PLAINTIFF'S COMBINED MOTION AND SUPPORTING BRIEF REQUESTING ENTRY OF JUDGMENT IN THE AMOUNT OF $3,790,695 PLUS PRE-JUDGMENT INTEREST

ANDREA R. WOOD, Diatrate Judge.

Pursuant to Federal Rule of Civil Procedure 50(b), Plaintiff Federal Deposit Insurance Corporation as Receiver for Founders Bank ("Plaintiff" or "FDIC-R") respectfully moves this Court for judgment as a matter of law in favor of FDIC-R and against Defendant Chicago Title Insurance Company ("Defendant" or "Chicago Title") with respect to the damages sustained by FDIC-R, in the amount of $3,790,695. In the alternative, pursuant to Federal Rule of Civil Procedure 59(e) (which may be invoked prior to entry of judgment, seeinfra), FDIC-R respectfully requests an adjustment of the jury's damages award on each of FDIC-R's claims to $3,790,695.1 In addition, in conjunction with this Court's ultimate entry of judgment under Rule 58(d), FDIC-R respectfully requests an award of pre-judgment interest on FDIC-R's damages, which is mandated by 12 U.S.C. § 1821(l), and also is independently available under state law.

FDIC-R's motion should be granted. First, the only damage amount that can be reasonably drawn from the evidence introduced at trial and the jury instructions is $3,790,695. Thus, this Court may properly enter judgment as a matter of law or make an upward adjustment to the damages award when entering judgment. Second, under both federal and Illinois law, FDIC-R is entitled to pre-judgment interest. Under 12 U.S.C. § 1821(l), an appropriate pre-judgment interest award to FDIC-R is mandatory. In addition, Illinois law provides an independent basis for pre-judgment interest with respect to FDIC-R's breach of fiduciary duty claim, and the equities of this case strongly support such an award.

I. BACKGROUND

Before trial, over FDIC-R's objections, this Court concluded that under Illinois law, FDIC-R's damages were "limited to the amounts of the deficiency judgments that Founders obtained at the foreclosure sales of the Subject Properties," or $3,880,686.91, despite actual losses of more than $6 million. See Mem. Op. (Dkt. 183) at 18. Specifically, in response to Chicago Title's motion for partial summary judgment, this Court held that the Illinois credit bid rule limited the amount of damages that FDIC-R could seek against Chicago Title, concluding that "[i]f the FDIC establishes liability, the FDIC's recovery from the Chicago Entities will be limited to the sum of the deficiency judgments that Founders obtained at the foreclosure sales of the subject properties." See Dkt. 183 at 1. In doing so, this Court reduced the amount of FDIC-R's potential recovery to only $3,880,686.91. Id. at 7. Later, ruling on motions in limine, this Court carefully defined the evidence that the parties could introduce at trial on damages. With respect to FDIC-R, this Court declined to take judicial notice of the loss amounts reflected on the face of the deficiency judgments and precluded the deficiency judgments from being introduced as evidence. See Mem. Op. on Motions In Limine (Dkt. 352) at 17-18. At the same time, this Court held that "[b]ecause the Chicago Title Entities have not yet had the opportunity to fully litigate the accuracy of the credit bids, it will be given this chance at trial." Id. at 18. Both of these rulings are reflected in pre-trial orders that the parties submitted and the Court entered (specifically, each party's damage itemization). See Proposed Joint Final Pretrial Order (Dkt. 287) at 31-35. Thus, the accuracy of Founders Bank's credit bids was the sole basis at trial on which Chicago Title could challenge the amount of loss sustained by FDIC-R.

Consistent with this Court's pre-trial rulings and the pre-trial order, FDIC-R presented evidence at trial proving the actual amount of loss sustained on the subject loans, as reflected in the deficiency judgments. See, e.g., Ex. 1 (transcript excerpts), Trial Tr. Vol. 3B, Aug. 24, 2017, 591:20-602:9. On the basis of this evidence, FDIC-R sought $3,790,695 in damages.2 Chicago Title, in contrast, failed to offer any evidence at trial challenging the sufficiency of Founders Bank's credit bids, nor did it otherwise dispute the amounts of the deficiency judgments on the subject loans. Instead, Chicago Title attempted to prove that its conduct was not a proximate cause of the losses—an argument the jury rejected—and that Founders Bank was contributorily negligent—an argument that, as a matter of law, does not decrease Chicago Title's liability to FDIC-R. Chicago Title presented no other evidence on the amount of actual loss sustained by FDIC-R. Thus, the only damage evidence submitted to the jury demonstrated total losses of $3,790,695.

On September 14, 2017, the jury found that FDIC-R proved all of the required elements for each of its claims for breach of contract, breach of fiduciary duty, negligence, and negligent misrepresentation, and that FDIC-R had sustained damages of $1,450,000 on each of these claims. See generally Verdict Form (Dkt. 376).3

II. LEGAL STANDARD

FDIC-R moves for judgment as a matter of law pursuant to Rule 50(b). The Seventh Circuit has recognized that the court may consider such a Rule 50(b) motion, even in the absence of a prior Rule 50(a) motion, "when the failure to review a sufficiency-of-the-evidence argument would result in `manifest injustice.'" SEC v. Yang, 795 F.3d 674, 680 (7th Cir. 2015) (citing Hudak v. Jepsen of Ill., 982 F.2d 250, 250-51 (7th Cir. 1992)). In such instances, the trial court's review "is limited to determining `whether there was any evidence to support the jury's verdict, irrespective of its sufficiency, or whether plain error was committed which, if not noticed, would result in a manifest miscarriage of justice." Id. (emphasis in original).

In the alternative, FDIC-R moves this Court to alter or amend the jury's damages award pursuant to Federal Rule of Civil Procedure 59(e). "Altering or amending a judgment under Rule 59(e) is permissible when there is newly discovered evidence or there has been a manifest error of law or fact." Harrington v. City of Chicago, 433 F.3d 542, 546 (7th Cir. 2006) (citing Bordelon v. Chicago Sch. Reform Bd. of Trs., 233 F.3d 524, 529 (7th Cir. 2000)). Such motions may be filed prior to entry of judgment. See, e.g., Hilst v. Bowen, 874 F.2d 725, 726 (10th Cir. 1989) (per curiam) (collecting cases and concluding "Rule 59(e) motion was timely even though it was made before the separate judgment was entered").

It is well-accepted that under Rule 59(e), a judgment may be properly amended or adjusted upward where, as here, "the jury has found the underlying liability and there is no genuine issue as to the correct amount of damages." EEOC v. Massey Yardley Chrysler Plymouth, Inc., 117 F.3d 1244, 1252-53 (11th Cir. 1997) ("Massey"). In Massey, the Eleventh Circuit agreed with the EEOC that because "the jury lacked any rational basis" for awarding less than the full amount of back pay to which the employee was entitled under federal law, the district court should have granted the EEOC's Rule 59(e) "motion to alter or amend judgment by `conform[ing] the damages to the evidence'—i.e., by increasing the $10,513.86 [jury award] to the sum needed to compensate [plaintiff] for back pay." Id. (emphasis added); see also Liriano v. Hobart Corp., 170 F.3d 264, 272-73 (2d Cir. 1999) (where jury neglected to include hospital bill in damages award, district court properly "adjusted the jury award to account for a discrete item that manifestly should have been part of the damage calculations and as to whose amount there was no dispute"). This Court's power to make such an adjustment is not affected by the amount of damages at issue. "[W]here there is no rational basis for the jury's verdict, . . . a trial court may impose the only damages award that reasonably can be drawn from the evidence." Heller Fin., Inc. v. Grammco Computer Sales, 71 F.3d 518, 527 (5th Cir. 1996) (affirming district court's decision to increase the jury's award from $1 million to $4.7 million where record provided no evidence supporting a lesser award).

For the reasons discussed in Part III, infra, FDIC-R is entitled to a damages award in the amount of $3,790,695, regardless of whether Rule 50(b) or Rule 59(e) is applied. Depriving FDIC-R of the full damages to which it is entitled by law, in favor of a lesser jury award that has no evidentiary basis whatsoever, would constitute a "manifest injustice" under Rule 50(b) and a "manifest error of law or fact" under Rule 59(e). Accordingly, this Court should enter judgment in favor of FDIC-R with respect to damages in the principal amount of $3,790,695.

III. ARGUMENT

A. The undisputed evidence shows that FDIC-R sustained $3,790,695 in losses.

Through its pre-trial rulings, as reflected in the pre-trial order, this Court provided a clear road map for the parties to follow at trial, and set the evidentiary parameters within which Chicago Title could challenge the FDIC-R's losses on the subject loans. SeeJonasson v. Lutheran Child & Family Servs., 115 F.3d 436, 440 (7th Cir. 1997) (identifying purpose of in limine motion to focus trial preparations and proceedings for a jury trial); see alsoLovejoy Elecs. v. O'Berto, 616 F.Supp. 1464, 1473 (N.D. Ill. 1985) (discussing purpose of partial summary judgment to "frame and narrow the triable issues") (quoting Capitol Records, Inc. v. Progress Record Distrib., 106 F.R.D. 25, 29 (N.D. Ill. 1985)). FDIC-R met its burden of proving at trial the losses on the loans as reflected in the deficiency judgments, whereas Chicago Title failed to introduce any evidence whatsoever challenging the sufficiency of Founders Bank's credit bids or the amounts of the deficiency judgments. See Part II, supra. In fact, Chicago Title did not attack the amount of loss at all, but instead focused its proof on blaming others for the loss. As a result, the evidence introduced at trial supports only one damages number—i.e., $3,790,695.

B. This Court's instructions to the jury were consistent with applicable law, and required the jury to award $3,790,695 once it found Chicago Title liable.

At the close of evidence, this Court properly instructed the jury that it "must give full and separate consideration" to each of FDIC-R's claims and, if the jury found Chicago Title liable, "award the full amount of damages necessary to compensate for that particular claim." Jury Instructions (Dkt. 375) at 50. This is a correct statement of applicable federal and Illinois law, which require an award of full damages to compensate FDIC-R for its losses on the loans.

As an initial matter, Illinois law requires damages to be awarded in the amount that will make FDIC-R whole with respect to each of its claims—in this case, as limited by the Court's pre-trial rulings, $3,790,695. See, e.g., Best v. Taylor Mach. Works, 689 N.E.2d 1057, 1076 (Ill. 1997) ("There is universal agreement that the compensatory goal of tort law requires that an injured plaintiff be made whole."); Equity Ins. Managers of Ill. v. McNichols, 755 N.E.2d 75, 80 (Ill. App. Ct. 2001) (stating rule for breach of contract claim); In re Estate of Wernick, 535 N.E.2d 876, 887-88 (Ill. 1989) (stating rule for breach of fiduciary duty claim).

In addition, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183, provides that:

12 U.S.C. § 1821(l) (emphasis added) ("Section 1821(l)"). Section 1821(l) mandates an award of "principal losses and appropriate interest" to FDIC-R when two conditions are met: (1) the claims are against a "party employed by or providing services to an insured depository institution"; and (2) the damages arise "from the improvident or otherwise improper use or investment of any insured depository institution's assets." 12 U.S.C. § 1821(l). The jury's verdict in this case necessarily satisfies both conditions. First, in finding for FDIC-R and against Chicago Title as to liability, the jury necessarily found that Chicago Title provided escrow closing services to Founders Bank, an insured depository institution. See, e.g., Verdict Form (Dkt. 376) at 2-5, 6, 8, 10, and 12. Chicago Title has never disputed this fact. Second, FDIC-R presented evidence at trial that Chicago Title caused Founders Bank's assets to be improperly used to fund fraudulent flip transactions. Ex. 2 (transcript excerpts), Trial Tr. Vol. 2B, Aug. 23, 2017 at 417:14-20; Vol. 7B, Aug. 30, 2017 at 1620:7-1621:10, 1661:20-25; and Vol. 8, Aug. 31, 2017 at 1704:3-22. In finding liability, the jury necessarily found that FDIC-R's damages arise from Chicago Title's misconduct. The jury also specifically found Chicago Title's misconduct to be willful and wanton (Verdict Form (Dkt. 376) at 7, 9, 11, 13, 15, 17, 19, 21, 23, 25, 27, and 29), which the jury instructions defined as "a course of action which shows actual or deliberate intention to harm or which, if not intentional, shows an utter indifference to or conscious disregard for the safety of others." Jury Instructions (Dkt. 375) at 48. As demonstrated at trial, FDIC-R suffered $3,790,695 in principal losses as a result of Chicago Title's misconduct. See, e.g., Ex. 1 (transcript excerpts), Trial Tr. Vol. 3B, Aug. 24, 2017 at 591:20-602:9.

This Court's instructions to the jury on damages are consonant with applicable federal and Illinois law, which provides that recoverable damages "shall" include principal losses and entitle FDIC-R to receive full compensation for its damages on the subject loans upon a finding of liability. Thus, the jury having found Chicago Title liable on each of FDIC-R's claims, the damages award must reflect "the full amount of damages necessary to compensate for that particular claim." Jury Instructions (Dkt. 375) at 50. And because the uncontroverted evidence at trial supports only one damages number—i.e., $3,790,695—there cannot be any basis (much less a reasonable basis) for a lesser award. Judgment in the amount of $3,790,695 should therefore be entered in favor of the FDIC-R, as required by applicable law.

C. The jury's findings with respect to liability support an award of $3,790,695.

Rather than dispute the amount of loss, Chicago Title attempted to show its conduct was not a proximate cause of FDIC-R's loss—a position the jury rejected—and that Founders was contributorily negligent, which cannot, as a matter of law, decrease the damages here.

The jury in this case made specific findings that Chicago Title was a proximate cause of FDIC-R's losses, rejecting Chicago Title's arguments that its misconduct somehow did not cause FDIC-R's losses on the loans. See Verdict Form (Dkt. 376) at 6, 8, 10, 12, 14, 16, 18, and 20. Ample trial evidence supports these findings, including testimony from Founders' loan officer, David Spedale, that the bank would have "stopped the closing[s]" and "never made the loans" if Chicago Title had disclosed the improper flip transactions. See Ex. 1 (transcript excerpts), Trial Tr. Vol. 3B, Aug. 24, 2017 at 675:23-677:12. As a result, under well-settled Illinois law, Chicago Title is liable for the full amount of FDIC-R's losses on the subject loans. See, e.g., Ferrell v. Esparza, 773 N.E.2d 650, 656-57 (Ill. App. Ct. 2001) ("[T]here may be more than one proximate cause of an injury, and a defendant may be held liable for its conduct whether it contributed in whole or in part to the plaintiff's injury, so long as that conduct was a proximate cause of the injury." (citing Nelson v. Union Wire Rope Corp., 199 N.E.2d 769, 780 (Ill. 1964))); Lipke v. Celotex Corp., 505 N.E.2d 1213, 1221 (Ill. App. Ct. 1987) (when defendant's negligent conduct is a proximate cause of plaintiff's loss, "it is no defense that some other person or thing contributed to bringing about the result for which damages were claimed. Either or both parties are liable for all damages sustained" (quoting Romine v. City of Watseka, 91 N.E.2d 76 (Ill. App. Ct. 1950))); see also Illinois Pattern Jury Instructions, Civil, No. 12.04.

Likewise, the jury's finding that Founders Bank was partially responsible for causing the losses on the subject loans does not affect FDIC-R's right to an award of $3,790,695. See, e.g., Verdict Form (Dkt. 376) at 7, 9, 11, 13, 15, 17, 19, 21, 23, 25, 27, and 29. Under Illinois law, comparative negligence is only available as an affirmative defense to tort claims. See 735 I.L.C.S. 5/2-1116. As a result, comparative negligence is not a valid defense to FDIC-R's breach of contract and breach of fiduciary duty claims. SeeHSBC Mortg. Servs. v. Equisouth Mortg., Inc., No. 10 C 4747, 2011 WL 529412, at *3 (N.D. Ill. Feb. 7, 2011) ("under Illinois law, the doctrine of comparative fault does not apply to breach of contract claims" (citing Klingler Farms, Inc. v. Effingham Equity, Inc., 525 N.E.2d 1172, 1176 (1988))); Hollinger Int'l, Inc. v. Hollinger, Inc., No. 04-c-0698, 2006 WL 1444916, at *2 (N.D. Ill. Jan. 25, 2006) ("contribution may not be sought for a breach of fiduciary duty because, under Illinois law, the breach is not a tort" (citing St. Paul Fire & Marine Ins. Co. v. Great Lakes Turnings, Ltd., 774 F.Supp. 485, 488 (N.D. Ill. 1991)).4

Furthermore, with respect to FDIC-R's negligence and negligent misrepresentation claims, because the jury found that Chicago Title's conduct was willful and wanton—on the basis of overwhelming evidence that Chicago Title intentionally facilitated the flip of the subject properties to increase its own profits—the jury may not reduce FDIC-R's damages for reasons of comparative negligence. SeeBurke v. 12 Rothschild's Liquor Mart, Inc., 593 N.E.2d 522, 532 (Ill. 1992) (stating rule and recognizing "qualitative difference between simple negligence and willful and wanton conduct"); see also Jury Instructions (Dkt. 375) at 47 ("If you find that Chicago Title's conduct was willful and wanton, Chicago Title is liable for the entire amount of losses occasioned by its misconduct and you are not to consider any possible fault of Founders Bank or any other person or entity with respect to those losses."). Accordingly, under Illinois law, the jury's findings on liability with respect to each cause of action mandate entry of a damage award in the amount of $3,790,695.

