Fed. Deposit Ins., Corp. v. Fbop Corp., Case No. 14 CV 4307, Case No. 14 CV 4307.
| Court | United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois) |
| Writing for the Court | Honorable Thomas M. Durkin, United States District Judge |
| Citation | 252 F.Supp.3d 664 |
| Parties | FEDERAL DEPOSIT INSURANCE, CORPORATION, as a separate and distinct Receiver of Bank USA, N.A., California National Bank, Citizens National, Bank of Teague, Madisonville State Bank, North, Houston Bank, Pacific National Bank, Park National Bank, and San Diego National Bank, Plaintiff, v. FBOP CORPORATION; Patrick D. Cavanaugh, of High Ridge Partners, Inc., not individually, but solely as Trustee–Assignee under FBOP Corporation's Trust Agreement and Assignment for the Benefit of Creditors; JPMorgan Chase Bank, N.A., as Agent; BMO Harris Bank, N.A., as successor in interest to M & I Marshall & Ilsley Bank; Ore Hill Hub Fund Ltd.; Canyon Balanced Master Fund, Ltd. ; Canyon GRF Master Fund, L.P. ; Mariner Tricada Credit Strategies Master Fund, Ltd.; PMT Credit Opportunities Fund Ltd. ; Prospect Mountain Fund Limited ; Structured Credit Opportunities Fund II, LP ; and Gordon C. Watson, Defendants. Pension Benefit Guaranty Corporation, Plaintiff–Intervenor, v. FBOP Corporation; Patrick D. Cavanaugh of High Ridge Partners, Inc., solely in his capacity as Trustee–Assignee under FBOP Corporation's Trust Agreement and Assignment for the Benefit of Creditors; Federal Deposit Insurance Corporation, as Receiver for Bank USA, N.A., California National Bank, Citizens National Bank of Teague, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, and San Diego National Bank; Wells Fargo Bank, N.A.,as escrow agent pursuant to the escrow agreement among the Federal Deposit Insurance Corporation, FBOP Corporation and Wells Fargo Bank, N.A., Defendants. |
| Docket Number | Case No. 14 CV 4307, Case No. 14 CV 4307. |
| Decision Date | 12 May 2017 |
252 F.Supp.3d 664
FEDERAL DEPOSIT INSURANCE, CORPORATION, as a separate and distinct Receiver of Bank USA, N.A., California National Bank, Citizens National, Bank of Teague, Madisonville State Bank, North, Houston Bank, Pacific National Bank, Park National Bank, and San Diego National Bank, Plaintiff,
v.
FBOP CORPORATION; Patrick D. Cavanaugh, of High Ridge Partners, Inc., not individually, but solely as Trustee–Assignee under FBOP Corporation's Trust Agreement and Assignment for the Benefit of Creditors; JPMorgan Chase Bank, N.A., as Agent; BMO Harris Bank, N.A., as successor in interest to M & I Marshall & Ilsley Bank; Ore Hill Hub Fund Ltd.; Canyon Balanced Master Fund, Ltd. ; Canyon GRF Master Fund, L.P. ; Mariner Tricada Credit Strategies Master Fund, Ltd.; PMT Credit Opportunities Fund Ltd. ; Prospect Mountain Fund Limited ; Structured Credit Opportunities Fund II, LP ; and Gordon C. Watson, Defendants.
Pension Benefit Guaranty Corporation, Plaintiff–Intervenor,
v.
FBOP Corporation; Patrick D. Cavanaugh of High Ridge Partners, Inc., solely in his capacity as Trustee–Assignee under FBOP Corporation's Trust Agreement and Assignment for the Benefit of Creditors; Federal Deposit Insurance Corporation, as Receiver for Bank USA, N.A., California National Bank, Citizens National Bank of Teague, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, and San Diego National Bank; Wells Fargo Bank, N.A.,as escrow agent pursuant to the escrow agreement among the Federal Deposit Insurance Corporation, FBOP Corporation and Wells Fargo Bank, N.A., Defendants.
Case No. 14 CV 4307, Case No. 14 CV 4307.
United States District Court, N.D. Illinois, Eastern Division.
Signed May 12, 2017
David F. Proano, Eric R. Goodman, Adam L. Fletcher, Joseph F. Hutchinson, Baker & Hostetler LLP, Cleveland, OH, Karin Scholz Jenson, Baker & Hostetler LLP, New York, NY, Erin Bolan Hines, Baker Hostetler LLP, Chicago, IL, for Plaintiff.
Edward C. Fitzpatrick, Kate E. Middleton, Faegre Baker Daniels LLP,
Alison R. Leff, Sidley Austin LLP, John Clay deMoulpied, William Scott Porterfield, William John Barrett, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Carrie A. Hall, Christopher R. Parker, Michael Best & Friedrich LLP, Thomas P. Cimino, Jr., Douglas Joseph Lipke, William W. Thorsness, III, Vedder Price P.C., Chicago, IL, Adam E. Witkov, Michael Best & Friedrich LLP, Milwaukee, WI, for Defendants.
