In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13‐2363
STEVEN EDELMAN, et al.,
Plaintiffs‐Appellants,
v.
BELCO TITLE & ESCROW, LLC,
Defendant‐Appellee.
____________________
Appeal from the United States District Court for the
Southern District of Illinois.
No. 3:11‐cv‐001121‐DGW — Donald G. Wilkerson, Magistrate Judge.
____________________
ARGUED JANUARY 10, 2014 — DECIDED APRIL 25, 2014
____________________
Before FLAUM and EASTERBROOK, Circuit Judges, and
GRIESBACH, District Judge.
FLAUM, Circuit Judge. The plaintiffs in this diversity case
are lenders who lost a lot of money on a bad real‐estate in‐
vestment. They sued the transaction’s escrowee for a breach
of fiduciary duty under Illinois law. The plaintiffs argued
Of the Eastern District of Wisconsin, sitting by designation.
2 No. 13‐2363
that because the escrowee signed a form stating that it was
acting as the lenders’ “agent” for the purposes of the escrow
and closing, the escrowee should have communicated to the
plaintiffs that they were not going to receive the first‐priority
mortgage they had been promised by the real‐estate devel‐
opers. We agree with the magistrate judge that Illinois law
does not impose such a duty on an escrowee under the unu‐
sual circumstances of this transaction, and affirm the grant
of summary judgment in favor of the defendant.
I. Background
Plaintiffs Steven Edelman, Will Furman, and C. Bradford
Jeffries,1 together with nonplaintiff investor Nam Yung Suh,
got into business with brothers Craig and John Nicholson
and one of the brothers’ real‐estate development firms, Ca‐
seyville Sport Choice LLC (“Caseyville”). Caseyville was de‐
veloping a multi‐use real‐estate project in Caseyville, Illinois
called Forest Lakes. The plaintiffs had invested with the Ni‐
cholsons before. Edelman, Furman, and Suh had invested in
the Forest Lakes project before, too.
In 2007—as a result of the Nicholsons’ solicitation—
Edelman, Furman, and Suh took a collective $1.6 million that
they had previously loaned to another of the Nicholsons’
firms, Nicholson Property Investments, and transferred that
amount to a new “Phase II” loan for the Forest Lakes project.
1 Steven Edelman made his investment as an individual. Will Furman
made the investment as the trustee of the Furman‐Doane Revocable
Trust, and C. Bradford Jeffries as the trustee of the C. Bradford Jeffries
Living Trust. The two trusts are the plaintiffs in this lawsuit—not Fur‐
man and Jeffries themselves—but this detail does not matter to our anal‐
ysis. We will refer to the three plaintiffs collectively throughout this
opinion.
No. 13‐2363 3
Jeffries put in an additional $1.4 million. The Nicholsons
promised the plaintiffs that in exchange for the Phase II loan,
Caseyville would give them a first‐priority mortgage on the
residential portion of Forest Lakes. This promise was reflect‐
ed in the deal’s written Loan Agreement. Contrary to the Ni‐
cholsons’ representations, however, the plaintiffs received
only a junior mortgage. A mortgage on the residential por‐
tion of Forest Lakes (for $20 million) was already held by
Meridian Bank, which acquired it back in 2005. And when
the bank foreclosed on its mortgage in September 2009, the
plaintiffs lost everything.
The defendant in this appeal, Belco Title & Escrow, LLC
(“Belco”), is a title company formed by the law firm repre‐
senting Caseyville, Belsheim & Bruckert, LLC (“Belsheim”).
Belsheim created Belco to carry out title work for Ca‐
seyville’s various Forest Lakes transactions—including the
Meridian Bank mortgage in 2005. The law firm and the title
company shared the same office and employees.
