BANK OF AMERICA, N.A., Plaintiff, v. OBERMAN, TIVOLI & PICKERT, INC., Defendant.
No. 13 C 1168
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
January 22, 2014
Chief Judge Rubén Castillo
Plaintiff Bank of America, N.A. (“BOA“) brings this action for breach of contract against Defendant Oberman, Tivoli & Pickert, Inc. (“OTP“). Presently before the Court is OTP‘s motion to dismiss the complaint pursuant to
RELEVANT FACTS
BOA is a national banking association organized in Delaware with its principal place of business in Charlotte, North Carolina. (R. 1, Compl. ¶ 1.) OTP is a California corporation with its principal place of business in Los Angeles, California. (Id. ¶ 4.) On or around May 6, 2003, Merrill Lynch Business Financial Services, Inc. (“MLBFS“) and OTP entered into a WCMA1 Loan and Security Agreement (the “Loan Agreement“). (Id. ¶ 5.) As relevant here, Section 3.7(d) of the Loan Agreement states:
Customer shall pay or reimburse MLBFS for . . . (iii) all fees and out-of-pocket expenses (including attorneys’ fees and legal expenses) incurred by MLBFS in connection with the preparation, execution, administration, collection, enforcement, protection, waiver or amendment of this Loan Agreement, the other Loan Documents and such other instruments or documents, and the rights and remedies of MLBFS thereunder and all other matters in connection therewith.
(R. 1-1, Ex. A, Loan Agreement at 11, § 3.7(d).)
On or around December 31, 2007, OTP filed a complaint in California state court against BOA and Merrill Lynch Pierce Fenner & Smith, Inc. (“Merrill Lynch“) asserting claims arising out of the Loan Agreement. (Id. ¶ 15.) BOA moved to dismiss the case based on the forum selection clause in the Loan Agreement; the California court granted the motion on March 2, 2009. (Id. ¶¶ 16-17.) Around August 15, 2009, OTP filed a substantially identical suit against BOA and Merrill Lynch in the Circuit Court of Cook County, Illinois asserting breach of contract, fraud, and breach of fiduciary duty. (Id. ¶ 18.) BOA and Merrill Lynch moved to dismiss the complaint pursuant to
Undeterred, OTP appealed the circuit court‘s dismissal of its third amended complaint, and the Illinois Court of Appeals for the First District affirmed the lower court‘s dismissal on December 31, 2012. (Id. ¶¶ 31-32.) BOA alleges that it incurred $125,322.13 in attorneys’ fees and costs to defend against the California suit and $138,221.15 in attorneys’ fees and costs to defend against the Illinois suit and subsequent appeal. (Id. ¶¶ 33-35.) On February 7, 2012, BOA sent a demand letter to OTP demanding reimbursement for the attorneys’ fees pursuant to Section 3.7(d)(iii) of the Loan Agreement. (Id. ¶ 37.) On January 16, 2013, BOA sent a second demand letter. (Id. ¶ 38.) To date, OTP has failed to reimburse BOA the requested attorneys’ fees and costs. (Id. ¶ 39.) BOA now seeks to recover the attorneys’ fees and costs incurred in
PROCEDURAL HISTORY
BOA initiated the present action on February 12, 2013. (R. 1, Compl.) The one-count complaint alleges that OTP breached its obligations under the Loan Agreement by refusing to reimburse BOA for the attorneys’ fees and costs BOA incurred defending against OTP‘s suits. (Id. ¶ 43.) On April 16, 2013, OTP moved to dismiss the complaint pursuant to
LEGAL STANDARDS
A motion under
A document that is attached to a pleading “is a part of the pleading for all purposes.”
ANALYSIS
I. Jurisdiction and applicable law
BOA avers that this Court has diversity jurisdiction pursuant to
A federal court sitting in diversity applies state substantive law and federal procedural law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 80 (1938). The Erie doctrine extends to conflict of laws principles and requires the Court to apply the conflict of laws rules of the forum state to determine which state‘s substantive law applies. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941). Courts are to “honor reasonable choice-of-law stipulations in contract cases,” Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009), however, and are “not [to] worry about conflict of laws unless the parties disagree on which state‘s law applies.” Wood v. Mid-Valley Inc., 942 F.2d 425, 427 (7th Cir. 1991). The Loan Agreement stipulates that it “shall be governed in all respects by the laws of the State of Illinois.” (R. 1-1, Ex. A, Loan Agreement at 11, § 3.7(i).) Additionally, both parties cite Illinois law in their submissions to the Court. (See R. 9, Def.‘s Mot.; R. 13, Pl.‘s Resp.) Accordingly, the Court will apply Illinois contract law to determine whether BOA has sufficiently stated a claim for breach of contract.
