Harris N.A. v. Hershey

• Decision Date: 29 March 2013
• Docket Number: No. 11–1550.,11–1550.
• Citation: 711 F.3d 794
• Parties: HARRIS N.A., Plaintiff–Appellee, v. Loren W. HERSHEY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

711 F.3d 794

HARRIS N.A., Plaintiff–Appellee,

v.Loren W. HERSHEY, Defendant–Appellant.

No. 11–1550.

United States Court of Appeals,

Seventh Circuit.

Argued Feb. 15, 2013.

Decided March 29, 2013.

David T. Audley (argued), Attorney, Chapman & Cutler, Chicago, IL, for Plaintiff–Appellee.

Bradford Frost Englander, Attorney, Whiteford Taylor & Preston LLP, Falls Church, VA, Bruce W. Henry, Henry & O'Donnell, P.C., Alexandria, VA, for Defendant–Appellant.

Loren Walter Hershey (argued), Washington, DC, pro se.

Before FLAUM, WOOD, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

In this appeal, a loan guarantor has sought to avoid liability on his guaranty despite a complete absence of any defense supported by evidence or colorable legal arguments. We affirm the district court's grant of summary judgment in favor of the lender. Because the appeal is frivolous, we also impose sanctions on the guarantor under Federal Rule of Appellate Procedure 38.

I. Factual and Procedural Background

In February 2008, as the United States was on the brink of its most serious financial crisis since the Great Depression, plaintiff-appellee Harris N.A. agreed to lend Acadia Investments L.C. up to $12.5 million on a revolving basis. Acadia Investments is a limited liability company consisting of members of the Hershey family and three trusts—one charitable trust and two family trusts. The loan was personally guaranteed by defendant-appellant Loren W. Hershey, a managing member of Acadia. In August 2008, the amount of the loan was enlarged to $15.5 million, again guaranteed by Hershey. The agreement enlarging the loan amount required Acadia to reduce its principal debt to Harris to less than 35 percent of the value of Acadia's assets by the end of each quarter and to make a principal payment of $3 million by January 31, 2009.

By February 2009, Acadia had not made the $3 million principal payment and was in default. The parties agreed to a forbearance agreement in June 2009 to give Acadia more time to cure the default. The forbearance agreement required Acadia to make a $3 million principal payment by August 6, 2009. When Acadia failed to do so in the agreed time, Harris declared a default and filed this suit to collect the debt from Acadia and to enforce Hershey's guaranty. The federal courts have jurisdiction under 28 U.S.C. § 1332 because the parties are of diverse citizenship.

The district court granted summary judgment in favor of Harris as to all issues except the calculation of prejudgment interest. Harris N.A. v. Acadia Investments L.C., 2010 WL 4781458 (N.D.Ill. Nov. 16, 2010) (Gettleman, J.). The prejudgment interest issue was resolved by stipulation, and on February 4, 2011, with the consent of all parties to his jurisdiction, Magistrate Judge Schenkier entered a final judgment in favor of Harris and against both Acadia and Hershey in the principal amount of $15,500,000, plus $978,821.81 in prejudgment interest.

Hershey and Acadia filed separate appeals. The appeals were consolidated, but Acadia sought bankruptcy protection and its appeal has been stayed. Order, Harris N.A. v. Acadia Investments, L.C., No. 11–1707, Doc. 8 (7th Cir. April 13, 2011). Hershey has pursued this appeal of his guaranty on his own behalf. Both Acadia and Hershey were represented by counsel in the district court, but Hershey, who is a member of the Ohio bar, has represented himself in this appeal.

II. The Merits

Hershey raised numerous defenses to Harris's claim, all of which the district court rejected. Hershey has raised many of these defenses again on appeal, although the legal and factual bases for most are simply not clear. None of the defense arguments has merit.

Hershey's main argument on appeal is that Harris induced Acadia to execute the forbearance agreement by promising to help Acadia sell investments to pay its debt to Harris, and that this fraudulent inducement plus the breach of the promise rendered the forbearance agreement invalid. Hershey also argues that Harris was commercially unreasonable in refusing to accept interest payments that Acadia allegedly sent to Harris in May, July, and, August 2009, and in declaring the entire debt due upon Acadia's default in August 2009. Finally, Hershey disputes the amount of the prejudgment interest in the final judgment.

