Phoenix NPL, LLC v. Shashtriji, Inc. et al
Filing
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MEMORANDUM Opinion and Order: For the reasons stated, the Court grants Phoenix REO's motion for summary judgment on Count II. 121 Phoenix REO submitted four affidavits, loan payment history records, and attorney invoices collectively totalin g $1,228,523.84. The defendants do not dispute these costs. R. 129 20, 23. The Court therefore will enter judgment against the individual defendants in the amount of $1,228,523.84 plus any additional interest and late fees that have accrue d since Phoenix REO filed its motion on February 28, 2019. Phoenix REO should submit a proposed order with the full amount of the judgment and an affidavit supporting the updated amount. Signed by the Honorable Thomas M. Durkin on 7/29/2019:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PHOENIX REO, LLC,
Plaintiff,
No. 15 C 10697
v.
Judge Thomas M. Durkin
SHASHTRIJI, INC.; GHANSHYAM K. PATEL;
PRADYUMAN SHAH; PRAMOD PATEL;
SUNITA PATEL; HIRALKUMAR PATEL AND
PRIYANKA PATEL,
Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiff Phoenix REO brings this action to recover on a loan made to Shashtriji
Inc. and guaranteed by individual defendants Ghanshyam Patel, Pradyuman Shah,
Pramod Patel, Sunita Patel, Hiralkumar Patel, and Priyanka Patel. Phoenix REO
filed a motion for summary judgment against the individual defendants for breach of
their guaranties. For the following reasons, Phoenix REO’s motion is granted.
Legal Standard
Summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317,
322-23 (1986). The Court considers the entire evidentiary record and must view all of
the evidence and draw all reasonable inferences from that evidence in the light most
favorable to the nonmovant. Horton v. Pobjecky, 883 F.3d 941, 948 (7th Cir. 2018). To
defeat summary judgment, a nonmovant must produce more than a “mere scintilla of
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evidence” and come forward with “specific facts showing that there is a genuine issue
for trial.” Johnson v. Advocate Health and Hosps. Corp., 892 F.3d 887, 894, 896 (7th
Cir. 2018). Ultimately, summary judgment is warranted only if a reasonable jury
could not return a verdict for the nonmovant. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986).
Background
This suit arises from guaranties executed by the individual defendants to
secure a commercial loan for a hotel. The facts are largely undisputed. In March 1998,
Shashtriji Inc. issued a promissory note to The National Republic Bank of Chicago
(NRBC) for $1,200,000. R. 129 ¶ 11.1 The note was secured by a mortgage on the hotel
property and a loan agreement. Id. ¶ 14; R. 124 ¶¶ 7-8. The note and loan were
modified and ratified several times between 1998 and 2012. R. 129 ¶¶ 12-13. In
connection with the note, the individual defendants each entered into guaranty
agreements with NRBC for the debt owed by Shashtriji. Id. ¶¶ 15-18.
Shashtriji is in default under the promissory note for, among other reasons,
failing to make timely and complete mortgage payments, failing to pay property
taxes, further encumbering the property, and failing to send regular financial
statements. Id. ¶ 19. As of February 5, 2019, the principal due and owed under the
promissory note was $751,104.17, with accrued interest of $35,171.72, real estate
NRBC initially filed this lawsuit. The FDIC was substituted for NRBC when it took
over the institution. The FDIC then sold the loan and guaranties to a third party,
which was substituted for the FDIC as plaintiff. Phoenix REO is the successor-ininterest to that third-party purchaser.
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taxes of $43,021.95, receiver property expenses of $66,000, default interest of
$114,927.18, appraisal and environmental fees of $7,200, and late fees of $6,747.55.
Id. ¶ 20. Interest continues to accrue at a rate of $271.22 per day. Id. Further, Phoenix
REO has paid or become obligated to pay attorneys’ fees and costs of $204,351.37. Id.
¶ 23.
