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Bank of Commerce v. Fyre Lake Ventures, LLC

United States District Court, C.D. Illinois, Rock Island Division

March 13, 2015

BANK OF COMMERCE AS SUCCESSOR IN INTEREST TO THE FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER OF COUNTRY BANK, Plaintiff,
v.
FYRE LAKE VENTURES, LLC, BLAIR MINTON, GREGORY YATES, KENNETH HOFFMAN, JR. PAUL VAN HENKELUM, GERALD LEE, JEROME EPPING, JEFFREY FRYE, JAMES GAUGERT, U.S. DEPARTMENT OF THE TREASURY -- INTERNAL REVENUE SERVICE, DIRECTOR OF EMPLOYMENT SECURITY OF THE STATE OF ILLINOIS, 3-D CONCRETE, INC., D/B/A GOLF CREATIONS, QC SILT FENCE, INC., ROCK RIVER ELECTRIC, INC, VAN HENKELUM, LYNCH, & ASSOCIATES, LLC, V2G SURVEYING LLC, and UNKNOWN OWNERS AND NON-RECORD CLAIMANTS, Defendants

For Federal Deposit Insurance Corporation, Plaintiff, Counter Defendant: Paul J Richards, KAVANAGH GRUMLEY & GORBOLD LLC, Joliet, IL.

For Fyre Lake Ventures LLC, Blair M Minton, Defendants: Daniel Lynch, LEAD ATTORNEY, Amy J. Hansen, LYNCH & STERN LLP, Chicago, IL.

For Gregory Yates, Defendant: Kenneth A Carlson, LEAD ATTORNEY, TRACY JOHNSON & WILSON, Joliet, IL.

For Kenneth E Hoffman, Jr., Defendant: Jennifer L Kincaid, LEAD ATTORNEY, MCGEHEE OLSON PEPPING & BALK LTD, Silvis, IL.

For Gerald Lee, Defendant: Bruce L Wald, David A Kallick, TISHLER & WALD LTD, Chicago, IL.

For Jerome Epping, James Gaugert, Defendants: Micah Jon Hughes, Thomas Gene Gardiner, GARDINER KOCH WEISBERG & WRONA, Chicago, IL.

For Jeffrey Frye, Defendant: Douglas R Lindstrom, Jr, LANE & WATERMAN LLP, Davenport, IA.

For QC Silt Fence Inc, Defendant, Counter Claimant: Jeffrey C McDaniel, LEAD ATTORNEY, BROOKS LAW FIRM PC, Rock Island, IL.

For Van Henkelum, Lynch & Associates, LLC, Defendant: William R Stengel, LEAD ATTORNEY, COYLE GILMAN & STENGEL, Rock Island, IL.

For United States of America Internal Revenue Service, Defendant: John H Campbell, U.S. ATTY, Peoria, IL.

For Fyre Lake Ventures LLC, Counter Defendant: Daniel Lynch, LEAD ATTORNEY, Amy J. Hansen, LYNCH & STERN LLP, Chicago, IL.

ORDER

SARA DARROW, UNITED STATES DISTRICT JUDGE.

The Bank of Commerce (the " Bank" ), as Successor in Interest to the Federal Deposit Insurance Corporation (the " FDIC" ) in its capacity as receiver for the failed Country Bank, is suing Fyre Lake Ventures, LLC (" Fyre Lake" ) for breach of a note, for foreclosure on property mortgaged as security for the note, and for judgment against some of Fyre Lake's guarantors on the note.[1] Before the court are several motions: the Bank's motion for summary judgment on its foreclosure claim, ECF No. 85; the Bank's motion for summary judgment against certain of the guarantors, ECF No. 86; Defendant Kenneth Hoffman's motion for summary judgment as to the claim against him as a guarantor, ECF No. 89; Defendant Gerald Lee's Motion for Extension of Time to File Answer, ECF No. 105; the Bank's motion to expedite a ruling on its motion for summary judgment on the foreclosure claim, ECF No. 106; the Bank's Motion for Default Judgment against Defendant Paul Van Henkelum, ECF No. 112; the Bank's Motion for Hearing Status and Case Management, ECF No. 115; and the Bank's Motion for Summary Judgment against Kenneth Hoffman, ECF No. 116. For the following reasons, the Bank's motion for summary judgment on its foreclosure claim is GRANTED. The Bank's motion for summary judgment against certain of the guarantors is GRANTED IN PART and DENIED IN PART. Hoffman's motion for summary judgment is DENIED. The Bank's Motion for Default Judgment against Van Henkelum is GRANTED. Lee's motion for extension of time is MOOT. The Bank's motions to expedite and its motion for a status conference are MOOT. The Court declines to rule at this time on the Bank's Motion for Summary Judgment against Hoffman, as the motion is not yet fully briefed.

