‘Pretty Damn Obvious’

John E. Anding says the hardest part about arguing any case against a bank, even in the post-meltdown era, is overcoming the presumption that “banks are considered to be above-board, honest and forthright—doing the right thing for the right reasons.”

In their suit against Huntington National Bank, Anding and Doug A. Donnell alleged that the chain was aware of, and connected to, a Ponzi scheme—but failed to report it in an effort to reclaim a $17 million loan repayment. “We argued that it was pretty damn obvious,” Anding says.

In 2004, the FBI raided Cyberco Holdings Inc., in Grand Rapids. Cyberco allegedly received fraudulent loans, a line of credit from Huntington among them, and claimed to be using funds to buy computer equipment from Teleservices Group Inc.—a shell company formed by Cyberco’s owners that had no equipment to sell. The lenders forwarded funds to Teleservices based on phony invoices; Teleservices, in turn, transferred millions to Cyberco to ultimately pay down the Huntington loan. 

“The [bank’s] next question is, ‘Geez, we’ve got tens of millions of dollars coming in from a non-customer—who the hell are they?’” says Anding.

In 2006, the trustee for the Teleservices bankruptcy hired Donnell to file claims against Huntington, arguing it accepted the transfers in bad faith. Donnell says his team waded through thousands of pages of documents that the FBI had on Cyberco in a storage facility.

Anding, who represented two of the largest finance companies that alleged defrauding by Cyberco, joined the case shortly before trial. “We were dealing with very large law firms on the other side,” says Donnell, “and they were bringing an army of lawyers to court. That’s why we got John involved.”

The trial began in 2009 at the U.S. Bankruptcy Court for the Western District of Michigan.

“The bank, knowing the presumption generally accepted by the court,” says Anding, “took the position that they could basically play rope-a-dope: sit back and let us take our best shot, and at every turn basically say, ‘I don’t remember. I don’t recall.’”

Donnell and Anding discovered that Huntington’s head of security had learned Cyberco’s founder spent three years in prison for fraud, but kept the information to himself. In another incident, Huntington’s regional president heard the FBI was investigating one of the bank’s largest customers. He took the call—and never spoke to anyone about it.

“I always think of that scene from The Wizard of Oz, where the wizard is making all the noise, and then you peek behind the curtain to see what’s really going on,” says Anding. “They had the ability at every turn to look behind the curtain.”

The attorneys’ key witness was an employee in the treasury management department who, when she saw a $2.5 million check presented on Cyberco’s account, did some digging.

“[She’s] going to all of her superiors and saying, ‘Hey! We’ve got a problem here,’” says Anding. “And, one after another, they refused to listen to her—for a period of an entire year, really.”

During testimony, she admitted that she charted every wire transfer and pursued the investigation at the risk of losing her job. “That chart ended up being a very big exhibit in trial,” Anding adds.

In 2011, the judge rejected Huntington’s good-faith defense in taking the transfers and signaled that it could be liable for approximately $72 million. In 2012, the two sides met again to settle interest questions and other issues. But before the ruling, the U.S. Supreme Court issued an opinion in Stern v. Marshall that signified that bankruptcy courts do not always have constitutional authority to issue final judgment. The bankruptcy court judge sent a report and recommendation to the U.S. District Court for the Western District of Michigan.

Last fall, the district judge ruled the bankruptcy court got it right. With interest, Huntington owes the victims $81 million. The bank has appealed in the Sixth Circuit, and the two sides are briefing.

“We’re past nine years now,” says Donnell. “It was a ton of work. You’re staying up late at night—it’s exciting stuff. I’m a litigator; that’s what gets the juices going.”