Mount Carmel Ministries v. Seaway Bank and Trust Company
Filing
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MEMORANDUM Opinion: Defendant's motion to dismiss 28 is granted. Civil case terminated. Signed by the Honorable Charles P. Kocoras on 3/9/2016. Mailed notice(vcf, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MOUNT CARMEL MINISTRIES
and ALPHA CHRISTIAN SCHOOL
Plaintiffs,
v.
SEAWAY BANK AND TRUST
COMPANY ,
Defendant.
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15 C 7807
MEMORANDUM OPINION
CHARLES P. KOCORAS, District Judge:
This matter comes before the Court on Defendant Seaway Bank and Trust
Company’s (“Defendant”) motion to dismiss Plaintiffs Mount Carmel Ministries and
Alpha Christian School’s (collectively, “Plaintiffs”) Complaint pursuant to Federal
Rule of Civil Procedure 12(b)(6). For the following reasons, the motion to dismiss is
granted.
BACKGROUND
For the purposes of the instant motion, the following well-pleaded allegations
derived from Plaintiffs’ Complaint are accepted as true.
The Court draws all
reasonable inferences in favor of Plaintiffs. See Tamayo v. Blagojevich, 526 F.3d
1074, 1081 (7th Cir. 2008).
Mount Carmel Ministries (“Mount Carmel”) is a large African American
Baptist church in Hattiesburg Mississippi. Dkt. 34, at p. 1. Defendant “is a national
bank with its principle place of business located in Chicago, Illinois.” Dkt. 1-3, at ¶ 2.
In 1999, Mount Carmel “purchased a church, school, daycare and senior care
facilities” in Hattiesburg, Mississippi. Dkt. 1-3, at ¶ 4. In 2005, Defendant agreed to
lend Mount Carmel $5 million dollars. Id. To secure the loan, Mount Carmel
“executed a promissory note and deeds of trust.” Id. Additionally, the parties signed
a business loan agreement, a commercial security agreement, and a construction loan
agreement. Dkt. 29-2, Dkt. 29-3, and Dkt. 29-4. While Plaintiffs only reference the
promissory note and the “deeds of trust” in describing the “Loan Documents,” it is
undisputed that the execution of all of these documents evidenced and secured the
loan.
As required by the deed of trust, Mount Carmel secured and maintained
property insurance from 2005 until 2012 through GuideOne Elite Insurance Company
and GuideOne Company (collectively, “GuideOne”). Dkt. 1-3, at ¶ 5.
In October of 2012, GuideOne informed Mount Carmel that the GuideOne
insurance policy was being cancelled, effective November 20, 2012. Dkt. 1-3, at ¶ 6.
Consequently, Defendant “exercised its right under the Loan Documents” to obtain
“force-placed” insurance on the property.
Dkt. 1-3, at ¶ 7.
The force-placed
insurance consisted of two separate insurance policies, and the premium was payable
by, and charged to, Mount Carmel’s loan account. Dkt. 1-3, at ¶ 8. The force-placed
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insurance coverage was for a period of thirty days, and it could be renewed for an
additional thirty, ninety, or one-hundred-and-eighty days. Id.
Around February 7, 2013, the force-placed insurance policies were up for
renewal. Dkt. 1-3, at ¶ 9. Consequently, Defendant allegedly contacted Mount
Carmel to determine if Mount Carmel had obtained other insurance. Id. Mount
Carmel asserts that during the conversation with Defendant on February 7, 2013 it
“advised” Defendant that it was unable to secure other insurance because Plaintiffs
became uninsurable after GuideOne purportedly cancelled its policy in November of
2012. Dkt. 1-3, at ¶ 10; Dkt. 34, at p. 7. Additionally, Mount Carmel claims that
during that same conversation it “advised” Defendant to continue the force-placed
insurance on the property and to add the premium for the force-placed insurance to
Mount Carmel’s loan account. Dkt. 1-3, at ¶ 11. According to Plaintiffs, during this
conversation Defendant agreed to continue the force-placed insurance policies and to
add the premium for the force-placed insurance to Mount Carmel’s loan account. Id.
