Sand Capital VI LLC v. Dickler et al

Filing 49

MEMORANDUM Opinion and Order Signed by the Honorable Mary M. Rowland on 7/14/2017. Mailed notice. (dm, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SAND CAPITAL VI LLC,
Plaintiff,
v.
MARSHALL N. DICKLER and
LARRY P. KANER,

No. 16 C 2865
Magistrate Judge Mary M. Rowland

Defendants.
MEMORANDUM OPINION AND ORDER
This case involves a claim for losses, damages, and costs, including attorneys’
fees and post-petition interest, that Plaintiff claims it is due under indemnity and
guaranty agreements that were given by Defendants as collateral support for debts
owed by two LLCs that were ultimately owned by Defendants. The parties have
consented to the jurisdiction of the United States Magistrate Judge, pursuant to 28
U.S.C. § 636(c), and have filed cross-motions for summary judgment. For the reasons set forth below, summary judgment is granted in Sand Capital’s favor.
I. UNDISPUTED MATERIAL FACTS
In 2004, Dika-Homewood LLC and Dika-Matteson LLC (collectively, the Borrowers) entered into loans with Wachovia. (Pl’s ¶¶ 7–8). 1 The Borrowers are owners
of shopping centers located in Homewood and Matteson (the Properties), which are
All factual citations are to Plaintiff’s Statement of Material Facts (Dkt. 32; see Dkt. 39
(Def’s Resp.) and Defendants’ Statement of Material Facts (Dkt. 36; see Dkt. 41 (Pl’s Resp.).
1

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each managed by Dika-Management. (Def’s ¶¶ 7, 8, 12, 13). Defendants are members of and managers of Dika-Management. (Id. ¶ 8). The loans were evidenced by
notes and secured by mortgages encumbering the Properties. (Pl’s ¶¶ 9, 12). The
notes were further secured by Indemnity and Guarantee Agreements (the Agreements), 2 which were executed by Defendants. (Id. ¶¶ 10, 11, 13, 14). Thereafter, the
loans, including the notes, mortgages and Agreements, were assigned from time to
time, and in 2015, the loans were assigned to Plaintiff, which became the holder of
the notes, mortgages, and Agreements. (Id. ¶¶ 15–18). Each of the Agreements provide that Defendants would be fully liable for the payment of: (a) any debt, obligation, or liability that the Borrowers were relieved of in the course of a bankruptcy
case; (b) reasonable costs and expenses, including attorneys’ fees, incurred by Plaintiff as a result of the Properties becoming assets in the Borrowers’ voluntary bankruptcies; and (c) all costs and expenses, including attorneys’ fees, incurred by Plaintiff in order to enforce the Agreements. (Id. ¶¶ 19–21).
In February 2015, each Borrower filed a voluntary Chapter 11 bankruptcy petition. (Pl’s ¶¶ 22, 24). The Properties each became an asset in the respective Borrower’s bankruptcy estate. (Id. ¶¶ 23, 25). In July 2016, the Bankruptcy Court entered
orders confirming the Borrowers’ plans. (Id. ¶ 32). In September 2016, Plaintiff received $2,711,979.81 from Dika-Matteson and $4,916,290.81 from Dika-Homewood.
(Id. ¶¶ 34, 35). These amounts, when added to payments made during the bankruptcy by the Borrowers, equaled Plaintiff’s proofs of claim filed in the applicable
2

The Agreements are attached to the Amended Complaint. (Dkt. 19, Ex. B).

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bankruptcy case but did not include either post-petition interest due on the notes or
the attorney fees and expenses incurred by Plaintiff in either the bankruptcy court
or this court. (Id. ¶¶ 36–37).
II. DISCUSSION
A. Summary Judgment Standards
Summary judgment is proper only if the “materials in the record, including depositions, documents, electronically stored information, affidavits or declarations,
stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials” “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), (c)(1)(A); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The Court views the evidence in the light most favorable to the nonmoving party
and draws all reasonable inferences in its favor. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 255 (1986); Popovits v. Circuit City Stores, Inc., 185 F.3d 726, 731 (7th
Cir. 1999). To avoid summary judgment, the party who bears the burden of proof
cannot rely on the pleadings alone, but must “set forth specific facts showing that
there is a genuine issue for trial.” Anderson, 477 U.S. at 250 (citation omitted); see
Celotex, 477 U.S. at 324 (Rule 56 “requires the nonmoving party to go beyond the
pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine
issue for trial.”) (citation omitted).

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The Seventh Circuit “has recognized that summary judgment is particularly appropriate in cases involving the interpretation of contractual documents.” Ryan v.
Chromalloy Am. Corp., 877 F.2d 598, 602 (7th Cir. 1989). “Where the contract is
unambiguous, a court must determine the meaning of the contract as a matter of
law.” Murphy v. Keystone Steel & Wire Co., a Div. of Keystone Consol. Indus., 61
F.3d 560, 565 (7th Cir. 1995). A contract is unambiguous “if it is susceptible to only
one reasonable interpretation.” Id. The contract should be read as a whole so that
all its parts will be given effect, Preze v. Bd. of Trustees, Pipefitters Welfare Fund
Local 597, 5 F.3d 272, 274 (7th Cir. 1993), and related documents must be read together, Lippo v. Mobil Oil Corp., 776 F.2d 706, 713 n. 13 (7th Cir. 1985).
B. The Agreements Entitle Plaintiff to Unpaid Interest and Attorneys’ Fees
The parties agree that their dispute is governed by the Agreements. There is also no dispute that each Defendant executed his respective Agreement, that the
Agreements were assigned to Plaintiff, and that Plaintiff fully performed its obligations under the Agreements. (Pl’s ¶¶ 10, 11, 13, 14; Lau Aff. ¶¶ 20–23, 39; Def’s
¶¶ 16, 21). The parties dispute, however, whether the Agreements entitle Plaintiff
to post-petition interest and attorneys’ fees.
Section One of the Agreements requires each Defendant, as personal indemnifiers, to pay certain costs if specified events take place. Regarding voluntary bankruptcies, the Agreements require Defendants to:
pay, protect, defend and save [Plaintiff] harmless from and against . . .
any and all liabilities, obligations, losses, damages, reasonable costs
and expenses (including, without limitation, reasonable attorneys’ fees),
causes of action, suits, claims, demands and judgments of any naSand Capital v. Dickler, No. 16 C 2865

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ture . . . (collectively, “Costs”) which may at any time be imposed upon,
incurred by or awarded against [Plaintiff] as a result of . . . the Property or any part thereof becoming an asset in [ ] a voluntary bankruptcy
or insolvency proceeding.
(Pl.’s ¶ 19) (quoting Agreements § 1(j)) (Section 1(j)) (emphasis added). Section One
contains a Final Paragraph that provides:
In the event, on account of the Bankruptcy Reform Act of 1978, as
amended, . . . Borrower shall be relieved of or fail to incur any debt, obligation or liability as provided in the Loan Documents, [Defendants]
shall nevertheless be fully liable therefor.
(Id. ¶ 20) (quoting Agreements § 1) (Final Paragraph). Finally, the Agreements are
unequivocal that:
In the event it is necessary for [Plaintiff] to retain the services of an attorney . . . in order to enforce this Agreement, . . . [Defendants] agree[ ]
to pay to [Plaintiff] any and all costs and expenses, including, without
limitation, reasonable attorneys’ fees, incurred by [Plaintiff] as a result
thereof and such costs, fees, and expenses shall be included in Costs.
(Id. ¶ 21) (quoting Agreements § 6(o)).
The only reasonable interpretation of Section 1(j) is that in the event of a voluntary bankruptcy in which Plaintiff’s real estate collateral become assets of the
bankruptcy estate, Defendants are required to pay Plaintiff’s reasonable attorneys’
fees and other Costs incurred in the bankruptcy court. Similarly, the Final Paragraph obligates Defendants to indemnify Plaintiff for any interest that the Borrowers were relieved of in the course of the bankruptcy proceeding. Finally, the Agreements require Defendants to reimburse Plaintiff for all attorneys’ fees and other
Costs incurred in this Court enforcing the Agreements.

