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Land of Lincoln Goodwill Industries, Inc. v. PNC Financial Services Group, Inc.

United States Court of Appeals, Seventh Circuit

August 12, 2014

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

Argued: December 13, 2013.

Appeal from the United States District Court for the Central District of Illinois. No. 3:12-cv-03259-BGC -- Byron G. Cudmore, Magistrate Judge.

For LAND OF LINCOLN GOODWILL INDUSTRIES, INC., an Illinois Not for Profit Corporation, Plaintiff - Appellant: Ashley D. DiFilippo, Attorney, Thomas J. Immel, Attorney, Feldman, Wasser, Draper & Cox, Springfield, IL.

For Pnc Financial Services Group Incorporated, also known as: PNC BANK, NA, a national bank, Defendant - Appellee: Todd Andrew Rowden, Attorney, Thompson Coburn, Chicago, IL.

Before EASTERBROOK, KANNE, and ROVNER, Circuit Judges.

OPINION

Page 674

Rovner, Circuit Judge.

When Land of Lincoln Goodwill Industries, Inc. (" Goodwill" ) informed its lender, PNC Financial Services Group, Inc. (" PNC" ), that it intended to pay off the balance of its twenty-year loan early, PNC notified Goodwill that it would owe a prepayment charge in excess of $300,000. Goodwill filed suit seeking a declaratory judgment that it owes no such fee under the terms of its agreement with PNC. The district court concluded otherwise. It reasoned that because the contract terms impose a charge when prepayment is made " during a period when the unpaid principal balance bears interest, or is scheduled to bear interest, at a fixed rate," and Goodwill gave notice of its intent to prepay the balance of the loan during a ten-year period when interest on the loan was accruing at a rate of 4.79 percent per annum, Goodwill owes PNC a prepayment fee. R. 17; see Land of Lincoln Goodwill Indus., Inc. v. PNC Fin. Servs. Grp., 2013 WL 2446375 (C.D. Ill. June 5, 2013). Goodwill appeals, contending that because the loan agreement called for a one-time adjustment of the interest rate ten years into the twenty-year loan period, at no time during the loan will interest accrue at a fixed rate, and consequently at no time will its prepayment trigger a charge. Because Goodwill's reading is contrary to the plain terms of the contract and would render one of its terms a nullity, we reject that reading and affirm the district court's judgment.

I.

The loan transaction underlying the agreement in this case took place in October 2007 among Goodwill, Sangamon County, Illinois (the " County" ), and PNC's predecessor, National City Bank (" National City" ). The County agreed to issue $2 million in economic development revenue bonds and loan the proceeds to Goodwill for purposes of a development project. That project involved the acquisition and renovation of a building in Springfield to establish a retail thrift store along with training and counseling facilities for Goodwill's clients and administrative facilities for its staff. The loan was for a period of twenty years. National City purchased the bonds and by so doing funded the loan to Goodwill. The transaction was evidenced by a loan agreement and promissory note, and the loan was secured by a

Page 675

mortgage on the project. The County's rights under the loan agreement were assigned to National City, which the loan agreement referred to as both the " Assignee" and the " Purchaser." PNC acquired National City on December 31, 2008, and succeeded to National City's rights under the agreement. For the sake of simplicity, we shall omit further mention of National City and substitute PNC in its place.

Although dated September 1, 2007, the loan agreement was signed on October 5, 2007, and the term of the loan commenced as of the latter date. The agreement and the note obligate Goodwill to make monthly payments of principal together with interest at one of two specified rates. The agreement specifies an " Initial Rate" of interest for the first ten years of the loan and an " Adjusted Rate" for the second ten years. The Initial Rate is deemed to be 4.79 percent per annum. That rate will apply until the Interest Rate Adjustment Date, which is identified as October 5, 2017 (ten years into the loan). The Adjusted Rate is defined as " the rate calculated on the Interest Rate Adjustment Date by Purchaser equal to the Purchaser's Cost of Funds on the Interest Rate Adjustment Date plus .80%." R. 1-1 at 15.

The parties entered into the loan agreement on the assumption that the Bonds constituted tax-exempt private activity bonds issued for a qualified purpose to be undertaken by a not-for-profit, section 501(c)(3) entity (Goodwill) and that, as a result, the interest paid to the bondholder (PNC) would not be includable in its gross income. Anticipating the possibility that this assumption could turn out to be mistaken, and that interest on the bonds might later be deemed to be taxable, the loan agreement specifies that if and when a determination of taxability comes to pass, interest on the loan will thereafter accrue at a Taxable Interest Rate. The agreement defines the Taxable Interest Rate as " a rate of interest per annum equal to the Base Rate from time to time in effect." R. 1-1 at 21. The Base Rate is in turn defined as " the floating, daily, variable rate per annum of interest determined and announced by the Assignee from time to time as its 'Base Lending Rate' ... ." R. 1-1 at 15. The Taxable Interest Rate is thus a variable rate. No ...


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