Plaintiffs allege that even though they “advised” Defendant to continue the
force-placed insurance on the property, Defendant allowed the force-placed insurance
to lapse.
Dkt. 1-3, at ¶¶ 12-13.
Moreover, Plaintiffs contend that Defendant
subsequently “failed to immediately advise [Mount Carmel] that the promised
insurance had not been procured, renewed, and/or continued.” Dkt. 1-3, at ¶ 13. Two
days after the force-placed insurance expired, an F-5 tornado struck the Hattiesburg
area and caused extensive damage to Mount Carmel’s property. Dkt. 1-3, at ¶ 14. As
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a result of Defendant’s failure “to procure, continue, and/or renew the agreed upon
force placed insurance policies[,]” Plaintiffs filed the instant suit against Defendant.
PROCEDURAL HISTORY
Plaintiffs’ initial Complaint, filed in the Circuit Court of Forrest County,
Mississippi, was later amended and subsequently removed by Defendant to the United
States District Court of the Southern District of Mississippi, Eastern Division.
Dkt. 29, at p. 3. Thereafter, Defendant moved to transfer venue to this Court. Id.
Defendant’s motion to transfer venue was granted, and Plaintiffs’ seven count
Complaint is now before this Court. Id. Plaintiffs allege that Defendant: (i) breached
its contractual agreement when Defendant “failed to procure, continue, and/or renew
the agreed upon force placed insurance” (Count I); (ii) breached the implied duty of
good faith and fair dealing (Count IV); and (iii) breached its fiduciary duty (Count V).
Additionally, Plaintiffs contend that Defendant’s behavior: (i) amounts to tortious
breach of contract (Count II); (ii) constitutes negligence, gross negligence, or reckless
disregard of Mount Carmel’s rights (Count VI); and (iii) was willful, intentional and
grossly negligent, and therefore, Defendant’s acted in bad faith (Count VII). Finally,
Plaintiffs seek equitable relief alleging a promissory estoppel/implied contract
claim (Count III). Dkt. 1-3, p. 5-9.
LEGAL STANDARD
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6)
(“Rule 12(b)(6)”) “tests the sufficiency of the complaint, not the merits of the case.”
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McReynolds v. Merrill Lynch & Co., 694 F.3d 873, 878 (7th Cir. 2012).
The
allegations in a complaint must set forth a “short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A plaintiff need
not provide detailed factual allegations but must provide enough factual support to
raise his right to relief above a speculative level. Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007). A claim must be facially plausible, meaning that the pleadings must
“allow[ ] the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The claim must be
described “in sufficient detail to give the defendant ‘fair notice of what the . . . claim
is and the grounds upon which it rests.’” E.E.O.C. v. Concentra Health Servs., Inc.,
496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory
statements,” are insufficient to withstand a motion to dismiss under Rule 12(b)(6).
Iqbal, 556 U.S. at 678.
DISCUSSION
Defendant contends that all of Plaintiffs’ claims are barred by the Illinois Credit
Agreements Act (“ICAA”). Section two of the ICAA prohibits a debtor from bringing
an action based on or related to a credit agreement, “unless the 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 debtor.” 815 ILCS 160/2. A credit agreement is “an
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agreement or commitment by a creditor to lend money or extend credit or delay or
forebear repayment of money . . . ” 815 ILCS 160/1. Here, the Loan Documents
constitute a credit agreement under 815 ILCS 160/1.
In order to modify or amend a valid credit agreement, the modification or
amendment must satisfy the requirements articulated in section two of the ICAA. 815
ILCS 160/3. Furthermore, a modification or an amendment of an existing credit
agreement does not create a new credit agreement, unless the modification or
amendment meets the requirements set out in section two of the ICAA. MB Fin.
Bank, N.A. v. Patel, No. 10 C 6566, 2012 WL 346456, at *3 (N.D. Ill. Feb. 1, 2012).
