Illinois. Under those circumstances, any attachment of
meaningful significance to an Illinois signing by one side would
be extraordinarily mechanistic and truly unpersuasive.

As to the second factor, FDIC would have it that the
negotiations resulting in the Purchase Agreement are the relevant
ones and that those negotiations point (if anywhere) to Illinois
(FDIC Mem. 14). Very little negotiation took place before the
bid, for the bidding was entirely pursuant to FDIC's policies (E.
R. Mem. 9). Most of the cited contacts involved one party in
Illinois and the other in the District, rendering it difficult to
say that one rather than the other was the dominant location of
the pre-closing negotiations. But as the final negotiations at
the closing were undoubtedly in the District, on balance that
factor also points to that state.

It is the place of performance that most clearly illuminates
this analysis. FDIC argues that because payment was made to an
Illinois bank the contract was performed in Illinois (FDIC
Mem. 14). But even apart from the superficial (and artificial)
nature of that construct,’ Purchase Agreement (SAC Ex. 20) §4.4
imposed further requirements on the purchaser--the execution and
delivery of specified documents. Although neither party has

focused on that aspect, that obligation was most likely performed

16 See the earlier comment along the same lines in the
“place of injury” portion of the tort claim analysis.

19


where the conduct causing the injury occurred, (3) the domicil,
residence, nationality, place of incorporation and place of
business of the parties and (4) the place where the relationship,
if any, between the parties is centered.” Just where those
factors point is hotly debated by the parties, with FDIC pushing
for Illinois and Movants championing the District.

As for the first factor, Movants maintain that the asserted
pecuniary injury ({ 38) occurred in the District, where RTC was
headquartered (E. Lim. Mem. 10). FDIC counters that the injury
extended beyond RTC's headquarters and was certainly felt in
Illinois, where the purchase money for the Merit Loans was
deposited (FDIC Mem. 15-16).

While FDIC’s argument that injury was “ultimately felt all
around the country” (FDIC Mem. 16) might conform to some
artificial construct, it seems self-evident that RTC, a federal
corporation, felt the economic impact of defendants’ fraud in the
District, where it had its principal place of business. After
all, is it accurate in real world terms to say that the existence
of a bank account at some location means that an inadequate
deposit to that bank account has injured the account's owner,
whose business is based elsewhere, at the situs of the account?
Hardly.

But even on FDIC’s theory of some sort of multistate injury

(a dubious premise at best), that would not make Illinois the

13


In this instance,
materials Movants have
not yet appropriate to
contract claim. As to

argued (FDIC Lim. Mem.

even with the information contained in the
submitted being taken into account, it is
rule on the dismissal of FDIC's breach of
RTC's discovery of its injury, FDIC has

5):

Here, a grand jury returned an indictment against
Defendant Wabick on June 12, 1997. At that point, FDIC
knew, as it should have, that it had been injured by

wrongful conduct .
Movants have responded

On the day of the
received a letter

(E. Lim. Mem. 4-5):

bid, October 27, 1992, the RTC
from one of the other bidders

claiming that another bidder had impermissible contact
with Ichelson (the debtor under the Merit Loans). (Ex.
2, attached hereto.) -Apparently, the RTC told the

other bidder that

all bidders had signed a

confidentiality agreement, which satisfied the other

bidder.

The Department of Justice was not as satisfied, and it
began an investigation concerning the bid process in
1993. (Freeman Decl., §1, attached hereto as Ex. 3.)

In or about 1993,

Gateway, Ettner and Wabick received

grand jury subpoenas in connection with the
investigation. (Freeman Decl., §2.) In addition, the
DOJ interviewed persons at the RTC. Specifically, on

or about July 20,

1994, the DOJ interviewed Martin

Blumenthal, the RTC’s Contractor Ethics Program
Manager. The memorandum of that interview demonstrates
that Blumenthal “was confronted with two issues:” (i)

Wabick and Ettner’

s alleged contact with Ichelson; and

(ii) Wabick’s relationship to Connaught, and the impact
it would have on the RTC if partnerships affiliated
with Connaught were in default on RTC loans. (Ex. 2,

passim.)

Movants have also submitted a copy of the FBI report on the just-

12(b) (6) motion (see, e.g., D&K Props. Crystal Lake v. Mut. Life
Ins. Co. of N.¥., 112 F.3d 257, 259 n.1 (7 Cir. 1997)).

23


Resolution Trust Corporation (“RTC”) in all of its receivership
and conservatorship capacities (12 U.S.C. §§1441a(m) (1) and
(2)),° including the receivership of Home Federal Savings
Association of Kansas City (“Home Federal”) (§9). In accordance
with its statutory mandate, RTC had conducted numerous public
auctions to liquidate the assets of failed thrifts for which it
was receiver (419). Prospective auction participants were
required to make numerous certifications under penalty of
perjury, including (1) that they would not communicate with any
debtor regarding any asset without RTC consent, (2) that they had
no known material business relationship with any debtor under any
of the mortgage loans in the auction and (3) that there were no
defaults, by the prospective purchaser or its affiliates, on any
obligation to RTC, FDIC or the former FSLIC (920-21).
Sealed Bid Auction

Home Federal was the lender on a group of sub-performing
real estate loans known as the Merit Loans (922). Three
corporations (collectively the “Merit Entities”) were the debtors
on at least some of those loans (id.), and Albert Ichelson, Jr.
(“Ichelson”) controlled or owned each of the Merit Entities
(923). Then on March 27, 1992 Home Federal was declared

insolvent, and RTC was appointed its receiver (924).

