12-1665.141-RSK July 10, 2014

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

FEDERAL DEPOSIT INSURANCE CORP., )

AS RECEIVER FOR BROADWAY BANK, )

)

Plaintiff, )

)

 v. ) No. 12 C 1665

) 

DEMETRIS GIANNOULIAS, GEORGE )

GIANNOULIAS, JAMES MCMAHON, SEAN )

CONLON, STEVEN DRY, DONNA )

ZAGORSKI, STEVEN BALOURDOS, )

GLORIA SGUROS, ANTHONY D’COSTA, )

)

Defendants. )

MEMORANDUM OPINION

Before the court is the plaintiff’s supplemental motion to

strike. For the reasons explained below, we grant the motion in

part, and deny it in part.

BACKGROUND

Plaintiff Federal Deposit Insurance Corporation, as receiver

for Broadway Bank (“FDIC–R”), has filed this lawsuit to recover

approximately $114 million in losses that the bank suffered on 20

loans. (See Second Am. Compl. ¶ 1.) It alleges that the defendants

— seven former directors of Broadway Bank and two former officers 

— negligently approved the loans. (Id. at ¶ 2.) We will assume

that the reader is familiar with our opinion denying the

defendants’ motion to dismiss the FDIC-R’s complaint, which

discussed the plaintiff’s allegations in more detail. See FDIC v.

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Giannoulias, 918 F.Supp.2d 768 (N.D. Ill. 2013). However, the

procedural history of the FDIC-R’s motion to strike requires

additional discussion. After the parties finished briefing the

plaintiff’s original motion to strike, we ordered the FDIC-R to

amend its complaint to remove surplusage. (See Minute Entry, dated

Oct. 16, 2013, Dkt. 130.) The defendants answered and filed

amended affirmative defenses, restating their earlier defenses

challenging the FDIC-R’s conduct and adding a new constitutional

claim.1 The FDIC-R then filed a “supplemental” motion to strike

those defenses, which is the motion currently before us. It

challenges the following amended affirmative defenses: (1) “Waiver

and Estoppel” (Third Affirmative Defense); (2) “Failure to

Mitigate” (Fourth Affirmative Defense); (3) “Comparative

Negligence” (Fifth Affirmative Defense); (4) “Lack of

Constitutional Standing” (Sixth Affirmative Defense). The FDIC-R

also asks us to strike the defendants’ “Reservation of Right to Add

Affirmative Defenses.” 

DISCUSSION

A. Legal Standard

Federal Rule of Civil Procedure 12(f) provides that we “may

strike from a pleading an insufficient defense or any redundant,

immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P.

1/ They abandoned their defenses insofar as they were based upon the

FDIC’s pre-receivership conduct. (See, e.g., Giannoulias Defs.' Resp. at 1 n.1.) 

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12(f). “Ordinarily, defenses will not be struck if they are

sufficient as a matter of law or if they present questions of law

or fact.” Heller Financial, Inc. v. Midwhey Powder Co., Inc., 883

F.2d 1286, 1294 (7th Cir. 1989). 

B. The Timeliness of the FDIC-R’s Motion

Under Rule 12(f), a party may file a motion to strike within

21 days after being served with the challenged pleading. See Fed.

R. Civ. P. 12(f)(2). The FDIC-R filed its original motion to

strike more than 21 days after all but one of the defendants

(Gloria Sguros) had served their answers and affirmative defenses. 

(See FDIC-R’s Mot. for Leave ¶ 6; see also Certain Defs.’ Resp. to

Mot. to Leave at 1, n.1 (acknowledging that the motion was timely

as to Sguros).) Nevertheless, we retain discretion to strike

material from a pleading after the motion deadline in Rule 12(f)(2)

has passed. See Fed. R. Civ. P. 12(f)(1) (authorizing the court to

strike matters “on its own,” without imposing any particular time

period).) Given the substantial time that the parties devoted to

their substantive arguments, as well as the fact that the FDIC-R’s

motion was timely as to one of the defendants, we certainly would

have addressed the FDIC-R’s arguments on our own motion. As it

happens, the defendants reset the clock when they filed their

amended affirmative defenses on November 27, 2013. The FDIC-R

filed its supplemental motion to strike within 21 days after it was

served with the defendants’ amended affirmative defenses. So, the

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motion was timely under Fed. R. Civ. P. 12(f)(2) as to all

defendants.

C. Whether the Defendants’ Affirmative Defenses Are Adequately

Pled.

The FDIC-R argues that the defendants’ Third, Fourth, and

Fifth affirmative defenses are insufficiently detailed to satisfy

Rule 8. “Affirmative defenses are pleadings and, therefore, are

subject to all pleading requirements of the Federal Rules of Civil

Procedure. Thus, defenses must set forth a ‘short and plain

statement,’ Fed. R .Civ. P. 8(a), of the defense.” Heller

Financial, Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294

(7th Cir. 1989). They must contain enough factual content to allow

the court to draw a “reasonable inference” that the defense has

merit. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see also

Shield Technologies Corp. v. Paradigm Positioning, LLC, No. 11 C

6183, 2012 WL 4120440, *8 (N.D. Ill. Sept. 19, 2012) (Grady, J.)

