Land of Lincoln Goodwill Industries, Inc. v. PNC Bank, National Association
Filing
17
OPINION: Defendant's Cross-Motion for Judgment on the Pleadings 13 is ALLOWED, and Plaintiff's Motion for Judgment on the Pleadings 12 is DENIED. The Court enters judgment on the pleadings in favor of Defendant PNC Bank, NA, and against Land of Lincoln Goodwill Industries, Inc., and declares that Goodwills proposed prepayment to PNC on May 17, 2012, of its indebtedness evidenced by the Note and Bonds, as set forth in Goodwill's March 30, 2012, Notice of Redemption and Prepayment, was subject to the prepayment provisions of § 9.1(b) of the Loan Agreement. THIS CASE IS CLOSED. Entered by Magistrate Judge Byron G. Cudmore on 6/3/2013. (ME, ilcd)
E-FILED
Wednesday, 05 June, 2013 12:02:57 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS, SPRINGFIELD DIVISION
LAND OF LINCOLN GOODWILL
INDUSTRIES, INC., an Illinois
Not for Profit Corporation,
Plaintiff,
v.
THE PNC FINANCIAL
SERIVCES GROUP, a/k/a
PNC Bank NA, a national bank,
Defendant.
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No.12-cv-3259
OPINION
BYRON G. CUDMORE, U.S. MAGISTRATE JUDGE:
This matter comes before the Court on cross motions for judgment on
the pleadings. Plaintiff Land of Lincoln Goodwill Industries, Inc.’s
(Goodwill) Motion for Judgment on the Pleadings (d/e 12) (Goodwill
Motion); Defendant PNC Bank, National Association’s (PNC) Cross-Motion
for Judgment on the Pleadings (d/e 13) (PNC Motion) (collectively the
Cross-Motions). The parties consented, pursuant to 28 U.S.C. § 636(c), to
proceed before this Court. Notice, Consent, and Reference of a Civil
Action to a Magistrate Judge, entered January 28, 2013 (d/e 10).
Goodwill brought this action to secure a declaratory judgment
concerning the meaning of the prepayment provision, § 9.1(b) of a Loan
Page 1 of 22
Agreement dated September 1, 2007 (Loan Agreement), entered into
between Goodwill, Sangamon County, Illinois (County), and PNC’s
predecessor National City Bank (National City) and Illinois, as assignee of
the County. Notice of Removal (d/e 1), Exhibit A, Complaint for Declaratory
Judgment (Complaint), Exhibit 1, Loan Agreement. Under the terms of the
Loan Agreement, the County issued $2,000,000.00 in tax exempt economic
development revenue bonds (Bonds) and loaned the proceeds to Goodwill
to finance a development project (Project) for Goodwill. The loan was
evidenced by a promissory note (Note) executed by Goodwill. Goodwill
was, thus, obligated to pay the Bonds. The indebtedness was also secured
by a mortgage on the Project. National City funded the transaction by
purchasing the Bonds and accepting the assignment of the County’s rights
under the Loan Agreement and Note. The Loan Agreement referred to
National City as both the “Assignee” and the “Purchaser.” PNC acquired
National City on December 31, 2008.
On March 30, 2012, Goodwill notified PNC that it intended to prepay
the indebtedness in full. Complaint, Exhibit 8, Notice of Redemption and
Prepayment (Notice). PNC notified Goodwill that it would have to pay a
prepayment charge in excess of $300,000.00 if it chose to prepay the
indebtedness. Complaint, Exhibits 9-11. Goodwill filed this action in state
Page 2 of 22
court to seek a declaratory judgment that the prepayment charge provision
of the Loan Agreement § 9.1(b) did not apply. PNC removed the action to
this Court. The parties then filed the Cross-Motions. For the reasons set
forth below, the Court finds that § 9.1(b) applied to Goodwill’s planned
prepayment of the indebtedness set forth in the Notice. The Court
therefore allows the PNC Motion and denies the Goodwill Motion.
STATEMENT OF FACTS
On October 5, 2007, Goodwill, the County, and National City
executed the Loan Agreement, Note, and related documents to close the
$2,000,000.00 revenue Bond issue and loan to Goodwill. The Loan
Agreement, by its terms was dated September 1, 2007, even though it was
executed on October 5, 2007. Loan Agreement, § 10.9. The term of the
loan was 20 years, commencing on October 5, 2007.
