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FDIC as Receiver For Seaway Bank and Trust Co. v. Urban Partnership Bank

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

May 1, 2018

URBAN PARTNERSHIP BANK, Defendant/Counter-Plaintiff.


          John Robert Blakey United States District Judge

         The Federal Deposit Insurance Company as Receiver for Seaway Bank and Trust Company (FDIC-R) sued Urban Partnership Bank (UPB) for the return of deposits that Seaway paid toward an unsuccessful sale of certain loans. [1-1]. The FDIC-R claims that there was no meeting of the minds between Seaway and UPB, so the sale agreement under which UPB asserts rights to the deposits never existed. Id. The FDIC-R seeks a declaratory judgment that UPB and Seaway never entered a binding agreement, and brings a conversion claim for UPB's continued possession of Seaway's deposits. Id. UPB asserts an estoppel counterclaim and affirmative defense that seek to compel the FDIC-R to uphold UPB's agreement with Seaway, as well as affirmative defenses for “failure to do equity” and “failure to state a claim.” [58]. This opinion addresses the FDIC-R's motion to dismiss UPB's counterclaim and strike its affirmative defenses. [60].[1]

         I. Background

         This Court incorporates by reference, and presumes familiarity with, its prior opinion sustaining UPB's related third-party complaint, [67]. This Court provides additional facts relevant to UPB's counterclaim and affirmative defenses against the FDIC-R but only briefly revisits the relevant transactions, which were also alleged in the third-party complaint.

         In September 2015, UPB prepared to sell the loan portfolio in an online auction and hired First Financial Network (FFN) as its loan sale adviser. [58] ¶¶ 3-4. From October 14, interested buyers could visit FFN's website for information about the loan portfolio, including the terms and conditions of sale. Id. ¶¶ 5-7, 10. On consultation with UPB, FFN updated the terms and conditions on October 22, notifying bidders of the change. Id. ¶¶ 11-12; [67] at 3. The updated terms required bidders to submit a loan servicing plan with their bid, addressing how loan payments would be “collected and administered after the servicing transfer date” if the bidder won. See [58] ¶ 13. The terms and conditions also provided that the terms of sale in the loan sale agreement (LSA) were non-negotiable. Id. ¶ 15.

         FFN posted the LSA online on October 30. Id. ¶ 16. The LSA proposed a closing date of December 11, 2015, for the sale of the portfolio. Id. ¶ 17. The LSA provided that the servicing transfer date for loans not subject to the Real Estate Settlement Procedures Act (RESPA) was the closing date-December 11. Id. ¶¶ 19- 20. The LSA's provision for RESPA loans incorporated RESPA by reference; reading the LSA and RESPA together, UPB would transfer all RESPA loan servicing to the buyer on December 26 (15 days after the closing). See id. ¶¶ 21-22.

         Seaway registered as a bidder around October 16. Id. ¶ 26. The deadline for bids was November 17. Id. ¶ 23. To place a bid, bidders had to submit sealed bids through the site managed by FFN, and wire an initial deposit of $100, 000 to FFN's designated depository. Id. ¶ 24. Before the deadline, Seaway reviewed the terms and conditions on FFN's website and in the LSA; Seaway then contacted FFN to ask it to waive the requirement that Seaway submit a loan servicing plan “because Seaway is a bank.” Id. ¶¶ 27-28. FFN granted Seaway a one-day extension, authorizing it to submit a servicing plan by November 18. Id. ¶ 29.

         On November 17, Seaway's Chief Credit Officer submitted Seaway's bid certification to FFN; the certification acknowledged that the bidder “accepts all terms and conditions” in the relevant sale documents, including the LSA and the posted terms and conditions of sale. Id. ¶¶ 30-31. Seaway submitted its bid online without any contingencies or conditions. Id. ¶¶ 32-33. Seaway wired its initial deposit to FFN on November 17 and provided its servicing plan on November 18. Id. ¶¶ 35-36. Seaway's servicing plan included a one-page outline and PowerPoint slides about a third-party loan servicing provider. Id. ¶ 37. Seaway's servicing plan and accompanying email did not indicate that Seaway sought to alter the servicing transfer date. See id. ¶¶ 38-39. UPB accepted Seaway's bid on November 23, 2015, and released all other bids for the portfolio. Id. ¶¶ 40-41. Seaway wired its final deposits to FFN's designated depository on November 24. Id. ¶ 42.

