Justia Banking Opinion Summaries

Greenblatt, the “bad boy of Chicago arbitrage” became involved in litigation concerning use of his “web of corporations,” including Loop Corporation and Banco. In 2000, Banco extended a $9.9 million line of credit in exchange for a blanket lien over Loop’s assets. Loop defaulted; nevertheless, Banco expanded the line of credit by several million dollars in 2002 and continued lending Loop money until 2004. Banco lost senior creditor status when the district court voided the lien in an earlier case. In 2001 Loop purchased millions of shares of EZ Links stock from Golf Venture, giving a promissory note. Loop defaulted; Golf Venture won a judgment of $1.2 million. Also in 2001, a failed margin transaction left Loop indebted to its brokerage firm, Wachovia, in the amount of $1,885,751. Wachovia took Loop to arbitration and won a $2,349,000 award in 2005. Wachovia is still trying to collect. Loop had transferred almost all of its valuable assets to another Greenblatt company, leaving only the EZ Links stock, in possession of Banco, and Banco claimed to have creditor priority over Wachovia. The district vourt pierced Loop’s corporate veil, allowing Wachovia to reach Greenblatt’s assets, and voiding Banco’s lien, and ordered the sale of Loop’s only asset, EZ Links stock. Banco attempted to contest the d decisions. The Seventh Circuit dismissed Banco’s appeal for lack of standing. View "Wachovia Sec., LLC v. Loop Corp." on Justia Law

Bank of America lost approximately $34 million when the Knight companies went bankrupt. BOA sued, claiming that Knight’s directors and managers looted the firm and that its accountants failed to detect the embezzlement. The district court dismissed. The accountants invoked the protection of Illinois law, 225 ILCS 450/30.1, which provides that an accountant is liable only to its clients unless the accountant itself committed fraud (not alleged in this case) or “was aware that a primary intent of the client was for the professional services to benefit or influence the particular person bringing the action” The court found that BOA did not plausibly allege that the accountants knew that Knight’s “primary intent” was to benefit the Bank in alleging that the accountants knew that Knight would furnish copies of the financial statements to lenders. The Seventh Circuit affirmed, noting BOA’s choice not to pursue its claims in the bankruptcy process. View "Bank of America, N.A. v. Knight" on Justia Law

This is an adversary proceeding arising out of the bankruptcy of debtor (Derivium). Plaintiff (Grayson), assignee of the Chapter 7 bankruptcy trustee, appealed from a district court judgment affirming the bankruptcy court's decision to grant summary judgment for defendants (Wachovia). The court concluded that the district court did not err in affirming the grant of summary judgment for Wachovia on Grayson's Customer Transfers claim; summary judgment for Wachovia on Grayson's Cash Transfers claim; the bankruptcy court's determinations that the stockbroker defense applied to commissions; and the bankruptcy court's ruling that in pari delicto barred Grayson's tort claims against Wachovia. View "Grayson Consulting, Inc. v. Wachovia Securities, LLC" on Justia Law

The Trustee filed this action against former directors and officers of Bancshares. The directors also all formerly served as the officers and directors of the Bank, a wholly owned subsidiary of Bancshares. The court held that the Trustee could pursue her claims only as to the directors' alleged improper subordination of Bancshares' LLC interest. Therefore, the court reversed and remanded the district court's judgment as to that claim, but affirmed its judgment in all other respects. Accordingly, the court held that the district court did not err in granting the directors' motion to dismiss except as to the claim for subordination of the LLC interest of Bancshares. View "Beach First National Bancshare v. Anderson" on Justia Law

Three individuals (once known as the "Bad Boys' of Chicago Arbitrage") established "Loop" as a closely-held corporation for their real estate holdings in 1997. A family trust for Loop's corporate secretary (50% owner) owns Banco, which gave Loop a $9.9 million line of credit in 2000. On the same day, Loop subsidiaries entered into a participation agreement on the line of credit through which they advanced $3 million to Loop, giving the subsidiaries senior secured creditor status over Loop's assets. The now-creditor subsidiaries were also collateral for funds loaned Loop. In 2001 Loop received a margin call from Wachovia. The Banco-Loop line of credit matured and Loop defaulted. Banco extended and expanded the credit. Loop’s debt to Wachovia went unpaid. Loop invested $518,338 in an Internet golf reservation company; moved real estate assets to Loop Properties (essentially the same owners); and paid two owners $210,500 “compensation” but never issued W-2s. Wachovia obtained a $2,478,418 judgment. The district court pierced Loop’s corporate veil, found the owners personally liable, and voided as fraudulent Banco’s lien, the “compensation” payments, and payments to the golf company. The Seventh Circuit affirmed, except with respect to the golf company. View "Wachovia Secs., LLC v. Banco Panamericano, Inc." on Justia Law

