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Executive Management Services, Inc. v. Fifth Third Bank

United States District Court, Southern District of Indiana, Indianapolis Division

March 17, 2014



William T. Lawrence, Judge United States

This cause is before the Court on Defendant Fifth Third Bank’s (“Fifth Third”) motion for judgment on the pleadings (dkt. no. 37). The motion is fully briefed, and the Court, being duly advised, GRANTS IN PART AND DENIES IN PART the motion for the reasons, and to the extent, set forth below.


In reviewing a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), the Court applies the same standard that is applied when reviewing a motion to dismiss pursuant to Rule 12(b)(6). Pisciotta v. Old Nat’l Bancorp., 499 F.3d 629, 633 (7th Cir. 2007). The Court “take[s] the facts alleged in the complaint as true, drawing all reasonable inferences in favor of the plaintiff.” Id. The complaint must contain only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). While there is no need for detailed factual allegations, the complaint must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests” and “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Pisciotta, 499 F.3d at 633 (citation omitted).


The Plaintiffs, Executive Management Services, Inc., EMS Florida, Inc., D&B Ventures, LLC, and Air Golf II, LLC’s (collectively “EMS”) suit against Fifth Third arises out of an agreement whereby Fifth Third and EMS agreed to an interest rate swap.[1] The facts that follow are those taken in the light most favorable to EMS.

EMS is “a commercial cleaning, facility maintenance and management company headquartered in Indianapolis, Indiana.” Complaint ¶ 13. In 2004, Fifth Third assisted EMS with procuring corporate bonds from The Bank of New York Mellon (“BNYM”) to finance expansions of EMS’s operations and refinance portions of its existing debt. On September 1, 2004, EMS and BNYM entered into a Trust Indenture that authorized BNYM to issue up to ten million dollars to EMS in corporate bonds. Fifth Third issued a letter of credit to BNYM as collateral for the corporate bonds.

Unfortunately, the interest rate on the corporate bonds was variable and thus unsuitable for EMS. Fifth Third, therefore, approached EMS and recommended an interest rate swap agreement whereby EMS’s variable rates would be effectively “swapped” for fixed rates. The swap agreement was to be a mechanism whereby EMS could hedge against interest rate volatility on its corporate debt. Relying on Fifth Third’s advice, in January 2006, the parties entered into an International Swaps and Derivatives Association (“ISDA”) agreement.

The parties entered into several swap transactions in varying amounts from January 2006 through April 2008. For all of these transactions, the LIBOR-based rate closely tracked the fixed rate such that any disparities were de minimus. However, this changed in 2008 when the credit crisis occurred. The LIBOR plummeted, at times as low as .19% and .25%, causing EMS to pay much more than they expected to pay under the swap agreement. As a result, EMS paid both the high variable rate on its corporate debt and the fixed rate pursuant to the swap agreement, while receiving only the minimal LIBOR-based rate back from Fifth Third.

EMS began an investigation into the swap agreement, and requested certain information from Fifth Third; however, Fifth Third provided incomplete information and refused to meet with EMS. In February 2011, Fifth Third unilaterally terminated the banking relationship, including the swap agreement, and charged EMS $577, 905 in early termination fees. EMS was therefore forced to change banks and had to pay the fees in order to secure Fifth Third’s release of its collateral. EMS filed this suit in April 2013.


EMS’s Complaint brings four counts against Fifth Third: (1) a claim for frustration of commercial purpose; (2) a claim for recession or reformation due to mutual mistake; (3) a breach of duty of good faith and fair dealing claim; and (4) a breach of fiduciary duty claim. Fifth Third moves for judgment on the pleadings on all claims against it in EMS’s Complaint. Its arguments will be addressed, in turn, below.

Because a federal court sitting in diversity jurisdiction applies the choice of law rules of the forum state, Land v. Yahama Motor Corp., 272 F.3d 514, 516 (7th Cir. 2001), Indiana choice of law rules must be applied in this case. “Indiana choice of law doctrine favors contractual stipulations as to governing law.” Allen v. Great Am. Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind. 2002). Here, the parties’ contract explicitly states that “[t]his Agreement will be governed by and ...

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