Wishnia v. Signature Bank

• Decision Date: 16 April 2019
• Docket Number: No. 18 C 4333,18 C 4333
• Parties: STEVEN WISHNIA, Plaintiff, v. SIGNATURE BANK, Defendant.
• Court: U.S. District Court — Northern District of Illinois

STEVEN WISHNIA, Plaintiff, v. SIGNATURE BANK, Defendant.

No. 18 C 4333

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

April 16, 2019

Judge Sara L. Ellis

OPINION AND ORDER

After Ronald Spielman and his co-borrowers defaulted on their obligations under a loan agreement with Defendant Signature Bank ("Signature"), Signature applied the funds in Spielman's IRA, held at Signature, to the outstanding obligations. Spielman maintains that Signature did not have the right to use the IRA to setoff the outstanding obligations. Plaintiff Steven Wishnia, who purchased an assignment of Spielman's claims against Signature arising from the allegedly improper setoff, has filed a third amended complaint ("TAC") against Signature, asserting claims for breach of contract, breach of fiduciary duty, conversion, and promissory estoppel. Signature moves to dismiss the TAC pursuant to Federal Rule of Civil Procedure 12(b)(6). But because Wishnia has sufficiently alleged the elements of each claim, with Signature's arguments for dismissal more appropriate for consideration after discovery and on a more fully-developed record, the Court denies Signature's motion and allows the TAC to proceed.

BACKGROUND¹

Ronald Spielman was the president and owner of Sound Solutions Windows & Doors, LLC ("Sound Solutions"), Armaclad Doors & Windows, LLC ("Armaclad"), and Chicago Lead Safe Windows and Doors, LLC ("Chicago Lead"). In November 2008, Sound Solutions and Armaclad entered into a Loan and Security Agreement (the "Loan Agreement") with Signature. In § 5 of the Loan Agreement, Sound Solutions and Armaclad granted security interests to Signature in certain property, with the Loan Agreement defining "Collateral" as that property described in § 5, "together with all other real or personal property of any Obligor or any other Person now or hereafter pledged to Lender to secure, either directly or indirectly, repayment of any of the Obligations." Doc. 38-2 at 39. The Loan Agreement specified what constituted an Event of Default and provided various actions Signature could take upon the declaration of such an Event of Default. Among other things, it provided:

Upon the occurrence and during the continuation of an Event of Default, Lender is hereby authorized, without notice or demand and without affecting the liability of a Borrower hereunder, to, at any time and from time to time, (i) renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to, a Borrower's Obligations or otherwise modify, amend or change the terms of any promissory note or other agreement, document or instrument now or hereafter executed by a Borrower and delivered to Lender; . . . (iii) take and hold security or collateral for the payment of a Borrower's Obligations hereunder or for the payment of any guaranties of a Borrower's Obligations or other liabilities of a Borrower and exchange, enforce, waive and release any such security or collateral; (iv) apply such security or collateral and direct the order or manner of sale thereof as Lender, in its sole discretion, may determine; and (v) settle, release,compromise, collect or otherwise liquidate a Borrower's Obligations and any security or collateral therefor in any manner, without affecting or impairing the obligations of the other Borrowers.

Id. § 18(d). As Borrowers, Sound Solutions and Armaclad agreed that

[e]ach Borrower hereby waives the benefit of any law that would otherwise restrict or limit Lender or any affiliate of Lender in the exercise of its right, which is hereby acknowledged and agreed to, to set-off against the Obligations, without notice at any time hereafter, any indebtedness, matured or unmatured, owing by Lender or such affiliate of Lender to such Borrower, including, without limitation any deposit account at Lender or such affiliate.

Id. § 28(c). The Loan Agreement further provided that it and the Other Agreements "may not be modified, altered or amended except by an agreement in writing signed by each Borrower or such other Person who is a party to such Other Agreement and Lender."² Id. § 22.

In July 2009, the parties entered into a First Amendment to the Loan Agreement, adding Chicago Lead as a Borrower. In July 2010, Sound Solutions, Armaclad, Chicago Lead, and Spielman entered into a Second Amendment and Waiver to the Loan Agreement, adding Spielman as a Borrower. The Second Amendment provided that certain sections of the Loan Agreement, specifically § 5, 6, 8, 9 (other than 9(f)), 11 (except for 11(g) and 11(m)), 12, 13, and 14, did not apply to Spielman. Among other things, this excluded Spielman from the grant of security interests to Signature as provided in § 5 of the Loan Agreement. The parties also entered into several additional amendments to the Loan Agreement, due in part to Sound Solutions' declining financial condition and Signature's resulting demands for additional fundsto avoid a formal declaration of default. For example, Spielman and his companies assigned several life insurance policies to Signature, including one on his mother's life. After her death in January 2012, Signature received the death benefit on that policy of $2.7 million and applied it to the loan balance.

