BKCAP, LLC v. Captec Franchise Trust 2000-1

Decision Date14 October 2011
Docket NumberCAUSE NO. 3:07-cv-637
PartiesBKCAP, LLC, GRAYCAP, LLC, and SWCAP, LLC, Plaintiffs / Counterclaim Defendants, v. CAPTEC FRANCHISE TRUST 2000-1, Defendant / Counterclaim Plaintiff.
CourtU.S. District Court — Northern District of Indiana

On July 21, 2011, following a two-day bench trial, this Court entered an Opinion and Order (the "Trial Order") in this breach of contract action, directing the Clerk to enter a judgment in the amount of $1,246,555.25, exclusive of prejudgment interest, in favor of Plaintiffs BKCAP, LLC, GRAYCAP, LLC, and SWCAP, LLC (collectively, the "Borrowers") and against Defendant Captec Franchise Trust 2000-1 (the "Trust"). (Docket # 212, 213.) The Trust now moves the Court to vacate the judgment and render a "take-nothing" judgment against the Borrowers pursuant to Federal Rule of Civil Procedure 52(c), or, alternatively, to order a new trial under Federal Rule of Civil Procedure 59(a).1 (Docket # 224.)

Because the Trust's various challenges to the Trial Order, for the most part, merely rehash prior unsuccessful arguments and ultimately do not warrant the relief requested, the Trust's motion will be DENIED.


The Trial Order directing the $1,246,555.25 judgment in the Borrowers' favor followed a two-day bench trial held on May 3-4, 2011, centering on what the Borrowers and the original lenders (who later assigned the notes to the Trust) really intended when they included an ambiguous pre-payment premium in 34 separate promissory notes as part of a $49 million mortgage financing deal. (Docket # 201, 202.) The trial, and the resulting Trial Order, arose from a ruling by the Seventh Circuit Court of Appeals after summary judgment was granted in the Trust's favor on the declaratory judgment and breach of contract claims brought by the Borrowers. BKCAP, LLC v. Captec Franchise Trust 2000-1, No. 3:07-cv-637, 2008 WL 3833939 (N.D. Ind., Aug. 12, 2008), rev'd, 572 F.3d 353 (7th Cir. 2009). In short, the Seventh Circuit reversed the District Court's conclusion that the pre-payment premium language was unambiguous and should be read as supporting the Trust's interpretation. Id. at *6.

The Seventh Circuit essentially determined that while the contract language defining the pre-payment premium was clear, it was nonetheless ambiguous because it made no economic sense; that is, the formula (if literally followed) would never impose a penalty in the event of pre-payment. Id. Since such an absurdity—a pre-payment penalty that never exacts a penalty—could not have been the intent of rational business entities, the case was remanded for trial on what was intended by this particular provision.2 Id.

At trial, the Borrowers argued that the original contracting parties modified a standard form note to accommodate a bargained-for privilege; that is, the Borrowers were granted theright to pre-pay a note without penalty after ten years and to pre-pay with a non-punitive prepayment premium if the pay-off was within the first ten years. (Trial Order 2.) The Borrowers maintained that their interpretation of the pre-payment formula was supported by: (1) a confirmatory discussion at the July 1999 loan closing; and (2) the fact that except for the Trust's 12 notes, the holders of all the other 21 notes accepted payment in 2007 (within the first ten years) using the Borrowers' methodology for the pre-payment premium. (Trial Order 2.)

The Trust, on the other hand, argued at trial that all the documentation surrounding the transaction shows that the original parties intended a "make-whole" or "yield maintenance" prepayment premium so that any holder (including, of course, the Trust's investors) would receive all of the expected principal and interest on their investment through at least the first ten years. (Trial Order 2-3.) The Trust claimed that the Borrowers' arithmetic calculation (which the Borrowers asserted was approved at the closing and honored by the other holders) was about $800,000 shy of making the investors whole and did not maintain the expected yield and that instead, a balloon payment, which does not expressly appear in the loan contracts, had to be incorporated into the equation. (Trial Order 3.)

Following the trial and preparation of a transcript,3 counsel submitted post-trial briefs and responses, together with proposed findings of fact and conclusions of law. (Docket # 203-06, 210-11.) After examining the entire record, considering the arguments of counsel, and determining the credibility of the witnesses, the Court on July 21, 2011, made findings of fact and conclusions of law and rendered the $1,246,555.25 judgment, exclusive of prejudgment interest, in favor of the Borrowers. (Docket # 212.)

The Trust then timely filed the instant motion on August 19, 2011, requesting that the Court vacate its earlier judgment and render a take-nothing judgment against the Borrowers, or alternatively, to order a new trial. (Docket # 224.) In the motion, the Trust advances numerous challenges to the Trial Order, most of which the Court has already considered and rejected in prior rulings. Nevertheless, after reviewing the applicable standard of law, the Court will discuss each of the Trust's arguments in turn.

