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In re First Farmers Financial Litigation

United States District Court, N.D. Illinois, Eastern Division

December 5, 2017

MICHAEL M. NANOSKY, not individually, but solely as Receiver for the Nanosky Receivership Estate and PATRICK D. CAVANAUGH, not individually, but solely as Overall Receiver of the Overall Receivership Estate, Defendants/Counter-Plaintiffs. ORLANDO INTERNATIONAL HOTELS, LLC, and ROBERT J. GUIDRY INVESTMENTS, LLC, Plaintiffs/Counter-Defendants,



         Plaintiff Orlando International Hotels, LLC (“Orlando International”), and Plaintiff Robert J. Guidry Investments, LLC (“Guidry Investments”), (collectively, “Plaintiffs” or “Buyers”) brought this action against Defendant Michael M. Nanosky in his capacity as Receiver of the Nanosky Receivership Estate (“Nanosky Receiver”) and Defendant Patrick D. Cavanaugh in his capacity as Overall Receiver of the Overall Receivership Estate (“Cavanaugh Receiver, ” and together with the Nanosky Receiver, “Defendants, ” “Receivers, ” or “Sellers”) after the parties failed to close on a real estate transaction governed by their Purchase and Sale Agreement (“PSA”). Before the Court are the parties' cross-motions for summary judgment on Count I of the Plaintiffs' Amended Complaint and Counts I-III of Defendants' Answer and Counterclaims. (R. 1525; R. 1529.) For the following reasons, the Court denies both parties' summary judgment motions.


         The underlying Receivership Action arises out of a massive fraud Nikesh Patel[1]perpetrated through the entity First Farmers Financial, LLC, which he utilized to fraudulently obtain millions of dollars from the sale of fictional loans that were purportedly guaranteed by the U.S. Small Business Administration or the U.S. Department of Agriculture's Rural Development Program. The Court appointed Defendants Nanosky and Cavanaugh as Receivers in the Receivership Action and charged them with recovering investor assets, largely by selling properties of the receivership estates. One of their duties[2] involved selling five hotels, including the hotel at issue in this case: the Doubletree by Hilton Hotel Orlando East, UCF Area, located at 12125 High Tech Avenue, Orlando, Florida 32817 (“Hotel” or “Property”).

         Plaintiffs are Orlando International and Guidry Investments. Orlando International is a limited liability company organized under the laws of the State of Florida, with its principal place of business located in Orlando, Florida. (R. 1568 at ¶ 1; R. 1566 at ¶ 7.) Guidry Investments is a limited liability company organized under the laws of the State of Louisiana, with its principal place of business located in Harvey, Louisiana. (R. 1568 at ¶ 2; R. 1566 at ¶ 7.) Plaintiffs agreed to purchase the Hotel. The real estate transaction between Plaintiffs and Receivers did not close on the stipulated date.

         In their Amended Complaint, Plaintiffs seek a declaratory judgment stating that (1) Defendants breached the PSA by failing to satisfy the conditions precedent, denying that Plaintiffs had properly terminated the PSA, and objecting to the Escrow Agent's release of the Deposit; and (2) Plaintiffs properly terminated the PSA and are entitled to the return of the $1, 527, 400.00 Deposit[3] currently held by the Escrow Agent. (R. 1304.) Plaintiffs also petition the Court to award them Purchaser's Costs as actual damages in addition to attorneys' fees and costs. (Id.)

         In their Answer, Defendants bring three counterclaims against Plaintiffs, seeking declaratory judgment and alleging two types of breach of contract claims. (R. 825.) Count I for declaratory judgment requests that the Court declare that Plaintiffs did not validly terminate the PSA, and that Defendants are entitled to the Deposit and an award of attorneys' fees. (Id.) Counts II and III allege breach of contract, respectively, by “failure to close” and “good faith and fair dealing.” (Id.) Receivers request that the Court find Plaintiffs in breach of the PSA, and award Receivers the Deposit as well as attorneys' fees and costs. (Id.)