Spielman's mother also had an IRA at High Tower Securities, which had a balance of approximately $1.5 million and named Spielman as the designated beneficiary. Spielman inherited the IRA upon her death. In reviewing Spielman's personal financial statements, Signature learned of the inherited High Tower IRA. In February or March 2013, Signature requested that Spielman meet with Michael O'Rourke, its president and CEO, and Peter Olsen, its Senior Vice President responsible for administering the Sound Solutions loan. O'Rourke and Olsen expressed Signature's request that Spielman transfer the High Tower IRA to a new IRA at Signature "as a sign of 'good faith' and to increase Signature Bank's overall asset base and lending capacity." Doc. 38 ¶ 20. O'Rourke, Olsen, and Spielman reached a verbal agreement for Spielman to transfer the IRA to Signature, which Signature would treat as an inherited IRA and from which Signature would not seek recourse to offset or reduce the debt under the Loan Agreement. After consulting with counsel, Spielman asked Signature for a letter confirming that Signature would not treat the IRA as security or subject it to attachment or setoff. Olsen drafted a letter on March 8, 2013, which Spielman's counsel revised. Olsen sent Spielman an executed letter (the "Confirmation Letter"), dated March 8 but sent on March 14. The Confirmation Letter identified the IRA in the subject line and stated:

Please accept this letter as confirmation that the subject account is expressly excluded from the security interest granted by that certain Loan and Security Agreement dated as of November 28, 2008 between Signature Bank, Sound Solutions Windows & Doors, LLC and Armaclad Windows & Doors, LLC, as such agreement has been or may be amended, and does not constitute"Collateral" as that term is defined in such agreement or as security for any other obligations owed by Sound Solutions Windows & Doors, LLC, Armaclad Windows & Doors, LLC, Chicago Lead Safe Window Services, LLC and/or Ronald Spielman to Signature Bank. In addition, Signature Bank hereby waives any rights of offset it may have against the subject account under applicable law or otherwise.

Doc. 38-8. Spielman signed the Confirmation Letter and sent it back to Olsen. He thereafter liquidated the securities in the High Tower IRA and wired the funds to Signature for deposit into a rollover IRA in his name. Signature created this account on March 15, 2013, and had Spielman complete a traditional IRA application. The application listed Signature as the custodian/trustee and specified that Spielman received a copy of IRS Form 5305 or 5305-A, by which Spielman agreed to be bound. These IRS forms provide, among other things, that the depositor's interest in the account is nonforfeitable. After moving the IRA to Signature, Spielman occasionally authorized withdrawals from that account to Sound Solutions' or other accounts held at Signature.

On January 22, 2014, Signature issued a formal notice of default under the Loan Agreement after Sound Solutions' business rapidly declined. Signature continued to allow Sound Solutions to operate under certain restrictions, including the retention of a turnaround management consultant and stringent reporting requirements. Sound Solutions' business continued to decline, however, causing Signature to issue another formal notice of default on April 23, 2014. In June, Signature stopped all funding to Sound Solutions and began exercising its rights to liquidate Sound Solutions' collateral. Sound Solutions ceased active business operations the same month.

In early August, Spielman spoke with Olsen and requested that Signature transfer $50,000 from the IRA to his personal account. Several days later, Olsen contacted Spielman to demand that Spielman consent to the transfer of $200,000 from the IRA to the outstandingbalance under the Loan Agreement. Spielman refused and sent an email on August 5 demanding that Signature transfer all of the funds in the IRA to his wife's personal checking account. Signature did not respond and did not transfer the funds to his wife's account. Instead, that same day, Signature applied the remaining funds in the IRA account, approximately $428,000, to the balance under the Loan Agreement. On August 8, Spielman sent an email to O'Rourke, Olsen, and Bryan Duncan, Signature's Executive Vice President, indicating that the August 5, 2014 setoff breached Signature's contractual obligations and demanding that Signature reverse the setoff. Spielman's lawyer sent a similar demand to Duncan on August 21, 2014. Signature has failed to refund the $428,000 to Spielman.

On March 30, 2018, Wishnia entered into an assignment agreement with Spielman, by which he...