1:12-cv-01665
N.D. Ill.Jan 16, 2013Background
- FDIC-R sues Broadway Bank former directors and officers for approx. $114 million in losses on CRE and ADC loans.
- Plaintiff alleges high-risk, concentrated loan portfolio and failures to monitor, violate loan policy, and reckless growth.
- Defendants include seven directors and two officers who allegedly approved loans despite warnings and deficient underwriting.
- Bank examiners warned of shortcomings in 2007–2009, but defendants ignored regulator criticisms and recommendations.
- FDIC-R claims categories of negligence: high-risk approvals without proper underwriting, ignoring policy, and failure to monitor market risks.
- Court addresses pleading standards, business judgment rule, Illinois Banking Act defenses, and duplicative claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What standard governs gross negligence under FIRREA? | Gross negligence is very great negligence, not mere recklessness. | Illinois law defines gross negligence as recklessness. | Gross negligence is very great negligence, not recklessness. |
| Are FDIC-R’s claims sufficiently pled under Illinois law? | Allegations identify transactions, detail misconduct, and show duty, breach, causation, damages. | Arguments about sufficiency and hindsight should defeat at this stage. | Plaintiff adequately pled gross negligence, negligence, and breach of fiduciary duty. |
| Are the claims barred by the business judgment rule or Illinois Banking Act? | Not barred; allegations show failure to exercise due care; rule does not shield misfeasance. | Directors may rely on information from officers and bank acts shield liability. | Business judgment rule and Illinois Banking Act defenses do not bar claims at this stage; result reserved for later stages. |
| Should duplicative claims for negligence and breach be dismissed? | Claims pled in the alternative; Rule 8 permits alternative pleading. | Duplication should be dismissed. | Negligence and breach claims may proceed in the alternative. |
| Should the court strike certain immaterial allegations? | Allegations are relevant to the theory of gross negligence. | Allegations are immaterial/impertinent. | Motion to strike denied. |
Key Cases Cited
- F.D.I.C. v. Gravee, 966 F. Supp. 622 (N.D. Ill. 1997) (Illinois gross negligence standard; very great negligence)
- F.D.I.C. v. Spangler, 836 F. Supp. 2d 778 (N.D. Ill. 2011) (business judgment rule not dispositive on pleadings; due care issues at dismissal stage)
- F.D.I.C. v. Saphir, No. 10 C 7009, 2011 WL 3876918 (N.D. Ill. 2011) (considered duplicative claims and pleading standards)
- Atherton v. F.D.I.C., 519 U.S. 213 (U.S. 1997) (state law sets standard of care but not more lenient than gross negligence)
- Bierman v. F.D.I.C., 2 F.3d 1424 (7th Cir. 1993) (duty of directors; business judgment rule framework)
- Massa v. Dept. of Reg. & Education, 507 N.E.2d 814 (Ill. 1987) (gross negligence means very great negligence, less than willful/wanton)