Baxter Senior Living, LLC v. Midland States Bancorp, Inc.

Decision Date24 June 2022
Docket Number3:21-cv-00273-SLG
PartiesBAXTER SENIOR LIVING, LLC, an Alaska limited liability company, Plaintiff, v. MIDLAND STATES BANCORP, INC., an Illinois corporation, and MIDLAND STATES BANK, an Illinois corporation, Defendants.
CourtU.S. District Court — District of Alaska

BAXTER SENIOR LIVING, LLC, an Alaska limited liability company, Plaintiff,
v.

MIDLAND STATES BANCORP, INC., an Illinois corporation, and MIDLAND STATES BANK, an Illinois corporation, Defendants.

No. 3:21-cv-00273-SLG

United States District Court, D. Alaska

June 24, 2022


ORDER RE MOTION TO TRANSFER VENUE AND MOTION TO DISMISS

SHARON L. GLEASON, UNITED STATES DISTRICT JUDGE

Before the Court at Docket 16 is Defendants' Motion to Transfer Venue and Defendant Midland States Bancorp, Inc.'s Motion to Dismiss. Plaintiff Baxter Senior Living, LLC responded in partial opposition at Docket 20, and Defendants replied at Docket 26. The Court finds that oral argument was not necessary to determine these motions.

FACTUAL BACKGROUND

Plaintiff Baxter Senior Living, LLC (“Baxter”) is an Alaska limited liability company with its principal place of business in Anchorage, Alaska.[1] Defendant Midland States Bancorp, Inc., a bank holding company, is an Illinois corporation

1

that is headquartered in Effingham, Illinois.[2] It is the parent company of Defendant Midland States Bank (“MSB”), an Illinois-chartered bank that is also headquartered in Effingham.[3] Defendants have no employees in Alaska; their employees are primarily located in Illinois and Missouri, and their executives reside “in or around Effingham, Illinois.”[4]

On August 5, 2018, Baxter and Midland States Bank (“MSB”) entered into a Construction Loan Agreement under which MSB extended Baxter a $20.1 million “bridge” loan to finance construction of a senior living facility in Anchorage, Alaska, while Baxter sought longer-term financing through a subsequent loan insured by the U.S. Department of Housing and Urban Development (“HUD”).[5] The agreement was negotiated and executed remotely via email and phone; no MSB employees traveled to Alaska, and no Baxter employees traveled to Illinois.[6]During negotiation and execution, Baxter was represented by counsel in Anchorage, Alaska, and MSB was represented by counsel located in Franklin, Tennessee.[7] The transaction closed at Alyeska Title's Anchorage office,[8] and the

2

First National Bank Alaska (“FNBA”) assisted MSB in completing its loan to Baxter.[9]

As relevant here, the Construction Loan Agreement provides that Baxter must pay MSB a $603,000 Exit Fee “[u]pon payoff of the Loan in full” in addition to a prepayment penalty if the loan was paid off prior to its maturity date, August 5, 2023.[10] However, that provision contains an exception:

Such Exit Fee and Prepayment Penalty shall be waived if the Borrower refinances the Loan with Love Funding Corporation using an FHA mortgage insurance programs [sic]. In addition if Love Funding Corporation is unable or unwilling to refinance the Loan, or a firm commitment for FHA mortgage insurance is not issued by HUD, then the Exit Fee will not be due.[11]

Love Funding Corporation is MSB's wholly owned HUD-lending subsidiary.[12] The Construction Loan Agreement also contains a choice-of-law section providing that the agreement, and its “validity, enforcement and interpretation, [is] governed by the Laws of the State of Illinois (without regard to any conflict of laws principles) and applicable United States federal law.”[13]

3

Baxter began operating the senior living facility in October 2019, shortly before the beginning of the COVID-19 pandemic.[14] It asserts that due to a lockdown on assisted living facilities in response to COVID-19, it was unable to reach 85% occupancy, preventing it from making a profit or qualifying to refinance its loan with HUD.[15]

In August 2020, MSB sold part of Love Funding's business to Dwight Capital LLC; Dwight Capital acquired Love Funding's loan origination platform, but MSB “otherwise retained Love Funding, including its loan servicing business.”[16]According to Defendants, Love Funding's employees are “located in Washington, D.C., Colorado, Florida, Mississippi, Missouri, Kansas, Ohio, and Tennessee.”[17]Love Funding's current Chief Executive Officer, Jeff Mefford, resides in southern Illinois and also serves as the President of MSB.[18]

On May 1, 2021, Baxter sold the senior living facility to Sabra Health Care Holdings III, LLC (“Sabra Health”) and used the proceeds of the sale to pay off its loan with MSB in full.[19] In the days leading up to the sale, Baxter and MSB disputed