II. Whether Section 3.7(d) is ambiguous
OTP first argues that Section 3.7(d) is unenforceable because it is ambiguous. (R. 9, Def.‘s Mot. at 2.) To be enforceable, the terms of a contract “must be clear, certain and free from ambiguity and doubt.” Morey v. Hoffman, 145 N.E.2d 644, 647 (Ill. 1957). Whether a contract is ambiguous is a matter of law. Quake Constr., Inc. v. Am. Airlines, Inc., 565 N.E.2d 990, 994 (Ill. 1990).
Section 3.7(d) has three subsections, but all of them are introduced by the common language at the beginning of Section 3.7(d), which is entitled “Fees, Expenses and Taxes“: “Customer shall pay or reimburse MLBFS for . . .“. The Court finds that language unambiguous and not susceptible to any interpretation other than OTP‘s agreement to pay MLBFS, now BOA. Subsection (iii) of Section 3.7(d), which is at issue here, continues the sentence:
all fees and out-of-pocket expenses (including attorneys’ fees and legal expenses) incurred by MLBFS in connection with the preparation, execution, administration, collection, enforcement, protection, waiver or amendment of this Loan Agreement, the other Loan Documents and such other instruments or documents, and the rights and remedies of MLBFS thereunder and all other matters in connection therewith.
(R. 1-1, Ex. A, Loan Agreement at 11, § 3.7(d)(iii).) The Court finds this section unambiguous as well, at least insofar as is it applies to the present dispute. The Court cannot find within the above language some interpretation that does not require OTP to reimburse BOA for the attorneys’ fees and legal expenses it incurred in connection with enforcing the Loan Agreement, specifically by defending suits brought by OTP in court. OTP argues that Section 3.7(d)(iii) only entitles BOA to collect attorneys’ fees in connection with the other documents that were filed and recorded. (R. 15, Def.‘s Reply at 2.) This tortured reading eliminates the explicit inclusion
Alternatively, even if the Court were to find Section 3.7(d) to be ambiguous, the Court would not have grounds to dismiss the complaint. If a court determines that a contract is ambiguous, parol evidence is admitted to determine the parties’ intent, and the interpretation of the language becomes a question of fact that the court cannot properly determine on a motion to dismiss. Quake Constr., 565 N.E.2d at 994. Thus, if OTP had prevailed in convincing this Court that the provision is ambiguous as a matter of the law, the next step would be to begin discovery and proceed before a fact finder to determine the meaning of Section 3.7(d)—not to dismiss the suit. Accordingly, the Court declines to dismiss the complaint on the grounds of ambiguity.
III. Whether Section 3.7(d) is unreasonable
OTP next argues that the attorneys’ fee provision in the Loan Agreement is unreasonable. (R. 9, Def.‘s Mot. at 4.) OTP contends that the provision is unreasonably broad because it does not state that the attorneys’ fees must be reasonable and because it does not limit BOA to collecting attorneys’ fees only when it prevails. (Id. at 4-5.) In Illinois, the unsuccessful party in a lawsuit is not responsible for the prevailing party‘s attorneys’ fees unless there is a contract provision altering the general rule. Powers v. Rockford Stop-N-Go, Inc., 761 N.E.2d 237, 240 (Ill. App. Ct. 2d Dist. 2001). Any contract provisions regarding attorneys’ fees “should be strictly construed and enforced at the discretion of the trial court.” Id. By “strictly construing” the contract, the Court must “construe[ ] it to mean nothing more—but also nothing less—than the letter of the text.” Erlenbush v. Largent, 819 N.E.2d 1186, 1189 (Ill. App. Ct. 4th Dist. 2004). When attorneys’ fees are specifically authorized by the contract, however, it is an “error
In support of its position that Illinois public policy concerns do not allow for the enforcement of a provision that would allow the breaching party to collect attorneys’ fees, OTP relies on an unpublished Illinois appellate court decision, Atlantis Products, Inc. v. Meridian Fence & Security, L.P., 2012 IL App (2d) 110521-U, at *9 (Ill. App. Ct. 2d Dist. Mar. 22, 2012). (R. 9, Def.‘s Mot. at 4-5.) In Atlantis Products, however, the plaintiff sought to enforce the attorneys’ fees provision even though it had breached the material terms of the contract. Id. The Illinois appellate court held that to allow a non-prevailing party to collect attorneys’ fees would be contrary to public policy, and it distinguished its holding from cases in which the non-breaching parties were allowed to collect attorneys’ fees. Id. (citing Bright Horizons Children‘s Centers, LLC v. Riverway Midwest II, LLC, 931 N.E.2d 780, 798 (Ill. App. Ct. 1st Dist. 2010); Peleton, Inc. v. McGivern‘s Inc., 873 N.E.2d 989, 995 (Ill. App. Ct. 1st Dist. 2007); Erlenbush, 819 N.E.2d at 1190; Powers, 761 N.E.2d at 240; Myers, 576 N.E.2d at 457). In each of the cases the court distinguished in Atlantis, prevailing parties were awarded attorneys’ fees due to specific contractual provisions allowing for fee-shifting, such as the provision in Section 3.7(d).