D. FDIC-R is entitled to pre-judgment interest.

Section 1821(l) and Illinois law provide two independent bases for awarding pre-judgment interest to FDIC-R.

1. The plain language of Section 1821(l)requires an award of appropriate interest to FDIC-R.

As discussed above, Section 1821(l) provides that FDIC-R's recoverable damages in a case such as this "shall include principal losses and appropriate interest." 12 U.S.C. § 1821(l) (emphasis added). Courts interpreting Section 1821(l) have consistently found that "appropriate interest" includes pre-judgment interest. See, e.g., FDIC v. Mijalis, 15 F.3d 1314, 1325-26 (5th Cir. 1994); FDIC v. Moll, 848 F.Supp. 145, 148 (D. Colo. 1993); FDIC as Receiver for IndyMac Bank v. Van Dellen, No. 2:10-cv-04915, slip op. at 1 (C.D. Cal. Mar. 5, 2013).

Because the plain language of Section 1821(l) requires that FDIC-R's "recoverable damages . . . shall include principal losses and appropriate interest," an award of appropriate pre-judgment interest under Section 1821(l) is required. See generallyUnited States v. Monsanto, 491 U.S. 600, 607 (1989) (concluding that in using the word "shall," "Congress could not have chosen stronger words to express its intent that forfeiture be mandatory"); Hewitt v. Helms, 459 U.S. 460, 471-72 (1983) (discussing "language of an unmistakably mandatory character, requiring that certain procedures `shall,' `will,' or `must' be employed").5

As the Seventh Circuit has recognized, "[p]rejudgment interest is an element of complete compensation. Money today is not a full substitute for the same sum that should have been paid years ago." In re Oil Spill by The Amoco Cadiz, 954 F.2d 1279, 1331 (7th Cir. 1992) ("Amoco Cadiz") (internal citations omitted); see alsoPremium Plus Partners v. Goldman, Sachs & Co., 648 F.3d 533, 539 (7th Cir. 2011).

In this case, FDIC-R has lost the time value of money on its damages for 10 years. Ex. 1 (testimony excerpts), Trial Tr. Vol 3B, Aug. 24, 2017 at 589:6-591:4. An award of pre-judgment interest is therefore necessary to put FDIC-R in the same position that it would have been in but for Chicago Title's misconduct. This result is especially warranted in light of the jury's finding that Chicago Title's misconduct was willful and wanton. See Gorenstein, 874 F.2d at 436 ("The award of prejudgment interest is particularly appropriate in a case such as this where the violation was intentional, and indeed outrageous."). There can be no reasonable dispute that interest is both appropriate and mandated under Section 1821(l) in this case.

Under federal law, pre-judgment interest in this case totals $1,643,187.60 as of May 15, 2018. In the Seventh Circuit, "prejudgment interest typically accrues from the date of the loss or from the date on which the claim accrued." Am. Nat'l Fire Ins. Co. ex rel. Tabacalera Contreras Cigar Co. v. Yellow Freight Sys., Inc., 325 F.3d 924, 935 (7th Cir. 2003)); see alsoAmoco Cadiz, 954 F.2d at 1331 ("[O]nce there is a judgment the obligation is dated as of the time of the injury."). The date of loss in this case occurred, at the very latest, when the foreclosure sales for the subject properties were completed and the deficiency judgments were entered. From that moment forward, Founders Bank was deprived of the time value of money on the $3,790,695 in losses that it sustained on the subject loans. Pre-judgment interest accordingly should be calculated from the date of the foreclosure sales for each of the subject loans, as evidenced at trial. See, e.g., Ex. 1 (transcript excerpts), Trial Tr. Vol. 3B, Aug. 24, 2017, 589:6-591:4.

The Seventh Circuit requires pre-judgment interest to be calculated using the "market rate" of interest. See, e.g., Amoco Cadiz, 954 F.2d at 1331 ("Prejudgment interest at the market rate puts both parties in the position they would have occupied had compensation been paid promptly."). At a minimum, this requires the Court to use the average prime rate of interest over the relevant time period, which is 3.59% for the LaSalle Loan, 3.51% for the Bissell Loan, and 3.48% for the two Campbell Loans (as of May 15, 2018).6 SeeFirst Nat'l Bank of Chicago v. Standard Bank & Trust, 172 F.3d 472, 480 & n.9 (7th Cir. 1999) (citations omitted) ("In Amoco Cadiz, we held that the average prime rate for the entire time period was the appropriate measure, rather than the current prime rate.").7 The calculation of pre-judgment interest also must be compounded over time. SeeGorenstein, 874 F.2d at 437. Calculating pre-judgment interest in accordance with Seventh Circuit precedent results in a pre-judgment interest award of $1,643,187.60 as of May 15, 2018.8 See Ex. 4.

2. FDIC-R is independently entitled to pre-judgment interest under Illinois law.

Even if Illinois law controlled the disposition of this request (which it does not), FDIC-R would be independently entitled to pre-judgment interest on its breach of fiduciary duty claim.

Breach of fiduciary duty is an equitable claim in Illinois. See, e.g., Martin v. Heinold Commodities, Inc., 608 N.E.2d 449, 452-53 (Ill. App. Ct. 1992). As a result, this Court has the equitable power to award pre-judgment interest for this claim. See Wernick, 535 N.E.2d at 887-88 (recognizing "current trend" in equitable proceedings "is to allow an award of interest on funds owing") (citations omitted); Angelopoulos v. Keystone Orthopedic Specialists, SC, No. 12-cv-5836, 2018 WL 461227, *4 (N.D. Ill. Jan. 18, 2018) (citing Wernick and concluding "equity and common sense support the propositions that the time value of money is significant and to forego prejudgment interest in circumstances like this would reward a wrongdoer and, at a minimum, provide a strong incentive for a defendant to seek delay in the resolution of a civil action").

As discussed above, the equities in this case weigh strongly in favor of an award of equitable pre-judgment interest: FDIC-R has lost the time value of money on the losses on the subject loans, and the jury made a specific finding that Chicago Title's willful and wanton misconduct caused those losses. Illinois courts have awarded equitable pre-judgment interest when presented with similar facts. See, e.g., Nat'l Union Fire Ins. Co. v. DiMucci, 34 N.E.3d 1023, 1048 (Ill. App. Ct. 2015) (affirming pre-judgment interest award both to compensate plaintiff for the lost time value of money and in light of defendant's "bad conduct," and noting that "under Illinois Supreme Court precedent bad conduct is not a precise requirement"). Accordingly, if Illinois law is applied, this Court should use its equitable powers under Illinois law to award pre-judgment interest on FDIC-R's breach of fiduciary duty claim.

Applying Illinois law, pre-judgment interest in this case totals $1,364,903.54 as of May 15, 2018. When calculating pre-judgment interest, a trial court applying Illinois law may award either the prime rate or the 5% statutory rate under the Illinois Interest Act (815 ILCS 205/2). SeeWernick, 535 N.E.2d at 887. Under Illinois law, pre-judgment interest is not ordinarily compounded over time. See Angelopolous, 2018 WL 461227, at *4. Because its overriding purpose is to "make the [FDIC-R] complete," an award of equitable pre-judgment interest is properly calculated from the dates of the foreclosure sales in order to compensate FDIC-R for the time value of money. See Wernick, 535 N.E.2d at 887; but see Angelopolous, 2018 WL 461227, at *5 (calculating equitable pre-judgment interest from date of plaintiff's demand letter, because plaintiff waited years before making demand or filing suit). Equitable considerations in this case require pre-judgment interest to be calculated from the dates of the foreclosure sales. The evidence introduced at trial shows that Founders Bank did not sit on its hands with respect to its claims against Chicago Title. Indeed, it did not even discover that the subject loans may have been fraudulent until December 2008, when Founders Bank Vice President Garry Corrie had a chance encounter with Ned Dikmen, a prior owner of one of the subject properties, and learned that Dikmen had sold the property for less than the amount of Founders Bank's loan. See Ex. 1 (testimony excerpts), Trial Tr. Vol. 3B, Aug. 24, 2017 at 602:10-604:18. Upon discovering this, Founders launched an investigation (id.) and promptly sent a demand letter to Chicago Title in early 2009. Ex. 5 (testimony excerpts), Trial Tr. Vol. 1B, Aug. 22, 2017 at 204:23-205:4. Founders Bank was therefore diligent in pursuing its claims, and calculating pre-judgment interest using any time other than the dates of the foreclosure sales would serve only to reward Chicago Title for its misconduct.

Calculating pre-judgment interest in accordance with Illinois law results in a pre-judgment interest award of $1,364,903.54 as of May 15, 2018. See Ex. 4.

IV. CONCLUSION

For the foregoing reasons, FDIC-R respectfully requests entry of judgment in favor of FDIC-R on the jury's verdict, with two adjustments that are required as a matter of law: (1) an adjustment of the jury's total damages award on each of FDIC-R's claims from $1,450,000 to $3,790,695; and (2) an award of pre-judgment interest on FDIC-R's damages.

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

EXHIBIT LIST

1. Transcript excerpts: Trial Tr. Vol. 3B, Aug. 24, 2017, 589:6-591:4; 591:20-604:18; 675:23-677:12.

2. Transcript excerpts: Trial Tr. Vol. 2B, Aug. 23, 2017 at 417:14-20; Vol. 7B, Aug. 30, 2017 at 1620:7-1621:10, 1661:20-25; and Vol. 8, Aug. 31, 2017 at 1704:3-22.

3. Fidelity National Financial, Inc. Form 10-K as of Dec. 31, 2013 (excerpts).

4. Calculation of pre-judgment interest as of May 15, 2018.

5. Transcript excerpts: Trial Tr. Vol. 1B, Aug. 22, 2017 at 204:23-205:4.

A. Unpublished cases

EXHIBIT 1

Corrie — direct by Landau

from what your memory is or it doesn't spark a memory, will you let us know?

THE WITNESS: Yes, I will, Your Honor.

THE COURT: Okay. Thank you.

BY MR. LANDAU:

Q. And can you — is your memory refreshed as of the date of sale of the Bissell foreclosure sale?

A. Date of sale was April 17, 2008.

Q. And moving back to LaSalle, do you recall that date off the top of your head?

A. No, I do not.

Q. And I'm showing you a document here. Does this document refresh your recollection —

A. Yes, it does.

Q. — as to the date of the sale?

Just let me finish. We've got a court reporter.

What was the date of sale for the LaSalle property?

A. December 20, 2007.

Q. And with regard to the first Campbell property, 5408 North Campbell, do you recall what the bid amount was for 5408 Campbell off the top of your head?

A. No, I do not.

Q. Showing you a document that may assist you, does this document assist you in recalling the bid amount for the Campbell property?

A. Yes, it does.

Q. And what was it?

A. Bid amount was $1,355,499.18.

Q. And what was the date of sale? Do you recall the date of sale?

A. No, I do not.

Q. Hmm?

A. No, I do not.

Q. Okay. Does this document refresh your recollection as to the date of sale?

A. Yes.

Q. What is it?

A. June 18, 2008.

Q. And, finally, we will discuss the bid on the second Campbell property. Do you recall that foreclosure bid off the top of your head?

A. No, I do not.

Q. And does this document refresh your recollection?

A. Yes, it does.

Q. And what was the bid amount on the second Campbell property?

A. $1,437,399.22.

Q. And do you recall the date of sale?

A. No, I do not.

Q. Do you see on — does this document assist you in refreshing your recollection?

A. Yes, it does.

Q. What was it?

A. June 18, 2008.

Q. Now, Mr. Corrie, what — as a bank officer in charge of workouts, what was your understanding of the bank's goal, what it was trying to accomplish with these bids?

A. The purpose of the bids was to minimize our loss exposure.

Q. And did — at the time of the foreclosure sales, how — what did you — what did you as a bank officer believe with regard to the reasonableness of the values of the bids?

A. The bids would be based on an appraisal that we ordered after the default. And the purpose of the bid was really to find the projected proceeds that the bank would receive if the property was sold at the appraised value.

Q. And the bid amounts for the properties that were developed that you just testified to, were these amounts sufficient to cover the amounts due under these loans?

A. No, they weren't.

Q. Do you remember what the total loan amount due for these loans were at the time of the foreclosure sales?

A. No, I do not.

Q. And would a document assist you in your — refreshing your recollection?

A. Yes, it would.

MR. LANDAU: Excuse me, Mr. Merritt?

(Counsel conferring.)

BY MR. LANDAU:

Q. Directing your attention to the LaSalle property, the LaSalle report of sale. Does this refresh your recollection as to the amount due Founders Bank under these loans at the time of the sale? I'm sorry. Yes. This is LaSalle. Does this refresh your recollection?

A. I don't have anything on the screen.

THE COURT: Oh, all right. I thought he was looking at paper documents.

BY MR. LANDAU:

Q. Does this refresh your recollection?

A. Yes, it does.

Q. What was the total amount under LaSalle at the time of sale, the amount due?

A. $3,349,447.84.

Q. And same question with Bissell, do you remember the total amount due during the — at the time of the foreclosure sale?

A. No, I do not.

Q. Would a document refresh your recollection?

A. Yes, it would.

Q. Does this document refresh your recollection?

A. Yes, it does.

Q. And what is that number?

A. Total sale — or total amount was $3,777,127.68.

Q. Moving to the 5408 North Campbell property, do you recall today what the total amount due for this loan as of the date of the foreclosure sale was?

A. No, I do not.

Q. Would a document refresh your recollection?

A. Yes, it would.

Q. I'm showing you a document on your screen. Does this document refresh your recollection as to the amounts due under the first Campbell one?

A. Yes.

Q. What was that amount?

A. $1,532,965.80.

Q. Same question for the 5412 North Campbell property, do you remember the total amount due under that loan at the time of the foreclosure sale?

A. No, I do not.

Q. Would a document refresh your recollection?

A. Yes, it would.

Q. I'm showing you a document on the screen. Can you — does this refresh your recollection as to the total amount due under the second Campbell property loan?

A. Yes, it does.

Q. And what is that amount?

A. $1,625,576.16.

Q. Were you involved in the calculation of these loan amounts for the purposes of the foreclosure bid?

A. Yes, I was.

Q. And how were these calculations made?

A. Based upon the bank's records at the time.

Q. And how were these calculation — now, in the course of a foreclosure process, do documents have to be prepared to be submitted to a court?

A. Yes. We would calculate the numbers, and our foreclosure attorney would incorporate them into an affidavit.

Q. And would this information be checked — would you be involved in checking this information for accuracy before submitting it to the Court?

A. Yes, I would.

Q. And did you review these calculations for the purposes of a declaration you made in this case?

A. Yes, I did.

Q. And in the course of this review, did you review the supporting documents for the loan amount calculation submitted

to the Court?

A. Yes, I did.

MR. ROSENBERG: Objection. Leading.

THE COURT: I'm sorry. What was the objection?

MR. ROSENBERG: Just a line of leading questions.

THE COURT: Well, they're foundational questions, so I'll be a little flexible in letting a little bit of leading just to lay a foundation.

MR. LANDAU: Thank you.

BY MR. LANDAU:

Q. Based upon your review, were you able — what — were they — based upon your review, what did you determine in regard to their accuracy or inaccuracy?

A. That they were accurate.

Q. Now, after the bank made its credit bids, did the bank attempt to collect the balance of these loan amounts?

A. Yes, we did.

Q. And how did that — how did you do that?

A. In each case, we received deficiency judgments, and we attempted to collect those from the guarantors.

Q. What is deficiency judgment?

A. Deficiency judgment is the difference between the loan amount that the Court approves less the amount that the bank bids for the property at the sheriff sale.

Q. And did you receive deficiency judgments for each of these loans?

A. Yes, we did.

Q. Do you recall the amount of those deficiency judgments today?

A. No, I do not.

Q. Would a document refresh your recollection as to the amount of those deficiency judgments?

A. Yes, it would.

Q. Let's start with Bissell. If you could take a look at the document on your screen, does this refresh your recollection as to the amount of the deficiency judgment in this case in the Bissell loan?