6 All further citations to Title 12 provisions will take
the form “Section --.”


at the closing in the District. But even more significantly, the
purchaser's performance is only half of the story--and without
question RTC's performance occurred in the District: Purchase
Agreement §§2.1 and 4.3 required it to execute or produce, at the
closing there, the documents necessary to transfer ownership of
the Merit Loans (SAC Ex. 20). When all of the relevant
considerations are taken into account, then, the third factor
also weighs--this time heavily--in favor of the District.

Both sides agree that the location of the subject matter of
the contract (here real estate loans made on properties located
in Iowa, Indiana, Ohio and Nebraska (922)) bears minimal weight
in the choice of applicable law (FDIC Mem. 14; E. Lim. Mem. 9).
And as before, the domiciles and places of business of the
parties are in multiple states, adding nothing significant to the
analysis.

In summary, the District clearly has an interest in FDIC's
contract claims far superior to that of Illinois. Here this
Court holds that the District has the most significant
relationship to those claims.

Applicable Limitations Periods
Eraud

FDIC filed its initial complaint on November 9, 2001, and

under Rule 15(c) (2) its two amended complaints relate back to

that date. Because this opinion has held the District supplies

20


have uncovered its injuries well before November 9, 1995 (six
years before it filed its original complaint in this action).

And that takes ample account of RTC's entitlement to a reasonable
period of time to investigate what was plainly suggested in the
Blumenthal interview before the statute of limitations clock can
fairly be said to have begun ticking. On that score the 16-1/2
months between the date of the Blumenthal interview and

November 8, 1995 would seem more than enough to bar the claims on
limitations grounds.

While FDIC correctly posits that application of the
discovery rule is often a fact-driven jury question, where it is
apparent from undisputed facts that only one conclusion may be
drawn the question is one for the court (Cathedral _of Joy Baptist
Church, 22 F.3d at 719). This seems to be just such a case. But
because Movants submitted the material detailing the Blumenthal
interview as an attachment to its Limitations Memorandum (filed
in response to FDIC's memorandum on the same subject), FDIC has
not yet had an adequate opportunity to reply to the issue framed
here. Its response to Movants' motions to dismiss could not have
been expected to address the subject~-absent a direction from
this Court to do so, FDIC cannot be expected to have addressed
the merits of Movants' supplemental materials on the limitations
question in the FDIC memorandum devoted to defending the legal

sufficiency of its Complaint.

26


Baxter Healthcare Corp., 920 F.2d 446, 450 (7% Cir. 1990); see
also Bishop v. Gainer, 272 F.3d 1009, 1014 (7% Cir. 2001)).

That doctrine postpones the beginning of the limitations period
from the date when a plaintiff is wronged to the date when
plaintiff knew or should have known about its injury (Ferguson v.

Roberts, 11 F.3d 696, 704-05 (7 Cir. 1993); Cada, 920 F.2d at

450). Its application is not strictly limited to tort cases--the
rule has also been applied in breach of contract actions where
the injury is not readily apparent (see Connors v. Hallmark & Son
Coal Co., 935 F.2d 336, 342-43 (D.C. Cir. 1991)).

It is plaintiff's burden to show the applicability of the

discovery rule (Cathedral of Joy Baptist Church v. Village of

Hazel Crest, 22 F.3d 713, 717 (7TM Cir. 1994)), although on
motions to dismiss such as the present ones plaintiff need show
only that the rule would apply under some set of facts that could
be proved consistently with the complaint's allegations (Hishon,
467 U.S. at 73). Although a court normally considers only those
allegations for Rule 12(b) (6) purposes (Levenstein v. Salafsky,
164 F.3d 345, 347 (7 Cir. 1998)), Rule 12(b) makes it
discretionary whether to consider additional submissions and
thereby to convert the motion into one for summary judgment

(id.) .7”

*7 Although the Rule 12(b) conversion provision does not
directly address the matter, our Court of Appeals has also
applied that approach to affirmative defenses raised in a Rule

22


Count I and unjust enrichment in Count III (9981-82, 86-94).
Restatement §188(2) specifies these contacts as useful in
determining the state with the most significant relationship to
contract issues: “(1) the place of contracting, (2) the place of
negotiation of the contract, (3) the place of performance, (4)
the location of the subject matter of the contract and (5) the
domicil, residence, nationality, place of incorporation and place
of business of the parties.” As with the tort issues, the
parties are sharply divided as to which state prevails in the
contracts analysis.

Restatement §188 defines the “place of contracting” as the
place where the last act necessary to make the contract binding
occurred (id. cmt. e). FDIC maintains that it was defendants’
execution of the Purchase Agreement, rather than the final
closing some two months later, that bound the parties (FDIC Mem.
12-13). Although David faxed the signature pages executed on
behalf of Gateway Capital from Illinois to RTC on November 12,

1992, those pages had not been signed by RTC (948, SAC Ex. 21).

18 One added fillip has been provided by the parties'
disagreement as to whether FDIC’s unjust enrichment claim sounds
in tort or contract. Authorities cited by FDIC (United States v.
First Nat’l Bank, 957 F.2d 1362, 1370-72 (7th Cir. 1992); FDIC v.
Bank One, Waukesha, 881 F.2d 390, 392-93 (7th Cir. 1989)) have
the better of it, and they teach that an unjust enrichment claim
brought by the federal government looks to the statute of
limitations applicable to contract actions. So FIRREA’s express
six-year limitations period for contract actions applies to Count
III unless the applicable state law provides a longer period.

17


score, this Court must apply Illinois statutes of limitation as
procedural rules controlled by the forum state, even if another
source of law is looked to for substantive purposes (Singletary

v. Cont'l Ill. Nat'l] Bank & Trust Co., 9 F.3d 1236, 1242 (7%

Cir. 1993)) (FDIC Mem. 5, E. R. Mem. n.1). To save its claims
FDIC predictably seeks to invoke Illinois' longer limitations
periods. On the other side of the coin, in their effort to avoid
the application of the Illinois limitation periods, Movants argue
that federal rather than state choice-of-law rules properly
determine which state provides the limitations periods for
purposes of FIRREA's second alternative.