         On December 4, Seaway told FFN that-contrary to the provisions of the LSA-it could not service the loans until at least 120 days after the December 11 closing date. [67] at 5; [58] ¶¶ 43-36. Seaway never signed the LSA and failed to pay the balance of the purchase price on the closing date, as required by the terms and conditions, the LSA, and Seaway's bid certification. [58] ¶¶ 48-49. On December 11, UPB declared that Seaway had defaulted under the terms of the loan sale agreements. Id. ¶ 50. UPB had FFN transfer Seaway's deposits to UPB and inform Seaway that UPB considered it in default. Id. ¶¶ 50-51.

         UPB relied upon Seaway's reputation, bid certification, bid submission, and issuance of deposits when it declared Seaway to be the winner of the portfolio auction and dismissed all other bidders. Id. ¶¶ 53-58. As a result of Seaway's failure to purchase the portfolio on December 11, UPB incurred the costs of the failed auction, and of carrying the loans for an additional period before remarketing and ultimately selling them at a lower price. Id. ¶ 62.

         Seaway sued UPB and FFN for its deposits in January 2016, and the FDIC-R substituted as Plaintiff in February 2017. [1] at 1-2. On the same day, the FDIC-R removed the case to this district. Id. at 2-3. In March 2017, the FDIC-R voluntarily dismissed its claims against FFN. [7]. UPB asserts one counterclaim against the FDIC-R for equitable estoppel, and raises three affirmative defenses: equitable estoppel, failure to do equity, and failure to state a claim.[2]

         II. Legal Standard

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “challenges the sufficiency of the complaint for failure to state a claim upon which relief may be granted.” Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). A counterclaim must meet the same standard as a complaint to survive a motion to dismiss. See Cozzi Iron & Metal, Inc. v. U.S. Office Equip., Inc., 250 F.3d 570, 574 (7th Cir. 2001). Thus, it must provide a “short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), giving the counter-defendant “fair notice” of the claim “and the grounds upon which it rests, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). It must state a facially plausible claim to relief, such that the alleged facts permit “the reasonable inference” that the counter-defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In evaluating a counterclaim, this Court draws all reasonable inferences in the counter-plaintiff's favor and accepts all well-pleaded allegations as true. See id. This Court need not, however, accept legal conclusions or conclusory allegations. McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011).

         A motion to dismiss under Rule 12(b)(1) challenges the basis for federal jurisdiction. On such motions, this Court also accepts well-pleaded allegations as true and construes reasonable inferences in the counter-plaintiff's favor. See Scanlan v. Eisenberg, 669 F.3d 838, 841 (7th Cir. 2012). But the Court may also consider other evidence submitted on the issue of jurisdiction, including matters outside the counterclaim's allegations. See Johnson v. Apna Ghar, Inc., 330 F.3d 999, 1001 (7th Cir. 2003). The claimant bears the burden of proving jurisdiction. See Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015).

         Under Rule 12(f), courts may strike a party's “insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Courts rarely grant motions to strike; they are generally disfavored for their dilatory effect and frequent use as a means to make arguments beyond the page limits of the merits briefs. See Custom Vehicles, Inc. v. Forest River, Inc., 464 F.3d 725, 726-27 (7th Cir. 2006). A motion to strike should succeed only when it removes “unnecessary clutter from the case, ” and thus expedites rather than delays resolution on the merits. Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989). This Court will not strike affirmative defenses that are “sufficient as a matter of law” or that present genuine “questions of law or fact, ” but such defenses must still satisfy “all pleading requirements” of the Federal Rules. Id.

         III. ...

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