CONTINENTAL ILL. NAT. BANK & TRUST CO. v. Stanley

• Decision Date: 15 April 1985
• Docket Number: No. 84 C 0142.,84 C 0142.
• Citation: 606 F. Supp. 558
• Court: U.S. District Court — Northern District of Illinois
• Parties: CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Plaintiff, v. John R. STANLEY, Defendant.

606 F. Supp. 558

CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Plaintiff, v. John R. STANLEY, Defendant.

No. 84 C 0142.

United States District Court, N.D. Illinois, E.D.

April 15, 1985.

Robert F. Finke, Daniel Harris, Mayer, Brown & Platt, Chicago, Ill., for plaintiff.

Roger J. McFadden, Roger L. Longtin, Schuyler, Roche & Swirner, Chicago, Ill., for defendant.

ORDER

BUA, District Judge.

Before the Court is plaintiff's motion for summary judgment pursuant to Fed.R. Civ.P. 56, and its motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) or in the alternative to transfer the defendant's counterclaim to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 1404(a). For the reasons stated herein, plaintiff's motion for summary judgment against defendant is granted. Plaintiff's motion to transfer is granted and therefore defendant's counterclaim is transferred to the United States District Court for the Southern District of New York. The Court leaves a decision on plaintiff's motion for judgment on the pleadings to the transferee court.

I. FACTS

This suit was brought by the plaintiff Continental Illinois National Bank and Trust Company of Chicago (CINB) individually and as loan agent for thirteen other banks against the defendant, John R. Stanley. The suit seeks to recover on Stanley's personal guaranty in connection with loans made by Continental and the other banks to four companies controlled by Stanley (collectively referred to as "GHR"). The relevant facts, as set forth in CINB's complaint, Stanley's Answer and Counterclaim and the affidavit of Robert M. Steck, are not in dispute.

Stanley is the controlling stockholder of GHR. On December 23, 1981, GHR and the Banks entered into a Credit Agreement. As a condition of the Credit Agreement, CINB required Stanley to provide a joint and several personal guaranty. That same day, Stanley executed and delivered to CINB, as loan agent for the Banks, a written, personal guaranty.

The guaranty provides that Stanley "unconditionally ... guarantees the full and prompt payment and performance when due, whether by acceleration or otherwise, and at all times thereafter, of all obligations of GHR to the Banks ... howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing or due or to become due ... under and in connection with the ... Credit Agreement." The guaranty further provides that "the right of recovery against Stanley under this guaranty is, however, limited to the amount of SEVEN HUNDRED FIFTY MILLION DOLLARS ($750,000,000) plus interest on such amount ... plus all expenses of enforcing this guaranty."

On April 13, 1982, GHR and the Banks amended the Credit Agreement to provide for an additional loan of $50 million. In January of 1983, GHR filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code which is an automatic act of default under Section 14.1.11 of the Credit Agreement. Because of these defaults, GHR now owes CINB and the Banks the outstanding principal amount of its loans under the Credit Agreement, $388,444,139.34, plus all accrued interest. As of August 13, 1984, the accrued interest totaled $85,381,264.83 and continues to accrue at a daily rate of $164,847.32. The Banks seek judgment against Stanley on his personal guaranty for unpaid principal and interest in the amount of approximately $474 million as of August 13, 1984. CINB and the Banks also ask for attorneys' fees and costs in this matter.

Stanley filed an eight-count counterclaim against CINB. The counterclaim alleges that CINB overreached in extending credit to GHR, that CINB wrongfully secured and exercised control over GHR's finances and operations, and that CINB intentionally prevented GHR from receiving credit from other sources. The counterclaim further alleges that CINB's activities caused GHR's inability to perform under the Credit Agreement and thus precipitated GHR's voluntary bankruptcy proceeding.

Stanley moved, pursuant to 28 U.S.C. § 1404(a), to transfer this action to the United States District Court for the District of Louisiana. CINB opposed the motion to transfer and, in addition, moved to dismiss all counts of the counterclaim on the grounds that Stanley lacked standing to prosecute these claims. The Court denied the Motion to Transfer by its order dated May 25, 1984. Continental Illinois National Bank & Trust Company of Chicago v. Stanley, 585 F.Supp. 610 (N.D.Ill. 1984). The Court also granted CINB's motion to dismiss as to the causes of action arising under the federal antitrust statutes and common law. The motion was denied as to Count IV of the counterclaim which arises under the Bank Holding Company Act Amendments of 1970, 12 U.S.C. § 1971, et seq. ("BHCA"). Continental Illinois National Bank & Trust Company of Chicago v. Stanley, 585 F.Supp. 1385 (N.D.Ill. 1984). On August 22, 1984, CINB filed an Answer to Count IV of the counterclaim which effectively denied or demanded proof of the factual allegations.

