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General Electric Business Financial Services, Inc. v. Silverman

February 10, 2010


The opinion of the court was delivered by: Judge Robert W. Gettleman


Plaintiff, General Electric Business Financial Services, Inc. ("GEBFS"), formerly known as Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch"), has sued defendants Donald L. Silverman, Eric W. Brauss, and Today Realty Advisors, Inc. ("TRA"), seeking to enforce each defendant's personal guaranty of a defaulted promissory note. Count I of the amended complaint is a claim for breach of limited joinder against defendants Silverman and Brauss. Count II is a claim for breach of guaranty against all defendants. Plaintiff has filed a motion for summary judgment and a motion to strike defendants' affirmative defenses. For the reasons explained below, plaintiff's motion for summary judgment is granted, and the motion to strike the affirmative defenses is deemed moot.


In May 2007, Margaux Warren Park Partners, Ltd. ("Warren Park"), entered into a loan agreement with plaintiff under which plaintiff made a $34,800,000 first mortgage loan (the "Loan") to Warren Park for the acquisition of 91.65 acres of land in Frisco, Texas (the "Property"). On May 25, 2007, Warren Park executed a Tranche A promissory note in the amount of $26,700,000 and a Tranche B promissory note in the amount of $8,100,000 (jointly the "Note"). Contemporaneous with the execution of the Note, each defendant executed a "Guaranty" under which each "absolutely, unconditionally and irrevocably guaranteed" the full payment of the principal and interest of the Note when due and the full and prompt payment of all sums that may be come due under the Note, Loan Agreement, and other loan documents, subject to a maximum liability of $17,400,000 plus 100% of accrued interest and fees. In addition, defendants Silverman and Brauss executed a "Limited Joinder" which guaranteed full and complete repayment of the Loan under certain conditions, including the filing for bankruptcy by Warren Park. Under Section 7 of the Guaranty, defendants also agreed to full and prompt payment of any attorney's fees, costs, and expenses incurred in connection with the enforcement of the Guaranty and other Loan documents.

Warren Park defaulted under the Loan Agreement for two separate reasons: (1) it failed to make a required payment of $2,500,000.00 to plaintiff; and (2) it failed to sell no less than ten acres of the Property. Plaintiff provided notice of the default to defendants and Warren Park on June 5, 2008. As a result of the default, plaintiff accelerated all sums due under the Loan documents and the Note. Notice of the acceleration and demand for payment was sent to Warren Park and defendants on September 3, 2008. To date, no payment on this demand has been made.

On December 16, 2008, Warren Park filed for Chapter 11 protection in the United States Bankruptcy Court for the Eastern District of Texas ("the Bankruptcy Court"). Plaintiff filed the instant action on January 20, 2009, seeking to collect on the personal guaranties. After the instant action was filed Warren Park and defendants Silverman and Brauss filed an adversary action in the Bankruptcy Court against plaintiff alleging twelve claims, including fraud, extortion, theft, and economic duress. On December 15, 2009, the Bankruptcy Court issued a memorandum opinion and order granting GEBFS's motion to dismiss Warren Park's first amended complaint.


I. Legal Standard and Applicable Law

Plaintiff has filed its motion for summary judgment under Fed. R. Civ. P. 56. Summary judgment is appropriate if the evidence demonstrates 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(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed. 2d 265 (1986); Village Church v. Village of Long Grove, 468 F.3d 975, 988 (7th Cir. 2006). The burden is on the moving party to identify portions of the pleadings, answers to interrogatories, and affidavits that demonstrate an absence of material fact. See Celotex, 477 U.S. at 323 (1986). The burden then shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(c). When reviewing a summary judgment motion, the court must read the facts in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed. 2d 202 (1986). The court's role "is not to evaluate the weight of the evidence or to determine the truth of the matter, but instead to determine whether there is a genuine issue of triable fact." Doe v. R.R. Donnelley & Sons Co., 42 F.3d 439, 443 (7th Cir. 1994).

II. Plaintiff's Claims

Plaintiff has moved for summary judgment on both Counts I and II, arguing that there is no issue of material fact to preclude a finding that defendants have breached their obligations under both the Limited Joinder and Guaranty of the Loan Agreement. In response, defendants acknowledge that Warren Park defaulted on the Loan Agreement, but assert affirmative defenses denying liability.

Count I, for breach of limited joinder, is a breach of contract claim. Under Illinois law, to state a claim for breach of contract plaintiff must allege: 1) the existence of a valid contract with defendants; 2) defendants' breach of that contract; 3) plaintiff's performance under the contract; and 4) damages to plaintiff resulting from such breach. Van Der Molen v. Wash. Mut. Fin., Inc., 359 Ill. App. 3d 813, 823 (Ill. App. Ct. 1st Dist. 2005).*fn2

Count II, for breach of guaranty, is equally straightforward. To establish a prima facie case for enforcement of a guaranty under Illinois law, plaintiff must "'enter[] proof of the original indebtedness, the debtor's default, and the guarantee.'" S.P. Richards Co. v. Business Supply Corp., 2008 WL 4181729, at *3 (N.D. Ill. Sept. 5, 2008)(quoting Mid-City Indus. Supply Co. v. Horwitz, 476 N.E.2d 1271, 1277, 132 Ill. App. 3d 476, 87 Ill. Dec. 279 (Ill. App. Ct. 1st Dist. 1985)).

Plaintiff has offered evidence demonstrating all of the elements for both claims, which defendants do not contest.*fn3 Instead, defendants assert four affirmative defenses that they claim preclude enforcement of the Guaranty: (1) fraud in the inducement; (2) duress; (3) equitable estoppel; and (4) unclean hands. Plaintiff counters that defendants have not and cannot set forth specific facts supporting their affirmative defenses showing that there are genuine issues of material fact requiring trial. Specifically, plaintiff argues that defendants have waived their right to assert each affirmative defense, that the Illinois Credit Agreement Act ("ICAA") defeats defendants' affirmative defenses, and that each affirmative defense fails as a matter of law. In addition, plaintiff argues that defendants are collaterally estopped from pursuing their affirmative defenses because the Bankruptcy Court recently resolved the issues raised in the defenses by dismissing claims filed by Warren Park and defendants Silverman and Brauss in their adversary action. As discussed below, the court agrees that defendants' affirmative defenses do not defeat plaintiff's right to enforce the guarantees against them.

III. Plaintiff's Waiver Argument

Plaintiff argues that defendants waived the right to assert each of their affirmative defenses because both the Limited Joinder and Guaranty are "absolute, continuing and unconditional" in their terms and ...

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