Bkcap LLC v. 2000-1

• Decision Date: 23 March 2010
• Docket Number: Cause No. 3:07-cv-637.
• Citation: 701 F.Supp.2d 1030
• Parties: BKCAP, LLC, Graycap, LLC, and Swcap, LLC, Plaintiffs,v.CAPTEC FRANCHISE TRUST 2000-1, Defendant.
• Court: U.S. District Court — Northern District of Indiana

701 F.Supp.2d 1030

BKCAP, LLC, Graycap, LLC, and Swcap, LLC, Plaintiffs,v.CAPTEC FRANCHISE TRUST 2000-1, Defendant.

Cause No. 3:07-cv-637.

United States District Court,

N.D. Indiana,

Fort Wayne Division.

March 23, 2010.

Mark Donald Boveri, Patrick David Murphy, Boveri Murphy Rice LLP, South Bend, IN, for Plaintiffs.

Jeffrey B. Mead, Locke Lord Bissell & Liddell LLP, Dallas, TX, for Defendant.

OPINION AND ORDER

ROGER B. COSBEY, United States Magistrate Judge.

I. INTRODUCTION

This case is a recurring lesson on the importance of carefully drafted contract provisions. Before the Court is a flurry of motions arguing over essentially one line in the attorney fee provision existing within a series of twelve loan agreements. In the cross motions for summary judgment (Docket # 106, 108), the Defendant ¹ claims that under the unambiguous language of the agreements, the Plaintiffs (also referred to as the “Borrowers”) are obligated to pay its attorney fees incurred in any dispute. The Plaintiffs, however, claim that the agreements clearly allow the Defendant to recover its fees only when it is “enforcing” its rights and that responding to a lawsuit does not constitute enforcement. The parties have also filed cross motions to strike their opponent's supporting affidavits (Docket # 111, 118) and the Defendant has requested oral argument. (Docket # 110.)

The Court finds that the clear and unambiguous language of the loan agreements provides for the recovery of fees only when the Lender affirmatively takes action to enforce its rights against the Borrowers and that defending against a declaratory judgment action and breach of contract claim does not constitute enforcement. Accordingly, the Plaintiffs' motion for partial summary judgment will be GRANTED and the Defendant's motion will be DENIED. Both motions to strike are moot. Similarly, the Defendant's motion for oral argument is DENIED.²

II. FACTUAL AND PROCEDURAL HISTORY

In 1999, the Borrowers obtained thirty-four different loans totaling forty-nine million dollars from Captec Financial (eighteen loans) and GE Capital (sixteen loans) to help finance various restaurants they own in Indiana, Michigan, and Pennsylvania. (Pls.' Br. in Sup. of Mot. for Partial Summ. J. (“Pls.' Br.”) 3.) The sixteen GE Capital loans are not at issue in this action. Five of the eighteen Captec Financial loans were assigned to a third party and are not in dispute. ( Id.) One of the other original Captec Financial loans involved a property that was damaged in a fire and is also not in dispute. ( Id.)

This action concerns the remaining twelve loans.³ (Def.'s Br. in Supp. of Mot. For Partial Summ. J. (“Def.'s Br.”) 4.) These twelve notes have been assigned to the present Defendant, Captec Franchise Trust 2000-1, a successor in interest to Captec Financial. (Compl. ¶ 10.) ⁴ Section 3 of each note provides that if the Borrowers wish to prepay the outstanding balance of the loan during the first ten years of its life, they must pay a “Prepayment Premium.” (Docket # 24-2.)

In April 2007, the Borrowers indicated a desire to prepay the notes but the parties disagreed over the precise computation of the prepayment premium. (Compl. ¶¶ 15-17.) The Borrowers subsequently filed suit on October 15, 2007, asking the Court to both “declare the proper computation of the prepayment premium due from Borrowers,” declare it due (Count I) and then find the Lender in breach of the loan agreements for demanding an excessive prepayment premium (Count II). (Compl. ¶¶ 19, 21.) The parties then filed cross-motions for summary judgment on their competing interpretations. (Docket # 22, 25.)

Magistrate Judge Nuechterlein granted summary judgment in favor of the Lender, finding that the prepayment clause was unambiguous and that the Lender's interpretation was correct. BKCAP, LLC, 2008 WL 3833939, at *6. The Borrowers promptly appealed to the Seventh Circuit Court of Appeals, which held that the clause was actually ambiguous and remanded the case to this Court for trial on the issue of the parties' intended method of calculating the prepayment premium. BKCAP, LLC v. Captec Franchise Trust 2000-1, 572 F.3d 353, 362 (7th Cir.2009).