The plaintiffs and Caseyville executed the Phase II Loan
Agreement in March 2007. Jeffries had already wire‐
transferred his $1.4 million to Caseyville in February; Edel‐
man, Furman, and Suh’s collective $1.6 million was “jour‐
naled” from Nicholson Property Investments to Caseyville
on the day the parties signed the Loan Agreement.
Throughout this process, the plaintiffs and the Nicholsons
communicated directly with one another. The plaintiffs nev‐
er communicated with Belco.
After Caseyville told Belco who the lenders were, Belco
ordered a title search for the Phase II Forest Lakes property
from Attorney’s Title Guaranty Fund, Inc. (“ATG”), an un‐
derwriter that Belco regularly used for its real‐estate clos‐
4 No. 13‐2363
ings. ATG returned a title search that revealed Meridian
Bank’s senior mortgage on Forest Lakes. After reviewing the
title search, Belco gave “commitment preparation instruc‐
tions” to ATG, and ATG prepared a title commitment which
also disclosed Meridian Bank’s mortgage. Either Belsheim or
the Nicholsons (the record is unclear which) drafted the
plaintiffs’ mortgage agreement for the Phase II property. The
mortgage agreement did not disclose the senior Meridian
mortgage—it incorrectly stated that the Phase II property
was “free and clear of all encumbrances.”
The closing took place on April 25, 2007. It seems that on‐
ly representatives from Belsheim and Belco attended. They
executed a document titled the “Agency/Escrow Disburse‐
ment Agreement”; this document is relevant to the issue the
parties litigate in this appeal. Here is the relevant portion:
1. We, the undersigned Seller and Buyer (or,
for refinance transactions, the Borrower) direct
you to make disbursements for this transac‐
tion, pursuant to the attached HUD‐1 Settle‐
ment Statement ….
2. We understand and agree that for the pur‐
poses of this closing, Belco Title & Escrow, LLC
(hereinafter “Closing Agent”) is acting only as
an agent of the lending institution, and does
not represent either the Seller or the Buy‐
er/Borrower as an attorney or in any other
way. If the Closing Agent’s representation of
the lending institution gives rise to an apparent
conflict of interest, the parties consent to and
waive said conflict of interest. The parties un‐
derstand and agree that all representations
No. 13‐2363 5
made to the Closing Agent by the Borrower
may be made known to the lender and all doc‐
uments executed and delivered to the Closing
Agent may be known and delivered to the
lender at any time hereafter ….
The Agency/Escrow Disbursement Agreement appears to be
a stock form used by ATG. A Belsheim attorney signed the
document on behalf of Caseyville, the “Borrower.” A parale‐
gal employed by Belsheim—but who was acting as a repre‐
sentative of Belco—signed the document on a line designat‐
ed “ATG Member or other Authorized Signatory.” There is
no signature on the line for the “Seller,” and there is no line
at all for the “lending institution.”
The Belsheim attorney signed the rest of the closing doc‐
uments on behalf of Caseyville, and the paralegal signed the
transaction’s HUD‐1 Settlement Statement on behalf of
Belco. Belco had been holding certain settlement costs for the
transaction in escrow. One of the Nicholson entities had
provided the funds for these costs (once again, the record is
not clear on this point). None of the plaintiffs’ $3 million in
loan funds were ever escrowed with Belco, as those funds
had gone directly to Caseyville. On the day of the closing,
Belco distributed the escrowed funds in accordance with the
HUD‐1 Settlement Statement, as it was directed to do in the
Agency/Escrow Disbursement Agreement.
That same day, the Belco paralegal sent an email to Craig
Nicholson telling him that the transaction had closed. The
paralegal attached the title commitment, the Agency/Escrow
Disbursement Agreement, the HUD‐1 Settlement Statement,
and the executed Phase II mortgage. Belco did not email any
of those documents to the plaintiffs. In fact, Belco never once
6 No. 13‐2363
contacted the plaintiffs—before, during, or after the closing.
Craig Nicholson forwarded Belco’s email to plaintiff Edel‐
man, but he only included the mortgage with the email.
