Gus Paloian, Chapter 11 Tr. of Doctors Hosp. of Hyde Park, Inc. v. Lasalle Bank Nat'Lass'N (In re Doctors Hosp. of Hyde Park, Inc.)

• Citation: 508 B.R. 697
• Decision Date: 10 April 2014
• Docket Number: Adversary No. 11–ap–1983.,Bankruptcy No. 00–bk–11520.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In re DOCTORS HOSPITAL OF HYDE PARK, INC., Debtor. Gus Paloian, Chapter 11 Trustee of Doctors Hospital of Hyde Park, Inc., Counter–Claimant v. LaSalle Bank National Association, f/k/a LaSalle National Bank, as Trustee for Certificate Holders of Asset Securitization Corporation Commercial Pass–Through Certificates, Series 1997, D5, by and through its servicer, ORIX Capital Markets, LLC, Defendant.

508 B.R. 697

In re DOCTORS HOSPITAL OF HYDE PARK, INC., Debtor.

Gus Paloian, Chapter 11 Trustee of Doctors Hospital of Hyde Park, Inc., Counter–Claimant

v.LaSalle Bank National Association, f/k/a LaSalle National Bank, as Trustee for Certificate Holders of Asset Securitization Corporation Commercial Pass–Through Certificates, Series 1997, D5, by and through its servicer, ORIX Capital Markets, LLC, Defendant.

Bankruptcy No. 00–bk–11520.

Adversary No. 11–ap–1983.

United States Bankruptcy Court,

N.D. Illinois,

Eastern Division.

Signed April 10, 2014.

Howard L. Adelman, Adam P. Silverman, Chicago, IL, David T. Audley, Michael T. Benz, Chapman and Cutler LLP, Chicago, IL, for LaSalle Bank.

Gus A. Paloian, Seyfarth, Shaw, Chicago, IL, Trustee.

John W. Costello, John E. Frey, Yeny C. Estrada, Edwards Wildman Palmer LLP, Chicago, IL, for Debtor/Plaintiff/Trustee.

OPINION ON TRUSTEE'S MOTION (DKT 159) FOR SUMMARY JUDGMENT ON COUNT XV

JACK B. SCHMETTERER, Bankruptcy Judge.

In the related Chapter 11 Bankruptcy case filed by debtor Doctors Hospital of Hyde Park (“Debtor”), a claim was filed against the Debtor by LaSalle Bank National Association, f/k/a LaSalle National Bank as Trustee for certain asset certificate holders of Asset Securitization Corporation Commercial Mortgage Pass–Through Certificates, Series 1997, D5 (“LaSalle”) for $60,139,317.04 (“Claim”). In the related bankruptcy proceeding, Trustee was ordered to file his objections to the claim as counterclaims asserted in this adversary proceeding. (Dkt. 1.) Separately, summary judgment was entered on Count I (Dkt. 122., 494 B.R. 344.) and Counts II, III, IV, VIII, X, XI, XII, and XIII. (Dkt. 48., 474 B.R. 576; reconsideration denied at 504 B.R. 900.)

Counterclaimant, Gus A. Paloian as Trustee for the bankruptcy estate of Doctors Hospital of Hyde Park, Inc. (“Trustee”) has moved under Rule 7056, Fed. R. Bankr.P., for summary judgment on Count XV of the Counterclaim. He seeks here to disallow the $13,111,986 claimed as part of LaSalle's Claim labeled as the Yield Maintenance Premium (“Premium”) as unmatured interest under 11 U.S.C. § 502(b)(2), or as an unenforceable penalty barred under New York state law. In Count XV, Trustee Paloian pleaded that he seeks a judgment declaring that,

The component of LaSalle's claim labeled a “Yield Maintenance Premium” is (i) a disguised penalty, (ii) a per-se penalty, (iii) not reasonably related to the damages LaSalle might have incurred as a result of a default under the Nomura Loan, (iv) duplicates LaSalle's actual damages; (v) constitutes a charge for post-petition interest prohibited by 11 U.S.C. § 502(b)(2); and (vi) is an estimate, theoretical in nature, does not reflect with any certainty the amount of any YMP that may be owing, and is thus barred under 11 U.S.C. § 502(b)(1).

As shown below, the Premium is not an unenforceable penalty under New York state law, but is unmatured interest for purposes of § 502(b)(2), Nevertheless, Trustee is not entitled to summary judgmentbecause there remains an issue of material fact as to whether or not LaSalle was undersecured when the bankruptcy was filed. If LaSalle was then undersecured, the Premium is barred by § 502(b)(2); if not, it may be recovered.

UNDISPUTED FACTS

In August of, 1997, HPCH, LLC, an affiliate of the Debtor (“HPCH”), borrowed approximately $50 million from Nomura Asset Capital Corp. (“Nomura” and “the Nomura Loan”). The terms of the loan was governed by a loan agreement and evidenced by a promissory note. The loan was secured primarily by a mortgage on the hospital real estate. As further security, Debtor also executed a Guaranty in favor of Nomura. Nomura transferred all of its rights and obligations relating to the Loan Agreement and Guaranty to Asset Securitization Corporation (“ASC”), which in turn transferred those rights and obligations to LaSalle.