Whether a federal court exercising federal question
jurisdiction over claims that hinge upon state law should apply
federal common law choice-of-law rules or the choice-of-law rules
of the forum state is a question on which the circuits have
differed (compare In re Gaston & Snow, 243 F.3d 599, 604-07 (2d
Cir. 2001) and FDIC v. Nordbrock, 102 F.3d 335, 337 (8th Cir.
1996) with In re Lindsay, 59 F.3d 942, 948 (9th Cir. 1995) and

Edelmann v. Chase Manhattan Bank, N.A., 861 F.2d 1291, 1294 &

n.14 (lst Cir. 1988)). For its part, the Seventh Circuit has
distinguished diversity cases, where Klaxon v. Stentor Elec. Mfg.
Co., 313 U.S. 487 (1941) requires a federal court to apply the
choice-of-law principles of the state in which it sits, from

cases deemed to arise under federal law--see RTC _v. Chapman, 29


FIRREA's alternative limitations periods for all of FDIC's
claims--three years each for fraud, breach of contract and unjust
enrichment. That being so, FIRRBA's express three-year period
for fraud claims and its six-year period for contract claims are
not extended by the “period applicable under State law.”

Even with the benefit of the discovery rule on the most
generous assumption (with time measured from the return of the
criminal indictment), FDIC's fraud claims are time-barred because
they were not filed within three years of the date FDIC itself
claims to have discovered its injury. Movants' motions to
dismiss Counts II and IV are therefore granted. Their
corresponding motions to dismiss Counts I and III are deferred

pending FDIC's further submission called for in this opinion.”*

Milton I. Shadur
Senior United States District Judge

Date: August 2, 2002

21 In the meantime, the potentially dispositive nature of
the statute of limitations issue counsels the deferral of any
consideration of Movants' further arguments in support of their
motions to dismiss Counts I and III. If those arguments are not
mooted by the final ruling on the limitations issues, they will
be addressed thereafter.

29


that Gateway Capital was eligible to bid in the Sealed Bid
Auction (43). Gateway Capital did so and was told on October
28, 1992 that its bid was the highest (9944-46). Before
designating Gateway Capital as the winner, RTC required the
corporation to certify further that it had no contact with any
borrowers and had not disclosed any confidential information
about the Merit Loans (447).

Gateway Capital executed the Purchase Agreement and,
pursuant to RTC’s requirements, transferred a deposit to RTC’s
bank account in Chicago (48-49). Before the closing Gateway
Capital assigned its interest in the Purchase Agreement to
Gateway LP, in which Gateway KC was a general partner (4917, 50).
On January 7, 1993 the Purchase Agreement was closed in
Washington, D.C., and the balance of the purchase price was
transferred to RTC’s Chicago bank account (450).

According to the SAC, David, Patricia, Larry, Janelle,
Lorraine and Freitag all engaged in a conspiracy to defraud RTC
(1) by concealing David's and Larry's communications with
Ichelson and (2) by concealing David's relationship to Connaught,
Gateway Capital and Gateway KC, all with the goal of inducing RTC
to allow Gateway Capital to participate in the Sealed Bid Auction
((970, 91-94). In addition to that conspiracy claim, FDIC
asserts claims for breach of contract and common law fraud

against David, Patricia, Larry and Janelle (981-85), and it


In August 1992 RTC sought to sell the Merit Loans as part of
a package of sub-performing real estate loans to be auctioned via
sealed bids (“Sealed Bid Auction” or “Auction”) (927). After
Gateway Capital had obtained a bid package, David began to
negotiate an arrangement with Ichelson and Merit Entities under
which if Gateway Capital were the successful bidder on the Merit
Loans in the Sealed Bid Auction, David (or entities he
controlled) would (1) make substantial payments to Ichelson (or
entities he controlled), (2) assume certain lease obligations and
(3) employ Ichelson’s son (9927-28). According to FDIC, those
negotiations were undertaken to induce Ichelson to take action
designed to ensure that Gateway Capital would be the successful
bidder, including providing David with confidential information
and causing some of the Merit Entities to file bankruptcy before
the Auction, reducing the apparent value of the Merit Loans to
other bidders (929).

David engaged in further deceptive conduct to conceal his
interest in Connaught. Because Connaught was not qualified to
bid at the Sealed Bid Auction and because David was affiliated
with Connaught, any company that David controlled (including
Gateway Capital) would be similarly ineligible to bid (430). And
that is why the “sham transactions” designed to shield David's
involvement with Connaught were arranged (914-15, 31-32).

After submitting numerous certifications, David was informed


FDIC has of course not argued that the signature of only one
party to the Purchase Agreement made it legally binding on
both--and it has not said that RTC had previously executed the
document. It is thus unclear whether the Gateway Capital
signature was the last act necessary to make the contract binding
or whether instead RTC's signature then remained a precondition.
Because the District was the undisputed location of the closing
on the Purchase Agreement on January 7, 1993 (950) and because
the record leaves it uncertain when and where the Purchase
Agreement became legally binding, the first factor at least seems
to point to the District.

As the further discussion reflects, however, the District
would prevail in the weighted analysis even if this factor of
final-signature-on-the-document went the other way.
Technicalities as to the “place of contracting” in that
sense--particularly in a transaction that is not consummated in a
face-to-face meeting--were given greater force before choice of
law analysis became more sophisticated. Now less weight in the
choice of law determination is ascribed to traditional offer-and-
acceptance notions, based on where the last signature was affixed
to a fully-negotiated and agreed-upon contract. And that is
certainly the case where, as here, the negotiation of the
Purchase Agreement was carried on between FDIC's lawyers in

Washington, D.C. and Gateway's lawyers in Boston--not in

18


source-of-law candidates for the latter alternative:

1. QIllinois' limitations periods for contract and
property-injury tort actions are ten and five years
respectively (735 ILCS 5/13-206 and 5/13-205).

