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LASALLE NATIONAL BANK ASSOCIATION v. GABAYZEDEH

January 16, 2003

LASALLE NATIONAL BANK ASSOCIATION, A NATIONAL BANKING ASSOCIATION, PLAINTIFF,
v.
MEHDI GABAYZEDEH, AN INDIVIDUAL, DEFENDANT



The opinion of the court was delivered by: Harry D. Leinenweber, United States District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff LaSalle National Bank Association ("LaSalle") brings this action against Mehdi Gabayzedeh ("Gabayzedeh") seeking a declaratory judgment that Gabayzedeh's obligations under that certain Continuing Unconditional Guaranty dated July 12, 2001 entered into by and between Gabayzedeh and LaSalle (for itself and as agent for certain other lenders) (the "Guaranty") are "presently due and owing" to LaSalle. The Court's subject matter jurisdiction rests on 28 U.S.C. § 1332. Presently before the Court is LaSalle's Motion for Summary Judgment pursuant to Federal Rule of Civil Procedure 56. For the following reasons, the Court grants the motion.

MOTION FOR SUMMARY JUDGMENT

Legal Standard

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c). A fact is "material" if it could affect the outcome of the suit under the governing law; a dispute is "genuine" where the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Supreme Court has emphasized "that at the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue [of material fact] for trial." Id. at 249. In performing this task, all factual disputes are, resolved, and all reasonable inferences are drawn, in favor of the nonmoving party. Jackson v. Illinois Medi-Car, Inc., 300 F.3d 760, 764 (7th Cir. 2002). However, "[s]elf-serving assertions without factual support in the record will not defeat a motion for summary judgment." Jones v. Merchants Nat'l Bank & Trust Co., 42 F.3d 1054, 1058 (7th Cir. 1994).

The burden is initially upon the movant to identify those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits," if any, that the moving party believes demonstrate an absence of a genuine issue of material fact. Celotex v. Catrett, 477 U.S. 317, 323 (1986) Once the moving party has met this burden, the nonmoving party may not rest upon the mere allegations. contained in the nonmoving party's pleading, but rather "must set forth specific facts showing that there is a genuine issue for trial." FED.R.CIV.P. 56(e); Becker v. Tenenbaum-Hill Assoc., Inc., 914 F.2d 107, 110 (7th Cir. 1990); Schroeder v. Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir. 1989). Accordingly, summary judgment is mandatory "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. In such a situation, there can be "`no genuine issue as to any material fact', since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Id. at 323.

Failure to Respond to Statement of Uncontested Material Facts
Invoking his Fifth Amendment right against self-incrimination, Gabayzedeh has offered no response to LaSalle's version of the material facts in this case. Federal Rule of Civil Procedure 56(e) is clear, however, that once a summary judgment motion "is made and supported as provided in [Rule 56],". the nonmoving party must respond by "set[ting] forth specific facts showing there is a genuine issue for trial. If the [nonmoving] party does not so respond, summary judgment, if appropriate, shall bq entered against the [nonmoving) party." FED.R.CIV.P. 56(e); see also Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994) (Under Rule 56(e), "if the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in her favor on a material question, then the court must enter summary judgment against her." (emphasis in original)). This fundamental rule is no less applicable where the non-movant's failure to respond is the consequence of his assertion of the Fifth Amendment privilege. See LaSalle Bank Lake View v. Seguban, 54 F.3d 387, 391 (7th Cir. 1995).

Under Local Rule 56.1(a)(3) of the Local Rules of the United States District Court for the Northern District of Illinois, a party moving summary judgment must submit a statement of material facts in the form of short numbered paragraphs supported by specific references to the factual record. LaSalle has done so. Under Local Rule 56.1(b)(3), the nonmoving party must in turn submit a response to each such paragraph, including (in the case of disagreement) specific references to the factual record. Gabayzedeh, invoking the Fifth Amendment, has failed to do so. Gabayzedeh's refusal to respond carries drastic consequences, as "[a]ll material facts set forth in the statement required of the moving party will be deemed to be admitted unless controverted by the statement of the opposing party." Local Rule 56.1(b)(3)(B) (emphasis supplied); see also Seguban, 54 F.3d at 391 (holding that, notwithstanding a non-movant's "Fifth Amendment silence," "admission[s] . . . achieved automatically through operation of [Local Rule 56.1(b)] . . . do[] not . . . overstep the bounds of constitutional acceptability")

