MB Financial Bank NA v. Patel
Filing
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MEMORANDUM Opinion Signed by the Honorable Samuel Der-Yeghiayan on 2/1/2012: Mailed notice (mw, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MB FINANCIAL BANK, N.A.,
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Plaintiff,
v.
SANJAY PATEL,
Defendant.
No. 10 C 6566
MEMORANDUM OPINION
SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Plaintiff MB Financial Bank N.A.’s (MB)
motion for summary judgment. For the reasons stated below, the court grants MB’s
motion for summary judgment.
BACKGROUND
MB alleges that Defendant Sanjay Patel (Patel) is the controlling member of
Hiren, LLC (Hiren), and that Hiren is currently in the midst of bankruptcy
proceedings. MB also alleges that Broadway Bank made a $7,700,000.00 loan
(Loan) to Patel and Hiren as co-borrowers who were jointly and severally liable for
the debt pursuant to two mortgage notes (Notes). MB alleges that the Notes were
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later modified and that sometime thereafter, MB became the legal holder of the
Notes, as modified, through an assignment.
In addition, MB alleges that the Notes, as modified, provide that if Patel failed
to make any payments when due, any unpaid principal and any accumulated interest
would “become immediately due and payable without notice or demand . . . and bear
interest at the Default Rate.” (Compl. Par. 11). MB further alleges that Patel is in
default on the Notes because Patel failed to make the required monthly payment on
February 1, 2010, and has not made any payments thereafter. MB allegedly notified
Patel of the default and demanded payment on the Notes, but Patel has allegedly
refused to pay the amount owed on the Notes. MB includes in its complaint breach
of contract claims relating to the Notes, as modified. MB has moved for summary
judgment on its claims.
LEGAL STANDARD
Summary judgment is appropriate when the record, viewed in the light most
favorable to the non-moving party, reveals that there is no genuine issue as to any
material fact and the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(c); Smith v. Hope School, 560 F.3d 694, 699 (7th Cir. 2009). A “genuine
issue” in the context of a motion for summary judgment is not simply a
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“metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, a genuine issue of material
fact exists when “the evidence is such that a reasonable jury could return a verdict for
the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986);
Insolia v. Philip Morris, Inc., 216 F.3d 596, 599 (7th Cir. 2000). In ruling on a
motion for summary judgment, the court must consider the record as a whole, in a
light most favorable to the non-moving party, and draw all reasonable inferences in
favor of the non-moving party. Anderson, 477 U.S. at 255; Bay v. Cassens
Transport Co., 212 F.3d 969, 972 (7th Cir. 2000).
DISCUSSION
Patel argues that MB’s motion for summary judgment should be denied,
contending that there are genuine issues of material fact regarding whether the
modifications to the Notes (Modifications) extinguished his individual obligation to
re-pay the Loan, and regarding the amount of money currently owed under the Notes.
As evidence, Patel has offered an affidavit signed by him, which indicates that he
had an oral agreement with the bank releasing him from liability under the Notes and
that his signature as “President” on the Modifications was meant to give effect to the
oral agreement. (Patel Aff. Par. 3-7, 9-11).
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I. Effect of Modifications
Patel argues that there is a genuine issue of material fact regarding whether the
Modifications released Patel from his individual obligations under the Notes. MB
contends that Patel has waived the affirmative defense of release, that such defense is
precluded by the Illinois Credit Agreements Act (ICAA), 815 ILCS 160/1 et seq.,
and that the Modifications clearly do not release Patel from his individual obligation
to repay the Loan.
A. Whether Release Has Been Waived as a Defense
MB argues that Patel cannot assert the affirmative defense of release for the
first time in response to MB’s motion for summary judgment. Pursuant to Federal
Rule of Civil Procedure 8(c) (Rule 8(c)), “a party must affirmatively state any
avoidance or affirmative defense, including . . . release,” in responding to a pleading.
Fed R. Civ P. 8(c). The purpose of Rule 8(c) “is to avoid surprise and undue
prejudice to the plaintiff by providing [the plaintiff] notice and the opportunity to
demonstrate why the defense should not prevail.” Venters v. City of Delphi, 123
F.3d 956, 967 (7th Cir. 1997). If a defendant fails to raise affirmative defenses in his
answer, “those defenses are deemed waived.” Castro v. Chicago Housing Authority,
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360 F.3d 721, 735 (7th Cir. 2004).