The Loan Agreement defined a number of relevant terms. The Loan
Agreement defined the “Initial Rate” as 4.79% per annum. The Loan
Agreement defined an “Interest Rate Adjustment Date” as October 5, 2017.
The Loan Agreement defined the “Adjusted Rate” as “the rate calculated on
the Interest Rate Adjustment Date by Purchaser equal to Purchaser’s Cost
of Funds on the Interest Rate Adjustment Date plus .80%.” The Loan
Agreement defined the “Base Rate” as “the floating, daily, variable rate per
Page 3 of 22
annum of interest determined and announced by Assignee from time to
time as its ‘Base Lending Rate’ . . . .” The Loan Agreement defined the
“Taxable Interest Rate” as “a rate of interest per annum equal to the Base
Rate from time to time in effect.” Loan Agreement, § 1.1 Definitions and
Rules of Construction.
The Loan Agreement called for Goodwill to make monthly payments
of principal and interest accruing at the Initial Rate, amortized over 20
years, for the first ten years of the loan until the Interest Rate Adjustment
Date. Thereafter, the Loan Agreement called for Goodwill to make monthly
payments of principal and interest accruing at the Adjusted Rate, amortized
over 10 years, until the loan was repaid in full. If, however, the bonds were
ever determined not to be tax exempt, then interest would accrue at the
Taxable Interest Rate, which would be equal to National City’s, and now
PNC’s, daily floating Base Rate. Loan Agreement, Schedule 2,
Amortization Schedule; Complaint, Exhibit 5, Note.
Article IV of the Loan Agreement obligated Goodwill to use the funds
for the construction project for which the County authorized the issuance of
the bonds. Section 4.5 provided that, upon completion of the project, any
remaining unspent proceeds from the Bonds, “shall be transferred to the
Page 4 of 22
Bond Fund and applied in accordance with Section 5 of the Bond
Resolution and Section 9.3 of this Loan Agreement.” Agreement, § 4.5.
Article IX of the Loan Agreement addressed prepayment of the
indebtedness. Article IX stated, in part,
ARTICLE IX
PREPAYMENT OF THE NOTE
Section 9.1. General Optional Prepayment.
The principal installments of the Note are subject to
prepayment (concurrently with prepayment of the Bonds) at the
option of the Borrower at any time, in whole or in part, subject
to the following prepayment charge (the "Prepayment Charge"):
(a) The Borrower shall have the right to prepay the
principal installments of the Note in whole or in part, provided,
that (i) each such prepayment shall be in the principal sum of
One Thousand and No/100 Dollars ($1,000.00) or any integral
multiple thereof or an amount equal to the then aggregate
unpaid principal balance of the Note, (ii) each such prepayment
shall be applied to the installments of the Note in the inverse
order of their respective due dates, and (iii) concurrently with
the prepayment of the entire unpaid principal balance of the
Note, the Borrower shall prepay the accrued interest on the
principal being prepaid.
(b)
If the Note is
(i)
prepaid, in whole or in part, during a period when
the unpaid principal balance bears interest, or is
scheduled to bear interest, at a fixed rate, or
(ii) accelerated after the occurrence of an Event of
Default hereunder, during a period when the unpaid
principal balance bears interest, or is scheduled to bear
interest, at a fixed rate,
Page 5 of 22
and if, on the date of the occurrence of either (i) or (ii) above,
or with respect to any partial prepayment for which a Funding
Cost Recovery Charge was not determined on the date of
occurrence, on the date of any subsequent prepayment for
which a Funding Cost Recovery Charge is determined (each a
“Determination Date”), the Reinvestment Rate is less than the
Funding Cost, then a “Funding Cost Recovery Charge”,
computed in accordance with the terms of the Funding Cost
Recovery Charge Addendum, shall be payable by the Borrower
to the Purchaser at the time of prepayment or acceleration as
applicable. The Purchaser’s right to collect any Funding Cost
Recovery Charge shall accrue as of each Determination Date,
and any delay on the Purchaser’s part to determine, or notify
the Borrower as to, the amount of any Funding Cost Recovery
Charge shall not constitute a waiver of, or otherwise limit, the
Purchaser’s right to recover a Funding Cost Recovery Charge
otherwise payable pursuant to the terms hereof.
The terms “Reinvestment Rate” and “Funding Cost”
are defined in the Funding Cost Recovery Charge Addendum.
