Fidelity Nat. Title Ins. Co. v. Howard Sav. Bank

• Decision Date: 09 February 2006
• Docket Number: No. 04-3629.,No. 04-3636.,04-3629.,04-3636.
• Citation: 436 F.3d 836
• Parties: FIDELITY NATIONAL TITLE INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. HOWARD SAVINGS BANK, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 836

436 F.3d 836

FIDELITY NATIONAL TITLE INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. HOWARD SAVINGS BANK, et al., Defendants-Appellees.

No. 04-3629.

No. 04-3636.

United States Court of Appeals, Seventh Circuit.

Argued November 7, 2005.

Decided February 9, 2006.

Albert E. Fowerbaugh, Jr., Lord Bissell & Brook, Chicago, IL, James S. Schreier (argued), Christensen, Miller, Fink, Jacobs, Glaser, Weil, & Shapiro, Los Angeles, CA, for Plaintiff-Appellant.

Carmen V. Speranza, Speranza & Bates, Lake Forest, IL, Marc J. Chalfen, Kelly, Olson, Michod, Dehaan & Richter, Chicago, IL, Nancy G. Lischer (argued), Barry MacEntee (argued), Hinshaw & Culbertson, Chicago, IL, Richard R. Winter, Holland Knight, Chicago, IL, Martin B. Carroll (argued), Fox, Hefter, Swibel, Levin & Carroll, Chicago, IL, Barbara L. Yong, Field & Golan, Chicago, IL, Paul D. Lynch, Jr., Carroll & Associates, Hickory Hills, IL, John J. Curry, Jr., Nasharr & Shea, Chicago, IL, for Defendants-Appellees.

Before POSNER, EASTERBROOK, and WOOD, Circuit Judges.

POSNER, Circuit Judge.

Before us is an appeal in a series of diversity suits (which for the sake of simplicity we'll treat as one) against a number of Chicago banks by a title insurance company under the Uniform Fraudulent Transfer Act, in force in Illinois as 740 ILCS 160. On the defendants' motion for summary judgment, the district judge dismissed the suit as barred by the Act's statute of limitations. 740 ILCS 160/10.

Fidelity insured escrow accounts that were controlled by Intercounty Title Company, which conducted real estate closings, placing the purchase money in escrow until the sale closed. Intercounty's owners had the company remove money from the escrow accounts and use it to buy certificates of deposit from the defendant banks. The company pledged the certificates to secure personal loans that the banks made to the owners, and then directed the banks to sell the certificates of deposit and use the proceeds to discharge the loans that the banks had made to the owners. Thus the owner-borrowers got to keep the money they had borrowed from the banks (because the banks had repaid themselves by selling the certificates of deposit), and in this fashion money in the escrow accounts was funneled to them. This was only one of the methods that Intercounty's owners used to plunder the escrow accounts; others are described in Fidelity National Title Ins. Co. v. Intercounty National Title Ins. Co., 412 F.3d 745 (7th Cir.2005).

Fidelity wants to recover from the banks the money that was diverted to them (for the purchase of certificates of deposit) from the escrow accounts. It argues that the banks received this money without giving consideration to the equitable owners of the money—the people who had deposited their purchase money in escrow accounts controlled by Intercounty. Those people—and their insurer, Fidelity—received neither the certificates of deposit nor anything else of value from the banks, while the banks received money from the escrow accounts in exchange for the certificates of deposit. Fidelity does not contend, however, that the banks' action in setting off the certificates of deposit against the Intercounty insiders' debts (which they did by selling the certificates and applying the proceeds to those debts) was a fraudulent transfer, though it was a critical step in the transfer of money from the escrow accounts to the insiders.

The banks sold the last of the certificates of deposit to Intercounty in 1995, but it was not until 2000 that Fidelity learned that money was missing from the escrow accounts that it had insured. The missing amount was huge—as much as $50 million, or even more. Fidelity began an investigation to determine the whereabouts of the missing money. The investigation revealed that Intercounty had bought a certificate of deposit from a bank named Banco Popular to fund a statutory bond that Intercounty had to post, but that instead of posting it Intercounty had used the certificate of deposit as security for a personal loan that Banco Popular had made to one of Intercounty's owners. In December of 2000, Fidelity filed suit under the Uniform Fraudulent Transfer Act against Banco Popular, but it is not one of the suits consolidated in the present litigation.