After the Forest Lakes project went under and Meridian
Bank foreclosed on the property, the plaintiffs brought suit
against Belsheim, Belco, and ATG in federal district court.
(Interestingly, the plaintiffs did not sue the Nicholsons or
Caseyville.) The plaintiffs alleged Illinois state‐law claims of
breach of fiduciary duty against Belsheim and Belco and
negligent misrepresentation against ATG. Eventually, the
plaintiffs dismissed their claims against the other two de‐
fendants. This appeal concerns only the plaintiffs’ breach‐of‐
fiduciary‐duty claims against Belco.
The gist of the plaintiffs’ claims is that Belco—as the self‐
avowed “closing agent” for the transaction—owed the lend‐
ers—Belco’s principals—a fiduciary duty to look out for
their interests in the transaction. Naturally, if Belco had been
looking out for their interests, the plaintiffs reason, Belco
would have tipped them off that they were not receiving the
first‐priority mortgage on the Forest Lakes property that
they thought they were getting. The plaintiffs argue that
Belco’s failure to even communicate with them before the
closing was a proximate cause of their going through with
the deal and eventually losing their $3 million investment.
The magistrate judge, presiding by consent, granted
summary judgment for Belco. The judge agreed that Belco
was the plaintiffs’ agent for the purposes of the escrow and
closing. But he nonetheless found that under Illinois law, an
escrow agent owes its lender‐principal only the very limited
duty “to act only according to the terms of the escrow in‐
structions.” Edelman v. Belco Title & Escrow, LLC, No. 3:11‐cv‐
No. 13‐2363 7
1121‐DGW, 2013 WL 2147627, at *3 (S.D. Ill. May 16, 2013)
(quoting Bescor, Inc. v. Chi. Title & Trust Co., 446 N.E.2d 1209,
1213 (Ill. App. Ct. 1983)). Reasoning that “[t]here is no ques‐
tion here that Belco complied with the terms of the escrow
agreement in that the funds were disbursed according to
[that] agreement,” the court concluded that Belco fulfilled
every obligation it owed to the plaintiffs as the transaction’s
escrowee. Id.
The magistrate judge further found that Belco did not
owe the plaintiffs any additional duties derived from a
source other than the Agency/Escrow Disbursement Agree‐
ment. The judge reasoned that Belco was not the plaintiffs’
agent with respect to the loan itself: the Loan Agreement
was between the plaintiffs and Caseyville, who executed it
before Belco got involved, and the loan funds were never
placed in escrow with Belco. Thus, having concluded that
the relevant Illinois cases “tie the fiduciary duty owed by an
escrow/closing agent to the actual instrument directing the
actions of the agent,” the judge held the plaintiffs could not
show a promise Belco made to the plaintiffs that Belco failed
to adhere to. Id. at *4. The plaintiffs appeal.
II. Discussion
A. Federal Rule of Civil Procedure 8(b)(6)
Before turning to the merits, we must dispense with a
procedural issue. Belco never filed an answer to the plain‐
tiffs’ fourth amended complaint. The plaintiffs argue that as
a result, Belco has admitted all of the allegations against it.
We disagree.
The plaintiffs filed their initial nine‐count complaint
against the three defendants in December 2011. They filed an
8 No. 13‐2363
amended complaint shortly afterward. The magistrate judge
ordered the plaintiffs to file a second amended complaint to
cure jurisdictional deficiencies; the plaintiffs obliged in Janu‐
ary 2012. The second amended complaint alleged three
counts of breach of fiduciary duty against Belco (one count
per plaintiff), which are the claims before us here. In March
2012, Belco filed an answer responding to those counts and
to other parts of the complaint that included information rel‐
evant to its liability.
