The Bank Defendants argue that the statute of limitations period began to run at the latest
in Spring 2000, when Fidelity first learned of the overall fraudulent scheme.
Defendants, however, confuse the injury Fidelity suffered from Capriotti’s and
Hargrove’s scheme to siphon funds from the escrow accounts with the injury Fidelity
suffered from the fraudulent transfers committed to conduct that scheme. Fidelity knew
of the former in Spring 2000, but not the latter. Cf, Ventre v. Datronic Rental Corp., No. 92
C3829, 1996 WL 681279, *8 (N.D. Ill. Nov. 21,1996) (knowledge of one kind of fraud by one.
party does not necessarily constitute notice of another type of fraud by another party).
While it is true that by Spring 2000, Fidelity should have known that it might have a
possible cause of action for fraudulent transfers and thus should have investigated further,
see Gilbert Bros., Inc. v. Gilbert, 258 Ill. App. 3d 395, 399, 630 N.E.2d 189, 192 (1994), it does
not follow that Fidelity knew that it had been injured by fraudulent transfers. To hold
otherwise would require Fidelity to take a shot-gun approach to filing lawsuits ~ filing
suits against any bank that might have received a fraudulent transfer, And Fidelity alleges
that it did investigate further, pleading that it could not have discovered the fraudulent
transfers until February 2001, when it learned of them through discovery in its suit against
the perpetrators of the scheme. See Kent v. Celozzi-Ettleson Chevrolet, Inc., No. 99 C 2868,
1999 WL 1021044, *6 (N.D.Ill. Nov. 3, 1999) (allegation that fraudulent conduct was
concealed sufficient to defeat statute of limitations challenge). Whether Fidelity could have
reasonably discovered the fraudulent transfers prior to February 2001 is an issue of fact.

Although a plaintiff may plead itself out of court when it alleges facts to show that the


16, 1994). In other words asa title insurance agent, Old Intercounty did have some interest
in the assets that it transferred.

For the foregoing reasons, LaGrange’s motion to dismiss on the basis that Fidelity
cannot show that Old Intercounty transferred any assets within the meaning of the UFTA
is DENIED.

E. TCF's Affirmative Defense

Lastly, TCF argues that 740 ILCS § 160/9(a) provides a defense for a person who
took in good faith and for a reasonably equivalent value. TCF contends that Fidelity failed
to allege that TCF wasincollusion with Old Intercounty, and therefore cannot state a claim
because of § Xa). But § 9(a) provides an affirmative defense. Fidelity is not obligated to
plead facts to negate an affirmative defense; it need only properly allege the prima facie
elements of its fraudulent transfer claim. Tregenzav. Great Am. Communications Co,, 12 F.3d
717, 718 (7th Cir.1993); In re Spatz, 222 B.R. 157, 168 (N.D. Ill. 1998).

IV. Conclusion

Ona final note, the Court notes that Standard’s motion to dismiss is its fourth, It
filed three 12(b)(6) motions when its case was pending before Judge Conlon, all of which
were denied. The day before the case was transferred to thiscourt, Standard filed a motion
pursuant to Fed. R. Civ. P. 12(c), raising essentially the same arguments that had been
rejected by Judge Conlon three times previously. The Court cautions Standard that Rule
11(b) prohibits an attorney from filings presented for improper purposes (suchas to delay

the proceedings) or from making legal arguments not warranted by existing law (such as


whether or not the right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, jatured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured.” 740 ILCS § 160/2(c). The three Defendants argue that Fidelity has alleged
only that it is a creditor of New Intercounty—by virtue of payments made in 2001 to its
reinsurance contract with New Intercounty and the closing protection letters that
indemnified New Intercounty customers—and not a creditor of Old Intercounty, the
transferor for these three Defendants. Defendants focus most of their attention on the
argument that Fidelity did not plead sufficient facts to demonstrate that Old Intercounty
and New Intercounty should be treated as one entity. But, as noted above, Fidelity has
alleged that Capriotti and Hargrove created New Intercounty as a shell corporation, with
no assets, and immediately transferred Old Intercounty’s escrow deficiency to New
Intercounty’s books. Evidence of commingling of funds, using corporate funds for
personal expenses, undercapitalization, and failing to maintain appropriate corporate
formalities are all sufficient to pierce the corporate veil and show that both Old Intercounty
and New Intercounty are only alter-ego’s of the perpetrators of the scheme— Capriotti and
Hargrove. Dimmit & Owens Financial, Inc. v. Superior Sports Products, Inc., 196 F.Supp.2d
731, 741 (N.D.111.2002); Main Bank of Chicago v. Baker, 76 I.2d 188, 205, 427 N.B.2d 94, 102
(1981). Fidelity is not required to plead every detail necessary to prove that Old
Intercounty and New Intercounty should be treated as one entity; it need only plead facts

sufficient to place Defendants on notice of the nature of its claim.