The Seventh Circuit has explicitly "endorsed the exacting obligation[s] these [local] rules impose on a party contesting summary judgment" and has "repeatedly upheld the[ir] strict enforcement . . . . sustaining the entry of summary judgment when the non-movant has failed to submit a factual statement in the form called for by the pertinent (local] rule and thereby conceded the movant's version of the facts." Waldridge, 24 F.3d at 922. As the Seventh Circuit has acknowledged, "district courts are not obligated in our adversary system to scour, the record looking for factual disputes." Id. Likewise here, the Court will not scour the record on Gabayzedeh's behalf. Rather, the Court accepts as undisputed LaSalle' s properly supported statements of material fact contained in its Local Rule 56.1(a)(3) Statement of Uncontested Material Facts. The Court's task then becomes to determine whether, "given the undisputed facts, summary judgment is proper as a matter of law." Wienco, Inc. v. Katahn Assocs., Inc., 965 F.2d 565, 568 (7th Cir. 1992).

BACKGROUND

On or about July 9, 1999, LaSalle, as a lender and as agent for a group of lenders, entered into an Amended and Restated Loan Agreement (the "Loan Agreement") with American Tissue, Inc. ("ATI") and certain companies affiliated with ATI (collectively, the "Borrowers"). At that time; Gabayzedeh was President, Chief Executive Officer and an indirect fifty-percent stockholder of ATI. The Loan Agreement provided the Borrowers with a revolving credit facility secured by, among other things, the Borrowers' inventory and accounts receivable. This credit facility was subject to a "Loan Limit," defined as the lesser of (i) $100,000,000 and (ii) a defined percentage of eligible accounts receivable and inventory ("A/R & I Amount"). (See Loan Agmt., Exh; A.) On May 3, 2000, the Loan Limit's $100,000,000 cap was increased to $145,000,000. By the terms of the Loan Agreement, the Borrower's "Liabilities" (a term capaciously defined in the Loan Agreement to include, inter alia, "any and all obligations, liabtitties and indebtedness of each Borrower to [LaSalle] or any [other lender party to the Loan Agreement)") were not to exceed the Loan Limit; if they did, the Borrowers were required to pay down that excess amount (the "Overadvance") "immediately, and without any necessity of a demand by [LaSalle]" (see Loan Agmt. at 10-11), on pain of triggering an "Event of Default" (see Loan Agmt. at 28-29)

As of early June 2001, the Borrowers' Liabilities under the Loan Agreement had in fact exceeded the Loan Limit, and the Borrowers did not have sufficient funds to pay down this Overadvance. Gabayzedeh and the other Borrowers, aware of this "out-of-margin" financial condition, entreated LaSalle in June and July 2001 not to declare an "Event of Default" under the Loan Agreement at that time, in part out of fear that it would cripple public bond deal then being negotiated with UBS Warburg. LaSalle obliged, and between early June 2001 and July 12, 2001, LaSalle (as well as the other lenders party to the Loan Agreement) began considering requests from the Borrowers for additional funding on a day-to-day basis. Some of those requests were granted.

During a conference call on June 21, 2001 with LaSalle and the other lenders, Gabayzedeh, in an apparent effort to assuage LaSalle's concern about the Borrowers' inability to pay down the persisting Overadvance, proposed that he provide a guaranty for that amount. This idea appealed to LaSalle and the other lenders, and in fact became a condition precedent to the closing of a Ninth Amendment to the Loan Agreement ("Ninth Amendment"). (See Ninth Amdt. at 5 ("This Amendment shall not become effective until . . . Mehdi Gabayzedeh provides his personal Guaranty of. the Liabilities outstanding with respect to the Overadvance Availability in form and substance satisfactory to [LaSalle].").) The Guaranty itself also expressly acknowledged that it was being executed in connection with the Ninth Amendment "as a condition to the extension and continuation of credit by [LaSalle] and [the other lenders party to the Loan Agreement]." (See Guaranty at 1.)

The Ninth Amendment ultimately closed on July 12, 2001, and Gabayzedeh executed both the Ninth Amendment and the Guaranty the same day. Among other things, the Ninth Amendment modified the definition of "Loan Limit" by including an additional $19,600,000 in the calculation of the A/R & I Amount, thus giving the Borrowers greater borrowing headroom (though just for a short time, as the $19,600,000 amount would steadily decrease to $0 by August 3, 2001). (See Ninth Amdt. at 2-3.) ...


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