BACKGROUND

On January 2, 2013, the FDIC filed a complaint against Fyre Lake, Blair Minton, Gregory Yates, Kenneth Hoffman, Jr., Paul Van Henkelum, Gerald Lee, Jerome Epping, Jeffrey Frye, James Gaugert, and unknown owners and non-record claimants, alleging that Fyre Lake had failed to make quarterly payments on a $9,000,000 loan (the " Fyre Lake loan" ), and seeking to foreclose on the property that had been mortgaged to secure the loan. Compl. 9--16, ECF No. 1. The FDIC also sought judgment against all other named defendants as guarantors of the note, in the amounts by which the parties had allegedly agreed to guarantee the note--$900,000 for most of the guarantors, but $650,000 for Epping, and $325,000 for Frye and Guagert. Id. at 16--27.

Fyre Lake and Minton jointly filed an unverified Answer, ECF No. 35, asserting as affirmative defenses that Country Bank, which made the initial loan before being taken over by the FDIC, had not provided valuable consideration in exchange for Minton's guaranty (the " Minton Guaranty" ), and had assured Minton that it would never collect on the Minton Guaranty. Minton/Fyre Lake Answer 32. Fyre Lake admitted that it had failed to make " certain payments" on the note, and claimed no affirmative defenses. Id. at 14. Lee and Yates filed verified answers, ECF Nos. 32, 42, respectively. Lee asserted as a defense that his guaranty (the " Lee Guaranty" ) was obtained by a course of fraud and self-dealing, and without valuable consideration, and that the FDIC failed to state a claim upon which relief could be granted. Lee Answer 39. Yates asserted as a defense that his guaranty (the " Yates guaranty" ) was obtained for no valuable consideration, and via a course of self-dealing. Yates Answer 17. Epping and Gaugert filed unverified answers, ECF Nos. 33, 34, respectively, asserting defenses of self-dealing. Epping Answer 14; Gaugert Answer 14. Frye filed an unverified answer, ECF No. 19, 50, asserting that his guaranty was acquired without valuable consideration and through a course of self-dealing. Frye Answer 15--16, ECF No. 50. Hoffman filed a motion to dismiss, ECF No. 23, and an amended motion to dismiss, ECF No. 53, which this Court denied, ECF No. 74. Van Henkelum, although properly served, ECF No. 28, has to date filed no responsive pleading in this matter.

On May 24, 2013, the FDIC filed an Amended Complaint, ECF No. 45, joining as defendants various other parties (Department of the Treasury -- Internal Revenue Service; Director of Employment Security of the State of Illinois; 3-D Concrete, Inc.; Midwest Golf Development, Inc.; QC Silt Fence, Inc.; Rock River Electric, Inc.; Van Henkelum, Lynch & Associates, LLC; and V2G Surveying, LLC) who held liens against the mortgaged property, and requested that all these parties' interests in the mortgaged property be declared junior to its own. Am. Compl. 14. Yates and Lee filed answers to the amended complaint, again verified, ECF Nos. 46, 47, respectively, as did the parties who had originally filed unverified answers, all of which were, again, unverified. ECF Nos. 49, 50, 51, 52. Hoffman filed a verified answer, ECF No. 77, asserting as defenses lack of consideration, self-dealing, failure to state a claim, and the fact that Hoffman had previously executed a release with the FDIC from a separate debt obligation. Hoffman Answer 23--24.

As for the alleged junior lienholders, 3-D Concrete, Inc. (" 3-D Concrete" ) filed an answer and counterclaim, ECF No. 66. 3-D Concrete eventually dismissed the counterclaim. ECF No. 76. Of the remaining defendants, only the Internal Revenue Service (" IRS" ) filed a responsive pleading, an answer, ECF No. 69, which alleged the existence of a federal tax lien against Fyre Lake in the amount of $23,228 and did not otherwise dispute the Amended Complaint. IRS Answer 2.