In his answer, Patel indicated that the Notes and Modifications “speak for
themselves.” (Ans. Par. 5, 8-9, 11). The Seventh Circuit has found that such a
statement “is not sufficient to put [a plaintiff] on notice” of a defendant’s intention to
assert release as an affirmative defense. Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d
232, 235 (7th Cir. 1991). In addition, Patel indicated as his forth affirmative defense
that he “reserve[d] the right to assert any additional affirmative defenses as may be
discovered during the course of additional investigation and discovery in this
matter.” (Ans. 7). Such a reservation of rights cannot be used to circumvent Rule
8(c). If at some point Patel had discovered new information that supported an
affirmative defense, it was incumbent upon Patel to file a motion to amend his
answer. Venters, 123 F.3d at 967-68. No such motion was ever brought. Further,
Patel cannot legitimately claim that it was only after investigation and discovery that
he only understood that the Modifications released him from his obligations under
the Notes. Patel has not provided any justification for his failure to raise release as
an affirmative defense in his answer. In addition, although there is an exception to
Rule 8(c) when its application would interfere with a substantial state interest, such
exception does not apply in this case. See Herremans v. Carrera Designs, Inc., 157
F.3d 1118, 1123 (7th Cir. 1998)(discussing circumstances under which exceptions to
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Rule 8(c) might be made). Based on the above, Patel has waived his ability to assert
release as an affirmative defense.
B. Whether ICAA Bars the Affirmative Defense of Release
MB argues that, even if the affirmative defense of release was not waived, the
ICAA bars Patel from asserting that an oral agreement existed that released Patel
from his individual obligations under the Notes. Under 815 ILCS 160/1, a credit
agreement is defined as “an agreement or commitment by a creditor to lend money or
extend credit or delay or forbear repayment of money not primarily for personal,
family or household purposes, and not in connection with the issuance of credit
cards.” 815 ILCS 160/1. Pursuant to 815 ILCS 160/3(3), in defense of an action
against him, a debtor cannot assert that a new credit agreement is created, based on
“the agreement by a creditor to modify or amend an existing credit agreement,”
unless the requirements of 815 ILCS 160/2 are satisfied. 815 ILCS 160/3(3).
Pursuant to 815 ILCS 160/2, the ICAA requires that a credit agreement “is in
writing, expresses an agreement or commitment to lend money or extend credit or
delay or forbear repayment of money, sets forth the relevant terms and conditions,
and is signed by the creditor and the debtor.” 815 ILCS 160/2.
It is undisputed that Illinois law applies to the Notes and Modifications. (R SF
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Par. 14);(Compl. Ex. A, 4); (Compl. Ex. B Par. 8(a)); (Compl Ex C, 4); (Compl Ex D
Par. 8(a)). It is also undisputed that Patel obtained the Loan as a co-borrower who
was jointly and severally liable under the Notes. (R SF Par. 5, 9-11). The Notes
constitute a credit agreement under 815 ILCS 160/1. Patel has submitted an affidavit
indicating that there was an oral agreement to release Patel from his individual
obligations under the Notes and to substitute Midwest Hospitality Group, Inc.
(Midwest) as a borrower under the Modifications. (Patel Aff. Par. 3-11). Such an
agreement would constitute a “new credit agreement” under 815 ILCS 160/3(3).
Pursuant to 815 ILCS 160/3(3), Patel can only assert the new credit agreement as a
defense to MB’s claims if the new credit agreement satisfies the requirements of 815
ILCS 160/2. 815 ILCS 160/3(3). Under 815 ILCS 160/2, a credit agreement must
be in writing. 815 ILCS 160/2. Thus, under Illinois law, Patel cannot invoke an oral
agreement as evidence of his release. See, e.g., Whirlpool Financial Corp. v. Sevaux,
96 F.3d 216, 226 (7th Cir. 1996).
Patel admits that the copies of the Notes and Modifications attached to the
complaint are true and correct copies of the original documents. (R SF Par. 14). The
preamble in each of the Modifications identifies Patel individually as a borrower.
(Compl. Ex. B, D). In addition, the signature line on each of the Modifications
identifies Patel individually as a borrower. (Compl. Ex. B, D). Thus, a review of the
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Modifications reveals that Patel did, in fact, sign the Modifications as an individual
borrower. Patel’s unilateral act of adding the title “President” after his signature on
the Modifications does not change the express terms of the Modifications. See
Channell v. Citicorp Nat. Services, Inc., 89 F.3d 379, 384 (7th Cir. 1996)(stating that
“one party to a contract may not unilaterally alter its terms”). Thus, the undisputed
facts show that if any agreement was made to release Patel as a borrower, it was
solely an oral agreement and Patel’s affidavit providing evidence of that oral
agreement is not sufficient to create a genuine issue of material fact regarding his
liability under the Notes and Modifications. (R SAF Par. 3-6, 8-10). Since the
ICAA precludes Patel from relying on an oral agreement as a defense to MB’s
claims, the ICAA bars Patel’s affirmative defense of release.
