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M CREDIT, INC. v. CADLEROCK

July 28, 2003

M CREDIT, INC., PLAINTIFF,
v.
CADLEROCK, L.L.C, CADLEROCK PROPERTIES, L.L.C., CADLEROCK JOINT VENTURE, L.P., AND THE CADLE COMPANY, DEFENDANTS



The opinion of the court was delivered by: Marvin Aspen, Chief Judge, District

MEMORANDUM OPINION AND ORDER

Plaintiff M Credit, Inc.*fn1 ("M Credit") has filed a declaratory judgment action against Defendants CadleRock, L.L.C., CadleRock Properties, L.L.C., CadleRock Joint Venture, L.P., and The Cadle Company (collectively, the "Cadle Companies"). Presently before us is the Cadle Companies' motion to dismiss M Credit's action. Also before us is M Credit's motion to enjoin prosecution of the Cadle Companies' complaint against M Credit in the United States District Court for the Northern District of Ohio. For the reasons set forth below, we grant the Cadle Companies' motion and deny M Credit's motion as moot.

I. BACKGROUND

On August 18, 1999, M Credit sent a proposal letter ("Proposal Letter" or "Letter") to the Cadle Company regarding CadleRock Joint Venture's interest in financing. See Compl., Ex. 1. The Proposal Letter stated that M Credit "would consider establishing a three (3) year credit facility . . . with an initial maximum commitment of $25,000,000," which M Credit could, at its discretion, expand by up to an [ Page 2]

additional $25,000,000 for a total of $50,000,000. The Letter indicated that M Credit, in its sole discretion, could extend the facility beyond the initial three-year term and would so notify the borrower six months prior to the end of that three-year term.*fn2 The Letter stated that it "is not intended to and does not create any binding legal obligation on the part of [M Credit] or the Borrower and no obligation, express or implied . . . is intended." Compl., Ex. I at 6. Furthermore, the Letter provides that it "is not, and is not to be construed as, a commitment, offer, agreement in principle or agreement ("Commitment") by [M Credit] to provide financing." Id. The Cadle Company signed and returned the letter to M Credit on August 19, 1999.

On December 16, 1999, M Credit, as Lender, entered into a Loan and Security Agreement ("Loan Agreement" or "Agreement") with CadleRock and CadleRock Properties, as Borrowers. See Compl., Ex. 2. Under the Agreement, M Credit would establish certain credit facilities, pursuant to which M Credit could, in its discretion, make one or more term loans to the Borrowers. The Agreement provided that the maximum facility amount would be $25,000,000, unless M Credit, in its sole discretion, increased that amount to $50,000,000.

The Loan Agreement stipulated that it would expire on December 15, 2002 unless either M Credit or CadleRock and CadleRock Properties exercised an option to extend the term for an additional year. Upon the Agreement's expiration, "all of the Obligations shall be immediately due and payable and Lender shall have no obligation to make any Term Loans or other extensions of credit to or for the benefit of Borrowers." Id. at § 2.8(d). The Loan Agreement stated that it and loan documents referenced therein "EMBODY THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDE ALL [ Page 3]

PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY, RELATING TO THE SUBJECT MATTER HEREOF."*fn3 Id. at § 10.16 (emphasis in original).

M Credit made numerous loans for millions of dollars pursuant to the Loan Agreement. Neither party exercised the option to extend the Loan Agreement, allowing the Facilities to terminate on December 15, 2002. By letter dated March 4, 2003, Daniel C. Cadle, on behalf of the Cadle Companies, made a written demand that M Credit immediately lend CadleRock and CadleRock Properties an additional $25,000,000. See Compl., Ex. 3. The Cadle Companies promised to file suit if M Credit failed to meet their demands. The Cadle Companies explained:

By this letter, CadleRock, L.L.C. and CadleRock Properties, L.L.C. make demand on [M Credit] to perform under the August 18, 1999 letter and the December 16, 1999 Loan Agreement, and lend the sum of $25,000,000 to these companies immediately.
If [M Credit] refuses this demand, then we are prepared to proceed to court. Please see the enclosure (without exhibits) to this letter.
Please advise as to your intentions on receipt of this letter.
The enclosure to which the Cadle Companies' letter referred was a draft complaint bearing the caption "United States District Court for the Northern District of Ohio." See Mot. Dismiss. The fourteen-count draft complaint set forth allegations that M Credit acted in bad faith and breached loan agreements with the Cadle Companies. The draft complaint requested actual damages in excess of $75,000 and that M Credit specifically perform under the Proposal Letter to lend not less than $25,000,000 to the Cadle Companies. [ Page 4]

On March 7, 2003, M Credit filed a declaratory judgment action against the Cadle Companies in this Court. The action seeks a judicial declaration that M Credit does not have a present obligation to lend money to the Cadle Companies. On April 4, 2003, the Cadle Companies filed a fourteen-count complaint against M Credit in the United States District Court for the Northern District of Ohio. See Mot. Dismiss, Ex. D. The complaint alleges that M Credit acted in bad faith and breached the Loan Agreement with the Cadle Companies by failing to approve certain term loans the Cadle Companies requested. The Cadle Companies request for relief includes actual damages in excess of $75,000 and M Credit's specific performance under the Proposal Letter to lend the Cadle Companies not less than $25,000,000.

II. ANALYSIS

The question presented by the Cadle Companies' motion is whether we should exercise jurisdiction over M Credit's claim for declaratory relief. It is well settled that, as a federal court, we have the discretion to decline to hear an action for declaratory relief, even though it is within our jurisdiction to do so. See Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494, 62 S.Ct. 1173, 1175, 86 L.Ed. 1620 (1942); see also Tempco Elec. Heater Corp. v. Omega Eng'g, Inc., 819 F.2d 746, 747 (7th Cir. 1987). We must determine whether exercising jurisdiction would be consistent with the purposes of the Declaratory Judgment Act ("Act"), 28 U.S.C. § 2201. See Cunningham Bros., Inc. v. Bail, 407 F.2d 1165, 1168 (7th Cir. 1965). The purpose of the Act "is to avoid accrual of avoidable damages to one not certain of his rights and to afford him an early adjudication, without waiting until his adversary should see fit to begin suit, after damage has accrued." Nucor Corp. v. Aceros y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 577 (7th Cir. 1994) (internal quotations and citations omitted).

As the Tempco Court explained, the Act contemplates two "related but distinct fact situations" in which declaratory relief ...


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