On September 27, 2013, the FDIC filed a " Motion for Entry of Judgment of Foreclosure and Sale." ECF No. 75. After some responses and an FDIC motion to expedite, ECF No. 82, the Court denied the FDIC's motion, noting procedural defects in the FDIC's proposed form of notice for the foreclosure sale, and explaining that the proper vehicle for such a motion in federal court, as opposed to Illinois state court, was a motion for summary judgment. Feb. 20, 2014 Text Order. The FDIC returned on April 10, 2014 with a motion for summary judgment on Count I of the Amended Complaint, the foreclosure claim, ECF No. 85. On April 28, the FDIC filed a motion for summary judgment as to its claims in subsequent Counts against Defendants Minton, Yates, Lee, Epping, Frye, and Gaugert. ECF No. 86. Several defendants pointed out, via motion, that there were defects in the FDIC's affidavits in support of its motion for summary judgment, and that the FDIC had failed to include a proposed order of foreclosure, both of which defects the FDIC eventually remedied by the expedient of filing these documents piecemeal. ECF Nos. 95, 96, 97. Meanwhile, Defendant Hoffman moved for summary judgment against the FDIC, ECF No. 89.

On August 5, 2014, the FDIC filed another motion to expedite, ECF No. 106. On October 22, 2014, Lee was dropped from the case pursuant to a stipulated dismissal, ECF No. 110. Epping and Gaugert were also dropped due to stipulated dismissals on November 25, 2014, ECF No. 113. On November 11, 2014, Minton filed a Suggestion of Bankruptcy, ECF No. 111, which prompted the Court to stay the case as to Minton, Dec. 2, 2014 Minute Entry. On November 24, 2014, the FDIC moved for default judgment as to Van Henkelum, ECF No. 112, and the Court subsequently issued an order granting default, Dec. 4, 2014 Text Order.

On December 29, the FDIC assigned its interest in this matter to the Bank of Commerce, ECF No. 114. On January 5, 2015, the Bank moved for a status conference, and on February 16, 2015, moved for summary judgment as to Hoffman, ECF No. 116.

DISCUSSION

There has been a jumbled concatenation of filings in this case. In an attempt at clarity, the Court treats each pending motion below in the order it was filed.

I. Plaintiff's Motion for Summary Judgment Against Fyre Lake: Foreclosure

A. Legal Standard on a Motion for Summary Judgment

Summary judgment is the " put up or shut up moment in a lawsuit, when a party must show what evidence it has that would convince a trier of fact to accept its version of events." Johnson v. Cambridge Indus., Inc., 325 F.3d 892, 901 (7th Cir. 2003) (internal quotation marks omitted). " The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a).

At the summary judgment stage the court's function is not to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial--that is, whether there is evidence favoring the non-moving party sufficient for a jury to return a verdict in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Patel v. Allstate Ins. Co., 105 F.3d 365, 370 (7th Cir. 1997). The court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. McCann v. Iroquois Mem'l Hosp., 622 F.3d 745, 752 (7th Cir. 2010) (citing Anderson, 477 U.S. at 255). There can be no genuine issue as to any material fact, however, when a party " fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

When the FDIC, acting in its capacity as receiver, is a party to a case, the case is " deemed to arise under the laws of the United States." 12 U.S.C. § 1819(b)(2)(A). The cause of action for foreclosure in this case derives from the Illinois law governing mortgages and foreclosures. 735 ILCS 5/15. The Court therefore applies the substantive law of Illinois and the procedural law of the United States. Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., 313 F.3d 385, 390 (7th Cir. 2002); see Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

B. Analysis

Plaintiff seeks to foreclose on a property Fyre Lake mortgaged as security for a loan. As noted above, three motions were filed in opposition to Plaintiff's motion for summary judgment (ECF Nos. 87, 93, 99). Each, however, addressed only formal defects in the motion for summary judgment that were later remedied. ECF No. 95, 96, 97. Fyre Lake never filed a substantive response to the motion for summary judgment. Thus, although the Court construes the evidence in the record in the light most favorable to Fyre Lake, the Court is bound to accept as undisputed the record materials filed to supplement his motion, ECF Nos. 95, 96, 97, and, if Plaintiff is entitled to judgment as a matter of law on that basis, bound to grant it. See Pike v. Nick's English Hut, Inc., 937 F.Supp.2d 956, 959 (S.D. Ind. 2013) (" [E]ntry of a summary judgment motion as unopposed does not automatically give rise to a grant of summary judgment. Instead 'the district court [is] still obliged to consider the motion on its merits, in light of the record as constituted, in order to determine whether judgment would be legally appropriate.'" (quoting Aguiar--Carrasquillo v. Agosto--Alicea, 445 F.3d 19, 25 (1st Cir. 2006)).

