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Daniel Hamelberg v. Boundary Waters Bank

April 10, 2012

DANIEL HAMELBERG, PLAINTIFF,
v.
BOUNDARY WATERS BANK, AN FDIC-REGULATED COMMERCIAL BANK, DEFENDANT.



The opinion of the court was delivered by: Michael P. McCUSKEY U.S. District Judge

E-FILED

Tuesday, 10 April, 2012 04:07:09 PM

Clerk, U.S. District Court, ILCD

OPINION

This case is before the court for ruling on the Motion to Dismiss Complaint (#8) filed by Defendant, Boundary Waters Bank. This court has carefully considered the arguments of the parties and the documents provided by the parties. Following this careful and thorough review, Defendant's Motion to Dismiss Complaint (#8) is GRANTED.

FACTS*fn1

Plaintiff, Daniel Hamelberg, is a member and manager of Liberty on the Lake, LLC, (LOTL), an Illinois limited liability company which is involved in developing real estate in Champaign County, Illinois. Defendant is an out-of-state FDIC-regulated commercial bank and lending institution registered in the state of Minnesota. On July 2, 2007, Defendant and LOTL entered into a loan agreement where Defendant made financing available to LOTL for construction purposes. The Loan and Security Agreement entered on July 2, 2007, stated that LOTL consented to an exclusive jurisdiction clause which provided that all disputes related to the loan agreement must be adjudicated in Minnesota.

As additional security for the LOTL loan, Plaintiff provided Defendant with an "Irrevocable Standby Letter of Credit," No. 08-40, in the amount of $1.6 million. This letter of credit was dated December 27, 2008 and stated that Defendant was the Beneficiary, Plaintiff was the Applicant and First Mid-Illinois Bank & Trust, NA was the Issuer. The letter of credit stated that the Issuer established the irrevocable standby letter of credit in favor of Defendant, as Beneficiary, and that it set forth "in full the terms of Issuer's obligation to Beneficiary." The letter of credit stated that the Issuer's "obligation cannot be modified by any reference in this Letter of Credit, or any document to which this Letter of Credit may be related." The letter of credit provided that the Issuer would pay the Beneficiary upon the receipt of: (1) the original letter of credit, together with any amendments; (2) a sight draft drawn by Beneficiary on Issuer; and (3) a signed statement by Beneficiary including the following statement, "Beneficiary hereby certifies that Liberty on the Lake, LLC is in default under a certain promissory note payable to Boundary Waters Bank dated 07/02/07 in the amount of $12,700,000.00 & all renewals, extensions, modifications & substitutions." The letter of credit also provided that it would be governed by the laws of Illinois.

The letter of credit was renewed in 2009 and 2010. The letter of credit was again amended in 2011. The written "Amendment to Letter of Credit," dated August 31, 2011, stated that the Applicant was amended to "DHH, LLC" and the maturity date was amended to August 31, 2012. The Amendment stated that "All other terms and conditions of the credit remain unchanged."

PROCEDURAL HISTORY

On January 31, 2012, Plaintiff filed a Verified Complaint in the circuit court of Champaign County. Plaintiff alleged that, since July 2, 2007, the LOTL loan agreement with Defendant, and related documents, had been amended from time to time. Plaintiff alleged that the loan documents remained in full force and effect at this time, as amended. Plaintiff alleged that, in 2011, the parties were engaged in discussions about restructuring the loan in light of the recent economic downturn. Plaintiff alleged that these discussions continued into August 2011. Plaintiff alleged that, on or about August 15, 2011, Defendant promised Plaintiff that it would enter into good faith negotiations for a settlement of the LOTL loan if Plaintiff would renew the letter of credit. Plaintiff alleged that he agreed and renewed the letter of credit prior to its expiration on August 31, 2011.

Plaintiff alleged that, in renewing the letter of credit, he relied on Defendant's promise to negotiate the settlement of the LOTL loan in good faith. Plaintiff also alleged that his reliance on Defendant's promise to negotiate in good faith was reasonable and justified. Plaintiff further alleged that his reliance on this promise was foreseeable by Defendant in light of its unambiguous promise to negotiate settlement of the LOTL loan in good faith. Plaintiff alleged that Defendant had not taken certain steps it had agreed to take in order to negotiate a settlement of the LOTL loan and that "[n]otwithstanding Defendant's promise and Plaintiff's renewal of the [letter of credit], Defendant has failed to enter into good faith negotiations to settle the LOTL loan."

Plaintiff alleged that LOTL had failed to meet its latest payment obligation under the terms of the loan agreement, thereby exposing Plaintiff's personal funds under the letter of credit to possible call and draw by Defendant. Plaintiff alleged that Defendant's attorney had recently advised Plaintiff's attorney that Defendant was considering drawing on the letter of credit. Plaintiff argued that Defendant was and should be estopped from drawing on the letter of credit. Plaintiff asked that Defendant be restrained and enjoined from drawing on the letter of credit and that the court declare the letter of credit "null, void and without legal effect."

On February 1, 2012, a Temporary Restraining Order (TRO) was entered in the circuit court of Champaign County. The court found that Plaintiff had shown that he had a clearly ascertainable right in need of protection and that there was a fair question that Plaintiff would succeed on the merits of his promissory estoppel claim. The court further found that Plaintiff had shown that he would "suffer irreparable harm if an injunction does not issue, namely, his credit rating, investment, and ability to sell lots on behalf of [LOTL], and his ability to recover those funds from Defendant in the event that he prevails on the merits at trial." The court therefore ordered that Defendant was temporarily restrained from ...


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