Elliott D. Levin for Irwin Fin. Corp. v. Miller
| Decision Date | 31 March 2017 |
| Docket Number | No. 1:11-cv-01264-SEB-MPB,1:11-cv-01264-SEB-MPB |
| Parties | ELLIOTT D. LEVIN as Chapter 7 Trustee for Irwin Financial Corporation, Plaintiff, v. WILLIAM I. MILLER, GREGORY F. EHLINGER, THOMAS D. WASHBURN, Defendants. |
| Court | U.S. District Court — Southern District of Indiana |
This cause is before the Court on Defendants' Motion for Summary Judgment [Docket No. 177], filed on May 17, 2016, pursuant to Federal Rule of Civil Procedure 56. Plaintiff Elliott D. Levin, as Chapter 7 Trustee ("the Trustee") for Irwin Financial Corporation ("Irwin"), brought this suit against three of Irwin's former directors and officers, Defendants William I. Miller, Gregory F. Ehlinger, and Thomas D. Washburn (collectively, "the Managers"), alleging that Defendants breached their fiduciary duties to Irwin in various ways. For the reasons detailed below, we GRANT Defendants' Motion for Summary Judgment.
During the time period relevant to this litigation, Irwin was a public company that functioned as a holding company for two banks: Irwin Union Bank and Trust Company ("Union Bank & Trust") and Irwin Union Bank, FSB ("Union Bank, FSB") (collectively, "the Banks"). Beginning in the early 2000s, the Banks became heavily involved in the residential mortgage and commercial real estate markets. To advance this business, Union Bank & Trust had subsidiaries including Irwin Home Equity Corporation ("Irwin Home"), which engaged in nationwide consumer lending, and Irwin Mortgage Corporation ("Irwin Mortgage"), which engaged in nationwide mortgage banking activities.
On September 18, 2009, in the aftermath of the real estate collapse in 2007, bank regulators closed Union Bank & Trust and Union Bank, FSB after they lost substantial sums as a result of bad loans and investments. The Federal Deposit Insurance Corporation ("FDIC") was appointed receiver over the Banks. That same day, Irwin filed a voluntary petition for bankruptcy and Plaintiff Elliot Levin was appointed Chapter 7 trustee for the Irwin Estate to oversee its liquidation.
At all times relevant to this litigation, Irwin was governed by a ten-member board of directors ("the Board"). Irwin's bylaws also provided that one officer would be chosen from among the directors to act as Chairman of the Board and Chief Executive Officer. Defendant Miller began serving as a director of Irwin in 1985 and was appointed as Chairman of the Board and Chief Executive Officer in 1990. Defendant Ehlinger served as Irwin's Chief Financial Officer throughout the relevant time period. Defendant Washburn served as Irwin's Executive Vice President from early 2000 until January 2008.
The Trustee filed this action on September 16, 2011, alleging in seven counts that as former senior officers of Irwin, Defendants breached their fiduciary duties to thecorporation. On September 27, 2012, we dismissed the Trustee's complaint on standing grounds, holding that the Trustee lacked standing to bring any of the claims alleged because they all belonged exclusively to the FDIC. The Trustee appealed our decision, and, on August 14, 2014, the Seventh Circuit affirmed the dismissal of five of the seven claims, but ruled that the Trustee had standing to bring the remaining two claims. The case was therefore remanded for consideration of the remaining two claims on their merits.
In Count I (originally Count III), the Trustee alleges that Defendants violated their fiduciary duty of care to Irwin by failing to have in place a proper risk monitoring and assessment system and internal controls to ensure that financial information and projections provided to the Board would be accurate and reliable. The Trustee claims that, as a result of Defendants' failure, the Board acted on the basis of inaccurate and unreliable financial information, which led it to improvidently approve dividends, stock repurchases, and other distributions in 2006 and 2007, when it should have instead preserved capital.
With regard to Count II (originally Count VII), the Trustee claims that Defendants Miller and Ehlinger breached their duties of care and loyalty to Irwin by "capitulating to bank regulators" in 2009 and causing Irwin to contribute millions of dollars in capital to two of its subsidiary banks when Defendants knew or should have known that such an act was futile and would not benefit Irwin, given the low likelihood that the Banks would survive. As the Seventh Circuit observed, the claim is essentially that Defendants "threw good money after bad." Irwin v. Levin, 763 F.3d 667, 671 (7th Cir. 2014).