Despite demands from Phoenix REO, the defendants have failed to make the
payments specified in the promissory note and guaranties. Id. ¶ 21. Phoenix REO
now moves for summary judgment on Count II of its complaint for the individual
defendants’ breach of their guaranties.2 The defendants raised six affirmative
defenses that they contend excuse their non-performance including: (1) fraudulent
inducement; (2) impairment of collateral against NRBC; (3) impairment of collateral
against Phoenix; (4) breach of contract against NRBC; (5) breach of contract against
Phoenix; and (6) release and discharge of guarantors.3
Analysis
Shashtriji is also a named defendant but has filed for bankruptcy and Phoenix
REO’s claim to recover against it under the loan agreement is not at issue here.
3 Defendants H. Patel, Priyanka Patel, Pramod Patel, and Sunita Patel filed their
answer and affirmative defenses on September 21, 2016. R. 68. Defendants G. Patel
and Shah filed their answer and affirmative defenses on November 10, 2016. R. 86.
Their affirmative defenses are the same. On March 28, 2018, the Court denied the
defendants’ collective motion to file a second amended answer. R. 114. In that order,
the Court instructed the defendants that if they wished to amend their affirmative
defenses, they needed to file a motion for leave explaining why they were not raised
earlier, and that their motion would be denied absent good cause. On April 11, 2018,
the defendants filed a third amended answer asserting additional affirmative
defenses without leave of court. R. 115. Having ignored this Court’s order, this Court
declines to consider the additional affirmative defenses raised in the third amended
answer.
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The elements of a breach of contract claim are “(1) the existence of a valid and
enforceable contract; (2) substantial performance by plaintiff; (3) breach of contract
by the defendant; and (4) resultant injury to the plaintiff.” Avila v. CitiMortgage, Inc.,
801 F.3d 777, 786 (7th Cir. 2015).
The defendants do not dispute in their response to Phoenix REO’s motion or in
the declaration of Ghanshyam Patel that they executed valid guaranties, that
Shishtriji defaulted on the promissory note, that they have failed to make payments
as required by the guaranties, or that Phoenix REO has suffered damages. See R. 129
¶¶ 15-21; Ex. 6. It is thus clear defendants breached their contracts as a matter of
law.
However, defendants contend they are discharged from paying the debt
because of the additional facts alleged in their six affirmative defenses. See Myers v.
Harold, 279 F. Supp. 3d 778, 798 (N.D. Ill. 2017) (“[T]he basic concept of an
affirmative defense is an admission of the facts alleged in the complaint, coupled with
the assertion of some other reason defendant is not liable.”) (alteration in original)
(quoting Instituto Nacional De Comercializacion Agricola (Indeca) v. Cont’l Illinois
Nat. Bank & Trust Co., 576 F. Supp. 985, 988 (N.D. Ill. 1983)). To survive summary
judgment, the defendants bear the burden of putting forth evidence to create a
genuine issue of material fact on their affirmative defenses. Bethine W. Alberding
Estate Admin. Tr. ex rel. Moore v. Vinoy Park Hotel Co., 2005 WL 730960, at *3 (N.D.
Ill. Mar. 24, 2005); Dunkin’ Donuts Inc. v. N.A.S.T., Inc., 428 F. Supp. 2d 761, 773
(N.D. Ill. 2005). They fail to meet that burden here.
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I.
Impairment of Collateral (Defendants’ Affirmative Defenses Nos. 2 and 3)
Section 3-605(e) of the Uniform Commercial Code provides that:
If the obligation of a party to pay an instrument is secured by an interest
in collateral and a person entitled to enforce the instrument impairs the
value of the interest in collateral, the obligation of an indorser or
accommodation party having a right of recourse against the obligor is
discharged to the extent of the impairment.
810 ILCS 5/3-605(e). The defendants argue they should be excused from their
contractual obligations because the hotel property “was equitably impaired by
plaintiff’s recording of its Assignment of Real Estate Mortgage and Assignment of
Assignment of Leases and Rents.” Id. ¶¶ 15-18. As an initial matter, the defendants
do not clearly explain why this constitutes an impairment of collateral. Nevertheless,
their argument fails.