(concluding that affirmative defenses are governed by the pleading

standard announced in Iqbal and Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 555 (2007)). The defendants’ Third Affirmative Defense

merely alleges, “[u]pon information and belief,” that “the FDIC-R’s

conduct in administering the [Federal Street Loan] caused a

material decrease in the value of the loan.” (Id. at 78.) Without

knowing what “conduct” the defendants are challenging, the FDIC

cannot adequately respond. The defendants’ Fourth and Fifth

Affirmative defenses allege, on information and belief, that the

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FDIC-R “failed to take actions to maximize the value of the

collateral, failed to take the steps necessary to maximize the

collection on the loans, sold loans at unreasonably low values,

created incentives to obtain less than the maximum level of

recovery available on loans, failed to adequately work out loans,

and failed to take other actions which adversely affected

collateral values and/or the loan recovery.” (Id. at 79.) These

allegations are too generic to put the FDIC-R on notice of the

defendants’ defense. Rule 8 does not necessarily require a loanby-loan analysis of all the ways that the FDIC-R failed to mitigate

its damages. But the defendants’ current allegations would apply

to any lawsuit in which the FDIC alleges negligence by a bank’s

former executives. We will strike the defendants’ Third, Fourth,

and Fifth Affirmative Defenses.

The defendants have requested leave to amend their affirmative

defenses to allege greater detail if we find that they are

inadequately pled. (Giannoulias Defs.’ Resp. at 13 n.5.) But it

would be futile to allow them to amend if we accepted the FDIC-R’s

position that these defenses are barred by federal and/or state

law. So, we will proceed to address the merits of the FDIC-R’s

arguments. 

C. Bierman and O’Melveny

The defendants’ Third, Fourth, and Fifth Affirmative Defenses

are based on their theory that the FDIC-R’s conduct as receiver

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contributed to its losses on the challenged loans. The FDIC-R

argues that FDIC v. Bierman, 2 F.3d 1424 (7th Cir. 1993) bars the

defendants from challenging its discretionary decisions regarding

Broadway Bank’s assets.

1. The “No Duty” Rule and the Federal Tort Claims Act

(“FTCA”)

In Bierman, the FDIC, in its corporate capacity (“FDIC-C”),

sued a failed bank’s former officers and directors to recover

losses to its insurance fund. Id. at 1438. In response, the

defendants filed an affirmative defense asserting that the FDIC had

failed to pursue claims against guarantors that would have

mitigated its losses. Id. The Bierman Court noted that several

district courts had held that a bank’s former officers cannot

challenge the FDIC-R’s actions because it owes no duty to those

individuals. Id. Instead, its duty “runs to the public.” Id.

(quoting FDIC v. Greenwood, 719 F.Supp. 749, 751 (C.D. Ill. 1989))

(internal quotation marks omitted). The Bierman Court extended

this “no duty” rule to affirmative defenses asserted against the

FDIC-C: “[W]hen the FDIC acts to replenish the insurance fund

through the disposition of assets of the failed bank, including the

right of action against the officers and directors, it has no duty

first to attempt to mitigate the damages attributed to those

individuals by seeking other, and perhaps less sure, avenues of

relief.” Id. at 1439-40. The Court then went on to address FDIC

v. Carter, 701 F.Supp. 730 (C.D. Cal. 1987), contrary authority

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holding that such affirmative defenses “ought to be evaluated in

the context of the substantive provisions of the [FTCA], 28 U.S.C.

§ 2671.” Bierman, 2 F.3d at 1440. The FTCA bars claims against

the United States that are based upon a federal employee’s

performance of discretionary functions. It bars:

Any claim based upon an act or omission of an employee of

the Government, exercising due care, in the execution of

a statute or regulation, whether or not such statute or

regulation be valid, or based upon the exercise or

performance or the failure to exercise or perform a

discretionary function or duty on the part of a federal

agency or an employee of the Government, whether or not

the discretion involved be abused. 

28 U.S.C. § 2680(a). The Carter court held that the “activities of

the FDIC in its corporate capacity of disposing of a failed bank’s

assets are purely ministerial and therefore may not be

characterized as a discretionary function under the Act.” Bierman,

2 F.3d at 1440; see also Carter, 701 F.Supp. at 736. The Bierman

Court did not expressly state whether it agreed with the Carter

court’s premise that affirmative defenses “ought to be” evaluated

under the FTCA. Indeed, it stated in a footnote that a later case

from the same district “chose, rather, to follow the no duty/public

policy rationale annunciated in [FSLIC v. Roy, No. JFM-87-1227,

1988 WL 96570 (D.Md. June 28, 1988)].” Bierman, 2 F.3d at 1440

n.18. Nevertheless, it went on to reject the substance of the

Carter court’s FTCA analysis, citing United States v. Gaubert, 499

U.S. 315 (1991). The plaintiff in Gaubert sued federal officials

for negligently managing a savings and loan (“S&L”). The Fifth

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Circuit Court of Appeals held that § 2680 did not apply insofar as

the officials were performing the S&L’s day-to-day business, which

the court characterized as ministerial. Id. at 321-22. The

Supreme Court reversed: “[d]ay-to-day management of banking

affairs, like the management of other businesses, regularly require

judgment as to which of a range of permissible courses is the

wisest.” Id. at 325. Applying Gaubert, the Bierman Court concluded

“that excepting the FDIC from such affirmative defenses is

consonant with the purpose of the discretionary function exception

to the FTCA.” Bierman, 2 F.3d at 1441 (emphasis added). It then

summed up its holding:

