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Capital One Equipment Finance Corp. v. Bonus Taxi, Inc.

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

November 19, 2019

Capital One Equipment Finance Corp. f/k/a All Points Capital Corp. d/b/a Capital One Taxi Medallion Finance, Plaintiff,
v.
Bonus Taxi Inc., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          MANISH S. SHAH UNITED STATES DISTRICT JUDGE.

         Tri Global Financial Services, Inc., a company formed to provide financing to owners of taxi medallions, loaned money to 31 taxi companies-the defendants. Plaintiff Capital One bought a 100-percent participation interest in each of those loans. Defendants defaulted. Capital One then attempted to sell and transfer the medallions. Under Chicago's taxi rules, if medallion holders assert defenses to foreclosure, the lender may not transfer them without a court order. So Capital One seeks a declaratory judgment allowing the foreclosure and transfer of the medallions. The taxi companies move to dismiss Capital One's complaint under Federal Rules of Civil Procedure 12(b)(7) and 19. They argue that Tri Global, and the individual Tri Global founders who guaranteed the defaulted loans, must be joined as defendants. Two of those individuals are citizens of New York and would destroy complete diversity. Alternatively, defendants contend that I should abstain from deciding this case pending the resolution of an ongoing related case between Capital One and Tri Global in New York state court. For the reasons discussed below, defendants' motion is denied.

         I. Background

         Rule 12(b)(7) allows dismissal for “failure to join a party under Rule 19.” In considering a motion to dismiss under Rule 12(b)(7), I accept the factual allegations in the complaint as true. Davis Cos. v. Emerald Casino, Inc., 268 F.3d 477, 479 n.2 (7th Cir. 2001). On a 12(b)(7) motion, a court may “go outside the pleadings and look to extrinsic evidence.” Id. at 480 n.4.

         A. The Relationship Between Tri Global and Capital One

         The City of Chicago issues licenses to operate taxi cabs, known as medallions. [1] ¶ 2.[1] The Chicago Department of Business Affairs and Consumer Protection promulgates rules for taxi-medallion owners and governs the ownership and transfer of the medallions. [1] ¶ 5.

         In 2004, Symon Garber, Roman Sapino, Galina Garber-Sheinin, Valentina Zubok, and others formed Tri Global Financial Services, Inc. to provide loans to the purchasers of Chicago taxi medallions. [1-8] ¶¶ 1-5 (Exh. 68, Aug. 22, 2010 Garber Aff. of Defense). In 2006, North Fork Bank approached Tri Global about partnering to expand its lending platform, and the two companies entered into multiple loan participations. [1-8] ¶¶ 5-6. After Capital One acquired North Fork Bank, the partnership with Tri Global continued on a loan-by-loan basis. [1-8] ¶¶ 6-7.

         In 2010, Tri Global and Capital One entered into a more formal Master Joint Participation Agreement. [1] ¶ 58; [1-8] ¶ 8. Under the MJPA, Capital One bought a 100 percent senior participation interest in each of the loans that Tri Global made to the medallion owners, and Tri Global assigned and transferred all of its rights to each loan, including the collateral and the security agreement, to Capital One. [1] ¶¶ 58- 61; [1-8] ¶ 10. Tri Global remained the loan servicer; it was responsible for collecting payments from the borrowers and paying Capital One on a monthly basis. [1] ¶ 64; [1-8] ¶ 10. Under the MJPA, if any of the loans defaulted, Capital One had the right to terminate Tri Global's interest in the loans and take over Tri Global's rights to service them. [1] ¶ 66.

         In connection with the MJPA, Garber, Zubok, Garber-Sheinin, Sapino, and others executed a guaranty with Capital One. [1-8] ¶ 9.

         B. The Loans to Defendants

         In 2012, Tri Global loaned amounts ranging from $96, 000 to $2, 880, 000 to each of the defendants in this case, 31 taxi companies; each loan was secured by a taxi medallion (about 160 medallions total) and was accompanied by a security agreement. [1] ¶¶ 2, 50; [1-1] (Exhs. 1-31, Promissory Notes); [1-2] (Exhs. 32-62, Security Agreements). Garber, Garber-Sheinin, or Zubok owned almost all of the taxi-company defendants and signed the agreements on their behalf. [1-1]; [1-2]. Sapino signed the security agreements on behalf of Tri Global. [1-2]. Section 7 of the security agreements executed between Tri Global and each defendant provided that, in the event of a default, Capital One had the right to sell the medallions. [1] ¶¶ 4, 54, 77; [1-2].

