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

Filing 512

MEMORANDUM Opinion and Order signed by the Honorable Andrea R. Wood on 12/3/2019. Mailed notice(ef, )

IN THE 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, et al.,
Defendants.

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No. 12-cv-05198
Judge Andrea R. Wood

MEMORANDUM OPINION AND ORDER
Plaintiff Federal Deposit Insurance Corporation (“FDIC”), acting as Receiver for Founders
Bank, sued Defendants Chicago Title Insurance Company and Chicago Title and Trust Company
(together, “Chicago Title”), asserting claims for breach of contract, breach of fiduciary duty,
negligence, and negligent misrepresentation based on Chicago Title’s actions as escrow agent for
four fraudulent real estate transactions funded by Founders Bank. The case went to trial, at the
conclusion of which the jury found Chicago Title liable on all four counts and awarded damages
totaling $1,450,000. This Court subsequently granted Chicago Title’s motion for a new trial as to
the damages awarded for the breach of fiduciary duty, negligence, and negligent
misrepresentation claims due to an erroneous jury instruction regarding whether Chicago Title’s
conduct was willful and wanton. The FDIC now moves for partial judgment on the pleadings,
arguing that there is no need for the jury to make a willful-and-wanton finding on the breach of
fiduciary duty claim because comparative negligence does not provide a defense to that claim.
(Dkt. No. 498.) For the reasons that follow, the FDIC’s motion is granted.

BACKGROUND
At the conclusion of the trial in this matter, the jury found Chicago Title liable on all four
counts. As to the breach of fiduciary duty, negligence, and negligent misrepresentation claims, the
jury further found that Founders Bank had been contributorily negligent and the FDIC’s damages
should be reduced by 50%. But the jury went on to conclude that Chicago Title’s conduct was
willful and wanton thereby effectively nullifying the reduction in damages based on comparative
fault. Before making that finding, the jury was instructed that willful and wanton conduct includes
both reckless and intentional conduct. In Illinois, however, only intentionally willful and wanton
conduct negates a comparative fault reduction. The verdict form did not allow the jury to specify
whether it found Chicago Title’s conduct to have been intentionally willful and wanton, as
opposed to recklessly willful and wanton, and so the verdict was silent on that question. For that
reason, this Court granted Chicago Title a new trial to allow a jury to determine whether Chicago
Title’s conduct was intentionally willful and wanton.
In its decision granting Chicago Title’s motion for a new trial, the Court expressed doubt
as to whether the defense of contributory negligence applies to a breach of fiduciary duty claim
under Illinois law. The FDIC has now moved for judgment on the pleadings as to that issue. If the
FDIC is correct that comparative fault is inapplicable to a breach of fiduciary duty claim, any new
trial would not involve that claim or the negligence claim.1
DISCUSSION
Federal Rule of Civil Procedure 12(c) allows a party to move for judgment on the
pleadings after the filing of the complaint and answer. See Fed. R. Civ. P. 12(c); Supreme
The FDIC’s negligence claim was brought in the alternative to the breach of fiduciary duty claim. By
prevailing on the breach of fiduciary duty claim, the FDIC may not recover on a negligence theory. Thus,
the question of whether Chicago Title’s conduct was intentionally willful and wanton with respect to the
negligence claim is moot.
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Laundry Serv., LLC v. Hartford Cas. Ins. Co., 521 F.3d 743, 746 (7th Cir. 2008). A Rule 12(c)
motion is governed by the same standards as a Federal Rule of Civil Procedure 12(b)(6) motion to
dismiss for failure to state a claim. Hayes v. City of Chicago, 670 F.3d 810, 813 (7th Cir. 2012).
Thus, the Court must take all well-pleaded allegations as true and draw all reasonable inferences
in the non-moving party’s favor. Id. “[T]he motion must only be granted when it appears beyond
doubt that the opposing party cannot prove any facts that would support [its] claim for relief.”
River Vill. West LLC v. Peoples Gas Light & Coke Co., 618 F. Supp. 2d 847, 850 (N.D. Ill. 2008)
(internal quotation marks omitted).
A party may move for judgment on the pleadings any time “[a]fter the pleadings are
closed—but early enough not to delay trial.” Fed. R. Civ. P. 12(c). Here, the FDIC has filed its
motion for judgment on the pleadings after the conclusion of the first trial in an effort to narrow
the issues before a possible second trial and sufficiently in advance of the second trial to avoid
any risk of delay. Moreover, with its motion, the FDIC does not seek to challenge any factual
determination made by the jury in the first trial. And in any case, Chicago Title has not objected
to the FDIC raising and the Court resolving the legal issue of whether a plaintiff’s contributory
negligence provides a defense to a breach of fiduciary duty claim on a motion for judgment on the
pleadings at this late stage in the proceedings. Thus, while the timing of the FDIC’s motion might
not be typical, the Court deems is consistent with the rules and will proceed to address the merits
of the motion.
Illinois law recognizes both statutory and common-law doctrines of comparative
negligence. Neither party contends that Illinois’s comparative fault statute governs the
apportionment of fault here, as that statute applies only to actions involving “death, bodily injury
or physical damage to property.” 735 ILCS 5/2-1116(c). By contrast, the common-law defense of