In short, even if assets were available on the DeVries

agreements to defray the losses on those loans, and even

if the FDIC’s failure to claim these assets could be said

to have been negligent during the liquidation process,

the discretionary exception to the FTCA and the lack of

a duty to the wrongdoers would prevent the assertion of

affirmative defenses against the FDIC.

Id. (footnote omitted).

The Supreme Court substantially undercut the rationale for the

“no duty” rule in O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994). 

In O’Melveny, two former officers of a federally-insured S&L

allegedly deceived investors in connection with two real estate

syndications. Id. at 81. After the S&L failed, the FDIC (as

receiver) sued the law firm that had represented the S&L in the

syndications for malpractice and breach of fiduciary duty. Id. at

82. The law firm argued that it had no duty to uncover the S&L’s

own fraud, and that knowledge of the fraud should be imputed to the

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FDIC as the S&L’s receiver. Id. The Ninth Circuit Court of

Appeals held that the S&L’s knowledge could not be imputed to the

FDIC as a matter of federal common law. Id. at 83-84. The Supreme

Court reversed. First, it held that there is no federal common law

of imputation. Id. at 83-85. State law governs imputation unless

a federal statute preempts state law. Id. at 85. Second, the

Court concluded that the Financial Institutions Reform, Recovery,

and Enforcement Act of 1989 (“FIRREA”), which governs the FDIC’s

conduct as receiver for failed financial institutions, does not

preempt state law. Section 1821(d)(2)(A)(i) states that the FDIC

“shall . . . by operation of law, succeed to — all rights, titles,

powers, and privileges of the insured depository institution . . .

.” 12 U.S.C. § 1821(d)(2)(A)(i). FIRREA also creates “special

federal rules of decision regarding claims by, and defenses

against, the FDIC as receiver.” O’Melveny, 512 U.S. at 86; see,

e.g., 12 U.S.C. § 1821(d)(14) (extending the statute of

limitations); id. at § 1821(e)(1), (3) (authorizing the FDIC to

repudiate contracts and limiting damages caused by repudiation). 

Reading these provisions together, the Court concluded that federal

courts lack authority to supplement and/or modify FIRREA’s

provisions:

Inclusio unius, exclusio alterius. It is hard to avoid

the conclusion that § 1821(d)(2)(A)(i) places the FDIC in

the shoes of the insolvent S & L, to work out its claims

under state law, except where some provision in the

extensive framework of FIRREA provides otherwise. To

create additional “federal common-law” exceptions is not

to “supplement” this scheme, but to alter it.

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Id. at 86-87.2

Our Court of Appeals has not addressed the “no duty” rule

after O’Melveny. But courts in this district have recognized that

O’Melveny undercuts Bierman’s “no duty” analysis. See FDIC v.

Majahan, 923 F.Supp.2d 1133, 1140 (N.D. Ill. 2013) (concluding that

the "no duty" rule may be in “serious doubt in light of O’Melveny

. . . .”); Spangler, 2012 WL 5558941, at *5 (“The Supreme Court’s

decision in O’Melveny clearly calls into question the Seventh

Circuit's decision in Bierman.”). The FDIC-R attempts to sidestep

O’Melveny by basing its motion entirely on Bierman’s alternative

FTCA analysis. In Mahajan, the court reasoned that O’Melveny did

not affect that portion of Bierman’s holding because “O’Melveny did

not discuss the FTCA, discretionary actions by agencies, or the

Gaubert decision at all.” Majahan, 923 F.Supp.2d at 1140 (holding

that the Bierman Court’s FTCA analysis survived O’Melveny). And it

interpreted the Seventh Circuit’s decision in Courtney v. Halleran,

485 F.3d 942 (7th Cir. 2007) as “affirming the continuing viability

of the FDIC’s immunity from suit under the FTCA for its post2/ The Court also analyzed the imputation defense under pre-FIRREA law

because it was unclear whether FIRREA applied retroactively to the conduct at

issue in O’Melveny. See O’Melveny, 512 U.S. at 87-89. That portion of the

Court’s ruling does not apply here because all of the events at issue in this

case occurred after Congress enacted FIRREA. See FDIC v. Spangler, No.

10-cv-4288, 2012 WL 5558941, *4 (N.D. Ill. Nov. 15, 2012) (“To the extent that

O'Melveny governs the question presented by the motion to strike, only the first

part of O'Melveny applies because FIRREA governs this case.”).

