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Gulati v. Allied First Bancorp Inc.

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

February 16, 2018




         Plaintiffs Sanjay, Sushant, and Sachin Gulati (collectively the “Gulatis”) filed this seven-count suit against Defendants Allied First Bank (“Allied”), Kenneth L. Bertrand (“Bertrand”), and James Maloney (“Maloney”) alleging claims of conversion, breach of contract, breach of fiduciary duty, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act[1](“ICFA”), fraud, unjust enrichment, and accounting. (Dkt. No. 14.) The Gulatis seek punitive damages, disgorgement of fees collected by Allied, attorney's fees, and an order from the Court requiring Allied to conduct an accounting of Gulati funds. The Defendants filed a motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). (Dkt. No. 19.) For the following reasons, the motion to dismiss is granted in part and denied in part. [22].


         All of the facts derive from the Amended Complaint or relevant exhibits attached thereto, and are accepted as true for the purpose of deciding the motion to dismiss for failure to state a claim.

         Sanjay, Sushant, and Sachin Gulati jointly operate a Mortgage Production Office (“MPO”), which serves banks that are unable to provide mortgaging services on their own. (Dkt. No. 14, ¶¶ 1-3, 12.) Allied is an FDIC-regulated bank located in Oswego, Illinois. (Id. ¶ 7.) Bertrand is the President and Chief Executive Officer and Maloney is the Chief Financial Officer at Allied. (Id. ¶¶ 8-9.) From April 2014 to July 2017, the Gulatis operated an MPO for Allied. (Id. ¶ 1.)

         Under the operative contract (the “Agreement”), the Gulatis ran the MPO under Allied's name and provided a team of brokers and other staff to originate mortgages for Allied. (Id.) The Gulatis possessed exclusive control over the MPO and exercised sole responsibility over operation costs and expenses, including staff wages and the brokers' commissions. (Id.) The Gulatis originated all loans, processed all documents, and ensured all transactions closed. (Id. ¶ 22.)

         To support the MPO operations, the Gulatis wired Allied funds to maintain an operating account, which became known as the Georgia-Gulati Account (the “Account”). (Id. ¶ 24.) The Gulatis used the Account to pay employee wages and salaries, taxes, fees, employee benefits, and other expenses. (Id.) Allied never contributed funds to the Account or provided the MPO with any financial or operational support. (Id. ¶ 25.) The Gulatis assert that the funds in the Account do not represent a general debt or obligation to Allied. (Id.) The only participation in the MPO by Allied consisted of receiving a fixed fee for every transaction closed. (Id. ¶ 26.) The remainder from each transaction stayed in the Account. (Id.)

         The Agreement between the Gulatis and Allied was partially governed by a Team Manager Handbook, which required the Gulatis to maintain a minimum reserve in the Account. (Id. ¶¶ 27-28.) An addendum to the handbook, signed by the Parties in 2015, required the Gulatis to keep minimum reserve levels in the Account in order to cover direct costs, loan officer compensation, overhead costs, and staff salaries. (Id.; see also Dkt. No. 14, Ex. A, at 2.) The addendum, attached as an exhibit to the complaint, includes the following provisions:

“[Allied's] President and/or CFO will determine the amount to hold for any current and future compensation to Staff and MLOs in order to ensure timely payment of amounts due where appropriate. This will include but is not limited to salary/hourly/commissions/applicable over-time/benefits/matching payroll taxes.”

         (Dkt. No. 14, Ex. A, at 3.) And:

“The minimum amount added to the reserve requirement upon separation for Early Payoff charges or Defaults from out Lenders/Investors (on files originated by the Team Manager or his/her staff) will be determined by the CFO and/or President. This will be held back for a period of no less than 120 days after the separation date.”

(Id.) Furthermore, the addendum to the Team Manager Handbook permitted Allied to hold back reserve requirement funds for 120 days before returning them to the Team Manager:

“After the 120 days has elapsed any amounts remaining (after payment of charges for EPOs and/or Defaults any expenses paid on behalf of the Team Manager or Production Office) will be returned to the Team Manager. Expense reimbursement requests from remaining ...

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