In May 2012, the magistrate judge granted defendant
ATG’s motion to dismiss the three counts against it. The
judge also granted defendant Belsheim’s motion to dismiss
the counts against Belsheim because the plaintiffs had failed
to allege an element crucial to those claims. But the court al‐
lowed the plaintiffs to replead the Belsheim counts—so the
plaintiffs filed a third amended complaint in June 2012. The
third amended complaint did not amend the Belco counts,
and it added no new allegations relevant to Belco’s liability.
But it did mistakenly include the dismissed counts against
ATG. Accordingly, that same month, the plaintiffs filed a
fourth amended complaint that properly excluded the ATG
counts, but otherwise made no changes to the third version.
In March 2013, Belsheim and Belco filed a joint motion
for summary judgment. At that point, the plaintiffs voluntar‐
ily dismissed Belsheim as a defendant. In their response to
Belco, however, the plaintiffs raised Belco’s failure to file an
answer to the fourth amended complaint as a defense to
summary judgment. Belco asked for leave to file the answer.
The magistrate judge granted the request and required Belco
to file its answer by May 16 (three days after the judge’s or‐
der). But on May 16—without waiting for Belco’s answer to
No. 13‐2363 9
come in—the judge granted Belco’s motion for summary
judgment in a memorandum opinion. Apparently believing
that the judge’s action meant that no answer was necessary,
Belco did nothing. The magistrate judge entered judgment
on May 22, 2013.
Federal Rule of Civil Procedure 8(b)(6) holds that “[a]n
allegation—other than one relating to the amount of damag‐
es—is admitted if a responsive pleading is required and the
allegation is not denied.” The plaintiffs argue that by opera‐
tion of this rule, the judge should have found that Belco ad‐
mitted all of the complaint’s allegations at the summary‐
judgment stage.
This argument overreaches. Belco may not have filed an
answer to the plaintiffs’ fourth amended complaint. Belco
did, however, file an answer to the second amended com‐
plaint. The third and fourth amended complaints stated the
very same allegations against Belco as the second amended
complaint—the only allegations that changed during this
time were against other defendants who have since dropped
out of the case. Thus, at the time the judge ruled on Belco’s
motion for summary judgment, the fourth amended com‐
plaint had effectively reverted back to the one that Belco had
already answered.
As support for their argument that Rule 8(b)(6) nonethe‐
less requires the court to treat everything in the fourth
amended complaint as admitted, the plaintiffs invoke our
decision in Modrowski v. Pigatto, 712 F.3d 1166 (7th Cir. 2013).
It does not help them. Modrowski merely noted that the de‐
fendants in that case may have admitted all of the allega‐
tions against them by not filing an answer to the plaintiff’s
amended complaint and filing a motion for summary judg‐
10 No. 13‐2363
ment instead. Id. at 1170. But unlike Belco, the Modrowski de‐
fendants never filed a responsive pleading at all. Id. The lan‐
guage in that opinion is inapposite.
As we have emphasized in similar circumstances, “[t]he
Federal Rules reject the approach that pleading is a game of
skill in which one misstep by counsel may be decisive to the
outcome and accept the principle that the purpose of plead‐
ing is to facilitate a proper decision on the merits.” Conley v.
Gibson, 355 U.S. 41, 48 (1957), quoted in Pepper v. Vill. of Oak
Park, 430 F.3d 805, 812 (7th Cir. 2005) (granting summary
judgment against the plaintiff despite the defendant’s failure
to file an answer responding to a new, related claim in the
plaintiff’s amended complaint). The purpose of a responsive
pleading is to put everyone on notice of what the defendant
admits and what it intends to contest. Belco undoubtedly
did this, as it had previously answered all of the allegations
against it. The plaintiffs cannot claim that they were preju‐
diced by Belco’s oversight; “this [is] clearly a no harm, no
foul situation.” Isby v. Clark, 100 F.3d 502, 504 (7th Cir. 1996)
(finding no abuse of discretion in the district court’s not im‐
posing a default judgment against defendants who failed to
file a new answer after the plaintiff amended his complaint).