The Borrower's execution of this Loan Agreement and the Note
shall constitute acknowledgment that the Borrower has
received a complete copy of the Funding Cost Recovery
Charge Addendum. The Purchaser's determination of the
Funding Cost Recovery Charge shall be conclusive absent
manifest error.
Section 9.2. Optional Prepayment if Tax Exemption is Lost.
If there shall have been made a Determination of
Taxability, the Borrower shall have the option to prepay the
Note in whole. The amount to be prepaid pursuant to this
Section shall be equal to the principal amount of all Outstanding
Bonds, plus accrued interest at the Taxable Interest Rate to
their redemption date to the extent the interest is taxable
income to the Registered Owners of the Bonds, plus any
applicable Prepayment Charge. . . . In the event the Borrower
does not exercise the instant option to redeem, then (i) the
interest payable on all Notes then outstanding shall be adjusted
Page 6 of 22
to the Taxable Interest Rate, and (ii) the Assignee may demand
prepayment by the Borrower of the Note.
Section 9.3. Mandatory Prepayment upon Transfer from Project
Fund.
If any amounts are transferred from the Project Fund to
the Bond Fund pursuant to Section 4.5 of this Loan Agreement,
the Borrower shall prepay the Note in an amount equal to the
principal amount of Bonds required to be redeemed on such an
occurrence pursuant to Section 5 of the Bond Resolution, plus
any applicable Prepayment Charge. Said amount shall be paid
by the Borrower to the Assignee not later than the date the
Bonds are to be redeemed pursuant to such provision.
The Borrower will promptly notify the Issuer and the
Assignee in writing of the occurrence and existence of an event
which will result in mandatory prepayment under this Section
9.3.
Agreement, §§ 9.1-9.3 (emphasis in the original). The Funding Cost
Recovery Addendum (Addendum) defined the terms “Reinvestment Rate”
and “Funding Cost” and provided a formula for calculating the Funding Cost
Recovery Charge. The Addendum stated, “‘Funding Cost’ means Bank’s
original Cost of Funds used in determining the fixed rate in effect, or
scheduled to be in effect, at the time of prepayment or acceleration, as
applicable.” Addendum, at 1 (emphasis in the original). The Funding Cost
Recovery Charge formula required performing a set of calculations “[f]or
each period that bears interest, or is scheduled to bear interest, at a known
fixed rate.” Addendum, at 1. The Addendum was dated October 5, 2007,
Page 7 of 22
the day that the Loan Agreement was signed, and was signed by
Goodwill’s Chief Executive Officer. Memorandum in Support of
Defendant’s Cross-Motion for Judgment on the Pleadings and in
Opposition to Plaintiff’s Motion for Judgment on the Pleadings (d/e 14)
(PNC Memorandum), Exhibit A, Addendum.1
The Note also addressed prepayment, substantially repeating the
language from the introductory portion of § 9.1 of the Loan Agreement:
The principle installments of this Promissory Note are
subject to prepayment (concurrently with prepayment of the
Bonds) at the option of the Borrower at any time, in whole or in
part, with a prepayment charge as set forth in the Loan
Agreement.
Note, at 3.2
The County executed on October 5, 2007, Internal Revenue Service
(IRS) Form 8038, entitled “Information Return for Tax-Exempt Private
Activity Bond Issues” (Form 8038). Complaint, Exhibit 7, Form 8038. The
Form 8038 stated on line 21 that the yield on the bonds was “Variable
Rate.” Id. The County filed Form 8038 with the IRS.
On March 30, 2012, Goodwill sent PNC a notice that it was electing
to prepay the indebtedness in full on May 17, 2012. Complaint, Exhibit 8,
1
The terms “Prepayment Charge” and “Funding Cost Recovery Charge” as used in § 9.1 are
interchangeable. The Court uses the term Prepayment Charge in this Opinion.
2
The pages of the Note are not numbered. The page number assigned by the Court’s CM/ECF system is
Document No. 1-2 Page 41 of 69.
Page 8 of 22
Notice of Redemption and Prepayment. On April 3, 2012, PNC sent
Goodwill a payoff calculation assuming a payoff date of April 4, 2012. The
notice stated that the Prepayment Charge would be $404,619.01.
Complaint, Exhibit 9, Loan Payoff Calculation dated April 3, 2012. On May
7, 2012, PNS sent Goodwill a payoff calculation assuming a payoff date of
May 9, 2012. The notice stated that the Prepayment Charge would be
$300,200.82. Complaint, Exhibit 10, Loan Payoff Calculation dated May 7,
2012. On June 25, 2012, PNS sent Goodwill a payoff calculation assuming
a payoff date of June 27, 2012. The notice stated that the Prepayment
Charge would be $303,131.24. Complaint, Exhibit 11, Loan Payoff
Calculation dated June 25, 2012.
Goodwill thereafter filed this action for a declaratory judgment.
Goodwill asks the Court to declare that § 9.1(b) of the Loan Agreement,
quoted above, does not apply to Goodwill’s indebtedness governed by the
Loan Agreement and evidenced by the Note and Bonds. Goodwill alleges,
in pertinent part,
12. Sec. 9.1(b) of the Loan Agreement provides that a
“funding Cost Recovery Charge”—otherwise known as a
prepayment penalty in common parlance—can be assessed in
the case of a Loan and Note that bear interest “at a fixed rate”
(p.34). In the instant case the Goodwill loan described in the
Loan Agreement is not a fixed rate loan. Rather, by its clear
terms the rate “adjusts”. This, it is an “adjustable rate loan”,
Page 9 of 22
and not subject to the provisions of Sec. 9.1(b) of the Loan
Agreement.
Complaint, ¶ 12 (emphasis in the original). Goodwill asks the Court to
declare that the, “Bonds and Loan to Goodwill bear interest at an
Adjustable or Variable rate and are not subject to a penalty in the event of
prepayment by Goodwill.” Complaint, at 8 Prayer for Relief. Goodwill
further asks this Court to direct PNC to accept prepayment without any
prepayment charge in full satisfaction of the indebtedness and redemption
of the bonds and release of all collateral securing the indebtedness,
including the mortgage on the Project. Id. Both parties now seek judgment
on the pleadings.
ANALYSIS
For purposes of the Motion, the Court may consider all pleadings,
including the Complaint, Answer, and attached exhibits. Fed. R. Civ. P.
12(c); Northern Indiana Gun & Outdoor Shows, Inc. v. City of South Bend,
163 F.3d 449, 452 (7th Cir. 1998). The documents attached to the
Complaint are part of the Complaint for all purposes. Fed. R. Civ. P. 10(c).
The Loan Agreement, which is attached to the Complaint, refers to the
Addendum. Loan Agreement, § 9.1(b). The Addendum, thus, also may be
considered because the Complaint, through the Loan Agreement,
Page 10 of 22
specifically refers to the Addendum, and the Addendum is central to
Goodwill’s claim. 188 LLC v. Trinity Industries, Inc., 300 F.3d 730, 735
(7th Cir. 2002). The Court may also consider matters of public record, such
as the IRS instructions for Form 8038. United States v. Wood, 925 F.2d
1580, 1582 (7th Cir. 1991).
Rule 12(c) motions for judgment on the pleadings are reviewed under
the same standard as Rule 12(b) motions. Id. The Court must accept as
true all well-pleaded factual allegations and draw all inferences in the light
most favorable to the non-moving party. See Radaszewski ex rel.
Radaszewski v. Maram, 383 F.3d 599, 600 (7th Cir. 2004); Hager v. City of
West Peoria, 84 F.3d 865, 868-69 (7th Cir. 1996); Covington Court, Ltd. v.
Village of Oak Brook, 77 F.3d 177, 178 (7th Cir. 1996). The Court,
however, is not obligated to give any weight to unsupported conclusions of
law. R.J.R. Services, Inc. vs. Aetna Cas. and Sur. Co., 895 F.2d 279, 281
(7th Cir. 1989). Claims that raise a pure issue of contract interpretation may
be resolved by motions for judgment on the pleadings because the
construction of a written contract is a matter of law. See Asta, LLC v.
Telezygology, Inc., 629 F.Supp.2d 837, 842 (N.D. Ill. 2009).
The issue is the applicability of § 9.1(b) of the Loan Agreement to
prepayment of the indebtedness pursuant to Goodwill’s March 30, 2012,
Page 11 of 22
Notice. The communications between the parties attached to the
Complaint make it clear that Goodwill was not in default on the Note or
Bonds at the time of the Notice, and that no determination had been made
that the Bonds had lost their tax exempt status. Complaint, Exhibits 8-12.