The ICAA has adopted a “strong form” of the Statute of Frauds by requiring not only
a written document, but the signature of both parties in order to modify an existing
credit agreement. Harris N.A. v. Hershey, 711 F.3d 794, 799 (7th Cir. 2013). A
verbal modification of an existing credit agreement, therefore, does not satisfy the
requirements of section two of the ICAA.
Plaintiffs argue that the ICAA “has no bearing on this case” because Mount
Carmel “does not allege any oral modification of the loan documents.” Dkt. 34, at
p. 13. Instead, Plaintiffs contend that Defendant’s verbal representations regarding
the force-placed insurance “were merely consistent with the allegations . . .
establishing a breach of the written loan documents.” Id. Essentially, Plaintiffs assert
that Defendant’s verbal representations are “not an agreement to modify or amend the
credit agreement, but [are] an act in conformity with the provisions of the” Loan
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Documents. Nordstrom v. Wauconda Nat’l Bank, 282 Ill. App. 3d 142, 145 (1996).
However, this argument is unavailing as the Loan Documents do not require
Defendant to “procure, continue, or renew” force-placed insurance on the property.
“In construing a contract, the goal is to give effect to the intent of the parties,
which is to be gleaned from the language of the contract.” Id.; see also Harmon v.
Gordon, 712 F.3d 1044, 1050-51 (7th Cir. 2013). As Plaintiffs properly recognize,
the language from the promissory note provides that “the Lender ‘may’ purchase
property insurance at the expense of the borrower.” Dkt. 34, at p. 15. Specifically,
the “Illinois Insurance Notice” section of the promissory note states,
[u]nless Borrower provides Lender with evidence of the insurance
coverage required by Borrower’s agreement with Lender, Lender
may purchase insurance at Borrower’s expense to protect Lender’s
interests in the collateral. This insurance may, but need not, protect
Borrower’s interests.”
Dkt. 29-1, at p. 2 (emphasis added). The Loan Documents permit, but do not require
Defendant to purchase insurance to protect its interest in the property.
See
Westinghouse Elec. Corp. v. McLean, 938 F.Supp. 487, 489, 493 (N.D. Ill. 1996)
(written credit agreement permitted, but did not require, Westinghouse to “disburse
additional funds to pay the interest due on the note and other project expenses.” Any
obligation by Westinghouse to disburse such funds was predicated on an oral promise
which was “at a minimum, ‘related to a credit agreement,’ [ ] and, therefore, any
action related to it [was] barred by the Credit Act, because it [was] not in writing.”).
Thus, Defendant’s verbal representations that it would “procure, continue, or renew”
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the force-placed insurance on the property are not “merely consistent with the
allegations . . . establishing a breach of the written loan documents,” but instead are
verbal modifications or amendments to the Loan Documents. Defendant’s failure to
“procure, continue, or renew” the force-placed insurance, therefore, does not
constitute a breach of the Loan Documents as the Loan Documents do not require
Defendant to “procure, continue, or renew” the force-placed insurance.
Plaintiffs’ argument, in the alternative, that the Loan Documents are ambiguous
regarding the “rights and duties of the parties following [Defendant’s] election to
secure [force-placed insurance] coverage” is equally unpersuasive. Dkt. 34, at p. 17.
While Plaintiffs are right that “this precise set of facts and circumstances is not
specifically addressed” by the Loan Documents, they simultaneously ignore that the
Loan Documents do not require Defendant “to procure, continue or renew” the forceplaced insurance. Dkt. 34, at p. 20. In fact, as acknowledged by Plaintiffs in their
Complaint, the contractual language of the Loan Documents clearly articulates that
Plaintiffs were obligated to purchase insurance to secure the collateral. Dkt. 1-3, at
¶ 5.