2. In the District of Columbia,* a three-year statute
of limitations applies to contract, unjust enrichment and
fraud claims (D.C. Code §12-301(7) & (8)).

Thus FIRREA's unique limitations periods (the first statutory
alternative) would apply unless the local law of Illinois (rather
than the District) provides the applicable period.

But the problem is more complex than merely electing between
the two statutory alternatives--instead a choice-of-law
determination must be made at two different levels. And FDIC and
Movants disagree not only about which state provides the
alternative limitations period’ but also about whether state or
federal choice-of-law principles should be employed to answer
that question.

Choice-of-Law Simpliciter
FDIC contends that Illinois choice-of-law rules control this

litigation. Both sides agree that if FDIC is correct on that

® For simplicity of discussion, the District of Columbia
(often spoken of here simply as “the District”) will also be
referred to as a “state” in this opinion.

° As the later discussion reflects, that issue is further
complicated in this case by the need to consider whether and how
the “discovery rule” operates.


referred to DOJ interview of Martin Blumenthal (“Blumenthal
Interview Report,” E. Lim. Mem. Ex. 2)1® and an affidavit from
the lawyer for David and Larry in the criminal investigation
(“Freeman Affidavit,” E. Lim. Mem. Ex. 3).

At least at this stage, it cannot be said that there is no
set of facts under which FDIC would be entitled to benefit from
the discovery rule. First, as to the competing bidder's October
1992 letter, what has been tendered does not necessarily convey
the implication that the letter was also the impetus for the
DOJ's investigation, a situation in which FDIC could scarcely
contend that RTC was not also placed on inquiry notice right then
and there (see Freeman Aff. 41).

But what is far more problematic for FDIC, to say the least,
is the Blumenthal Interview Report. In June 1994 attorneys from
DOT's Fraud Section questioned Blumenthal, who was RTC's Ethics
Program Manager, as to (1) the Sealed Bid Auction, (2) David's
relationship to Gateway Capital, (3) David's potential connection
with defaulted borrower Connaught and (4) the effect that any
such connection would have on David's ability to bid on RTC
property (E. Lim. Mem. Ex. 2). It is extraordinarily difficult
(indeed, that seems likely to qualify as an understatement) to
fathom how such an inquiry--made by Department of Justice lawyers

expressly designated to investigate fraud and directed to the man

1®@ That exhibit is attached as an appendix to this opinion.

24


Minute Order Form (06/97)

United States District Court, Northern District of Illinois

N f Assigned Jud; i Sitting Judge if Oth
sme Magistrate Jade Milton I, Shadur than Assigued Judge
CASE NUMBER 01 C 8674 DATE 8/2/2002
CASE Federal Deposit Insurance Corp. vs. David J. Wabick, et al
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b)
of the motion being presented.]

state briefly the nature

MOTION:

DOCKET ENTRY:

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

(2) i) Brief in support of motion due

(3) oOo Answer brief to motion due___. Reply to answer brief due.

(4) Oo Ruling/Hearingon___. set for at

(5) o Status hearing[held/continued to] [set for/re-set for}on__setfor___—___at

(6) a Pretrial conference[held/continued to] [set for/re-set for]on___——ssetfor_ at.
7) Oo Trial[set for/re-set for] on___at

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

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

COFRCP4(m) General Rule 21 CIFRCP41(a)(1) 1 FRCP41(a)(2).

barred because they were not filed within three years of the date FDIC itself claims to have discovered its

now form the gravamen of FDIC’s actions.

dal ff [For further detail see order attached to the original minute order.]

(10) a [Other docket entry] Enter Memorandum Opinion and Order. Even with the benefit of the discovery rule on the
most generous assumption (with time measured from the return of the criminal indictment), FDIC’s fraud claims are time-

injury. Movant’s

motions to dismiss Counts II and IV are therefore granted. Their corresponding motions to dismiss Counts I and III are
deferred pending FDIC’s further submission called for in this opinion. FDIC is ordered on or before August 26, 2002 to
respond to the question whether the Blumenthal interview sufficed to place RTC on inquiry notice to look into the issues that

No notices required, advised in open court.

No notices required.
number of notices

Document
Number

v | Notices mailed by judge’s staff.
AUS 05 2002

Notified counsel by telephone. ic docketed

Docketing to mail notices.

Mail AO 450 form.

ett Guy initials

Copy to judge/magistrate judge.

UD

2
date mailed notice
courtroom 7
SN deputy’s SN
initials

central Clerk’s Office ‘mailing deputy initials



specifies that the forum state should not apply its own statute
of limitations that would otherwise treat a claim as timely filed
if another state has a more significant relationship to the
action and if maintenance of the suit would serve no substantial
interest of the forum.**

As the ensuing analysis makes clear, the District has the
most significant relationship to FDIC’s claims. Because an
application of the more permissive Illinois statute of
limitations would be at the expense of the more significant
interests of the District, whose limitations periods would bar
the claims, whatever interest Illinois hag in maintaining this

action is outweighed.” District law thus supplies FIRREA’s

4 Restatement §142 reads:

Whether a claim will be maintained against the defense of
the statute of limitations is determined under the
principles stated in §6. In general, unless the exceptional
circumstances of the case make such a result unreasonable:

(1) The forum will apply its own statute of limitations
barring the claim.

