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Federal Deposit Insurance Corp. v. Milbauer

United States District Court, D. Minnesota

July 14, 2015

Federal Deposit Insurance Corporation, as Receiver for Patriot Bank Minnesota, Plaintiff,
v.
John Milbauer, Sarah Bazey, Greg Evgen, Mike Muske, Benson Theuninick, Donald Waldoch, and Leonard Wojtowicz, Defendants

For Federal Deposit Insurance Corporation as Receiver for Patriot Bank Minnesota, Plaintiff: C J Schoenwetter, Michael R Carey, Richard G Morgan, LEAD ATTORNEYS, Bowman & Brooke LLP, Mpls, MN; James A Rolfes, LEAD ATTORNEY, PRO HAC VICE, Reed Smith LLP, Chicago, IL.

For John Milbauer, Sarah Bazey, Greg Evgen, Michael Muske, Benson Theuninick, Donald Waldoch, Leonard Wojtowicz, Defendants: Kirstin D Kanski, Susan E Barnes, LEAD ATTORNEYS, Lindquist & Vennum PLLP, Mpls, MN.

Page 940

MEMORANDUM AND ORDER

Paul A. Magnuson, United States District Judge.

This matter is before the Court on Defendants' Motion to Dismiss and Motion for In Camera Review. For the reasons that follow, the Motions are denied.

BACKGROUND

Patriot Bank was founded in 1998 in Lino Lakes, Minnesota, as Lino Lakes State Bank. By 2011, the Bank had three branches and was headquartered in Forest Lake, Minnesota. In late 2011, the Bank failed and the FDIC stepped in as receiver for the Bank in January 2012.

The FDIC brought this lawsuit claiming that the Bank's President, John Milbauer, and seven members of the Bank's Board of Directors and Directors' Lending Committee were negligent or grossly negligent in approving 14 loans totaling more than $8 million, and that these individuals thereby breached their fiduciary duties to the Bank. The FDIC alleges that Milbauer exercised nearly sole control over large loans at the Bank and that he made loan decisions that he knew or should have known were contrary to the Bank's lending policies and common business sense. According to the FDIC, the members of the Lending Committee rubber-stamped Milbauer's lending decisions, failing to comply with their duties to independently evaluate the challenged loans.

The FDIC's claims sound in negligence, gross negligence, and breach of fiduciary duty. Defendants' Motion to Dismiss seeks dismissal of all claims.

DISCUSSION

A. Motion for In Camera Review

Defendants seek disclosure of the FDIC's 2007 Report of Examination of Patriot Bank, contending that this Report will show that the FDIC approved some of the very loan processes it now criticizes.

Page 941

Defendants ask the Court to order the FDIC to submit this Report to the Court for in camera review. But in essence this Motion seeks to compel discovery that has not begun because the parties have yet to confer on a proposed pretrial schedule under Rule 26(f). As the FDIC points out, Rule 26(d) provides that " [a] party may not seek discovery from any source before the parties have conferred as required by Rule 26(f)." And it appears that the Report is in any event not relevant to the FDIC's claims, but rather to ...


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