A. Legal standard for judgment as a matter of law under Rule 52(c).

Federal Rule of Civil Procedure 52(c) authorizes a court to enter judgment as a matter of law against a party after the "party has been fully heard on an issue during a nonjury trial and the court finds against the party on that issue," provided the court's judgment is "supported by findings of fact and conclusions of law." See Fillmore v. Page, 358 F.3d 496, 502 (7th Cir. 2003) (explaining that Rule 52(c) "applies to bench trials and authorizes the judge, after hearing all of the evidence with respect to an issue, to make findings of fact and enter judgment as a matter of law against that party"); Neopost Industrie B.V. v. PFE Int'l, Inc., 403 F. Supp. 2d 669, 675 (N.D. Ill. 2005) ("Rule 52(c) 'allows the district court to weigh the evidence to determine whether the plaintiff has proven his case.'" (quoting Ortloff v. United States, 335 F.3d 652, 660 (7th Cir. 2003))); see also Sutter Ins. Co. v. Applied Sys., Inc., 393 F.3d 722, 727 (7th Cir. 2004) (explaining that a judge's decision should trace a clear path from the evidence to the judgment).

In ruling on a Rule 52(c) motion, "[t]he court is not required to make any special inferences or review the facts in the light most favorable to the plaintiff." Robinson v. Sinclair & Valentine, L.P., No. 90 C 4005, 1993 WL 498326, at *1 (N.D. Ill. Dec. 1, 1993). Rather, thedistrict court is "bound to take an unbiased view of all the evidence, direct and circumstantial, and accord it such weight as the court believes it entitled to receive." Id. (quoting Patterson v. Gen. Motors Corp., 631 F.2d 476, 487 (7th Cir. 1980)); see Int'l Union of Operating Eng'rs, Local Union 103 v. Ind. Constr. Corp., 13 F.3d 253, 257 (7th Cir. 1994) ("[I]n making this determination [under Rule 52(c)], the court is within its prerogative to weigh the evidence, resolve any conflicts in it, and decide for itself where the preponderance lies." (internal quotation marks and citation omitted)).

B. Legal Standard for New Trial Under Rule 59(a).

Federal Rule of Civil Procedure 59(a) allows a court to order a new trial after a bench trial "for any reason for which a rehearing has heretofore been granted in a suit in equity in federal court." FED. R. CIV. P. 59(a)(1)(B); see, e.g., Hunter v. Dutton, No. 06-cv-444, 2011 WL 3611327, at *1 (S.D. Ill. Aug. 16, 2011). In deciding a motion for a new trial under Rule 59, the "district court must determine whether the verdict is against the weight of the evidence, the damages are excessive, or if for other reasons the trial was not fair to the moving party." Krippelz v. Ford Motor Co., 750 F. Supp. 2d 938, 942 (N.D. Ill. 2010) (quoting Westchester Fire Ins. Co. v. Gen. Star Indem. Co., 183 F.3d 578, 582 (7th Cir. 1999)); see Kapelanski v. Johnson, 290 F.3d 525, 530 (7th Cir. 2004); Powers v. Fredrickson, No. 03-CV-670, 2008 WL 5262772, at *1 (S.D. Ill. Dec. 17, 2008). "[T]he court may, on a motion for a new trial, open the judgment if one has been entered, take additional testimony, amend findings of fact and conclusions of law or make new ones, and direct the entry of a new judgment." FED. R. CIV. P. 59(a)(2); see Hunter, 2011 WL 3611327, at *1.

A. The Court's interpretation of the ambiguous pre-payment premium provision is not "unreasonable as a matter of law of the case."

The Trust first argues that the Court's adoption of the Borrowers' contractual interpretation of the ambiguous pre-payment penalty provision is "unreasonable as a matter of law of the case." (Def.'s Br. 3.) Not surprisingly, it further contends that "[t]he only reasonable interpretation offered at trial was that of the Trust." (Def.'s Br. 2.)

In that vein, the Trust argues that the Seventh Circuit found the Borrowers' interpretation of the pre-payment premium unreasonable when it reversed summary judgment, BKCAP, LLC v. Captec Franchise Trust 2000-1, 572 F.3d 353, 362 (7th Cir. 2009) ("BKCAP II"), and that this conclusion constitutes the law of the case. More precisely, however, the Seventh Circuit concluded that the contract language defining the pre-payment premium was ambiguous, and thus its meaning was a "question of fact" requiring "an examination of relevant extrinsic evidence" focused largely on the intent of the parties at the time of contracting. Id.

Therefore, because of the ambiguity, the Seventh Circuit opined that the meaning of the pre-payment penalty premium language could not, as the Trust suggests, be determined "as a matter of law." Id. (concluding that because the contract language defining the pre-payment premium is ambiguous, "resolving the meaning of the contract on summary judgment was...

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