OTP argues that the absence of language limiting BOA‘s ability to recover to situations in which it is the prevailing party in Section 3.7(d) would allow BOA to recover if it did not prevail and demonstrates the unreasonability of the provision. (R. 15, Def.‘s Reply at 3-4.) OTP does not provide any caselaw indicating that an attorneys’ fees provision must have “prevailing
This Court is charged with using its discretion to award reasonable attorneys’ fees. See Brzozowski, 618 N.E.2d at 411; LaHood v. Couri, 603 N.E.2d 1165, 1170 (Ill. App. Ct. 3d Dist. 1992). Accordingly, the Court is untroubled by the absence of language explicitly limiting BOA‘s recovery to “reasonable” attorneys’ fees or to when it is the prevailing party. Although it
IV. Whether Section 3.7(d) applies to the instant case
OTP next argues that, read within the context of the entire Loan Agreement, Section 3.7(d) applies only to third-party claims and does not allow first-party claims for reimbursement. (R. 9, Def.‘s Mot. at 5.) “A court must construe the meaning of a contract by examining the language and may not interpret the contract in a way contrary to the plain and obvious meaning of its terms.” Dean Mgmt., Inc. v. TBS Constr., Inc., 790 N.E.2d 934, 939 (Ill. App. Ct. 2d Dist. 2003). “Furthermore, the court must place the meanings of words within the context of the contract as a whole.” Id. “A court will neither add language or matters to a contract about which the instrument itself is silent, nor add words or terms to an agreement to change the plain meaning” of the agreement. Id. (quoting Sheehy v. Sheehy, 702 N.E.2d 200, 204 (Ill. App. Ct. 1st Dist. 1998)).
Section 3.5 of the Loan Agreement refers to “Events of Default,” and Section 3.6 refers to “Remedies.” (R. 1-1, Ex. A, Loan Agreement at 8-9, §§ 3.5, 3.6.) Consequently, OTP argues, Section 3.7, entitled “Miscellaneous,” refers to “fees and expenses from third party claims,” not from proceedings in connection with events of default. (R. 9, Def.‘s Mot. at 5.) Sections 3.5 and 3.6 do pertain to the first-party relationship between BOA and OTP, but there is no reason to interpret these sections as encompassing the totality of the scope of the parties’ mutual
In addition, OTP‘s contention that the Section 3.7(d)(iii) applies only to attorneys’ fees incurred in third-party litigation is unsupported by the plain text of the provision itself. Section 3.7(d) begins: ”Customer shall pay or reimburse . . .” (R. 1-1, Ex. A, Loan Agreement at 11, § 3.7(d)) (emphasis added). “Customer” means OTP here, and thus the plain meaning of Section 3.7(d)(iii) is that it allows BOA to seek reimbursement for attorneys’ fees directly from OTP. From both its express language and its context within the structure of the contract, the Court concludes that Section 3.7(d) does not apply to only third-party litigation and that it provides a basis upon which BOA may seek reimbursement from OTP.
Seeking to avoid this result, OTP argues that BOA should not be allowed to collect attorneys’ fees because BOA did not initiate the underlying litigation. (R. 15, Def.‘s Reply at 4-5). OTP relies on Housing Authority of Champaign County v. Lyles, 918 N.E.2d 1276 (Ill. App. Ct. 4th Dist. 2009), to support its contention that BOA cannot recover attorneys’ fees because Section 3.7(d) does not provide for the recovery of attorneys’ fees “for defending the Loan Agreement.” (Id. at 5.) The Illinois appellate court in Lyles held that the defendant was not
The key distinction between the Lyles and the present case is that the attorneys’ fees provision in the Loan Agreement does not limit BOA‘s recovery to costs incurred in “enforcing” the contract. Instead, Section 3.7(d) specifically allows for the recovery of attorneys’ fees and costs incurred “in connection with the preparation, execution, administration, collection, enforcement, protection, waiver or amendment” of the Loan Agreement. When a contract fails to explicitly define its terms, “the court must give the contractual language its common and generally accepted meaning.” Dean Mgmt., 790 N.E.2d at 939. Black‘s Law Dictionary unhelpfully defines “protection” as “The act of protecting,” without providing a definition for “protect” or “protecting.” Black‘s Law Dictionary (9th Ed. 2009). The Oxford English Dictionary defines “protect” as “To defend or guard from danger or injury; to support or assist against hostile or inimical action; to preserve from attack, persecution, harassment, etc.” (OED 3d Ed. 2007). The Court concludes that defending against OTP‘s suits constitutes protection of the Loan Agreement within the meaning of Section 3.7(d). Thus, the plain language of Section 3.7(d) does not preclude BOA‘s recovery of the attorneys’ fees at issue here.
For the reasons set forth above, OTP‘s
ENTERED: Chief Judge Rubén Castillo
United States District Court
Dated: January 22, 2014