The opinion of the court was delivered by: Judge Robert W. Gettleman
MEMORANDUM OPINION AND ORDER
In these related cases, plaintiff John W. Costello, Litigation Trustee of the Comdisco Litigation Trust, has sued defendants seeking to enforce defaulted promissory notes. After various legal skirmishes including motions to dismiss for lack of personal jurisdiction and motions to strike plaintiff's jury demands, all defendants have finally answered the complaint, raising a plethora of affirmative defenses, and filed a two count counterclaim. Plaintiff has moved for summary judgment against defendants James D. Duncan and Lyssa K. Paul (together, "defendants") on its complaint and the counterclaim. Defendants have filed a cross motion for summary judgment arguing that the notes in questions are unenforceable because they were part of an illegal program. For the reasons discussed below, plaintiff's motion for summary judgment is granted. Defendants' cross motion for summary judgment is denied.*fn1
Defendants Paul and Duncan are each former employees of Comdisco, Inc., as are all of the defendants in the related cases. Duncan was Comdisco's Eastern Regional Vice-President, and Paul was In-House Counsel for Comdisco's Legal Department. In early 1998, Comdisco sponsored and implemented a Shared Investment Program ("SIP") for certain senior management level employees, including defendants Duncan and Paul. The SIP gave participating employees ("Participants") the opportunity to invest in the company by purchasing stock ("SIP shares") with a personal loan guaranteed by Comdisco. One hundred percent of the purchase price of the stock was financed by loans from lender banks ("lenders" or "banks") represented by First National Bank of Chicago (now Bank One) as their agent. The loans were guaranteed by Comdisco as evidenced by Master Promissory Note ("Sip note"). Comdisco received the loan proceeds directly from the lenders and held the Sip shares. The guaranty was documented in a Facility and Guaranty Agreement ("Facility Agreement") between Comdisco and the lenders. The SIP notes had a fixed maturity date and, at maturity, a final balloon payment of principle and interest was due. Neither the Facility Agreement nor the SIP notes contains any restrictions on the stock, but the Participants did not receive any of the loan proceeds or the SIP shares.
Defendants each received a binder containing materials explaining the SIP program ("SIP materials"). As stated in those materials, the SIP shares were subject to a variety of restrictions on resale for a specified period of time. With certain exceptions not relevant to the instant case, the SIP shares could not be sold during the first year of the SIP program. A Participant was entitled to 100% of the gain after payment of all amounts due on the loan, unless the Participant voluntarily terminated employment or sold the SIP shares within three years after purchase. In either event, the company was entitled to 50% of any gain upon sale.
Both defendants elected to participate in the SIP program. Each signed and returned a Shared Investment Plan Option Exercise Form and a Letter of Direction authorizing the bank to pay the proceeds of the loan to Comdisco. Duncan executed a promissory note dated February 10, 1998, in the principle amount of $1,725,000 (the "Duncan Note"). Paul executed a note dated February 10, 1998, in the principle amount of $552,000 (the "Paul Note"). The proceeds were remitted to Comdisco for purchase of the shares. Comdisco caused 50,000 shares to be allocated and transferred to its Registrar and Transfer Agent, Mellon Investor Services, LLC, for the benefit of Duncan, and 16,000 shares were transferred for the benefit of Paul. The price per share was set as the closing price on January 30, 1998, which was $34.50 per share.
Each defendant opened an account at First National Bank of Chicago. The purpose of the account was to receive distribution of stock dividends that were used to offset payments due under the SIP notes. Dividends from the SIP shares were deposited into defendants' accounts.
Within six months of implementing the SIP Program in 1998, Comdisco's stock split, giving defendants double the number of shares they originally received. Just after the second anniversary of the SIP, Comdisco's stock was trading at $53 per share. A number of participants elected to sell SIP shares at that time, generating proceeds sufficient to retire their notes and return a profit, even after the 50% share to Comdisco as required by the restriction on sale prior to the third year anniversary.
By July 2001, Comdisco's fortunes had turned, and it filed for bankruptcy protection, an event of default under the SIP notes causing Bank One as agent for the lenders to accelerate the full amounts due under those notes. The Comdisco Plan of Reorganization authorized the creation of a litigation trust and the appointment of a litigation trustee to, among other things, liquidate trust assets. In December 2004, the Trust Agreement was amended in anticipation of a settlement between Comdisco Holding Company as successor to Comdisco and the lenders, under which Comdisco paid the lenders approximately $126,000,000 to satisfy its guarantee of the SIP notes. The settlement was approved by the bankruptcy court and, as part of the settlement, the lenders assigned all rights associated with the SIP notes against the borrowers to the litigation trustee (plaintiff). Among the notes assigned were the Duncan and Paul notes, leaving plaintiff, as this court has previously held, the holder of the notes with all rights of enforcement. Costello v. Haller, 05 C 726 (N.D. Ill. Sept. 23, 2005) ("Costello I").*fn2
Plaintiff has moved for summary judgment, arguing that the undisputed facts demonstrate its right to enforce and on collect the notes. Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, admissions and affidavits on file 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.
There is no dispute as to the facts supporting plaintiff's claims. Defendants admit: they executed their respective SIP notes; they directed that the proceeds of the loans be paid directly to Comdisco; Comdisco received those proceeds; the shares were issued to defendants and held by Mellon on defendants' behalf; and the notes have not been paid. Defendants' argument that plaintiff does not have the right to enforce and collect on the notes has already been rejected by this court in Costello I and again in Costello v. Haller, 05 C 726 at 87 n.2 (N.D. Ill. Sept. 19, 2006) ("Costello II"). Therefore, all elements of plaintiff's claims are undeniably established and, absent a viable affirmative defense or counterclaim, plaintiff is entitled to judgment.
As noted, defendants have raised a plethora of defenses, most of which are based on alleged misconduct by Comdisco. Defendants' primary defense is that the SIP Program was fraudulent. To prevail on this defense, defendants must establish that Comdisco made false statements of material fact, with knowledge or belief of the falsity and an intent to induce defendants to act, and that defendants did so act in reliance on the truth of the statements, suffering damage as a result. Brown Leasing Inc. v. Stone, 284 Ill. App. 3d 1035 (1st Dist. 1996).
Defendants argue that the SIP materials contain various misrepresentations. According to defendants the materials indicated that the "SIP shares were not held as security for Comdisco's guarantys [sic] and thus indirectly as security for the ...