MEMORANDUM OPINION AND ORDER
Honorable Thomas M. Durkin, United States District Judge
INTRODUCTION
STANDARD OF REVIEW
BACKGROUND
A. THE RISE AND FALL OF FBOP AND THE BANKS
B. THE CORPORATE DEBT OF FBOP AND THE PERSONAL DEBT OF ITS CHAIRMAN
C. THE $10.3 MILLION IN NON–ESCROWED REFUNDS
D. FBOP'S SETTLEMENT OF ITS UNSECURED CREDITORS' CLAIMS
E. THE $265.3 MILLION IN ESCROWED REFUNDS
F. CURRENT LITIGATION
DISCUSSION
I. CHOICE OF LAW
II. RULES OF CONTRACT INTERPRETATION
III. THE FBOP DEFENDANTS' RULE 12(C) MOTION FOR JUDGMENT AS A MATTER OF LAW ON COUNTS I–II
A. THE "DEFAULT" RULE REGARDING OWNERSHIP OF TAX REFUNDS
1. ILLINOIS LAW: TAX REFUNDS OF JOINT FILERS BELONG TO THE TAXPAYER WHO PAID THE TAXES
2. THE BOB RICHARDSCASE
3. FEDERAL COMMON LAW ARGUMENT
4. UNITED DOMINIONARGUMENT
5. UNJUST ENRICHMENT ARGUMENT
B. THE TAA
1. SURROUNDING CIRCUMSTANCES SUPPORT THE DEFAULT TAX REFUND OWNERSHIP RULE
2. THE TAA DOES NOT CLEARLY REPUDIATE THE DEFAULT TAX REFUND OWNERSHIP RULE
a. TAX ALLOCATION AND PAYMENT PROVISIONS
b. DEBTOR–CREDITOR TERMINOLOGY
c. ABSENCE OF TRUST PROVISIONS
d. PRINCIPAL–AGENT ISSUE
3. THE TAA AFFIRMATIVELY REFLECTS A CONTRACTUAL INTENT TO MAINTAIN THE DEFAULT TAX REFUND OWNERSHIP RULE
a. NO LESS FAVORABLE PRINCIPLE
b. THE 1998 POLICY STATEMENT
4. PAROL EVIDENCE ISSUES
IV. THE FDIC'S RULE 12(C) MOTION FOR JUDGMENT AS A MATTER OF LAW ON COUNTS I–II I
V. THE FBOP DEFENDANTS' RULE 12(C) MOTION ON THE FDIC'S ALTERNATIVE LEGAL AND EQUITABLE CLAIMS—COUNTS III–IV
VI. THE FBOP DEFENDANTS' RULE 12(C) MOTION ON THE FDIC'S CLAIMS TO RECOVER THE NON–ESCROWED REFUNDS—COUNTS XIX–XXII
VII. THE FBOP DEFENDANTS' RULE 12(C) MOTION ON PBGC'S INTERVENOR COMPLAINT
CONCLUSION
INTRODUCTION
This litigation involves a dispute over $265.3 million in tax refunds currently being held in escrow (the "Escrowed Refunds"). An additional $10.3 million in tax refunds not held in escrow also are at issue (the "Non–Escrowed Refunds"). The Federal Deposit Insurance Corporation ("FDIC") claims entitlement to the tax
refunds1 by virtue of its appointment as the separate receiver2 for each of eight failed banks,3 which the FDIC alleges earned the income, paid the taxes, and sustained the losses from which the tax refunds are derived. Defendant FBOP Corporation ("FBOP") is the parent company of the Banks, and received the refunds from the Internal Revenue Service ("IRS") as the appointed agent for a consolidated tax group consisting of itself and its subsidiary corporations (the Banks and approximately 80 non-banking subsidiaries) (hereinafter the "Consolidated Group").4 As will be explained in more detail later, FBOP became insolvent and assigned all of its assets, including whatever interest it may have had in the tax refunds, to the Trustee of the FBOP Corporation Trust Agreement and Assignment for the Benefit of Creditors (hereinafter the "Assignment") for the purpose of applying the property or proceeds thereof to the payment of FBOP's debts. FBOP and the Trustee (collectively referred to as the "FBOP Defendants") claim ownership of the tax refunds pursuant to an agreement between FBOP and the Banks concerning the allocation of tax liabilities and benefits among members of the Consolidated Group (hereinafter the "TAA" or the "Agreement").