         I. Northern District of Illinois Local Rule 56.1

         Northern District of Illinois Local Rule 56.1 “is designed, in part, to aid the district court, ‘which does not have the advantage of the parties' familiarity with the record and often cannot afford to spend the time combing the record to locate the relevant information, ' in determining whether a trial is necessary.” Delapaz v. Richardson, 634 F.3d 895, 899 (7th Cir. 2011) (quoting Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 924 (7th Cir. 1994)). Specifically, Local Rule 56.1(a)(3) requires the moving party to provide “a statement of material facts as to which the moving party contends there is no genuine issue.” Cracco v. Vitran Exp., Inc., 559 F.3d 625, 632 (7th Cir. 2009) (quoting L.R. 56.1(a)(3)). The nonmoving party must file “a response to each numbered paragraph in the moving party's statement, including, in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon.” Id. (quoting L.R. 56.1(b)(3)(B)). The nonmoving party also may submit a separate statement of additional facts that require the denial of summary judgment, including references to the affidavits, parts of the record, and other materials relied upon to support those facts. See L.R. 56.1 (b)(3)(C); see also Ciomber v. Coop. Plus, Inc., 527 F.3d 635, 643-44 (7th Cir. 2008).

         The purpose of Rule 56.1 statements and responses is to identify the relevant admissible evidence supporting the material facts, not to make factual or legal arguments. See Cady v. Sheahan, 467 F.3d 1057, 1060 (7th Cir. 2006) (finding Rule 56.1 statements noncompliant when they fail to “adequately cite the record” and are “filled with irrelevant information, legal arguments, and conjecture.”). “When a responding party's statement fails to dispute the facts set forth in the moving party's statement in the manner dictated by the rule, those facts are deemed admitted for purposes of the motion.” Cracco, 559 F.3d at 632. The Court may disregard statements and responses that do not properly cite to the record. See Cichon v. Exelon Generation Co., LLC, 401 F.3d 803, 809-810) (7th Cir. 2005). Moreover, the requirements for responses under Local Rule 56.1 are “not satisfied by evasive denials that do not fairly meet the substance of the material facts asserted.” Bordelon v. Chicago Sch. Reform Bd. of Trs., 233 F.3d 524, 528 (7th Cir. 2000); see also Thele v. Sunrise Chevrolet, Inc., 2004 WL 1194751, *3 (N.D. Ill. May 28, 2004) (“The mere denial of a particular fact without specific references to affidavits, parts of the record, and other supporting materials is insufficient, and, where a properly supported factual assertion is met with such a naked denial, the fact may be deemed admitted.”). “[D]istrict courts are entitled to expect strict compliance with Local Rule 56.1.” Raymond v. Ameritech Corp., 442 F.3d 600, 604 (7th Cir. 2006); see also Reed v. Allied Waste Transp., Inc., 621 F. App'x 345, 347 (7th Cir. 2015), reh'g denied (July 30, 2015) (“[W]e will enforce the district court's choice to demand strict compliance with Local Rule 56.1.”)

         Prior to reciting the facts of this case, the Court notes practices by Plaintiffs that are problematic under Local Rule 56.1. Plaintiffs include legal conclusions in their statements of facts. (See, e.g., R. 1568 at ¶ 70, 71.) It is inappropriate for parties to attempt to disguise arguments as facts. Additionally, in response to certain statements of fact, Plaintiffs admit and then supplement the fact with further details or a legal conclusion. (See, e.g., R. 1566 at ¶ 92, 98.) This, too, violates Local Rule 56.1. Further, Plaintiffs fail to cite to specific portions of the record, sometimes referencing dozens of pages of depositions. (See, e.g., R. 1568 at ¶ 40, 46.) Plaintiffs also attempt to create factual disputes by challenging the inferences that can be drawn from the evidence. (See, e.g., R. 1566 at ¶ 41, 57, 70.) In its review of the facts, the Court disregarded the portions of facts where Plaintiffs violated Local Rule 56.1. With this in mind, the Court now turns to the relevant facts.

         II. Relevant Facts

         A. Purchase and Sale Agreement

         The Receivers put the Hotel up for sale on the real estate website in July 2015. (R. 1568 at ¶ 11; R. 1566 at ¶ 11.) Guidry Investments submitted a winning bid to purchase the Hotel for $30, 050, 000.00 plus a 500, 000.00 buyer's premium. (R. 1568 at ¶ 13-14; R. 1566 at ¶ 15.) The parties executed the PSA, dated July 22, 2015. (R. 1568 at ¶ 15; R. 1566 at ¶ 15.) The parties do not dispute the validity of the contract, only the interpretation of various obligations under its terms.