On remand, the interpretation of the prepayment premium remains pending for trial. This matter is now before the Court, however, on the separate issue of whether under Section 9 of the Loan Agreements, the Lender is entitled to recover its attorney fees from the Borrowers.⁵ Section 9 provides in full:

9. REIMBURSEMENT OF EXPENSES. Borrower shall reimburse Lender for all costs and expenses, including attorneys' fees, incurred by Lender in enforcing the rights of Lender under this Note or the other Loan Documents. Such costs and expenses shall include without limitation costs or expenses incurred by Lender in any bankruptcy, reorganization, insolvency or other similar proceeding. Any reference in this Note to attorneys' fees shall mean reasonable fees, charges, costs and expenses of outside counsel and paralegals, whether or not a suit or proceeding is instituted, and whether incurred at the trial court level, on appeal, in a bankruptcy, administrative or probate proceeding, in consultation with counsel, or otherwise.

(Docket # 24-2) (emphasis added.)

The Lender alleges that the unambiguous language of Section 9 requires the Borrowers to reimburse the Lender for any attorney fees incurred in defending against their lawsuit. The Lender claims that the contract's grant of fees incurred in “enforcing the rights of Lender” covers any dispute arising between the parties, regardless of its substance or who initiates it. Thus, as the Lender sees it, even though the Borrowers were never declared in default and only filed suit seeking a declaratory judgment, and in fact contend that it was the Lender who breached the contracts, they should still be forced to pay Lender's attorney fees.

The Borrowers, however, argue that Section 9's use of “enforcing” plainly restricts the Lender's reimbursement of fees to situations where it must affirmatively take some sort of coercive action because of a default or other misconduct. Accordingly, they claim that their declaratory judgment and breach of contract action does not implicate the fee reimbursement provision. The Borrowers further point to the American rule's general presumption that parties pay their own attorney fees and argue that the notes' fee shifting provision should be narrowly construed. The Court now turns to those arguments.

III. THE CROSS MOTIONS FOR PARTIAL SUMMARY JUDGMENT

A. Standard of Review

Summary judgment is proper when “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P 56(c); Payne v. Pauley, 337 F.3d 767, 770 (7th Cir.2003). A genuine issue of material fact exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Ballance v. City of Springfield, 424 F.3d 614, 617 (7th Cir.2005).

When ruling on a motion for summary judgment, “a court may not make credibility determinations, weigh the evidence, or decide which inferences to draw from the facts; these are jobs for a fact finder.” Payne, 337 F.3d at 770. The only task in ruling on a motion for summary judgment is “to decide, based on the evidence of record, whether there is any material dispute of fact that requires a trial.” Id.; Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir.1994). If the evidence is such that a reasonable fact finder could return a verdict in favor of the nonmoving party, summary judgment may not be granted. Payne, 337 F.3d at 770.

A court must construe the record in the light most favorable to the nonmoving party and avoid “the temptation to decide which party's version of the facts is more likely true,” as “summary judgment cannot be used to resolve swearing contests between litigants.” Id. However, “a party opposing summary judgment may not rest on the pleadings, but must affirmatively demonstrate that there is a genuine issue of material fact for trial.” Id. at 771.

“When cross-motions for summary judgment are filed, courts look to the burden of proof that each party would bear on an issue of trial; [courts] then require that party to go beyond the pleadings and affirmatively to establish a genuine issue of material fact.” M.O. v. Ind. Dept. of Educ., 635 F.Supp.2d 847, 850 (N.D.Ind.2009) (alteration in original) (citing Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir.1997)). “The contention of one party that there are no issues of material fact sufficient to prevent the entry of judgment in its favor does not bar that party from asserting that there are issues of material fact sufficient to prevent the entry of judgment as a matter of law against it.” Id. (citation omitted); see Zook v. Brown, 748 F.2d 1161, 1166 (7th Cir.1984). “It is true that cross-motions for summary judgment do not waive the right to a trial, but this rule does not alter the respective burdens on cross-motions for summary judgment-more particularly here, the responsive burden of a plaintiff who moves for summary judgment and is confronted with a cross-motion for summary judgment. The motions are treated separately.” McKinney v. Cadleway Props., Inc., 548 F.3d 496, 504 (7th Cir.2008) (citations omitted); M.O., 635 F.Supp.2d at 850.

B. Discussion

The Lender claims that the loan agreement's grant of attorney fees incurred in “enforcing” rights, allows for the recovery of fees in the event of any legal proceeding or dispute, regardless of its subject matter or who brings it. In particular, the Lender argues that it should recover its fees in the present dispute where it is defending against the Borrowers' declaratory judgment and breach of contract claims. The Plaintiffs...