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1. Defendants are liable for post-petition interest.
Defendants contend that they have no liability under the Agreements for unpaid
interest. (Dkt. 38 at 2–10). They argue that Section 1(j) applies only to “Costs,”
which do not include post-petition interest. That is correct, and Plaintiff acknowledges that “Costs” only “relate to items that are not debts, obligations, or liabilities
under the Loan Documents.” (Dkt. 43 at 7). But the Final Paragraph clearly applies
to any liability or obligation relieved by a bankruptcy petition. As noted above,
there is no genuine dispute that $1,130,329.50 in unpaid post-petition interest—
certainly a liability or obligation—was relieved by the bankruptcy cases.
Defendants contend, however, that the Final Paragraph “is a part of Section 1,
and that paragraph can only be construed as applying to the itemized Subsections
1(a) through (j) which immediately precede that paragraph.” (Dkt. 38 at 4–5) (emphasis in original). The Final Paragraph is the conclusion of Section 1, titled “Indemnity and Guarantee.” But there is no indication that the indemnities in the Final Paragraph apply only if one of the events described in Subsections (a)–(j) has
occurred. Instead, the Final Paragraph includes additional indemnities that are not
included in the Costs triggered by the events described in Subsections (a)–(j).
Defendants argue that Grevas v. U.S. Fid. & Guar. Co., 152 Ill. 2d 407, 411
(1992), requires the Court to apply the specific clause over the general clause when
construing a contract. (Dkt. 38 at 5). But the Grevas court merely noted that,
“where both a general and a specific provision in a contract address the same subject, the more specific clause controls.” 152 Ill. 2d at 411. Unlike the contract terms

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in Grevas, the Costs described in Subsections (a)–(j) specify amounts that must be
paid to the Plaintiff if specific events take place regarding the collateral: destruction, condemnation, failure of tenants to pay rents, fraud, damage from hazardous
waste or placing the property in bankruptcy. To the contrary, the Final Paragraph
requires indemnification of any “obligation or liability as provided in the Loan Documents” that a Borrower is relieved of through the Bankruptcy Reform Act.
Defendants also argue that because the Agreements were designed to provide
only limited indemnification, the Final Paragraph must be construed within the
limits set by Subsections (a)–(j). (Dkt. 38 at 3–5). But the Final Paragraph is limited
in scope—it is activated only upon the Borrowers successfully avoiding, through
bankruptcy procedures, any obligations under the loan documents.
2. Defendants are liable for reasonable attorneys’ fees.
Defendants assert that Section 1(j) “only refers to loss incurred as a result of the
Property becoming an asset in the bankruptcy proceeding.” (Dkt. 38 at 8) (emphasis
in original). Defendants argue Section 1(j) “can only be construed as a situation
where the Property itself, the collateral, is in jeopardy or becomes subject to claims,
and the Lender incurs some loss or expense to address the Property as a result.”
(Id.). But the bankruptcy litigation arose because the Properties became assets in
bankruptcy. The automatic stay imposed by the Bankruptcy Code applied both to
Plaintiff’s “claim” and the Properties. 11 U.S.C. § 362(a). And the Code specifically
prohibited Plaintiff from taking steps to “obtain possession of the property of the estate” or to “enforce any lien against property of the estate.” Id. § 362(a)(3)–(4). Thus,

