Bkcap, LLC v. Captec Franchise Trust 2000-1, 08-3239.
| Decision Date | 13 July 2009 |
| Docket Number | No. 08-4038.,No. 08-3239.,08-3239.,08-4038. |
| Citation | 572 F.3d 353 |
| Parties | BKCAP, LLC, Graycap, LLC, and Swcap, LLC, Plaintiffs-Appellants, v. CAPTEC FRANCHISE TRUST 2000-1, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Mark D. Boveri, Patrick D. Murphy (argued), Boveri Murphy Rice, South Bend, IN, for Plaintiffs-Appellants.
David L. Swanson (argued), Lock Lord Bissell & Liddell, Dallas, TX, Bernard E. Edwards, Jr., Anderson, Agostino & Keller, South Bend, IN, for Defendant-Appellee.
Before BAUER, SYKES, and TINDER, Circuit Judges.
This case demonstrates that even experienced, sophisticated business entities can encounter difficulty when drafting carefully negotiated loan documents. Since July 2007, the plaintiffs and the defendant have been at loggerheads over the meaning of just a handful of lines out of several hundred in their five-page, single-spaced Note. Unfortunately, this appeal cannot bring their stalemate to an end, and more litigation lies ahead. However, while disputes over the meaning of language in loan documents can be somewhat dry, this one is more interesting than most such cases.
The plaintiffs special purpose entities that we refer to as "Borrowers," obtained several $1 to 2 million mortgage finance loans from the defendant, or "Lender." Each of the loans required Borrowers to pay off the debt at around 10% interest over 15 to 20 years. Borrowers had the right to pay off the loans early, but subject to a "Prepayment Premium" if they prepaid before ten years into the loan terms. When Borrowers tried to prepay the loans after only eight years, the parties disagreed on how to calculate the Prepayment Premium. Their dispute led to this diversity action, in which the parties seek a declaratory judgment as to the correct interpretation of the Prepayment Premium. The district court granted summary judgment in favor of Lender, concluding that the unambiguous contract language supported Lender's interpretation. We conclude, however, that the contract is ambiguous, making it inappropriate to resolve the meaning of the contract at the summary judgment stage. We therefore remand for a trial on the question of the parties' intended meaning of the Prepayment Premium.
Borrowers are wholly owned subsidiaries of "Quality Dining, Inc.," which owns several franchise restaurants, mostly "Chili's" and "Burger King," in several states that include Indiana, Michigan, and Pennsylvania. In 1999, Quality Dining decided to refinance a significant portion of the bank debt associated with operating these restaurants. Borrowers negotiated with "Captec Financial" and "GE Capital" to obtain approximately $49 million in mortgage financing to pay down Quality Dining's bank debt. The total $49 million consisted of 34 separate loans of about $1 to 2 million, each secured by one of Quality Dining's restaurants. The interest rate was 9.79% for the "Burger King" loans and 9.94% for the "Chili's" loans, and the various loans had terms of either 15 or 20 years.
During the course of negotiations, Borrowers received Captec Financial's standard-form Promissory Note for its "Franchise Loan Program." The Note allowed Borrowers to pay off their loans early, but only if they paid a "Prepayment Premium," defined as:
equal to the present value (computed at the Reinvestment Rate) of the difference between a stream of monthly payments necessary to amortize the outstanding principal balance of this Note at the Stated Rate and a stream of monthly payments necessary to amortize the outstanding principal balance of this Note at the Reinvestment Rate (the "Differential"). In the event the Differential is less than zero, the Prepayment Premium shall be deemed zero....
Put another way, if interest rates fell and Borrowers decided to prepay the Note, they would have to pay a penalty equal to the difference between:
(1) the present value of the stream of monthly payments provided by the loan's amortization schedule from the date of prepayment, computed at the "Reinvestment Rate"—i.e., the U.S. Treasury rate at the date of prepayment; and
(2) the present value of the same stream of monthly payments computed at the "Stated Rate"—i.e., the stated interest rate of the loan.
Borrowers were unsatisfied with the standard-form Prepayment Premium. They wanted the right to prepay without penalty after the first ten years of the loan terms. Captec Financial agreed to this modification and redrafted the Note to define the Prepayment Premium as:
equal to the positive difference between the present value (computed at the Reinvestment Rate) of the stream of monthly payments of principal and interest under this Note from the date of the prepayment through the tenth (10th) anniversary of the First Full Payment Date at the Stated Rate ... and the outstanding principal balance of this Note as of the date of the prepayment (the "Differential"). In the event the Differential is less than zero, the Prepayment Premium shall be deemed to be zero....
