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JPMorgan Chase Bank, N.A. v. PT Indah Kiat Pulp and Paper Corp.

October 14, 2009

JPMORGAN CHASE BANK, N.A., SUCCESSOR IN INTEREST TO THE FIRST NATIONAL BANK OF CHICAGO, PLAINTIFF,
v.
PT INDAH KIAT PULP AND PAPER CORPORATION TBK, A CORPORATION DULY ORGANIZED UNDER THE LAWS OF THE REPUBLIC OF INDONESIA; PT PABRIK KERTAS TJIWI KIMIA TBK, A CORPORATION DULY ORGANIZED UNDER THE LAWS OF THE REPUBLIC OF INDONESIA; AND ASIA PULP AND PAPER COMPANY, LTD., A CORPORATION DULY ORGANIZED UNDER THE LAWS OF SINGAPORE, DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

Plaintiff JPMorgan Chase Bank, N.A., successor in interest to the First National Bank of Chicago (collectively "JPMorgan"),*fn1 alleges in its first amended complaint that defendants PT Indah Kiat Pulp and Paper Corporation, Tbk ("IK"), PT Pabrik Kertas Tjiwi Kimia, Tbk ("TK"), and Asia Pulp and Paper Company, Ltd. ("APP") are liable to JPMorgan for breaching the terms and conditions of certain promissory notes and guarantees. Each defendant has asserted several affirmative defenses in their answers to these claims, and APP has alleged a counterclaim under the Uniform Commercial Code ("U.C.C.") based on a breach of implied warranty. This court has subject-matter jurisdiction over the claims at issue in this case pursuant to 28 U.S.C. § 1332(a)(2).

Now pending before the court is JPMorgan's "Motion and Memorandum of Law in Support of Summary Judgment Against Indah Kiat and Tjiwi Kimia," [220]. For the reasons set forth below, this court grants JPMorgan's motion for summary judgment.

BACKGROUND

When ruling on a motion for summary judgment, the court views the evidence in the light most favorable to the nonmoving party and draws all reasonable inferences in the non-movant's favor. Omega Healthcare Investors, Inc. v. Res-care, Inc., 475 F.3d 853, 857 (7th Cir. 2007). In light of this principal, the following are the facts of this case, construed in the light most favorable to IK and TK.

In 1996, APP and Beloit Corporation ("Beloit") entered into two contracts for APP's purchase of two paper-making machines known as the PPM3 and the MPM11. In 1997, IK and TK assumed all of APP's rights and obligations pursuant to Clause 12 of the PPM3 and MPM11 contracts. Specifically, IK purchased the PPM3 machine, and TK purchased the MPM11 machine. To facilitate Beloit's financing of the construction of these machines, on April 25, 1998 both IK and TK executed promissory notes in favor of Beloit, and IK, TK, and Beloit entered into accompanying Credit Agreements. The original IK promissory note was in the amount of $21,809,962.00, and the original TK promissory note was in the amount of $16,213,352.00. The same day those promissory notes were executed, April 25, 1998, Beloit and JPMorgan entered into a Note Purchase Agreement whereby Beloit sold to JPMorgan all of its right, title, and interest in the two notes. In addition, Beloit executed and delivered to JPMorgan a Form of Notice and Endorsement, dated April 29, 1998, which assigned and transferred Beloit's right, title, and interest in the two notes to JPMorgan.

On September 24, 1998, IK and TK executed and delivered to Beloit new promissory notes which replaced and superseded the original notes in the principal amounts of $26,701,678.00 (the "IK Note") and $17,123,488.75 (the "TK Note"). (IK Note and Guarantee 1, attached as Ex. 13 to Pl.'s Mem. Supp. Mot. Summ. J.; TK Note and Guarantee 1, attached as Ex. 23 to Pl.'s Mem. Supp. Mot. Summ. J.)*fn2 The Credit Agreement related to each respective note was amended to reflect the higher amounts. (IK Credit Agreement 7, attached as Ex. 6 to Dep. Djongianto ("Djongianto") November 17, 2007; TK Credit Agreement 7, attached as Ex. 19 to Pl.'s Mem. Supp. Mot. Summ. J.)

Also on September 24, 1998, APP executed guarantees on both the IK Note and the TK Note (respectively, the "IK Guarantee" and the "TK Guarantee") and delivered them to Beloit, unconditionally guaranteeing payment of all obligations of IK and TK arising under either Note.

On September 30, 1998, Beloit and JPMorgan amended the Note Purchase Agreement to reflect the increased balance of both the IK and TK promissory notes. That same day, September 30, 1998, Beloit executed and delivered to JPMorgan a new Form of Notice and Endorsement which assigned and transferred all of Beloit's right, title, and interest in the IK and TK Notes to JPMorgan.

On October 3, 2000, IK, TK, APP, Beloit, Beloit Asia Pacific (L), Inc. ("BAPL"), Beloit Asia Pacific PTE, Ltd. ("BAP"), and Harnischfeger Industries, Inc. ("Harnischfeger"), entered into a Deed of Settlement (the "Settlement") to settle disputes, claims, controversies, and other matters in conflict involving certain "Disputed Contracts," including the PPM3 and MPM11 contracts. (Pl.'s Mem. Supp. Mot. Summ. J. 8.) The Settlement specifically released Beloit, BAP, BAPL, and Harnischfeger and its successors from all claims relating to the sale, installation, or operation of the PPM3 and MPM11 machines. The Settlement also recognized that IK, TK, and APP were not released from their obligations to repay the IK and TK Notes.

