The opinion of the court was delivered by: Hon. Michael T. Mason
MEMORANDUM OPINION AND ORDER
Plaintiff General Citrus International Incorporated ("General Citrus") filed this underlying case against Jerome Remien ("Remien") and the Jerome Remien Revocable Trust dated June 13, 1989 (the "Remien Trust") (collectively the "Remien Defendants"), and against Burton Ury ("Ury") and Ury Corporation ("Ury Corp.") (collectively the "Ury Defendants"), seeking sums due under a loan agreement and related guaranty. Ury Corp. filed a counterclaim against General Citrus for a declaratory judgment that Ury Corp. is entitled to payment from Remien before General Citrus receives payment, and a cross claim for judgment against Remien.
Presently before the Court is General Citrus' motion for summary judgment on the issue of liability with respect to Counts I and III and Ury's counterclaim; the Ury Defendants' motion for summary judgment in their favor on Count III and on Ury Corp.'s counterclaim; and the Remien Defendants' motion for summary judgment on Counts I and II. For the reasons stated below, General Citrus' motion for judgment against Remien on the issue of liability for breach of contract is granted in part, and the Remien Defendants' motion for judgment in Remien's favor on the breach of contract claim is denied. The Remien Defendants' motion for summary judgment on General Citrus' claim for breach of fiduciary duty is granted. General Citrus' motion and the Ury Defendants' cross motion for summary judgment on General Citrus' claim for tortious interference are denied. Finally, the Ury Defendants' motion for judgment as a matter of law on their counterclaim and request for declaratory relief are also denied.
General Citrus was originally known as Avoco International Corporation ("Avoco"). In 2001, Avoco changed its name to Barranca Brown Corporation ("Barranca") and in 2004 Barranca became General Citrus. These entities are collectively referred to as General Citrus throughout this opinion.
In 1995, General Citrus' shareholders were Brown International Corporation ("Brown") and CalFlo Corporation ("CalFlo"). Scott Alexander ("Alexander")*fn2 owned 80% of Brown's stock and served as Brown's president and chairman of the board. Alexander owned 100% of CalFlo's stock. From 1995 to 1999, Alexander served as General Citrus' president and as a member of its board of directors. In 2001, Alexander was General Citrus' chief executive officer.
General Citrus' primary business concerned the sale of avocado products. In early 1999, General Citrus decided to sell certain assets through an asset sale or stock sale. Alexander testified that the management team would be involved in the sale, but "ultimately it would be [his] decision."
In early 2001, General Citrus contracted to sell certain business assets to Avoco International LLC ("AI LLC"). The record before this Court does not identify the asset purchase price. General Citrus and the Remien Defendants stipulate that AI LLC was an Illinois Limited Liability Company formed on February 5, 2001 and involuntarily dissolved on July 31, 2006. The Ury Defendants admit that Ury and Remien, along with other non-parties, formed AI LLC in 2001. Ury contributed $500,000 toward the company's initial capitalization. Remien and the Remien Trust -- which is controlled by Remien -- also contributed capital toward AI LLC.
In connection with its purchase of General Citrus' assets, AI LLC arranged to borrow money from LaSalle Bank, N.A. ("LaSalle"). General Citrus admits that its majority shareholder, Alexander, understood that LaSalle would finance the asset purchase. Alexander also understood that LaSalle might have its own terms and conditions, separate and apart from General Citrus', regarding the financing of the asset purchase. Alexander testified that he "became aware that there would be guarantees needed . . . LaSalle would require guarantees from the buyers." The financing available from LaSalle would not cover the entire asset purchase price. Therefore, the parties discussed an arrangement under which AI LLC would pay the remaining balance of the purchase price back to General Citrus in installment payments. Alexander was aware that LaSalle wanted General Citrus to subordinate the debt owed by AI LLC to LaSalle's debt. Alexander testified that the guaranty General Citrus negotiated with Remien would "be subordinated to the credit that the bank was giving." Alexander objected to the subordination, but ultimately acceded to it.
From August 1999 through the closing of the transaction in February 2001, Alexander discussed the terms and conditions of the subordination with representatives from LaSalle. In his deposition, Alexander characterized the dispute as follows: "We wanted to be able to receive payments that were owed to us. And the bank wanted to restrict those, so we objected." Alexander's discussions with LaSalle ended when LaSalle "basically laid out what the document requirements were going to be and said this is the way they would lend the money if that's going to be the deal."
To document the borrowing arrangement, AI LLC and LaSalle entered into a "Loan Agreement" dated February 9, 2001. Pursuant to the Loan Agreement, LaSalle agreed to provide AI LLC with a revolving credit of up to $2,000,000 and a secured term loan in the principal amount of $750,000. AI LLC and LaSalle amended the notes executed in connection with the Loan Agreement (collectively the "LaSalle Notes") at various times. The most recent amendments to the LaSalle Notes are the "Third Amended and Restated Term Note" and "Fifth Amended and Restated Revolving Note." In their briefing and in various documents filed with the district court, the parties refer to AI LLC's debt with LaSalle as the LaSalle Notes and, alternatively, as the "Senior Indebtedness." Alexander understood that General Citrus could not receive payment until the Senior Indebtedness was paid in full.
Ury executed a guaranty in favor of LaSalle of up to $1 million of the debt owed by AI LLC to LaSalle under the LaSalle Notes (the "Ury Guaranty"). The Ury Guaranty provides that:
GUARANTOR HEREBY IRREVOCABLY WAIVES ANY RIGHT GUARANTOR MAY HAVE OR ACQUIRE BY WAY OF SUBROGATION UNDER THIS GUARANTY BY ANY PAYMENT MADE HEREUNDER OR OTHERWISE AND ANY RIGHT OF REIMBURSEMENT OR CONTRIBUTION AGAINST BORROWERS WHICH GUARANTOR MAY HAVE IN CONNECTION THEREWITH. (bold in original). General Citrus is included in the definition of "Borrowers."