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contributory negligence applies to “tort actions for recovery of economic loss.” Bd. of Trs. of
Cmty. Coll. Dist. No. 508 v. Coopers & Lybrand, 803 N.E.2d 460, 465 (Ill. 2003). Given that the
FDIC seeks to recover for economic loss, only the common law defense potentially applies here.
A claim for breach of fiduciary duty has similar elements as those for a standard tort
claim. To state a claim, a plaintiff must show that “a fiduciary duty exists, that the fiduciary duty
was breached, and that such breach proximately caused the injury of which the plaintiff
complains.” Neade v. Portes, 739 N.E.2d 496, 502 (Ill. 2000). Yet, in Illinois, a claim for breach
of fiduciary duty is not treated as a tort claim. Kinzer v. City of Chicago, 539 N.E.2d 1216, 1220
(Ill. 1989). Rather, Illinois courts regard “breach of fiduciary duty as controlled by the substantive
laws of agency, contract, and equity.” Id. (citations omitted); see also Wolinsky v. Kadison, 987
N.E.2d 971, 991 (Ill. App. Ct. 2013) (“[O]ur supreme court rejected the Restatement’s view that
an action for breach of fiduciary duty is a tort; instead, a claim for breach of fiduciary duty is
controlled by the substantive laws of agency, contract and equity.”).
As far as this Court can tell, no Illinois court has addressed the specific question of
whether the tort defense of comparative negligence applies to a breach of fiduciary duty claim.
This Court, however, concludes that if the Illinois Supreme Court were to address the issue it
would hold that comparative negligence is not a defense to breach of fiduciary duty. See Allstate
Ins. Co. v. Menards, Inc., 285 F.3d 630, 637 (7th Cir. 2002) (explaining that the “task of the
federal court sitting in diversity is to ascertain the substantive content of state law as it either has
been determined by the highest court of the state or as it would be by that court if the present case
were before it now” and instructing courts to “give great weight to the holdings of the state’s
intermediate appellate courts” in the absence of definitive authority from its highest court).
Indeed, the Illinois Appellate Court previously has stated that when a breach of fiduciary duty has