A. Yes, it does.

Q. And what was that amount?

A. $2,155,605.51.

Q. Moving to LaSalle, do you recall the amount of the deficiency judgment with regard to the LaSalle loan?

A. No, I do not.

Q. Would a document assist you in refreshing your recollection?

A. Yes, it would.

Q. And I'm showing you a document. Does that refresh your recollection as to the amount of the deficiency judgment in the — for the LaSalle loan?

A. Yes, it does.

Q. And what is that amount?

A. $1,359,447.84.

Q. Moving on to the first Campbell property, do you recall the amount of the deficiency judgment for that loan?

A. No, I do not.

Q. Would a document assist you in refreshing your recollection?

A. Yes, it would.

Q. Directing your attention to the document on your screen, does that document refresh your recollection as to the amount?

A. Yes, it does.

Q. And what is that amount?

A. $177,466.62.

Q. Directing your attention to the second Campbell property, 5412. Do you recall the amount of the deficiency judgment for that loan?

A. No, I do not.

Q. Would a document refresh your recollection?

A. Yes, it would.

Q. Directing your attention to the document on the screen, does this document refresh your recollection as to the amount of the deficiency for the second Campbell property?

A. Yes, it does.

Q. Did the bank attempt to collect against these judgments?

A. Yes, we did.

Q. Did the bank collect any money from the guarantors or the borrowers with regard to these amounts?

A. No, we did not.

THE COURT: I'm sorry. Mr. Landau, were you intending to ask for the amount of the loan for that last property?

MR. LANDAU: Oh, I'm sorry. You're right. I missed that.

THE COURT: I think you were —

BY MR. LANDAU:

Q. What was the amount of the deficiency judgment?

A. $188,176.94.

Q. Thank you.

I'm going to show you a document.

THE COURT: And this is one that you are going to be offering?

MR. LANDAU: Yes.

THE COURT: Okay.

MR. LANDAU: This is going to be I guess Demonstrative 12, Your Honor.

THE COURT: Okay.

Any objection from Chicago Title?

MR. ROSENBERG: No, Your Honor.

THE COURT: Okay. FDIC Demonstrative No. 12 has been shown.

BY MR. LANDAU:

Q. Directing your attention to —

MR. LANDAU: Can I publish it, Your Honor?

THE COURT: Yes, I believe it's being published already. Okay. Yes, you're not seeing it.

JUROR: That's correct.

THE COURT: Let's see if we can fix it.

Is it on some but not others?

JUROR: Yeah.

THE COURT: Okay. Let's try that again.

JUROR: We have just black screens.

THE COURT: How many of you can actually see the document on your screen? So it's all one side. That's interesting. Okay.

MR. LANDAU: That's never a good sign.

THE COURT: It is not. That suggests there may be a connection issue. So let's see the best way to address this. We can turn the big screen around.

MR. LANDAU: Yeah, I think that will work.

Gentlemen.

THE COURT: Thank you, defense counsel, for turning the screen around. Unfortunately it's the people at that end of the jury box. Is it too tight of a turn?

MR. LEVIN: It might be too big to turn, Your Honor.

THE COURT: You have my permission to pull it out as long as you're not disconnecting any cables.

MR. LANDAU: Oh, that's pretty good. Okay.

THE COURT: I'm going to try one more time to see if I could reestablish a connection here. I apologize for the delay.

MR. LANDAU: I think this is sufficient, Your Honor.

THE COURT: We'll still try to fix it.

Stephanie, do you want to step out to make the call?

We'll see if we can get somebody to fix it, but you may continue. We'll still try to fix the problem.

MR. LANDAU: I'm fine. Sure.

BY MR. LANDAU:

Q. Mr. Corrie, have you had an opportunity to review the figures on this screen, Demonstrative 12?

A. Yes, I have.

Q. And does this accurately summarize the Bissell property, the date it was placed on a watch list for default, the deficiency judgment and any additional property value?

A. Yes, it does.

Q. Now, explain to us the additional property value on Bissell. What does that mean?

A. On Bissell, we sold the property for 90,000 more than we bid.

Q. So —

(Unintelligible crosstalk.)

THE COURT REPORTER: I'm sorry. Can you repeat that, please?

THE WITNESS: On Bissell we sold the property for 90,000 more than our share of the sale bid. So that's a credit — or it basically reduces our loss amount by $90,000.

BY MR. LANDAU:

Q. And would the loss amount to the bank, taking this additional property value and the deficiency judgment into account, be listed in the last column?

A. Yes, it would.

Q. And what is that amount?

A. Two million $65 — or $65,605.

Q. $605. Thank you.

A. Yep.

Q. This is the second page of the demonstrative. These represent Founders Bank's losses on LaSalle. Once again, you have reviewed these figures and determined their accuracy based upon your recollection as refreshed?

A. Yes, I did.

Q. And what was the bank's loss on the LaSalle loan factoring in the deficiency judgment and any additional property value?

A. $1,359,447.

Q. And this is the slide for the first Campbell property. Did you review these dates and figures for accuracy?

A. Yes, I did.

Q. And the calculation here demonstrates a loss — results in a loss to the bank of what?

A. $177,466.

Q. And this is the comparable slide for the 5412 North Campbell property. You performed the same calculations here?

A. Yes, I did.

Q. And what was the loss that resulted from that calculation?

A. $188,177.

Q. And directing your attention to the last slide, did you review these figures for accuracy?

A. Yes, I did.

Q. And what is the figure summing across all properties of the total loss to the bank as based on the calculations performed?

A. $3,790,695.

Q. Now, Mr. Corrie, you're aware, are you not, that the subject properties — it's alleged here that the subject properties were involved in same day double closings?

A. Yes, I am.

Q. Now, did there come a time — there was a time when you were unaware of this, correct?

A. Correct.

Q. How did it come to pass that you became aware that there were issues with these loans?

A. It was really a fluke. In December of 2008, after the bank purchased the property, I received a call from the next-door neighbor, Ned Dikmen, that there had been a water main break, and he suggested I come out and take a look at the property.

So I drove out to the property and was outside talking to Ned, and we were just having conversation. And I told him, I go, well, you did very well selling this building for $3.1 million. And Ned looks at me and he goes, I'm sorry. He goes, I sold the building for 2 million 4. I go, Ned, I saw the documents. I know you sold it for 3.1. Ned says, I was at the closing. I know I sold it $2.4 million.

So we went back and forth. We both agreed we would go back to our offices and share our closing documents with each other, and that's what we did.

Q. What was your reaction when you saw that there were two escrow trust disbursement statements?

A. I was shocked.

MR. ROSENBERG: Objection. Relevance.

THE COURT: Well, first of all, did you establish that he saw that there were two?

MR. LANDAU: Let's back up a little bit, shall we?

THE COURT: Yes.

MR. LANDAU: Okay.

THE COURT: Lay a foundation. Lay a foundation, and I'm overruling the relevance objection.

BY MR. LANDAU:

Q. Mr. Corrie, did you — in the course of your discussions with Mr. Dikmen, did you both exchange escrow trust disbursement statements for closings for the LaSalle property in February of 2006?

A. Yes, we did.

Q. And what did you observe when you compared those statements?

A. That Ned's documents showed that he had sold his property for $2.4 million.

Q. And had you ever seen that escrow trust disbursement statement?

A. No, I did not.

Q. And in the course of your — did this cause the bank to conduct any further investigation with regard to potential irregularities in loans originated around that time?

A. Yes, it did.

Q. And what was found?

A. We reviewed three other loans that we knew were related through borrowers, and they were the Bissell property and the two Campbell properties. We contacted the sellers' attorneys in all three cases. They sent us the closing documents, and we confirmed that there had been dual closings on those properties as well.

MR. LANDAU: Pass the witness, Your Honor.

THE COURT: Okay.

MR. ROSENBERG: I got a gift for you, Mr. Corrie.

THE WITNESS: Okay.

MR. ROSENBERG: A little reading material.

If I may approach the witness.

THE COURT: You may.

Speda ie — direct by Landau 675

Q. Do you believe that Founders' escrow trust instructions authorized Chicago Title to disburse the bank's funds in double closings?

MR. TUCKER: Objection to leading, Your Honor.

MR. LANDAU: I'll rephrase.

THE COURT: Well, I'll allow the question and the answer. It is slightly leading. I'll just ask you,

Mr. Landau, to remember not to lead your own witness. But I think this question, if the witness remembers it, he can answer it.

MR. LANDAU: Your Honor, can I just make a point? I don't believe — I mean, I understand people use the word "leading questions." I don't believe the answer to that question was set forth in the question itself.

THE COURT: That's why I said it was slightly leading. It's permissible.

MR. LANDAU: Thank you.

THE COURT: But I think we all know, you can load up a yes or no question so that it might not technically be leading but still suggest the answer. Just be cautious.

MR. LANDAU: I will, Your Honor. Of course.

BY MR. LANDAU:

Q. What do you think would have happened — how do you believe Founders Bank would have reacted if Chicago Title had disclosed these double closings to the bank at the time that these properties were funded by Founders Bank loans?

A. Well, we would have stopped the closing.

Q. Why?

A. Because that's not what we approved at loan committee.

Q. Now, what significance, if at all, would it be to the bank that the properties were purchased at significantly lower prices at the time — at the same time that the bank was funding a sale at a higher price?

A. We would have not had the appropriate collateral to secure our loan.

Q. Is there any other reasons these double closings would have been relevant to the bank's lending decision?

A. Yes.

Q. What?

A. We would have never made the loans.

Q. Now, if you had known that the bank's funds were being used to finance these double closings, would you have recommended that these loans be approved?

A. Absolutely not.

Q. If you knew the bank's funds were being used to finance these double closings, would you have recommended other loans to these guarantors?

MR. TUCKER: Objection, Your Honor. Is there a foundation that these loans are being used to fund that? I'm not sure this witness has laid that foundation.

THE COURT: I'm going to overrule the objection. You can answer.

BY THE WITNESS:

A. No.

BY MR. LANDAU:

Q. In your 30 years of commercial lending, have you approved a loan used in a double closing like those described here?

A. Never.

Q. In your 30 years of commercial lending, has anyone requested that you approve a loan using a double closing of the sort described to the FDIC — by the FDIC in your interview?

A. No.

Q. Who is Matthew Bowker?

A. Matthew Bowker is a broker.

Q. And was he a particular type of broker?

A. Commercial.

Q. A mortgage broker?

A. Commercial real estate mortgage broker, yes.

Q. Did he have a prior relationship with Founders Bank?

A. No, he did not. He was actually referred to me by a customer's wife who was a residential real estate broker.

Q. Did Founders Bank have any kind of agency agreement or other contractual agreement with Mr. Bowker or Wellington Mortgage?

A. No.

EXHIBIT 2

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

the two closings? And their answer was no. And if they were unaware of the two closings, then they would not have been aware of the movement of money from the higher closing to the lower closing.

Q. And did the — did you ask them whether they were aware that the — whether they were aware of the fact that the down payments that structured this transaction led to the down payments being refunded to the buyers?

MR. ROSENBERG: Objection, assumes facts not in evidence.

THE COURT: Just a moment. I'm going to sustain that one.

BY MR. LANDAU:

Q. Did they admit to you whether they understood that there was anything improper about these transactions?

A. Yes.

Q. And what did they admit to you?

A. That the double closings were improper, and they were unaware of them and that if they had been aware of them, they would not have gone forward with the loans to the borrowers.

MR. LANDAU: Thank you. That's all I have.

THE COURT: I'll just note the jury heard me say before that I was striking the use of the word "admit." I'm not going to make you reword the question but, instead, will just direct the jury that to the extent that you would attach

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

A. My opinion is that, again, as I stated before, the escrow trust instructions have to be — the loan disbursement statement has to be absolutely true and correct.

And if, in fact, the money didn't go to Sarmisegeturza but, in fact, went somewhere else, they did not comply because the statements were not true and accurate.

Q. I take you back to Demonstrative 13. Bear with me for one second.

These are the four transactions at issue here. Based on your experience with commercial transactions, do you have an opinion as to whether or not these were legitimate commercial real estate transactions?

A. In terms of the transaction or the statements?

Q. I'm sorry. We're now looking at the transactions themselves.

A. No, I believe they were not — yes, I have an opinion.

Q. Go ahead. And what is that opinion?

A. I — I don't believe these are legitimate transactions because they're part and parcel of a transaction in which, A, the property was purchased in the few hours before or the few minutes before at a lower price and then minutes before at a lower price without any basis for the increase in the value.

And number two, the money was disbursed in a way that the down payment that the borrowers made, in accordance with Founders Bank's requirement, were, in fact, returned to the borrowers or their affiliates.

Q. And why is that improper?

A. Because the — the bank intended — number one, the bank was shown contracts which reflected a higher price while, in fact, the property was acquired at a lower price.

Number two, the — it was important, based on my experience, to the bank that the bank fund 80 percent of a value of a transaction; the borrower in terms of their down payment fund 20 percent. And that was not done, and that was not done and not reflected in these transactions.

Q. Have you reviewed how title passed with — in these four transactions?

A. I did. It seemed —

Q. And what did you conclude from your —

A. I concluded that title, in fact, passed from the lower priced seller directly to the buyer in the last leg — last leg of these two-part transactions in the higher priced transaction.

Q. And do you have an opinion as to whether Sarmisegeturza Investment was ever truly a seller of this property?

A. I — I have the opinion that they were not. They were — in fact, they were totally omitted from the chain of title.

It went right from the original owner, the lower priced escrow owner, right to the ultimate purchaser.

Q. Now, in your 50 years of structuring commercial real estate

THE WITNESS: — within a few minutes to a few hours of the first transaction.

MR. LANDAU: Your Honor, I think the witness may be struggling.

THE COURT: Can I ask a question? I think so. And let me just ask this.

Mr. Tucker, are you objecting to the fact that the witness did not give an opinion on the legality of the transaction?

MR. TUCKER: He didn't answer the question he was asked.

THE COURT REPORTER: I'm sorry.

MR. TUCKER: I'm sorry. He didn't answer the question that was asked. I believe he did now. I'm fine with the answer.

THE COURT: You're withdrawing your objection?

MR. TUCKER: Yeah, sure.

THE COURT: Okay. Very good.

BY MR. LANDAU:

Q. And based upon this guidance within this Chicago Title memo, based upon this guidance, do you have an opinion as to what Chicago Title had — what Chicago Title should have done if presented with these particular transactions?

A. Yeah. Not — not participate in the illegal flip transaction.

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

certain red flags of mortgage fraud, and I've highlighted a few of them.

How, if at all, have you rendered an opinion as to whether or not this — these transactions bore certain characteristics of an improper or illegitimate transaction?

A. Yes. Certainly this is the kind of thing, again, having read this, that reinforced by view that this involved these kind of fraudulent transactions which let me provide my opinion.

Q. Based upon your review of this, are there any red flags that should have stood out to the — strike that.

Based upon your review of this document, do you have an opinion as to whether there were any characteristics of these transactions listed here that should have put the Chicago Title personnel on alert that this transaction was improper?

A. Again, the first three highlighted points all were present in this transaction. There is a double escrow, there were related parties to the transaction, and there were unusual credits from the seller to the buyer, including the return of the down payment that certainly was not to go back to the buyer.

Q. There's also a reference to payments to third parties who do not have liens on the property. Was that a characteristic of these transactions?

EXHIBIT

3

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes R No []

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [] No R

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No []

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No []

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. R

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [] No R

The aggregate market value of the shares of the common stock held by non-affiliates of the registrant as of June 30, 2013 was $5,145,188,402 based on the closing price of $23.81 as reported by the New York Stock Exchange.

As of January 31, 2014, there were 276,328,287 shares of Common Stock outstanding.

The information in Part III hereof for the fiscal year ended December 31, 2013, will be filed within 120 days after the close of the fiscal year that is the subject of this Report.

FIDELITY NATIONAL FINANCIAL, INC. FORM 10-K TABLE OF CONTENTS

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note I. Accounts Payable and Other Accrued Liabilities

Accounts payable and other accrued liabilities consist of the following:

Note J. Notes Payable

Notes payable consists of the following:

At December 31, 2013, the estimated fair value of our long-term debt was approximately $1,555 million or $232 million higher than its carrying value. The fair value of our long-term debt at December 31, 2012 was approximately $1,504 million or $160 million higher than its estimated carrying value. The fair value of our unsecured notes payable was $1,214 million and $1,139 million as of December 31, 2013 and 2012, respectively. The fair values of our unsecured notes payable are based on established market prices for the securities on December 31, 2013 and 2012 and are considered Level 2 financial liabilities. The fair value of our Remy Term Loan was $267 million and $259 million, based on established market prices for the securities on December 31, 2013 and 2012, respectively, and is considered a Level 2 financial liability. The fair value of our Restaurant Group Term Loan was $53 million and $72 million, based on established market prices for the securities on December 31, 2013 and 2012 and is considered a Level 2 financial liability.