Defendants moved for summary judgment on both of these claims on May 17, 2016. That motion is now fully briefed and ripe for ruling. We have detailed the facts relevant to each count more fully below as necessary.
Summary judgment is appropriate when the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Disputes concerning material facts are genuine where the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In deciding whether genuine issues of material fact exist, the court construes all facts in a light most favorable to the non-moving party and draws all reasonable inferences in favor of the non-moving party. See id. at 255. However, neither the mere existence of some alleged factual dispute between the parties, id. at 247, nor the existence of some metaphysical doubt as to the material facts, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), will defeat a motion for summary judgment. Michas v. Health Cost Controls of Illinois, Inc., 209 F.3d 687, 692 (7th Cir. 2000).
The moving party bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323.The party seeking summary judgment on a claim on which the non-moving party bears the burden of proof at trial may discharge its burden by showing an absence of evidence to support the non-moving party's case. Id. at 325.
Summary judgment is not a substitute for a trial on the merits, nor is it a vehicle for resolving factual disputes. Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). Thus, after drawing all reasonable inferences from the facts in favor of the non-movant, if genuine doubts remain and a reasonable fact finder could find for the party opposing the motion, summary judgment is inappropriate. See Shields Enter., Inc. v. First Chicago Corp., 975 F.2d 1290, 1294 (7th Cir. 1992); Wolf v. City of Fitchburg, 870 F.2d 1327, 1330 (7th Cir. 1989). But if it is clear that a plaintiff will be unable to satisfy the legal requirements necessary to establish her case, summary judgment is not only appropriate, but it is mandated. See Celotex, 477 U.S. at 322; Ziliak v. AstraZeneca LP, 324 F.3d 518, 520 (7th Cir. 2003). Further, a failure to prove one essential element necessarily renders all other facts immaterial. Celotex, 477 U.S. at 323.
In Count I, the Trustee alleges that Defendants violated their fiduciary duties to Irwin by presenting inaccurate financial information and unreliable financial projections to the Board, which led the Board to approve dividends, stock repurchases, and other distributions in 2006 and 2007, when Irwin should have instead preserved capital. Defendants argue that summary judgment should be entered in their favor on Count I for three reasons: (1) the statute of limitations bars claims to recover all of the distributionsexcept for the payments approved in the fourth quarter of 2007; (2) the distributions to the shareholders do not constitute a loss that is recoverable under Indiana law by any corporate constituency represented by the Trustee; and (3) even if such a theory of recovery existed under Indiana law, Defendants' actions are protected by Indiana's business judgment rule as well as the indemnification standard set forth under Irwin's bylaws. Because we find, for the reasons detailed below, that Indiana law does not support the Trustee's theory of recovery in the circumstances presented here, we need not address Defendants' alternative arguments in support of summary judgment.1
A bankruptcy trustee serves the interests of two constituencies of an insolvent corporation - its creditors and its shareholders. See Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 355 (1985) (). On the facts before us, however, the Trustee cannot recover the 2006 and 2007 distributions on behalf of either Irwin's shareholders or its creditors under Indiana law. Defendants are therefore entitled to summary judgment on Count I.
With regard to shareholder interests, the Seventh Circuit previously recognized that one "potential problem" with Count I is "whether Indiana law permits recovery on a theory that a holding company distributed 'too much' to its investors." Levin v. Miller,763 F.3d 667, 671 (7th Cir. 2014). We find no support under Indiana law for recovery on such a theory. As Defendants argue, the Trustee cannot recover shareholder distributions for the benefit of the very shareholders who received those distributions, as such a result would equate to a double recovery on behalf of the shareholders. The Trustee does not argue otherwise.
Nor can the Trustee recover on behalf of Irwin's creditors under Indiana law. In support of Count I, the Trustee originally argued both here and on appeal that "when a corporation is encountering financial difficulties ... the supervening duty...
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