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WestWacker K-Parcel LLC v. Pacific Mutual Life Insurance Co.

September 11, 2007

WESTWACKER K-PARCEL LLC AND WESTWACKER HOLDINGS LLC, PLAINTIFFS,
v.
PACIFIC MUTUAL LIFE INSURANCE CO., DEFENDANT.



The opinion of the court was delivered by: Charles P. Kocoras, District Judge

MEMORANDUM OPINION

This matter is before this Court on the parties' cross-motions for summary judgment. For the following reasons, summary judgment is granted in part and denied in part.

BACKGROUND

In assembling the recitation of material facts that follows, we have disregarded any alleged facts or purported denials that are unsupported by the record or do not comply with Local Rule 56.1. See Brasic v. Heinemann's Inc., 121 F.3d 281, 284 (7th Cir. 1997).*fn1

This litigation arises out of a real estate loan (the "Loan") made by Defendant Pacific Mutual Life Insurance Co. ("Pacific") to the Chicago Dock and Canal Trust ("Chicago Dock"). Under the terms of the Loan, on May 29, 1987, Pacific loaned Chicago Dock $6.3 million at 9.5% interest, secured by property located at 505 North Peshtigo Court, Chicago, Illinois ("the Kraft parcel"). The Loan is evidenced by a Note and Mortgage, as well as a Specific Assignment that collaterally assigned the existing lease on the Kraft parcel to Pacific. The Loan contemplated a maturity date of April 1, 2016. However, after the expiration of the tenth loan year, prepayment was permitted upon payment of a premium "equal to the greater of: (I) the Loss of Yield [defined separately] to the Lender for the period from the date of prepayment through the maturity date; and (ii) one percent of the outstanding principal amount...as of the date of prepayment."

The Mortgage and the Note both provide that the Loan may not be assigned by the Mortgagor for the first ten years. After ten years, Pacific agreed not to "unreasonably withhold its consent to a single sale or transfer" upon payment of a fee of 1% of the outstanding principal balance (the "Transfer Right"). Once there has been such a sale or transfer, Paragraph 17 of the Mortgage and a corresponding portion of the Note provide that Mortgagor or its successor "shall have no further right to sell or transfer any interest described above without [Pacific's] consent which may then be withheld for any reason in [Pacific's] sole and absolute discretion."

In the late 1990s, Chicago Dock was acquired by real estate developer Daniel E. McLean, who purchased its shares on the open market. McLean then reorganized his real estate holdings in the area of the Kraft Parcel, and formed Plaintiffs WestWacker K-Parcel LLC and WestWacker Holdings LLC (collectively, "WestWacker"). WestWacker is owned and controlled by a Japanese corporation, Mitsui Sumitomi Insurance Company ("Mitsui").

In 2003, McLean entered into a deed in lieu of foreclosure arrangement ("the Deed in Lieu Agreement") with Mitsui. As McLean had pledged his shares in Chicago Dock as part of a guaranty on an adjacent parcel, Chicago Dock was required, as part of the Deed in Lieu Agreement, to convey the Kraft parcel to Plaintiff WestWacker K-Parcel.

Under the terms of the Mortgage and Note, conveyance of the Kraft parcel required Pacific's consent. On March 25, 2003, Pacific entered into a written Consent Agreement with Plaintiff WestWacker Holdings, LLC. The Consent Agreement provides, in relevant part, that:

[Pacific] hereby agrees to consent....to the transfer of the Kraft Site....Pacific hereby agrees to waive the assumption fee of one percent (1%) of the outstanding principal balance of its loan to Chicago Dock in connection with the Consent given herein; provided, however, such waiver is on a one-time only basis and the provisions of Paragraph 17 of the Mortgage and the corresponding provisions of the Note shall remain in full force and effect following this Consent.

Having obtained Pacific's consent, Chicago Dock transferred the Kraft parcel as provided in the Deed in Lieu Agreement.

Less than a year later, on January 20, 2004, McLean sent Pacific a letter requesting that it agree to permit another McLean company, MCL CDC Land, LLC ("MCL CDC") to assume the Loan. On the same day, Patrick Ellum, attorney for Mitsui and WestWacker, sent Pacific a letter requesting that Pacific permit the loan to be assigned as McLean requested or prepaid without any prepayment premium. On January 28, 2004, Pacific rejected both requests, explaining that, after the one-time transfer in 2003, they were entitled to reject or approve any further requests in their sole discretion, as permitted by the Mortgage and Note.

WestWacker paid off the Mortgage on February 26, 2004, although they reserved their rights to contest three charges included in the payoff amount: a $2,351,767.18 prepayment premium, interest in the amount of $36,583.10, and $19,995.50 in attorneys' fees.

On August 25, 2005, WestWacker filed suit against Pacific and amended their complaint on October 31, 2005, to state two claims against Pacific: 1) a claim for breach of contract due to Pacific's refusal to consent to the transfer to MDL CDC and its calculation of the disputed charges, and 2) a request for a declaratory judgment that the prepayment premium was unreasonable. We denied Pacific's motion to dismiss, holding that the contract neither clearly supported or barred WestWacker's claims and that we lacked sufficient information to determine whether or not the prepayment premium was an unreasonable and illegal penalty. After discovery, the parties filed the instant cross-motions for summary judgment.

LEGAL STANDARD

Summary judgment is appropriate only when "the pleadings, depositions, answers to interrogatories, admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of demonstrating the absence of a genuine issue of material fact by specific citation to the record, at which time the burden shifts to the non-moving party to set forth specific facts showing that there is a genuine issue of fact for trial. Fed. R. Civ. P. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317 (1986). In considering cross summary judgment motions, we "construe all facts and inferences therefrom in favor of the party against whom the ...


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