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Edward A. Carlson v. North Shore Community Bank & Trust Co

October 24, 2011

EDWARD A. CARLSON, APPELLANT,
v.
NORTH SHORE COMMUNITY BANK & TRUST CO., APPELLEE



Adv. No. 09 A 00231Appeal from Bankruptcy

The opinion of the court was delivered by: Judge George M. Marovich

MEMORANDUM OPINION AND ORDER

Appellant Edward A. Carlson ("Carlson") appeals the decision of the bankruptcy court to grant summary judgment to North Shore Community Bank & Trust Co. ("North Shore") on Count I of its adversary complaint against Carlson. For the reasons set forth below, the decision of the bankruptcy court is affirmed.

I. Background

After Carlson filed a voluntary bankruptcy petition under Chapter 7, North Shore filed an adversary proceeding against Carlson. In Count I of its adversary proceeding, North Shore alleged, among other things, that a particular debt [a $1,300,000.00 mortgage on Fox Valley Ice Arena LLC ("Fox Valley")] was not dischargeable, pursuant to 11 U.S.C. § 523(a)(2)(A), because Carlson had obtained the debt by false representation. North Shore alleged that Carlson had misrepresented the existence of litigation against him and that he misrepresented his authority to grant a mortgage on behalf of Fox Valley. North Shore moved for summary judgment. The bankruptcy court found an issue of fact as to the litigation misrepresentation but concluded that North Shore was entitled to judgment as a matter of law with respect to Carlson's misrepresentation that he had authority to grant a mortgage on behalf of Fox Valley.

In support of its motion, pursuant to the bankruptcy court's rules, North Shore submitted a statement of undisputed facts, and Carlson admitted nearly all of them.*fn1 Thus, the following facts are undisputed.

For some period of time, Carlson, who was the President of a company called CMS, was in the business of acquiring, managing, developing and financing commercial real estate. Carlson had a 30% ownership interest in approximately 30 properties that CMS managed. By 2005, the financial situation at CMS was "stressful."

In the spring of 2006, Carlson sought financing for CMS from North Shore. Carlson has admitted that "[i]n order to induce North Shore to make a loan to CMS, Carlson represented to North Shore that a separate business with which he was affiliated, Fox Valley Ice Arena, LLC ("Fox Valley") would provide a secured interest to North Shore with a mortgage on Fox Valley's real property located in Geneva, Illinois." Fox Valley was a limited liability company. For the entirety of its existence, Fox Valley had exactly two members: Emerald Arena Group, L.P. and FV Arena Partners, LLC. Fox Valley had an Operating Agreement in effect that required 75% of members to approve the mortgaging of Fox Valley's assets. Carlson has never been a member of Fox Valley.

Despite the fact that Carlson was never a member of Fox Valley, Carlson held himself out to be one when he took out a mortgage on Fox Valley. North Shore loaned CMS$700,000.00 on June 1, 2006 and increased the loan to $1,250,000.00 in October 2006. In connection with North Shore's loan to CMS, Carlson signed a mortgage on Fox Valley (in June 2006) and a modification of mortgage (in October 2006). When he signed these documents, Carlson represented himself as being a member of Fox Valley and as being authorized to make and modify the mortgage. The mortgage Carlson signed in June 2006 stated that, by signing, Carlson was representing and warrantying that he "has the full power, right and authority to enter into the Mortgage and to hypothecate the Property."

That was not true. Carlson had never obtained approval from Fox Valley's members to sign the Mortgage. Fox Valley never provided authority for or ratified Carlson's action of granting a mortgage on the property.

In responding to North Shore's motion for summary judgment, Carlson admitted, "[a]t the time Carlson induced North Shore to make the loan to CMS based upon granting a Mortgage, Carlson knew that the consent of all of the Members of Fox Valley was needed to authorize the granting of the mortgage on Fox Valley's real property." He also admitted, "[i]n determining whether to grant loan financing to CMS, North Shore relied on the representations made by Carlson that he was authorized to grant a Mortgage on Fox Valley's property as security to North Shore, that Carlson was a Member of Fox Valley, and that no pending lawsuits existed against Carlson in his personal guaranties."

In his own statement of facts, Carlson put forth evidence that a Senior Vice President at North Shore had said that the mortgage on Fox Valley was not the only reason North Shore approved the loan to CMS. Rather, the mortgage "sweetened the pot."

The bankruptcy court granted summary judgment to North Shore, and ...


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