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when the Properties became assets in the bankruptcy cases, any attempt by Plaintiff to collect on its claims—including interest payments on the loans—or foreclose
on its collateral were stayed. Further, Defendants acknowledge that the loans were
nonrecourse (Dkt. 35 at 10) (citing Dkt. 19, Ex. A (Note) at § 2.6(a)–(b)), which limited Plaintiff to look only to the Borrowers’ collateral—the Properties—for repayment, see Bank of Am. Nat. Trust & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S.
434, 438 n.3 (1999) (“A nonrecourse loan requires the Bank to look only to the Debtor’s collateral for payment.”); accord In re B.R. Brookfield Commons No. 1 LLC, 735
F.3d 596, 597 n.1 (7th Cir. 2013). Because the loans were nonrecourse, Defendants
could have avoided the instant litigation by simply giving Plaintiff the deeds to the
Properties. Under the plain terms of the Agreements, Plaintiff is entitled to Costs,
which explicitly include attorneys’ fees, incurred as a result of the Properties becoming assets in the bankruptcy cases.
C. Sand Capital Has Not Been Paid in Full
Defendants contend that Plaintiff “cannot possibly have any claim because the
loan indebtedness on the loan and the Note have been paid and satisfied in full, and
the debt on the loan and the Note have been released.” (Dkt. 35 at 13). But it is undisputed that the proof of claim amounts did not include post-petition interest or
attorneys’ fees. (Pl’s ¶ 29; Def’s ¶¶ 41, 45). Still Defendants argue that payment of
the proof-of-claim amounts is equivalent to being “paid in full.” (Dkt. 35 at 13).
The Indemnity and Guarantee Agreements executed here are broader than
payment of the amount due under the loan. These types of agreements are often

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known as “bad boy guarantees” and are “frequently required by lenders providing
financing to special purpose entities, often in real estate transactions, to permit the
lender to pursue the individual controlling the special purpose borrower for actions
that undermine the value of the lender’s collateral.” CP III Rincon Towers, Inc. v.
Cohen, 666 F. App’x 46, 49 n.1 (2d Cir. 2016). “Thus, unlike a payment guarantee,
which is triggered when a borrower fails to pay an amount when due, a bad boy
guarantee is triggered when one of the enumerated bad acts occurs.” Nexbank, SSB
v. Soffer, No. 652072/13, 2014 N.Y. Misc. LEXIS 2462, at *6 (N.Y. Sup. Ct. May 30,
2014), aff’d, 11 N.Y.S.3d 135 (N.Y. App. Div. 2015). Indeed, “the purpose of a ‘bad
boy’ guarantee would be frustrated if payment of the Loan was a defense.” Id. at
*13. 3
Here, as in Nexbank, Defendants seek to defeat the purpose of the Agreements
by asserting that “loan indebtedness on the loan and the Note have been paid and
satisfied in full.” (Dkt. 35 at 13). But the Borrowers merely paid the proof-of-claim
amounts, which did not include any post-petition interest amounts. And as in
Nexbank, the obligations indemnified are different than those included in the proofs
of claim. The Agreements obligate Defendants to pay (a) the Costs, including attorneys’ fees, incurred by Plaintiff pursuant to Sections 1(j) and 6(o), and (b) the debts,
obligations, and liabilities (including post-petition interest) that the Borrowers are
relieved of in bankruptcy.
Defendants rely on Marble Emporium, Inc. v. Vuksanovic, 339 Ill. App. 3d 84 (2003),
and First State Bank of Round Lake v. Busse, 126 Ill. App. 3d 577 (1984), which involve
traditional guarantees. They are thus inapplicable to the “bad boy” guarantees at issue
here.
3

