Bank of America NA v. Home Lumber Company LLC et al
Filing
44
OPINION AND ORDER, granting in part and denying in part 40 MOTION to Amend Counterclaim filed by United States Small Business Administration. Signed by Magistrate Judge Andrew P Rodovich on 10/24/11. (kjp)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
BANK OF AMERICA NA, as
Successor to LaSalle Bank NA,
)
)
)
Plaintiff
)
)
v.
)
)
HOME LUMBER COMPANY LLC; HOME
)
LUMBER COMPANY, INC.; UNITED
)
STATES SMALL BUSINESS
)
ADMINISTRATION, as Successor in )
interest to Regional Development)
Company; REGIONAL DEVELOPMENT
)
COMPANY,
)
)
Defendants
)
CIVIL NO. 2:10 cv 170
OPINION AND ORDER
This matter is before the court on the Motion to Amend
Counterclaim [DE 40] filed by the United States Small Business
Administration on September 1, 2011.
For the reasons set forth
below, the motion is GRANTED IN PART and DENIED IN PART.
Background
This action was brought by Bank of America to recover money
due under several promissory notes and to foreclose on the two
parcels of real estate that secured the notes. The parties
recently agreed to sell one of the parcels to a third party.
One
parcel, commonly known as 11200 Delaware Parkway, Crown Point,
Indiana, remains for disposition in this action.
Home Lumber owned the parcel at issue.
Northwest Indiana
Regional Development Company held a mortgage on that parcel which
was executed on January 13, 2001, and recorded on February 5,
2001.
The mortgage later was assigned to the United States Small
Business Administration (SBA).
On June 9, 2005, Home Lumber
executed and delivered a mortgage on the same parcel in favor of
Marie M. Beckman in the amount of $907,000, which was recorded on
June 14, 2005.
Home Lumber also granted LaSalle Bank National
Association a mortgage on the parcel in the amount of
$2,000,0000, on August 1, 2005.
August 9, 2005.
LaSalle recorded the mortgage on
Bank of America succeeded LaSalle Bank and now
holds the mortgage.
LaSalle Bank agreed to loan Home Lumber the money on the
condition that SBA would subordinate its lien to LaSalle’s for
the balance due on the $2,000,000 note.
The subordination
agreement executed by SBA, Home Lumber, and LaSalle states in
relevant part:
As a condition precedent to Lender’s performance, the SBA mortgage must be subordinated
to the Lender’s Mortgage. SBA is willing to
subordinate the lien of the SBA Mortgage
provided it retains its lien priority with
regard to all other legal or equitable interests in the property. * * * Except as expressly provided herein, this agreement shall
not alter the priority of the SBA Mortgage
. . . with regard to any legal or equitable
interest in the property. Owner and Lender
shall hold SBA harmless from any impairment
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of its lien with regard to any third party,
which is occasioned by this subordination.
In its motion to amend, SBA explains that by entering the
subordination agreement, its lien lost priority and was impaired
by Beckman’s mortgage.
SBA requests leave to amend its counter-
claim to assert that the subordination agreement, specifically
the provision stating that Home Lumber and Bank of America shall
hold SBA harmless for third-party liens, protects SBA’s interest
from any reduction in recovery caused by Beckman’s lien.
SBA
also proposes to amend its counterclaim to state that its lien
was impaired by the tax lien that arose from Bank of America’s
failure to pay the real estate taxes on the parcel.
Bank of America filed a motion for summary judgment on
December 17, 2010.
SBA filed a response on January 11, 2011, and
later supplemented its response at the request of the court.
The
parties agreed to vacate the discovery deadlines and stay ruling
on the motion for summary judgment and filed a joint stipulation
on March 28, 2011.
The joint stipulation states that Bank of
America’s mortgage is superior to SBA’s.
SBA filed its motion to
amend its counterclaim on September 1, 2011.
Bank of America
opposes SBA’s motion as futile and untimely, in part because it
was filed after Bank of America filed its motion for summary
judgment and the parties’ filed their joint stipulation.
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Discussion
Federal Rule of Civil Procedure 15(a) provides that "a party
may amend the party's pleading only by leave of court or by
written consent of the adverse party; and leave shall be freely
See also Foman v. Davis, 371
given when justice so requires."
U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d. 222 (1962).