The revised Note also required Borrowers to provide a "Prepayment Notice" at least thirty days before exercising their right to prepay.
In August 1999, Borrowers executed thirty-four of these Notes, representing eighteen loans originating with Captec Financial and sixteen originating with GE Capital. All of the Notes contained identical language, including the revised definition of the Prepayment Premium quoted above. Captec Financial assigned five of its Notes to "Capmark" and the remaining thirteen Notes to "Captec Trust," which is "Lender" in this action.
Around June 2007, Borrowers prepaid the sixteen Notes held by GE Capital and the five Notes held by Capmark. In accepting Borrowers' prepayment, both GE Capital and Capmark calculated the Prepayment Premium as the difference between the present value of the stream of monthly payments from the date of prepayment through year 10 computed at the Reinvestment Rate and at the Stated Rate. This calculation, which compares the present value of the stream of monthly payments computed at the two different rates, is consistent with the definition of the Prepayment Premium provided by Captec Financial's original, standard-form Note.
Borrowers then sent Lender a Prepayment Notice for the twelve remaining Notes. (Borrowers had already prepaid the thirteenth Note held by Lender without penalty after the restaurant securing that Note was damaged by fire.) However, Borrowers made their notice contingent on Lender's acceptance of the formula used by GE Capital and Capmark to compute the Prepayment Premium. Lender rejected that formula as inconsistent with the language of the Notes, which Lender interpreted to provide a significantly higher Prepayment Premium. By way of illustration, for one of the $1.4 million loans held by Lender, Borrowers' formula yielded a Prepayment Premium of around $17,000, while Lender's formula yielded a Prepayment Premium of around $100,000. The difference between the parties' calculations for the total Prepayment Premium due on all twelve Notes is about $800,000, an amount worthy of the litigation effort expended here.
Borrowers did not provide another Prepayment Notice or tender any prepayment amount. Instead, Borrowers filed suit in Indiana state court seeking a declaratory judgment that their interpretation of the Prepayment Premium was correct. Borrowers' complaint also contained a breach of contract claim for Lender's refusal to accept a prepayment computed under Borrowers' formula. Lender removed the case to federal court based on diversity jurisdiction, and the parties consented to conduct the proceedings before a magistrate judge. See 28 U.S.C. § 636(c). The district court granted Lender's motion for summary judgment as to Borrowers' declaratory judgment claim, concluding that the unambiguous contract language supported Lender's interpretation of the Prepayment Premium. Borrowers appeal.
We begin by ensuring that we have jurisdiction over this appeal. Generally, federal courts of appeals are limited to reviewing the "final decisions" of district courts. 28 U.S.C. § 1291. A decision is "final" for purposes of § 1291 if the district court's order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Star Ins. Co. v. Risk Mktg. Group Inc., 561 F.3d 656, 659 (7th Cir.2009) (quotation omitted). In contrast, an order that disposes of only one claim in a multi-count complaint is typically non-final and therefore non-appealable. Ohio-Sealy Mattress Mfg. Co. v. Duncan, 714 F.2d 740, 743 (7th Cir.1983).
A potential jurisdictional snag arises in this case because, although the district court entered a final judgment in favor of Lender and against Borrowers, the court purported to resolve only one of Borrowers' two claims. In its opinion and order accompanying the judgment, the court stated that it was only considering Lender's motion for summary judgment "as it pertains to the Borrower's [sic] declaratory judgment action." The court declined to resolve Borrowers' breach of contract claim "because there are issues as to whether that claim is ripe."
Although the district court's failure to address Borrowers' breach of contract claim gives us pause, we conclude that the court's order "effectively end[ed] the litigation and thus constitute[d] a final order for the purposes of appellate review." Mostly Memories, Inc. v. For Your Ease Only, Inc., 526 F.3d 1093, 1097 (7th Cir.2008). The court entered a final judgment in favor of Lender that drew no distinction between Borrowers' two claims, and a docket entry accompanying the court's order stated, "Civil Case Terminated." This record suggests that the court had "finished with the case," Hill v. Potter, 352 F.3d 1142, 1144 (7th Cir.2003), and did not "contemplate[ ] further activity" on Borrowers' breach of contract...
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