Article courtesy of Michael Robson (Greenberg Traurig)
Cassidy v. Signature Bank, 2021 IL App (1st) 191781-U
In a dispute between James Cassidy (“Cassidy”) and Signature Bank (“Signature”) on appeal from the circuit court of Cook County, the Appellate Court of Illinois affirmed the circuit court’s ruling and found Signature in breach of contract when the bank applied the individual retirement account (IRA) funds to setoff the debt that Cassidy Brothers, Inc. (“CBI”) owed.
The appeal arose from a dispute between Cassidy and Signature. Cassidy owned CBI, a drywall contractor. In January 2012, CBI initiated a series of loan transactions with Signature, including two promissory notes. On January 11, 2013, Cassidy opened an IRA with Signature. On January 25, 2013, Signature issued a letter of credit to CBI. That same day, Signature required Cassidy to execute an “assignment of deposit account” agreement (assignment-agreement). The assignment-agreement purported to grant Signature a security interest in the IRA. On February 25, 2013, Cassidy opened a second IRA with Signature. That same date, Signature issued another letter of credit to CBI and Signature required Cassidy to execute another assignment-agreement relating to the second IRA which purported to grant Signature a security interest in the second IRA. In September 2013, CBI ceased making payments on the promissory notes. As a result of CBI’s default on the notes, Signature applied the IRA funds as a setoff against the debt incurred by CBI on the earlier notes.
Cassidy filed a four-count complaint against Signature in the circuit court of Cook County. In Counts I and II, Cassidy sought damages against Signature for breach of contract relating to the assignment-agreements. Count III sought a declaratory judgment that Signature’s application of the IRA funds to setoff CBI’s debt was improper because the funds were exempt from setoff. Count IV requested a preliminary and permanent injunction requiring Signature to return to Cassidy the IRA funds the bank used to set off the debt owed by CBI. The circuit court entered an order (1) granting Cassidy’s motion for summary judgment as to Counts I and II of his complaint; (2) denying Signature’s motion for summary judgment; (3) entering judgment in favor of Cassidy and against Signature in the aggregate amount of $301,655.06; and (4) dismissing Counts III and IV as moot.
On appeal, Signature contended that the circuit court erred in granting summary judgment in favor of Cassidy on Counts I and II of his complaint for breach of contract relating to the assignment-agreements. Signature asserted that the funds in the IRAs were assigned and pledged as collateral security for the loans and thus were no longer exempt under Illinois law, and therefore, it properly exercised its rights to apply these funds to CBI’s debt.
The court found that the funds in Cassidy’s IRAs were exempt under Section 12-1006(a) of the Internal Revenue Code (Code) where he presented documentary evidence showing that the accounts were intended in good faith to qualify as retirement plans under the applicable provisions of the Code. The court also found that the retirement funds did not lose their exempt status under Section 26 U.S.C. § 408(e)(4) of the Code when Cassidy pledged the funds as collateral to secure the CBI indebtedness because (1) the funds were never used in a transaction prohibited by Section 4975 of the Code; and (2) the setoff provisions in the assignment-agreements prohibited Signature’s setoff of the funds held in the IRAs and therefore the bank had no recourse with respect to those IRAs, and as a result, the pledges in the assignment-agreements were not enforceable against the IRAs. Lastly, the court found that the bank breached the assignment-agreements when it applied the funds in the IRAs to setoff CBI’s indebtedness because Signature had no recourse with respect to the IRAs.
