A Chicago federal judge has turned down a motion to dismiss a suit brought against a now-shuttered law firm by the Federal Deposit Insurance Corporation, which is seeking the return of an alleged improper retainer paid the firm by a failing bank.
On Aug. 22, 2014, the FDIC filed a one-count complaint against the Coleman Law Firm, of Chicago, demanding return of $100,000 that had been paid the firm by officers of the now defunct First DuPage Bank. The FDIC alleged officers violated federal law by giving Coleman the $100,000 in August 2009 as a prepayment for legal services the officers expected they would need.
According to the FDIC, the officers anticipated the need because they knew their bank was about to collapse and they might face investigation and lawsuits. The bank did fail in October 2009, and the FDIC became the bank's receiver. The FDIC then asserted the payment to Coleman violated law, because the bank officers knew the $100,000 would otherwise have gone to creditors. Further, the officers should have known their insurance coverage would have covered legal fees to Coleman.
The bank's failure cost the FDIC $59 million. The FDIC is in charge of distributing the bank's assets to creditors, but the $100,000 payment hampered distribution plan, the FDIC argued.
“The pre-failure dissipation of an institution's assets frustrates FDIC's ability to accomplish this goal,” the FDIC said.
The FDIC wants the agreement between the bank and Coleman Law Firm to be declared void and the $100,000 to be returned with interest. The firm's sole proprietor was Robert F. Coleman, who died May 24, 2015, leading to the dissolution of the firm.
The Chicago firm of Crotty & Schiltz is defending the Coleman firm. Robert Coleman's daughter, Cassandra Crotty, is a lawyer with Crotty & Schiltz. The defense filed a motion to dismiss the case, contending the FDIC did not include the bank officers in the suit, although they are “required and indispensable parties to this action.”
On Aug. 11, U.S. District Judge Sharon Johnson Coleman rejected the defense's motion, saying the officers are not needed for the legal action to proceed, because “the relief sought by FDIC can be obtained from Coleman alone.”
The judge further said that if the bank officers have an interest in the suit, they share that interest with Coleman, so the presence of Coleman in the suit is enough to protect their interest.
The judge also would have none of Coleman’s argument that, without the bank officers in the case, Coleman is at risk of “inconsistent obligations,” in that Coleman could be ordered to turn over the $100,000 to the FDIC in this case and, in another case, be unable to recover the same amount from the officers. The judge asserted such a scenario demonstrates inconsistent adjudications, not obligations. The judge pointed to a 1998 federal appellate court explanation that inconsistent obligations “occur when a party is unable to comply with one court’s order without breaching another court’s order concerning the same incident.”
The judge ruled Coleman is not in danger of being ordered to relinquish the money to the FDIC and then also being ordered to relinquish the same money to another party.
The FDIC is represented by Pugh, Jones & Johnson, of Chicago.
The FDIC and the Coleman firm have tangled before. The FDIC filed suits against Coleman in 2012 and 2014 for the return of retainers in connection with two other failed suburban banks. The retainers totaled $175,000. In both cases, the FDIC alleged bank officials paid the money to Coleman, knowing the banks were on the verge of insolvency.