United Central Bank v. Davenport Estate LLC

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-2406
UNITED CENTRAL BANK,
Counter-Defendant-Appellee,
v.
DAVENPORT ESTATE LLC, et al.,
Counter-Plaintiffs-Appellants.
____________________
Appeal from the United States District Court for the
Northern District of Illinois.
No. 1:10-CV-03176 — Andrea R. Wood, Judge.
____________________
ARGUED JANUARY 22, 2016 — DECIDED MARCH 4, 2016
____________________
Before BAUER, FLAUM, and HAMILTON, Circuit Judges.
FLAUM, Circuit Judge. In 2008, the predecessor to United
Central Bank (“UCB”) made a $700,000 loan to a group of in-
vestors. 1 UCB and the investors agreed that the money would
be placed in escrow but did not record their understanding in
1 The investors include Dany Investment, LLC; Hampshire Plaza,
LLC; Dells Estate LLC; USA Gastech, Inc.; Pakus Management, LLC; Dav-
enport Estate LLC; and Umar F. Paracha.
2 No. 15-2406
a written escrow agreement. Later, the investors repeatedly
asked UCB for the $700,000 but never received it. In 2010, the
investors brought a breach of contract claim, and UCB moved
to dismiss under Federal Rule of Civil Procedure 12(b)(6). The
district court granted UCB’s motion to dismiss since there was
no written agreement as required by the Financial Institutions
Reform, Recovery, and Enforcement Act (“FIRREA”) and the
Illinois Credit Agreement Act (“ICAA”). We affirm.
I. Background
In 2008, Mutual Bank (UCB’s predecessor) made loans to
the group of investors to purchase three properties. As part of
the transaction, Mutual Bank also agreed to loan the investors
$700,000 for repairs and renovations on the properties. The
$700,000 was placed in escrow, but the parties did not enter
into a written escrow agreement. The only written reference
to the escrow money is in the closing documents for each
property. Once the investors exhausted much of their re-
sources on repairs, they requested the $700,000 in escrow.
However, they never received this money from Mutual Bank.
In 2009, the Federal Deposit Insurance Corporation
(“FDIC”) shut down Mutual Bank for gross negligence and
other wrongful conduct. The FDIC, as receiver for Mutual
Bank, entered into a Purchase and Assumption Agreement
with UCB. Under this agreement, UCB acquired Mutual
Bank’s loans and assets. The investors made repeated written
and oral demands on UCB to release the $700,000 in escrow
but did not receive the money.
In 2010, UCB brought suit against the investors to fore-
close on the three properties and enforce related promissory
No. 15-2406 3
notes and guarantees. The investors brought several counter-
claims. Their second amended counterclaim, filed in April
2014, contends that UCB’s refusal to release the escrow funds
constituted a breach of contract. UCB filed a motion to dismiss
pursuant to Rule 12(b)(6), 2 arguing that because there was no
written escrow agreement, the investors could not bring this
claim.
On October 19, 2015, the district court granted UCB’s mo-
tion to dismiss with prejudice. The court based its holding on
the Financial Institutions Reform, Recovery, and Enforcement
Act and the Illinois Credit Agreement Act. First, the court
held that since the escrow agreement was never put in writ-
ing, the claim was barred by § 1823(e) of FIRREA. Section
1823(e) states that “[n]o agreement which tends to diminish
or defeat the interest of the [FDIC] … shall be valid against
the [FDIC] unless such agreement … is in writing … .” 12
U.S.C. § 1823(e)(1)(A); see also Fed. Deposit Ins. Corp. v. O’Neil,
809 F.2d 350, 353–54 (7th Cir. 1987). Further, § 1821(d) states
that “any agreement which does not meet the requirements
set forth in [§ 1823(e)] shall not form the basis of, or substan-
tially comprise, a claim against the [FDIC].” § 1821(d)(9)(A).
The district court explained that the escrow agreement
that forms the basis for the counterclaim tends to diminish the
interests of the FDIC and its assignee UCB. Since the agree-
ment was not properly memorialized in writing, the agree-
ment does not meet the requirements of § 1823(e), and thus
2 UCB’s motion to dismiss also relied on Rule 12(b)(1) and argued that,
with the exception of Davenport Estate LLC, the investors lacked stand-
ing. The district court agreed that only Davenport has standing and dis-
missed the counterclaims brought by the other investors. The investors do
not challenge this conclusion on appeal.
4 No. 15-2406
the claim is barred by FIRREA.3 The court acknowledged the
investors’ argument that the written references to the escrow
agreement in the closing documents were sufficient to sup-
port their claim. However, the district court pointed out that
in O’Neil, 809 F.2d at 353–54, this Court rejected such incorpo-
ration by reference as a means to satisfy the requirements of
§ 1823(e).
