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Bank of America, N.A. v. Shelbourne Development Group

August 18, 2010

BANK OF AMERICA, N.A., PLAINTIFF,
v.
SHELBOURNE DEVELOPMENT GROUP, INC. AND GARRETT KELLEHER, DEFENDANT.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge

MEMORANDUM OPINION AND ORDER

Plaintiff/Counter-Defendant, Bank of America, N.A. ("BOA"), has filed a motion ("Motion") to (1) dismiss Defendants/Counter-Plaintiffs Shelbourne Development Group, Inc. ("Shelbourne") and Garrett Kelleher's counterclaims and (2) strike their affirmative defenses. For the following reasons, the Court grants in part and denies in part BOA's Motion.

LEGAL STANDARDS

I. Rule 12(b)(6) Motions to Dismiss

"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). Pursuant to Rule 8, a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). As the Seventh Circuit recently explained, this "[r]ule reflects a liberal notice pleading regime, which is intended to 'focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross,578F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S.Ct. 992 (2002)).

The short and plain statement must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99 (1957)); Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 764 (7th Cir. 2010).

Under the federal notice-pleading standard, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Put differently, a "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly,550 U.S. at 570); see also Cooney v. Rossiter, 583 F.3d 967, 971 (7th Cir. 2009) (amount of factual allegations required to state a plausible claim for relief depends on complexity of legal theory); Reger Dev., 592 F.3d at 763-64. "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197 (2007); London v. RBS Citizens, 600 F.3d 742, 745 (7th Cir. 2010) (court construes complaint in light most favorable to plaintiff, drawing all reasonable inferences in plaintiff's favor). Further, in deciding motions to dismiss, courts can consider exhibits that are attached to the complaint. See Reger Dev., 592 F.3d at 764; Miller v. Herman, 600 F.3d 726, 733 (7th Cir. 2010).

II. Rule 12(f) Motions to Strike

Rule 12(f) governs motions to strike. Pursuant to that Rule, the Court can strike "any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f); Delta Consulting Group, Inc. v. R. Randle Constr., Inc., 554 F.3d 1133, 1141 (7th Cir. 2009). "Affirmative defenses will be stricken 'only when they are insufficient on the face of the pleadings.'" Williams v. Jader Fuel Co., 944 F.2d 1388, 1400 (7th Cir. 1991) (quoting Heller Fin. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989)). "Motions to strike are 'not favored and will not be granted unless it appears to a certainty that plaintiffs would succeed despite any state of the facts which could be proved in support of the defense.'" Id. Yet, "[i]t is appropriate for the court to strike affirmative defenses that add unnecessary clutter to a case." Davis v. Elite Mortgage Servs., 592 F. Supp. 2d 1052, 1058 (N.D. Ill. 2009) (citing Heller, 883 F.2d at 1295). "It is also true that because affirmative defenses are subject to the pleading requirements of the Federal Rules of Civil Procedure, they must set forth a 'short and plain statement' of all the material elements of the defense asserted; bare legal conclusions are not sufficient." Id. (citing Heller, 883 F.2d at 1294; Fed. R. Civ. P. 8(a); Renalds v. S.R.G. Rest. Group, 119 F. Supp. 2d 800, 802 (N.D. Ill. 2000)).

Courts in this Circuit apply a three-part test to affirmative defenses that are targeted by a motion to strike:

(1) the matter must be properly pleaded as an affirmative defense; (2) the matter must be adequately pleaded under the requirements of Federal Rules of Civil Procedure 8 and 9; and (3) the matter must withstand a Rule 12(b)(6) challenge --in other words, if it is impossible for defendants to prove a set of facts in support of the affirmative defense that would defeat the complaint, the matter must be stricken as legally insufficient.

Davis, 592 F. Supp. 2d at 1058 (citing Heller, 883 F.2d at 1294). Regarding the first part of the test, "the basic concept of an affirmative defense is an admission of the facts alleged in the complaint, coupled with the assertion of some other reason defendant is not liable." ADM Investor Servs., Inc. v. Collins,No. 05 C 1823, 2006 WL 224095, at *2 (N.D. Ill. Jan. 26, 2006) (quoting Instituto Nacional de Comercialization Agricola v. Cont'l Ill. Nat'l Bank and Trust Co., 576 F. Supp. 985, 988 (N.D. Ill. 1983)) (emphasis in original). Federal Rule of Civil Procedure 8 also contains a list of affirmative defenses that a Defendant may plead. Fed. R. Civ. P. 8(c)(1).

