Federal Deposit Insurance Corporation v. Chicago Title Insurance Company et al

Filing 46

MEMORANDUM Opinion and Order Signed by the Honorable Sharon Johnson Coleman on 3/4/2013:Mailed notice(rth, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FEDERAL DEPOSIT INSURANCE
)
CORPORATION, as Receiver for Founders Bank, )
Plaintiff,
)
)
v.
)
)
CHICAGO TITLE INSURANCE COMPANY,
)
CHICAGO TITLE AND TRUST COMPANY,
)
AND JO JO REAL ESTATE ENTERPRISES,
)
LLC, d/b/a PROPERTY VALUATION
)
SERVICES,
)
Defendants.
)

Case No. 12-cv-5198
Judge Sharon Johnson Coleman

MEMORANDUM OPINION AND ORDER
Defendants Chicago Title Insurance Company and Chicago Title and Trust Company
(collectively, “Chicago Title”) move to dismiss Counts II, IV, and V of the Federal Deposit
Insurance Corporation’s (“FDIC”) amended complaint. Count II alleges breach of fiduciary
duty, Count IV alleges negligent misrepresentation, and Count V alleges negligent
hiring/vicarious liability. For the foregoing reasons, Chicago Title’s motion is granted in part
and denied in part.
Background
Founders Bank (“Founders”), a non-party to the present action, was a commercial bank
with its principal place of business in Worth, Illinois. In 2005 and early 2006, Founders
financed the acquisition and construction of four separate properties in Chicago, Illinois.
Chicago Title was the escrow agent and provided insurance services for the four property
transactions. On July 2, 2009 the FDIC was appointed as receiver for Founders.
The FDIC brings suit alleging that Chicago Title: (1) breached the parties’ contract by
failing to follow the escrow closing instructions; (2) breached its fiduciary duty by
misrepresenting the true sales price and other critical information related to the four closings;
and (3) that Chicago Title was negligent in failing to follow the closing instructions and failing
to exercise reasonable care during the four closings. Furthermore, the FDIC alleges negligent
misrepresentation against Chicago Title for providing false information or omitting material
information to Founders and vicarious liability against Chicago Title for negligent hiring and
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supervision of employees. According to the FDIC, Chicago Title represented to Founders that
certain parties were to be the purchasers of the properties at issue in the four transactions.
However, the FDIC alleges that Chicago Title failed to follow the closing instructions and that
on the same day of the four closings a second escrow closing for each property occurred at a
higher price. The FDIC alleges that Chicago Title engaged in a classic “flip transaction” in
which mortgage brokers, loan officers, or appraisers fraudulently obtain money from lenders by
using simultaneous sales at actual value and resales at inflated value.
Legal Standard
In order to survive a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), a complaint
must contain sufficient factual allegations to state a claim to relief that is plausible on its face.
Ashcroft v. Iqbal, 556 U.S. 662 (2009). This standard is met when the plaintiff pleads factual
content that “allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. A motion to dismiss is decided solely on the face of the complaint and
any attachments that accompanied its filing. Miller v. Herman, 600 F.3d 726, 733 (7th Cir.
2010). Accordingly, the court must accept all well-pleaded factual allegations in the complaint
as true, and draw all reasonable inferences in the plaintiff’s favor. Erickson v. Pardus, 551 U.S.
89, 94 (2007).
Discussion
Chicago Title asks this Court to dismiss the FDIC’s breach of fiduciary duty claim as
duplicative of plaintiff’s negligence and breach of contract claims. It is well settled that
duplicative counts in a complaint may be properly dismissed. DeGeer v. Gillis, 707 F. Supp. 2d
784, 795 (N.D. Ill. 2010). A “count may be dismissed as duplicative of another where the
parties, claims, facts and requested relief are substantially the same.” Lansing v. Carroll, No. 11
C 4153, 2012 U.S. Dist. LEXIS 144250, at *2-5 (N.D. Ill. Oct. 5, 2012). The relevant inquiry is
not whether the allegations are the same, but whether the claims are based on the same operative
facts and the same injury. DeGeer, 707 F. Supp. 2d at 796.
As an initial matter, the FDIC concedes that its breach of fiduciary duty and negligence
claims are duplicative. (FDIC Resp. Brief, Dkt. 35 at 9). The FDIC argues, however that it is
allowed to plead claims in the alternative. Indeed, a plaintiff is allowed to plead in the
alternative. Fed. R. Civ. P. 8(d)(2). However, while the FDIC need not use particular words to
plead in the alternative, it must use a formulation from which it can be reasonably inferred that
this is what it was doing. Holman v. Indiana, 211 F.3d 399, 407 (7th Cir. 2000). Here, the
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FDIC’s argument that its breach of fiduciary duty and negligence claims are pled in the