On January 2, 2014, as a result of the LPS acquisition, we acquired $600 million aggregate principal amount of 5.75% Senior Notes due 2023, initially offered by Black Knight Infoserv, LLC (formerly LPS, "Black Knight Infoserv") on October 12, 2012 (the "Black Knight Senior Notes"). The Black Knight Senior Notes were registered under the Securities Act of 1933, and as amended, carry an interest rate of 5.75% and will mature on April 15, 2023. Interest will be paid semi-annually on the 15th day of April and October beginning April 15, 2013. The Black Knight Senior Notes are senior unsecured obligations and are guaranteed by certain of our subsidiaries that were formerly subsidiaries of LPS (the "Subsidiary Guarantors"), and by us as of January 2, 2014. At any time and from time to time, prior to October 15, 2015, Black Knight Infoserv may redeem up to a maximum of 35% of the original aggregate principal amount of the Black Knight Senior Notes with the proceeds of one or more equity offerings, at a redemption price equal to 105.75% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). Prior to October 15, 2017, Black Knight Infoserv may redeem some or all of the Black Knight Senior Notes by paying a "make-whole" premium based on U.S. Treasury rates. On or after October 15, 2017, Black Knight Infoserv may redeem some or all of the Black Knight Senior Notes at the redemption prices described in the Black Knight Senior Notes indenture, plus accrued and unpaid interest. In addition, if a change of control occurs, Black Knight Infoserv is required to offer to purchase all outstanding Black Knight Senior Notes at a price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).The Black Knight Senior Notes contain covenants that, among other things, limit Black Knight Infoserv's ability and the ability of certain of its subsidiaries (a) to incur or guarantee additional indebtedness or issue preferred stock, (b) to make certain restricted payments, including dividends or distributions on equity interests held by persons other than Black Knight Infoserv or certain subsidiaries, in excess of an amount generally equal to 50% of consolidated net income generated since July 1, 2008, (c) to create or incur certain liens, (d) to engage in sale and leaseback transactions, (e) to create restrictions that would prevent or limit the ability of certain subsidiaries to (i) pay dividends or other distributions to Black Knight Infoserv or certain other subsidiaries, (ii) repay any debt or make any loans or advances to Black Knight Infoserv or certain other subsidiaries or (iii) transfer any property or assets to Black Knight Infoserv or certain other subsidiaries, (f) to sell or dispose of assets of Black Knight Infoserv or any restricted subsidiary or enter into merger or consolidation transactions and (g) to engage in certain transactions with affiliates. As a result of our guarantee of the Black Knight Senior Notes on January 2, 2014, the notes became rated investment grade. The indenture provides that certain covenants are suspended while the Black Knight Senior Notes are rated investment grade. Currently covenants (a), (b), (c), (f) and (g) outlined above are suspended. These covenants will continue to be suspended as long as the notes are rated investment grade, as defined in the indenture. These covenants are subject to a number of exceptions, limitations and qualifications in the Black Knight Senior Notes indenture. Black Knight Infoserv has no independent assets or operations and the guarantees of the Subsidiary Guarantors are full and unconditional and joint and several. There are no significant restrictions on the ability of Black Knight Infoserv or any of the Subsidiary Guarantors to obtain funds from any of their subsidiaries. The Black Knight Senior Notes contain customary events of default, including failure of Black Knight Infoserv (i) to pay principal and interest when due and payable and breach of certain other covenants and (ii) to make an offer to purchase and pay for the Black Knight Senior Notes tendered as required by the Black Knight Senior Notes. Events of default also include cross defaults, with respect to any other debt of Black Knight Infoserv or debt of certain subsidiaries having an outstanding principal amount of $80 million or more in the aggregate for all such debt, arising from (i) failure to make a principal payment when due and such defaulted payment is not made, waived or extended within the applicable grace period or (ii) the occurrence of an event which results in such debt being due and payable prior to its scheduled maturity. Upon the occurrence of an event of default (other than a bankruptcy default with respect to Black Knight Infoserv or certain subsidiaries), the trustee or holders of at least 25% of the Black Knight Senior Notes then outstanding may accelerate the Black Knight Senior Notes by giving us appropriate notice. If, however, a bankruptcy default occurs with respect to the Black Knight Infoserv or certain subsidiaries, then the principal of and accrued interest on the Black Knight Senior Notes then outstanding will accelerate immediately without any declaration or other act on the part of the trustee or any holder. Subsequent to year end, on January 16, 2014, we issued an offer to purchase the Black Knight Senior Notes pursuant to the change of control provisions above at a purchase price of 101% of the principal amount plus accrued interest to the purchase date. The offer expired on February 18, 2014. As a result of the offer, bondholders tendered $5 million in principal of the Black Knight Senior Notes, which were subsequent purchased by us on February 24, 2014.

On October 24, 2013, we entered into a bridge loan commitment letter (the "Bridge Loan Commitment Letter") with Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bank of America, N.A. ("Bank of America"), J.P. Morgan Securities LLC and JP Morgan Chase Bank, N.A. The Bridge Loan Commitment Letter provides for up to an $800 million short-term loan facility (the "Bridge Facility"). The proceeds of the loans under the Bridge Facility were used to fund, in part, the cash consideration for the acquisition of LPS and pay certain costs, fees and expenses in connection with the LPS merger. Pursuant to the Bridge Loan Commitment Letter, we executed a promissory note in favor of the Bridge Facility lenders on the closing date of the Merger that evidenced the terms of the Bridge Facility. The Bridge Facility matured on the second business day following the funding thereof and required scheduled amortization payments. Borrowings under the Bridge Facility bear interest at a rate equal to the highest of (i) the Bank of America prime rate, (ii) the federal fund effective rate from time to time plus 0.5% and (iii) the one month adjusted London interbank offered rate ("LIBOR") plus 1.0%. Other than as set forth in this paragraph, the terms of the Bridge Facility are be substantially the same as the terms of the Amended Term Loan Agreement discussed below. Subsequent to year end, as part of the acquisition of LPS on January 2, 2014, the Bridge Facility was funded and subsequently repaid the following day,

On July 11, 2013, we entered into a term loan credit agreement with Bank of America, N.A., as administrative agent (in such capacity, the "TL Administrative Agent"), the lenders party thereto and the other agents party thereto (the "Term Loan Agreement"). The Term Loan Agreement permits us to borrow up to $1.1 billion to fund the acquisition of LPS. The term loans under the Term Loan Agreement mature on the date that is five years from the funding date of the term loans under the Term Loan Agreement. Term loans under the Term Loan Agreement generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a) 0.5% in excess of the federal funds rate, (b) the TL Administrative Agent's "prime rate", or (c) the sum of 1.0% plus one-month LIBOR) plus a margin of between 50 basis points and 100 basis points depending on the senior unsecured long-term debt ratings of FNF or (ii) LIBOR plus a margin of between 150 basis points and 200 basis points depending on the senior unsecured long-term debt ratings of FNF. Based on our current Moody's and Standard & Poor's senior unsecured long-term debt ratings of Baa3/BBB-,respectively, the applicable margin for term loans subject to LIBOR is 175 basis points over LIBOR. In addition, we will pay an unused commitment fee of 25 basis points on the entire term loan facility until the earlier of the termination of the term loan commitments or the funding of the term loans. Under the Term Loan Agreement, we are subject to customary affirmative, negative and financial covenants, including, among other things, limits on the creation of liens, limits on the incurrence of indebtedness, restrictions on investments, dispositions and transactions with affiliates, limitations on dividends and other restricted payments, a minimum net worth and a maximum debt to capitalization ratio. The Term Loan Agreement also includes customary events of default for facilities of this type (with customary grace periods, as applicable) and provides that, if an event of default occurs and is continuing, the interest rate on all outstanding obligations may be increased, payments of all outstanding term loans may be accelerated and/or the lenders' commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the Term Loan Agreement shall automatically become immediately due and payable, and the lenders' commitments will automatically terminate. Under the Term Loan Agreement the financial covenants are the same as under the Restated Credit Agreement. On October 27, 2013, we amended the Term Loan Agreement to permit us to incur the indebtedness in respect of the Bridge Facility and incorporate other technical changes to describe the structure of the LPS merger. Subsequent to year end, as part of the acquisition of LPS on January 2, 2014, the Term Loan Agreement was fully funded.

On June 25, 2013, we entered into an agreement to amend and restate our existing $800 million second amended and restated credit agreement (the "Existing Credit Agreement"), dated as of April 16, 2012 with Bank of America, N.A., as administrative agent (in such capacity, the "Administrative Agent") and the other agents party thereto (the "Revolving Credit Facility"). Among other changes, the Revolving Credit Facility amends the Existing Credit Agreement to permit us to make a borrowing under the Revolving Credit Facility to finance a portion of the acquisition of LPS on a "limited conditionality" basis, incorporates other technical changes to permit us to enter into the Acquisition and extends the maturity of the Existing Credit Agreement. The lenders under the Existing Credit Agreement have agreed to extend the maturity date of their commitments under the credit facility from April 16, 2016 to July 15, 2018 under the Revolving Credit Facility. Revolving loans under the credit facility generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a) one-half of one percent in excess of the federal funds rate, (b) the Administrative Agent's "prime rate", or (c) the sum of one percent plus one-month LIBOR) plus a margin of between 32.5 and 60 basis points depending on the senior unsecured long-term debt ratings of FNF or (ii) LIBOR plus a margin of between 132.5 and 160 basis points depending on the senior unsecured long-term debt ratings of FNF. Based on our current Moody's and Standard & Poor's senior unsecured long-term debt ratings of Baa3/BBB-, respectively, the applicable margin for revolving loans subject to LIBOR is 145 basis points. In addition, we will pay an unused commitment fee of between 17.5 and 40 basis points on the entire facility, also depending on our senior unsecured long-term debt ratings. Under the Revolving Credit Facility, we are subject to customary affirmative, negative and financial covenants, including, among other things, limits on the creation of liens, limits on the incurrence of indebtedness, restrictions on investments, dispositions and transactions with affiliates, limitations on dividends and other restricted payments, a minimum net worth and a maximum debt to capitalization ratio. The Revolving Credit Facility also includes customary events of default for facilities of this type (with customary grace periods, as applicable) and provides that, if an event of default occurs and is continuing, the interest rate on all outstanding obligations may be increased, payments of all outstanding loans may be accelerated and/or the lenders' commitments may be terminated. These events of default include a cross-default provision that, subject to limited exceptions, permits the lenders to declare the Revolving Credit Facility in default if: (i) (a) we fail to make any payment after the applicable grace period under any indebtedness with a principal amount (including undrawn committed amounts) in excess of 3.0% of our net worth, as defined in the Revolving Credit Facility, or (b) we fail to perform any other term under any such indebtedness, or any other event occurs, as a result of which the holders thereof may cause it to become due and payable prior to its maturity; or (ii) certain termination events occur under significant interest rate, equity or other swap contracts. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the Revolving Credit Facility shall automatically become immediately due and payable, and the lenders' commitments will automatically terminate. Under the Revolving Credit Facility the financial covenants remain essentially the same as under the Existing Credit Agreement, except that the total debt to total capitalization ratio limit of 35% will increase to 37.5% for a period of one year after the closing of the LPS acquisition and the net worth test was reset. As of December 31, 2013, there was no outstanding balance under the Revolving Credit Facility.

Also on October 24, 2013, we entered into amendments to amend the revolving credit facility to permit us to incur the indebtedness in respect of the Bridge Facility and incorporate other technical changes to describe the structure of the LPS merger. Subsequent to year end, as part of the acquisition of LPS on January 2, 2014, we borrowed $300 million under the Revolving Credit Facility.

On March 5, 2013, Remy entered into a First Amendment to its existing five year Asset-Based Revolving Credit Facility (the "Remy Credit Facility" and "Remy Credit Facility First Amendment") to extend the maturity date of the Remy Credit Facility from December 17, 2015 to September 5, 2018 and reduce the interest rate. The Remy Credit Facility now bears interest at a defined Base Rate plus 0.50%-1.00% per year or, at Remy's election, at an applicable LIBOR Rate plus 1.50%-2.00% per year and is paid monthly. The Remy Credit Facility First Amendment maintains the current maximum availability at $95 million, which may be increased, under certain circumstances, by $20 million, though the actual amount that may be borrowed is based on the amount of collateral. The Remy Credit Facility is secured by substantially all domestic accounts receivable and inventory held by Remy. Remy will incur an unused commitment fee of 0.375% on the unused amount of commitments under the Remy Credit Facility First Amendment. At December 31, 2013, the Remy Credit Facility balance was zero. Based upon the collateral supporting the Remy Credit Facility, the amount borrowed, and the outstanding letters of credit of $3 million, there was additional availability for borrowing of $73 million on December 31, 2013. The Remy Credit Facility contains various restrictive covenants, which include, among other things: (i) a maximum leverage ratio, decreasing over the term of the facility; (ii) a minimum interest coverage ratio, increasing over the term of the facility; (iii) mandatory prepayments upon certain asset sales and debt issuances; (iv) requirements for minimum liquidity; and (v) limitations on the payment of dividends in excess of a specified amount.

On March 5, 2013, Remy entered into a $300 million Amended and Restated Term B Loan Credit Agreement ("Term B Amendment") to refinance the existing $287 million Term B Loan, extend the maturity from December 17, 2016 to March 5, 2020, and reduce the interest rate. The Term B Amendment now bears interest at LIBOR (subject to a floor of 1.25%) plus 3% per year, with an original issue discount of approximately $1 million. The Term B Amendment also contains an option to increase the borrowing provided certain conditions are satisfied, including maintaining a maximum leverage ratio. The Term B Amendment is secured by a first priority lien on the stock of Remy's subsidiaries and substantially all domestic assets other than accounts receivable and inventory pledged to the Remy Credit Facility. Principal payments in the amount of approximately $1 million are due at the end of each calendar quarter with termination and final payment no later than March 5, 2020. The Term B Amendment also includes covenants and events of default customary for a facility of this type, including a cross-default provision under which the lenders may declare the loan in default if Remy (i) fails to make a payment when due under any debt having a principal amount greater than $5 million or (ii) breaches any other covenant in any such debt as a result of which the holders of such debt are permitted to accelerate its maturity. Remy is in compliance with all covenants as of December 31, 2013. The Term B Loan is subject to an excess cash calculation which may require the payment of additional principal on an annual basis. At December 31, 2013, the average borrowing rate, including the impact of the interest rate swaps, was 4.25%.

On August 28, 2012, we completed an offering of $400 million in aggregate principal amount of 5.50% notes due September 2022 (the "5.50% notes"), pursuant to an effective registration statement previously filed with the Securities and Exchange Commission. The notes were priced at 99.513% of par to yield 5.564% annual interest. As such we recorded a discount of $2 million, which is netted against the $400 million aggregate principal amount of the 5.50% notes. The discount is amortized to September 2022 when the 5.50% notes mature. The 5.50% notes will pay interest semi-annually on the 1st of March and September, beginning March 1, 2013. We received net proceeds of $396 million, after expenses, which were used to repay the $237 million aggregate principal amount outstanding of our 5.25% unsecured notes maturing in March 2013, the $50 million outstanding on our revolving credit facility, and the remainder is being held for general corporate purposes. These notes contain customary covenants and events of default for investment grade public debt. These events of default include a cross default provision, with respect to any other debt of the Company in an aggregate amount exceeding $100 million for all such debt, arising from (i) failure to make a principal payment when due or (ii) the occurrence of an event which results in such debt being due and payable prior to its scheduled maturity.

On September 28, 2012, we used $242 million of the net proceeds of the issuance of the 5.50% notes to fund the repayment of the $237 million aggregate principal amount outstanding of our 5.25% unsecured notes, including less than $1 million of unpaid interest and a $5 million make-whole call penalty, as the 5.25% unsecured notes had a stated maturity of March 2013.