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receiver decisions regarding the disposition of assets.” Mahajan,

923 F.Supp.2d at 1140. 

We respectfully disagree with the Mahajan court’s

interpretation of Courtney and with the bright line that it drew

between the two prongs of Bierman’s holding. Courtney did not

analyze (or even mention) the FTCA. Rather, it held that FIRREA’s

anti-injunction provision barred a failed bank’s creditors from

challenging the FDIC’s distribution of the bank’s assets. 

Courtney, 485 F.3d at 948-49; see also 28 U.S.C. § 1821(j) (“Except

as provided in this section, no court may take any action, except

at the request of the Board of Directors by regulation or order, to

restrain or affect the exercise of powers or functions of the

Corporation as a conservator or a receiver . . . .”). The FDIC-R

has not argued that the defendants’ state-law affirmative defenses

“affect or restrain” the FDIC-R within the meaning of § 1821(j). 

So, FIRREA itself does not preempt those defenses. And O’Melveny

teaches that we may not “supplement” or “modify” the statutory

scheme that Congress adopted. See O’Melveny, 512 U.S. at 86-87. 

It is true, as Mahajan points out, that O’Melveny did not discuss

the FTCA or Gaubert. But we have doubts about whether Bierman

actually held that the FTCA governs true affirmative defenses. By

its terms, the FTCA applies to “claims,” not affirmative defenses. 

Cf. National Union Fire Ins. Co. of Pittsburgh, Pa. v. City Sav.,

F.S.B., 28 F.3d 376, 393 (3d Cir. 1994) (concluding that the word

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“claim” in FIRREA did not encompass affirmative defenses); see also

id. (“When a lawyer files a responsive pleading to an action or

claim, she does not say that she is bringing an action or filing a

claim; instead, she says that she is answering, responding to, or

defending against an action.”). Bierman did not address this

issue. It assumed that the FTCA applied and distinguished Carter

on its terms, while at the same time noting that Carter had “never

garnered a following, having been criticized in its own district a

few years later . . . .” Bierman, 2 F.3d at 1440 n.18. Moreover,

Carter’s premise — that the FTCA applies to affirmative defenses —

is questionable. The Carter court stated that the “substantive

portions of the FTCA which relate to the determination of liability

do apply both to affirmative suits brought against the government

and to counterclaims and affirmative defenses in suits originally

brought by the government.” Carter, 701 F.Supp. at 731 (emphasis

added). The authorities that it cited for this proposition all

dealt with claims against a party entitled to sovereign immunity. 

See Chemehuevi Indian Tribe v. California State Bd. of

Equalization, 757 F.2d 1047, 1052-53 (9th Cir. 1985) (counterclaim

for unpaid taxes); Fed. R. Civ. P. 13(d) (governing counterclaims

against the United States); see also Federal Deposit Ins. Corp. v.

Jennings, 615 F.Supp. 465, 467 (W.D. Okla. 1985) (third-party tort

claims against the FDIC, in its corporate capacity, and the Office

of the Comptroller of Currency). A freestanding “claim” for

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failing to mitigate damages is nonsensical: even if the defendants

successfully prove the defense, they cannot obtain an affirmative

recovery from the United States. Cf. Federal Deposit Ins. Corp. v.

Citizens Bank & Trust Co. of Park Ridge, Ill., 592 F.2d 364, 374

(7th Cir. 1979) (the FDIC does not waive its sovereign immunity by

filing suit “except with respect to matters in recoupment arising

out of the same transaction or occurrence which is the subject

matter of the suit, to the extent of defeating the plaintiff's

claim.”) (citation and internal quotation marks omitted). 

We tend to agree with Spangler that Bierman applied the FTCA

by analogy. See Spangler, 2012 WL 5558941, *4 (“The [Bierman]

court also found support for its conclusion by analogizing to the

discretionary function exception to the [FTCA].”) (emphasis added). 

The FTCA exception for discretionary actions prevents secondguessing, and applying that policy to affirmative defenses is

“consonant with the purpose of” the exception. Bierman, 2 F.3d at

1441. Arguably, Bierman applied the policy behind the FTCA’s

discretionary exception to create a bar to affirmative defenses

that does not appear in FIRREA itself. To that extent, O’Melveny

raises significant doubts about whether any portion of Bierman

survives. As Spangler noted, “FIRREA includes a number of tailored

rules to be applied in suits by federal receivers, yet it does not

include a provision barring the affirmative defense of failure to

mitigate damages.” Spangler, 2012 WL 5558941, *4 n.3. O’Melveny

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does not so clearly conflict with Bierman that we can declare that

it is no longer good law. See id. at *5. But we agree with

Spangler that there is too much legal uncertainty surrounding this

issue to warrant granting a motion to strike at the pleading

stage.3 See id.; see also FDIC v. Skow, Civil Action No.

1:11–CV–0111–SCJ, 2012 WL 8503168, *12 (N.D. Ga. Feb. 27, 2012)

(similar). 