Numerous Illinois courts have held that the impairment of collateral defense
is unavailable to a guarantor who exercises a guaranty separate from the underlying
contract because the guaranty is not a negotiable instrument. F.D.I.C. v. Rayman,
1995 WL 505960, at *9 (N.D. Ill. Aug. 23, 1995), aff’d, 117 F.3d 994 (7th Cir. 1997);
Florsheim Grp., Inc. v. Cruz, 2001 WL 1134856, at *2-3 (N.D. Ill. Sept. 25, 2001);
Farmers State Bank of Hoffman v. Schulte, 608 N.E.2d 694, 697 (Ill. App. Ct. 1993);
Ishak v. Elgin Nat. Bank, 363 N.E.2d 159, 161 (Ill. App. Ct. 1977); Fed. Deposit Ins.
Corp. v. Hardt, 646 F. Supp. 209, 211 (C.D. Ill. 1986). As the defendants readily
admit, their guaranty contracts are separate from the promissory note. See R. 129 ¶¶
15-18; Ex. 6 (“The separate guaranty contract . . .”); R. 128 Exs. 1-4 (the defendants’
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guaranty contracts). Thus, the impairment of collateral defense is not available as a
matter of law.
Their argument also fails under the terms of the guaranties. A guarantor’s
liability is determined by the guaranty contract, which is interpreted under general
principles of contract construction. Cohen v. Cont’l Illinois Nat. Bank & Tr. Co. of
Chicago, 618 N.E.2d 1060, 1063 (Ill. App. Ct. 1993). Contract construction and
interpretation are appropriate matters for summary judgment. William Blair & Co.,
LLC v. FI Liquidation Corp., 830 N.E.2d 760, 769 (Ill. App. Ct. 2005). However,
summary judgment is inappropriate when a contract’s language is ambiguous and
must be ascertained through considering extrinsic evidence. Id. A contract term is
ambiguous if it can reasonably be interpreted in more than one way due to the
indefiniteness of the language. Id. Even where there are broad statements of
guarantor liability, an unambiguous contract must be enforced as written. Cohen, 618
N.E.2d at 1063.
The defendants contend they may assert an impairment of collateral defense
because their guaranties were not “unconditional.” See R. 129 ¶¶ 15-18. But this
argument contradicts the plain language of their agreements. See R. 128 Ex. 1
(Ghanshyam Patel Guaranty) (“[The Guarantor] unconditionally guarantees to
Lender, its successors and assigns, the due and punctual payment when due . . . with
respect to the Secured Promissory Note.”) (emphasis added); R. 128 Exs. 2-4 (Shah
Guaranty; Pramod Patel and Sunita Patel Guaranty; Hiralkumar Patel and Priyanka
Patel Guaranty) (“[Guarantor] hereby absolutely and unconditionally guaranties to
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Lender the prompt and unconditional payment of the Debt.”) (emphasis added).
“Where the language of a contract is unequivocal, it must be carried out according to
its language.” McLean Cty. Bank v. Brokaw, 519 N.E.2d 453, 456 (Ill. 1988). Here,
there is no question the defendants’ guaranties specify they are unconditional. And
the Seventh Circuit has explicitly held that “the defense of impairment of collateral
is not available to one who has given an unconditional guaranty of payment.” F.D.I.C.
v. Rayman, 117 F.3d 994, 999 (7th Cir. 1997) (quoting Istituto Mobiliare Italiano
S.p.A. v. Motorola, 689 F. Supp. 812, 817 (N.D. Ill. 1988)). Further, the guaranties
state that “the obligations of Guarantor hereunder shall in no way be terminated,
affected or impaired . . . by reason of the release or exchange of any property covered
by the Security Instrument or other collateral for the loan.” R. 128, Exs. 1-4. Similar
language has been held to constitute a waiver of the collateral impairment defense.
See, e.g., Florsheim Grp., Inc. v. Cruz, 2001 WL 1134856, at *3 (N.D. Ill. Sept. 25,
2001) (holding defendant waived collateral impairment defense because the guaranty
clearly stated that the “discharge or pursuit of other security of any kind for any said
indebtedness . . . shall in no way affect this Guarantee.”); see also Brzozowski v. N.
