Fed. Deposit Ins. Corp. v. OneBeacon Midwest Ins. Co.

• Decision Date: 10 July 2012
• Docket Number: No. 11 C 3972.,11 C 3972.
• Citation: 883 F.Supp.2d 754
• Parties: The FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Wheatland Bank, Plaintiff/Counter–Defendant, v. ONEBEACON MIDWEST INSURANCE COMPANY, Defendant/Counter–Plaintiff. OneBeacon Midwest Insurance Company, Plaintiff, v. Lewis Mark Spangler, Arthur P. Sundry, Michael A. Sykes, Leonard Eichas, Frnak Maly, Dolores Ritter, Mary Davolt, Beverly Harvey, Michael Rees, and Norman Beles, Third–Party Defendants.
• Court: U.S. District Court — Northern District of Illinois

883 F.Supp.2d 754

The FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Wheatland Bank, Plaintiff/Counter–Defendant,

v.ONEBEACON MIDWEST INSURANCE COMPANY, Defendant/Counter–Plaintiff.

OneBeacon Midwest Insurance Company, Plaintiff,

v.Lewis Mark Spangler, Arthur P. Sundry, Michael A. Sykes, Leonard Eichas, Frnak Maly, Dolores Ritter, Mary Davolt, Beverly Harvey, Michael Rees, and Norman Beles, Third–Party Defendants.

No. 11 C 3972.

United States District Court,

N.D. Illinois,

Eastern Division.

July 10, 2012.

David C. Giles, Kelly Martin Warner, Lawrence Harris Heftman, Susan Willoughby Anderson, Antony S. Burt, Schiff Hardin LLP, for Plaintiff/Counter-Defendant.

Geoffrey Alexander Belzer, Michael P. Tone, Kimberly Elizabeth Blair, Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, Chicago, IL, Thomas James Judge, Thompson, Loss & Judge, LLP, Washington, DC, John Randall Riddle, Justin Melkus, Michael Feiler, Michael Keeley, Toni Scott Reed, Strasburger & Price, LLP, Dallas, TX, for Defendant/Counter-Plaintiff.

Allison Renee Grow, Cassandra Anne Crotty, Eugene J. Schiltz, Coleman Law Firm, Jerry Scott Menge, Robert F. Coleman, Sean Brendan Crotty, Robert F. Coleman & Associates, Chicago, IL, for Third-Party Defendants.

Kelly Mccloskey Cherf Patrick Edward Deady, Evan J. Haim, Hogan Marren, Ltd., Theodore Thomas Poulos, Cotsirilos, Tighe, Streicker, Poulos, & Campbell, Ltd., Marty Basu, Kirkland & Ellis LLP, Chicago, IL, for Plaintiff/Counter-Defendant/Third-Party Defendants.

MEMORANDUM OPINION

JOHN F. GRADY, District Judge.

Before the court are: (1) the third-party defendants' motion to strike and dismiss or sever and transfer the claims against them; and (2) the Federal Deposit Insurance Corporation's (“FDIC”) motion to dismiss. For the reasons explained below, we grant the third-party defendants' motion, and grant in part, and deny in part, the FDIC's motion.

BACKGROUND

1. The FDIC's Complaint

The FDIC, as receiver for Wheatland Bank (“Wheatland”), has filed a one-count breach-of-contract complaint against OneBeacon Midwest Insurance Company (“OneBeacon”) alleging that OneBeacon has wrongfully denied coverage under a “Financial Institution Bond” (the “Bond”). Pursuant to the Bond, OneBeacon agreed to indemnify Wheatland for financial losses “resulting directly from dishonest or fraudulent acts committed by an Employee ... with the intent: (a) to cause [Wheatland] to sustain such loss; or (b) to obtain financial benefit for the Employee or another person or entity.” ( See Bond, attached as Ex. A to FDIC's Compl., at § I(A) (“Employee Dishonesty”).) Two Wheatland executives—Michael A. Sykes (the bank's former CEO) and Arthur P. Sundry (a former director)—caused Wheatland to make loans that benefitted Sykes and Sundry at the bank's expense.¹ (Compl. ¶¶ 13, 15–51.) Wheatland first became aware of the fraud on or after June 13, 2009, and it gave OneBeacon timely notice of its losses on June 23, 2009. ( Id. at ¶¶ 52–53.) The bank submitted a proof of loss to OneBeacon on April 8, 2010. ( Id. at ¶ 54.) Approximately two weeks later, on April 23, 2010, the Illinois Department of Financial and Professional Regulation closed Wheatland and appointed the FDIC as receiver. ( Id. at ¶ 3.) The FDIC thereby acquired Wheatland's rights under the Bond. See12 U.S.C. § 1821(d)(2)(A). OneBeacon has refused coverage for Sykes's and Sundry's wrongful conduct, prompting this lawsuit. (Compl. ¶¶ 52–55.)