On May 31, 2012, ABRH entered into a credit agreement (the "ABRH Credit Facility") with Wells Fargo Capital Finance, LLC as administrative agent and swing lender (the "ABRH Administrative Lender") and the other financial institutions party thereto. The ABRH Credit Facility provides for a maximum revolving loan of $80 million with a maturity date of May 31, 2017. Additionally, the ABRH Credit Facility provides for a maximum term loan ("Restaurant Group Term Loan") of $85 million with quarterly installment repayments through December 25, 2016 and a maturity date of May 31, 2017 for the outstanding unpaid principal balance and all accrued and unpaid interest. On May 31, 2012, ABRH borrowed the entire $85 million under such term loan. Pricing for the ABRH Credit Facility is based on an applicable margin between 300 basis points to 375 basis points over LIBOR. The ABRH Credit Facility is subject to affirmative, negative and financial covenants customary for financings of this type, including, among other things, limits on ABRH's creation of liens, sales of assets, incurrence of indebtedness, restricted payments, transactions with affiliates, and certain amendments. The covenants addressing restricted payments include certain limitations on the declaration or payment of dividends by ABRH to its parent, Fidelity Newport Holdings, LLC ("FNH"), and by FNH to its members, and one such limitation restricts the amount of dividends that ABRH can pay to its parent (and that FNH can in turn pay to its members) to $5 million in the aggregate (outside of certain other permitted dividend payments) in fiscal year 2012 (with varying amounts for subsequent years). The ABRH Credit Facility includes customary events of default for facilities of this type (with customary grace periods, as applicable), which include a cross-default provision whereby an event of default will be deemed to have occurred if (i) ABRH or any of its guarantors, which consists of FNH and certain of its subsidiaries, (together, the "Loan Parties") or any of their subsidiaries default on any agreement with a third party of $2 million or more related to their indebtedness and such default (a) occurs at the final maturity of the obligations thereunder or (b) results in a right by such third party to accelerate such Loan Party's or its subsidiary's obligations or (ii) a default or an early termination occurs with respect to certain hedge agreements to which a Loan Party or its subsidiaries is a party involving an amount of $0.75 million or more. The ABRH Credit Facility provides that, upon the occurrence of an event of default, the ABRH Administrative Lender may (i) declare the principal of, and any and all accrued and unpaid interest and fees in respect of, the loans immediately due and payable, (ii) terminate loan commitments and (iii) exercise all other rights and remedies available to the ABRH Administrative Lender or the lenders under the loan documents. As of December 31, 2013, the balance of the term loan was $53 million and there was no outstanding balance on the revolving loan. ABRH had $18 million of outstanding letters of credit and $62 million of remaining borrowing capacity under our revolving credit facility as of December 31, 2013.

On August 2, 2011, we completed an offering of $300 million in aggregate principal amount of 4.25% convertible senior notes due August 2018 (the "Notes") in an offering conducted in accordance with Rule 144A under the Securities Act of 1933, as amended. The Notes contain customary event-of-default provisions which, subject to certain notice and cure-period conditions, can result in the acceleration of the principal amount of, and accrued interest on, all outstanding Notes if we breach the terms of the Notes or the indenture pursuant to which the Notes were issued. The Notes are unsecured and unsubordinated obligations and (i) rank senior in right of payment to any of our existing or future unsecured indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; (iii) are effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) are structurally subordinated to all existing and future indebtedness and liabilities of our subsidiaries. Interest is payable on the principal amount of the Notes, semi-annually in arrears in cash on February 15 and August 15 of each year, commencing February 15, 2012. The Notes mature on August 15, 2018, unless earlier purchased by us or converted. The Notes were issued for cash at 100% of their principal amount. However, for financial reporting purposes, the notes were deemed to have been issued at 92.818% of par value, and as such we recorded a discount of $22 million to be amortized to August 2018, when the Notes mature. The Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 46.387 shares per $1,000 principal amount of the Notes (which represents an initial conversion price of approximately $21.56 per share), only in the following circumstances and to the following extent: (i) during any calendar quarter commencing after December 31, 2011, if, for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter, the last reported sale price per share of our common stock on such trading day is greater than or equal to 130% of the applicable conversion price on such trading day; (ii) during the five consecutive business day period immediately following any ten consecutive trading day period (the "measurement period") in which, for each trading day of the measurement period, the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the applicable conversion rate on such trading day; (iii) upon the occurrence of specified corporate transactions; or (iv) at any time on and after May 15, 2018. However, in all cases, the Notes will cease to be convertible at the close of business on the second scheduled trading day immediately preceding the maturity date. It is our intent and policy to settle conversions through "net-share settlement". Generally, under "net-share settlement," the conversion value is settled in cash, up to the principal amount being converted, and the conversion value in excess of the principal amount is settled in shares of our common stock. As of October 1, 2013, these notes were convertible under the 130% Sale Price Condition described above. To date, no bond holders have submitted their bonds for conversion.

In December 2010, Remy entered into a $300 million Term B Loan ("Term B") facility. The Term B is secured by a first priority lien on the stock of Remy's subsidiaries and substantially all Remy domestic assets other than accounts receivable and inventory pledged to the Asset-Based Revolving Credit Facility ("Remy Credit Facility"), as described below. The Term B bears an interest rate of LIBOR (subject to a floor of 1.75%) plus 4.5% per annum. The Term B matures on December 17, 2016. Principal payments in the amount of $0.8 million are due at the end of each calendar quarter with termination and final payment no later than December 17, 2016. The Term B facility is subject to an excess cash calculation which may require the payment of additional principal on an annual basis. The Term B also includes events of default customary for a facility of this type, including a cross-default provision under which the lenders may declare the loan in default if we (i) fail to make a payment when due under any debt having a principal amount greater than $5 million or (ii) breach any other covenant in any such debt as a result of which the holders of such debt are permitted to accelerate its maturity. This facility was replaced on March 5, 2013 by the Term B Amendment noted above.

Remy also has revolving credit facilities with four Korean banks with a total facility amount of approximately $17 million, of which $2 million is borrowed at average interest rates of 3.46% at December 31, 2013. In Hungary, there are two revolving credit facilities with two separate banks for a total facility amount of $4 million, of which nothing is borrowed at December 31, 2013.

On May 5, 2010, we completed an offering of $300 million in aggregate principal amount of our 6.60% notes due May 2017 (the "6.60% Notes"), pursuant to an effective registration statement previously filed with the Securities and Exchange Commission. The 6.60% Notes were priced at 99.897% of par to yield 6.61% annual interest. We received net proceeds of $297 million, after expenses, which were used to repay outstanding borrowings under our credit agreement. Interest is payable semi-annually. These notes contain customary covenants and events of default for investment grade public debt. These events of default include a cross default provision, with respect to any other debt of the Company in an aggregate amount exceeding $100 million for all such debt, arising from (i) failure to make a principal payment when due or (ii) the occurrence of an event which results in such debt being due and payable prior to its scheduled maturity.

Gross principal maturities of notes payable at December 31, 2013 are as follows (in millions):

EXHIBIT 4

AVERAGE PRIME RATE CALCULATION

PRE-JUDGMENT INTEREST CALCULATION

EXHIBIT 5

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

VOLUME 1B TRANSCRIPT OF PROCEEDINGS — TRIAL BEFORE THE HONORABLE ANDREA R. WOOD, and a jury

APPEARANCES:

going to show it to the jury.

MR. LANDAU: Thank you.

MR. ROSENBERG: There will another letter that's in their package of documents, because it stands on the same footing —

MR. LANDAU: I'm sure there's many exhibits —

THE COURT REPORTER: I'm sorry, counsel. I really need you to do it one at a time.

MR. ROSENBERG: That's coming right next if you're putting it —

THE COURT: Is it coming right next, Mr. Landau?

MR. LANDAU: No. Mr. Rosenberg hasn't read my exhibits. Thank you.

MR. ROSENBERG: Okay. You gave us the package, and it's next in the order that you gave it to us.

THE COURT: Okay. Let's go back and continue.

(End of sidebar proceedings.)

THE COURT: And I'll just note, so in light of the ruling at sidebar, the document is no longer on the witness' screen.

MR. LANDAU: Understood.

BY MR. LANDAU:

Q. Mr. Jacobs, at the time that you became lead investigator for the FDIC on the Founders Bank matter, were you aware of a claim having been asserted against Chicago Title by Founders

Bank prior to the receivership?

A. Yes.

Q. And do you recall, in general, when that occurred?

A. In early 2009.

Q. Now, subsequently to — now, the receivership began in July of 2009, correct?

A. Correct, July 2nd.

Q. Now, did you investigate the allegations made by Founders Bank in its claim against Chicago Title?

A. Yes.

Q. What — did you review documents for these transactions?

A. Yes, I reviewed the Founders files as well as any documents that Founders had gathered to that date in reviewing the potential claim.

Q. Did you have access to all the bank's records for these loan transactions as they were secured by the receivership?

A. Yes.

Q. Did you review any public records?

A. Yes.

Q. What kinds of records did you review?

A. I reviewed the public records on the properties as well as the public records on any entity who was involved in the closing.

Q. Did you conduct any interviews of bank employees?

A. Yes.

EXHIBIT A

Hsbc Mortq. Servs. v. Equisouth Mortq., Inc.

United States District Court for the Northern District of Illinois, Eastern Division

February 7, 2011, Decided; February 7, 2011, Filed

Case No. 10 C 4747

Reporter

2011 U.S. Dist. LEXIS 12123 *; 2011 WL 529412

HSBC MORTGAGE SERVICES, INC., Plaintiff, v. EQUISOUTH MORTGAGE, INC., and MORRIS A. CAPOUANO, Defendants.

Subsequent History: Summary judgment granted, in part, summary judgment denied, in part by HSBS Mortq. Servs. v. Equisouth Mortq., Inc., 2012 U.S. Dist. LEXIS 75740 (N.D. III., June 1, 2012)

Counsel: [*1] For HSBC Mortgage Services, Inc., Plaintiff: Anna-Katrina S Christakis, Raechelle D. Norman, LEAD ATTORNEYS, Grady Pilgrim Christakis Bell LLP, Chicago, IL.

For Equisouth Mortgage, Inc., Morris A. Capouano, Defendants: Ernest B. Williams, IV, Michael B. Schwegler, PRO HAC VICE, Ernest B. Williams IV, PLLC, Nashville, TN; Mosley Scott Kevin, Grotefeld & Hoffmann, LLP, Chicago, IL.

Judges: Harry D. Leinenweber, Judge, United States District Judge.

Opinion by: Harry D. Leinenweber

Opinion

MEMORANDUM OPINION AND ORDER

The Plaintiff, HSBC Mortgage Services, Inc. ("HSBC"), moves to strike portions of Defendant Equisouth Mortgage, Inc.'s ("Equisouth") Answer and the entirety of Equisouth and Co-Defendant Morris Capouano's ("Capouano") Affirmative Defenses. For the reasons that follow, the Motion is granted in part and denied in part.

I. BACKGROUND

HSBC brought suit against the Defendants alleging breach of a loan purchase agreement by Equisouth and breach of a personal guaranty by Capouano, the President of Equisouth. Defendants answered the complaint on October 18, 2010. The dispute centers around three loans — the Ferro loan, the Rasberry loan, and the Lozano loan. Plaintiff contends these loan documents contained material [*2] misrepresentations in regards to the borrowers employment, rent or occupancy, and that Equisouth has wrongly refused to repurchase the loans. Capouano and Equisouth contend that the loan documents were accurate at the time of loan, or, in the case of the Ferro loan, that Equisouth had no obligation to verify the borrowers employment information.

As a preliminary matter, Defendants assert that Plainriffs Motion was untimely filed on November 22, 2010 because Fed. R. Civ. P. 12(f) requires that such a motion be filed with 21 days of service of the Answer. Even assuming Plaintiff had an additional three days to file pursuant to Fed. R. Civ. P. 6(d) because it was served electronically, its motions were nonetheless untimely. Regardless, the Court may choose to address the merits of the motion to strike. Sommerfield v. City of Chicago, No. 06 C 3132, 2010 U.S. Dist. LEXIS 98898, 2010 WL 3786968, *5 (N.D. Ill. Sept. 20, 2010).

II. STANDARD OF REVIEW

Rule 12(f) provides that a court may strike an insufficient defense or "any redundant, immaterial, impertinent or scandalous matter." Generally, motions to strike are disfavored, but they are appropriate to remove "unnecessary clutter" from the litigation. Heller Fin., Inc. v. Midwhev Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989. [*3] The decision of whether to strike material is within the discretion of the trial court. Talbot v. Robert Matthews Distrib. Co., 961 F.2d 654, 665 (7th Cir. 1992).

III. DISCUSSION

Each of Plaintiff's motions will be taken in turn.

A. Motion to Strike Portions of Equisouth's Answer

First, HSBC contends Equisouth made numerous "selfserving averments" in its answer, including stating its position as to the wording of certain sections of the September 20, 2001 Flow Loan Purchase Agreement at issue in this case. HSBC seeks to strike Paragraphs 19, 20, 21, 22 and 52 of Equisouth's Answer. In those paragraphs, Equisouth generally asserts the Flow Loan Purchase Agreement was altered or amended, and quotes what it contends are the provisions of the amended agreement.

Fed R. Civ. P. 8(b) requires that in responding to a pleading, a party must state in short and plain terms its defenses to each claim asserted against it, admit or deny the allegations raised against it, and fairly respond to the substance of the allegations. Equisouth meets this obligation in the paragraphs complained of by Plaintiff, and nothing in Rule 8(b) prohibits the additional statements that Equisouth includes in its answer. [*4] As such, HSBCs Motion to Strike portions of Equisouth's Answer is denied.

B. Motion to Strike Equisouth's and Capouano's Affirmative Defenses

Although Defendants submitted separate answers, they generally assert the same affirmative defenses with the same numbering. As such, the Court will jointly consider HSBCs motion to strike those defenses, with any differences noted where applicable.

Courts apply a three-part test in examining the sufficiency of affirmative defenses under Rule 12(f): (1) whether the matter is properly plead as an affirmative defense; (2) whether the affirmative defense complies with Fed. R. Civ. P. 8 and 9; and (3) whether the affirmative defense can withstand a challenge under Rule 12(b)(6). Ortho-Tain, Inc. v. Rocky Mountain Orthodontics, Inc., No. 05 C 6656, 2007 U.S. Dist. LEXIS 31081, 2007 WL 1238917, at *1 (N.D. Ill. April 25, 2007). An affirmative defense that fails to meet any of these standards must be stricken to make the pleadings more precise. Id.

Affirmative defenses are subject to the liberal notice pleading standards of the Federal Rules of Civil Procedure. Unless a defense is patently defective, it should remain. Sayad v. Dura Pharms., Inc., 200 F.R.D. 419, 421 (N.D. Ill. 2001). [*5] However, an affirmative defense must include "either direct or inferential allegations respecting all material elements of the claim asserted," and bare legal conclusions do not suffice. Renalds v. S.R.G. Rest. Group, 119 F.Supp.2d 800, 802 (N.D. Ill. 2000). In analyzing these defenses, the Court will apply Illinois law because the parties concur that the agreements between them state that they will be governed by Illinois law. MAN Roland, Inc. v. Quantum Color Corp., 57 F.Supp.2d 576, 579 (N.D. Ill. 1999); see Comp. ¶ 16, Def.'s Ans. ¶ 16.

As a preliminary matter, Equisouth admits that its Affirmative Defenses "1," "2," "3," and "15" are improper and should be stricken. Because the same is true for Capouano's Affirmative Defenses "1," "2," and "3," they are also stricken.

As for its remaining affirmative defenses, Equisouth and Capuano assert that they are properly pled, while Equisouth contends they merely contradict the Plaintiff's material allegations or do not provide any factual support for the alleged defenses.

Defendants' Fourth Affirmative Defense is that the September 20, 2001 agreement is not a valid and enforceable contract for several reasons, including that it is vague and [*6] does not represent the parties' mutual intent. The factual support given is sufficient to put HSBC on notice, so the defense will stand.

HSBC alleges that Defendants' Fifth Affirmative Defense, substantial or full performance, simply contradicts the allegations in its complaint. However, payment is an affirmative defense that must be specifically pled under Fed. R. Civ. P. 8(c), so this Court will allow the defense to stand. Similarly, the Court will allow Defendants' Sixth Affirmative Defense, based on the statute of frauds, to stand.

Defendants contend that their Seventh through Eleventh Affirmative Defenses — unclean hands, failure to mitigate damages, laches, unjust enrichment and comparative fault — are supported by the allegations in Paragraphs 12-14 of its Answer. In those paragraphs, Defendants allege that the Ferro loan was a no income verification loan, so Equisouth had no obligation to provide any employment information to HSBC. Defendants allege that as to the Rasberry loan, the loan documents contain accurate representations about the borrower's employment and rental status as of the time the loan was made. Defendants allege that Plaintiff ignored an investigation by Equisouth [*7] and one of its own employees confirming the accuracy of this information. Finally, Defendants allege that as to the Lozano loan, the loan documents contain accurate information about the borrower's occupation of the mortgaged property as of the time the loan was made. Defendants contend that HSBC ignored Equisouth's investigation confirming the accuracy of this information. Based on these of these averments, Defendants allege Equisouth does not have any obligation to repurchase these loans or make any other payment to HSBC.

These averments are sufficient to give notice of the defense of failure to mitigate damages, so the Eighth Affirmative Defense will stand. See, Fleet Business Credit Corp. v. National City Leasing Corp., 191 F.R.D. 568, 570 (N.D. Ill. 1999) (allowing brief allegation of failure to mitigate damages at the beginning of a case).

However, in regard to laches and unjust enrichment, Defendants' averments are insufficient to sketch out the specific elements required to establish the defenses under Illinois law. See, Reis Robotics USA, Inc. v. Concept Indust., 462 F.Supp.2d 897, 907 (N.D. Ill. 2006) (providing that equitable defenses must be pled with particularity). So [*8] Defendants' Affirmative Defenses "9" and "10" will be stricken with leave to replead.

