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Land of Lincoln Goodwill Industries, Inc. v. Pnc Financial Serivces Group

United States District Court, Seventh Circuit

June 3, 2013

LAND OF LINCOLN GOODWILL INDUSTRIES, INC., an Illinois Not for Profit Corporation. Plaintiff,
v.
THE PNC FINANCIAL SERIVCES GROUP, a/k/a PNC Bank NA, a national bank, Defendant.

OPINION

BYRON G. CUDMORE, Magistrate Judge.

This matter comes before the Court on cross motions for judgment on the pleadings. Plaintiff Land of Lincoln Goodwill Industries, Inc.'s (Goodwill) Motion for Judgment on the Pleadings (d/e 12) (Goodwill Motion); Defendant PNC Bank, National Association's (PNC) Cross-Motion for Judgment on the Pleadings (d/e 13) (PNC Motion) (collectively the Cross-Motions). The parties consented, pursuant to 28 U.S.C. § 636(c), to proceed before this Court. Notice, Consent, and Reference of a Civil Action to a Magistrate Judge, entered January 28, 2013 (d/e 10).

Goodwill brought this action to secure a declaratory judgment concerning the meaning of the prepayment provision, § 9.1(b) of a Loan Agreement dated September 1, 2007 (Loan Agreement), entered into between Goodwill, Sangamon County, Illinois (County), and PNC's predecessor National City Bank (National City) and Illinois, as assignee of the County. Notice of Removal (d/e 1), Exhibit A, Complaint for Declaratory Judgment (Complaint), Exhibit 1, Loan Agreement. Under the terms of the Loan Agreement, the County issued $2, 000, 000.00 in tax exempt economic development revenue bonds (Bonds) and loaned the proceeds to Goodwill to finance a development project (Project) for Goodwill. The loan was evidenced by a promissory note (Note) executed by Goodwill. Goodwill was, thus, obligated to pay the Bonds. The indebtedness was also secured by a mortgage on the Project. National City funded the transaction by purchasing the Bonds and accepting the assignment of the County's rights under the Loan Agreement and Note. The Loan Agreement referred to National City as both the "Assignee" and the "Purchaser." PNC acquired National City on December 31, 2008.

On March 30, 2012, Goodwill notified PNC that it intended to prepay the indebtedness in full. Complaint, Exhibit 8, Notice of Redemption and Prepayment (Notice). PNC notified Goodwill that it would have to pay a prepayment charge in excess of $300, 000.00 if it chose to prepay the indebtedness. Complaint, Exhibits 9-11. Goodwill filed this action in state court to seek a declaratory judgment that the prepayment charge provision of the Loan Agreement § 9.1(b) did not apply. PNC removed the action to this Court. The parties then filed the Cross-Motions. For the reasons set forth below, the Court finds that § 9.1(b) applied to Goodwill's planned prepayment of the indebtedness set forth in the Notice. The Court therefore allows the PNC Motion and denies the Goodwill Motion.

STATEMENT OF FACTS

On October 5, 2007, Goodwill, the County, and National City executed the Loan Agreement, Note, and related documents to close the $2, 000, 000.00 revenue Bond issue and loan to Goodwill. The Loan Agreement, by its terms was dated September 1, 2007, even though it was executed on October 5, 2007. Loan Agreement, § 10.9. The term of the loan was 20 years, commencing on October 5, 2007.

The Loan Agreement defined a number of relevant terms. The Loan Agreement defined the "Initial Rate" as 4.79% per annum. The Loan Agreement defined an "Interest Rate Adjustment Date" as October 5, 2017. The Loan Agreement defined the "Adjusted Rate" as "the rate calculated on the Interest Rate Adjustment Date by Purchaser equal to Purchaser's Cost of Funds on the Interest Rate Adjustment Date plus.80%." The Loan Agreement defined the "Base Rate" as "the floating, daily, variable rate per annum of interest determined and announced by Assignee from time to time as its Base Lending Rate'...." The Loan Agreement defined the "Taxable Interest Rate" as "a rate of interest per annum equal to the Base Rate from time to time in effect." Loan Agreement, § 1.1 Definitions and Rules of Construction.

The Loan Agreement called for Goodwill to make monthly payments of principal and interest accruing at the Initial Rate, amortized over 20 years, for the first ten years of the loan until the Interest Rate Adjustment Date. Thereafter, the Loan Agreement called for Goodwill to make monthly payments of principal and interest accruing at the Adjusted Rate, amortized over 10 years, until the loan was repaid in full. If, however, the bonds were ever determined not to be tax exempt, then interest would accrue at the Taxable Interest Rate, which would be equal to National City's, and now PNC's, daily floating Base Rate. Loan Agreement, Schedule 2, Amortization Schedule; Complaint, Exhibit 5, Note.

Article IV of the Loan Agreement obligated Goodwill to use the funds for the construction project for which the County authorized the issuance of the bonds. Section 4.5 provided that, upon completion of the project, any remaining unspent proceeds from the Bonds, "shall be transferred to the Bond Fund and applied in accordance with Section 5 of the Bond Resolution and Section 9.3 of this Loan Agreement." Agreement, § 4.5.

Article IX of the Loan Agreement addressed prepayment of the indebtedness. Article IX stated, in part,

ARTICLE IX PREPAYMENT OF THE NOTE

Section 9.1. General Optional Prepayment.
The principal installments of the Note are subject to prepayment (concurrently with prepayment of the Bonds) at the option of the Borrower at any time, in whole or in part, subject to the following prepayment charge (the "Prepayment Charge"):
(a) The Borrower shall have the right to prepay the principal installments of the Note in whole or in part, provided, that (i) each such prepayment shall be in the principal sum of One Thousand and No/100 Dollars ($1, 000.00) or any integral multiple thereof or an amount equal to the then aggregate unpaid principal balance of the Note, (ii) each such prepayment shall be applied to the installments of the Note in the inverse order of their respective due dates, and (iii) concurrently with the prepayment of the entire unpaid principal balance of the Note, the Borrower shall prepay the accrued interest on the principal being prepaid.
(b) If the Note is
(i) prepaid, in whole or in part, during a period when the unpaid principal balance bears interest, or is scheduled to ...

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