IK and TK made or caused to be made payments of interest and principal to JPMorgan or one of its predecessors-in-interest on their respective Notes in 1998, 1999, and 2000. IK and TK have not made any further payments since October 11, 2000.

On September 14, 2001, JPMorgan sent notice to both IK and TK informing them that, based on their failure to make a payment on the Notes, they were in default under the terms of their respective Notes as of April 2, 2001. Pursuant to an acceleration clause in the IK and TK Notes, JPMorgan declared all unpaid principal and accrued interest immediately to be due and payable. As no further payments have been made on either promissory note, JPMorgan filed this action on August 30, 2002 to collect monies allegedly owed on the IK and TK Notes.

LEGAL STANDARD

Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). When ruling on a motion for summary judgment, the court views the evidence in the light most favorable to the nonmoving party and draws all reasonable inferences in the nonmovants's favor. Omega Healthcare Investors, Inc. v. Res-Case, Inc., 475 F.3d 853, 857 (7th Cir. 2007). However, "[o]nce a party has made a properly-supported motion for summary judgment, the opposing party may not simply rest upon the pleadings but must instead submit evidentiary materials that 'set forth specific facts showing that there is a genuine issue for trial.'" Harney v. Speedway SuperAm., L.L.C., 526 F.3d 1099, 1104 (7th Cir. 2008) (quoting Fed. R. Civ. P. 56(e)).

In ruling on a motion for summary judgment, the court does not make credibility determinations or weigh conflicting evidence. Abdullahi v. City of Madison, 423 F. 3d 763, 773 (7th Cir. 2005). Instead, it only determines whether a genuine issue of material fact exists for trial, or in other words, whether "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Bombard v. Fort Wayne Newspapers, 92 F.3d 560, 562 (7th Cir. 1996). The evidence relied upon must be competent evidence of a type otherwise admissible at trial. Id.

ANALYSIS

1. JPMorgan's Prima Facie Case for Breach of Contract

In its first amended complaint [12], JPMorgan alleges that both IK and TK are liable for breach of contract for failing to make payments on the two Notes. Under the U.C.C., 810 ILCS 5/3-307 (West 2009), if the holder of a negotiable instrument introduces the instrument and the signatures are not disputed, the holder is entitled to recover unless a defense to the instrument is established. See also Bank of N.C., N.A. v. Rock Island Bank, 630 F.2d 1243, 1247 (7th Cir. 1980). To prevail on its claim for breach of contract, therefore, JPMorgan must produce the promissory notes it seeks to enforce and demonstrate the validity of the signatures that the promissory notes contain. Additionally, because the Notes initially were executed and delivered in favor of Beloit, JPMorgan must demonstrate that it, JPMorgan, is the legitimate holder of the Notes. See U.C.C., 810 ILCS 5/1-201(21)(A) (West 2009) (defining "holder" as "the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession"). Lastly, JPMorgan must prove that it is immediately entitled to the remaining balance due under the Notes despite the Notes' payment schedules. Specifically, it must show that a default occurred under the terms of the Notes and Credit Agreements. (IK Note and Guarantee 1; TK Note and Guarantee 1.) If JPMorgan proves all four elements, then the burden then shifts to IK and TK to establish a defense that prevents enforcement of the Notes. Bank of N.C., 630 F.2d at 1247.

Here, the court finds that JPMorgan satisfies its prima facie case for breach of contract. JPMorgan has provided copies of the IK and TK Notes, as well as the related Credit Agreements. (See 1st Am. Compl., Exs. H-K.) Neither IK nor TK dispute that these documents are true and accurate copies of the originals, and they admit that they executed and delivered promissory notes to Beloit. (Defs.' Ans. Pl.'s Req. Admit Certain Facts ¶ 4, attached as Ex. 6 of Pl.'s Mem. Supp. Mot. Summ. J.; Defs.' Statement Material Facts ¶¶ 15, 36.) IK and TK also do not dispute that JPMorgan purchased the Notes from Beloit and is the legitimate holder of the Notes. (See Defs.' Statement Material Facts ¶¶ 19, 40.)

Finally, JPMorgan has demonstrated that IK and TK defaulted on the Notes and Credit Agreements by ceasing their payments in October of 2000. (Defs.' Statement Material Facts ¶¶ 24, 45; IK Credit Agreement 7; TK Credit Agreement 7.) Under the terms of the Notes and the Credit Agreements, a failure of payment which is not cured within ten days results in a default, accelerating all payments due under the instrument and making the total balance due and payable immediately. (IK Note and Guarantee 1; TK Note and Guarantee 1.) Consequently, JPMorgan has established all the requisite elements of its prima facie case.

2. IK and TK's Affirmative Defenses

The court's analysis now shifts to determining whether there is sufficient evidence, when considered in IK and TK's favor, to support that IK and TK are not liable to JPMorgan for their default. See Bank of N.C., 630 F.2d at ...


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