Further, although not raised by HSBC,> under Illinois law, the doctrine of unclean hands bars only equitable remedies and does not affect legal rights. Citadel Group, Ltd. v. Washington Reg'l Med. Center, No. 07-CV-1394, 2009 U.S. Dist. LEXIS 41120, 2009 WL 1329217, at *5 (N.D. Ill. May 13, 2009); Zahl v. Krupa, 365 Ill.App.3d 653, 850 N.E.2d 304, 309-310, 302 Ill.Dec. 867 (Ill. App. Ct. 2006). Defendants fail to explain why it should apply in this case, where Plaintiff is seeking money damages. Similarly, under Illinois law, the doctrine of comparative fault does not apply to breach of contract claims. Klingler Farms, Inc. v. Effingham Equity, Inc., 171 Ill.App.3d 567, 525 N.E.2d 1172, 1176, 121 Ill.Dec. 865 (Ill. App. Ct. 1988). As such, Defendants' Affirmative Defenses "7" and "11" are stricken.

Equisouth, but not Capouano, alleges in its Affirmative Defense "16" that Plaintiff waived its rights by failing to give Equisouth notice of any deficiencies within 30 days, as provided "under the intended language of Section 10 of the Flow Loan Purchase Agreement." Because this is sufficient to give HSBC notice of the affirmative defense of waiver, the affirmative defense will stand.

Finally, Equisouth's Affirmative [*9] Defense "18" and Capouano's Affirmative Defense "15" merely assert that Defendants reserve the right to add additional affirmative defenses. Because Defendants may seek to amend their answers if they wish to add additional affirmative defenses, this is not a proper affirmative defense. Reis Robotics, 462 F.Supp.2d at 907. As such, these affirmative defenses will likewise be stricken.

IV. CONCLUSION

For the reasons stated herein, the Court rules as follows:

1. Plaintiff's Motion to Strike portions of Equisouth's Answer is denied.

2. Plaintiff's Motion to Strike Defendants' Affirmative Defenses is granted in part and denied in part. Equisouth's Affirmative Defenses "1," "2," "3," "7," "11," "15" and "18" are stricken as improper. Capouano's Affirmative Defenses "1," "2," "3," "7," "11," and "15" are also stricken as improper.

3. Defendants' Affirmative Defenses "9" and "10" are stricken with leave to replead.

4. Plaintiff's Motion to Strike is denied as to Defendants' Affirmative Defenses "4," "5," "6," and "8" and Equisouth's Affirmative Defense "16."

IT IS SO ORDERED.

Hollinger Int'l, Inc. v. Hollinger Inc.

United States District Court for the Northern District of Illinois, Eastern Division

January 25, 2006, Decided

Case No. 04 C 0698

Reporter

2006 U.S. Dist. LEXIS 35947 *; 2006 WL 1444916

HOLLINGER INTERNATIONAL, INC., Plaintiff, v. HOLLINGER INC., et al., Defendants.

Subsequent History: Reconsideration denied by Hollinger Int'l, Inc. v. Hollinger, Inc., 2006 U.S. Dist. LEXIS 32391 (N.D. Ill., May 15, 2006)

Prior History: Hollinger Int'l, Inc. v. Hollinger Inc., 2005 U.S. Dist. LEXIS 14437 (N.D. Ill., July 15, 2005)

Counsel: [*1] For Hollinger International, Inc., Plaintiff: Mark V. Chester, Johnson & Colmar, Chicago, IL.; Abby F. Rudzin, Andrew J Geist, Jonathan Rosenberg, O'Melveny & Myers, New York, NY.; Henry C Thumann, O'Melveny & Myers LLP, Washington, DC.; Ian Simmons, O'Melveny & Myers, Washington, DC.; Nancy Lynn Martin, Johnson and Colmar, Chicago, IL.; Robert M Schwartz, O'Melveny & Myers, LLP, Los Angeles, CA.

For Hollinger Inc., Defendant: Nathan P. Eimer, Adam B. Deutsch, Andrew George Klevorn, Greg J Weintraub, Linda P. Kurtos, Lisa Maria Cipriano, Lisa S. Meyer, Vanessa G Jacobsen, Eimer Stahl Klevorn & Solberg, LLP, Chicago, IL.

For Ravelston Corporation Limited, The, Ravelston Management, Inc., Defendants: Allan T. Slagel, Brian L. Crowe, Brett Nolan, Cary E. Donham, Douglas Michael Ramsey, Shefsky & Froelich Ltd, Chicago, IL.

For Conrad M Black, Defendant: Alex J Bourelly, Jennifer E. Owens, Jeremy Isaac Levin, William H Jeffress, Baker Botts LLP, Washington, DC.; Maureen Reid, Baker Botts LLP, New York, NY.; Paula Enid Litt, William Butler Berndt, Schopf & Weiss, Chicago, IL.; Veronica Gomez, Schopf & Weiss LLP, Chicago, IL.

For F David Radler, Defendant: Michele Christine [*2] Lamberti, Weil, Gotshal & Manges LLP, New York, NY.; Richard A. Rothman, Greg A Danilow, Weil, Gotshal & Manges, New York, NY.; Anthony J. Albanese, Weil, Cotshal & Manges LLP, New York, NY.; David Edward Walters, Robert Jack Blazejowski, Jenner & Block, LLC, Chicago, IL.; Joni M Green, Joseph J. Duffy, Stetler & Duffy, Ltd., Chicago, IL.

For John A Boultbee, Defendant: Ira Lee Sorkin, Donald A Corbett, Dickstein Shapiro Morin & Oshinsky LLP, New York, NY.; Kenneth S. Levine, Carter Ledyard & Milburn LLP, New York, NY.; Stephen C. Voris, Burke, Warren, MacKay & Serritella, P.C., Chicago, IL.

For Daniel W Colson, Defendant: James R. Figliulo, Gregory L. Stelzer, Michael Thomas Graham, Peter A. Silverman, Figliulo & Silverman, Chicago, IL.; Stephanie D. Jones, Figliulo & Silverman, P.C., Chicago, IL.

For Barbara Amiel-Black, Defendant: Paula Enid Litt, William Butler Berndt, Schopf & Weiss, Chicago, IL.; Douglas J. Pepe, Gregory P Joseph, Gregory P. Joseph Law Offices LLC, New York, NY.; Veronica Gomez, Schopf & Weiss LLP, Chicago, IL.

For Bradford Publishing Company, Defendant: Michael J. Gaertner, Lord Bissell & Brook, Chicago, IL.

For Richard N Perle, Defendant: [*3] John Friedrich Zabriskie, Miki Vucic Tesija, Phillip M. Goldberg, Foley & Lardner, Chicago, IL.; Martin L Seidel, Jasimine Khalili, Cadwalader, Wickersham and Taft, New York, NY.; Gregory A Markel, Cadwalader, Wickersham & Taft LLP, New York, NY.

For Richard R Burt, Defendant: Gordon B. Nash, Jr., John J. D'Attomo, Gardner Carton & Douglas LLP, Chicago, IL.

For Conrad M Black, ThirdParty Plaintiff: Jeremy Isaac Levin, Baker Botts LLP, Washington, DC.

For F David Radler, ThirdParty Plaintiff: Michele Christine Lamberti, Weil, Gotshal & Manges LLP, New York, NY.; David Edward Walters, Robert Jack Blazejowski, Jenner & Block, LLC, Chicago, IL.; Joni M Green, Stetler & Duffy, Ltd., Chicago, IL.

For John A Boultbee, ThirdParty Plaintiff: Kenneth S. Levine, Carter Ledyard & Milburn LLP, New York, NY.; Stephen C. Voris, Burke, Warren, MacKay & Serritella, P.C., Chicago, IL.

For Daniel W Colson, ThirdParty Plaintiff: James R. Figliulo, Michael Thomas Graham, Figliulo & Silverman,

Chicago, IL.; Stephanie D. Jones, Figliulo & Silverman, P.C., Chicago, IL.

For Marie Josee Kravis, James R. Thompson, Third Party Defendants: Gordon B. Nash, Jr., John J. D'Attomo, Gardner [*4] Carton & Douglas LLP, Chicago, IL.

For Conrad M Black, Counter Claimant: Jeremy Isaac Levin, Baker Botts LLP, Washington, DC.

For Hollinger International, Inc., Counter Defendant: Mark V. Chester, Johnson & Colmar, Chicago, IL.

For Ravelston Corporation Limited, The, Ravelston Management, Inc., Counter Claimants: Cary E. Donham, Shefsky & Froelich Ltd, Chicago, IL.

For Ravelston Corporation Limited, The, Ravelston Management, Inc., ThirdParty Plaintiffs: Allan T. Slagel, Cary E. Donham, Shefsky & Froelich Ltd, Chicago, IL.

For Ravelston Corporation Limited, The, Ravelston Management, Inc., ThirdParty Plaintiffs: Allan T. Slagel, Shefsky & Froelich Ltd, Chicago, IL.

For Bradford Publishing Company, Third Party Defendant: Michael H Sampson, Reed Smith LLP, Pittsburgh, PA, US.

For Horizon California Publishing Inc., Horizon Hawaii Publications Inc., Horizon Illinois Publications Inc., Horizon Publications Inc., Horizon Publications U.S.A. Inc., Third Party Defendants: Anton Ronald Valukas, David Edward Walters, Jenner & Block, LLC, Chicago, IL.

For Hollinger International Publishing, Inc., Counter Claimant: Mark V. Chester, Johnson & Colmar, Chicago, [*5] IL.

Judges: Blanche M. Manning, United States District Judge.

Opinion by: Blanche M. Manning

OPINION

MEMORANDUM AND ORDER

Plaintiff Hollinger International, Inc. ("Hollinger") brought the instant action alleging that various corporate entities as well as individual defendants Conrad Black, F. David Radler, John Boultbee, Daniel Colson, and Barbara Amiel Black (collectively "the Black defendants") used their positions as officers, directors, and controlling shareholders of Hollinger to loot hundreds of millions of dollars. The Black defendants, in turn, filed a third-party complaint seeking contribution from members of Hollinger's Audit Committee—specifically, James Thompson, Marie-Josee Kravis and Richard Burt (collectively "the Audit Committee members" or "third-party defendants")—and alleging that the Audit Committee members are joint-tortfeasors who should share in the Black defendants' liability. The Audit Committee members have moved to dismiss the third-party complaint under Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, the court grants the motion to dismiss.

Background

In order to analyze the viability of the [*6] Black defendants' contribution claims, a brief review of the allegations in Hollinger's underlying complaint is in order. A more complete review of the allegations is set forth in the court's March 11, 2005 order denying the Black defendants' motion to dismiss the Second Amended Complaint.

Hollinger is a Delaware corporation that owns and operates newspapers around the world. At the time its corporate offices were located in Chicago. According to the 44 counts of the Second Amended Complaint, the Black defendants caused Hollinger to make unwarranted payments to themselves, to sell publishing assets at below-market rates to companies they controlled, and to loan money at below-market interest rates to a company they controlled. Hollinger contends that the defendants' conduct amounted to fraud, conversion, and breached their fiduciary duties.

The third-party defendants were members of the Hollinger board of directors, and served on the board's Audit Committee. According to the third-party complaint, the Audit Committee members owed fiduciary duties to Hollinger and were responsible for reviewing, approving and ratifying many of the transactions through which the Black defendants allegedly [*7] looted Hollinger. According to the Black defendants, by failing to stop the looting, the Audit Committee members were "ineffective and careless" and "displayed a lack of initiative, diligence and independent thought." Accordingly the Black defendants seek contribution, contending that to the extent they are liable for any wrongdoing, the Audit Committee members should share in that liability.

Analysis

A. Motion To Dismiss Standard

The standards that apply to resolving a motion to dismiss a third-party complaint are the same ones that apply to a motion to dismiss an underlying complaint; namely, the third-party complaint is properly dismissed under Rule 12(b)(6) only if the allegations, which are accepted as being true, fail to "state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6); Cler v. Ill. Educ. Ass'n, 423 F.3d 726, 729 (7th Cir. 2005) (dismissal warranted only if no relief could be granted based upon facts that could be proven consistent with the complaint); R.E. Davis Chem. Corp. v. Diasonics, Inc., 826 F.2d 678, 685 (7th Cir. 1987) (applying 12(b)(6) standard to third-party [*8] complaint).

B. Choice of Law

In a diversity case such as this, the court looks to the choice of law rules of the state in which it sits to determine what law will apply. Hinc v. Lime-O-Sol, Inc., 382 F.3d 716, 719 (7th Cir. 2004). The parties appear to concede that the only possible choices are the laws of either Delaware or Illinois. Because of the significant differences in the types of contribution claims that Illinois and Delaware allow, the court will briefly review these differences, and then determine which state's law will govern.

1. Delaware Law

Delaware has adopted the Uniform Contribution Among Joint Tortfeasors Act, with modifications. Del. Code tit. 10, § 6302(a); Samoluk v. BASCO, Inc., 1989 Del. Super. LEXIS 452, 1989 WL 135703, at *2 (Del. Super. Ct. Nov. 3, 1989). The primary modification made by Delaware is that its legislature did not adopt the provision of the Uniform Act which prohibits a contribution claim based upon the breach of a fiduciary duty. Compare id. with Fla. Stat. § 768.31 (2)(g) ("This act shall not apply to breaches of trust or of other fiduciary obligation.") and [*9] Mich. Comp. Laws § 600.2925a(8) ("This section does not apply to breaches of trust or of other fiduciary obligations.").

Delaware's failure to adopt that portion of the uniform act is deemed intentional. See 2B Norman J. Singer, Sutherland Statutory Construction, § 52:5 (6th ed. 2000) ("Ordinarily, when the legislature models a statute after a uniform act, but does not adopt the particular language, the court concludes that the omission was intentional and the policy of the uniform act was rejected."). In fact, Delaware courts have hinted, although not explicitly decided, that contribution claims may be asserted based upon the breach of a fiduciary duty. See, e.g., Grace Bros., Ltd. v. UniHolding Corp., 2000 Del. Ch. LEXIS 101, No. Civ. A. 17612, 2000 WL 982401, at *16 (Del. Ch. Ct. July 12, 2000) ("If the defendant-directors believe that [co-defendants] should shoulder a portion of their liability, the defendantdirectors may file separate actions for contribution . . .") (emphasis added); In re Telecorp. PCS, Inc., 2003 Del. Ch. LEXIS 132, No. C.A. 19260, 2003 WL 22901025, at *1, n.1 (De. Ch. Ct. Nov. 19, 2003) ("The parties have assumed the applicability [*10] of [Delaware's contribution act] to breach of fiduciary duty claims and in the absence of a dispute, I have as well.").

Although it appears that under Delaware law contribution may be sought for a breach of fiduciary duty, it may not be sought for an intentional tort. Eastridge v. Thomas, 1987 Del. Super. LEXIS 1108, 1987 WL 9605, *2 (Del. Super. Ct. Apr. 13, 1987) ("where the act complained of is an intentional tort . . . no contribution or indemnification will lie.").

2. Illinois Law

Illinois has not adopted the Uniform Act, and instead enacted its own Joint Tortfeasor Contribution Act. Though not stated explicitly in the Act, contribution may not be sought for a breach of fiduciary duty because, under Illinois law, the breach is not a tort. See St. Paul Fire & Marine Ins. Co. v. Great Lakes Turnings, Ltd., 774 F.Supp. 485, 488 (N.D. Ill. 1991) ("In Illinois, claims for breach of fiduciary duty sound in agency, contract and equity . . . and thus are not subject to the Contribution Act . . ."); Cherney v. Soldinger, 299 Ill.App.3d 1066, 702 N.E.2d 231, 235, 234 Ill.Dec. 65 (Ill. App. Ct. 1998) ("where, as here, liability is predicated upon a breach of fiduciary duty . . . the Act does [*11] not apply"). Courts have also interpreted the Act as prohibiting contribution claims based upon intentional torts. Appley v. West, 929 F.2d 1176, 1180 (7th Cir. 1991) ("under Illinois law, intentional tortfeasors are not entitled to contribution."); Gerill Corp. v. Jack L. Hargrove Bldrs., Inc., 128 Ill.2d 179, 538 N.E.2d 530, 542, 131 Ill.Dec. 155 (Ill. 1989) ("We conclude, therefore, that intentional tortfeasors are not entitled to contribution under the Illinois Contribution Among Joint Tortfeasors Act.").