2. Whether State Law Bars the Defendants’ Affirmative

Defenses 

The FDIC-R also argues that Illinois courts have recognized

something akin to the “no duty” rule. But the cases it cites are

easily distinguishable. In Kirchgessner v. County of Tazewell, 516

N.E.2d 379, 380 (Ill. Ct. App. 1987), the plaintiff alleged that

the defendant negligently allowed a dog to escape from a county

animal shelter. The plaintiff was injured when his motorcycle

struck the dog on a freeway. Id. The court held that the county

owed no duty to the plaintiff, citing the general principle that “a

governmental body, when exercising authority pursuant to a

governmental duty and for a governmental purpose, cannot be liable

for the negligent exercise of that authority.” Id. at 382; see

also Bainter v. Chalmers Township, McDonough County, 555 N.E.2d

1195, 1196 (Ill. Ct. App. 1990) (county had no duty to plaintiff to

clear brush from the road); Farmer City State Bank v. Guingrich,

3/ We express no opinion at this time about whether the FDIC-R is a

federal agency for purposes of the FTCA. (See Giannoulias Defs.’ Supp. Mem.

(Dkt. 133); FDIC-R’s Supp. Mem. (Dkt. 143).)

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487 N.E.2d 758, 763-64 (Ill. Ct. App. 1985) (dismissing affirmative

defense of negligence because the bank did not owe a fiduciary duty

to its customer). None of these cases involve a state or federal

receiver. The FDIC-R stepped into Broadway Bank’s shoes, see

O’Melveny, 512 U.S. at 86-87, and it has not cited any state cases

supporting its argument that it is entitled to greater protections

than the bank would have enjoyed if it had filed a claim against

its former executives in its own name. Once again, there are too

many unresolved legal questions to strike the defendants’

affirmative defenses at this stage of the case. 

D. The Defendants’ Sixth Affirmative Defense (“Lack of

Constitutional Standing”)

The defendants argue that Broadway Bank’s due-process and

equal-protection rights were violated because the bank never had an

opportunity to challenge the government’s decision to seize its

property. So, according to the defendants, the FDIC was unlawfully

appointed and cannot pursue claims against the defendants. Before

addressing the substance of the defendants’ constitutional defense,

we will first address several issues regarding standing.

Among other arguments, the FDIC contends that it has

“standing” by virtue of the injury alleged in the complaint (over

$100 million in losses on the challenged loans). (See FDIC-R’s

Reply at 3-5.) We think that this argument misconstrues the

defendants’ defense. The defendants argue that if the FDIC-R

obtained the bank’s assets without due process, then it has no

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legal right to pursue claims for losses with respect to those

assets. Federal Deposit Ins. Corp. v. Ernst & Young LLP, 374 F.3d

579 (7th Cir. 2004) is distinguishable. In that case, the FDIC-C

sued the auditor of a failed bank for fraud and negligence. Id. at

581-82. The district court concluded that the FDIC-C lacked

standing because permitting a direct suit by the FDIC-C would allow

it to jump ahead of other creditors, contrary to FIRREA provisions

governing creditor priority. Id. at 581. Our Court of Appeals

rejected this line of reasoning. See id. (“What this has to do

with ‘standing’ is unfathomable.”). The FDIC-C had standing

because it was injured when it was required to disburse money from

its insurance fund to satisfy claims originating (in part) from the

auditor’s alleged misconduct. Id. at 581-82. In this case, the

defendants are challenging the FDIC-R’s authority to assert claims

for Broadway Bank’s losses. 

The parties also disagree about whether the defendants can

assert a defense based upon a constitutional injury that Broadway

Bank, not the individual defendants, suffered. In its opening

brief, the FDIC argued, without citing any relevant case law, that

the defendants lacked standing to assert their Sixth Affirmative

Defense. The defendants responded that they were within the “zone

of interests protected by the law involved.” (Giannoulias Defs.’

Resp. at 15.) We agree with the FDIC-R that the “zone of

interests” test is irrelevant, inasmuch as the defendants are not

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asserting a claim against the FDIC-R under FIRREA or the Illinois

Banking Act. They are asserting an affirmative defense based upon

the procedures underlying the state’s acquisition of the bank’s

assets and the FDIC-R’s appointment as receiver. See Costello v.

Grundon, 651 F.3d 614, 629 (7th Cir. 2011) (defendants were not

required to establish that they were within the zone of interests

protected by the Securities Exchange Act and related regulations to

assert a defense based upon violations of those statutes). But by

the same token, the defendants are not required to prove that they

were injured in order to assert an affirmative defense challenging

the plaintiff’s authority to pursue the claims alleged in the

complaint. Costello is analogous and supports a finding that the

defendants are entitled to assert their Sixth Affirmative Defense: 

The Borrowers do not seek to maintain an action under the

Securities Exchange Act or Regulations G and U, but

rather, to defend against an action based on alleged

violations of the statute and regulations. They therefore

need not establish that they fit within the zone of

interests protected by those laws to be entitled to

assert their affirmative defense.