II. DISCUSSION

In support of a motion for summary judgment, the moving party has the burden of showing that there is no dispute as to any genuine issue of material fact and that it is entitled to judgment as a matter of law. Cedillo v. International Association of Bridge & Structural Iron Workers, Local Union No. 1, 603 F.2d 7, 10 (7th Cir. 1979). The nonmoving party is entitled to all reasonable inferences that can be drawn in its favor from the evidence in the record. ITT Diversified Credit Corp. v. Kimmel, 508 F.Supp. 140 (N.D.Ill.1981). However, to create a question of fact, an adverse party responding to a properly made and supported summary judgment motion must set forth specific facts showing that there is a genuine issue for trial. Rule 56(e), Fed.R.Civ.P.; Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.1983). A party may not rest on mere allegations or denials of his pleadings; similarly, a bare contention that an issue of fact exists is insufficient to raise a factual issue. Id. Rule 56 clearly requires that an adverse party set forth specific facts showing a genuine issue for trial. Id.

Stanley asserts affirmative defenses which allege that there was a failure of consideration for the personal guaranty; that the guaranty was secured by duress; that plaintiff breached certain implicit covenants contained in the Credit Agreement; that the conduct of certain of the Banks rendered it impossible for GHR to perform under the Credit Agreement; and that CINB has failed to mitigate the damages, if any, it has suffered.

A. Failure of Consideration

Defendant's Fourth and Eighth Affirmative Defenses allege that Stanley's personal guaranty is unenforceable for lack of consideration and that CINB failed to provide GHR with sufficient financing in breach of the Credit Agreement. CINB argues that these defenses are meritless because (1) the guaranty recites on its face that it was executed for consideration, and (2) it was executed contemporaneously with and in consideration for the Credit Agreement.

In determining the rights of the parties to a guaranty, as in determining the rights and obligations flowing from any contract, we must look first to the language in the document itself. Blackhawk Hotel Associates v. Kaufman, 80 Ill. App.3d 462, 465, 35 Ill.Dec. 875, 878, 400 N.E.2d 12, 14-15 (1st Dist.1979). This rule is applicable in cases, like the instant one, where the guaranty agreement contains broad statements of guarantor liability. Bank of Naperville v. Holz, 86 Ill.App.3d 533, 41 Ill.Dec. 604, 608, 407 N.E.2d 1102 (2d Dist.1980).

In the present case, it is undisputed that Stanley executed the personal guaranty at the same time as the original Credit Agreement was executed. Therefore, under well-established Illinois law, there is adequate consideration for a guaranty, where as here, it is executed contemporaneously with the creation of the principal loan. ITT Diversified Credit Corp. v. Kimmel, supra, 508 F.Supp. at 143; First National Bank of Red Bird v. Chapman, 51 Ill.App.3d 738, 740, 9 Ill.Dec. 426, 429, 366 N.E.2d 937, 940 (5th Dist.1977). In addition, the guaranty agreement clearly includes "all obligations of the Debtors to the Banks ... now or hereafter existing or due or to become due ..., under and in connection with the Restated Credit Agreement. ..." Therefore, even if Stanley argued that the subsequent amendments to the original Credit Agreement were not guaranteed due to a failure of consideration, this argument fails because the guaranty clearly covers all future indebtedness of GHR to the Banks in connection with the original Credit Agreement.

Stanley also alleges a failure of consideration subsequent to the contemporaneous execution of the guaranty. In short, his counterclaim alleges that the full amount of credit which was to be provided by the Banks under the Credit Agreement was not, in fact, extended. However, Stanley does not support this allegation with any affidavit or other source of proof other than his bald assertion that the Banks failed to extend GHR credit up to the maximum limit of $750 million contained in the Credit Agreement. Since Stanley does not meet his burden of establishing by affidavit that there was some understanding or oral agreement that the Banks would extend credit up to the $750 million maximum, the Court finds no genuine issue of material fact regarding the sufficiency of consideration supporting the guaranty and therefore holds, as a matter of law, that Stanley's guaranty is supported by sufficient consideration.

B. Duress

Stanley argues that CINB's misconduct subsequent to the guaranty's execution deprived him of any choice but to provide the guaranty demanded by the Banks. These allegations are contained in Stanley's counterclaim and state that the threat of imminent bankruptcy and a credit cutoff by the Banks forced...