statute of limitations bars its claim, the Court cannot resolve the statute of limitations issue
on a motion to dismiss when the discovery rule raises an issue of fact. See, e.g., Kanthar
SDN BHD 2. Sternberg, 149 F.3d 659, 669-70 (7th Cir. 1998); Figueroa v. City of Chicago, No,
97 C8861, 1999 WL, 163022, at “11 (N.D. Ill. Mar 12, 1999). The Bank Defendants’ motions
to dismiss Fidelity’s complaint based on statute of limitations grounds is DENIED.
B, Adequacy of the Pleadings

Several of the Bank Defendants also argue that Fidelity has not set forth specific
allegations detailing the time and place of the fraud as required by Fed. R. Civ. P. 9(f). In
short, Defendants rely upon In re Josefik, 72 B.R. 393 (Bkrtcy. N.D. Ill. 1987) to argue that
Fidelity has not pled specific facts to establish why it could not have discovered the fraud
sooner, The Bank Defendants’ arguments are without merit, Fidelity alleged numerous
facts detailing the complexity and active concealment of the fraud by Intercounty, Fidelity
alleged that the perpetrators of the scheme used bogus accounting to hide their fraud.
Fidelity further alleges that the perpetrators of the scheme created the alter-ego, New
Intercounty, to hide the financial instability of Old Intercounty and perpetuate their
scheme. The Court finds that Fidelity has pled the details of the concealment of the fraud
with sufficient particularity to defeat the Bank Defendants’ Rule 9(f) challenge.
c. Fidelity’s Status as a Creditor Under UFTA

Three Bank Defendants — Bridgeview, LaGrange, and TCF — argue that Fidelity is
not a creditor for purposes of the UFTA. Under the UFTA a creditor is an entity that has

a claim against a debtor. 740 ILCS § 160/2(c). A claim is defined as, “a right to payment,


v. Lehmann, 56 F.3d 750, 759 (7th Cir 1995); Autocephalous Greek-Orthodox Church of Cyprus
v. Goldberg & Feldman Fine Arts, Inc., 917 F.2d 278, 291 (7th Cir, 1990), Thus the Bank
remains obligated to return the funds transferred to it by Intercounty to the escrowees, or
in this case, Fidelity since Fidelity stands in the shoes of the escrowees on the basis of
subrogation and assignment rights.

But the Bank’s premise that Old Intercounty had no interest in the property it
transferred is wrong for two reasons. First, while it is true that a thief cannot pass good
title, most frauds can, and thus the fraudulent conveyance statute enables the owner to set
aside the transfer. Scholes, 56 F.3d at 759-60. Indeed, in Lawyer's Title Ins, Corp. v, Dearborn
Title Corp., 22 FSupp. 2d 820 (N.D. Ill, 1998), the creditor used the UFTA to undue
fraudulent transfers made by an escrow agent who siphoned money from escrowees
accounts. LaGrange protests that the issue of whether an “asset” was transferred was
never litigated and so the precedential value of Lawyer's Title is limited. The Court
disagrees. Second, LaGrange’s argument is premised on the assumption that Old
Intercounty is an ordinary thief with no interest in the assets it transferred. But Old
Intercounty is not a pickpocket who swiped wallets from passersby its front door. It was
a title insurance agent. As such, Old Intercounty was a trustee of the escrow funds that it
managed and not only owed fiduciary obligations to the parties to the real estate
transactions, but was obligated to make specific disbursements of the funds. See, e.g. TRW

Title Ins. Co, v, Security Union Title Ins, Co., No. 93 C 7555, 1994 WL 194262, *2 (N.D. Ill, May



Minute Order Form (96/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge ili i Sitting Judge if Other
ot Magistrate Judge William J. Hibbler than Assigned Judge John W. Darrah
CASE NUMBER 02-C-668 DATE 2-10-03
CASE Fidelity National Title Ins. Co. v. TCF Nat’! Bank
TITLE
(In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) scare briefly the
MOTION: nature of the motion being presented.)