The Complaint only puts at issue the construction of § 9.1(b). The
Complaint does not challenge the enforceability of § 9.1(b) on some other
grounds, such as a claim that the clause is unenforceable as an illegal
penalty. The Complaint further does not put at issue the accuracy of PNC’s
calculations of the Prepayment Charge on any of the prepayment payoff
notices. Rather, Goodwill only challenges whether PNC should have made
the calculations at all. The sole issue is whether, as a matter of contract
interpretation, § 9.1(b) applies to a prepayment of the indebtedness by
Goodwill when Goodwill is not in default and the Bonds have not lost their
tax exempt status.
The interpretation of contract is a matter of law in Illinois. GNB
Battery Technologies, Inc. v. Gould, Inc., 65 F.3d 615, 621(7th Cir. 1995).
When interpreting a contract, all documents that are entered into
simultaneously should be construed together, and the Court must give
meaning to all of the stated terms. Id. at 622. Absent an ambiguity, the
Page 12 of 22
Court must give effect to the plain meaning of all of the terms of the
agreement,
[A] construction should be adopted, if possible, which ascribes
meaning to every clause, phrase or word used; which requires
nothing to be rejected as meaningless, or surplusage; which
avoids the necessity of supplying any work or phrase that is not
expressed; and which harmonizes all the various parts so that
no provision is deemed conflicting with, or repugnant to, or
neutralizing of any other.
Curia v. Nelson, 587 F.3d 824, 829 (7th Cir. 2009). See ConFold Pacific,
Inc. v. Polaris Ind., 433 F.3d 952, 955 (7th Cir. 2006); Atlantic Mut. Ins. Co.
v. Metron Engineering and Const. Co., 83 F.3d 897, 898 (7th Cir. 1996).
In this case, the plain meaning of the documents, viewed as a whole,
manifest a general intent that Goodwill could prepay at any time subject to
a Prepayment Charge. The Note states that the, “principle installments of
this Promissory Note are subject to prepayment (concurrently with
prepayment of the Bonds) at the option of the Borrower at any time, in
whole or in part, with a prepayment charge as set forth in the Loan
Agreement.” The introductory statement of § 9.1 similarly states that the
indebtedness is, “subject to prepayment (concurrently with prepayment of
the Bonds) at the option of the Borrower at any time, in whole or in part,
subject to the following prepayment charge (the "Prepayment Charge").”
Page 13 of 22
These two statements indicate that the parties intended that a prepayment
would be subject to a Prepayment Charge.
Article IX of the Loan Agreement governs prepayment of the
indebtedness evidenced by the Note and Bonds. According to Article IX,
the applicability of the Prepayment Charge depends on the circumstances
that exist at the point in time of the prepayment. Section 9.1 applies if the
prepayment occurs, “during a period when the unpaid principal balance
bears interest, or is scheduled to bear interest, at a fixed rate.” Loan
Agreement, §§ 9.1(b) (i) and (ii). Section 9.2 applies “[i]f there shall have
been made a Determination of Taxability,” i.e., if the Bonds lose their tax
exempt status. Loan Agreement, § 9.2. Finally, § 9.3 addresses a special
circumstance if funds are left over after completion of the project. Section
9.3, in combination with § 4.5, provides that any funds left over must be
applied as a partial prepayment of the indebtedness.
When read together, §§ 9.1 and 9.2 cover the two circumstances that
could exist under the Loan Agreement. Section 9.1 applies when the
prepayment occurs at a point in time when the principal bears interest at a
fixed rate. For the first ten years, the principal of the indebtedness bears
interest at the Initial Rate of 4.79% per annum, and for the last ten years,
the principal bears interest at the Adjusted Rate determined on October 5,
Page 14 of 22
2017. During each of these ten year periods, the principal bears interest at
a fixed rate. During these periods, Goodwill may at its option make a
partial or full prepayment subject to a Prepayment Charge if the
Reinvestment Rate is less than the Funding Cost, pursuant § 9.1(b) and
the Addendum. Section 9.2 applies if a Determination of Taxability occurs
and the interest rate changes to a daily floating rate based on PNC’s
published base rate. Under § 9.2, Goodwill could prepay the indebtedness
in full or PNC could demand prepayment in full.