This
Circuit has recognized that because the complaint merely serves
to put the defendant on notice, it should be freely amended as
the case develops, as long as amendments do not unfairly surprise
or prejudice the defendant. Jackson v. Rockford Housing Author-
ity, 213 F.3d 389, 390 (7th Cir. 2000).
The decision to deny
leave to amend a complaint is an abuse of discretion "only if 'no
reasonable person could agree with the decision.'"
Winters v.
Fru-Con, Inc., 498 F.3d 734, 741 (7th Cir. 2007)(quoting Butts v.
Aurora Health Care, Inc., 387 F.3d 921, 925 (7th Cir. 2004));
Ajayi v. Aramark Business Services, 336 F.3d 520, 530 (7th Cir.
2003).
A motion to amend is more likely to be denied if it takes
place at a relatively late stage in the proceedings. Aldridge v.
Forest River, Inc., 635 F.3d 870, 875-76 (7th Cir. 2011); Winters, 498 F.3d at 741.
See also James v. McCaw Cellular Communi-
cations, Inc., 988 F.2d 583, 587 (5th Cir. 1993) (holding that
the district court did not abuse its discretion in denying
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plaintiff’s motion to amend where motion filed almost 15 months
after original complaint, ten months after joinder deadline, five
months after deadline for amendments, and three weeks after
defendant filed motion for summary judgment).
The moving party
bears the burden to show some valid reason for neglect and delay
in seeking to amended its pleadings.
Butts, 387 F.3d at 921; Doe
v. Howe Military School, 227 F.3d 981, 990 (7th Cir. 2000) (explaining that motion to amend was denied, in part, because the
plaintiffs provided no reason why their amended claim was not
filed earlier).
See also NL Industries, Inc. v. GHR Energy
Corp., 940 F.2d 957, 964 (5th Cir. 1991)(holding that court did
not abuse its discretion in denying motion for leave to file
second amended complaint where plaintiff sought to amend its
pleading two years after it first brought defendant into litigation and after defendant had requested summary judgment, but
plaintiff provided no good reason for not acting sooner).
Leave to amend may be denied at the district court's discretion for "undue delay, bad faith or dilatory motive on the part
of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party
by virtue of allowance of the amendment, futility of amendment,
etc."
Foman, 371 U.S. at 182, 83 S.Ct. at 230.
"The court may
deny a motion to amend based, at least in part, on the fact that
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the motion to amend was filed after the final deadline set by the
court for the filing of amendments."
(2007).
61A Am.Jur.2d Pleading §779
See Avatar Exploration, Inc. v. Chevron, U.S.A., Inc.,
933 F.2d 314, 321 (5th Cir. 1991)(finding no abuse of discretion
where the motion to amend was filed after the final deadline set
by the court for filing of amendments and the amendment would
provide no benefit to movants under the circumstances).
In addition, the court may deny leave because the amendment
is futile.
Bethany Phamacal Company, Inc. v. QVC, Inc., 241 F.3d
854, 861 (7th Cir. 2001).
Futility generally is measured by
whether the amendment would survive a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6).
Peoples v. Sebring
Capital Corp., 209 F.R.D. 428, 430 (N.D. Ill. 2002).
However, if
a summary judgment motion is pending, futility may be shown with
reference to the entire summary judgment record.
F.R.D. at 430.
Peoples, 209
If the proposed amendment is not clearly futile,
denying leave to amend on this ground would be improper.
See
Wright & Miller, 6 Federal Practice & Procedure §1487, at 637-642
(2d ed. 1990)("If the proposed change clearly is frivolous or
advances a claim or defense that is legally insufficient on its
face, the court may deny leave to amend.").
Bank of America first opposes SBA’s motion as untimely.
filed its counterclaim 16 months before it requested leave to
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SBA
amend, after Bank of America filed its motion for summary judgment, and after the parties filed a joint stipulation.
Although
the procedural posture of a case often dictates whether leave
should be granted, this action is not as mature as the docket
might otherwise reflect.
This matter has been subject to stay,
the discovery deadline, originally extended through May 6, 2011,
has been vacated, and the court has not set deadlines for amending the pleadings.
More importantly, SBA’s proposed amendment
does not bear on Bank of America’s motion for summary judgment or
the parties’ joint stipulation.
