United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
Robert Blakey United States District Judge
Zivko Knezovic appeals from the bankruptcy court's grant
of summary judgment to Defendant Urban Partnership Bank (UPB)
on his adversary complaint, and the court's denial of his
motion to alter or amend that judgment. For the reasons
explained below, this Court affirms the bankruptcy
August 2005, Plaintiff and two co-signers borrowed $1.5
million from ShoreBank. [8-4] at 55. The bank and the
borrowers memorialized the loan in a promissory note (the
Note) that the borrowers executed when they took out the
loan. Id. At the same time, the Chicago Title Land
Trust Company executed a mortgage in favor of ShoreBank on
three properties in Chicago to secure the $1.5 million due
under the Note. Id.
Note had a variable interest rate and included the following
PAYMENT. Subject to any payment changes resulting from
changes in the Index, Borrower will pay this loan in 360
payments of $9, 481.02 . . . .
VARIABLE INTEREST RATE. The interest rate on this Note is
subject to change from time to time based on changes in an
index which is the ShoreBank's internal commercial
lending rate for multi-family dwellings, and in effect 60
(sixty) days before the change date (the
“Index”). The Index is not necessarily the lowest
rate charged by Lender on its loans and is set by Lender in
its sole discretion. If the Index becomes unavailable during
the term of this loan, Lender may designate a substitute
index after notifying Borrower . . . . The interest rate
change will not occur more often than each two year period.
Your rate will change every two years on either the first day
of January or the first day of July . . .
Id. at 76. The Note also contained an
acknowledgement above the signature line that the borrowers
“read and understood all the provisions of this note,
including the variable interest rate provisions, ” and
agreed to the Note's terms. Id. at 78. Plaintiff
signed the Note. Id.
initial interest rate on the Note was 6.5%, and from
September 2005 through December 2007, the borrowers made
monthly payments at that rate. Id. at 57. Per the
terms of the Note, ShoreBank set its variable interest rate
according to the “Index” referenced in the Note,
defined as “ShoreBank's internal commercial lending
rate for multi-family dwellings.” Id. at 58.
In January 2008, the Index rose to a 7% yearly rate and the
borrowers' interest payments on the Note increased to
match that rate. See id. In January 2010, the Index
rose to 7.5% but the interest rate on the Note remained 7%.
August 2010, the FDIC closed ShoreBank and was appointed as
its Receiver. Id. The FDIC as Receiver (FDIC-R)
succeeded to all rights, titles, and powers of ShoreBank.
Id.; see also 12 U.S.C. §
1821(c)(3)(a). That same month, the FDIC-R endorsed the Note
to UPB, assigning all of its interests in the Note and its
security (the mortgage taken out by Chicago Title Land Trust
Company) to UPB. [8-4] at 59, 79. At that time, UPB received
ShoreBank's records, including a historical list of
ShoreBank's interest rate indexes, including the Index
applicable to the Note. Id. at 59. According to an
unrebutted declaration submitted by James T. McCartney,
UPB's Director of Credit Policy and Risk Management, UPB
preserved and maintains the Index along with other records in
its internal computer system. See id.; [8-5] at 14;
[8-15] at 40-42.
to the Note, the Index is not tied to a national average
mortgage rate; instead, UPB sets the Index in its discretion.
See [8-4] at 59. In October 2010, UPB set the Index
at 7%. Id. From that point through at least March
2016, UPB did not change the Index. See id. at
59-60. During that period, the borrowers made monthly
installment payments on their loan at the 7% interest rate.
Id. at 60. UPB set that rate at least in part
because it considers the loan “high risk” as a
result of certain features; for example, the loan does not
require the borrowers to provide UPB with financial
information related to their ability to pay off the loan or
to maintain the collateral properties. See id. at
September 2016, Plaintiff filed for Chapter 11 bankruptcy.
[8-3] at 6. In December 2016, Plaintiff filed an adversary
complaint seeking a determination of the extent of UPB's
lien against the collateral properties securing the Note.
Id. at 2, 6, 8. Plaintiff contended that UPB failed
to properly adjust the interest rate on the Note, thus
collecting more interest than it should have, which Plaintiff
sought to have deducted from the remaining amount he owed
under the Note. See id. at 13. Specifically,
Plaintiff contended that ShoreBank's Index became
unavailable when the FDIC closed the bank in 2010-requiring
the court to determine a reasonable substitute rate-and that
ShoreBank and UPB failed to match the Note's interest
rate to prevailing national rates. See id. at 10,
August 2017, UPB moved for summary judgment on
Plaintiff's adversary complaint on the grounds that UPB
charged an appropriate interest rate under the Note. [8-3] at
3; [8-4] at 41. In his response to UPB's motion,
Plaintiff argued that: (1) the Index was unavailable from the
moment the FDIC closed ShoreBank; (2) that UPB's failure
to adjust the interest rates on the Note amounted to a breach
of contract and violated the duty of good faith and fair
dealing; and (3) that Plaintiff had not waived his right to
contest the interest rate by continuing to make payments on
the Note. See [8-15] at 26, 28, 30. Plaintiff failed
to support his first argument with any citations to legal
authorities, and cited only to portions of UPB employee
depositions demonstrating certain gaps in their knowledge.
Id. at 26-28. Plaintiff also offered ...