The business loan agreement and the construction loan agreement require
Plaintiffs to “[m]aintain fire and other risk insurance . . .” Dkt. 29-2, at p. 2; see also
Dkt. 29-4, at p. 5. Similarly, the commercial security agreement and the deed of trust
state that Plaintiffs, “shall procure and maintain all risks insurance . . .” Dkt. 29-3, at
p. 2; see also Dkt. 29-5, at p. 3.
This language, from the Loan Documents,
unambiguously states that Plaintiffs are responsible for purchasing insurance to secure
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the property. Because the written Loan Documents do not require Defendant to
“procure, continue, or
renew” force-placed
insurance, Defendant’s verbal
representations, as well as the written notification regarding the force-placed
insurance, constitute a modification of the Loan Documents. See Westinghouse, 938
F.Supp. at 493; see also Nordstrom, 282 Ill. App. 3d at 145.
“[T]here is no limitation as to the type of actions by a debtor which are barred
by the [ICAA], so long as the action is in any way related to a credit agreement.”
FirstMerit Bank, N.A. v. Donlin Builders, Inc., 13 C 2734, 2015 WL 1165912, at *3
(N.D. Ill. Mar. 11, 2015) (quoting First Nat’l Bank in Staunton v. McBride Chevrolet,
Inc. 267 Ill. App. 3d 367, 372 (1994)) (ICAA barred all of Defendants’ counterclaims
including breach of contract, breach of implied covenant of good faith and fair
dealing, and violation of Consumer Fraud Act); see also Whirlpool Fin. Corp. v.
Sevaux, 96 F.3d 216, 225-26 (7th Cir. 1996) (Seventh Circuit upheld district court’s
conclusion that Defendant’s counterclaims alleging fraud, breach of contract,
promissory estoppel, breach of fiduciary duty, and constructive fraud were barred by
the ICAA); and Nordstrom, 282 Ill. App. 3d at 145 (ICAA bars claims based on
promissory estoppel). In the instant matter, while a “modification agreement to
procure insurance is not, itself, a credit agreement, the requirement” that Plaintiffs
acquire and maintain insurance “for the collateral is an integral part of the credit
agreement.” See Nordstrom, 282 Ill. App. 3d at 146. Thus, the alleged modification
agreement that Defendant would “procure, continue, or renew” the force-placed
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insurance relates to the credit agreement between the parties. See id. Accordingly, all
of Plaintiffs’ claims predicated on the alleged modification agreement are actions
“related to a credit agreement,” and therefore, barred by the ICAA. See id.
Despite Plaintiffs’ argument to the contrary, each cause of action “depend[s]
for [its]” existence upon the alleged modification agreement. (The alleged
modification agreement includes both Defendant’s written notification regarding the
force-placed insurance, as well as the verbal representations.) See Davis v. Merrill
Lynch Bus. Fin. Srvs. Inc., No. 03 C 2680, 2004 WL 406810, at *2 (N.D. Ill. Feb. 13,
2004) (Although Plaintiffs argued that they were not “seeking to enforce the oral
representations made by Merrill Lynch, and [that] the representations [were] only pled
to demonstrate fraud[,]” the court found that “without the oral representations, there
[could not] be an actionable cause for the fraudulent misrepresentation claim in Count
III and the breach of fiduciary duty claim for making false statements in Count
VIII.”). The ICAA seeks to bar actions that arise or are related to verbal promises.
Westinghouse, 938 F.Supp. at 492 (“The statements that the Defendants rely upon in
making their fraud arguments were orally stated by Westinghouse’s representative . . .
this is exactly the type of oral promise that was contemplated to be barred by the
[ICAA].).
Thus, because the modification agreement to procure insurance is
sufficiently related to the valid credit agreement between the parties, the causes of
actions related to the modification agreement are barred by the ICAA.
Nordstrom, 282 Ill. App. 3d at 144-46.
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See
CONCLUSION
For the aforementioned reasons, the Defendant’s motion to dismiss is granted.
It is so ordered.
___________________________________
Charles P. Kocoras
United States District Judge
Dated: 3/9/2016
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