4

whether the Exit Fee had come due.[20] Baxter ultimately paid the Exit Fee “under protest” due to concerns that a prolonged dispute would “prevent[] the closing of its sale to Sabra Health.”[21]

PROCEDURAL BACKGROUND

On October 22, 2021, Baxter informed MSB via a letter that it intended to file a lawsuit in the District of Alaska by the end of the year seeking the return of the Exit Fee unless MSB was interested in engaging in settlement negotiations.[22]On November 29, 2021, MSB's Associate General Counsel contacted Baxter's counsel asking to schedule a time to discuss the matter on December 2 or 3, 2021.[23] The parties' attorneys corresponded on December 2, 7, 14, and 21,2021, exchanging various settlement offers, until settlement discussions broke down on December 21,2021.[24]

While those discussions were still ongoing, MSB filed suit in Illinois state court on December 9, 2021, seeking a declaratory judgment stating that it was entitled to retain the Exit Fee.[25] Baxter and its counsel did not learn of the Illinois

5

action until they were served with a copy of the complaint on January 3, 2022.[26] On January 31, 2022, Baxter removed the case to the U.S. District Court for the Southern District of Illinois.[27]

Baxter, meanwhile, filed suit against Midland States Bancorp, Inc. in this Court on December 22, 2021, the day after the parties reached an impasse in their settlement negotiations.[28] Baxter later amended its complaint to add MSB as a defendant on March 4, 2022, explaining that it believed MSB to be a subsidiary of Midland State Bancorp, Inc. but could not locate an entity registered with the Illinois Secretary of State to conduct business under that name or a similar one.[29] It acknowledged that MSB is the proper defendant in this matter if MSB “has capacity to sue and be sued, and assets to pay any judgment entered in Baxter's favor.”[30]

In its complaint, Baxter asserts that the Exit Fee was not due when it sold its facility because (1) Love Funding “became unable to refinance the loan” when its origination platform was sold to Dwight Capital; and (2) Love Funding “could not have refinanced the loan” regardless because Baxter was “nowhere close” to the occupancy requirements to qualify for a HUD-insured loan due to the impacts of

6

the COVID-19 pandemic.[31] Count I of the complaint alleges that Defendants breached the terms of the Construction Loan Agreement, including the implied covenant of good faith and fair dealing, by insisting upon collecting the Exit Fee; Count II alleges that Baxter's obligation to refinance its loan to avoid payment of the Exit Fee was “impossible or commercially impracticable”; and Count III alleges that Defendants violated Section 45.50.471(b)(14) of Alaska's Unfair Trade Practices Act (“UTPA”), which prohibits “representing that an agreement confers or involves rights, remedies, or obligations that it does not confer or involve, or that are prohibited by law.”[32] Baxter seeks repayment of the Exit Fee in the amount of $603,000, “all damages flowing from Defendant's breach of the Parties' Construction Loan Agreement,” attorney's fees and costs, treble damages for Defendants' alleged violation of the UTPA, and pre- and post-judgment interest “at the highest rate allowable under law.”[33]

On March 21, 2022, Baxter filed a motion in the Illinois action seeking dismissal of the case or transfer to the District of Alaska.[34] Ten days later, on March 31, 2022, Midland filed the instant motion seeking: (1) transfer of venue to

7

the U.S. District Court for the Southern District of Illinois pursuant to 28 U.S.C. § 1404(a); and (2) dismissal of Midland States Bancorp, Inc. under Federal Rule of Civil Procedure 12(b)(6).[35]

After the parties completed their briefing on the instant motion, on June 1, 2022, the Southern District of Illinois court issued an order dismissing MSB's declaratory judgment action without prejudice.[36] The court offered three reasons for its decision: (1) “avoid[ing] waste of judicial resources” and “the duplication of efforts” by ensuring that only one court will have to perform the venue transfer analysis; (2) “avoid[ing] the possibility of different outcomes in the two cases”; and (3) “discourag[ing] the misuse of declaratory judgment actions” in keeping with the Seventh Circuit's “preference for coercive actions over declaratory judgment actions and its rejection of the ‘first-to-file' rule.”[37] On the latter point, the court noted “the suspect timing of Midland's filing,” cautioning that “[declaratory judgment actions brought in the face of clear threats of suit and seeking determinations that no liability exists will be closely scrutinized as potentially improper anticipatory filings if the other party proceeds to file.”[38]

8

LEGAL STANDARDS

I. Motion to Dismiss

To state a claim that survives a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a party's complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'”[39]

II. Change of Venue

28 U.S.C. § 1404(a) provides that “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.” If venue would be appropriate in the transferee court, the district court must undergo an “individualized, case-by-case consideration of convenience and fairness”...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT