Marvin H. Richer v. Patrick Morehead
Filing
Filed opinion of the court by Judge Posner. AFFIRMED. Richard A. Posner, Circuit Judge; Michael S. Kanne, Circuit Judge and David F. Hamilton, Circuit Judge. [6684087-1] [6684087] [14-2618]
Case: 14-2618
Document: 29
Filed: 08/11/2015
Pages: 4
In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14‐2618
MARVIN H. & GAIL L. RICHER,
Plaintiffs‐Appellants,
v.
PATRICK MOREHEAD,
Defendant‐Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Western Division.
No. 14 C 50043 — Philip G. Reinhard, Judge.
____________________
ARGUED AUGUST 4, 2015 — DECIDED AUGUST 11, 2015
____________________
Before POSNER, KANNE, and HAMILTON, Circuit Judges.
POSNER, Circuit Judge. This appeal presents a question of
contract interpretation. The Richers, a married couple, filed
for bankruptcy. Morehead, who had invested in commercial
real estate owned by a trust controlled by Mr. Richer, filed
an unsecured claim for $945,000 in the bankruptcy proceed‐
ing. The Richers filed an adversary action claiming that
Morehead’s only lawful interest in the property was to re‐
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No. 14‐2618
ceive a share of the net proceeds of the property if and when
it was sold, which hadn’t happened. The bankruptcy judge
disagreed with the Richers, upheld Morehead’s claim, and
was affirmed by the district court, precipitating the Richers’
appeal to us.
On November 25, 2005, Richer and Morehead had exe‐
cuted an “Equity Participation Agreement” in which More‐
head had agreed to pay Richer $700,000 for the right to re‐
ceive 8 percent of the net proceeds from any sale of the
property of the trust. The agreement provided no security
for Morehead, but did give him “the sole and exclusive op‐
tion to convert his Participation Interest to a Demand Note
payable within one hundred eighty (180) days of conver‐
sion.” (The agreement calls the option the “Conversion Op‐
tion.”) If he exercised that right on the third, fourth, or fifth
anniversary date (that is, November 25 of 2008, 2009, or
2010), the value of the demand note would be $700,000 plus
7 percent simple interest, which jacked up Morehead’s claim
to $945,000. The agreement went on to provide in a separate
section that any notice, request, demand, or other communi‐
cation governed by the agreement “shall be in writing and
shall be delivered by hand or mailed by certified mail, return
receipt requested, postage prepaid, or by simultaneous fax
transmission.” The parties agreed that Illinois law would
govern the interpretation of the agreement should a dispute
arise.
Four years after the Equity Participation Agreement was
signed, minus one day (and thus on November 24), More‐
head sent Richer by certified mail return receipt requested a
letter purporting to convert Morehead’s participation inter‐
est to a demand note for $700,000 (plus interest), effective the
Case: 14-2618
No. 14‐2618
Document: 29
Filed: 08/11/2015
Pages: 4
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day after the letter was mailed, November 25, 2009—the an‐
niversary date. The Richers argue that the letter had to be
mailed or otherwise communicated to them on November
25, the anniversary date, neither before nor after. The Equity
Participation Agreement provides that “the Conversion Op‐
tion is exercised on the … anniversary date,” and the Richers
argue that since the mode of exercise is by a written com‐
munication, that communication too must be initiated
(though not necessarily received) on the anniversary date.
Yet in the same paragraph the reader is told that the partici‐
pant (Morehead) “will exercise this option by written notice
to Owner [of the property in which Morehead invested, i.e.,
Richer’s trust], specifying the date of the conversion election
(no earlier than the date of the letter).” The implication is
that the exercise of a conversion option occurs on or after the
date of the letter—for “no earlier” doesn’t mean “no earlier
and no later.”
A particular oddity of the Richers’ argument, though not
one important to this case given that the letter announcing
the exercise of the conversion option predated the option‐
conversion date by only one day, is that the property owner
is better off the earlier the announcement of the investor’s
intent to exercise the option. An early announcement gives
the owner more time to take steps to ameliorate the effect of
the exercise of the option on his business—time, for exam‐
ple, to obtain the money required to satisfy the option de‐
mand. And even though the owner has 180 days after the
conversion to make final payment, he is likely to welcome
more time—people are rarely in a hurry to pay their debts.
So both the language of the option provision and the
common sense of the separate provision relating to notifica‐
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No. 14‐2618
tion of the exercise of the option support Morehead’s inter‐
pretation—that notification may precede the anniversary
date on which the option will be exercised, but cannot follow
that date. Notice too that if November 25 happens to be a
holiday, a letter mailed that day would have no postmark,
and so it might be impossible to determine whether the letter
had been mailed that day or a different day. And even if no
more can be said than that Morehead’s interpretation of the
Equity Participation Agreement is more plausible than Rich‐
ers’, that’s enough to make Morehead the prevailing party.
We therefore agree with the bankruptcy court that More‐
head complied with the terms of the conversion option.
We also agree that because the parties consented to have
this issue of Illinois common law decided by the bankruptcy
judge even though bankruptcy judges are not Article III
judges, the bankruptcy judge was acting within his jurisdic‐
tion in interpreting the Equity Participation Agreement.
Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015).
The parties’ consent was implicit, but implied consent is
good enough, id. at 1948 (“nothing in the Constitution re‐
quires that consent to adjudication by a bankruptcy court be
express”), at least when as in this case the parties are sophis‐
ticated businessmen represented by counsel who can be pre‐
sumed to be aware of their clients’ legal rights. Alternatively
(and equivalently) the parties forfeited any objection to the
bankruptcy court’s adjudication of the contract claim by fail‐
ing to object at any point during the litigation to the bank‐
ruptcy judge’s adjudicating the claim.
AFFIRMED.
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