3. The Contribution Claims

Turning back to choice of law, Illinois' rules direct the court to look to the Restatement (Second) of Conflicts of Laws to determine what law governs a contribution claim. Miller v. Long-Airdox Co., 914 F.2d 976, 978 (7th Cir. 1990) ("In tort cases (including third-party actions for contribution), Illinois has adopted the `most significant relationship' test of the Restatement (Second) of Conflict of Laws."); Vickrey v. Caterpillar Tractor Co., 146 Ill.App.3d 1023, 497 N.E.2d 814, 816-17, 100 Ill.Dec. 636 (Ill. App. Ct. 1986). According to the Restatement, the "law selected by application of the rule of § 145 determines whether one tortfeasor has [*12] a right to contribution or indemnity against another tortfeasor." Restatement (Second) of Conflict of Laws § 173 (1971).

Section 145, meanwhile, sets forth what is commonly known as the "most significant relationship" test, and identifies the factors that determine what state's law applies. The factors include: (1) the place where the injury occurred; (2) the place where the conduct causing the injury occurred; (3) the domicile, 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. Esser v. McIntyre, 169 Ill.2d 292, 661 N.E.2d 1138, 1141, 214 Ill.Dec. 693 (Ill. 1996); Restatement (Second) of Conflict of Laws § 145(2)(a)-(d).

Based upon the pleadings, Illinois has a more significant relationship to the Black defendants' claims for contribution than Delaware has. Although Delaware is the place where Hollinger incorporated, that is Delaware's only relationship to the instant action. In contrast, the other factors all point to Illinois as the place with the most significant relationship. For instance, [*13] as the court detailed in its order denying various motions to dismiss the Second Amended Complaint, Hollinger's "nerve center" was in Illinois. Its corporate offices and the offices of its principal executives were located in Chicago at the Chicago Sun-Times building. That's also where Hollinger maintained its corporate minutes and books. The Sun-Times was one of Hollinger's largest media holdings, which also included more than 100 other Illinois newspapers. Hollinger also employed over 1,000 people in Illinois.

In addition, much of the conduct alleged in the pleadings occurred in Illinois. Board meetings, as well as meetings of the Audit Committee and Compensation Committee, were held there. Many of the transactions in which the Black defendants allegedly looted Hollinger were approved by Hollinger's legal department in Chicago. Admittedly not all of the conduct occurred in Illinois. For instance, in addition to Chicago, Hollinger maintained offices in New York and Toronto, and many board meetings occurred in New York. But the parties have alleged no conduct that occurred in Delaware, and have not argued that either New York or Canadian law governs. Accordingly, the court concludes [*14] that, under Illinois' choice of law provisions, specifically under § 145 of the Restatement (Second) of Conflict of Laws, Illinois has a much more significant relationship to the Black defendants' contribution claims than does Delaware.

Nevertheless, the Black defendants contend that Delaware law should govern their contribution claims, or at least the parts arising from Hollinger's allegations that they breached their fiduciary duties. The Black defendants are correct that under Illinois' choice of law rules, Delaware law will govern the breach of fiduciary duty claims. See Prime Leasing, Inc. v. Kendig, 332 Ill.App.3d 300, 773 N.E.2d 84, 96, 265 Ill.Dec. 722 (Ill. App. Ct. 2002) ("Pursuant to Illinois choice-of-law principles, the fiduciary duty claims are governed by the laws of the state of incorporation."). But as set forth in the Restatement, contribution claims are governed by the law of the state with the most significant relationship, not the state of incorporation. The Black defendants have offered no authority to support their argument that Illinois' choice of law rules should be disregarded when the underlying claim is for breach of fiduciary duty. [*15] Although the choice of law analysis results in the laws of one state applying to the contribution claims and the laws of a different state applying to the underlying fiduciary duty claims, Illinois' choice of law rules anticipate such differences. Soo Line R. Co. v. Overton, 992 F.2d 640, 645 (7th Cir. 1993) ("the choice of law governing contribution actions is not determined [solely] by the circumstances of the underlying tort and . . . are subject to the same rules used to resolve conflicts of law in tort cases."); Moore v. Wausau Club, 777 F.Supp. 619, 620 (N.D. Ill. 1991) (contribution "is a separate issue, requiring a separate choice of law analysis.")

Furthermore, the policy behind Illinois' rule on the choice of law for fiduciary duty claims—that the duty a director owes the corporation arises from the laws of the state of incorporation and should therefore be governed by that law—is not pertinent to the Black defendants' contribution claims. The Black defendants' contribution claims involve the relationship between directors, not between the corporation and its directors.

In sum, Illinois has a more significant relationship to the [*16] Black defendants' contribution claims than does Delaware, and therefore Illinois law governs those claims.

C. Contribution Claims Cannot Be Based Upon Intentional Torts or A Breach of Fiduciary Duty

As discussed above, under Illinois' Joint Tortfeasor Contribution Act, a defendant may not seek contribution from a joint tortfeasor predicated upon a breach of fiduciary duty or any intentional tort. Most of the 44 counts of the Second Amended Complaint allege that the Black defendants breached their fiduciary duties to Hollinger; the remainder allege fraud and conversion, which the Black defendants do not dispute are intentional torts. Because contribution claims may not be predicated on any of Hollinger's claims, the Black defendants are not entitled to seek contribution from the Audit Committee members based upon those claims.

Conclusion

Accordingly, the third-party defendants' motion to dismiss the third-party complaint [395-1] is GRANTED.

DATE: January 25, 2006

Blanche M. Manning

United States District Judge

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

MEMORANDUM

I. INTRODUCTION

On December 7, 2012, the jury returned a verdict of nearly $169 million in favor of Plaintiff Federal Deposit Insurance Corporation (FDIC) and against Defendants Scott Van Dellen, Kenneth Shellem, and Richard Koon. The FDIC seeks pre-and post-judgment interest.

II. DISCUSSION

A. Applicable Law

12 U.S.C. § 1821(l).

This Court previously found that federal law governs the award and calculation of prejudgment interest in this case, and held that, if successful, the FDIC would be entitled to "appropriate interest" under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. 101-73, 103 Stat. 183. (Docket No. 515.)

The parties agree that "appropriate interest" may include pre-and post-judgment interest. (Defs.' Mein. of P. & A. (Defs.' Brief) 2; FDIC's Brief in Supp. of An Award of Pre-and Post-Judgment Interest (FDIC's Brief) 2.) They also agree that an award of prejudgment interest is discretionary. (Defs.' Brief 2; FDIC Brief 3.) The disputed issues are: (1) whether the Court should exercise its discretion to award prejudgment interest (including what law applies), (2) what rate should apply, and (3) when the interest should begin to accrue.

B. Appropriateness of Prejudgment Interest

"Whether prejudgment interest is permitted in a particular case is a matter of statutory interpretation, federal common law, and, in some instances, state law." Schneider v. Cnty. of San Diego, 285 F.3d 784, 789 (9th Cir. 2002) (citing Monessen Sw. Ry. Co. v. Morgan, 486 U.S. 330, 337-38 (1988)). Prejudgment interest is permitted by federal statute and the parties do not dispute this conclusion. See also Grant Thornton, LLP v. FDIC, 435 Fed. App'x 188, 208 (4th Cir. 2011) ("[W]e conclude that the award of prejudgment interest under § 1821(1) is discretionary, i.e., that it need only be awarded if appropriate"). The Court concludes that under federal common law and California law, the result is the same — the FDIC should be awarded prejudgment interest.

1. Federal Common Law

"The award of pre judgment interest in a case arising under federal law rests within the sound discretion of the court." Home Say. Bank, F.S.B. by Resolution Trust Corp. v. Gillam, 952 F.2d 1152, 1165 (9th Cir. 1991) (citation omitted). "[Money has a time value, and prejudgment interest is therefore necessary in the ordinary case to compensate a plaintiff fully for a loss suffered at time t and not compensated until t + 1." Hopi Tribe v. Navajo Tribe, 46 F.3d 908, 922 (9th Cir. 1995) (citation and quotation marks omitted). The jury determined that the Defendants breached their duties of care and negligently made all loans at issue in Phase 1. As a result of Defendants' actions, IndyMac Bank was deprived of investment capital and the FDIC, as receiver, has been deprived of funds needed to repay IndyMac Bank's creditors.1 Accordingly, the equities mandate the imposition of prejudgment interest.

2. California Law

California law governing the award of prejudgment interest compels the same result — an award of prejudgment interest.2 California Civil Code section 3287(a) governs the award of prejudgment interest. Section 3287(a) provides that "[e]very person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day. . . ." Whether damages are "certain or capable of being made certain by calculation" is determined by "whether the `defendant actually knows the amount owed or from reasonably available information could the defendant have computed that amount.' United States Fid. & Guar. Co. v. Lee Invs. LLC, 641 F.3d 1126, 1139 (9th Cir. 2011) (quoting Children's Hosp. & Med. Ctr. v. Bonta, 97 Cal.App.4th 740, 774 (quotation omitted)).

The damages awarded were "certain or capable of being made certain" at the time the loans were, as Defendants suggest, "sold at a loss (or when [IndyMac Bank] conducted an appraisal of the collateral for the loan and ascertained that the collateral was worth less than the outstanding loan amount)."3 (Defs.' Brief 14.) The Court refers to this time as the "loan or collateral sale date." As such, under California law the FDIC is entitled to prejudgment interest.

C. Appropriate Rate

"[A]n award of prejudgment interest is intended to be purely compensatory." MHC, Inc. v. Or. Dep't of Revenue, 66 F.3d 1082, 1090 (9th Cir. 1995) (citation omitted). "In determining what such a compensatory rate might be, we have said that the proper measure is the interest earned during the relevant time period on short-term, risk-free obligations." Id. (citation and quotation marks omitted). "We have also determined that generally this rate will be equivalent to the rate imposed by statute on post-judgment interest in 28 U.S.C. § 1961 — a rate measured by reference to 52-week U.S. Treasury bill rates." Id. (citation omitted).

Section 1961 provides the proper rate "unless the district court finds on substantial evidence that a different prejudgment interest rate is appropriate." United States v. Gordon, 393 F.3d 1044, 1058 n.12 (9th Cir. 2004) (citations omitted). The FDIC's only argument in favor of the imposition of a different rate of interest, the California rate of seven percent simple interest per annum,4 is that "all of the claims on which the jury awarded relief were based on the application of California law." (FDIC Brief 5.) This argument is not, however, supported by substantial evidence indicating that a rate of interest higher than that specified in § 1961 is appropriate.

As the Ninth Circuit has repeatedly made clear, prejudgment interest is "purely compensatory." The California rate is significantly higher than the average § 1961 rate during the relevant prejudgment interest period.5 The Court concludes that the "proper measure" of prejudgment interest "is the interest earned . . . on short-term risk-free obligations" as specified in § 1961. This rate more fairly and reasonably compensates the FDIC for the loss of use of its funds.

D. Accrual Date

California law provides helpful guidance in determining the date on which prejudgment interest should begin accruing. As Defendants knew or should have known the extent of damages owed as a result of their negligent conduct at the time of the loan or collateral sale date, prejudgment interest will begin to accrue on that date. Interest shall be computed daily from that date until the date judgment is entered. See MHC, Inc., 66 F.3d at 1090-91, n. 10, n. 11 (applying fluctuating T-Bill rate, calculated daily from date obligation was due); see also 28 U.S.C. § 1961(b) ("Interest shall be computed daily to the date of payment . . ."). As the FDIC requests and § 1961(b) provides, the interest shall be compounded annually as compounding is necessary to fairly compensate the FDIC for the loss of use of its funds. See Termine ex rel. Termine v. William S. Hart Union High Sch. Dist., 288 Fed. App'x 360, 363 (9th Cir. 2008) ("Compound prejudgment interest is the norm in federal litigation and the decision whether to award it is left to the trial court's discretion") (citations omitted).

D. Post-Judgment Interest

The FDIC's request for post-judgment interest is GRANTED. The FDIC is entitled to post-judgment interest under 28 U.S.C. § 1961(a). Planned Parenthood of Columbia/Willamette Inc. v. Am. Coalition of Life Activists, 518 F.3d 1013, 1017 (9th Cir. 2008) (citations and quotation marks omitted) (explaining that § 1961(a) "provides for the mandatory award of post judgment interest on any money judgment in a civil case recovered in a district court.")

E. Partial Judgment

Federal Rule of Civil Procedure 54(b) provides that partial judgment may be entered "only if the court expressly determines that there is no just reason for delay." It is unclear whether the FDIC seeks entry of judgment under Rule 54(b) and, in any event, the FDIC has not provided any justification for entry of partial judgment and a significant number of loans remain in dispute. No partial judgment will issue at this time. If the FDIC wants partial judgment to issue, it must provide no later than April 8, 2013 a concise brief explaining why "there is no just reason for delay" and why a partial judgment should issue under Rule 54(b).

III. CONCLUSION

For the reasons above, the FDIC is entitled to prejudgment interest in the manner specified above. The FDIC is also entitled to post judgment interest pursuant to 28 U.S.C. § 1961.

IT IS SO ORDERED.

Attorneys and Law Firms

Chris C. Gair, Thomas Reynolds Heisler, Vilia Margaret Dedinas, Gair Law Group Ltd., Ryan P. Laurie, Gair Eberhard Nelson Dedinas Ltd., Chicago, IL, for Plaintiff.

Arthur M. Holtzman, Bevin Megan Brennan, Lawrence W. Byrne, Naureen Amjad, Pedersen & Houpt, P.C., Kevin William Doherty, Michael Thomas Sprengnether, Doherty & Progar LLC, Chicago, IL, Brian T. Ginley, Skawski Law Offices, LLC, Oak Brook, IL, for Defendants.

Opinion

MEMORANDUM OPINION AND ORDER

Robert M. Dow, Jr., United States District Judge

*1 Before the Court are two closely related motions: (1) Plaintiff's motion for entry of judgment under Rule 58 [440] and (2) Defendants' motion for judgment on partial findings under Rule 52(c) on Count I or for alternative relief [450]. Both motions [440, 450] are denied without prejudice, although in this opinion the Court resolves many of the sub-issues relating to the request for damages and authorizes limited, targeted additional discovery to take place by March 16, 2018. The Court also defers certain matters, including the "double recovery" issues, until after a Rule 58 judgment is entered combining the jury verdict (as it now stands) and the Court's forthcoming damages award under Count 1. As explained below, the parties are directed to contact the Courtroom Deputy within two business days after they receive the last transcript of the depositions that are permitted pursuant to this opinion so that a prompt status hearing can be set. The Court will then discuss with counsel a plan for the final disposition of Count 1 and provide further guidance on the post-judgment issues that the parties have previewed in the briefing on the current motions. As a housekeeping matter, the Court also denies as moot Plaintiff's motion for directed verdict on Defendants' counterclaims [414] because Plaintiff prevailed on those claims at trial; and denies Defendants' Rule 50(a) motion for partial summary judgment [423] without prejudice to Defendants raising the issues preserved in their Rule 50 motion in any Rule 59 motion that they may file.

I. Background

By way of background, Plaintiff Dr. Nicholas Angelopoulos brought suit against Defendants Keystone Orthopedic Specialists, S.C., WACHN LLC, and Dr. Martin R. Hall. The Court previously has set out in detail the parties' respective factual and legal contentions in its rulings on motions to dismiss and summary judgment [see 258, 303]. On June 6, 2017, a jury returned a verdict in favor of Plaintiff on Counts 1 (violation of 26 U.S.C. § 7434), 2 (fraud), 3 (breach of fiduciary duty), 5 (breach of WACHN operating agreement), and 6 (breach of Keystone agreement). By agreement of the parties, the issue of damages in the event of a verdict for Plaintiff on Count 1 was reserved for determination by the Court. Plaintiff now seeks a damages award on Count 1, as well as prejudgment interest on Counts 2, 3, 5, and 6 and equitable relief on Count 3—all of which Plaintiff would like incorporated into a Rule 58 final judgment order. Defendants oppose most of the relief sought by Plaintiff and have themselves moved for judgment on partial findings pursuant to Rule 52(c) on Count 1, as well as other relief sought in the alternative. The gap between Plaintiff's request for approximately $327,000 in fees and costs and Defendants' contention that the Court's award should be limited to the $5,000 statutory amount underscores the extent of the parties' disagreement on the proper disposition of what remains of Count 1. As explained below, the parties are at odds on almost every sub-issue, thus necessitating both a lengthy opinion at this time and further work by the parties and the Court going forward.

II. Analysis

A. Plaintiff's motion for Rule 58 judgment

*2 In Count 1 of his complaint, Plaintiff sought recovery under 26 U.S.C. § 7434, alleging that Defendants Keystone and Hall caused a fraudulent IRS Form 1099 to be filed in Plaintiff's name reporting more than $159,000 as taxable income for tax year 2007. Plaintiff acknowledged that approximately $38,000 should have been reported on the 1099, but claimed that the excess amount was included by Keystone and Hall out of spite arising out of the larger disputes between the parties. The jury agreed with Plaintiff as to liability. By agreement of the parties, the calculation of damages will be done by the Court.

