By Becky Yerak | Struggles in Chicago’s banking industry are creating greater workloads
for the court system and in some cases are turning one-time allies
against each other.

As previously reported, the Federal Deposit Insurance Corp. was recently
sued by principals of at least two failed Chicago-area banks, Mutual
Bank of Harvey and Community Bank of Lemont.

Chicago-based New Century Bank, on the verge of being seized by regulators if it fails to raise capital, recently sued its former law firm over a loan gone bad. In at least one instance shareholders are turning against the people who ran the institution, in this case Heritage Community Bank.

Working its way through a U.S. District Court in Chicago is a lawsuit filed by Carrie Broughton-Irving, a former Heritage president who remained a shareholder, and other Heritage Community Bancorporation investors against John Saphir, who was chairman when in February 2009 the Glenwood-based bank unit was seized by regulators.

The lawsuit, which also names five other corporation directors and officers, allege breach of fiduciary duty, gross management, waste of corporate assets, fraud, breach of contract, and fraudulent misrepresentation for money-losing actions, including making too many risky loans.

In a motion to dismiss, Saphir said the complaint fails to show, among other things, that he made a false statement of a material fact. He also denied plaintiffs’ claims that the bank’s 2007 annual report mischaracterized the bank’s challenges. He also said plaintiffs fail to support a claim of breach of fiduciary duty.

The complaint “contains no allegations of management self-dealing, corporate skullduggery, bad faith or recklessness,” his response said. “To the contrary, even in the light most favorable to the plaintiffs, the complaint paints a picture of management recognizing and attempting to weather a storm that, in the end, was far more fierce than they anticipated.”

Saphir’s lawyer, John George of Katten & Temple, said his client was Heritage’s largest shareholder. “As a result, he suffered the greatest loss when the bank failed,” George said.

Also named in the lawsuit as defendants are Ira Nathan, a Heritage director from 1977 to 2008; Jerry Brucer, a Heritage director since 1988; Mary Mills, a Heritage director since 2002; Stephen Faydash, chief financial officer from 2003 to 2008; and Patrick Fanning, a former Heritage vice president.

Nathan, in a motion to dismiss the complaint, said, among other things, that the lawsuit fails to allege that he made any specific misrepresentations. “He lost money as a result of the bank’s failure,” said his lawyer, Mitchell Edlund of Meckler Bulger. “He’d want to do all he could to make sure the bank was successful.”

Brucer’s lawyer couldn’t be reached for comment late Tuesday, but in a response to the court Brucer also sought to have the lawsuit dismissed on various legal grounds, including that some of the claims were the result of lending decisions at the bank level, not at the corporation. Fanning’s lawyer couldn’t be reached for comment late Tuesday, but in a motion to dismiss he raised similar points.

Similarly, Mills’ lawyer called the lawsuit “baseless” and said she didn’t even become a director of the corporation until 2008. And “she lost money in all of this,” said her lawyer, Brian McBrearty. Faydash’s lawyer had no immediate comment late Tuesday.