FACTUAL BACKGROUND

The parties executed a series of loan documents in connection with Shelbourne's plans to develop the "Spire Building" in Chicago. As alleged in Defendants' Answer, Affirmative Defenses, and Counterclaims, Shelbourne and BOA entered into a December 11, 2006, Loan Agreement providing for a $3 million revolving credit line. (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶ 1; R. 46, Ex. A, Loan Agreement.) That Loan Agreement: (1) states that "Borrower agrees to pay interest at the BBA LIBOR plus one percent (1.00%) per annum (the 'BBA LIBOR Rate') for this Facility during interest periods as selected by Borrower under Section 2.2(a) hereof and as agreed to by the Bank and the Borrower" (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶ 6; R. 46, Ex. A, Loan Agreement at § 1.4(a)), (2) defines the "BBA LIBOR" rate as a "fluctuating rate of interest equal to the rate per annum equal to the British Bankers Association LIBOR Rate" (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶ 6; R. 46, Ex. A, Loan Agreement at § 2.2(c)), and (3) provides that "[e]xcept as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed" (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶ 7; R. 46, Ex. A, Loan Agreement at § 5.5).

The Note, which the parties attached as Exhibit A to the Loan Agreement, provides that "Borrower shall pay interest only on the outstanding principal balance at the BBA Libor Rate, as defined in and as provided in the Loan Agreement." (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶¶ 2, 8; R. 46, Ex A., Note at 19.) The Note also provides that "Borrower shall pay accrued interest computed as set forth in Section 2 of the Loan Agreement on the basis of the actual days elapsed over a 360-day year." (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶ 10; R. 46, Ex. A, Note at 19.) Kelleher signed a document entitled "CONTINUING AND UNCONDITIONAL GUARANTY" ("Guaranty"), which the parties attached as Exhibit B to the Loan Agreement and which identified Shelbourne as the borrower. (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶ 3; R. 46, Ex. A, Guaranty.)

On or around January 7, 2007, Shelbourne and BOA entered into an amendment ("Amendment No. 1") to the Loan Agreement, in which BOA agreed to loan $7 million to Shelbourne. (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶ 4; R. 46, Ex. C, Amendment No. 1.) The Term Note, which the parties attached to Amendment No. 1 as Exhibit A, provides that "Borrower shall pay interest only on the outstanding principal balance at the BBA LIBOR Rate, as defined in and as provided in the Loan Agreement." (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶¶ 5, 9; R. 46, Ex. C, Term Note at 6.) The Term Note also provides that "Borrower shall pay accrued interest computed as set forth in Section 2 of the Loan Agreement on the basis of the actual days elapsed over a 360-day year." (R. 53, Defs.' Affirmative Defenses & Countercls. at ¶ 10; R. 46, Ex. C, Term Note at 6.)

On or around November 3, 2008, Shelbourne and BOA entered into an amendment ("Amendment No. 2") to the Loan Agreement, which provided:

To evidence the availability to [Shelbourne] of a facility for purposes of financing its development and construction of the Spire Building, [Shelbourne] shall obtain from a lender or syndicate of lenders, no later than November 1, 2008, a binding irrevocable construction loan commitment, and provided further, when delivered, such loan commitment shall be in form and substance acceptable to [BOA].

(R. 53, Defs.' Answer at ¶ 6; R. 46, Ex. E, Amendment No. 2 at § 2.1.) Shelbourne did not obtain a construction loan commitment by November 1, 2008. (R. 53, Defs.' Answer at ¶ 7.)

BOA has accordingly stated that it is entitled to accelerate all amounts due under the Loan Agreement and demanded full payment. (Id. at ¶ 9.)

ANALYSIS

Shelbourne*fn1 alleges that BOA acted deceptively by using a 360-day year to calculate interest despite allegedly-conflicting provisions mandating the use of a per annum interest rate.

(R. 53, Defs.' Affirmative Defenses & Countercls. at ¶¶ 11-15.) Based on this alleged conduct, Defendant raises three affirmative defenses: (1) breach of the duty of good faith and fair dealing, (2) breach of the Illinois Interest Act ("IIA"), and (3) commercial impracticability. Further, Defendant brings counterclaims alleging that BOA (1) violated the IIA (Count I), (2) breached the parties' contract and the duty of good faith and fair dealing (Count II), (3) violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA") (Count III), and (4) committed common law fraud (Count IV).

At the heart of this litigation is a dispute between the parties regarding how interest should have been calculated under the loan ...


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