Tr. Co., 618 N.E.2d 405, 410 (Ill. App. Ct. 1993) (finding lender’s release of collateral
did not discharge the guaranty agreement because guarantor agreed the lender could
“release or surrender any security for the Indebtedness . . . without affecting or
impairing the liability of [the guarantor] on this guaranty[.]”). In short, the
guaranties are replete with language establishing that the defendants’ obligations
are not affected by the value of the collateral, whether the collateral was impaired,
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or whether it was later exchanged or assigned. Thus, the defendants’ affirmative
defense of collateral impairment fails as a matter of law and does not preclude
summary judgment.
II.
The Defendants’ Other Affirmative Defenses
In addition to impairment of collateral, the defendants raised affirmative
defenses of fraudulent inducement (Affirmative Defense No. 1), breach of contract
(Affirmative Defenses Nos. 4 and 5), and release and discharge of guarantors
(Affirmative Defense No. 6). Phoenix REO argued in its motion that these affirmative
defenses cannot preclude summary judgment. The defendants ignored these
arguments in their opposition, instead focusing only on their impairment of collateral
defense. As to the other defenses, they wrote just one sentence: “Defendants do not
concede the remaining affirmative defenses but wish to achieve judicial efficiency.”
R. 128 at 1. A conclusory statement that defendants are not waiving their other
affirmative defenses is insufficient to avoid waiver. See, e.g., Betco Corp., Ltd. v.
Peacock, 876 F.3d 306, 309 (7th Cir. 2017) (underdeveloped or conclusory arguments
in response to motion for summary judgment constitutes waiver); Roe-Midgett v. CC
Servs., Inc., 512 F.3d 865, 876 (7th Cir. 2008) (undeveloped argument constitutes
waiver); McCready v. Title Servs. of Illinois, Inc., 2008 WL 2435933, at *3 (N.D. Ill.
June 16, 2008) (“[Plaintiff] waived any argument on his [claim] as he has made
absolutely no attempt to contest any of [defendant’s] arguments.”); see also Anderson
v. Hardman, 241 F.3d 544, 545-46 (7th Cir. 2001) (affirming dismissal of a pro se
litigant’s claim when he offered no articulable basis for overturning the district
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court’s judgment and concluding that “we cannot fill the void by crafting arguments
and performing the necessary legal research.”). To argue on behalf of the defendants
in response to Phoenix REO would require this Court to abandon its role as a neutral
arbiter. Thus, their unaddressed affirmative defenses are waived.
But even if defendants had argued in support of their other affirmative
defenses, they failed to provide any evidence to support their position. The defendants
filed two documents in response to Phoenix REO’s motion. The first was their
response to Phoenix REO’s statement of undisputed material facts. In that document,
the defendants admit every fact except as they relate to the impairment of collateral
discharging their obligations. The second document defendants submitted was their
memorandum in opposition to Phoenix REO’s motion, which included copies of their
guaranties, the assignment of the real estate mortgage, the assignment of assignment
of leases and rents, and Ghanshyam Patel’s declaration. The Patel declaration
concerns only whether Phoenix REO impaired the loan collateral and whether the
defendants waived this defense in their guaranties. It provides no basis to support
fraud, breach of contract, or why Shashtriji’s bankruptcy releases them from their
obligations as guarantors. See R. 128 Ex. 7. In short, the defendants offered no
evidence to support their other affirmative defenses. As such, they cannot survive
summary judgment. See Simpson v. Safeguard Properties, LLC, 2017 WL 4310674,
at *8 (N.D. Ill. Sept. 28, 2017) (“Because [Defendant] pleaded [the defense] as an
affirmative defense and it has come forward with no evidence creating a triable issue,
the defense must be dismissed at summary judgment.”).
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Conclusion
For the reasons stated above, the Court grants Phoenix REO’s motion for
summary judgment on Count II. Phoenix REO submitted four affidavits, loan
payment history records, and attorney invoices collectively totaling $1,228,523.84.
The defendants do not dispute these costs. R. 129 ¶¶ 20, 23. The Court therefore will
enter judgment against the individual defendants in the amount of $1,228,523.84
plus any additional interest and late fees that have accrued since Phoenix REO filed
its motion on February 28, 2019. Phoenix REO should submit a proposed order with
the full amount of the judgment and an affidavit supporting the updated amount.
ENTERED:
Honorable Thomas M. Durkin
United States District Judge
Dated: July 29, 2019
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