(2) The forum will apply its own statute of limitations
permitting the claim unless:

(a) maintenance of the claim would serve no
substantial interest of the forum; and

(b) the claim would be barred under the statute of
limitations of a state having a more significant
relationship to the parties and the occurrence.

12 Neither party intended Illinois or District law to

govern their contractual relationship. One provision in the
Purchase Agreement clearly expresses the parties’ intention that
New York law govern (SAC Ex. 20 913.9), but Section

11


F.3d 1120, 1124 (7th Cir. 1994) (citations omitted in part):

Federal law may well look to state law for substantive
principles, but which law to select is itself a question of
federal law, as [United States v. Kimbell Foods, Inc., 440
U.S. 715 (1979)] and Q’Melveny & Myers [v. FDIC, 512 U.S. 79
(1994)] show. The Supreme Court in O'Melveny & Myers did
not ask what law a state court would have selected; it
approached the question as one for independent decision.

Federal jurisdiction here is premised on Section 1819(b) (2) (A),
which provides--as did the statute in Chapman--that suits to
which FDIC is a party “shall be deemed to arise under the laws of
the United States.” Thus Chapman directs the use of federal
choice-of-law principles in this case.’

Federal Choice-of-Law Analysis

Both sides agree that the relevant principles in undertaking
a federal choice-of-law analysis are provided by the Restatement
(Second) of Conflict of Laws (“Restatement”) (FDIC Mem. 11-18, E.
Lim. Mem. 7-10, E. R. Mem. 7). Yet despite their agreement to
look to the Restatement, neither side has examined the choice-of-

law analysis through the lens of Restatement §142, which

10 Although Atherton v. FDIC, 519 U.S. 213, 224-25 (1997)
effectively overrode Chapman’s resolution of the substantive law
question in that case (as this Court recognized the very next day
in FDIC v. Gravee, 966 F. Supp. 622, 640 (N.D. Ill. 1997)),
Atherton did not invalidate Chapman’s choice-of-law analysis.
Instead it simply held that Chapman’s application of the relevant
choice-of-law principle had drawn the wrong conclusion in
applying federal substantive law. Moreover, it is irrelevant to
this issue that Chapman was a split decision, for both the
dissent and the majority opinion followed the same approach to
the choice-of-law analysis--they just reached different results
in applying the analysis to the situation before the court.

10


‘. Bec 13 01 10:28a Trinity

“_asteissa 23:58 7884321523 BARRY J FREEMN ree
| : poche (new. 1e1S3)

" - speppe 65259

Consinaatton of PD-2020¢ ___ MARTIN. BLUMENTHAL oe_7220-94 pays 2

Secondly, LARRY ETTNER had been involved in some aspect
of SOQUTHMARK SAVINGS ovt of Dallas, Texas. ETTNER was required
to submit supplemental information which explained his
agsocjation with SOUTHMARK and his responsibilities there. The
pid winners, WABICK and ETTNER, were required to re-certify that
they had no contact with the borrovers.

BLUMENTHAL thought any contact would be covered-under
the "default policy", He referred to the July 17, 1992
“Collection Policy" which was issued by then Senior VP for Ascet
Management Sales, LAMAR KELLY. SLUMENTHAL‘’6 ethics group vould
not be the group to check with concerning contacts by bidders and
borrowers.

DOJ Attorney MIKE LOVE proposed a hypothetical
situation in which a major bidder, GCA: a principal of GCA,
WABICK, who owned 100% of the atock of CONNAUGHT. If
partnerships in which CONNAUGHT was the. ral partner were in
default on loans wi <

BLUMENTHAL advised that certainly as of th:

will be precluded because of the existence of

Jection policy". That policy, of course, prohibited a

faulted borrower from bidding on other assets owned /by the RTC.

LUMENTHAL also thought that WABICK would have been ecluded

‘om bidding on the pool two notes, even curing the October 1992
frame, He stated fiatd fe ¢ tion policy kept

g partners bi ere in
default other chi i ON. women

NTH stated that during the Fall of 1992, the RTC
began @ policy of having bidders sign a certification it RTC
though}’the bidder had a "problem". The problem he vas referring
GQefaulted loans. The certification covered "affiliated

ees entities" which is defined as a related entity to the
ong making the bid.

on RTC property i

The related entity is defined as one who is controlled
~eEontror ofthe bidder.


+ Bee 13 01 10:¢ya iranity

oi/1a/1994 23:56 7084321523 BARRY J FREEMAN PAGE 83
i .
¥D-302 (Rev. -10-83)

co ie
FEDERAL BUREAU OF INVESTIGATION

Deve of raasesiption B-3~94

MARTIN BLUMENTHAL, Contractor Ethics Pregram Manager,
Office of Ethics, RESOLUTION TRUST CORPORATION (RTC), 1801 17th
street, B-¥., Washington, D.C. 20434, telephone (202) 416-2029,°
wos contacted and interviewed concerning any information he way
have had eoncerning the sale of RTC assets to & group oft
investors known as GATEWAY CAPITAL ADVISORS of Chicago. The
interview wae conducted in the presence of the Department of
Justice, Praud Section Attorneys, MIKE LOVE and NANCY BRINKAC and
BLUMENTHAL furnished the following information:

DOJ Attorney MIKE LOVE provided a summary background of
events leading to an October 27, 1992 sale of RTC assets via the
bidding process. In summer 1991, HOME FEDERAL SAVINGS of Kansas
city failed and was taken over by the RTC. The assets of HOME
FEDERAL vere pooled together in four separate pools, three ot
which pltisately went through the bidding process. The national
sales center for RTC collaborated with SECURED CAPITAL .
CORPORATION of Los Angeles, California, the RTC financial
advisor. The due-diligence contractor, RER, analyzed the assets
for the RTC contained in the three pools. "Pool two" of the
threes pools contained 29 properties, 16 of which belonged to AL
ICHELSON'’s MERIT general partnership located in Des Moine, Iowa.
GATEWAY CAPITAL ADVISORS of Chicago submitted the high bid of
$66.5 million for the purchase of the notes in pool two and was
awarded the notes. .

