Ppm Finance, Inc. v. Norandal Usa, Inc.

Decision Date20 January 2004
Docket NumberNo. 02 C 7987.,02 C 7987.
Citation297 F.Supp.2d 1072
CourtU.S. District Court — Northern District of Illinois
PartiesPPM FINANCE, INC., in its capacity as agent for Jackson National Life Insurance Company, Plaintiff, v. NORANDAL USA, INC., Defendant. Norandal USA, Inc., Counter-Plaintiff, v. PPM Finance, Inc., in its capacity as agent for Jackson National Life Insurance Company, PPM America Special Investments CBO II, L.P. and PPM Special Investments Fund, L.P., Counter-Defendants.

Randall Allan Hack, Forrest B. Lammiman, Anne Kelly Turner, Timothy W. Brink, Robert Alan Drobnak, Jeffrey A. Chadwick, Lord, Bissell & Brook LLP, Chicago, IL, for Plaintiff/Counter-Defendants.

John Steven Delnero, Bruce E. Lithgow, Bell, Boyd & Lloyd, Floyd Babbitt, Dennis E. Quaid, David Matthew Rownd, Kristin Tavia Mihelic, Susan M. Lorenc, Fagel & Haber, Chicago, IL, for Defendant/Counter-Plaintiff.

MEMORANDUM OPINION AND ORDER

ST. EVE, District Judge.

Plaintiff PPM Finance, Inc., in its capacity as agent for Jackson Mutual Life Insurance Company ("Jackson"), filed a two count complaint against Defendant Norandal USA, Inc. ("Norandal") alleging breach of contract and breach of fiduciary duty. (R. 36-1, Am.Compl.) Specifically, Jackson alleged that Norandal failed to remit to Jackson certain payments that their common debtor, Scottsboro Aluminum, L.L.C. and Scottsboro Properties, L.L.C. (collectively, "Scottsboro"), paid to Norandal in violation of a Subordination Agreement between Norandal and Jackson.

Norandal filed a three count counterclaim against PPM America Special Investment Fund, L.P. ("PPM Fund"), PPM America Special Investment CBO II, L.P. ("PPM CBO II") (collectively, the "PPM Entities"), and PPM Finance in its capacity as agent for Jackson.1 (R. 35-1, Norandal's First Am. Countercl.) In Count I, Norandal seeks a declaratory judgment that Jackson and the PPM Entities have no right to recover the payments at issue. In the alternative, in Count II, Norandal alleges that Jackson and the PPM Entities are equitably estopped from recovering the payments. In Count III, Norandal alleges that its right of recoupment defeats Jackson's and the PPM Entities' claims to an affirmative recovery.

Jackson moved for summary judgment in its favor on its amended complaint and against Norandal on Norandal's amended counterclaims. Norandal moved for summary judgment in its favor on its amended counterclaims. For the reasons stated herein, Jackson's motions for summary judgment on its amended complaint and Norandal's amended counterclaims are granted, and Norandal's motion for summary judgment on its amended counterclaims is denied.

LEGAL STANDARDS

Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). A genuine issue of triable fact exists only if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)). The party seeking summary judgment has the burden of establishing the lack of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct 2548, 2552, 91 L.Ed.2d 265 (1986). A party will successfully oppose summary judgment only if it presents "definite, competent evidence to rebut the motion." Equal Employment Opportunity Comm'n v. Sears, Roebuck & Co., 233 F.3d 432, 437 (7th Cir.2000). The Court "considers the evidentiary record in the light most favorable to the non-moving party, and draws all reasonable inferences in his favor." Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th Cir.2002).

BACKGROUND
I. The Credit Agreement

On February 26, 1999, Norandal agreed to sell its Alabama aluminum processing plant and related assets (the "Plant") to Scottsboro for a total purchase price of approximately $92 million (the "Scottsboro Acquisition"). (R. 49-2, Jackson's Local Rule 56.1(a) Statement of Undisputed Facts Submitted in Supp. of Jackson's Mot. for Summ. J. on its Am. Compl. and Norandal's Affirmative Defenses and Jackson and the PPM Funds' Mot. for Summ. J. on Norandal's Am. Countercl. ("Jackson's Rule 56.1(a)(3) Statement") ¶¶ 7, 13; R. 62-1, Def.'s Resp. to Pl. and Counterdefs.' Local Rule 56.1 Statement of Uncontested Facts and Statement of Genuine Issues and Statement of Add'l Facts That Require Denial of Pl. and Counterdefs.' Mots. for Summ. J. ("Norandal's Rule 56.1(b)(3)(A) Response") and ("Norandal's Rule 56.1(b)(3)(B) Statement of Additional Facts") ¶¶ 7, 13.) Scottsboro entered into a Credit Agreement with Jackson and its agent PPM Finance to obtain funds to purchase the Plant. (Id. ¶¶ 7, 11.) Under the Credit Agreement, Jackson agreed to make certain loans and other extensions of credit to Scottsboro of up to $125 million. (Id. ¶ 8.) Jackson loaned Scottsboro approximately $69 million and PPM Fund loaned Scottsboro $7.5 million. (Id. ¶ 14.)