Defendant’s Motion to Dismiss (Doc. #6)

DOCKET ENTRY:

(1) Oo Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) Oo Answer briefto motion due___. Reply to answer briefdue___.

(4) Oo Ruling/Hearing on __set for__ at o

(5) o Status hearing [held/continued to] {set for/re-set for] on set for at

(GO) oO Pretrial conference {held/continued to] (set for/re-set for] on set for at
(7) qd Trial [set for/re-set for] on al

(8) Oo [Bench/Jury trial][Hearing] held/continued to at

(9) ao This case is dismissed [with/without] prejudice and without costs [by/agreement/pursuant to]

OFRCP4m) O General Rule 21 OFRCP41(a)(1) OO FRCP41(a)(2).

(10) @ [Other docket entry] . Enter Memorandum Opinion and Order, Defendant’s motion to dismiss is DENIED. Status

hearing set for February 21, 2003 at 1:30 p.m.

(1) 7 [For further detail see order attached to the original minute order.]

‘Document
“Number

No notices required, advised in open vouct,

No notices required, number of notices

FEB 1 1 7199

]

Notives mailed by judge’s staff,

Notified counsel by telephone. ine dockeved

Tacketing co mail notices.

Mail AQ 450 form.

Copy to judge/magistrare judge, pe eee

uve mailed novice
courtroom '

deputy’s : ‘
inivials

JHC

Dare/time received in

central Clerk’s Office‘ mailing deputy initials



bringing essentially the same motion to dismiss four times). The Court further cautions
Standard that Rule 11(c)(1)(B) allows the Court to raise Rule 11 violations sua sponte.
Standard is advised that future repetitive filings will not be tolerated.

For the foregoing reasons, the Bank Defendants’ motions to dismiss are DENIED in

their entirety. Defendants shall answer the complaint *y Febriary 24, 2002.

Lael

Date The Honorable John W. Darrah
United States District Court

10


Inany event, the UFTA does not require Fidelity to prove that Old Intercounty and
New Intercounty should be treated as one entity to maintain a claim against Old
Intercounty. To properly plead a claim under the UFTA, the creditor must demonstrate
only that the debtor “owes or potentially owes a‘payment’ to the creditor.” A.P. Prop., Inc.
v. Goshinsky, 186 IIL.2d 524, 528-29, 714 N.E.2d 519, 521-22 (1999). Fidelity has five cases of
action remaining against Old Intercounty in Fidelity v. Intercounty, 00 C 6658, and so under
the plain language of the statute is a creditor. See Levy v. Markal Sales Corp.,311 Ill. App. 3d
552, 557, 724 N.E.2d 1008, 1012 (2000) (the statute of limitations sometimes requires a
creditor to initiate action before judgment to preserve a claim in fraudulent transfer cases).
Bridgeview’s, LaGrange’s and TCF’s motions to dismiss Fidelity’s complaint against them
on the grounds that Fidelity is not a creditor under the UFTA is therefore DENIED.

D. Transfer of Assets

LaGrange argues that Fidelity’s UFTA claim fails because it cannot allege that a
transfer took place because Old Intercounty never had any property interest in the funds
it used to purchase the CDs. According to LaGrange, the UFTA requires that a debtor
“transfer an asset” and defines an asset as the “property of the debtor.” See 740 ILCS
§§ 160/2(b) & 160/5(a). LaGrange argues that because Intercounty stole the money from
the escrow accounts that itnever acquired any title or interest in the goods it stole, and thus
could not have transferred any “property of the debtor” as required by the statute,

LaGrange’s argument is curious. That is because just as it is elementary that a thief

does not acquire title, so too is it elementary that a thief cannot pass good title. See Scholes



InJanuary 2002 Fidelity filed these suits, alleging that Capriotti and Hargrove used
escrow funds in both Old and New Intercounty accounts to purchase CDs from an
individual Bank Defendant. Fidelity further alleged that Capriotti and Hargrove then
fraudulently transferred the CD to the respective Bank by pledging it to secure a loan and
again by liquidating it to pay the Bank for the loan.

