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PRAMCO v. CHILDERS

August 9, 2005.

Pramco II, L.L.C., Plaintiff
v.
Edward E. Childers, Defendant.



The opinion of the court was delivered by: JOHN GORMAN, Magistrate Judge

ORDER

The parties have consented to have this case heard to judgment by a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c), and the District Judge has referred the case to me. Now before the court is the Plaintiff's Supplemental Motion for Summary Judgment (Doc. #30). The Motion is fully briefed and I have carefully considered the parties' arguments. For the following reasons, the motion is denied.

JURISDICTION

  When this case was filed, the plaintiff was LPP Mortgage Ltd, the holder of the Note at issue in this litigation. Based on allegations in the original complaint, this court proceeded under diversity jurisdiction. In recent pleadings, however, the defendant has challenged the jurisdictional assertions as to LPP Mortgage, the original plaintiff, and PRAMCO II, the current plaintiff.

  LPP Mortgage, no longer a party hereto, has provided an affidavit (Doc. #34) that establishes affirmatively that the corporate general partner and corporate limited partner in LPP Mortgage at the time this litigation was filed were incorporated under the laws of Texas and Nevada and had their principle places of business in those states. The affidavit also states that at no time during LPP Mortgage's involvement in this case was any general or limited partner a citizen of Illinois. Defendant is and at all times was a citizen of Illinois. The citizenship of the parties was therefore diverse at the time the lawsuit was filed and it remained diverse throughout LPP Mortgage's participation.

  The Current owner and holder of the Note in issue, however, is not LPP Mortgage. LPP Mortgage sold the note to PRAMCO II, LLC on May 26, 2004. PRAMCO II has filed an affidavit showing that it has two members: Midwest, Inc. and CFSC Capital Corp. II. Midwest Inc. was incorporated under the laws of Missouri and has its principle place of business in Missouri. CFSC Capital Corp. II is incorporated under the laws of Delaware, and its principle place of business is in Minnesota. The Defendant is a citizen of Illinois. The citizenship of the current parties is therefore diverse.

  The Note in issue is for $415,000. Although there have been a few payments and/or applications of collateral to the loan balance, the amount demanded by Plaintiff, consisting of the loan balance plus interest and various service fees, is alleged to be more than $350,000, well above the jurisdictional amount of $75,000.

  The court therefore has and at all times has had diversity jurisdiction over the subject matter of this dispute.

  DISCUSSION

  This suit involves a dispute about efforts to collect on a promissory note ("Note") dated September 11, 1990, for the amount of $415,000.00. On or about September 11, 1990, a loan in the principle amount of $415,000.00. was made to defendant Edward E. Childers in connection with Defendant's restaurant business. The debt was guarantied by the Small Business Administration (SBA). In connection with the loan, a Promissory Note was signed by Childers and his partner. The loan was made by a Small Business Administration Certified Development Company known as PEORIA 502/503, INC. The Note provided that it and related collateral would be assigned to the SBA to secure the SBA's guaranty of the loan. The Note and all supporting documents were in fact assigned to SBA. Thereafter, SBA assigned the Note and all corresponding documents to LPP Mortgage. During the course of this litigation, LPP Mortgage assigned the Note to the current plaintiff, PRAMCO II, on May 26, 2004. The Note was also secured by a Security Agreement, in which certain collateral (second liens on the real estate and on the restaurant assets) secured the Note. The Note was payable in equal monthly installments at a definite time, with a final payment due in October 2012. Childers ceased making payments on the Note at a date uncertain.*fn1 In 1995, the collateral securing the loan was sold, netting $50,000, which was applied to the outstanding balance on April 12, 1995. No payments of any kind have been made since that date.

  Before the collateral was sold, Childers had been meeting with an SBA loan officer named Alan Kilgore. Kilgore filled out an SBA form called a "Modification," on September 19, 1994. He noted the various modifications and accommodations that had been made with respect to payments under the Note, concluding that the debenture should be purchased at the earliest possible opportunity by SBA which should assume servicing responsibility for the loan. His recommendation was approved by an Assistant Branch Manager, D.L. Meadors. On February 23, 1995, Kilgore and Meadors signed off on another form that contains several pertinent pieces of information. First, it states that no demand letters had been sent as of the date of the form. Second, it comments that Childers and his partner had made an offer to compromise the liability under the note, an offer that was "presently under review." Third, Kilgore recommended (and Meadors approved) that the account be transferred "to liquidation." According to Kilgore, "liquidation status" was an internal SBA term designating a non-performing loan. Once a loan was placed in liquidation status, the loan officer had some flexibility to negotiate restructuring of the loan or compromise settlement of the loan, in addition to setting the file up for sale of collateral if necessary.

  According to Childers,*fn2 however, he met with Kilgore on several occasions between April 12 and July 23, 1996. He states that he "understood that SBA was asserting that the entire amount of my obligation due SBA was then payable. In other words, I understood that the SBA was claiming that I must immediately pay the whole amount of the promissory note." He bases this understanding on "one or more" written communications he received from SBA that were in the possession of his attorney at the time. He has not produced these documents for the court because his former attorney is deceased.

  Another SBA Modification form dated 6/13/95 was signed by Meadors (and a Loan Servicing Assistant named Carol Bridgewater). That form indicated that the Note was "in liquidation" as of February 23, 1995. This form was for the purpose of making a UCC filing continuing the financing statement at the Peoria County Recorder. On Nov. 6, 1996, Kilgore sent a letter to Childers and his partner, inviting them to re-open discussions about "how to resolve the liability issue in a mutually satisfactory manner. At no time did Kilgore send a letter, form or other communication demanding payment in full. Kilgore also kept notes about this file, and those notes indicate that at least through October 24, 2000, no demand letter had been sent. To the contrary, through the end of 1999, the notes indicate continued negotiations about resolving this matter.

  In his dealings with Kilgore, Childers signed an agreement acknowledging the underlying debt and the Note, agreed that they were not extinguished by the application of the collateral sales process, and agreed that the SBA retained all of its legal remedies to collect on the Note. No further payments have been made, and the principle balance alleged to be still due ...


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