Section 7434(b) governs "damages" for the filing of a "fraudulent information return." It permits the Court to award either (1) a flat sum of $5,000 or (2) the sum of (a) "any actual damages sustained by the plaintiff as a proximate cause of the filing of the fraudulent return (including any costs attributable to resolving deficiencies asserted as a result of such filing)," (b) the "costs" of the civil action, and (c) "in the court's discretion, reasonable attorneys' fees." Defendants insist that a minimal $5,000 award is sufficient compensation; Plaintiff seeks an award of more than $325,000, which includes all of the attorneys' fees and accounting expert expenses that he incurred in the underlying tax court proceedings as well as roughly 25% of certain categories of attorneys' fees and expert expenses in this litigation—amounts that Plaintiff submits "fairly pertained to proving Count 1 and that would have been necessary even if Count 1 had been the only count." [440, at 12.]

Although the case law construing Section 7434(b) is rather sparse, a few sensible governing principles emerge to guide the Court's analysis here. To begin with, a taxpayer tagged with a fraudulent tax from an inflated 1099 may "have to initiate costly proceedings to straighten out the mess." Bailey v. Shell W. E&P, Inc., 1998 WL 185520, at *2 (N.D. Tex. Apr. 14, 1998). When the taxpayer convinces a trier of fact of "the unlawfulness of [the wrongdoer's] willfully fraudulent filing of the 1099," "it would be a major injustice for [the taxpayer] to be compelled to bear, unrecompensed, the amounts expended" to demonstrate the fraud. Shiner v. Turnoy, 2014 WL 3907043, at *2 (N.D. Ill. Aug. 11, 2014), rev'd on other grounds, 850 F.3d 923 (7th Cir. 2017). And because distinguishing between a proper 1099 filing and a fraudulent one may require lay taxpayers to employ both legal and accounting assistance, attorneys' fees and expert witness fees properly lie within the scope of expenses reimbursable to a wronged taxpayer. Cf. Uniroyal Goodrich Tire Co. v. Mut. Trading Corp., 63 F.3d 516, 526 (7th Cir. 1995) (in RICO suit, awarding expert witness fees to prevailing plaintiff as part of "cost of the suit"); Bright v. Land O'Lakes, Inc., 844 F.2d 436, 444-45 (7th Cir. 1988) (awarding accountants' fees to prevailing plaintiff under the Wisconsin Fair Dealership Law as "part of the shifted attorney's fees"); Heiar v. Crawford Cty., Wis., 746 F.2d 1190, 1203 (7th Cir. 1984) (holding that under the Age Discrimination in Employment Act, "expenses for such things as postage, long-distance calls, xeroxing, travel, paralegals, and expert witnesses . . . are part of the reasonable attorney's fee" allowed to prevailing plaintiffs).

To those principles, the Court adds two more. First, given the important private and public interests served by dealing honestly with the government in regard to taxes—both on the part of the taxpayer and any employers reporting taxpayer income—a court should not second-guess the taxpayer's decision to retain professional assistance to sort out any alleged deficiencies associated with his return. Put slightly differently, when faced with an accusation of shorting the government, the issues at stake go beyond a straightforward cost-benefit analysis and it would not be irrational for a taxpayer like Plaintiff here to spend more money on lawyers and accountants to clear his name than he likely would be to recover in the form or a refund or reassessment of his tax liability. Second, with that said, any court asked to make a discretionary award of attorneys' fees and other litigation costs must have some standard to apply and cannot simply rubber stamp the bills submitted by the prevailing party in a Section 7434 action. Drawing on the analogous context of attorneys' fees awards in civil rights actions, the Court will use "reasonableness" as its touchstone in considering Plaintiff's request here. See Farrar v. Hobby, 506 U.S. 103, 114-15 (1992) (explaining that "the court's `central' responsibility" in awarding attorneys' fees in a § 1983 case is "to `make the assessment of what is a reasonable fee under the circumstances of the case" (quoting Blanchard v. Bergeron, 489 U.S. 87, 96 (1989))); Montanez v. Simon, 755 F.3d 547, 553 (7th Cir. 2014) ("the district court is in the best position to make the `contextual and fact-specific' assessment of what fees are reasonable") (quoting Sottoriva v. Claps, 617 F.3d 971, 975 (7th Cir. 2010)); Jaffee v. Redmond, 142 F.3d 409, 414 (7th Cir. 1998) (explaining that "the touchstone" for awarding attorneys' fees in a § 1983 case "is not whether a particular argument was successful, but rather whether it was reasonable"). As the foregoing analysis suggests, while it will be Plaintiff's task to demonstrate the reasonableness of his damages under Section 7434, he will not be faulted for taking a cautious approach to his tax liabilities by hiring reputable (and expensive) lawyers and accountants, nor will their decisions to thoroughly explore the problem and potential solutions be second-guessed with the benefit of hindsight.

B. Defendants' motion for partial findings under Rule 52(c)

*3 How the Count 1 damages inquiry is to proceed is the subject of Defendants' Rule 52(c) motion and the parties' briefs for and against it. The Court does not find either side's proposal entirely satisfactory. Plaintiff's suggestion to take the somewhat cursory records submitted with the briefs and proceed to trial without any additional discovery on damages is not persuasive for several reasons. To begin with, although there was extensive fact discovery in this case, it did not include a close analysis of the legal and expert bills from the IRS proceeding and the litigation in this Court. Indeed, it would have been wasteful to have taken such discovery, as it would have been irrelevant to the case had the jury not resolved Count 1 in Plaintiff's favor. Yet Plaintiff's suggestion to streamline the damages phase on Count 1 by simply giving defense counsel an opportunity to examine current Plaintiff's counsel at a hearing also misses the mark, for it overlooks the existence of claims for reimbursement for work done by lawyers and experts in the tax court proceeding who have had no role whatsoever in the proceedings before this Court. That fact makes this situation different than a typical fee petition presented under Local Rule 54.3 and justifies some discovery. The Court knows almost nothing about the underlying tax court proceedings, nor can it judge the reasonableness of the fees expended there without some explanation and justification.

But Defendants' contention that Plaintiff has waived any opportunity to develop arguments for bench trial on Count 1 damages is equally unavailing. True, the Court requested that the parties meet and confer on a process for presenting the damages issue arising out of the jury's liability determination and Plaintiff's unilateral proposal has been found wanting for the reasons set out above. Nevertheless, (1) the jury determined that Plaintiff was wronged by Defendants' actions, (2) Plaintiff is entitled to fair recompense, and (3) the Court needs additional information to make a discretionary damages award in a reasoned manner.

Accordingly, consistent with the 2015 amendments to Rule 1 and Rule 37, the Court will allow limited and proportional discovery on Plaintiff's Count 1 damages claim. Most, if not all, of the potential witnesses are sophisticated lawyers and accountants who should be able to review their files quickly and should not need extensive preparation to answer questions about the work they performed, either in the tax court proceeding or in this case. Because of this, depositions will be superior to written questions with follow-up; there is no reason that the depositions cannot explore the disputed issues with great efficiency. Plaintiff complains about the imposition on lawyers and accountants who have not appeared in this case, but because he bears the burden of showing the reasonableness of the fees that he claims as damages, the Court will not be in position to consider a claim for fees for the services of a lawyer or accountant who refuses to sit for a short deposition. Similarly, the extent to which any issues of privileged communications relating to Plaintiff's own tax case may arise, the privilege belongs to Plaintiff and he can choose either to waive it or stand on it. Should Plaintiff choose to assert the privilege and thereby shield evidence or testimony that bears on the Court's reasonableness inquiry, that choice may adversely affect his ability to recover discretionary fees and costs. See generally Estate of Borst v. O'Brien, 979 F.2d 511, 515 (7th Cir. 1992) ("The burden is on the party seeking the award [of attorneys' fees] to substantiate the hours worked and the rate claimed."); Baier v. Rohr-Mont Motors, Inc., 175 F.Supp.3d 1000, 1019 (N.D. Ill. 2016) (explaining that the party seeking award of attorneys' fees "bears the burden of proving the reasonableness of the hours worked and the hourly rates claimed").

The parties should focus on justifying the reasonableness of the substantive work for which the individuals billed their time and the results achieved. In regard to the parties' specific debate over the scope of discovery from the tax lawyers and accountants [see 454, at 15; 460, at 12-13], Defendants may inquire generally about how the attorneys and accountants have handled cases similar to Plaintiff's in the tax court—i.e., customary fees, approximate number of hours, general manner of proceeding in tax court—but may not request production of any documents from other cases without approval of the Court after the deposition. As Defendants note, none of the lawyers currently in this case has any experience in the tax courts, nor does the judge. Therefore, additional information on the reasonableness of the fees and costs incurred in the tax proceeding is critical to the Court's ability to assess Plaintiff's claim to reimbursement of those fees and costs, which amounts to more than $90,000.

*4 To be sure, in addition to that $90,000, Plaintiff asks for more than $235,000 in fees and costs associated with the litigation in this Court, and thus the depositions also may include the lawyers in this case to provide additional insight into the extent to which Count 1 was a "central issue in the case" (as Plaintiff contends, pointing to the number of times that Defendants argued unsuccessfully for its dismissal) or a more peripheral one (as Defendants contend, pointing to the fact that Plaintiff's expert devoted only 2 pages of his 49 page report to the issue, yet Plaintiff seeks reimbursement under Section 7434 for 25% of the cost of the report). The depositions should streamline the Count 1 bench trial considerably, and counsel are directed to try to reach accord in regard to which issues can be presented on the papers (briefs, transcripts, billing records), saving for in-court testimony only those matters that relate to the credibility of witnesses.

Given (1) the contentiousness of this case in general, (2) the difficulty that the parties have had in seeing eye-to-eye on how to resolve the specific damages issue in Count 1, (3) the Seventh Circuit's encouragement to avoid costly satellite litigation on attorneys' fees and costs, and (4) the Rule 1 principles calling for the Court to play an active case management role to ensure the "just, speedy, and inexpensive" resolution of disputes, the Court will set specific ground rules for the additional discovery that is permitted on this matter. Defendants will be permitted no more than 12 hours total for all depositions that they wish to take. No single deposition shall last more than 3 hours. The parties must work together with the goal of completing the depositions no later than March 16, 2018. The parties must contact the Courtroom Deputy within 2 business days of receipt of the final deposition transcript to set a status hearing to discuss the next steps toward the resolution of Count 1 (i.e., whether there is any need for in-court testimony, a schedule for further briefing, the possibility of oral argument).

C. Prejudgment interest on state law claims

On top of a damages award under Section 7434, Plaintiff requests pre-judgment interest on the jury awards as to the remaining counts. He asserts an entitlement to pre-judgment interest under the Illinois Interest Act or, alternatively, as an equitable matter. Given that the claims for which damages were awarded (and interest is sought) arose under state law, the Court looks to Illinois statutes and common law to determine whether interest should be awarded as well.

Under the Illinois Interest Act, "[i]n order to recover prejudgment interest, the amount due must be liquidated or subject to an easy determination." Santa's Best Craft, LLC v. Zurich Am. Ins. Co., 941 N.E.2d 291, 307 (Ill. App. 2010); see also West Bend Mut. Ins. Co. v. Procaccio Painting & Drywall Co., Inc., 794 F.3d 666, 680 (7th Cir. 2015); Twenhafel v. State Auto Prop. & Cas. Ins. Co., 581 F.3d 625, 631 (7th Cir. 2009). Here, the inability of either side (or the Court) to directly trace the jury's damages award either to Plaintiff's "ask" or to any of the numbers introduced at trial undermines any suggestion that the "amount due" to Plaintiff on account of Defendant's unlawful conduct was "liquidated or subject to an easy determination." Therefore, the Illinois Interest Act does not apply. Nevertheless, equity and common sense support the propositions that the time value of money is significant and to forego prejudgment interest in circumstances like this would reward a wrongdoer and, at a minimum, provide a strong incentive for a defendant to seek delay in the resolution of a civil action. See In re Estate of Wernick, 127 Ill.2d 61, 87 (1989) (affirming equitable award of prejudgment interest in breach of fiduciary duty case and explaining that "[f]undamental principles of damages and compensation dictate that when money has been wrongfully withheld the victim receive interest for the wrongdoer's retention of his money"). At the same time, it important to bear in mind that "[t]he goal of proceedings sounding in equity is to make the injured party whole," id. at 86-87, not to give the victim a windfall. As Wernick illustrates, the fluctuation of rates over time supports the application of a floating, rather than a fixed, percentage for interest awarded in equity.1 As the Court has done in other recent cases involving prejudgment interest,2 it will use a market rate—specifically, the average prime rate over the relevant time period—to "fully compensate[ ]" Plaintiff without providing him a windfall. Cement Div., Nat'l Gypsum Co. v. City of Milwaukee, 144 F.3d 1111, 1114-15 (7th Cir. 1998); see also, e.g., Matter of P.A. Bergner & Co., 140 F.3d 1111, 1123 (7th Cir. 1998) ("prejudgment interest should not be thought of as a windfall . . .; it is simply an ingredient of full compensation that corrects judgments for the time value of money"); Sheth v. SAB Tool Supply Co., 990 N.E.2d 738, 760, 371 (Ill. App. 2013) ("The purpose of an award of prejudgment interest is to fully compensate the injured party for the monetary loss suffered."); cf. Wernick, 127 Ill. 2d at 88-89 (approving interest at prime rate to make aggrieved party whole). And because the weight of authority establishes that compound interest is disfavored under Illinois law, simple interest will be awarded. Reaver v. Rubloff-Sterling, L.P., 708 N.E.2d 559, 562 (Ill. App. 1999); Harrington v. Kay, 483 N.E.2d 560, 567 (Ill. App. 1985); cf. Halloran v. Dickerson, 679 N.E.2d 774, 779 (Ill. App. 1997) ("It is well-established in Illinois that this accrual of interest is simple interest and not compound interest.").

*5 Finally (for present purposes), the parties debate the timing of any interest award: should the calculation of interest begin from the date on which Plaintiff's claims accrued, the date on which he first made a demand on Defendants, or some other date (for example, the date on which he filed his complaint)? As a court proceeding in equity, the Court concludes that the date on which Plaintiff first made a formal demand on Defendants—that is, November 8, 2011—is the appropriate date from which to trigger an award of prejudgment interest. Using the date of first demand provides an incentive for a plaintiff to seek prompt redress of any dispute rather than allowing the dispute to fester, while at the same time encouraging aggrieved parties to explore out-of-court dispositions prior to commencing litigation. (Again, see Rule 1.). As noted above, the failure to award any interest at all would provide an incentive for a defendant to seek delay on the back end of a dispute. At the same time, however, equity should encourage a plaintiff not to dither on the front end. The reasons why Plaintiff did not send a demand letter to Defendants until late 2011 or file suit prior to mid-2012 remain unclear. But as well educated and highly compensated professional, Plaintiff possessed the tools to have brought the issues litigated in this case to a head at any time after they occurred and therefore he will have to be content with an award of interest from the time he did so, not from the time at which he could have done so.

D. Equitable relief on Count 3

Plaintiff's request for equitable relief as to Count 3 can be addressed in short order. Plaintiff cites no authority in support of his request. Nor was the evidence adduced at trial very persuasive on the need for relief—legal or equitable—as to harm to Plaintiff on account of the WACHN guaranty.3 Neither Plaintiff's lay nor his expert testimony established any current harm or likelihood of impending harm from the WACHN guaranty. For example, there was no testimony that Plaintiff had any difficulty obtaining credit or paid a higher rate of interest to obtain credit on account of the WACHN guaranty. Nor was there any testimony suggesting that there ever has been or ever will be a reason for the bank that extended the credit to WACHN to act on the guaranty and thus cause any harm to Plaintiff. Rather, the testimony at trial showed that WACHN has made all of its payments in a timely fashion, both during the time that Plaintiff was associated with Defendants and at all times since his disassociation. Moreover, should that situation change in the future, Plaintiff likely will have a claim for money damages.

E. Double recovery issues

Finally, the parties agree that the jury verdict presents a "double recovery" issue. However, they disagree vigorously on how to resolve that issue. The Court does not have either full transcripts or full arguments of counsel on the issue. Accordingly, in the interest of efficiency and conservation of the parties' and the Court's resources, the Court will defer the "double recovery" issue until the post-judgment phase of the case. It will enter a final judgment that combines the jury's verdict with the Court's ruling on Count 1 damages. In addition, given that both sides have provided a preview of some of their post-judgment arguments and responses in the current briefing, at the next status hearing the Court will provide further guidance to counsel in regard to its preliminary reactions to the post-verdict issues on Counts 2-6 in an effort to bring all of the proceedings in the trial court to an end as early in 2018 as possible.

All Citations

Slip Copy, 2018 WL 461227, 121 A.F.T.R.2d 2018-566, 2018-1 USTC P 50, 139