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Knezovic v. Urban Partnership Bank

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

June 18, 2018

ZIVKO KNEZOVIC, Plaintiff-Appellant,


          John Robert Blakey United States District Judge

         Plaintiff 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 court's orders.

         I. Background

         A. The Note

         In 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.

         The Note had a variable interest rate and included the following provisions:

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.

         The 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%. Id.

         In 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.

         According 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 60-61.

         B. Bankruptcy Proceedings

         In 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, 11-12.

         In 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 ...

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