2. Other Litigation Incident to Wheatland's Failure

Several lawsuits were filed just prior to, and in the wake of, Wheatland's failure. On December 21, 2009, before the FDIC was appointed receiver, Wheatland filed a lawsuit against Sykes, Sundry, and two other defendants in the Circuit Court of Cook County arising out of the same transactions that underlie the FDIC's complaint in this case. See Compl., attached as Ex. 1 to the FDIC's Notice of Removal, FDIC v. Spangler, Case No. 10–C–4288 (N.D.Ill.) (Dow, J.) (DKT # 1). On May 12, 2010, Sykes filed a “shareholder's derivative complaint” on Wheatland's behalf against certain of the bank's former directors and against Wheatland, as a “nominal defendant,” alleging breach of fiduciary duty and mismanagement. The FDIC removed both cases to this District, where they were consolidated and the parties were realigned. The FDIC is currently the sole plaintiff in the consolidated case and it seeks relief against the bank's former executives, including Sykes. See First Am. Compl., FDIC v. Spangler, et al., Case No. 10–C–4288 (N.D.Ill.) (Dow, J.) (DKT # 29).² Finally, on October 10, 2010, Sundry filed a complaint against the FDIC seeking review of the FDIC's denial of his administrative claim for indemnification in connection with the Spangler lawsuit. See Compl., Sundry v. FDIC, Case No. 10–C–6749 (N.D.Ill.) (Zagel, J.) (DKT # 1).

3. OneBeacon's Affirmative Defenses, Counterclaims, and Third–Party Complaint

OneBeacon has responded to the FDIC's complaint with numerous affirmative defenses and a four-count counterclaim with respect to the Bond. It has also filed a separate five-count counterclaim and “third-party complaint” against the FDIC and certain former Wheatland officers and directors with respect to a Management and Professional Liability Policy (the “D & O Policy”). The thrust of OneBeacon's counterclaims is that if the FDIC proves Sykes's and Sundry's alleged fraud, then it will have established grounds to rescind the policies. On November 7, 2007, Sykes executed on Wheatland's behalf an application to renew the Bond and the D & O Policy. (OneBeacon's Counterclaim ¶¶ 44; see also OneBeacon's Third–Party Compl. ¶ 44.) In the application, Wheatland denied knowledge of any claim that “could reasonably be expected to give rise to a future liability or bond loss.” ( See OneBeacon's Counterclaim ¶ 46; see also id. at ¶¶ 47–50.) OneBeacon alleges that it relied on these and similar representations in the application when it renewed the Bond. ( See id. at ¶ 51.) Later, in October 2008, OneBeacon increased the Bond's coverage from $1 million to $3 million, and the D & O Policy's coverage from $3 million to $5 million, in reliance on a “No Known Loss Letter” executed by Sykes representing that Wheatland was not aware of any losses. ( See id. at ¶¶ 52–54; see also OneBeacon's Third–Party Compl. ¶¶ 53–55.) OneBeacon contends that the renewal application and the “No Known Loss Letter” were false because Sykes was integrally involved in the fraud alleged in the FDIC's complaint. Based on these alleged misrepresentations, OneBeacon asserts claims for: (1) rescission of the Bond (Count I); (2) rescission of the increase in the Bond's coverage (Count II, pled in the alternative to Count I); and (3) declaratory judgment that there is no coverage under the Bond (Count III). In a separate count labeled “Reservation of Rights” (Count IV), OneBeacon purports to reserve “all of its rights under the Bond and applicable law.” (OneBeacon's Counterclaims ¶ 89.) OneBeacon has also filed a separate counterclaim against the FDIC, and purported third-party claims against some of Wheatland's former directors and officers (including Sykes and Sundry), seeking to rescind the D & O Policy and/or the increased coverage on essentially the same theory underlying its claims with respect to the Bond. (See OneBeacon Third–Party Complaint Counts I (rescission of the D & O Policy); II (rescission of the D & O Policy's increased coverage, pled in the alternative to Count I).) OneBeacon also seeks declaratory judgments that the D & O Policy's “Loan Loss Carve–Out” (Count III) and its “Insured v. Insured Exclusion” (Count IV) bar coverage for any damages in the lawsuit pending before Judge Dow and relieve OneBeacon of any duty to advance defense costs to the defendants in that case. Finally, OneBeacon again purports to reserve its rights “under the [D & O Policy] and applicable law” (Count V). ( See OneBeacon Third–Party Compl. ¶ 89.)

The FDIC has moved to dismiss OneBeacon's counterclaims, its third-party complaint, and one of its affirmative defenses on the grounds that they are barred by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”). See12 U.S.C. § 1821 et seq. The third-party defendants ask us to dismiss the claims against them because they were improperly joined as defendants under Rule 14(a) or, alternatively, for the reasons stated in the FDIC's motion.

A. The FDIC's Motion to Dismiss1. Legal Standard

The FDIC brings its motion pursuant to Rule 12(b)(1) and Rule 12(b)(6). When considering a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, a district court accepts as true all well-pled factual allegations and draws reasonable inferences from the allegations in favor of the plaintiff. Capitol Leasing Co. v. FDIC, 999 F.2d 188, 191 (7th Cir.1993). The court may also look beyond the allegations of the complaint and consider affidavits and other documentary evidence to determine whether subject matter jurisdiction exists. Id. The purpose of a 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve the case on the merits. 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1356, at 354 (3d ed. 2004). To survive such a motion, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). When evaluating a motion to dismiss a complaint, the court must accept as true all factual allegations in the complaint. Iqbal, 129 S.Ct. at 1949. However, we need not accept as true its legal...