The opinion of the court was delivered by: JOHN GORMAN, Magistrate Judge
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.
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
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
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
The court therefore has and at all times has had diversity
jurisdiction over the subject matter of this dispute.
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 ...