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

March 3, 2011


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


Based on the Court's diversity jurisdiction, Plaintiff Bank of America, N.A. ("Bank of America") commenced this action on August 13, 2009 to collect on a Loan Agreement entered into by Bank of America and Defendant Shelbourne Development Group, Inc. ("Shelbourne") that was guaranteed by Defendant Garrett Kelleher ("Kelleher"). See 28 U.S.C. § 1332(a). On August 27, 2010, Bank of America filed a Second Amended Complaint after which Defendants filed an Answer, Affirmative Defenses, and Counterclaims. Before the Court is Bank of America's Motion to Dismiss Defendants' Fifth Counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6) and Motion to Strike Defendants' Third, Fourth, Fifth, Six, Seventh, and Eighth Affirmative Defenses under Rule 12(f). For the following reasons, the Court grants Bank of America's Motion to Dismiss Defendants' Fifth Counterclaim. Further, the Court, in its discretion, grants in part and denies in part Bank of America's Rule 12(f) Motion to Strike.


In their Counterclaim, Defendants allege that pursuant to the Loan Agreement entered into between Bank of America and Shelbourne on or about December 11, 2006, Bank of America agreed to make a $3 million revolving line of credit available to Shelbourne to assist Shelbourne in the development of the Chicago property commonly known as the "Spire Building." (R. 91, Defs.' Countercl. & Aff. Def. ¶¶ 1, 2.) In connection with the transaction, the parties signed a Loan Agreement and Note setting forth the terms of the loan. (Id. ¶¶ 1, 6.) Under the Loan Agreement, the $3 million line of credit was subject to a "conversion date" of July 1, 2007, at which time it would be converted into a Term Loan with monthly principal installment payments payable by "no later than December 1, 2011 or such earlier date as the availability may terminate as provided in this Agreement." (Id. ¶ 3.) Also on December 11, 2006, Kelleher executed a "Continuing and Unconditional Guaranty," under which Bank of America could seek to enforce remedies against Kelleher individually. (Id. ¶ 7.)

On or about June 7, 2007, Bank of America and Shelbourne executed an amendment to the Loan Agreement ("Amendment No. 1") in which Bank of America agreed to extend a term loan to Shelbourne. (Id. ¶ 9.) Defendants allege that the purpose of this new term loan was to "finance the build out of the sales center and offices located at NBC Tower, 455 North Cityfront Plaza, Chicago, Illinois 60611." (Id.) This new term loan was secured by (a) the pledge of a certificate of deposit maintained with Bank of America, (b) a grant of a security interest in certain leasehold improvements, and (c) Kelleher's personal guaranty. (Id.) Bank of America added a new financial covenant to Amendment No. 1:

"8.2(C) To evidence the availability to Borrower of a facility for purposes of financing its development and construction of the Spire Building, Borrower shall obtain from a lender or syndicate of lenders, (i) on or prior to March 1, 2008 a letter of intent evidencing same, but, in any event, and (ii) no later than July 1, 2008, a binding irrevocable construction loan commitment, provided the Bank reserves the right to require that Borrower, after March 1, 2008, cash collateralize fully that portion of the Term Loan that is not at such time otherwise cash collateralized, and provided further, when delivered, such letter of intent and loan commitment shall be in form and substance acceptable to the bank." (Id. ¶ 11.) This $7 million term loan was due and payable upon the earlier of December 1, 2011, or the Facility Expiration Date. (Id. ¶ 10.)

Also on June 7, 2007, Bank of America and Shelbourne executed a "Term Note" in a face amount of $7 million. (Id. ¶ 12.) The Term Note evidenced the indebtedness under the original Loan Agreement and stated that the "due date of this Term Note or any payment thereon may be accelerated or is automatically accelerated." (Id.)

On June 5, 2008, Bank of America and Shelbourne agreed to a second amendment to the Loan Agreement ("Amendment No. 2,"), the purpose of which was to accommodate Shelbourne's request for an extension of the time to obtain a binding irrevocable construction loan commitment until November 1, 2008. (Id. ¶ 13.) Section 8.2(c) was amended accordingly. (Id.) Defendants allege that thereafter, starting in September 2008, there was a significant disruption of interbank lending and credit liquidity resulting in an economic crisis. (Id. ¶¶ 14,15.) As such, Defendants allege that as of November 1, 2008, it would have been commercially impracticable for any developer to obtain a binding construction loan commitment for a project of the size and scope of the Chicago Spire. (Id. ¶ 17.) In fact, Defendants admit that they were unable to obtain a binding irrevocable construction loan commitment by November 1, 2008. (Id.¶ 19.)

Further, Defendants maintain that Bank of America publicly acknowledged that the 2008 financial crisis was unprecedented and not reasonably foreseeable. (Id. ¶ 18.) Defendants further allege that Bank of America's executives and officers repeatedly made public and private statements and other communications describing the crisis as "unprecedented," "unparalleled," and not reasonably foreseeable. (Id.)

On November 3, 2008, Bank of America sent a letter to Defendants notifying them that it considered Defendants to be in default pursuant to the non-monetary financial covenant set forth in Section 8.2(c) of the Loan Agreement, as amended, that required Shelbourne to obtain a binding, irrevocable construction loan commitment by November 1, 2008. (Id. ¶ 20.) On November 18, 2008, Bank of America sent a follow-up letter to Shelbourne explaining that Shelbourne was required to provide additional collateral as a consequence of the non-monetary default identified in the November 3, 2008 default letter. (Id. ¶ 21.) Shelbourne did not meet this demand. (Id.) As such, Bank of America declared the loans to be in default "immediately accelerated and due and payable" and stated that, as of November 18, 2008, the "outstanding aggregate principal balance of the Loans evidenced by the Note, dated December 11, 2006, and the Term Note, dated June 7, 2007, is $8,499,996.64, plus accrued and unpaid interest on such principal balance is $50,135.51, plus any applicable late fees, legal fees, pre-payment penalties and expenses." (Id.)


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)(2), 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). The short and plain statement under Rule 8(a)(2) must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L.Ed.2d 80 (1957)). Under the federal notice pleading standards, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. 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). "[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, 167 L.Ed.2d 1081 (2007); McGowan v. Hulick, 612 F.3d ...

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