Jackson, a lender under the Credit Agreement, is a life insurance company organized under the laws of, and with its principal place of business in, Michigan. (Id. ¶ 1.) Norandal, the seller of the Plant, is a Delaware corporation with its principal place of business in Tennessee. (Id. ¶ 4.) It operates aluminum rolling mills in Tennessee, North Carolina, and Alabama. (Id.) Counter-defendants PPM Fund and PPM CBO II are both Delaware limited partnerships with their principal places of business in Illinois. (Id. ¶¶ 2-3.)

II. The Subordinated Note

For the remainder of the purchase price, Scottsboro executed a promissory note in Norandal's favor (the "Subordinated Note") for approximately $7.8 million. (Id. ¶ 23.) The seller, Norandal, thereby became a second creditor of the buyer, Scottsboro. (Id.) Under the Subordinated Note, Scottsboro agreed to pay Norandal equal, consecutive monthly installments of $215,925.64 on the principal amount (plus accrued unpaid interest) beginning on March 31, 1999 and continuing through February 28, 2002. (Id. ¶ 64.) Between November 1, 1999 and January 18, 2001, Norandal received fifteen scheduled monthly payments from Scottsboro under the Subordinated Note, totaling over $3.7 million. (Id. ¶ 65.) The Subordinated Note is explicitly subject to the Subordination Agreement. (Id. ¶24.)

Through the Credit Agreement and the Subordinated Note, Norandal received a total of $84,277,195.00 as a result of the funding and closing of the Scottsboro Acquisition. (Id. ¶ 12.)

III. The Subordination Agreement

On February 26, 1999, the same day the parties executed the Credit Agreement, Scottsboro, the PPM Entities, and PPM Finance in its capacity as agent for Jackson executed a Subordination Agreement. (Id. ¶ 29.) Jackson and the PPM Entities are "Senior Creditors" under the Subordination Agreement. (R. 52-1, Jackson's Index of Exs., Ex. 9, Subordinated Note at 3.) The Subordination Agreement governs the relative priority of the Senior Creditors' and Norandal's security interests in Scottsboro's assets. (R. 49-2, Jackson's Rule 56.1(a)(3) Statement ¶ 29; R. 62-1, Norandal's Rule 56.1(b)(3)(A) Response ¶ 29.) The Subordination Agreement gives Jackson and the PPM Entities senior security interests in Scottsboro's assets, and Norandal a junior security interest in substantially the same assets.2 (Id. ¶¶ 19, 29, 31.) The parties executed the Subordination Agreement "[a]s an inducement to and as one of the conditions precedent to" Jackson's extension of credit to Scottsboro under the Credit Agreement. (Id. ¶ 59.) The Subordination Agreement is governed by Illinois law. (Id. ¶ 30.)

Thompson, Hine & Flory ("Thompson") represented Norandal in the Scottsboro Acquisition. (Id. ¶ 27.) Thomspon reviewed a draft of the Subordination Agreement3 and suggested changes to the draft, including the addition of a provision that would require Jackson to provide Norandal with notice of any default by Scottsboro under the Credit Agreement. (Id. ¶¶ 35, 38.) Latham & Watkins, counsel to Jackson and the PPM Entities, refused to include the senior notice default provision. (Id. ¶¶ 38, 41.) Norandal nevertheless executed the Subordination Agreement. (Id. ¶ 60.)

The Subordination Agreement contains a definition of "Senior Default Notice."4 (Id. ¶ 42.) The language in the definition of "Senior Default Notice" specifically refers to Scottsboro. (Id. ¶ 44.) The term "Senior Default Notice" does not appear anywhere else in the Subordination Agreement, and it is not employed in any substantive paragraph. (R. 49-2, Jackson's Rule 56.1(a)(3) Statement ¶¶ 44, 45.) The Subordination Agreement also defines "Subordinated Default Notice." (R. 49-2, Jackson's Rule 56.1(a)(3) Statement ¶ 45; R. 62-1, Norandal's Rule 56.1(b)(3)(A) Response ¶ 45.) In contrast to the term "Senior Default Notice," the term "Subordinated Default Notice" appears elsewhere in the Subordination Agreement, and requires Nordanal to notify Jackson of any Scottsboro default under the Subordinated Note. (Id.)

IV. Scottsboro's Defaults Under the Credit Agreement

John Krupinski, the former Chief Financial Officer ("CFO") of Scottsboro from October 1999 through Scottsboro's bankruptcy proceedings, served as Jackson's Rule 30(b)(6) witness on several topics, including the Events of Default under the Credit Agreement. (Id. ¶ 71.) Krupinski testified that beginning in October 1999 (the "Default Date") and until at least August 1, 2001, Scottsboro defaulted on several of its Senior Debt obligations to Jackson, with each breach resulting in an Event of Default under Section 8.1(b) of the Credit Agreement. (R. 49-2, Jackson's Rule 56.1(a)(3) Statement ¶¶ 75-89.)...

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