The opinion of the court was delivered by: Judge David H. Coar
MEMORANDUM OPINION AND ORDER
Through two consolidated actions, Plaintiff Bank of America seeks to collect overdue loan payments from Pethinaidu and Parameswari Veluchamy and First Mutual Bancorp of Illinois ("First Mutual") (collectively "Defendants"). In response to Bank of America's complaints, Defendants asserted five affirmative defenses and filed virtually identical nine-count counterclaims against Bank of America. On July 1, 2010, this Court dismissed Defendants' counterclaims and rejected all but two of Defendants' affirmative defenses. Plaintiff now moves for summary judgment. For the reasons stated below, Plaintiff's motion for summary judgment is GRANTED.
Pethinaidu and Parameswari Veluchamy, husband and wife, are the majority shareholders of First Mutual Bancorp of Illinois. First Mutual is a holding company for Mutual Bank and owns 100% of Mutual Bank's shares. The Veluchamys and their children, Arun and Anu, are members of First Mutual's board of directors, and Arun Veluchamy is First Mutual's president. All four also served on Mutual Bank's board of directors and loan committee.
Beginning in late 2005, Bank of America loaned the Veluchamys $30 million to provide financing for Mutual Bank. By April 2008, the Veluchamys owed Bank of America $20 million pursuant to a revolving note and $9 million pursuant to a term note. The parties' initial loan agreement, dated December 1, 2005, was amended several times over the years. Under the second amendment to the loan agreement, dated January 31, 2008, the $20 million revolving loan matured and was due November 30, 2008.
In February 2008, Bank of America loaned another $10 million directly to First Mutual. In September 2008, Mr. Veluchamy personally guaranteed this loan in exchange for Bank of America's consent to allow infusion of additional capital into Mutual Bank. Like the Veluchamys' revolving loan, First Mutual's loan was due November 30, 2008.
In September 2008, regulators determined that Mutual Bank was undercapitalized and required the infusion of additional capital. Instead of repaying the loans due November 30, 2008, Defendants requested an extension from Bank of America so that they could inject capital into their floundering bank. As a result, Bank of America and Defendants signed forbearance agreements in May 2009. Under these agreements, Bank of America extended the due date on both the $20 million Veluchamy revolving loan and the $10 million First Mutual loan to June 30, 2009. Bank of America also agreed to forbear from exercising its rights and remedies in the event of a default, including its right to immediately collect default rate interest. In exchange for Bank of America's forbearance, Defendants each explicitly reaffirmed the validity and enforceability of their indebtedness and agreed that, with respect to both the Veluchamy and First Mutual loans:
[T]here exists no offsets, counterclaims or defenses to payment or performance of the obligations set forth in its Loan Documents and, in consideration hereof, expressly waives any and all such offsets, counterclaims, and defenses arising out of any alleged acts, transactions, or omissions on the part of Bank [of America] arising (or otherwise relating to the period on or prior to the Amendment effective Date. (Plaintiff's Rule 56.1 Statement of Material Facts "PSOF" ¶ 33(c)-(d)).*fn1 Additionally, Mr. Veluchamy, as guarantor for the First Mutual debt, agreed that:
For the purposes of this Guaranty, Liabilities shall include all obligations of the Company to the Lender arising under or in connection with the Credit Agreement, the Revolving Note, any other Loan Document or any other document or instrument executed in connection therewith, in each case notwithstanding any right or power of the Company or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such obligation, no such claim or defense shall affect or impair the obligations of the undersigned hereunder. (Id. at ¶ 33(e).)
Ultimately, Mutual Bank's financial condition completely deteriorated, the bank was closed by its regulators in July 2009, and Defendants were unable to repay their loans to Bank of America. It is undisputed that Defendants failed to repay the amounts they owed under the $20 million Veluchamy revolving loan and the $10 million First Mutual loan when those loans became due on June 30, 2009. The Veluchamys' failure to repay the amounts due under their $20 million revolving loan constituted a default according to the terms of their loan agreement. By virtue of the default, the Veluchamys' $9 million term loan, which was initially due on November 30, 2010, became due immediately. On August 4, 2009, Bank of America demanded that, by August 14, 2009, Defendants pay in full all amounts owed under the $20 million Veluchamy revolving loan, the $9 million Velcuhamy term loan, and the $10 million First Mutual loan and Veluchamy guaranty. To date, no payments have been made.
On August 19, 2009, Bank of America filed these actions to collect the debts owed by Pethinaidu and Parameswari Veluchamy (Bank of America v. Pethinaidu Veluchamy and Parameswari Veluchamy, No. 09 CV 5109) and First Mutual (Bank of America v. Pethinaidu
Veluchamy and First Mutual, No. 09 CV 5108). Apparently subscribing to the belief that the best defense is a good offense, Defendants have responded to both of Bank of America's complaints with mirror-image, nine-count counterclaims. Although Defendants admit that they borrowed and failed to repay the funds at issue, Defendants assert that Bank of America engaged in misconduct, and that misconduct extinguishes Defendants' obligation to repay their $39 million debt. Specifically, Defendants blame Mutual Bank's demise on mismanagement by James Regas (attorney, long-time advisor, and chairman of Mutual Bank's board of directors loan committee), and Amrish Mahajan (president of Mutual Bank), who allegedly caused Mutual Bank to make a series of risky and fraudulent loans. Defendants allege that Bank of America knew about Mutual Bank's mismanagement, concealed this information from Defendants, and ultimately facilitated Mutual Bank's downfall by allowing Defendants to take on additional indebtedness despite Mutual Bank's precarious financial situation. Defendants' allegations culminate in five affirmative defenses ((1) Unclean Hands; (2) Fraud; (3) Duress; (4) Estoppel; and (5) Failure to Mitigate) and nine counterclaims ((1) Negligence; (2) Negligent Misrepresentation; (3) Aiding and Abetting Fiduciary Breach; (4) Aiding and Abetting Fraud; (5) Fraud; (6) Violation of the Illinois Consumer Fraud and Deceptive Business Practices Act; (7) Breach of Fiduciary Duty; (8) Breach of Contract; and (9) Unjust Enrichment).
On July 1, 2010, the Court dismissed all nine counterclaims and all but two of Defendants' affirmative defenses: (1) estoppel, and (2) failure to mitigate. The Court held specifically that the rejected counterclaims and defenses were barred by the written releases and waivers included in the parties' forbearance agreements. In reaching this conclusion, the Court rejected Defendants' arguments that their releases were invalid because of fraud, duress, and/or an alleged attorney conflict. Since the parties did not mention Defendants' affirmative defenses of estoppel or failure to mitigate in connection with Bank of America's motions to dismiss, the Court allowed these defenses to stand but noted that they were weakened by the rejection of Defendants' other defenses and counterclaims.
While Bank of America's motions to dismiss were pending, the parties proceeded to conduct discovery. Despite responding to Bank of America's complaints with nine-count counterclaims and an array of affirmative defenses, Defendants made it very difficult for Bank of America to explore the basis for any of their counterclaims and defenses. Claiming that they were targets of a criminal investigation concerning the downfall of Mutual Bank, Defendants invoked the Fifth Amendment and refused to answer any questions about their counterclaims and defenses.*fn2 They also failed to produce a competent 30(b)(6) representative on behalf of First Mutual, instead designating one of their attorneys, ...