The undisputed facts, listed and supported by exhibits supplementary to Plaintiff's motion, demonstrate that Fyre Lake has defaulted on its debt obligation, and that foreclosure must follow. Fyre Lake executed a note on April 27, 2009, indicating that it owed $9,000,000 to Country Bank, to be paid back in monthly installments at a variable rate of interest 3.25% above the U.S. Prime Rate. Fyre Lake Note 1, ECF No. 85-3. The Note indicates that it was secured by a separate mortgage dated April 27, 2009. Id. That mortgage indicates that if the mortgagor fails to make a monthly payment, default occurs. Mortgage 4, ECF No. 85-4. The mortgage provides that if default occurs, the lender may accelerate the secured debt and foreclose on the mortgaged property. Id. It also provides that if default occurs, the mortgager must pay the lender's expenses in protecting and preserving the mortgaged property, and attorney's fees. Id. It is undisputed that Fyre Lake failed to make payments on the note secured by the mortgage. Mot. Summ. J 3, ECF No. 85. The Bank is now entitled to foreclose on the note, having obtained the right from the FDIC, which obtained it from Country Bank. Mot. to Substitute Party, ECF No. 114; Mot. Summ. J. 3--4, ECF No. 85.

As noted above, Fyre Lake presents no evidence to contradict this, and points to no issues of disputed fact, nor does it make any argument as to why the Bank is not entitled to judgment as a matter of law. In support of its request for a summary judgment of foreclosure, Plaintiff argues that under Illinois law, when an allegation of fact in a mortgage foreclosure complaint is not denied by verified answer, or where a party merely denies knowledge of a fact alleged, then a sworn verification of the complaint or separate affidavit setting forth the relevant facts is sufficient evidence at trial of the facts pled. Mot. Summ. J. 6; 735 ILCS 5/15-1506(a)(1). The Court agrees with Plaintiff that this rule applies to federal courts applying the Illinois law of foreclosures. Harris N.A v. United States, No. 10 C 2352, 2011 WL 833620, at *2 (N.D.Ill. Mar. 4, 2011); see Gacek v. Am. Airlines, Inc., 614 F.3d 298, 302 (7th Cir. 2010) (" If an ostensibly procedural rule of state law is confined to a particular substantive area of law, this suggests that it probably was motivated by substantive concerns and therefore should be applied by the federal court in a case governed by state law." ). The law further provides that " where all the allegations of fact in the complaint have been proved by verification of the complaint or affidavit, the court upon motion supported by an affidavit stating the amount which is due the mortgagee, shall enter a judgment of foreclosure as requested in the complaint." 735 ILCS 5/15-1506(a)(2). The bank has more than met this standard by the documents it has submitted; its Amended Complaint, ECF No. 45, is verified, and it has submitted affidavits stating the amount due sworn to by the appropriate individuals. ECF Nos. 95, 96. Thus, the Bank is also entitled to a judgment of foreclosure as a matter of Illinois law.

Plaintiff also asks that the interests of certain named defendants who have responded to the Amended Complaint (the Internal Revenue Service, QC Silt Fence, and Van Henkelum and Lynch and Associates) be declared junior to its own, and that other named defendants who did not respond, as well as " Unknown Owners and Non-Record Claimants," be declared in default, and have any interest they may have declared junior. Mot. Summ. J. 7--8. No other party has claimed that it has a superior claim to the Bank's, and, no evidence to the contrary appearing, the Court also grants Plaintiff's request to have its interest in the mortgaged property declared superior to the interests of those parties who answered its Amended Complaint.

The Court has reviewed and finds sufficiently clear Plaintiff's claimed legal fees and receivership expenses, to which it is entitled by the terms of its agreement with Fyre Lake. ECF Nos. 95, 96. As noted in the Affidavit of Michael Guerry, attorney's fees and receivership expenses have been accruing since the time the affidavits on these topics were filed. Guerry Aff. ¶ 4, ECF No. 95. The Court adopts the expenses described in Plaintiff's draft order of May 8, 2014, and, as explained below, orders that the lien ...


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