Federal Deposit Insurance v. Spangler
836 F. Supp. 2d 778
N.D. Ill.2011Background
- IDFPR closed Wheatland Bank in Naperville on April 23, 2010; FDIC appointed as receiver with authority to recover funds.
- FDIC, as receiver, replaced Wheatland in two removed lawsuits alleging fiduciary breaches, negligence, and related claims.
- Wheatland engaged in rapid asset growth concentrated in CRE and ADC loans, allegedly ignoring regulatory warnings.
- Loan Committee approved eight Loss Loans; eight loans tied to deterioration in collateral and insufficient borrower information.
- Directors allegedly failed to address warnings and improve lending policies; bank later faced substantial losses and closure.
- FDIC asserts counts for gross negligence, negligence, breach of fiduciary duty of care, and breach of loyalty against Loan Committee and Directors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Counts I–III plausibly alleging gross/negligent conduct by Loan Committee? | FDIC alleges specific loans approved despite risk, insufficient guarantees, and ignored underwriting policies. | Defs contend lack of individual loan-by-loan linkage to each director; claims are vague. | Counts I–III survive with adequate factual detail tying approvals to individual Loan Committee members. |
| Do Counts V–VI properly plead director oversight negligence? | All directors on notice of risky lending and failed to reform; outside vs inside directors not dispositive. | Argument that warnings were not sufficiently specific and reliance on others should preclude liability. | Counts V–VI adequately plead gross negligence/negligence by directors for failure to supervise. |
| Does the Insider loans claim support breach of loyalty against Loan Committee Defendants? | Preferential insider loans to shareholders deprived Wheatland of value and continued after default. | Delaware law standard not applicable; focuses on personal benefit requirement. | Breach of loyalty adequately stated against Loan Committee Defendants for insider loans. |
| Does Illinois business judgment rule shield Defendants at this stage? | Rule presumption may be rebutted by lack of informed decision-making and failure to exercise due care. | Business judgment rule bars claims if decisions were informed and in good faith. | Rule does not bar at motion to dismiss; alleged failure to exercise due care defeats presumption. |
| Is Illinois Banking Act shielding applicable to any counts? | Act limits liability only for certain acts; gross negligence and loyalty breaches fall outside shield. | Act may insulate some claims; needs further development. | Act does not bar Counts I, IV, or V; other counts require further development, not dismissal. |
Key Cases Cited
- FDIC v. Gravee, 966 F. Supp. 622 (N.D. Ill. 1997) (gross negligence standard allows recovery for seriously deficient underwriting without intent)
- FDIC v. Bierman, 2 F.3d 1424 (7th Cir. 1993) (heightened care required when regulators alert to bank problems)
- Stamp v. Touche Ross & Co., 263 Ill. App. 3d 1010 (1st Dist. 1993) (business judgment rule as presumption; not shield for abdication of duties)
- Ferris Elevator Co., Inc. v. Neffco, Inc., 674 N.E.2d 449 (3d Dist. 1996) (preserves business judgment rule as presumption, not an affirmative defense data)
- In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996) (Caremark standard discussed for director oversight liability)
- Romanik v. Lurie Home Supply Ctr., Inc., 435 N.E.2d 712 (Ill. App. 1982) (duty of loyalty breaches may occur for benefit of majority shareholders)
- Maercker Point Villas Condo. Ass’n v. Szymski, 655 N.E.2d 1192 (Ill. App. 1995) (breach of loyalty for hindering corporation’s continued operation)
- Davis v. Dyson, 900 N.E.2d 698 (Ill. App. 2008) (due care prerequisite to business judgment rule applicability)