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Defendants also contend that by releasing the mortgages, Plaintiff acknowledged
payment in full. (Dkt. 35 at 13). But each release explicitly provided that Sand Capital was not releasing any rights and claims against the individual Defendants, including those asserted or that could be asserted in this case. (Dkt. 36-2, Ex. 21).
Further, a release of a mortgage merely releases the lien on the collateral, not any
amounts owed on the loan documents, such as attorneys’ fees. Petkus v. St. Charles
Sav. & Loan Ass’n, 182 Ill. App. 3d 327, 330 (1989) (“The release of a mortgage extinguishes the lien of the mortgage and bars an action for foreclosure. Therefore,
when the [mortgagee] executed the mortgage release, what it released was its interest in or lien on the secured property. The release of the lien did not necessarily
mean that the parties’ other rights under the agreement were extinguished also.”)
(citation omitted).
Finally Defendants assert that because Plaintiff has made a profit on its loan
purchases, Plaintiff has incurred no damages. (Dkt. 35 at 15). But whether Plaintiff
made a profit when it purchased the loans is not relevant to Defendants’ obligations
under the Agreements. Defendants’ obligations were not eliminated when Plaintiff
purchased the loans. Instead, Plaintiff stepped into the shoes of its predecessors-ininterest and succeeded to all rights under the loan documents, including those in
the Agreements. See Twenty First Century Recovery, Ltd. v. Mase, 279 Ill. App. 3d
660, 668 (1996) (“Upon assignment of the note to plaintiff . . . , plaintiff stepped into
the shoes of its assignor . . . .”).

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Summary judgment is granted in Sand Capital’s favor. Defendants are liable for
the post-petition interest that was released in the bankruptcy cases; the attorneys’
fees and other Costs incurred by Sand Capital during the voluntary bankruptcy
proceedings; and the attorneys’ fees and other Costs incurred enforcing the Agreements in this Court.
III. DAMAGES
It is uncontested that the post-petition interest released in the bankruptcy cases
amounts to $1,130,279.50. The Court hereby awards this amount to Plaintiff.
Defendants contend that even if Plaintiff is entitled to attorneys’ fees, the
amount sought, $505,358.34, is unreasonable and unnecessary. (Dkt. 38 at 12–15).
Plaintiff bears the burden to demonstrate “the reasonableness of the hours worked
and the hourly rates claimed.” Spegon v. Catholic Bishop of Chicago, 175 F.3d 544,
550 (7th Cir. 1999) (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)). The affidavit of Andrew Lau, a Sand Capital Director, indicates that Sand Capital has paid
or is in the process of paying all of the fees and expenses owed to its attorneys (Lau
Aff. ¶¶ 36–37), making the fees prima facie reasonable. See Pickett v. Sheridan
Health Care Ctr., 664 F.3d 632, 653–54 (7th Cir. 2011) (recognizing that “the best
evidence of whether attorney’s fees are reasonable is whether a party has paid
them”) (citation omitted); Arthur v. Catour, 216 Ill. 2d 72, 82 (2005) (“The prima facie reasonableness of a paid bill can be traced to the enduring principle that the free
and voluntary payment of a charge for a service by a consumer is presumptive evidence of the reasonable or fair market value of that service.”); Budnick Converting,
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Inc. v. Nebula Glass Int’l, Inc., No. 09 CV 646, 2012 WL 2017972, at *5 (S.D. Ill.
June 5, 2012) (“the affidavit of Budnick’s vice president of sales indicates that Budnick has paid all of the fees owed to their attorneys, making it prima facie reasonable”) (citation omitted). Defendants have not rebutted the prima facie reasonableness of Plaintiff’s fees.
Defendants contend that Plaintiff has not met its burden of establishing that the
time spent in the bankruptcy cases was necessary. (Dkt. 38 at 13). Defendants argue that Plaintiff’s motion for summary judgment in the bankruptcy cases unnecessarily extended the litigation and in the end, “Plaintiff was not successful, as its motion to dismiss and motion for summary judgment were not granted, and its opposition to confirmation of the Amended Plans was unsuccessful.” (Id.).
The transcripts from the bankruptcy cases reveal a different story. The bankruptcy court found that the Borrowers engaged in “frivolous” arguments and “delaying” tactics. (May 24, 2016 Tr. at 15–16, 19, 23–24). While Defendants are correct
that the bankruptcy judge would have preferred to proceed with a “confirmation
hearing and evidence at the hearing” (Dkt. 38 at 13), the preferred practice was impossible at the time of the hearing because the Borrowers had not yet filed their reorganization plan (Dkt. 35, Exs. F, G). Even after waiting almost 12 months to file
their proposed plans, the bankruptcy judge found them “facially unconfirmable.”
(May 24, 2016 Tr. at 8). At the final confirmation hearing, the bankruptcy judge
noted on the record that the Borrowers’ tactics had resulted in “a lot of unnecessary
attorneys’ fees incurred” by Plaintiff. (July 21, 2016 Tr. at 163). Under these cir-