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been proven, “the wrongdoer is liable for the entire amount of the loss occasioned by his act.”
Toro Petroleum Corp. v. Newell, 338 N.E.2d 491, 496 (Ill. App. Ct. 1974).2 That makes sense
given that the fiduciary relationship is characterized by the “trust and confidence” accorded to the
fiduciary and the position of “influence and superiority” the fiduciary obtains by virtue of that
relationship. Tully v. McLean, 948 N.E.2d 714, 739 (Ill. App. Ct. 2011). Absolving a fiduciary of
fault, in whole or in part, on the basis of another party’s negligence would be inconsistent with the
relationship giving rise to a fiduciary’s duty. Cf. Bear Med. v. United States, 192 F. Supp. 2d
1053, 1068 (D. Mont. 2002) (“The purpose of a fiduciary relationship would be completely
undermined if a beneficiary’s negligent conduct could be used by the fiduciary as a defense
against the person he is supposed to protect . . . .”).
Compare the fiduciary relationship to that of tortfeasor and his victim in an ordinary
negligence claim, where both the tortfeasor and the injured party have the same general duty to
exercise ordinary care. See Dunn v. Balt. & Ohio R.R. Co., 537 N.E.2d 738, 745 (Ill. 1989). While
a fiduciary owes a duty of reasonable care, its duty also “encompasses the obligations of fidelity,
honesty, and good faith.” Pippen v. Pedersen & Houpt, 986 N.E.2d 697, 704 (Ill. App. Ct. 2013);
see also Neade, 739 N.E.2d at 500 (“A fiduciary relationship imposes a general duty on the
fiduciary to refrain from seeking a selfish benefit during the relationship.” (internal quotation
marks omitted)). Thus, there is an asymmetry of duties between a fiduciary and the beneficiary.
By assuming the status of fiduciary, the fiduciary assumes a heightened responsibility to protect
the beneficiary’s interests and is therefore wholly responsible for any losses caused by any breach
of its fiduciary duty.

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Toro was heard by a trial court sitting in equity and the Illinois Appellate Court was not considering the
applicability of any affirmative defense but rather the trial court’s equitable reduction of the plaintiff’s
recovery due to the plaintiff’s “colossal negligence and stupidity.” See Toro, 338 N.E.2d at 495.

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Chicago Title contends that comparative negligence applies here because, as an escrow
agent, its fiduciary duties are limited and owed to all parties to the escrow. It is well-settled in
Illinois that an escrow agent owes a fiduciary duty “both to the party making the deposit and the
party for whose benefit it is made.” Int’l Capital Corp. v. Moyer, 806 N.E.2d 1166, 1172 (Ill.
App. Ct. 2004). “Under this analysis, the [escrow agent] owes a duty to act only in accordance
with the escrow instructions.” Id. But as Chicago Title recognizes, because the parties to an
escrow agreement have conflicting interests, an escrow agent must be impartial toward all parties.
See Wells Fargo Bank Minn., N.A. v. Envirobusiness, Inc., 22 N.E.3d 125, 135 (Ill. App. Ct.
2014). That responsibility only heightens the escrow agent’s obligation as a fiduciary not only to
act with reasonable care in carrying out the duties prescribed by the escrow agreement, but also to
do so with fidelity, honesty, and good faith necessary to uphold its obligation to remain impartial.
See McBride v. Commercial Bank of Champaign, 428 N.E.2d 739, 742 (Ill. App. Ct. 1981) (“The
fact that it was faced with conflicting instructions and demands did not give the [escrow agent]
the right to favor one party over the other, but rather placed the [agent] upon notice that in
obeying the instructions of one and disregarding those of the other, it acted at its peril.”).
In short, because breach of fiduciary duty is not a tort and a fiduciary occupies a position
of trust and superiority relative to the party owed the fiduciary duty, this Court concludes that
Illinois courts would not recognize comparative negligence as a defense to a breach of fiduciary
duty claim. Consequently, Chicago Title cannot seek a comparative negligence reduction to the
damages resulting from its breach of fiduciary duty.

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CONCLUSION
For the foregoing reasons, the FDIC’s motion for partial judgment on the pleadings (Dkt.
No. 498) is granted. Upon finding for each of the four subject transactions that Chicago Title
breached its fiduciary duty to Founders Bank, there was no need for the jury to consider the
defense of contributory negligence, including whether Chicago Title’s conduct was willful and
wanton. Accordingly, a new trial is not warranted on the question of whether Chicago Title’s
breach of fiduciary duty was willful and wanton.

ENTERED:

Dated: December 3, 2019

__________________________
Andrea R. Wood
United States District Judge

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