Id. at 629. We turn, then, to the substance of the defendants’

affirmative defense.

1. Due Process Clause

When analyzing a procedural due-process claim, we must

determine: (1) whether the plaintiff was deprived of a protected

interest; and (2) what process was due. Leavell v. Illinois Dept.

of Natural Resources, 600 F.3d 798, 804 (7th Cir. 2010). The

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parties in this case tacitly agree that Broadway Bank had a

protected property interest in the assets that the Department of

Financial and Professional Regulation, Division of Banking (the

“Banking Division”) seized. With respect to the second issue —

what process is due — courts distinguish between “(a) claims based

on established state procedures and (b) claims based on random,

unauthorized acts by state employees.” Id. (citations and internal

quotation marks omitted). Here, the defendants’ defense is based

upon established state procedures governing when the state may

seize a state-chartered bank’s assets and appoint a receiver to

conduct its affairs. Ordinarily, this would suggest that a predeprivation hearing is feasible and, perhaps, constitutionally

required. Id. But courts have held that a pre-deprivation hearing

is not feasible in the banking context, where the government must

move quickly to preserve the interests of depositors and other

affected parties. Fahey v. Mallonee, 332 U.S. 245, 253-54 (1947)

(upholding a provision of the Home Owners’ Loan Act of 1933 that

allowed the government to appoint a conservator without a prior

hearing; this summary procedure was appropriate given “the delicate

nature of the institution and the impossibility of preserving

credit during an investigation . . . .”); see also Haralson v.

Federal Home Loan Bank Bd., 837 F.2d 1123, 1126-27 (D.C. Cir. 1988)

(In giving the Federal Home Loan Bank Board broad powers to take

over insolvent banks, “Congress has obviously weighed the competing

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interests of depositors against those of owners and operators in

the drastic circumstances of insolvency or mismanagement.”). In

such a case, post-deprivation procedures may satisfy due process. 

See Fahey, 322 U.S. at 253-54; see also Parratt v. Taylor, 451 U.S.

527, 538-39 (1981) (“We have . . . recognized that postdeprivation

remedies made available by the State can satisfy the Due Process

Clause.”). Where such procedures exist, “a plaintiff must either

avail herself of the remedies guaranteed by state law or

demonstrate that the available remedies are inadequate.” Doherty

v. City of Chicago, 75 F.3d 318, 323 (7th Cir. 1996). A remedy is

“inadequate” if it is “meaningless or nonexistent and, thus, in no

way can be said to provide the due process relief guaranteed by the

fourteenth amendment.” Easter House v. Felder, 910 F.2d 1387, 1406

(7th Cir. 1990).

In light of the just-cited authorities, the defendants concede

that the Constitution did not require a pre-deprivation hearing in

this case. (See Giannoulias Defs.’ Resp. at 6-8; see also id. at

8 n.2.)4 But they argue that federal and state law do not provide

4/ The FDIC-R argues that Broadway Bank did receive some pre-deprivation

process. We agree that the bank had opportunities to challenge the Banking

Division’s findings at certain points in the process, prior to its final decision

to seize the bank’s assets. As we read the relevant regulations, the bank could

have requested a hearing challenging the findings underlying the Banking

Division’s February 19, 2010 “Notice of Intent to Take Possession.” (See Notice

of Intent to Take Possession and Control Pursuant to Section 51 of the Illinois

Banking Act (“Section 51 Notice”), attached as Ex. B to FDIC-R's Reply); see also

205 ILCS 5/51 (authorizing such notice); 38 Ill. Adm. Code § 392.30 ("Any party

may file a Request for a Hearing on an administrative decision."); id. at §

392.20 (an "administrative decision" includes "an order, fine, revocation of a

Foreign Bank Representative Office license, or other regulatory action issued by

the Office of Banks and Real Estate pursuant to authority granted under the

Illinois Banking Act [205 ILCS 5] . . . ."). The Section 51 Notice notified the

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any post-deprivation procedure when the FDIC is appointed receiver

at the Banking Division’s request.

a. Federal Law

The parties agree that the bank could not have challenged its

seizure under FIRREA. The FDIC may become the receiver of a state

depository institution in several ways: (1) it may accept a request

to serve as receiver from the appropriate state agency, 12 U.S.C.

§ 1821 (c)(1) & (c)(3)(A); (2) it may appoint itself as receiver if

certain conditions are met, id. at § 1821(c)(4); (3) an

“[a]ppropriate Federal banking agency” may appoint the FDIC as

receiver in some circumstances, id. at § 1821(c)(9); and (4) the

FDIC’s board of directors may appoint the FDIC as receiver to

prevent losses to the deposit insurance fund, id. at § 1821(c)(10). 