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cumstances, the Court finds that the fees incurred by Plaintiff in the bankruptcy
cases were reasonable and necessary. See Spegon, 175 F.3d at 550 (“District courts
have wide discretion in determining the appropriate amount of attorneys’ fees and
costs . . . .”).
Defendants also contend the fees incurred in the instant case were unreasonable
and excessive. (Dkt. 38 at 14–15). But it was Defendants who refused to accept service of process and forced the Court to employ the Marshals Service to serve Defendants after they managed to evade service for almost two months. (Dkt. 7, 9).
Even after the Marshals Service was appointed, it still took an additional two
months before Defendants could be served. (Dkt. 11, 12, 14). Thereafter, Plaintiff
promptly amended its complaint and completed discovery within the initial deadlines set by the Court. (Dkt. 19, 26, 30). Thus, the Court finds the time spent by
counsel in the instant case was necessary and reasonable.
Defendants also complain about the billing rates for Thomas Wolford ($625) and
John Scharkey ($535). (Dkt. 38 at 12). But these rates are well within the national
average for partner billing rates. See Billing Rates Across the Country, Nat’l Law
Journal, Jan. 13, 2014, available at www.nationallawjournal.com (last visited June
8, 2017) (finding an average partner rate of $604).
Finally, Defendants complain generally about the bankruptcy and instant case
not being billed separately and about different tasks being lumped together, “making it difficult to determine the time and reasonableness of the time expended on
each task.” (Dkt. 38 at 12–13). However, by failing to cite to any specific billing recSand Capital v. Dickler, No. 16 C 2865

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ords, Defendants have waived their objections. See Ohio-Sealy Mattress Mfg. Co. v.
Sealy Inc., 776 F.2d 646, 664 (7th Cir. 1985) (Counsel opposing a fee request must
“state objections with particularity and clarity”); Ratliff v. City of Chicago, No. 10
CV 739, 2013 WL 3418070, at *6 (N.D. Ill. July 8, 2013) (where “Defendants’ objections did not identify the specific items that are in dispute or provide insight as to
why a particular item is or is not excessive,” the court concluded that “Defendants
have waived their specific objections to Plaintiff’s fee entries”). In any event, “the
amount of itemization and detail required is a question for the market.” In re
Synthroid Mktg. Litig., 264 F.3d 712, 722 (7th Cir. 2001). If Sand Capital found the
billing details sufficient, this Court will not require any more. See id. (“If counsel
submit bills with the level of detail that paying clients find satisfactory, a federal
court should not require more.”).

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IV. CONCLUSION
For the reasons stated above, Plaintiff’s Motion for Summary Judgment [31] is
GRANTED, and Defendants’ Motion for Summary Judgment [35] is DENIED.
Judgment shall be entered in Sand Capital VI LLC’s favor and against Marshall
Dickler and Larry Kanar. Sand Capital is awarded $1,130,279.50 in post-petition
interest and $505,358.34 in fees and expenses.

E N T E R:
Dated: July 14, 2017
MARY M. ROWLAND
United States Magistrate Judge

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