968 F. Supp. 2d 898
N.D. Ill.2013Background
- Sun Life interpleads when two claimants seek the policy surrender value; policy issued to Swezey with designated beneficiary, now $153,845.67 surrender value and $400,000 death benefit.
- Swezey assigned the policy to Great Lakes in 2006 to secure a loan; Community Bank earlier had obtained a policy assignment in 2002 to secure its loan to Gabriel Oak Park.
- Intercreditor Agreement (2006) required Community Bank to subordinate its interest in the Great Lakes collateral to Great Lakes’ security; Great Lakes contends this defines collateral broadly.
- Great Lakes later asserted its priority lien over the policy as part of collateral; Community Bank claims the policy is not part of Great Lakes collateral and retains senior priority.
- Gabriel Oak Park filed for bankruptcy in 2012; Community Bank sought to receive policy proceeds but Sun Life refused, citing potential multiple liability due to overlapping assignments.
- Court proceedings began with Sun Life depositing policy proceeds; Community Bank and Great Lakes cross-moved for summary judgment; later, Community Bank moved to strike portions of Great Lakes’ pleadings; the court denied the strikes in part and denied both summary judgments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Intercreditor Agreement subordinates Community Bank’s interest to Great Lakes’ in the Policy. | Great Lakes: Policy is part of Great Lakes collateral; subordination applies. | Community Bank: Policy not part of Great Lakes collateral; no subordination. | Intercreditor Agreement not applicable to Policy; Community Bank has priority. |
| Whether Community Bank’s assignment of the Gabriel Oak Park Note affected priority in the Policy. | Great Lakes: reciprocal assignments strip Community Bank of priority. | Community Bank: assignments preserved by broad language; priority survives. | Reciprocal assignments did not strip Community Bank of priority; its interest remains. |
| Whether there is outstanding debt to secure the Policy interest. | Great Lakes: Gabriel Oak Park debt to Community Bank is extinguished; no security. | Community Bank: debt exists; supports priority in the Policy. | Genuine issue of material fact on debt existence; summary judgment denied on this point. |
| Whether the Policy is part of Great Lakes’ collateral under Michigan law interpretation of the Intercreditor Agreement. | Great Lakes: extrinsic evidence supports inclusion of Policy in collateral; latent ambiguity. | Community Bank: plain language excludes Policy from collateral. | Policy not part of Great Lakes collateral under plain-meaning interpretation; disentitles subordination. |
Key Cases Cited
- Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286 (7th Cir. 1989) (motions to strike and affirming narrowing of pleadings under Rule 12(f))
- Reis Robotics USA, Inc. v. Concept Indus., Inc., 462 F. Supp. 2d 897 (N.D. Ill. 2006) (use of Rule 8(b) to assess pleadings; striking deficient answers)
- Talbot v. Robert Matthews Distrib. Co., 961 F.2d 654 (7th Cir. 1992) (discretion to strike pleadings for immaterial or insufficient defenses)
- State Farm Mut. Auto Ins. Co. v. Riley, 199 F.R.D. 276 (N.D. Ill. 2001) (Rule 8(b) requirements; no ‘strict proof’ language in pleadings)
- Coates v. Bastian Brothers, Inc., 741 N.W.2d 543 (Mich. App. 2007) (ambiguous contract interpretation; extrinsic evidence when latent ambiguity)
- Grosse Pointe Park v. Mich. Mun. Liab. & Prop. Pool, 702 N.W.2d 106 (Mich. 2005) (determinative approach to contract ambiguity under Michigan law)