514 B.R. 258
Bankr. N.D. Ill.2014Background
- Settlers’ is an Illinois nonprofit supplying housing to recently arrived legal immigrants; it acquired Faulkner Properties from Bank of Commerce in 2008 in a transaction allegedly containing a surreptitious line-of-credit cross-collateralizing the Washington-Taylor Property.
- Bank of Commerce allegedly hid a line-of-credit mortgage among closing documents, enabling cross-collateralization when Settlers’ later needed funds for taxes.
- FDIC via receivership acquired Bank assets in 2011; Schaumburg Bank and Trust (successor to Bank of Commerce) foreclosed in 2012, with a receiver appointed in state court.
- Settlers’ asserted seventeen counts including equitable subordination, multiple fraud theories, illegality, and several tort claims; Bank moved to dismiss Counts 1-16 with prejudice.
- The court granted in part and denied in part the Bank’s Rule 12(b)(6) motion, with dismissal of several counts under D’Oench, Duhme and 1823(e) and Illinois Credit Agreements Act (CAA) principles, and leave to amend on certain theories.
- The court treated Counts 4-9 (fraud), 11, 12 as barred to the extent they rely on D’Oench/1823(e) or CAA, while allowing limited reach for fraud in execution and illegality theories to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether counts are barred by D’Oench, Duhme and 1823(e) (and CAA). | Settlers’ argues the Bank’s defenses are offset by fraud claims and illegality. | Schaumburg Bank contends D’Oench/1823(e) and CAA bar these claims as against the FDIC successor. | Counts barred to the extent they allege fraud in the inducement or illegality; fraud in the execution and illegality theories may proceed. |
| Whether fraud in execution defeats reliance and ratification defenses. | Settlers’ contends it relied on misrepresentations and the deceit occurred at execution. | Bank asserts reliance and ratification defenses undermine these claims. | Fraud in execution could proceed; ratification not automatic where contract void ab initio. |
| Whether Counts 13-16 (tortious interference, conversion, unjust enrichment, setoff) survive dismissal. | These claims arise from post-closing conduct and alleged improper remedies. | D’Oenche/1823(e) bar some such defenses; others require repleading. | Count 13 survives; Count 14 (conversion) dismissed with leave to amend; Counts 15-16 preserved to extent pled. |
Key Cases Cited
- D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942) (establishes defenses against bank secret agreements for FDIC successors)
- Langley v. FDIC, 484 U.S. 86 (1987) (bars fraud in the inducement under § 1823(e))
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (limits final judgments by bankruptcy judges on certain core matters; affects the Stern line of authority)
- Executive Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (2014) (holds core proceedings may be treated as non-core for purposes of 157(c) when final judgments aren’t authorized; allows hearing with non-final judgment)