IE. Standard of Review

For the purposes of a motion to dismiss, the Court accepts as true all well-pleaded
allegations in the complaint. Forseth v. Village of Sussex, 199 F.3d 363, 368 (7th Cir. 2000).
In ruling on a motion to dismiss, the Court considers whether relief is possible under any
set of facts that could be established consistent with the allegations. Conley v. Gibson, 355
US. 41, 45-46, 78 5.Ct. 99, 2 L.Ed. 80 (1955); White v. City of Markham, 310 F.3d 989, 992 (7th
Cir, 2002). A claim may be dismissed only if no set of facts would entitle the plaintiff to
relief. Conley, 355 U.S. at 45-46; White, 310 F.3d at 992.

IIL. Discussion
A. Statute of Limitations

The UFTA’s statute of limitations provides that a claim must be brought within four
years of the fraudulent transfer or, if later, one year after the transfer or obligation was or
could reasonably have been discovered by the claimant. 740 ILCS § 160/10(a). Under the
discovery rule utilized by § 160/10(a), the statute of limitations begins to ran when a

person knows or reasonably should know both of his injury and that his injury was

wrongfully caused. Knox Coll, v. Celotex Corp., 88 I11.2d 407, 414, 430 N.E.2d 976, 979 (1981).



R. Civ. P. 9, and that Fidelity does not have a debtor-creditor relationship with some of the
Bank Defendants as required by the UFTA. Defendants’ motions to dismiss are DENIED.
I. Factual Background

Fidelity alleges that from 1990 to June 2000, Larry Capriotti and Jack Hargrove used
their title insurance companies to swindle money from their customers’ escrow accounts.
According to Fidelity, Capriotti and Hargrove involved the Bank Defendants in the
pillaging of escrow account funds by using escrow funds for their personal benefit, namely"
by using the funds to purchase certificates of deposit (CDs) and then offering the CDs as
collateral for personal loans, Fidelity further alleged that Capriotti and Hargrove
concealed their scheme by doctoring their accounting books and deceiving escrow
depositors, state regulators, and Fidelity. When Old Intercounty’s escrow deficiency
threatened the scheme, Capriotti and Hargrove created Intercounty National Title
Insurance Company (New Intercounty), an alter-ego for Old Intercounty, and transferred
Old Intercounty’s $30 million escrow deficiency to New Intercounty’s escrow account.
When the scheme came crashing down in Spring 2000, Fidelity was left to make good on
a $35 million escrow deficiency and promptly filed suit against Old Intercounty, New
Intercounty, Capriotti, and Hargrove, and others who may have been involved in the
scheme. Fidelity v. Intercounty, et al, 00 C 6658 (Conlon, J.). According to Fidelity, it was
only through discovery in Fidelity v. Intercounty that it learned in February 2001 of the

allegedly fraudulent transfers that form the basis of this complaint.



IN THE UNITED STATES DISTRICT COURT H

FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

FIDELITY NATIONAL TITLE INSURANCE
COMPANY OF NEW YORK, a New York
corporation,

Plaintiff,

HOWARD SAV. BANK; BANK CALUMET,
N.A.; CHARTER BANK & TRUST, N.A.;
BRIDGEVIEW BANK & TRUST CO.;
WESTBANK; FIRST NAT'L BANK OF
LAGRANGE; BANK OF HOMEWOOD,
STANDARD BANK & TRUST Co.; TCF
NAT’L BANK ILL.

Defendants.

eS SSS SS SS SSS

Nos. 02 C 643, 02 C 644, 02 C 646,
02 C 647, 02 C 648, 02 C 649,
02 C 651, 02 C 667, 02 C 668

The Honorable William J. Hibbler

MEMORANDUM OPINION AND ORDER

cee

Plaintiff Fidelity National Title Insurance Company of New York (Fidelity) sued

nine banks under the Illinois Uniform Fraudulent Transfer Act (UFTA), 740 ILCS § 160/5

et seq. alleging that an Illinois title insurer, Intercounty Title Company of Illinois (Old

Intercounty) had fraudulently transferred certificates of deposit in excess of $7 million to

the Bank Defendants. The Bank Defendants move to dismiss Fidelity’s claims, primarily

on the grounds that Fidelity did not file within the one-year limitations period imposed by

the statute, that Fidelity has not pled fraud with sufficient particularity as required by Fed.

Ia