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Settler’s Housing Service: Complex Facts and Adversary Procedure

Settlers’ Housing Service, Inc. v. Bank of Schaumburg
Adversary No. 13 A 01328 Issued: November 18, 2014
Judge: Jack B. Schmetterer

Settler’s, a not-for-profit supplier of immigrant housing, bought property in DuPage County, Illinois with a loan from the Bank of Commerce. When Settler’s eventually sought Chapter 11 protection, it blamed the Bank for its troubles and alleged that it had inserted documents into the stack signed at Closing by its President (who was apparently in between flights), including a line of credit and cross-collateralization of the newly-acquired properties with existing ones. When Settler’s eventually had to borrow from the Bank to make its mortgage payments, the house of cards collapsed, the Bank began foreclosing, and Bankruptcy was the only plausible way to reorganize.

The Adversary Complaint

Settler’s had asserted its version of events in an Adversary Complaint, First Amended Adversary, and Second Amended  Adversary. All prior versions of its Adversary Complaint had been dismissed in whole or part. Now, the Bank sought to dismiss its 3rd Amended Complaint, which consisted of 14 Counts – not all of them entirely new:

1. Equitable Subordination
2. Aiding and Abetting Breach of Fiduciary Duty
3. Fraudulent Misrepresentation
4. Fraudulent Concealment
5. Breach of Illinois Consumer Credit Act
6. Fraud, Illegality and Unenforceability
7. Constructive Fraud
8. Setoff
9. Unjust Enrichment
10. Conspiracy to Defraud and Civil Conspiracy
11. Tortious Interference With Contract
12. Breach of Fiduciary Duty
13. Conversion and Accounting
14. Improper Post–Petition Interest and Receiver’s Fees

Opinion

The Court’s discussion is thorough, beginning with a jurisdiction section (usually a rubber-stamp) that refers to the Supreme Court’s Stern v. Marshall ruling, the 7th Circuit’s narrow interpretation of Stern in Executive Benefits Insurance Agency v. Arkinson, Section 157(b)(2)(C) of 28 US Code, and a consideration of what constitutes a “final and appealable” order.

The balance of the Opinion is equally detailed, featuring count-by-count evaluations under both Federal and Illinois law. The issues taken up in the opinion range from fraudulent misrepresentation, fraudulent concealment, consumer fraud and constructive fraud, to conspiracy, breach of fiduciary duty, and even the statute of limitations applicable to counterclaims.

The Court also notes in the Opinion that the parties’ Attorneys were rehashing issues ruled on already: either by attacking counts that previously withstood a motion to dismiss, or reasserting arguments that previously failed. In either case, warned the Court, the result was a sanctionable waste of time.

Ruling

Ultimately the Bank’s motions wre granted in part and the following counts dismissed with prejudice (the Court noting that to amend would be “futile”):

Count 2 Aiding and Abetting
Count 4 Fraudulent Concealment
Count 7 Constructive Fraud
Count 12 Breach of Fiduciary Duty
Count 13 Conversion and Accounting
Count 14 Improper Charges

No certification of “no just reason for delay of a final ruling” per FRCP 54(b) and FRBP 7054 was given, as the Court observed that Federal practice favors waiting until all issues have been ruled on before any single ruling is taken up on interlocutory appeal. See In re Manhattan Investment Fund, 288 B.R. 52, 56 (S.D.N.Y. 2002) (discouraging interlocutory appeal). And while the Court doesn’t issue sanctions here, it obviously wants to avoid any further waste of time and resources – even if have the same argument over and over does make Attorneys seem determined to their clients. The Court just wasn’t having it.

The Upshot

This Opinion showcases the interplay of Federal and State law in a complex commercial scenario. It also displays the characteristic desire of Federal Courts to keep things clear and simple: which is unfortunately the opposite of how convoluted factual and legal situations play out in State trial courts.  Finally, the Opinion reminds lawyers to refrain from being overzealous. The tactic may make clients happy in the short run, but if the end result is to tick off the Court, nobody wins.

Your Turn

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