          MEMORANDUM OPINION

          CHARLES P. KOCORAS, District Judge

         This 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.

         BACKGROUND

         For 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.

         "On 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.

         From 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 default."

         The 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."

         On 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 loans."

         In 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."[1] We agree, and find no reason to deviate therefrom.

         LEGAL STANDARD

         A Rule 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.

         DISCUSSION

         I. The Complaint in its Entirety

         The 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.

         A. Group Pleading

         Defendants 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."

         "If 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 at succinctness.

         First, 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 ...


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