BLUMENTHAL was confrented with two issues. Contacts
between bidders and dominant borrowers were mentioned in a
KELVIN DAVIS letter delivered to the RTC on the date of the bid.
DIANE CRAWFORD of RTC’s national sales office placed a telephone
cal) to KELVIN DAVIS of TOBAR to determine where he got the
information that a bidder and the largest borrower in the pool
had prohibited contact. DAVIS declined to either reveal the
source or further substantiate his allegation. He was satisfied
by DIANE CRAWFORD. that each of the pool two bidders had signed a
confidentiality sgreement. He refused to name names.

=
levastigation 08 7=20- Washington, D.C. Pie. 29B-DL-65253
wy SA MICHAEL 8. POCHE/rq Dave flewared 7-27-94

Thu document ovrteins weittsr cecemmendat:
Hh ond ity ese

0 Wor coneiurions of (ho FBI. 11 the property Of the FZ ond i: fanned to your anescy:
ore hot te be disittbuted ontside your agency.



seeks to impose a constructive trust on all profits realized by
all defendants in connection with the assets purchased at the
Sealed Bid Auction (€986-90).

Statute of Limitations

Movants seek dismissal of all four counts of the SAC on a
variety of grounds, including their being time-barred. On that
issue Movants bear the burden of persuasion (Law _v. Medco
Research, Inc., 113 F.3d 781, 786 (7 Cir. 1998)).

All parties agree that FDIC's claims are governed by the
Financial Institutions Reform, Recovery and Enforcement Act of
1989 (“FIRREA”). FIRREA provides its own statute of limitations
(Section 1821(d) (14) (A))”’ for claims, such as this one, brought
by FDIC as receiver: the longer of (1) six years for contract
actions or three years for tort actions and (2) “the period

applicable under State law.” And as between the two potential

7 Here is Section 1821(d) (14) (A)) in full:

Notwithstanding any provision of any contract, the
applicable statute of limitations with regard to any action
brought by [FDIC] as conservator or receiver shall be-

(i) in the case of any contract claim, the longer of-

(I) the 6-year period beginning on the date the claim
accrues; or
(II) the period applicable under State law; and

(ii) in the case of any tort claim..., the longer of-
(I) the 3-year period beginning on the date the claim
accrues; or

(II) the period applicable under State law.

7


the “period applicable under State law” for purposes of Section
1821 (da) (14) (A), FDIC's claims of fraud and conspiracy to commit
fraud are necessarily time-barred. D.C. Code §12-301(8) speci-
fies a three-year limitations period for such claims, so FIRREA's
express three-year period in Section 1821 (a) (14) (A) (ii) (1) is not
enlarged. Even if FDIC could prove that it did not discover its
injury until Wabick's indictment in June 1997 (a subject
discussed hereafter), FDIC still failed to file its complaint
within three years of that date. Accordingly Counts II and IV
are ordered dismissed as to all defendants.

Breach of Contract

Because FDIC's breach of contract claims are also subject to
a three-year limitations period under D.C. Code §12-301(7),
FIRREA's express six-year statute of limitations for contract
claims in Section 1821(d) (14) (A) (i) (I) applies to Count I. If
then those claims accrued before November 9, 1995, they too are
time-barred.

In contrast to the earlier-discussed limitations period
“applicable under State law,” FIRREA's six-year limitations
period is a federal statute of limitations, to which federal
accrual doctrines then apply (Singletary, 9 F.3d at 1242). In
that respect, federal common law incorporates the “discovery
rule” into statutes of limitations in federal question cases

unless there is a contrary directive from Congress (Cada v.

21


Accordingly FDIC is ordered on or before August 26, 20029
to respond to the question whether the Blumenthal interview
sufficed to place RTC on inquiry notice to look into the issues
that now form the gravamen of FDIC's actions. And because the
operation of the discovery rule may be fully dispositive of this
action, the matter partakes in a way of the nature of a summary
judgment--so FDIC's necessary factual submissions will be
required to conform to the standards of Rule 56(e) (but not to the
added demands of this District Court's LR 56.1). This Court will
then determine whether anything more is needed to enable it to
deal with the motions to dismiss Count I as time barred.

One sub-issue can be resolved at this time, however, at
least in terms of the submissions now before this Court. In
those terms this Court does not buy Movants' argument that DOJ's
knowledge, wherever and however acquired, is automatically to be
imputed to RTC/FDIC (E. Lim. Mem. 13). For one thing, the cases
on which Movants rely for that purpose are meaningfully
distinguishable. Unlike the situation in United States v. Kass,
740 F.2d 1493 (11° Cir. 1984), here there is no argument that

DOJ, the organization with purported knowledge of defendants'

1 That is somewhat longer than would ordinarily be
afforded for such a response, for it must have been obvious to
FDIC for some time that this issue would have to be confronted.
But because the normal time frame would call for a filing when
this Court will be away, an added cushion has been built into
this order.