FIRREA provides for post-deprivation review in federal court when

the FDIC is appointed receiver under § 1821(c)(4),(9), or (10), but

not when the FDIC accepts a state agency’s request to serve as

receiver under § 1821(c)(3)(A):

(7) Judicial review 

If the Corporation is appointed (including the

appointment of the Corporation as receiver by the Board

of Directors) as conservator or receiver of a depository

bank that the Division would seize its assets if the bank did not take certain

“corrective actions” before April 20, 2010. (See Section 51 Notice at 2.) But

this issue — the state’s grounds for issuing the notice — is distinct from the

issue of whether the bank had taken the corrective actions before the deadline. 

The Banking Division concluded that the bank had not taken those actions, and it

was that finding that prompted it to seize the bank’s assets. (See Letter from

J. Solis to A. Lowe, dated Apr. 23, 2010, attached as Ex. G to the FDIC-R’s

Reply.) As far as the record reveals, it did not conduct a hearing before making

that decision. 

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institution under paragraph (4), (9), or (10), the

depository institution may, not later than 30 days

thereafter, bring an action in the United States district

court for the judicial district in which the home office

of such depository institution is located, or in the

United States District Court for the District of

Columbia, for an order requiring the Corporation to be

removed as the conservator or receiver (regardless of how

such appointment was made), and the court shall, upon the

merits, dismiss such action or direct the Corporation to

be removed as the conservator or receiver. 

12 U.S.C. § 1821(c)(7) (emphasis added). In this case, the Banking

Division asked the FDIC to serve as Broadway’s receiver and the

FDIC accepted. So, judicial review was not available under FIRREA.

In its opening brief, the FDIC-R argued that post-deprivation

review was available under the Administrative Procedures Act

(“APA”), citing James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085

(D.C. Cir. 1996). See id. at 1094 (“In the absence of a statute

specifically providing for judicial review of the FDIC’s

appointment as receiver of national banks, and without clear

evidence that Congress intended either section 1821(j) or section

1821(d)(11) to bar federal court jurisdiction, we hold that the APA

authorizes federal courts to review and set aside improper

appointments of the FDIC as receiver of national banks.”). But at

least one appellate court has held that the APA does not apply

where, as here, a state agency seizes the assets of a statechartered bank. See Hindes v. F.D.I.C., 137 F.3d 148, 167 (3d

Cir. 1998) (distinguishing James Madison because that case involved

a national bank, not a state-chartered bank). “APA review of the

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appointment of the FDIC as receiver is not proper here because the

appointment was not made by a federal agency, but rather by the

Secretary, a state official.” Id.; see also Resident Council of

Allen Parkway Village v. U.S. Dept. of Housing & Urban Development,

980 F.2d 1043, 1055 (5th Cir. 1993) (holding that the APA does not

apply to non-federal agencies); 5 U.S.C. § 701(b)(1) (Under the

APA, “‘agency’ means each authority of the Government of the United

States, whether or not it is within or subject to review by another

agency . . . .”) (emphasis added). The FDIC-R did not address this

argument in its reply brief, thereby waiving the issue.

b. State law

Turning to state law, the Illinois Banking Act (like FIRREA)

provides a mechanism for appointing a receiver to operate a

distressed bank:

If the Commissioner determines (which determination may

be made at the time, or any time subsequent to his taking

possession and control of a bank and its assets) that no

practical possibility exists to reorganize the bank after

reasonable efforts have been made and that it should be

liquidated through receivership, he shall appoint a

receiver and require of him such bond and security as the

Commissioner deems proper, and the Commissioner,

represented by the Attorney General, shall, if the

Federal Deposit Insurance Corporation is not acting as

receiver, file a complaint for the dissolution or winding

up of the affairs of such bank in the circuit court of

the county where such bank is located.

205 ILCS 5/58(a). And also like FIRREA, the Illinois Banking Act

gives banks the opportunity to challenge the Commissioner’s

decision to appoint a receiver:

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Whenever the Commissioner shall have taken possession and

control of a state bank and its assets for the purpose of

examination, reorganization or liquidation through

receivership, or whenever the Commissioner shall have

appointed a receiver for a bank, other than the Federal

Deposit Insurance Corporation, and filed a complaint for

the dissolution or for the winding up of the affairs of

a bank, and the bank denies the grounds for such actions,

it may at any time within ten days apply to the Circuit

Court of Sangamon County, Illinois, to enjoin further

proceedings in the premises; and such court shall cite

the Commissioner to show cause why further proceedings

should not be enjoined, and if the court shall find that

such grounds do not exist, the court shall make an order

enjoining the Commissioner and any receiver acting under

his direction from all further proceedings on account of

such alleged grounds . . . .

