United Central Bank v. Davenport Estate LLC
2016 U.S. App. LEXIS 4136
7th Cir.2016Background
- In 2008 Mutual Bank (later acquired by United Central Bank, UCB) agreed to place $700,000 in escrow for a group of investors to finance repairs on three properties; no separate written escrow agreement was executed—only closing documents referenced the funds.
- Investors repeatedly requested release of the escrow funds but never received them. Mutual Bank was closed by the FDIC in 2009; the FDIC sold its assets and loans to UCB under a Purchase and Assumption Agreement.
- In 2010 UCB sued to foreclose the properties; the investors asserted counterclaims, including a breach-of-contract claim (second amended counterclaim, April 2014) based on the alleged escrow agreement.
- UCB moved to dismiss under Rule 12(b)(6). The district court dismissed the breach claim with prejudice, finding it barred by FIRREA §1823(e) (no secret oral agreements valid against FDIC unless written) and by the Illinois Credit Agreement Act (ICAA), which requires credit agreements to be in writing.
- On appeal the investors argued FIRREA does not apply to escrowed funds and raised conversion for the first time. The Seventh Circuit treated undeveloped FIRREA arguments and the failure to challenge the ICAA as waived, held the conversion theory waived for lack of presentation below, and affirmed dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an unwritten escrow agreement can be enforced against FDIC/assignee under FIRREA §1823(e) | Escrow exception: FIRREA should not bar claims where bank merely held escrowed investor funds | Section 1823(e) bars any unwritten agreement that diminishes FDIC interests; closing-document references insufficient | Held: Barred by §1823(e); oral/unwritten escrow not enforceable against FDIC/assignee |
| Whether the alleged escrow is a "credit agreement" subject to ICAA writing requirement | Investors did not dispute characterization on appeal (no developed challenge) | Escrow for loan proceeds is a credit agreement and must be in writing under ICAA | Held: ICAA requires writing for credit agreements; absence of written agreement bars suit (investors waived challenge) |
| Whether investors may pursue conversion (return of money) | For first time on appeal: UCB converted investors' funds by withholding escrow | UCB: conversion not pleaded below; claim waived; even on merits conversion requires specific, identifiable fund | Held: Conversion argument waived for failure to present below; merits fail because money not shown as specific fund |
| Whether district court abused discretion by not allowing another amendment | Investors asked for leave only on appeal | UCB: no motion to amend was made below; district court not obligated to draft claims for plaintiffs | Held: No abuse—investors did not move to file a third amended counterclaim; courts do not invent legal theories |
Key Cases Cited
- Fed. Deposit Ins. Corp. v. O’Neil, 809 F.2d 350 (7th Cir. 1987) (§1823(e) prohibits enforcement of secret oral agreements against the FDIC)
- Alexander v. McKinney, 692 F.3d 553 (7th Cir. 2012) (standard of de novo review on Rule 12(b)(6))
- McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873 (7th Cir. 2012) (construing pleadings in the plaintiff’s favor on motion to dismiss)
- Horbach v. Kaczmarek, 288 F.3d 969 (7th Cir. 2002) (conversion of money requires specific, identifiable fund)
- Teumer v. Gen. Motors Corp., 34 F.3d 542 (7th Cir. 1994) (failure to present a legal theory to the district court waives it on appeal)
- Stransky v. Cummins Engine Co., Inc., 51 F.3d 1329 (7th Cir. 1995) (courts will not invent legal arguments for litigants)
- Argyropoulos v. City of Alton, 539 F.3d 724 (7th Cir. 2008) (perfunctory and undeveloped appellate arguments are waived)