Section 9.2 does not call for a prepayment fee based on the
outstanding balance at the time. Section 9.2 only refers to “any applicable
Prepayment Charge.” The term “Prepayment Charge” is defined under
§ 9.1. The calculations of a Prepayment Charge in § 9.1 do not apply to a
prepayment of principal under § 9.2 because the interest accrues a daily
floating rate after a Determination of Taxability. Furthermore, the formula
for the Funding Cost Recovery Charge cannot apply because the
calculations must be performed for each period that bears interest at a
“known fixed rate,” and there is no known fixed rate after a Determination of
Taxability. Section 9.1, however, contemplates that a Prepayment Charge
accrues if Goodwill makes a partial prepayment, but PNC may wait to notify
Goodwill and collect the Prepayment Charge a later date. Thus, the term
Page 15 of 22
in § 9.2 “any applicable Prepayment Charge” means any outstanding
unpaid Prepayment Charge on a previous partial prepayment.
The Addendum also supports the conclusion that the parties used the
term “fixed rate” to identify whether a prepayment occurs at a period of time
when the interest accrues at a stated rate, such as the Initial Rate and the
Adjusted Rate. As quoted above, the Addendum states that the Funding
Cost depends on “the fixed rate in effect, or scheduled to be in effect, at the
time of prepayment or acceleration, as applicable.” This language
indicates that the fixed rate could change depending on the point in time
that Goodwill would elect to make a prepayment. The Addendum’s formula
for the Funding Cost Recovery Charge calls for calculating the charge “for
each period that bears interest, or is scheduled to bear interest, at a known
fixed rate.” This language indicates that the repayment of the indebtedness
will be divided into different periods when the indebtedness accrues
interest at known fixed rates.
In this case, under Section 9.1(b)(i) Goodwill sent PNC the Notice
that it intended to prepay the balance of the indebtedness on May 17,
2012. At that time, the principal was bearing interest at the fixed rate of
4.79 % per annum, the Bonds were tax exempt, and Goodwill was not in
default. Goodwill’s proposed prepayment, thus, would be subject to
Page 16 of 22
§ 9.1(b) and the Addendum and would owe any applicable Prepayment
Charge.
Goodwill argues that § 9.1(b) of the Loan Agreement is surplusage
because the indebtedness evidenced by the Note and Bonds never
accrues interest at a fixed rate. Rather, the interest rate is adjustable or
variable because the rate is subject to change on October 5, 2017. Thus,
according to Goodwill, § 9.1(b) is mere surplusage:
PNC has pointed to the language in Section 9.1(b) of
Article IX which says that if the loan bears a fixed interest rate,
then a Funding Cost Recovery Charge applies. Yet, there
being no mention or reference whatever in the Loan Agreement
to Goodwill’s loan supposedly containing a fixed interest rate,
this language is merely merely (sic) surplusage. It is not
uncommon in a contract with a bank for the bank to cover cover
(sic) every situation that might occur; and, as such, extra
language regarding an unrelated situation appears in the
contract.
Plaintiff’s Motion for Judgment on the Pleadings (d/e 12), at 14-15
(emphasis in the original). Goodwill cites no authority for the proposition
that banks commonly include superfluous material in agreements, and the
Court is not aware of any authority to support this construction of bank
contracts. This is also not a case where a loan officer filled in some blanks
on a form document that a bank may use for many different purposes.
Rather, these documents were prepared for this specific transaction by the
Page 17 of 22
County’s bond counsel in cooperation with National City. Complaint, ¶ 9.
Thus, normal principles of contract construction apply.
The Court, therefore, must construe the documents to give meaning
to all of the terms. Curia, 587 F.3d at 829 (7th Cir. 2009); Atlantic Mutual
Insurance Co., 83 F.3d at 898. Goodwill’s interpretation contradicts
statements in the Note and the introduction of § 9.1 that prepayment would
be subject to a Prepayment Charge. Under Goodwill’s interpretation, a
Prepayment Charge is never due because § 9.1(b) never applies and the
rest of Article IX, and § 9.2 in particular, do not call for the payment of a
Prepayment Charge. Goodwill’s interpretation also makes superfluous all
of § 9.1(b) and much of the Addendum.
Goodwill argues that the Addendum is not part of the agreement of
the parties. The Court disagrees. The Loan Agreement references the
Addendum, and the Addendum is signed by Goodwill and is dated October
5, 2007, the same date that all of the documents were signed. As such, the
Addendum is part of the parties’ agreement. GNB Battery Technologies,
Inc., 65 F.3d at 622.