Later that month Fidelity interviewed George Stimac, Intercounty's controller, who confirmed that Intercounty had invested escrow funds in certificates of deposit purchased from various banks. According to notes of the interview that were taken by one of Fidelity's investigators, Stimac "understands (apparently through office scuttlebutt) that the CDs were sometimes pledged for personal use." Stimac did not know which banks had sold those certificates of deposit, but a search of Intercounty databases produced a list of them and subpoenas to the banks resulted in Fidelity's learning which banks had liquidated the certificates of deposit that had been sold by them to Intercounty and then pledged to them by Intercounty to secure personal loans. By the end of January 2001, Fidelity had identified all but two of the banks that it has sued in this litigation, but it did not file the suit until January of the following year.

The Uniform Fraudulent Transfer Act requires that suit be brought within four years "after the [fraudulent] transfer was made" or, "if later, within one year after the transfer ... was or could reasonably have been discovered by the claimant." 740 ILCS 160/10. The transfers of escrow money to the defendant banks occurred more than four years before Fidelity sued, so the suit was timely only if brought within a year after Fidelity discovered or could reasonably have discovered the transfers. By the time its investigators interviewed Stimac, which was more than a year before it sued, it knew that banks had participated in transactions that had resulted in escrow money being improperly diverted to Intercounty's owners. It had already sued one of those banks—Banco Popular—and it had learned from Stimac that probably there were others. It knew that fraudulent transfers had occurred, because a great deal of money was missing from the escrow accounts and no explanation was forthcoming other than that it had been stolen by Intercounty's owners. It particularly knew that fraudulent transfers as it understands the term (incorrectly, as we'll see) had occurred, because it thinks that any money originating in the escrow accounts that passed through a bank en route to Intercounty's owners was a fraudulent transfer to the bank.

Apart from Banco Popular, Fidelity did not know who the transferees were. But when a statute of limitations does not begin to run until "discovery," the discovery referred to is merely discovery that the plaintiff has been wrongfully injured. E.g., Golla v. General Motors Corp., 167 Ill.2d 353, 212 Ill.Dec. 549, 657 N.E.2d 894, 898 (1995); Jackson Jordan, Inc. v. Leydig, Voit & Mayer, 158 Ill.2d 240, 198 Ill.Dec. 786, 633 N.E.2d 627, 630-31 (Ill.1994); Evans v. City of Chicago, 434 F.3d 916, 934, n. 28 (7th Cir.2006) (Illinois law). He doesn't have to know who injured him. He has the limitations period to discover that, draft his complaint, and file suit. If despite the exercise of reasonable diligence he cannot discover his injurer's (or injurers') identity within the statutory period, he can appeal to the doctrine of equitable tolling to postpone the deadline for suing until he can obtain the necessary information. Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450-52 (7th Cir.1990).

Now admittedly it is still unresolved whether Illinois recognizes equitable tolling. Clark v. City of Braidwood, 318 F.3d 764, 767 (7th Cir.2003). The Illinois cases that mention the term seem to mean by it equitable estoppel, Chicago Park District v. Kenroy, Inc., 78 Ill.2d 555, 37 Ill.Dec. 291, 402 N.E.2d 181, 184 (1980); Medical Disposal Services, Inc. v. EPA, 286 Ill.App.3d 562, 222 Ill.Dec. 225, 677 N.E.2d 428, 433 (1996), a distinct doctrine governing cases in which the defendant misleads the plaintiff into thinking that he doesn't have to sue yet, or in some other way prevents him from suing within the statutory period. Equitable tolling does not require that the defendant have borne any responsibility for the plaintiff's having missed the deadline.

There is no need to try in this case to answer the question whether Illinois accepts the doctrine of equitable tolling, though we venture the guess that it does (or would); it is a commonplace limitations doctrine and a sensible one. What is important is simply that once the limitations period has expired, any further extension is limited to the time necessary to find such additional information as the plaintiff absolutely needs in order to be able to file a suit. Unterreiner v. Volkswagen of America, Inc., 8 F.3d 1206, 1213 (7th Cir.1993); Cada v. Baxter Healthcare Corp., supra, 920 F.2d at 453.

So the one-year "discovery" statute of limitations began to run in December 2000 (if not earlier), when Fidelity discovered (and surely by...