United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
Robert Blakey United States District Judge
Plaintiff Urban Partnership Bank (Urban) sued Third-Party
Defendant First Financial Network, Inc. (FFN) for breach of
contract and failure to indemnify. . Urban alleges that
FFN breached its contract to manage the online auction of
distressed loans, resulting in the underlying suit by the
Federal Deposit Insurance Corporation (FDIC) when the sale of
those loans fell through. Id. FFN moves to dismiss
Urban's third-party complaint on the grounds that Urban
cannot show damages and is not entitled to indemnification.
. For the reasons explained below, this Court partially
grants and partially denies FFN's motion.
Court draws facts from the amended complaint, , and the
exhibits attached to it, see Thompson v. Ill. Dep't
of Prof'l Reg., 300 F.3d 750, 753 (7th Cir. 2002).
Here, this Court may also consider the exhibit attached to
FFN's motion to dismiss, , without converting the
motion to one for summary judgment, as discussed below.
See Levenstein v. Salafsky, 164 F.3d 345, 347 (7th
formed in August 2010 to purchase certain assets of a failed
bank from the FDIC.  ¶ 5. These assets included a
number of “non-performing or otherwise
distressed” loans that Urban bought while entering a
“loss share” agreement with the FDIC, which would
shoulder certain losses arising from these loans.
Id. ¶¶ 5, 6. When a number of the loans
continued experiencing losses, Urban decided to sell off a
portfolio of some of the loans. Id. ¶ 7. Urban
hired FFN as a financial advisor to manage the sale of the
portfolio because of FFN's “history and
experience” selling loans and assets and its
familiarity with FDIC policies, since the FDIC had to approve
the sale. Id. ¶¶ 7-9.
summer of 2015, Urban and FFN developed a proposal for the
FDIC on the planned sale of the loan portfolio. Id.
¶ 10. FFN drafted the proposal, which detailed FFN's
relevant experience and the proposed sale process.
Id. ¶¶ 11-14. The FDIC approved the sale
in September 2015. Id. ¶ 15-16. In October,
Urban and FFN entered a Loan Sale Engagement Agreement
(LSEA), which made FFN Urban's exclusive advisor in the
sale, granted FFN the exclusive right to market and sell the
portfolio for a specified period, and committed FFN to
various tasks relating to the sale, including managing the
online auction for the portfolio. Id. ¶¶
17-19. FFN's alleged breach of the LSEA forms the basis
of Urban's third-party complaint.
LSEA required FFN to prepare various legal documents for the
auction, including the loan sale agreement (LSA), and
additional terms and conditions of sale. Id. ¶
19. FFN also had to analyze all the bids received for the
portfolio using its proprietary Bid Optimization Model and
provide “bid day reports” to UPB. Id.
The bid analysis was to include a detailed assessment of
“all phases of the sale.” Id.
¶¶ 13, 26.
October 14, 2015, interested buyers previously vetted and
approved by FFN could visit FFN's website and access
information about the portfolio, including the terms and
conditions of sale. Id. ¶¶ 20-22. On
October 15, FFN told Urban that it wanted to amend the terms
and conditions of sale by adding a requirement that bidders
submit a servicing plan explaining “how loan payments
will be collected and administered after the servicing
transfer date” if the bidder won. Id. ¶
23. Urban accepted the recommendation; on October 22, FFN
posted the updated terms and conditions online and notified
eligible bidders of the change. Id. ¶¶
27-29. Under the terms and conditions, bidders had to submit
both the servicing plans and the actual bids to FFN.
Id. ¶¶ 23, 30. The terms and conditions
also provided that the terms of sale-set out in the loan sale
agreement (LSA)- were non-negotiable. Id. ¶ 32.
drafted the LSA and posted it online on October 30.
Id. ¶¶ 33-34. The LSA contained several
provisions relating to the “servicing transfer date,
” meaning the date when the responsibilities for
servicing the loans would transfer from Urban to the
purchaser. Id. ¶¶ 31, 36-37. The LSA
distinguished between loans governed by the Real Estate
Settlement Procedures Act (RESPA), and those not subject to
RESPA. Id. ¶¶ 37-39. The servicing
transfer date for non-RESPA loans was the date of the
sale's closing, December 11, 2015. Id. ¶
38. Urban's servicing of RESPA loans was also to cease on
the closing date, except as required by law. Id.
¶ 39. Reading the LSA and RESPA together, this meant
that Urban would transfer all servicing to the buyer on
December 26 (i.e., 15 days after the closing). Id.
¶¶ 39-40. At one point Urban asked FFN if the LSA
was clear enough for bidders to ascertain the servicing
transfer date; FFN's counsel recommended leaving the
provisions as they stood, and Urban acquiesced. Id.
deadline for bids was November 17, 2015. Id. ¶
45. Seaway Bank and Trust Company (Seaway), an Illinois bank,
registered as a bidder on October 16, and at some point
before the deadline asked FFN to waive the requirement that
Seaway submit a servicing plan with its bid. Id.
¶¶ 47-50. FFN declined, but said that Seaway could
submit the servicing plan the day after the bid deadline.
Id. ¶ 51. On November 17, Seaway submitted its
bid and an initial deposit of $100, 000 to FFN. Id.
¶¶ 52-58. It submitted a servicing plan the next
day, as agreed with FFN. Id. ¶ 59.
the bidding closed, FFN gave Urban its bid analysis of all
the offers for the portfolio, based upon which Urban decided
to accept Seaway's bid. Id. ¶¶ 63- 65.
The bid analysis did not raise any issue relating to
Seaway's servicing plan. Id. ¶ 64. FFN
notified Seaway of its successful bid and released all other
bids. Id. ¶¶ 66-67. On November 24, 2015,
Seaway wired FFN its final deposit. Id. ¶ 68.
December 4, Seaway told FFN that it could not service the
loans until at least 120 days after the December 11 closing
date-contrary to the provisions of the LSA. Id.
¶¶ 40, 69, 78. Urban alleges that up to this point,
FFN had not reviewed or vetted Seaway's servicing plan.
Id. ¶¶ 70-71. Urban also claims that if it
had known about Seaway's purported change to the
servicing transfer date, it would not have accepted
Seaway's bid. Id. ¶ 76.
closing date, December 11, Seaway did not pay the balance of
the purchase price, as required by the initial terms and
conditions and the LSA. Id. ¶ 81. FFN and Urban
determined that Seaway had defaulted on the sale agreements,
which, under the LSA, entitled Urban to keep Seaway's
deposits as a remedy. ...