The Court must give meaning to all portions of the parties’
agreement. As explained above, §§ 9.1 and 9.2 cover the circumstances
that could exist at the time of a prepayment: if the indebtedness is bearing
Page 18 of 22
interest at a fixed rate at the time of the prepayment, either the Initial Rate
or the Adjusted Rate, then § 9.1(b) applies; if the indebtedness is bearing
interest at a floating rate because the bonds have somehow become
taxable, then § 9.2 applies. This construction is consistent with the
language in the Loan Agreement and related documents, and gives
meaning to all the language. Goodwill’s argument to the contrary is not
persuasive.
Goodwill also cites the Form 8038 that reported to the IRS that the
interest on the bonds was “Variable.” Goodwill argues that this
representation demonstrates that the indebtedness is not a fixed rate loan.
Therefore, according to Goodwill, § 9.1(b) never applies. PNC argues that
the Form 8038 cannot be considered because it goes beyond the
pleadings. The Court disagrees with PNC. The Form 8038 is attached to
the Complaint, and so, is part of the Complaint for all purposes. Fed. R.
Civ. P. 10(c). Furthermore, the Form 8038 was signed on October 5, 2007,
when all the other documents were signed, and so, is to be construed with
the other parts of the agreement. See GNB Battery Technologies, Inc., 65
F.3d at 622.3
3
PNC does not raise any Statute of Frauds issues with respect to the Form 8038 since it was not signed
by National City. The Court, therefore, does not consider any possible issue with the Statute of Frauds.
Page 19 of 22
The Court, however, is not persuaded by the reference to the
“Variable” rate on the Form 8038. According to IRS definitions, a variable
yield bond issue is any bond issue that is not a fixed yield issue. A fixed
yield bond issue is a bond issue whose yield is fixed and determinable on
the issue date. 26 C.F.R. § 1.148-1(b). The IRS Instructions for Form
8038 directed the County to mark the yield as variable or “VR” if the bond
issue was a variable rate issue. http://www.unclefed.com/IRSForms/2008/i8038.pdf, viewed May 20, 2013. The Bond issue did not have
a fixed and determinable yield on the issue date because the parties
intended that the rate would be subject to change to a percentage to be
determined on October 5, 2017, ten years after the issue date. The
County, thus, properly indicated on Form 8038 that the yield was variable.
The fact that the yield on the Bond issue was variable for IRS
purposes, however, does not affect the applicability of § 9.1(b). The “fixed
rate” language in § 9.1(b) does not relate to the overall yield of the Bond
issue. Section 9.1(b) uses the term “fixed rate” to define the point in time
when a prepayment will trigger the Prepayment Charge. If the prepayment
occurs “during a period when the unpaid principal balance bears interest, or
is scheduled to bear interest, at a fixed rate” then § 9.1(b) applies and
Page 20 of 22
Goodwill owes any applicable Prepayment Charge. In this case, Goodwill
proposed a prepayment in full on May 17, 2012. On that date, the unpaid
principal would be bearing interest at 4.79 per annum and would continue
to do so for more than five years, until October 5, 2017. The unpaid
principal, therefore, would be bearing interest at a fixed rate on the date of
prepayment, and § 9.1(b) would apply.
Again, Goodwill only asks for a declaratory judgment construing the
terms of the Loan Agreement. Goodwill does not assert any claims as to
the enforceability of the Prepayment Charge set forth in § 9.1(b) under
Illinois law or the correctness of PNC’s calculations of the Prepayment
Charge. The Court makes no findings on these matters.
WHEREFORE Defendant’s Cross-Motion for Judgment on the
Pleadings (d/e 13) is ALLOWED, and Plaintiff’s Motion for Judgment on the
Pleadings (d/e 12) is DENIED. The Court enters judgment on the
pleadings in favor of Defendant PNC Bank, NA, and against Land of
Lincoln Goodwill Industries, Inc., and declares that Goodwill’s proposed
prepayment to PNC on May 17, 2012, of its indebtedness evidenced by the
Note and Bonds, as set forth in Goodwill’s March 30, 2012, Notice of
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Redemption and Prepayment, was subject to the prepayment provisions of
§ 9.1(b) of the Loan Agreement. THIS CASE IS CLOSED.
ENTER: June 3, 2013
s/ Byron G. Cudmore
UNITED STATES MAGISTRATE JUDGE
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