Next, the district court held that the claim was also barred
by the ICAA. Illinois courts have held that escrow agreements
for loan proceeds are credit agreements within the meaning
of the ICAA. See, e.g., R & B Kapital Dev., LLC v. N. Shore Cmty.
Bank & Trust Co., 832 N.E.2d 246, 251–53 (Ill. App. Ct. 2005).
Thus, the escrow agreement in this case is a credit agreement.
To maintain an action on a credit agreement, the ICAA re-
quires the agreement to be in writing. 815 Ill. Comp. Stat. Ann.
160/2. Because there was no written agreement and because
the court had given the investors several chances to raise a
plausible claim, the district court dismissed the second
amended counterclaim with prejudice.
II. Discussion
We review de novo the district court’s grant of a motion to
dismiss for failure to state a claim upon which relief can be
granted. Alexander v. McKinney, 692 F.3d 553, 555 (7th Cir.
2012). We construe the counterclaim in the light most favora-
ble to the investors, accepting as true all well-pleaded facts
3 We have noted that the “purpose behind section 1823(e) … is to en-
able the FDIC, in deciding how to proceed with respect to a troubled bank,
to make a quick and certain inventory of the bank’s assets. It can do that
only if it can disregard secret oral agreements that may impair the value
of those assets.” O’Neil, 809 F.2d at 353 (citation omitted).
No. 15-2406 5
and drawing reasonable inferences in their favor. See McReyn-
olds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 879 (7th Cir. 2012).
The investors raise two arguments on appeal. First, the in-
vestors argue that FIRREA does not apply in situations where
the defunct bank is holding escrowed money for investors.
However, they do not cite any applicable legal authority or
provide support for this proposition. Thus, this undeveloped
argument is waived. See Argyropoulos v. City of Alton, 539 F.3d
724, 738 (7th Cir. 2008) (“perfunctory and undeveloped” ar-
guments are waived). The investors do not address the district
court’s application of the ICAA, so any challenge to that part
of the district court’s holding is also waived.
Second, the investors argue for the first time that by failing
to return the escrow money, UCB committed conversion. In
response, UCB contends that the investors waived this argu-
ment because they only raised a breach of contract claim be-
fore the district court. We agree. The investors did not argue
conversion in their second amended counterclaim or in their
response to UCB’s motion to dismiss; thus, the argument is
waived. 4 See Teumer v. Gen. Motors Corp., 34 F.3d 542, 546 (7th
Cir. 1994) (stating that the “failure to draw the district court’s
attention to an applicable legal theory waives pursuit of that
theory” on appeal).
4 The investors argue that they did not waive their conversion claim
because they briefly mentioned conversion in an earlier memorandum
filed almost a year before the second amended counterclaim was filed in
April 2014. This argument fails because a conclusory statement in an ear-
lier filing does not change the fact that the investors did not raise or de-
velop this legal theory in their second amended counterclaim or in their
response to UCB’s motion to dismiss.
6 No. 15-2406
Even if we consider the merits of the investors’ conversion
argument, the argument is insufficiently developed to suc-
ceed. To establish conversion of money, a plaintiff must show
that the money “at all times belonged to the plaintiff and that
the defendant converted it to his own use.” Horbach v. Kacz-
marek, 288 F.3d 969, 978 (7th Cir. 2002). An asserted right to
money will rarely support a conversion claim. See id. The
plaintiff must show that the money at issue can be described
as “a specific fund or specific money in coin or bills.” Id. (cita-
tion and internal quotation marks omitted).
The investors contend that they are “not seeking to enforce
any agreement,” since “there is no agreement to enforce,” and
that they are “simply seeking to get [their] money back.” This
is not enough to state a claim for conversion or persuade us to
reverse the district court. In fact, the investors seem to con-
cede that the district court properly dismissed the breach of
contract claim, since they again admit that there was no writ-
ten escrow agreement.
Finally, the investors argue that the district court could
have permitted them to file a third amended counterclaim so
that they could proceed under a theory of conversion. But the
investors did not move to file a third amended counterclaim,
and it was not the district court’s responsibility to ask the in-
vestors to do so or to make their legal arguments for them. See
Stransky v. Cummins Engine Co., Inc., 51 F.3d 1329, 1335 (7th
Cir. 1995) (“The federal courts will not invent legal arguments
for litigants.”).
III. Conclusion
For the foregoing reasons, we AFFIRM the judgment of the
district court.