Under the guaranty, Debtor agreed to satisfy those obligations which HPCH owed under to the express terms of the Loan Agreement. The guaranty specifically provided:

Guarantor hereby unconditionally, absolutely and irrevocably guarantees and becomes surety to Lender for the prompt payment of the entire amount of the Indebtedness in strict accordance with the terms of the Loan Agreement.... Guarantor agrees that it will upon notice from Lender that any Event of Default has occurred under the Note or under any Loan Document, pay directly to Lender all of the then outstanding Indebtedness. Guarantor further agrees that any payment required hereunder will be made to Lender regardless of whether such sums have become due by reason of the maturity of the Note, acceleration of the Indebtedness or otherwise....

Indebtedness was defined in the loan agreement as:

The Principal Indebtedness, together with all accrued and unpaid interest thereon and all other obligations and liabilities due or to become due to Lender pursuant hereto, under the Note or in accordance with any of the other Loan Documents, and all other amounts, sums and expenses paid by or payable to Lender hereunder or pursuant to the Note or any of the other Loan Documents.

Thus, Debtor's responsibility as guarantor was the same as the obligations otherwise owed by HPCH. One such obligation was the Yield Maintenance Premium, which was triggered, “in the event that all or any portion of the Note is accelerated.”

The Yield Maintenance Premium is another defined term:

“ Yield Maintenance Premium ” means, in the event that all or any portion of the Note is accelerated, the amount that, when added to the amount otherwise due as a result of such acceleration, would be sufficient to purchase U.S. Obligations (A) having maturity dates on or prior to, but as close as possible to, successive scheduled Payment Dates (after the date of such acceleration of the Note) upon which Payment Dates interest and principal payments would be required under the Note as though the Maturity Date of the Note was the Optional Prepayment Date and (B) in amounts sufficient to pay all scheduled principal and interest payments on the Note as if the Maturity Date of the Note was the Optional Prepayment Date (but without any adjustment of the monthly amortization schedule); provided, however, that under no circumstances shall the Yield Maintenance Premium be less than zero.

(Loan Agreement at 35.) Interest is not a defined term in the Loan Agreement.

The Loan Agreement provided that the law of New York State applies. (Loan Agreement § 8.3.)

Doctors Hospital filed its Chapter 11 bankruptcy petition on April 17, 2000. LaSalle filed its Proof of Claim in the Doctors Hospital bankruptcy case on March 26, 2001. In the Statement of Claim filed as part of the Proof of Claim, LaSalle alleged that “[o]n or before the Petition Date, HPCH, LLC was in default of the Loan and Promissory Note and its financial obligations and covenants made therein, thus giving rise to the liabilities and financial obligations of the Debtor under its Guaranty as specified in this Proof of Claim.”

LaSalle filed a foreclosure complaint against HPCH in state court in Cook County, LaSalle Bank v. HPCH, LLC, et al., 00 CH 10251, on July 12, 2000, nearly three months after Doctors Hospital's bankruptcy filing. This date was the earliest possible date of acceleration under terms of the Loan Agreement. LaSalle admitted that in answers to interrogatories. LaSalle was asked,

State whether all or any portion of the payment obligations under the Note were accelerated, and, if so, state:

(a) The date of acceleration;

(b) The event that triggered the acceleration;

(c) The specific obligations accelerated;

(d) Whether LaSalle or any persona acting on behalf of LaSalle gave notice of the acceleration to HPCH or Doctors Hospital.

LaSalle responded,

Subject to the objections stated herein, Defendant has made available to Counter–Claim Plaintiff a copy of the Complaint in the Foreclosure Action. Under applicable law, the Complaint in the Foreclosure Action accelerated the payment obligations under the Note. Defendant has not presently located any other written notices of acceleration to HPCH. Investigation continues.

(Dkt. 161 Exh. F at No. 8.)

Other undisputed facts are referred to in the discussion that follows.

DISCUSSION

Jurisdiction

This Adversary proceeding arises out of and relates to the Chapter 11 case of Doctors Hospital, No. 00 B 11520. Venue is proper in this District pursuant to 28 U.S.C. § 1409. Jurisdiction lies under 28 U.S.C. §§ 157(b)(2)(C) and (K), 4 and 1334 and District Court Internal Operating Procedure 15(a). The Counts implicated by the pending Motion comprise Counterclaims to the LaSalle Claim against the Bankruptcy Estate seeking determination of the extent and validity of hens supporting that Claim. Statutory “core” authority lies under 28 U.S.C. § 157(b)(2)(C) and (K) to finally adjudicate those Counts.

The authority of a bankruptcy judge to rule on objections to a creditor's proof of claim where necessary to determine the valid amount of the claim was clearly recognized by the Supreme Court opinion in Stern v. Marshall –––U.S. ––––, 131 S.Ct. 2594, 2616, 180 L.Ed.2d 475 (2011). This adversary proceeding was filed to state all objections to LaSalle's claim as counterclaims as required by F.R. Bankr.P. 3007(b) and 7001(2). The pending Motion for summary judgment concerns only Count XV of the Counterclaim, which disputes the extent, if any, to which the “Yield Maintenance Premium” can be part of LaSalle's claim. This contested proceeding is therefore necessary to determine the valid amount of LaSalle's claim, and therefore a bankruptcy judge has constitutional authority to adjudicate Count XV.

Summary Judgment Standard

Summary judgment should only be granted “if 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.” F.R.C.P. 56(a) (made applicable in...