         In December 2015, the loans made to the defendants matured. [1] ¶ 65. All of the defendants defaulted by not paying the outstanding principal (more than $38 million) and interest due at maturity. [1] ¶¶ 3, 65. Capital One terminated Tri Global's servicing of the loans and assumed all rights that Tri Global had to enforce the loans. [1] ¶ 66.

         In July 2018, Capital One exercised its right under the security agreements to sell the medallions; it sent foreclosure notices to the defendants and the BACP and advertised a foreclosure auction in the Chicago Sun Times. [1] ¶¶ 78, 81. The next month, Capital One conducted a foreclosure auction. [1] ¶ 76. Eighteen bidders attended. [1] ¶ 82. Capital One credit bid the medallions for $23, 000 each, and offered to work with prospective bidders regarding accrued taxes and fees owed to BACP before it would allow transfer of the medallions. [1] ¶¶ 83-84. Capital One then notified the defendants and the commissioner of the BACP that it planned to transfer the medallions. [1] ¶ 87.

         Under the city taxi rules, if the owner of a medallion being foreclosed upon sends an affidavit of defense to the lender, the medallion cannot be transferred without written consent of the medallion licensee or a court order. [1] ¶¶ 6, 115. Each defendant submitted an affidavit of defense to foreclosure. [1] ¶¶ 7, 87; [1-8] (Exh. 68, Aug. 22, 2010 Affs. of Defense). Garber, Garber-Sheinin, and Zubok filled out almost all of the 36 affidavits; they listed themselves as the owners of the taxi medallions “either individually or through a company that I own.” [1-8].[2] The defendants all asserted the same defenses to foreclosure. They argued that: (1) Capital One could not foreclose on the medallions because it had partnered with Uber and “precipitated the collapse of the Chicago taxi medallion industry”; (2) the defendants had not defaulted and did not owe the amount Capital One claimed; (3) the foreclosure violated the BACP taxi rules; (4) Capital One conducted an improper foreclosure sale process by promising to help bidders with the liens on the medallions; (5) Capital One breached its fiduciary duty to each defendant by partnering with Uber; (6) Capital One breached the implied covenant of good faith and fair dealing by partnering with Uber; and (7) the doctrines of “estoppel, waiver, ratification and/or acquiescence” barred Capital One's assertion that the medallion owners had defaulted. [1] ¶¶ 93, 97, 99, 101, 103, 106, 108; [1-8], passim. Capital One seeks a declaratory judgment that those defenses do not constitute valid defenses to a transfer through foreclosure. [1] ¶¶ 111, 119.[3]

         C. The Other Lawsuits

         In January 2017, Capital One filed two lawsuits. In Cook County court, it sued all but one of the defendants in this case, a number of other companies, Garber, Garber-Sheinin, Zubok, and Sapino. [1] ¶ 70; [19-1] (Exh. 1, Cook County Complaint). It sought to recover $48, 240, 000, the outstanding amount owed on 42 loans. [19-1] at 3-4. Capital One also sued Tri Global, Garber, Zubok, Garber-Sheinin, Sapino, and others in New York state court, alleging, among other things, that Tri Global had breached the MJPA and the guaranty. [19-3] (Exh. 3, Jan. 26, 2017 New York Complaint). The Cook County defendants moved to dismiss the Cook County case for lack of venue. [1] ¶¶ 71-72. In January 2018, the Cook County court dismissed that case with leave to file in New York. [1] ¶ 72.

         In the New York case, Capital One brought 37 causes of action and requested compensatory damages in the amount of $73, 632, 882. [19-3] at 26. It alleged that Tri Global had breached three contracts: the MJPA, the guaranty executed in connection with the MJPA, and an information-rights agreement. [19-3]. It also alleged that Tri Global and ...


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