         The Effective Date of the PSA was July 22, 2015, which makes the Closing Date September 8, 2015, per the PSA's provisions. (R. 1566 at 19; R. 1568 at 16-17.) PSA § 2.7 provides for Plaintiffs' “onetime option to extend the Closing Date by an additional period of fifteen (15) days by providing notice thereof to Seller…and delivering to Escrow Agent an amount equal to five percent (5%) of the Purchase Price not less than three (3) Business Days prior to the scheduled Closing Date.” Defendants also had an option to extend the Closing Date. PSA § 6.6 “Postponement of Closing Date” provides in part that “If Seller and Owner have elected to cure any Monetary Title Objections arising from a New Lien or Non-Monetary Title Objections and are unable to do so prior to the scheduled Closing Date, upon notice from Seller to Purchaser, the Closing shall be adjourned for a period not to exceed thirty (30) days to allow Seller and Owner an additional period to cure such Monetary Title Objections arising from a New Lien or Non-Monetary Title Objections.” Further, PSA § 23.11 provides that “[t]ime is of the essence in the performance of all obligations by Purchaser, Seller and Owner under this Agreement.”

         PSA § 2.6 defines Closing as “[t]he delivery of the Deed to Purchaser by the Seller concurrent with the delivery of the Cash to Close to the Seller.” Further, PSA § 11 reads “Closing. Subject to all of the provisions of this Agreement, Purchaser, Seller and Owner shall close this transaction on the Closing Date commencing at 10:00 a.m. Eastern Time.” According to PSA § 14, “Closing Procedure:”

         The Closing shall proceed in the following manner:

14.1 Transfer of Funds. Purchaser shall pay the Cash to Close to the Escrow Agent by wire transfer of federal funds to a depository designated by Escrow Agent.
14.2 Delivery of Documents. Seller and Owner shall deliver Seller's/Owner's Closing Documents and Purchaser shall deliver Purchaser's Closing Documents to the Escrow Agent.
14.3 Disbursement of Funds and Documents. When the Title Company has deleted all the requirements, “insured the gap, ” i.e., endorsed the Title Commitment to delete the exception for matters appearing between the effective date of the Title Commitment and the effective date of the Title Policy and marked up the Title Commitment agreeing to insure Purchaser's ownership of the Land and Improvements subject only to the Permitted Exceptions, and the Escrow Agent has received the Cash to Close by wire transfer of federal funds from Purchaser, Escrow Agent shall disburse the Cash to Close and Deposit to Seller (except the Buyer's Premium, which shall be disbursed to Auctioneer), then the Escrow Agent shall disburse all amounts required to fund closing costs and expenses as set forth in the Closing Statement; deliver Seller's/Owner's Closing Documents to Purchaser; deliver Purchaser's Closing Documents to Seller; provided, however, that Escrow Agent shall record the Deed in the Public Records of the county where the Land is located.

         The PSA requires that these steps occur in close succession and all be completed on or before the Closing Date.

         The PSA required Purchasers to pay money in exchange for the Sellers providing title to the Property. PSA § 6.1 provides in part that “[a]t Closing, Seller and Owner shall convey fee simple title to the Land and Improvements, subject only to the Permitted Exceptions (defined below). Seller and Owner shall satisfy and have dismissed or insured over all matters with respect to title arising from the Existing Litigation (including all liens of any nature whatsoever).” PSA § 6.3 defines Permitted Exceptions as:

(a) Title Company's standard exceptions; (b) liens for all current general and special real property taxes and assessments not yet due and payable; (c) liens of supplemental taxes, if any assessed; (d) any facts an accurate survey and/or a personal inspection of the Property may disclose; (e) the mortgage/deed of trust/deed to secure debt lien in connection with any Purchaser financing; (f) any laws, regulations, ordinances (including but not limited to, zoning, building and environmental) as to the use, occupancy, subdivision or improvement of the Property adopted or imposed by any governmental body, or the effect of any non-compliance with or any violation thereof, including but not limited to, any disclosure and/or report required by ordinance; (g) rights of existing tenants and/or occupants of the Property (if any); (h) covenants, restrictions, easements and other matters of record as of the effective date of the Title Commitment that affect the Property; (i) non-monetary encumbrances disclosed to Purchaser in writing prior to entering into this Agreement that Seller and Owner are not expressly obligated to cure hereunder; (j) any other matter for which Title Company agrees to provide insurance at no additional cost to Purchaser; and (k) any other matter that Purchaser has approved or is deemed to have approved hereunder.

PSA § 2.14 defines “Existing Litigation” as “Those matters and claims of lien [sic] more particularly described on Schedule 2.14 attached hereto, but shall not include the [Receivership] Action.” PSA Schedule 2.14 lists only one “Existing Litigation” as “True Line Contracting & Remodeling Services, Inc., d/b/a Vision Hospitality Construction v. Alena Hospitality UCF, LLC, Rosen Materials, LLC and Harris Civil Engineers, LLC, Case No. 2015-CA-000300-O, ...

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