B. Breach of fiduciary duty
We now proceed to the merits of the plaintiffs’ breach‐of‐
fiduciary‐duty claim. We review the magistrate judge’s grant
of summary judgment de novo. Ellis v. DHL Express Inc., 633
F.3d 522, 525 (7th Cir. 2011).
To succeed on this claim under Illinois law, the plaintiffs
must show that Belco owed them a fiduciary duty, that Belco
breached this duty, and that Belco’s breach proximately
No. 13‐2363 11
caused the plaintiffs’ injury. Neade v. Portes, 739 N.E.2d 496,
502 (Ill. 2000). If the evidence is undisputed (as it is here), the
determination of whether a fiduciary duty exists is a ques‐
tion of law for the court to decide. Wargel v. First Nat’l Bank
of Harrisburg, 460 N.E.2d 331, 334 (Ill. App. Ct. 1984). The
magistrate judge granted summary judgment on the basis
that the plaintiffs had not shown that Belco, as the escrowee
for the transaction, owed them any of the duties they al‐
lege—namely, a duty to communicate with the lenders be‐
fore the closing, to ask for instructions, and to disclose any
material information that might cause them to reevaluate the
deal.
In response, the plaintiffs argue that they and Belco were
in a principal–agent relationship with respect to the Phase II
loan. Insisting that Belco “admitted” in the Agency/Escrow
Disbursement Agreement that it was the plaintiffs’ agent for
the transaction, the plaintiffs maintain that Belco owed them
the fiduciary duties that any agent owes to its principal. See,
e.g., Khan v. BDO Seidman, LLP, 948 N.E.2d 132, 156 (Ill. App.
Ct. 2011) (“[An] agent and principal are in a fiduciary rela‐
tionship as a matter of law.”); Moehling v. W. E. O’Neil Con‐
str. Co., 170 N.E.2d 100, 107 (Ill. 1960) (“[T]he agent sustains
a position of trust toward his principal, and in all his trans‐
actions affecting the subject of his agency the law dictates he
must act in utmost good faith and must make known to his
principal all material facts within his knowledge which in
anyway [sic] affect the transaction and the subject matter of
his agency.”).
We are puzzled by the plaintiffs’ understanding that they
and Belco shared a principal–agent relationship for the pur‐
pose of the loan transaction. As far as we can tell, the only
12 No. 13‐2363
evidence of such a relationship is a single statement in the
Agency/Escrow Disbursement Agreement that “for the pur‐
poses of this closing” Belco was “acting only as an agent of
the lending institution.” But as the plaintiffs themselves em‐
phasized in their briefing and at oral argument, they never
even saw the Agency/Escrow Disbursement Agreement dur‐
ing the time period at issue, let alone signed it. So the plain‐
tiffs can hardly claim to have expressed their agreement to
Belco’s representation through that form.
Perhaps realizing this, the plaintiffs were quick to clarify
that the Agency/Escrow Disbursement Agreement did not
create the principal–agency relationship between the parties,
but merely served as Belco’s admission of it. But if the form
was not the source of the agency, what was? The plaintiffs
never told us, and we don’t see how, on these facts, an agen‐
cy relationship could have formed. “Agency is the fiduciary
relationship that arises when one person (a ‘principal’) mani‐
fests assent to another person (an ‘agent’) that the agent shall
act on the principalʹs behalf and subject to the principal’s
control, and the agent manifests assent or otherwise consents
so to act.” RESTATEMENT (THIRD) OF AGENCY § 1.01 (2006).
The plaintiffs did not speak to Belco at any time before, dur‐
ing, or after the transaction’s closing. (Indeed, the lack of
communication is one of the things they are complaining
about.) That being the case, the plaintiffs certainly never
manifested their assent to Belco that Belco should represent
their interests in the transaction.