27


Background*

Defendants and Non-Party Participants

David and Larry formed Illinois corporation Gateway Capital
in June 1992 (9910, 25). At all times relevant to this action,
David's wife Patricia owned one-half of the controlling interest
in Gateway Capital, while Larry and his wife Janelle owned the
other half (§§11-13). David and Larry managed, controlled and
directed Gateway Capital’s affairs (25). Gateway Kansas City,
Inc. (“Gateway KC”) was an Illinois corporation’ formed on
December 9, 1992 (917), and Larry was president and a director of
Gateway KC (912). Connaught Corporation (“Connaught”) is an
Illinois corporation controlled by David (414). According to the
SAC, David's mother Lorraine obtained all of Connaught’s stock
from him in a sham transaction designed to conceal Wabick’s
interest in that corporation (414). In a later transaction also
labeled by FDIC as “sham,” Lorraine transferred all of the
Connaught stock to Freitag (415).
FDIC as_Successor to RTC

On December 31, 1995 FDIC became the statutory successor to

4 Although the SAC is long and detailed, portions relevant
to the limitations issue can be summarized rather succinctly.
What follows is such a summary drawn from the SAC, cited “4 --.”
For the most part the recital omits such language as “FDIC
alleges” because the SAC is treated as gospel--but of course no
factual findings are either made or implied here.

5 Gateway KC has since been dissolved by the Illinois
Secretary of State for non-payment of taxes (17).

3


state with the most significant relationship. FDIC argues that
in situations where the injury was suffered in two or more states
or where the place of injury cannot be ascertained, the place of
injury does not play a significant role in determining applicable
law and “the place where the defendant’s conduct occurred will
usually be given particular weight” (Restatement §145 cmt. e; see
also Hercules & Co. v. Shama Restaurant Corp., 566 A.2d 31, 42
(D.C. App. 1989) (in cases involving economic loss, the place of
injury is less significant for choice-of-law purposes than in
personal injury cases)). But even apart from the unitary
location of RTC's injury (the District), that argument does not
help FDIC, for the District also has a far stronger claim than
Illinois to be viewed as the place where the conduct giving rise
to the injury occurred.

Movants correctly contend that because the negotiation and
closing of the Purchase Agreement in the District brought their
alleged tortious conduct to fruition, the second Restatement
factor points there (E. Lim. Mem. 10). To be sure, some of the
assertedly fraudulent conduct leading to that result was
Illinois-based: some of David’s communications with Ichelson
(4§28-29, 37), the “sham” sales of David’s Connaught stock (4§30-
32) and the concealment of the fraudulent activities through

corporate formalities and false and misleading documentation

14


14-15). Thus the third factor favors no particular state.

Lastly, Movants stress that the parties’ relationship
centered in the District because RTC was the “governmental entity
that wholly controlled all aspects of a non-negotiable bidding
process” from its headquarters there (E. Lim. Mem. 10). FDIC
counters that in its view there was no single place where the
relationship centered (FDIC Mem. 16-17). But its argument that
RTC’s control over the contracting process is irrelevant to a
tort analysis is rejected as unpersuasive--RTC controlled the
contracting process that was the vehicle for defendants’ alleged
fraud. And as pointed out earlier, the District--as the location
of the closing--was where the fraudulently-obtained relationship
was ultimately consummated. This factor too favors the District.

Thus, although not all of the Restatement §145(2) factors
point strongly in the same direction, on balance the analysis
heavily favors the District. This Court therefore holds that the
District is indeed the “state” with the most significant
relationship to FDIC's tort claims, a result that comports with
the compelling interest of Washington, D.C. in regulating fraud
perpetrated against businesses and agencies there.
Contract Claims

FDIC has advanced two claims that fall under FIRREA’s

limitations period for contract claims: breach of contract in

16


presented by Ettners, who have in turn incorporated the arguments
made in their own earlier submissions.* After full analysis of
the litigants' initial and supplemental briefing, this opinion
concludes that FDIC's tort claims are time-barred and defers
ruling, pending a further submission by FDIC, as to the
timeliness or untimeliness of its contract claims.

Motion To Dismiss Standards

For present purposes this Court accepts the SAC’s well-
pleaded allegations as true and must draw all reasonable
inferences in FDIC’s favor (see, e.g., Johnson v. Rivera, 272
F.3d 519, 520 (7th Cir. 2001)). And under Rule 12(b) (6) no claim
will be dismissed unless “it is clear that no relief could be
granted under any set of facts that could be proved consistent

with the allegations” (Hishon v. King & Spalding, 467 U.S. 69, 73

(1984)). While defendants may raise the affirmative defense of
the statute of limitations in a Rule 12(b) (6) motion, dismissal
is appropriate only if the allegations of the complaint clearly

show that the claim is time-barred (Kauthar SDN BHD v. Sternberg,

149 F.3d 659, 670 & n.14 (7th Cir. 1998)).

3 On January 14, 2002 this Court ordered FDIC to submit a
memorandum addressing the statute of limitations issues. That
memorandum is cited here as “FDIC Lim. Mem.” Ettners filed a
response, cited as “E. Lim. Mem.” This opinion uses the same
“FDIC” and “E.” initials in referring to all exhibits (“Ex.”),
memoranda (“Mem.”) and reply memoranda (“R. Mem.”).

2


in charge of RTC's Ethics Program--could have failed to alert RTC
to the need for further inquiry regarding Gateway Capital's bid
in the Sealed Bid Auction. Nor is such a duty to inquire
diminished (let alone eliminated) by the cautious way in which
the DOJ lawyers couched their questions. Criminal investigations
must be kept under wraps until they become public (normally by
the return of an indictment), and the very nature of the
inquiries as described in the Blumenthal Interview Report would
seem to have stimulated any non-ostrich (and RTC's Ethics Program
Manager would surely qualify for that label) to pursue actively
the possible existence of problems broadly suggested by those
inquiries.

