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Platinum Community Bank v. Marshall Investments Corp.

July 29, 2008

PLATINUM COMMUNITY BANK, A FEDERAL SAVINGS BANK, PLAINTIFF,
v.
MARSHALL INVESTMENTS CORPORATION, A DELAWARE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: James F. Holderman, Chief Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Platinum Community Bank ("Platinum") filed a complaint against defendant Marshall Investments Corporation ("Marshall") seeking to recover money from a $16,455,000 commercial loan ("Loan") originated, closed, and funded by Marshall, in which Platinum purchased an undivided percentage interest. Pending before the court is a First Amended Motion to Intervene filed by movants Alliant Bank, Kansas State Chartered Bank, State Bank of Kenmare, Citizen State Bank of Mohall, Montana State Bank, and Karnes County National Bank of Karnes City (collectively "Movants"). (Dkt. No. 103.) Also pending before the court is Platinum's Amended Motion for Leave to File Amended Complaint and to Enlarge the Existing Scheduling Order. (Dkt. No. 104.) For the reasons set forth, below Movants' First Amended Motion to Intervene is granted with respect to the six named intervenors and denied with respect to Movants' request to add additional plaintiffs. Platinum's Amended Motion for Leave to File an Amended Complaint and to Enlarge the Existing Scheduling Order is granted with respect to its claims for fraud in the inducement (Count I), rescission of the participation agreements (Count III), breach of contract (Count IV), conversion (Count V), and unjust enrichment (Count VI), and denied with respect to the claim for negligence in performance of a voluntary undertaking (Count II). Platinum's motion is also denied as moot with respect to its motion to enlarge the existing scheduling order, and the parties are ordered to confer and file a revised Form 35 containing suggested dates to complete the scheduling of this litigation.

BACKGROUND

Based on its participation interest in the Loan, Platinum originally asserted claims for breach of contract (Count I), negligent misrepresentation (Count II), fraudulent misrepresentation (Count III), and recession of participation agreement (Count IV). (Dkt. No. 1 at 4-8.) Each of the Movants also purchased a participation interest in the Loan from Marshall and now seeks to become a plaintiff in this case. Further details about these issues will be discussed below as they become relevant to the analysis and resolution of the disputes before this court. This court has jurisdiction over this case pursuant to 28 U.S.C. § 1332, diversity of citizenship.

LEGAL STANDARD

In Movants' First Amended Motion to Intervene, Movants seek an order enabling them to, "intervene in the pending lawsuit as additional parties Plaintiff [sic], pursuant to Fed. R. Civ. P. 20(a)." (Dkt. No. 103 at 1-2.) A Rule 20(a) motion to join, however, is filed by a person or entity who is already a party to the proceeding and wishes to add a non-party as a party to the case. A Rule 24(b) motion to intervene is used by non-parties to add themselves as parties in the litigation. Therefore, Rule 24(b) properly governs Movants' motion.

Under Federal Rule of Civil Procedure 24(b), on a timely motion, the court may allow anyone to intervene who "has a claim or defense that shares with the main action a common question of law or fact." Fed. R. Civ. P. 24(b)(1). "In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights." Fed. R. Civ. P. 24(b)(3). Whether an application to intervene was filed too late is to be determined from all the circumstances shown. Clark v. Sandusky, 205 F.2d 915, 918 (7th Cir. 1952). The determination of timeliness of a motion to intervene is a matter committed to "the sound discretion of the District Court." South v. Rowe, 759 F.2d 610, 612 (7th Cir. 1985).

ANALYSIS

1. Movant's Motion to Intervene

In assessing whether to allow a motion to intervene, the court must first determine whether Movants' claims share a common question of law or fact with the main action in this case. In the instant case, Movants argue that "each Movant has causes of action seeking the same types of damages from the same Defendant arising from the same transaction or occurrence as Platinum." (Dkt. No. 103 at 2.) Specifically, Movants cite "Marshall's marketing, closing, selling and servicing of the Loan and its Participation Interests," as common questions of fact. (Id.) Marshall does not dispute this characterization; rather, in its Brief in Opposition to Platinum's and the Movants' Motions, Marshall argues that adding plaintiffs would subject it to undue prejudice and that Platinum and Movants have not shown good cause for what Marshall considers their untimely motions.

There are four factors that weigh on whether a motion to intervene is considered timely. These factors are: (1) the length of time the intervenor knew or should have known of his or her interest in the case; (2) the prejudice to the original party caused by the delay; (3) the resulting prejudice to the intervenor if the motion is denied; and (4) any unusual circumstances. Ragsdale v. Turnock, 941 F.2d 501, 504 (7th Cir. 1991). The court must address all of these factors in deciding whether to grant the pending motion to intervene.

The first issue to examine is the length of time that the intervenors knew or should have known of their interest in the case. This case was originally filed in Illinois state court on June 9, 2006. (Dkt. No. 111 at 2.) However, due to unusual circumstances in this case, Movants may not have been on notice of their interest in the pending litigation at that time. On June 14, 2006, Marshall's counsel sent a letter to Platinum demanding that Platinum cease and desist from contacting for any purpose other participants involved in the Loan agreement. (Dkt. No. 111, Ex. F.) This cease and desist letter was mailed just five days after Platinum filed this case and Marshall's intended effect of that letter was to significantly affect Movants' ability to gain knowledge of their interest in this litigation, by hindering Platinum in attempting to contact the Movants and inform them of its lawsuit against Marshall. Approximately eighteen months after that, on December 18, 2007, which was approximately three months before Movants' First Amended Motion to Intervene, Marshall sent an e-mail to all of the Loan participants acknowledging the existence of Platinum's lawsuit and stating, "although we all may be disappointed in the performance of the borrower and the project, there is no basis for any Participant to recover from Marshall." (Dkt. No. 111, Ex. G.) Marshall also stated in the December 18, 2007 e-mail, "[w]e encourage Participants to continue working with Marshall, rather than bringing a baseless legal claim that will result only in a loss of time and money." (Id.) It is unclear from the record whether this was the first time Movants were informed that litigation was pending against Marshall regarding the Loan. However, in light of Marshall's own actions seeking to quell communication among the participants regarding this lawsuit, this court finds that Movants' delay alone does not warrant denial of their motion.

The next factor in determining whether a motion to intervene is timely is the prejudice to the original parties. Ragsdale, 941 F.2d 501, 504 (7th Cir. 1991). Marshall claims that it would suffer severe prejudice if Movants' motion were to be granted, in that the scheduling order in this case would need to be modified, choice of law issues would need to be addressed, and Marshall would be required to defend itself against at least six additional plaintiffs. This court addresses each of these arguments in turn.

First, Marshall asserts that Movants must demonstrate good cause for their motion to intervene under Rule 16(b) because the proposed amendments require modification of the court's scheduling order. Marshall's assertion is generally correct. However, in this case the scheduling order was vacated on January 17, 2008. (Dkt. No. 97.) Because the scheduling order has already been vacated, the addition of Movants to the case would not require modification of any existing scheduling ...


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