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Jefferson-Pilot Investments, Inc v. Capital First Realty

July 18, 2011

JEFFERSON-PILOT INVESTMENTS, INC., PLAINTIFF,
v.
CAPITAL FIRST REALTY, INC., DEFENDANT.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

Jefferson-Pilot Investments, Inc. (Jefferson-Pilot) has sued Capital First Realty (Capital First) for breach of its obligations under guaranties executed in connection with certain mortgage loans. Jefferson-Pilot has moved for summary judgment on its claim to enforce Capital First's obligations under the guaranties (Count 1) and its claim for reimbursement of management fees (Count 2). For the reasons stated below, the Court grants the motion on both claims.

Background

Jefferson-Pilot is a North Carolina corporation with its principal place of business located in Greensboro, North Carolina. Capital First is an Illinois corporation with its principal place of business in Chicago, Illinois.

In 2001, The Lincoln National Life Insurance Company and First Penn-Pacific Life Insurance Company (the initial lenders) loaned Sunset Village Limited Partnership (Sunset Village) $16,000,000. In 2006, the initial lenders loaned Sunset Village another $8,200,000. In connection with these loans, Sunset Village executed notes*fn1 as well as various documents by which it pledged property as collateral to secure payment of the loans. Capital First executed limited guaranties for both loans in which it ensured "full and punctual payment, performance and observance by the Borrower of all of the Borrower's obligations to the Lender . . . ." Pl.'s Stat. of Undisputed Facts In Supp. of Its Mot. for Summ. J. (Pl.'s SOF), Ex. B-12. In June 2010, the initial lenders assigned their rights in the notes and collateral documents to Jefferson-Pilot, which is currently the lawful holder and owner of the notes and collateral documents.

The notes provide that upon default and acceleration of the loans, Sunset Village is obligated to pay (1) unpaid principal; (2) unpaid pre-default interest at a rate of 7.76% per annum for the 2001 notes and 6.58% per annum for the 2006 notes; (3) post-default interest at a rate of 11.76% per annum for the 2001 notes and 10.58% per annum for the 2006 notes; (4) a late charge of 5% for "any installment not paid when due"; (5) reasonable attorneys' fees, expenses, and costs associated with any action to collect payment from Sunset Village; and (6) a prepayment premium, discussed in more detail below.

The guaranties each contain a provision that waives Capital First's personal liability except under certain circumstances, one of which is the mortgaged property becoming an asset in a voluntary bankruptcy proceeding. The guaranties provided that in that event, Jefferson-Pilot is not required to proceed first against Sunset Village or any other person or entity before enforcing Capital First's guaranty.

Sunset Village failed to pay the July 2010 monthly installment on the notes. Shortly thereafter, Jefferson-Pilot delivered a notice of default to Sunset Village and demanded payment of the July installment within one week. Sunset Village did not cure the default. Jefferson-Pilot then delivered a notice of acceleration to Sunset Village requesting immediate payment of the principal, interest, prepayment premium fees, and late charges due under the notes. Sunset Village failed to cure the default, so Jefferson-Pilot filed a mortgage foreclosure suit against Sunset Village in state court in late September 2010. About two weeks later, Sunset Village filed a voluntary Chapter 11 bankruptcy petition. As a result, the mortgaged property became an asset in the bankruptcy proceeding.

Jefferson-Pilot alleges that because the mortgaged property became an asset in a voluntary bankruptcy proceeding, Capital First is obligated under its guaranties to pay all of Sunset Village's obligations. Those obligations total $27,179,790.20 plus interest, attorneys' fees, expenses, and costs.*fn2

Capital First does not dispute its liability under the guaranties to fulfill Sunset Village's obligations. In addition, it does not contest Jefferson-Pilot's motion for summary judgment regarding Count 2 of the complaint. Capital First's only contention in response to Jefferson-Pilot's summary judgment motion is that Jefferson-Pilot is not entitled to the prepayment premium, which totals $7,971,709.48, because it constitutes an unenforceable penalty under Illinois law.

Discussion

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "As to materiality, the substantive law will identify which facts are material.factual disputes that are irrelevant or unnecessary will not be counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (emphasis added). A court may grant summary judgment "where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "[W]hen a case turns on interpretation of an unambiguous contract term, it is ripe for final disposition at the summary judgment stage." Aetna Life Ins. Co. v. Am. Nat'l Bank & Trust Co. of Chi., 956 F. Supp. 814, 816 (N.D. Ill. 1997).

The prepayment premium term in the 2001 notes states: Upon the occurrence of any Default, under this Note, the Mortgage, or the Collateral Loan Documents during any period when this Note is closed to prepayment, and following the acceleration of maturity of the indebtedness evidences hereby as herein provided, if permitted by applicable law, there shall be due and payable as part of the indebtedness evidenced hereby, an amount equal to the greater (all is calculated by the Holder) of (i) the present value (discounted at the Treasury Rate as hereinafter defined) of the excess (if any) obtained by subtracting the effective annual compounded yield (at the time of such acceleration) of the United States Treasury issues (other than so-called "flower bonds") with maturity dates that match, as closely as possible, the Original Maturity date (the "Treasury Rate") from the effective annual compounded yield of this Note, multiplied by the number of years (and any fraction thereof) remaining between the date of acceleration and the Original Maturity Date (such amount will be computed as if the amount determined in accordance with this subsection (i) were paid in equal monthly installments after the date of such acceleration through the Original Maturity Date); or (ii) five percent (5%) of the outstanding principal balance (at the time of acceleration) of this Note.

Pl.'s SOF Ex. B-3, ¶ 13 & Ex. B-4, ¶ 13. The prepayment premium term in the 2006 notes allows the holder to recover an amount equal to the greater of two figures: (i) the same U.S. Treasury calculation as in the 2001 notes, or "(ii) One percent (1%) of the outstanding principal balance (at the time of prepayment) of the Note[s]."Pl.'s SOF at Ex. B-8, ¶ 13 & Ex. B-4, ¶ 13.*f ...


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