Banks holding ground in lawsuit

Hearing could determine next direction for case

Published: Thursday, Sept. 12, 2013 1:15 a.m. CDT • Updated: Thursday, Sept. 12, 2013 2:09 p.m. CDT

DIXON – Neither the city nor Fifth Third Bank are backing down from their arguments in a lawsuit blaming the bank for failing to act on "red flags" in the Rita Crundwell fraud.

The bank is seeking to be removed from Dixon's lawsuit, which blames it and auditors for Crundwell's theft of nearly $54 million from city funds.

"The city's claims are fundamentally and fatally flawed," the bank's attorneys said in court documents filed Wednesday in Lee County Court.

A motion hearing set for 10 a.m. Sept. 25 at the courthouse, 309 S. Galena Ave., will determine which direction the case will take next.

In those documents, the bank's attorneys say the city cannot sue it because of the Illinois Fiduciary Obligations Act, which says if a person is empowered to write checks in an account, the bank is authorized to pay those checks without being held liable, unless the bank knows the person is committing wrongdoing, or knows that its action amounts to bad faith.

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The city's attorney, Devon Bruce, said in previous documents the bank violated commercial banking standards, showing "bad faith."

According to Bruce, a bank should not pay a check that is not endorsed and has a duty and obligation to verify the individual endorsing a check.

In addition, a check made out to "Treasurer" and nothing else should not have been cashed, and Crundwell's secret city account should not have been opened without a valid resolution from the city, among other items, Bruce said.

Crundwell siphoned the millions by cashing checks made out to "Treasurer" and using fake Illinois Department of Transportation invoices to cover up the thefts.

Furthermore, the Illinois Supreme Court has ruled that, in a motion to dismiss, a defendant must accept all facts presented as truth, so the bank must argue its case based on its legal merits, Bruce said in documents.

For example, the city's attorney said Crundwell was allowed to withdraw $48,000 in cash directly from a city account in previous documents.

The bank argued that there is no evidence those were cash withdrawals from Dixon's capital development fund, or that the money was used for "non-city purposes."

This kind of argument should be saved for a jury, and are not appropriate when arguing for a dismissal, Bruce said.

In its response, the bank said Bruce is taking liberties with the law, because he cited two federal opinions that were rejected upon reconsideration.

The bank also said the city does not put forth enough proof that the bank showed "bad faith" and is trying to pass off its own culpability in the theft for not noticing all the "red flags" it accuses the bank of missing.

Crundwell was sentenced in February to 17 years, 9 months in federal prison after pleading guilty to wire fraud in relation to what is one of the largest municipal theft cases in U.S. history.

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