C. Whether Modifications Demonstrate Release
MB argues that even if the affirmative defense of release was not waived or
barred by the ICAA, the Modifications are unambiguous, fully-integrated contracts
that name Patel as a borrower. When interpreting a contract under Illinois law, a
court should “first ask if the language of the contract is ambiguous” or, in other
words, whether the terms of the contract “are indefinite or have a double meaning.”
Lewitton v. ITA Software, Inc., 585 F.3d 377, 379-80 (7th Cir. 2009)(citations
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omitted). If the court finds a contract is unambiguous, the court interprets the
contract “with the goal of effectuating the parties’ intent, giving contract terms their
plain and ordinary meaning.” Kim v. Carter’s Inc., 598 F.3d 362, 364 (7th Cir.
2010)(citation omitted). As discussed above, the Modifications clearly identify Patel
as a borrower. In addition, the Modifications do not indicate anywhere that Midwest
would become a substitute borrower for Patel. (Compl. Ex. B, D). The language in
the Modifications is unambiguous, and the court must therefore “enforce [the
Modifications] as written. . . .” Curia v. Nelson, 587 F.3d 824, 829 (7th Cir.
2009)(stating that a contract is not ambiguous simply because the parties offer
different interpretations of its language).
In addition, it is undisputed that the Modifications contain an integration
clause indicating that “no other understandings, agreements or representations, either
oral or written, express or implied, that are not embodied in the [Notes or
Modifications], which collectively represent a complete integration of all prior and
contemporaneous agreements and understandings by and among all of Borrower and
Lender; and that all such prior understandings, agreements and representations are
hereby modified as set forth in [the Modifications].” (Compl. Ex. B Par. 8(e));
(Compl. Ex. D Par 8(e)). Where a contract is unambiguous and includes an
integration clause, consideration of extrinsic evidence is inappropriate. See Lewitton
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v. ITA Software, Inc., 585 F.3d 377, 380-81 (7th Cir. 2009)(stating that “extrinsic
evidence cannot be used to create ambiguity where none otherwise exists, . . . and it[s
use] is misplaced [ ] where the contract includes an integration clause”). Therefore,
Patel’s affidavit does not create a genuine issue of material fact regarding Patel’s
obligation to repay the Loan.
Based on the above, the undisputed facts show that Patel is jointly and
severally liable under the Notes, as modified. In addition, the undisputed facts show
that Broadway Bank performed its obligations under the Notes, as modified. (R SF
Par. 16-24). The undisputed facts also show that after Broadway Bank closed, the
rights, title, and interest in the Notes and Modifications were assigned to MB. (R SF
Par. 15). The record is also clear that in September of 2010, MB sent notices of
default and demands for payment to Hiren and Patel. (R SF Par. 35). Further, the
record shows that from February 1, 2010 to the present, Patel has not made any
payments on the Notes, as modified. (R SF Par. 28-29). Therefore, there is no
genuine issue of material fact regarding whether Patel breached the terms of the
Notes, as modified, and the court grants MB’s motion for summary judgment with
respect to Patel’s liability under the Notes and Modifications.
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II. Amount Owed on the Notes
Patel argues that there is a genuine issue of material fact regarding the amount
of money owed under the Notes. It is undisputed that Hiren filed a Chapter 11
bankruptcy petition, which is currently pending in the Southern District of Indiana.
(R SF Par. 38). It is also undisputed that in the bankruptcy proceeding, Hiren
stipulated in a Cash Collateral Order entered by the bankruptcy court that the amount
owed to MB under the Notes and Modifications “was $7,694,583.70 plus accrued
interest, late charges, real estate tax advances, accrued fees, costs, and attorney’s
fees.” (R SF Par. 39). Patel contends that he is not judicially estopped in this action
from challenging that the stipulated amount is due under the Notes and
Modifications.
Judicial estoppel is “an equitable concept providing that a party who prevails
on one ground in a lawsuit may not in another lawsuit repudiate that ground.”
United States v. Christian, 342 F.3d 744, 747 (7th Cir. 2003). The doctrine applies
“when (1) the later position is clearly inconsistent with the earlier position; (2) the
facts at issue are the same in both cases; (3) the party to be estopped convinced the
first court to adopt its position; and (4) the party seeking to assert an inconsistent
position would derive an unfair advantage or impose an unfair detriment on the
opposing party if not estopped.” Id. (citations omitted).