The joint stipulation submitted by the parties states that
Bank of America’s interest in the parcel is superior to SBA’s.
SBA is not asking to amend its counterclaim to reflect that its
interest has priority over Bank of America’s.
Rather, SBA is
asking that Bank of America and Home Lumber honor the clause in
the subordination agreement stating they will hold SBA harmless
for any third-party liens.
It is SBA’s position that, should
Beckman’s lien take priority over its own, Bank of America and
Home Lumber are responsible for any loss SBA incurs as a result
of Beckman’s third-party lien.
SBA had first priority before
entering the subordination agreement and would not have been
subject to Beckman’s lien if it had not entered the subordination
agreement.
SBA argues that because Beckman was not a party to
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the subordination agreement, her interest is a third-party lien
of the type contemplated by the subordination agreement.
Regard-
less of the merits of SBA’s proposed amendment, SBA’s motion is
timely because the proposed amendment will not affect any of the
events that have occurred thus far and discovery remains ongoing.
Moreover, SBA has set forth a sufficient justification for
its delay.
SBA was apprised of the reduction to its potential
recovery through the recent correspondence setting forth the
depreciated value of the property and the estimate of the liens
on the property, including Beckman’s.
This prompted SBA to seek
enforcement of the subordination agreement.
If its potential
recovery had not been reduced by the depreciation and Beckman’s
lien, enforcement of the agreement may have been unnecessary.
Bank of America also challenges whether SBA’s proposed
amendment can withstand a motion to dismiss.
Bank of America
first argues that the proposed amendment does not make clear how
SBA’s interest was impaired.
SBA was aware of Beckman’s interest
at the time it entered the subordination agreement, and Bank of
America argues that this knowledge defeats any claim SBA may
assert concerning its priority over Beckman’s.
However, the
subordination agreement does not distinguish among third-party
lien holders.
Beckman was not a party to the agreement and
therefore was a third-party lien holder, possibly of the type the
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parties contemplated in their agreement.
At this stage, the
court must not resolve the merits of the proposed cross claim but
should only consider whether SBA stated a claim.
It is plausible
that the provision may be interpreted so that SBA may recover any
loss it experiences from Beckman’s lien.
At this stage, SBA’s
proposed amendment states a tenable claim, the sufficiency of
which may be tested in a later motion.
SBA also proposed to amend its complaint to state that Bank
of America permitted unpaid taxes to accumulate and that its
interest has been impaired by the unpaid taxes.
The land owner,
Home Lumber, was responsible for paying taxes on the property.
Ind. Code §6-1.1-2-4 ("The owner of any real property on the
assessment date of a year is liable for the taxes imposed for
that year on the property").
Therefore, SBA misstates the facts
in Paragraph 15 of its proposed counterclaim by alleging that
Bank of America permitted unpaid taxes to accumulate.
Bank of
America did not have any obligation to pay the taxes.
Although the subordination agreement did not distinguish
among third-party lien holders, the subordination agreement
states that SBA would be held harmless from any impairment of its
lien.
Prior to entering the subordination agreement, SBA’s
interest would have been affected by the tax lien.
See Indiana
Code §6-1.1-22-13 (stating that real estate taxes have priority
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over all other liens).
Because SBA would have been subject to
the lien irrespective of the subordination agreement, SBA cannot
show that its interest was impaired by the third-party tax lien.
The distinction between Beckman’s lien and the tax lien is that
SBA would have been subject to the tax lien irrespective of the
subordination agreement, but, absent the subordination agreement,
SBA would have had priority over Beckman’s lien.
Therefore, it
is possible for SBA to show that its interest was impaired by
Beckman’s lien through the subordination agreement, but it cannot
demonstrate impairment by the tax lien.
_______________
For the foregoing reasons, the Motion to Amend Counterclaim
[DE 40] filed by the United States Small Business Administration
on September 1, 2011, is GRANTED IN PART and DENIED IN PART.
SBA
may amend its counterclaim to state that its lien was impaired by
Beckman’s mortgage, but it must eliminate the provisions of its
proposed counterclaim stating that Bank of America permitted
unpaid taxes to accumulate and that its lien was impaired by
unpaid real estate taxes.
ENTERED this 24th day of October, 2011
s/ ANDREW P. RODOVICH
United States Magistrate Judge
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