The plaintiffs have a fallback argument. They argue that
under Illinois law, escrowees owe a fiduciary duty to all par‐
ties to an escrow by default. But the case they cite for this
proposition, International Capital Corp. v. Moyer, 806 N.E.2d
No. 13‐2363 13
1166 (Ill. App. Ct. 2004), states only that “[e]scrowees have
been found to owe a fiduciary duty both to the party making
the deposit and the party for whose benefit it is made.” Id. at 1172
(emphasis added); see also Bescor, 446 N.E.2d at 1213 (same).
The plaintiffs never deposited any of their loan funds with
Belco. All three plaintiffs and Suh directed their collective $3
million to Caseyville before the closing took place, and the
money was never escrowed. The only funds that were es‐
crowed as part of this transaction—and thus controlled by
Belco—were the transaction’s settlement costs. Because one
of the Nicholsons’ firms provided the funds for these costs,
the plaintiffs were not “the party making the deposit.” And,
as far as we can tell, the plaintiffs were not the intended ben‐
eficiaries of any of the funds that Belco held in escrow, ei‐
ther.
Even if Belco was in some sense an intended beneficiary
of the escrowed settlement costs, however, the plaintiffs
have not shown that Belco was deficient in its obligations as
an escrow agent. Illinois law holds that “an escrowee, like a
trustee, owes a fiduciary duty to act only according to the
terms of the escrow instructions.” Bescor, 446 N.E.2d at 1213.
Here, the only “escrow instructions” were those contained in
the Agency/Escrow Disbursement Agreement, which told
Belco to distribute the escrowed funds in accordance with
the transaction’s HUD‐1 Settlement Statement. The plaintiffs
do not argue that Belco failed in this regard.
The magistrate judge interpreted Illinois cases like Bescor
to mean that escrowees have but a single obligation: to act in
accordance with the escrow instructions. In other words, the
judge assumed that an escrowee cannot breach its fiduciary
duty to the parties so long as the escrowee does not disobey
14 No. 13‐2363
the instructions’ explicit terms. We note that another district
court has questioned this assumption. See Home Loan Ctr.,
Inc. v. Flanagan, 10 C 6787, 2012 WL 1108132, at *6 (N.D. Ill.
Apr. 2, 2012) (reasoning, in interpreting Illinois law in a neg‐
ligent‐misrepresentation case, that “[t]he fact that an escrow
agent must follow the closing instructions … does not pre‐
clude the existence of duties derived from other sources”).
We need not address that issue of Illinois law here, how‐
ever, because the plaintiffs told us at argument (repeatedly)
that they are not contesting the magistrate judge’s premise
that escrowees have only a limited duty to follow their in‐
structions. Instead, the plaintiffs argue that an escrowee’s
duty to follow the parties’ instructions presupposes a duty
to ask for instructions. Thus, in the plaintiffs’ view, Belco had
an obligation to contact the plaintiffs before the closing to
find out how the plaintiffs wanted to proceed—for instance,
to ask whether the plaintiffs still wanted to close the deal
even if they would only receive a junior mortgage on the
Forest Lakes property. But the plaintiffs have identified no
Illinois cases holding that a closing agent is under an obliga‐
tion to seek additional instructions from the transacting par‐
ties when the parties do not see fit to provide them. Again,
Belco did not possess any of the plaintiffs’ loan funds. And
Belco was not a party to the Loan Agreement. If we hold
that, as a matter of law, Belco became responsible for the
plaintiffs’ interests under these circumstances, that ruling
would surely destabilize escrow transactions; the escrow
agent would have no sure way of knowing what responsibil‐
ities it owed to whom.
This was an unusual transaction. The plaintiffs entered
into a loan agreement and handed over the cash directly to
No. 13‐2363 15
the borrowers without first ensuring that they were actually
getting what they paid for. But Illinois law does not hold
Belco responsible for the plaintiffs’ interests under these cir‐
cumstances.
The judgment is AFFIRMED.