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Patel argues that since he is not a litigant in the bankruptcy proceeding, the
doctrine of judicial estoppel cannot be applied in this case to prevent Patel from
challenging the amount currently due and owing on the Notes and Modifications.
The Seventh Circuit has advised that “there is no requirement that the parties be the
same for judicial estoppel to apply” and that “[w]hat matters for purposes of judicial
estoppel is whether, in reaching its earlier decision, the court relied on the
representation of the one against whom estoppel is asserted.” In re Airadigm
Communications, Inc., 616 F.3d 642, 662 (7th Cir. 2010)(citing Rederford v. U.S.
Airways, Inc., 589 F.3d 30, 38 (1st Cir. 2009) and Lowery v. Stovall, 92 F.3d 219,
223 n. 3 (4th Cir. 1996))(stating that “judicial estoppel does not have a mutuality
requirement because the doctrine ‘is designed to protect the integrity of the courts
rather than any interest of the litigants’”); see also Capsopoulos on Behalf of
Capsopoulos v. Chater, 1996 WL 717456, at *2 (N.D. Ill. 1996)(stating that
“[a]lthough judicial estoppel has generally been applied only where the identical
party has taken the contradictory positions, a party in privity with the original party
may also be estopped under judicial estoppel”)(citing Maitland v. University of
Minnesota, 43 F.3d 357, 363 (8th Cir. 1994)). It is undisputed that Patel “provided
his counsel [in the bankruptcy proceeding] with information relating to the amounts
due and owing to MB for purposes of the Cash Collateral Order.” (R SF Par. 40). It
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is also undisputed that Patel makes all financial decisions for Hiren. (R SF Par. 41).
Based on the above, it is irrelevant that Patel is not a party in the bankruptcy
proceeding.
Patel also argues that Hiren did not prevail on the issue of how much was
owed on the Notes and Modifications in the bankruptcy proceeding, since the Cash
Collateral Order entered by the bankruptcy court was agreed upon by Hiren and MB.
Judicial estoppel is meant to “preclude[] litigants from deliberately changing
positions according to the exigencies of the moment.” Kimbrell v. Brown, 651 F.3d
752, 757 (7th Cir. 2011)(citation omitted)(internal quotations omitted). Under the
doctrine of judicial estoppel, “when a party prevails on one legal or factual ground in
a lawsuit, that party cannot later repudiate that ground in subsequent litigation based
on the underlying facts.” Urbania v. Cent. States, Se. & Sw. Areas Pension Fund,
421 F.3d 580, 589 (7th Cir. 2005). A party prevails on a legal or factual ground
when the first court adopts that party’s position. Pakovich v. Broadspire Services,
Inc., 535 F.3d 601, 606 n 2 (7th Cir. 2008)(citation omitted). As discussed above,
Patel provided information to his counsel regarding the amount due under the Notes
and Modifications. (R SF Par. 40). In addition, as the person who makes all
financial decisions for Hiren, Patel stipulated in the bankruptcy proceeding that
$7,694,583.70 was due under the Notes and Modifications. (R SF Par. 41). It is
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undisputed that the bankruptcy court adopted that figure in the Cash Collateral Order
it issued. (R SF Par. 39). Thus, the bankruptcy court relied upon the representations
made by Patel regarding the amount due under the Notes and Modifications and
adopted the parties’ position regarding the amount due.
Patel now claims that whether $7,694,583.70 is the correct amount due under
the Notes is a genuinely disputed issue of material fact. Patel’s current position
regarding damages is clearly inconsistent with the earlier position he took in the
bankruptcy proceedings, the facts at issue are the same in both cases, Patel convinced
the bankruptcy court to adopt his position with respect to the amount due under the
Notes and Modifications, and Patel would derive an unfair advantage or impose an
unfair detriment on MB if not estopped. Thus, the doctrine of judicial estoppel
applies in this case. Based upon the above, there is no genuine issue of material fact
relating to the amount Patel owes under the Notes and Modifications. Therefore, the
court grants MB’s motion for summary judgment on the issue of damages, and
awards MB $7,694,583.70 plus accrued and deferred interest.
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CONCLUSION
Based on the foregoing analysis, the court grants MB’s motion for summary
judgment in its entirety and awards MB $7,694,583.70 plus accrued and deferred
interest. MB is ordered to submit to this court the amount of accrued and deferred
interest and a proposed final judgment order by February 8, 2012. If Patel believes
that the amount of accrued and deferred interest submitted by MB is incorrect, Patel
may file an opposition by February 15, 2012.
___________________________________
Samuel Der-Yeghiayan
United States District Court Judge
Dated: February 1, 2012
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