alternative is made for the first time in its memorandum; however, the amended complaint itself
makes no reference to pleading in the alternative. See Beringer v. Std. Parking O'Hare J.V.,
Nos. 07 C 5027/07 C 5119, 2008 U.S. Dist. LEXIS 91568, at *13-20 (N.D. Ill. Nov. 12, 2008)
(finding a failure by plaintiff to plead its breach of fiduciary duty and contract claims in the
alternative where such an argument was made for the first time in the plaintiff’s memorandum).
Consequently, the FDIC’s breach of fiduciary duty claim is dismissed, without prejudice, as
duplicative of its negligence claim.
Second, Chicago Title argues that Count IV of the FDIC’s amended complaint, alleging
negligent misrepresentation, should be dismissed as duplicative of its negligence claim. The
elements for negligence and negligent misrepresentation are materially different under Illinois
law. Freedom Mortg. Corp. v. Burnham Mortg., Inc., 720 F. Supp. 2d 978, 992 (N.D. Ill. 2010)
(holding that a plaintiff’s negligence and negligent misrepresentation claims were not
duplicative). Here, in Count III the FDIC alleges that Chicago Title was negligent in failing to
follow closing instructions and failing to exercise reasonable care when performing the closings.
In Count IV, the FDIC alleges that Chicago Title provided misleading information, failed to
disclose material information, and omitted material information in order to induce Founders to
fund loans that it would not have otherwise funded. These claims are not based on the same
operative facts. Plaintiff’s negligence claim is based on an alleged failure to exercise reasonable
care while plaintiff’s negligent misrepresentation claim is based on misrepresentations or
omissions which induced the bank to fund the loans at issue. A plaintiff can pursue different
causes of action based on the same set of facts, though they can recover only once for the same
injury. Freedom Mortg. Corp., 720 F. Supp. 2d at 992. Accordingly, the FDIC’s negligent
misrepresentation claim is not duplicative of its negligence claim and Chicago Title’s motion to
dismiss Count IV is denied.
Lastly, Chicago Title moves to dismiss Count V of the FDIC’s amended complaint as
duplicative and for failure to state a claim. In Count V the FDIC seeks to hold Chicago Title
vicariously liable for actions of alleged agents and employees. Specifically, the FDIC alleges
that Chicago Title should be held vicariously liable because it was negligent in hiring and
supervising its agents/employees.
In order to state a claim for negligent hiring the FDIC must allege: (1) that the employer
knew or should have known that the employee had a particular unfitness for the position so as to
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create a danger of harm to third persons; (2) that such particular unfitness was known or should
have been known at the time of the employee’s hiring; and (3) that this particular unfitness
proximately caused the plaintiff’s injury. Freedom Mortg. Corp., 720 F. Supp. 2d at 1001. The
FDIC alleges that Chicago Title’s agents were unfit and provides one example of an employee
alleged to have interests adverse to Founders at the time of closing; however, the FDIC fails to
allege that any unfitness of employees was known by Chicago Title at the time of hiring.
(Compl. at ¶ 155). To state a claim for negligent supervision the FDIC must allege: (1) an
employer had a duty to supervise its employees; (2) the employer negligently supervised an
employee; and (3) such negligence proximately caused the plaintiff’s injuries. Freedom Mortg.
Corp., 720 F. Supp. 2d at 100. In its complaint, the FDIC merely states that Chicago Title was
required to supervise its employees, that Chicago Title failed to adequately supervise its
employees, and that this failure caused the FDIC harm. (Compl. at ¶ 154). The FDIC fails to
allege any facts in support of its allegation outside of a formulaic recitation of elements. See
Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (holding that a formulaic recitation of the
elements of a cause of action is insufficient to survive a motion to dismiss). While courts accept
well-pleaded facts in the complaint as true, legal conclusions and conclusory allegations merely
reciting the elements of the claim are not entitled to this presumption. McCauley v. City of
Chicago, 671 F.3d 611, 616 (7th Cir. 2011). Accordingly, Count V of the FDIC’s complaint is
dismissed without prejudice.
Conclusion
Chicago Title’s motion to dismiss Counts II, IV, and V of the FDIC’s amended complaint
is granted in part and denied in part. Count II, alleging breach of fiduciary duty is dismissed
without prejudice. Count V, alleging negligent hiring/vicarious liability is dismissed without
prejudice. Chicago Title’s motion to dismiss Count IV, alleging negligent misrepresentation, is
denied.

IT IS SO ORDERED.
___________________
Date: March 4, 2013
____________________________________________________
Sharon Johnson Coleman
United States District Judge

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