RTC was surely not entitled to wait until it knew
conclusively that it had been the victim of a criminal fraud

before beginning to investigate its civil claims. To benefit

from the discovery rule, potential plaintiffs must exercise due
diligence to uncover their injuries. As United States v. Duke,
229 F.3d 627, 630 (7° Cir. 2000) has put it:
The discovery rule does not permit the victim of an
alleged wrong to postpone the running of the statute of
limitations by willfully closing his eyes, ostrich-
like, to a known probability that he has been injured,
even if he is not certain.
If the materials tendered up to this point tell the entire

relevant story, it would seem clear that the Blumenthal interview

provided RTC with inquiry notice such that it reasonably should

25


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

D0CKEr,
Aug 0 cane

FEDERAL DEPOSIT INSURANCE
CORPORATION, etc.,

)

)

)
Plaintiff, )

)

v. ) No. 01 C 8674
)
DAVID J. WABICK, et al., )
)

Defendants. )

MEMORANDUM OPINION AND ORDER

Federal Deposit Insurance Corporation (“FDIC”) has brought a
four-count? Second Amended Complaint (“SAC”) against a group of
defendants, claiming to have been the victim of a fraudulent
scheme to obtain defaulted real estate loans in a sealed bid
auction. Three defendants--David Wabick (“David”), Patricia
Wabick (“Patricia”) and Lorraine Wabick (“Lorraine”) --have filed
independent motions to dismiss pursuant to Fed. R. Civ. P.
(*Rule”) 12(b) (6). Larry and Janelle Ettner (“Larry” and
“Janelle,” collectively “Ettners”) have jointly filed their own
Rule 12(b) (6) motion.?

Apart from any uniquely advanced arguments, each defendant

has incorporated the statute of limitations and damages arguments

1 Another count alleging fraudulent conveyance was
dismissed voluntarily (FDIC Mem. 2 n.2).

? Whenever all moving defendants are referred to

collectively, they will be termed “Movants” rather than
“Defendants” (this serves to separate them from Paul Freitag
(“Preitag”), the only defendant who has not joined in any of the

motions to dismiss).


fraud, was acting as an agent of RTC/FDIC. Nor is there any
indication that the knowledge of defendants' fraud even

approached the pervasiveness or the detail described in United

States v. Village of Island Park, 791 F.Supp. 354, 363-64 (E.D.

N.Y. 1992). Finally, FDIC and DOJ are separate agencies, unlike

the scenario in United States v. Kensington Hosp., No. 90-5430,

1993 WL 214446, at *12 (E.D. Pa. Jan. 14).
Unjust Enrichment

As for FDIC's unjust enrichment claim, courts in the
District have applied the three-year statute of limitations for
breach of contract actions to unjust enrichment claims arising
from the same conduct (see, e.g., Constr. Interior Sys., Inc. v.
Donohoe Cos., 813 F.Supp. 29, 33 n.4 (D. D.C. 1992) and the D.C.
Cir. case cited there). Because that is shorter than FIRREA's
express six-year period under Section 1821(d) (14) (A) (i) (I), the
latter time frame also applies to Count III. Hence this Court
will deal with FDIC's Count III unjust enrichment claim on the
same basis as its Count I breach of contract claim.”°

Conclusion

Under federal choice-of-law rules, the District supplies

20 FDIC derives no benefit from its allegations that the
source of defendants' unjust enrichment was the 1999 sale of the
assets wrongfully obtained in the Sealed Bid Auction (4987-89).
To the contrary, the unjust enrichment took place when the assets
were wrongfully acquired in 1992--conversion of the assets to
cash at a later date did not restart the limitations clock anew.

28


alternative limitations periods.

Which state has the most significant relationship to a
particular issue is determined in accordance with the principles
set forth in Restatement §6(2):

(a) the needs of the interstate and international
systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and
the relative interests of those states in the determination
of the particular issue,

(ad) the protection of justified expectations,

(e) the basic policies underlying the particular field of
law,

(£) certainty, predictability and uniformity of result,
and

(g) ease in the determination and application of the law
to be applied.

As different contacts are used to apply those principles to tort
claims (Restatement §§145(1)) and contract claims (id. §188(1)),
this opinion examines each of FDIC’s claims in turn.

Tort Claims

FDIC has asserted two tort claims: Count II alleges common
law fraud and Count IV alleges conspiracy to commit fraud ((F 83-
85, 91-94). Restatement §145(2) identifies as the contacts to be

considered in the most-significant-relationship analysis for tort

claims “(1) the place where the injury occurred, (2) the place

1821 (d) (14) (A) specifically excludes consideration of “any
provision of any contract” concerning statute of limitations
issues (see also Nordbrock, 102 F.3d at 338). As no one has
argued that New York is the state with the most significant
relationship to this action, that possibility is not addressed
here.

12


(4971-80) .% But the conduct that ultimately caused FDIC’s
injury was the deception that induced RTC to allow Gateway
Capital to bid on and obtain the Merit Loans (484). That was
achieved through misrepresentations (1) directed to RTC in the
District,“ (2) relied upon by RTC in the District and

(3) consummated at the closing in the District when the Merit
Loans were ultimately handed over to the fraudulent bidder.
RTC’s actions in reliance on defendants’ fraudulent
representations, a necessary element of FDIC’s common law fraud

claim (Alicke v. MCI Communications Corp., 111 F.3d 909, 912

(D.C. Cir. 1997)), occurred in the District when RTC made and
implemented its deal with Gateway based on false and misleading
information.

FDIC Mem. 14-15 maintains that because Gateway Capital and
all defendants are domiciled in Illinois (916), the third factor
points there. But Movants respond persuasively that domicile has
no special significance in this case (E. Lim. Mem. 9). As
already said, RTC’s headquarters and principal place of business
are in Washington D.C., although the RTC office responsible for

the receivership of Home Federal was in Kansas City (FDIC Mem.

3 Some fraudulent conduct also occurred in Iowa (4937,
40), but that does not affect the result.

44 That certain fraudulent representations were made in
correspondence or phone calls originating in Illinois is of no
real moment, for RTC in the District was most often at the other
end of those communications.

15