This case arose when Mirant, an energy company, sought to expand its European operations by acquiring nine power islands from General Electric. When the power island deal fell through, Mirant made payments pursuant to a guaranty and soon thereafter sought bankruptcy protection. Mirant, as debtor-in-possession, sued Commerzbank and other lenders in bankruptcy court to avoid the guaranty and to recover the funds Mirant paid pursuant to the guaranty. After Mirant's bankruptcy plan was confirmed MCAR, plaintiff, substituted into the case for Mirant. Commerzbank and other lenders, defendants, filed a motion to dismiss based on Rules 12(b)(1) and 12(b)(6). The district court subsequently denied defendants' motion to dismiss based on plaintiff's alleged lack of standing. Thereafter, the district court granted summary judgment for defendants. Both sides appealed. While the court agreed that the district court correctly determined that there was standing to bring the avoidance claim, the court vacated the judgment of dismissal because the district court erroneously applied Georgia state law rather than New York state law to the avoidance claim. View "MC Asset Recovery LLC v. Commerzbank A.G., et al." on Justia Law

Plaintiffs are personal investment holding corporations owned by two related Panamanian shareholders. Defendants, of who there are two distinct groups, are (1) a related group of banking corporations operating under the umbrella of Banco Santander, which provide banking, investment, and other financial management services; and (2) certain individual officers/employees of Santander. This dispute arose from plaintiff's investment of an undisclosed sum of money with defendants. At issue was whether a district court, having found a valid contract containing an arbitration clause existed, was also required to consider a further challenge to that contract's place within a broader, unexecuted agreement. Having considered those circumstances in light of Granite Rock Co. v. International Brotherhood of Teamsters and other relevant precedent, the court found that the district court properly construed the law regarding arbitrability in dismissing plaintiff's suit. Accordingly, the court affirmed the judgment. View "Solymar Investments, Ltd., et al. v. Banco Santander S.A., et al." on Justia Law

IFS and 17 affiliated organizations (collectively, Interamericas) were debtors in a series of Chapter 7 cases. This appeal arose from eight collective adversary proceedings, which a trustee of IFS brought against appellants for avoidance of fraudulent transfers under Chapter 5 of the Bankruptcy Code and Chapter 24 of the Texas Business and Commerce Code. Appellants appealed the district court's affirmance of the bankruptcy court judgment of over $3 million in favor of the trustee. The court held that control could be sufficient to show ownership of what was ultimately a fact-based inquiry that would vary according to the peculiar circumstances of each case. The court also held that the lower courts' findings of ownership were not clearly erroneous and, moreover, comported with precedent and the court's holding today where IFS exercised control over the accounts at issue such that it had de facto ownership over the accounts, as well as the funds contained. The court further held that the record supported the lower courts' findings of fraudulent transfer. Specifically, IFS faced pending lawsuits and mounting debts just as it liquidated nearly all Interamericas' assets and evidence that IFS operated as a fraudulent enterprise at the time of transfer supported this finding of fraudulent intent. Accordingly, the judgment was affirmed.

The United States appealed from a judgment of the district court invalidating two notices of Final Partnership Administrative Adjustments issued by the IRS. The district court so ruled because it concluded that the taxpayer's characterization of two tax-exempt Dutch banks as its partners in Castle Harbour LLC was proper under Internal Revenue Code 704(e)(1). The district court also concluded that, even if the banks did not qualify as partners under section 704(e)(1), the government was not entitled to impose a penalty pursuant to Internal Revenue Code 6662. The court held that the evidence compelled the conclusion that the banks did not qualify as partners under section 704(e)(1), and that the government was entitled to impose a penalty on the taxpayer for substantial understatement of income. Accordingly, the judgment of the district court was reversed.

The title company provided real estate closing services. From 1984 through 1995, it served as exclusive agent for defendant and managed an escrow account that defendant contractually agreed to insure. The title company was not profitable and its managers used escrow funds in a "Ponzi" scheme. In 1989, there was a $26 million shortfall. To fill the hole, the managers began looting another business, Intrust, to pay defendant's policyholders ($40.9 million) and to pay defendant directly ($27 million), so that defendant was a direct and indirect beneficiary of the title company's arrangement with Intrust. In 2000 the state agency learned that the funds were missing, took control of Intrust and placed it in receivership. In July 2010, the Receiver filed suit for money had and received, unjust enrichment, vicarious liability), aiding and abetting breach of fiduciary duty, and conspiracy. The district court dismissed based on the statute of limitations. The Seventh Circuit affirmed. The Illinois doctrine of adverse domination does not apply. That doctrine tolls the statute of limitations for a claim by a corporation against a nonboard-member co-conspirator of the wrongdoing board members.