The TAA sets forth the applicable rules to which, prior to FBOP's insolvency, FBOP and the Banks agreed for allocating the tax benefits and burdens of the Consolidated Group. It is assumed for purposes of the present motions that the TAA obligated FBOP to distribute the tax savings represented by the tax refunds to the Banks. The issue to be decided is whether the Banks' entitlement to those tax savings is a property right or a contractual right. If the Banks have a property right, then FBOP must turn the tax refunds over to the FDIC.5 If the Banks' right is contractual, however, then the tax refunds now
belong to the Trustee, as the assignee of FBOP, who is charged with distributing them among FBOP's creditors.6
The FDIC and the FBOP Defendants have presented the ownership issue through cross-motions for partial judgment on the pleadings under Federal Rule of Civil Procedure 12(c). For the reasons that follow, the Court holds that the Banks' right to receive the tax refunds is a property right. Therefore, the FBOP Defendants' motion for partial judgment on the pleadings is denied. Although the Court holds that the Banks have property rights in the tax refunds, the Court cannot tell from the parties' arguments if a disputed issue of fact exists over whether the TAA required FBOP to distribute the entire amount of the Escrowed Refunds to the Banks, and whether the Banks paid the entire amount of the original taxes that led to the Escrowed Refunds. Therefore, the Court will withhold ruling on the FDIC's cross-motion for partial judgment on the pleadings until the parties file a joint report regarding the question of whether the FDIC's Rule 12(c) motion must be converted to a summary judgment motion for purposes of determining the amount of the Escrowed Refunds to which the Banks, given their property rights as set forth herein, are entitled.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(c) permits a party to move for judgment on the pleadings after...
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Fed. Deposit Ins., Corp. v. Fbop Corp., Case No. 14 CV 4307
...FBOP Defendants' cross-motions for judgment on the pleadings as to that dispute. See R. 205 (Fed. Deposit Ins. Corp. v. FBOP Corp., 252 F. Supp. 3d 664 (N.D. Ill. 2017)). Presently before the Court are the claims of the Pension Benefit Guaranty Corporation ("PBGC") against the FBOP Defendan......
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Horton v. City of Chi., Case No. 13-cv-6865
...resolve the question of the parties' intent,' and '[t]his includes the contract recitals.'" Fed'l Deposit Ins., Corp. v. FBOP Corp., 252 F. Supp. 3d 664, 702 (N.D. Ill. 2017) (quoting Hagene, 902 N.E.2d at 1274). "The Court looks to the recitals 'not as a statement of obligation in itself b......
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Roldan v. Town of Cicero, Case No. 17-cv-3707
...but did not rely on the documents as proof of disputed facts in any other sense); see also Fed. Deposit Ins., Corp. v. FBOP Corp., 252 F. Supp. 3d 664, 706 (N.D. Ill. 2017) ("The Court may only take judicial notice of the indisputable fact that the testimony was given and says what it says.......
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Thomas Planera & Assocs., Ltd. v. CLR Auto Transp. Corp., 18 C 15
...and answer have been filed, but early enough to not delay trial. FED. R. CIV. P. 12(c); Fed. Deposit Ins. Corp. v. FBOP Corp., 252 F. Supp. 3d 664, 671 (N.D. Ill. 2017). The customary function of a Rule 12(c) motion is to dispose of a case based on the substantive merits of the parties' cla......
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Fed. Deposit Ins., Corp. v. Fbop Corp., Case No. 14 CV 4307
...FBOP Defendants' cross-motions for judgment on the pleadings as to that dispute. See R. 205 (Fed. Deposit Ins. Corp. v. FBOP Corp., 252 F. Supp. 3d 664 (N.D. Ill. 2017)). Presently before the Court are the claims of the Pension Benefit Guaranty Corporation ("PBGC") against the FBOP Defendan......
-
Horton v. City of Chi., Case No. 13-cv-6865
...resolve the question of the parties' intent,' and '[t]his includes the contract recitals.'" Fed'l Deposit Ins., Corp. v. FBOP Corp., 252 F. Supp. 3d 664, 702 (N.D. Ill. 2017) (quoting Hagene, 902 N.E.2d at 1274). "The Court looks to the recitals 'not as a statement of obligation in itself b......
-
Roldan v. Town of Cicero, Case No. 17-cv-3707
...but did not rely on the documents as proof of disputed facts in any other sense); see also Fed. Deposit Ins., Corp. v. FBOP Corp., 252 F. Supp. 3d 664, 706 (N.D. Ill. 2017) ("The Court may only take judicial notice of the indisputable fact that the testimony was given and says what it says.......
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Thomas Planera & Assocs., Ltd. v. CLR Auto Transp. Corp., 18 C 15
...and answer have been filed, but early enough to not delay trial. FED. R. CIV. P. 12(c); Fed. Deposit Ins. Corp. v. FBOP Corp., 252 F. Supp. 3d 664, 671 (N.D. Ill. 2017). The customary function of a Rule 12(c) motion is to dispose of a case based on the substantive merits of the parties' cla......