205 ILCS 5/67 (emphasis added). The defendants and the FDIC-R 

interpret this language to exclude judicial review if the FDIC is

appointed receiver. (See Giannoulias Defs.’ Resp. at 5; FDIC-R

Supp. Reply at 9.)5 The FDIC-R argues, instead, that review is

available under the Illinois Administrative Procedures Act

(“IAPA”). See 205 ILCS 5/48(10) (“All final administrative

decisions of the Commissioner hereunder shall be subject to

judicial review pursuant to the provisions of the Administrative

5/ We are not so sure. Section 5/67 states that a bank can obtain review

if either of the following conditions is satisfied: (1) the Commissioner takes

possession and control of the bank and its assets "for the purpose of

examination, reorganization or liquidation through receivership;” "or" (2) the

Commissioner appoints a receiver, other than the FDIC, and files a complaint to

dissolve the bank or wind up its affairs. 205 ILCS 5/67 (emphasis added). In

his letter asking the FDIC to serve as receiver, the Banking Division’s Director

stated: "I took possession and control of the Bank at 6:00 p.m. CDT on April 23,

2010 for the purpose of examination, reorganization or liquidation through

receivership." (See Letter from J. Solis to A. Lowe, dated Apr. 23, 2010,

attached as Ex. G to the FDIC-R's Reply.) This language tracks § 67's first

clause and, arguably, triggered the bank's right to seek review of the Director's

actions in state court. The fact that the second condition for judicial review

was not satisfied — because the FDIC accepted the receivership — is arguably

irrelevant. 

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Review Law.”). The defendants respond that the Banking Division’s

decision to seize the bank was not a “final administrative

decision” as the IAPA defines that term. (See Giannoulias Defs.’

Supp. Resp. at 9-11; Giannoulias Defs.’ Supp. Sur-Reply at 2-3.) 

The FDIC-R does not address this argument. (See FDIC-R Reply at

8-9.) Even assuming that Broadway Bank could have obtained

judicial review under the IAPA (or the Illinois Banking Act, see

supra n.5), neither side has addressed whether those procedures

would have been adequate under the circumstances. The Banking

Division seized the bank’s assets, and the FDIC accepted

receivership, at essentially the same time. So, by the time the

bank filed suit, its assets would have been beyond the state

court’s control. See 12 U.S.C. § 1821(j) (“Except as provided in

this section, no court may take any action, except at the request

of the Board of Directors by regulation or order, to restrain or

affect the exercise of powers or functions of the Corporation as

a conservator or a receiver.”); 12 U.S.C. § 1821(c)(3)(C) (When

the FDIC is appointed receiver by a state agency, it “shall not be

subject to the direction or supervision of any other agency or

department of the United States or any State in the exercise of

its rights, powers, and privileges.”). Arguably, the state court

could have enjoined the Banking Division from “further proceedings

in the premises,” but it is unclear what (if any) stateadministrative proceedings remained once the FDIC obtained

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exclusive control over the bank’s assets. Finally, neither side

has addressed whether the bank could have obtained damages from

the Banking Division for improperly seizing its assets. Under the

circumstances, we conclude that it would be inappropriate to

strike the defendant’s Sixth Affirmative Defense at this stage of

the case. 

2. Equal Protection

As an alternative basis for their Sixth Affirmative Defense,

the defendants argue that there is no rational basis for providing

judicial review with respect to certain bank closures, but not

when a state official appoints the FDIC as receiver. (See

Giannoulias Defs.’ Supp. Resp. at 12-14.) This argument gets

short shrift in the parties’ briefs. Given our ruling with

respect to the defendants’ due-process arguments, we conclude that

it is unnecessary to analyze their alternative equal-protection

theory at this time.

E. Reservation of Rights 

In their answers, defendants purport to “reserve the right to

assert additional affirmative defenses as this matter progresses.” 

(See, e.g., Certain Defs.’ Answer at 76.) The FDIC-R argues that

we should strike this “reservation of rights” because affirmative

defenses are waived if they are not raised in the first responsive

pleading. See Visco Financial Servs. Ltd. v. Siegel, No. 08 C

4029, 2008 WL 4900530 (N.D. Ill. Nov. 13, 2008) (“Affirmative

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defense 24 states that ‘[Siegel] reserves the right to assert

additional affirmative defenses upon information and discovery,’

which is impermissibly pled because if a party does not bring an

affirmative defense in its first responsive pleading, then it is

waived.”). The defendants respond that a defendant may move to

amend its affirmative defenses if new information comes to light. 

Wallace v. City of Chicago, 472 F.Supp.2d 942, 946 (N.D. Ill.

2004). We agree, but it is unnecessary to expressly reserve that

right in a pleading. Id. (“As with all motions for leave to

amend, the district court has the discretion to allow an answer to

be amended to assert an affirmative defense not raised at the

outset.”). The defendants’ “reservations of rights” are stricken

as a legal nullity. If they later seek leave to add additional

affirmative defenses, we will address the issue at that time.

CONCLUSION

The FDIC-R’s motion to strike [154] is granted in part and

denied in part. The defendants’ “Reservations of Rights” are

stricken. The defendants’ Third, Fourth, and Fifth Affirmative

Defenses are stricken without prejudice. The motion is denied as

to the defendants’ Sixth Affirmative Defense. By July 30, 2014,

the defendants may amend their affirmative defenses to provide

additional detail regarding the conduct they are challenging. A

status hearing is set for July 16, 2014 at 11:00 a.m.

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DATE: July 10, 2014

ENTER: ___________________________________________

John F. Grady, United States District Judge

 

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