A. Standard of Review

We review the district court's grant of summary judgment de novo, drawing all reasonable factual inferences in favor of the non-moving party, here, Mr. Hershey. Parent v. Home Depot U.S.A., Inc., 694 F.3d 919, 923 (7th Cir.2012). Summary judgment is appropriate if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). If the moving party meets this burden, the non-moving party must then go beyond the pleadings and set forth specific facts showing that there is a genuine issue for trial. Ptasznik v. St. Joseph Hospital, 464 F.3d 691, 694 (7th Cir.2006). A mere scintilla of evidence in support of the nonmoving party's position is not sufficient; there must be evidence on which the jury could reasonably find for the non-moving party. Id., citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

B. Validity of the Forbearance Agreement and the Declaration of Default

Hershey argues first that the June 2009 “Forbearance Agreement and Second Amendment to the Credit Agreement” is not enforceable because he and Acadia were induced to sign the agreement by Harris's supposed material misrepresentations and/or false promises that Harris would help Acadia sell some of its assets. Hershey bases this defense on evidence from the parties' negotiations over the forbearance agreement, specifically, an email that David Hanni of Harris sent to Hershey on May 26, 2009 regarding some Acadia assets, referred to as Fannie Mae strips, that it wanted to sell to meet part of its obligations to Harris. Hanni wrote to Hershey:

Loren, have not seen the formal ‘bid package’ you mention but I took the liberty of getting a quote this morning on the strips. If we bought these today from Acadia we would offer $1,964,887.00. Let me know how that stacks up against quotes from other sources.

App. 146.

Hershey claims that this email is evidence that Harris promised to help Acadia sell the Fannie Mae strips. Hershey also claims that he and Acadia agreed to the forbearance agreement based on this promise. According to Hershey, Harris never followed through by buying the Fannie Mae strips or by otherwise helping Acadia liquidate its assets to pay Harris. This is the factual basis for the asserted defenses of fraud in the inducement, duress, and violation of the duty of good faith and fair dealing.

The first problem with these defenses is the complete inadequacy of the evidence. The Hanni email of May 26 is not a promise to buy anything, let alone an open-ended commitment to provide unspecified help to Acadia in liquidating its assets. The email was not phrased in terms of an offer to help Acadia sell its assets. The most generous reading of this email from Hershey's perspective is that, despite its cautious wording, perhaps it might be read as an offer to buy a specific asset on that specific day at the specified price. There is no evidence that Hershey or Acadia ever accepted the offer, which obviously expired the same day. Hershey has offered no explanation or response to this problem. Hershey also has not offered other specific evidence to support his defenses.

The second problem with these defenses is posed by the Illinois Credit Agreement Act, 815 Ill. Comp. Stat. 160/1 et seq., which adopted a “strong form” of the statute of frauds by requiring a writing signed by both parties to modify a written credit agreement covered by the Act. See 815 ILCS 160/2; Resolution Trust Corp. v. Thompson, 989 F.2d 942, 944 (7th Cir.1993). Hershey offers no such writing signed by both parties reflecting any relevant promises by Harris that might avoid or defeat the guaranty.

Hershey tries to avoid application of the Illinois Credit Agreement Act on the theory that the Harris loan to Acadia was primarily for “personal, family or household purposes.” Such credit agreements are excluded from the Act. See 815 ILCS 160/1(1). He elaborates on this theory in several ways. He points out that Acadia Investments is a family investment company for certain purposes of federal securities laws, that he dealt with a division of Harris that tailors its banking services to family-owned businesses, and that distributions from Acadia were used primarily to pay the Hershey family's living and personal expenses.

This attempt to avoid the Act based on the purpose of the loan must fail. Credit agreements are excused from the Act's strong form of the statute of frauds only if they are “primarily for personal, family, or household purposes.” 815 ILCS 160/1. But Hershey and Acadia admitted before the district court that the loan was not primarily for such purposes. Harris, in its statement of material facts submitted to the district court, asserted the following as an undisputed fact:

The primary purpose of this revolving credit facility was to allow Acadia to finance contributions and capital calls into various private equity funds, hedge funds, and real estate funds (collectively, “Private Equity Funds”), that Acadia both then owned and would subsequently acquire, with approximately $5.5 million of these funds to be utilized to refinance outstanding indebtedness of Acadia with KeyBank in Cleveland, Ohio, and to further pay off a $1.3 million short-term promissory note Harris had approved for Hershey to finance two Private Equity Fund capital calls that Acadia was required to make at that time.

Hershey and Acadia responded: “This fact is not contested.” Hershey has offered no basis for excusing him from this admission in the district court concerning the “primary purpose” of the loan....