Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:09-CV-00573-Sarah Evans Barker, Judge.
The opinion of the court was delivered by: Flaum, Circuit Judge.
Before FLAUM and HAMILTON, Circuit Judges, and FEINERMAN, District Judge.*fn1
In this case, twenty limited liability companies ("the Investors") joined together to invest in property in Indiana. Needing a loan to finance their purchase, they formed a distinct limited liability company, IP of A Fund Manager, LLC ("IPA Fund Manager"), and vested in that entity the authority to negotiate and execute a loan on their behalf with Morgan Stanley Mortgage Capital Holdings, LLC ("Morgan Stanley"). They named Edward Okun as Manager of IPA Fund Manager. Okun executed a loan, mortgage, and reserve security agreement with Morgan Stanley.
IPA Fund Manager, under the terms of its authority, was not allowed to hold an ownership interest in any of the twenty limited liability companies; it is not clear from the terms of the contract whether Okun, in his individual capacity, was precluded from an ownership interest, as well.
Morgan Stanley decided to sell the loan, ultimately agreeing to sell it to an Okun-controlled entity, IP of A 5201 Lender, LLC ("IPA Lender"). As it structured the sale, Morgan Stanley agreed to offset the purchase price of the loan by the amount of funds available in several escrow, reserve, and impound accounts (hereinafter "the escrow accounts"), in which it held a security interest and which were, under the terms of the loan with the Investors, required to reimburse the Investors for maintenance, taxes, and other property-related expenses. IPA Lender, now holding the loan, never reestablished the escrow accounts, depriving the Investors of $1,361,184.63 in which they, too, had an interest.
Having abandoned their suit against Okun-controlled IPA Lender, the Investors claim that Morgan Stanley, by allowing IPA Lender to use the escrow funds to finance its purchase of the loan, breached their loan agreement and committed conversion. The district court granted summary judgment for Morgan Stanley. We affirm the district court's ruling.
The appellee, Morgan Stanley Mortgage Capital Holdings, LLC, has one member, Morgan Stanley Capital, Inc., a Delaware corporation with its principal place of business in New York. As a limited liability company shares the citizenship of its members, the appellee is a citizen of Delaware and of New York. See Muscarello v. Ogle Cnty. Bd. of Comm'rs, 610 F.3d 416, 424 (7th Cir. 2010); Thomas v. Guardsmark, LLC, 487 F.3d 531, 534 (7th Cir. 2007). The appellants are twenty limited liability companies, IP of A West 86th Street 1-20. Each plaintiff LLC has one member, none of whom are citizens of either Delaware or New York. Accordingly, the parties are completely diverse, and, with the amount in controversy exceeding $75,000, subject-matter jurisdiction is secure under 28 U.S.C. § 1332.
The twenty LLCs in this case were formed in 2005 for the express purpose of holding a fractional interest as tenants in common in commercial real estate located at 5201 West 86th Street, Indianapolis, Indiana.
In 2004, the Investors paid $12,650,000 to buy the property. They paid a $6,550,000 down payment and secured a $7,100,000 loan from Dise Group, LLC. Combined, the down payment and the loan exceeded the cost of the property by $1,000,000. The extra money was placed into escrow accounts.
1. Investors' Refinancing Agreement with Morgan Stanley
In 2005, Morgan Stanley refinanced the loan by lending the Investors $7,100,000, of which $6,100,000 was used to refinance the property and of which $1,000,000 was deposited in the escrow accounts. This transaction was memorialized by a promissory note ("Note"), a mortgage and security agreement ("Mortgage"), and a reserve and security agreement ("RSA"). Each of these documents incorporated the terms of the others. Morgan Stanley required that a single agent sign these loan documents and otherwise act on behalf of the Investors.
In turn, each LLC executed a Consent of Co-Owners ("Investors' Consent") and an amendment to its Limited Liability Company Operating Agreement ("LLC Amendments"). In short, they delegated limited authority to sign and perform under the loan documents to IPA Fund Manager. IPA Fund Manager was a distinct limited liability company managed by Edward Okun.
The Investors' Consent stated, in relevant part:
[T]he Co-Owners hereby authorize IPofA Fund Manager, LLC, a Virginia Limited liability company (in- cluding its manager, Edward H. Okun), in its capacity as Vice President of each of the undersigned Co-Owners, to execute in the name of and on behalf of each fo the Co-Owners, and to deliver in connection with the Loan that certain Promissory Note, Mortgage and Security Agreement, Assignment of Leases and Rents, Environmental Indemnity Agreement, Memorandum of Master Lease, Memorandum of Tenants in Common Agreement, and any and all commitments, pledges or assignments of any other collateral, indemnities, certificates, affidavits, financing statements, applications, notices and other instruments, agreements or certificates related to the Loan, and to take from time to time any other actions necessary to effect the transactions contemplated above, upon the terms and conditions identical in all material respects to those terms and conditions set forth in the commitment letter attached hereto as Exhibit A, and the execution and delivery of such agreements and documents by such Vice President shall constitute conclusive evidence that the terms and conditions contained in said documents or instruments have been approved on behalf of the Co-Owners pursuant to this Consent. . . . [A]ny and all other actions heretofore taken by any member, manager, or authorized representative of the Vice President to execute and deliver any of the agreements authorized by the foregoing resolution or to take any of the actions authorized by the foregoing resolution are hereby approved, ratified, and confirmed in all respects. No further action is consented or taken.
The LLC Amendments stated, in relevant part:
3.02 Officers. The Company shall have one officer, which shall be a vice president. The Vice President shall have no voting rights nor have any ownership interest in the Company. The sole responsibilities of the Vice President shall be to execute the Loan Documents on behalf of the Company pursuant to the [Delaware Limited Liability Company] Act or any successor statute in conjunction with its re-financing of the Interest. . . . Notwithstanding any other provision of this Agreement, the Vice President, without any further action of the Company or the Member is hereby authorized to execute the Loan Documents . . . on behalf of the Company. . . . Third parties dealing with the Company shall be entitled to conclusively rely on the signature of the Vice President as evidence of the authority of the Vice President to execute the Loan Documents on behalf to the Company and to bind the Company.
3.05 Authorization. The Company, and the Member or the Vice President on behalf of the Company, may execute, enter into, deliver, and perform the Loan Documents and all documents, agreements, certificates or financing statement [sic] contemplated thereby or related thereto . . . , all without any further act, vote or approval of any Member of [sic] other Person notwithstanding any other provision of this Agreement, the Act or applicable rule or regulation.
2. Morgan Stanley Sells the Loan to Okun
Morgan Stanley intended to resell its loan. Proving unsuccessful with third-party buyers, however, it agreed to sell the loan to Okun. Okun purchased the loan through an entity he controlled, IPA Lender.
On August 11, 2006, Morgan Stanley assigned the Note, Mortgage, RSA, and escrow accounts to IPA Lender. The Mortgage ...