AI LLC also financed its purchase of the assets through a term loan from General Citrus.*fn3 The term loan included an installment payment arrangement between AI LLC and General Citrus, documented in a subordinated secured note dated February 9, 2001 (the "General Citrus Note"). Pursuant to the General Citrus Note, as amended, General Citrus loaned AI LLC $1,473,500.*fn4 The General Citrus Note contains a subordination clause which states that the payment of all amounts due "are subordinate, subject to and made junior to the rights of LaSalle . . . its successors and assigns, in the manner and extent set forth in that certain Subordination Agreement."
General Citrus, AI LLC, Remien, Ury and other non-parties executed the aforementioned subordination agreement (the "Subordination Agreement") on February 9, 2001. Alexander executed the Subordination Agreement in his capacity as the CEO of the creditor, General Citrus. He reviewed the agreement prior to signing. Ury did not read the entire Subordination Agreement before signing, although he "most likely read at least part of the document." At the time he executed the Ury Guaranty and the Subordination Agreement, Ury was an experienced businessman with a background in private investments. Ury received his MBA, worked as an accountant for a public accounting firm and as the manager of a corporation, and has been engaged in handling private investments for the past 25 years.
Pursuant to paragraph one of the Subordination Agreement, AI LLC's debt to General Citrus is subordinate to the Senior Indebtedness, and General Citrus "agrees not to accept any payment on account of the Subordinated Debt . . . or to assign its claim . . . or to enforce any of its rights under the [Note and any related documents] until such time as the Senior Indebtedness has been satisfied and paid in full." The Subordination Agreement provides that General Citrus shall not commence any action against the borrower (AI-LLC) or guarantors (Remien and Ury) "until all of the Senior Indebtedness has been satisfied and paid in full." Finally, the agreement states, in paragraph five, that:
Notice by Creditor of Defaults, Etc. In addition to any other notices required hereunder, [General Citrus] shall give written notice to [LaSalle] promptly upon the occurrence of any event which triggers the obligation of [General Citrus] to [AI LLC] under the Creditor Loan Documents. The foregoing notice obligation shall be provided by [General Citrus] to [LaSalle] concurrently with any notice provided by [General Citrus] to [AI LLC].
By its terms, the Subordination Agreement terminates when the Senior Indebtedness "has been fully paid, satisfied and performed." Also on February 9, 2001, AI LLC signed a Subordinated Security Agreement in favor of General Citrus (the "Security Agreement").
On February 9, 2001, Remien executed a guaranty of AI LLC's obligations to LaSalle, including obligations pursuant to modifications of or amendments to the LaSalle Notes, not to exceed $1,000,000 (the "Remien Guaranty"). The Remien Guaranty contains the following provision:
[LaSalle] shall not enforce its remedies under this Guaranty until it has used commercially reasonable efforts to pursue its remedies against Burton Ury ("Ury") under that certain Guaranty by Ury . . . (the "Ury Guaranty"), which efforts shall include commercially reasonable efforts to satisfy the Guaranteed Indebtedness by marshaling of the assets of Ury . . . .
Therefore, the Remien Guaranty obligates LaSalle to pursue its remedies against Ury before pursuing Remien. The "period during which [LaSalle] is required to use commercially reasonable efforts to pursue its remedies against Ury" is defined as the "Stand Off Period." The Remien Guaranty provides that during the Stand Off Period, Remien may not "take any action with respect to his assets or otherwise [act] to hinder [LaSalle's] ability to enforce payment . . . [which includes] to deplete or dispose of [his] assets outside the ordinary course, make preferential payments to other creditors . . . outside the ordinary course, or to otherwise defraud [LaSalle] out of payment." In the event LaSalle elects to sell, assign or transfer the Remien Guaranty, any assignee "shall have the right to enforce th[e] Guaranty." Finally, the Remien Guaranty provides that "[n]o action of [LaSalle] permitted hereunder shall in any way affect or impair the rights of [LaSalle] and the obligation of [Remien] under this Guaranty."
Remien also executed a guaranty in favor of General Citrus on the General Citrus Note (the "Remien Subordinate Guaranty"). The Remien Subordinate Guaranty, executed on February 9, 2001, contains a "Guaranty Limitation" of $500,000.
Remien ("Guarantor") hereby unconditionally and irrevocably, guarantees the full and prompt payment in an amount not to exceed Five Hundred Thousand and no/100 Dollars ($500,000)("Guaranty Limitation") to [General Citrus] at maturity, whether by acceleration or otherwise, up to the Guaranty Limitation of amounts owed to [General Citrus] by [AI LLC] ("Borrower") pursuant to [the General Citrus Note], or any modifications thereto plus all expenses, legal and/or otherwise, (including court costs and reasonable attorneys' and paralegals' fees and expenses), paid or incurred by [General Citrus] in endeavoring to enforce or collect the indebtedness owed to [General Citrus] under the [General Citrus] Note or this Guaranty, or any part thereof, or in defending any suit based on any act or omission of [General Citrus] with respect to the [General Citrus] Note or this Guaranty in an amount not to exceed the Guaranty Limitation (collectively, the "Guaranteed Indebtedness").
General Citrus disputes that sums incurred in enforcing or collecting upon the indebtedness owed by AI LLC or by Remien under the Remien Subordinate Guaranty, including legal expenses and statutory interest, are capped within the $500,000 Guaranty Limitation. General Citrus and the Remien Defendants stipulate that the General Citrus Note, Security Agreement and Remien Subordinate Guaranty all state ...