Paloianv. LaSalle Bank Nat'l Ass'n (In re Doctors Hosp. of Hyde Park, Inc.)

494 B.R. 344

In re DOCTORS HOSPITAL OF HYDE PARK, INC., Debtor.Gus A. 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, Counter–Claim Defendant.

Bankruptcy No. 11 B 11520.

Adversary No. 11 A 01983.

United States Bankruptcy Court,

N.D. Illinois,

Eastern Division.

June 7, 2013.

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

Howard L. Adelman, Esq., Adam P. Silverman, Esq., Adelman, Gettleman, Ltd., Chicago, IL, for LaSalle Bank.

Kathryn M. Gleason, Esq., Office of the U.S. Trustee, Chicago, IL.

David T.B. Audley, Esq., Michael T. Benz, Esq., Chapman and Cutler LLP, Chicago, IL, for LaSalle Bank N.A. as Trustee for Certificates–Holders of Asset Securitization Corp., Commercial Mortgage Pass–Through Certificates, Series 1997 D5, and through its Servicer, ORIX Capital Markets, LLC.

OPINION ON SUMMARY JUDGMENT MOTION OF COUNTER–CLAIMANT PALOIAN ON COUNT I

JACK B. SCHMETTERER, Bankruptcy Judge.

This Adversary Complaint is pleaded by the Chapter 11 Trustee as a counterclaim to assert defenses and offsets to a claim filed by Counterclaim Defendant against the bankruptcy estate.

Gus A. Paloian as Trustee for the bankruptcy estate of Doctors Hospital of Hyde Park, Inc. (“Paloian” or “Trustee”) has moved, pursuant to Rule 7056 Fed. R. Bankr.P. for summary judgment on Count I of the Counterclaim. He seeks judgment declaring and adjudging that the claim filed in the Doctors Hospital bankruptcy case by LaSalle Bank National Association [f/k/a LaSalle National Bank as Trustee for Certificate Holders of Asset Securitization Corporation Commercial Mortgage Pass–Through Certificates, Series 1997, D5, by and through its Servicer, Orix Capital Markets, LLC] (hereinafter “LaSalle”) is offset to the extent of recovery by it from a third party in assertedly related litigation.

INTRODUCTION

In 2000, LaSalle filed a $60 million claim against the Debtor's Estate for the principal balance and other amounts allegedly due on a loan guaranteed by the Debtor. At the same time LaSalle filed suit in a New York District Court to recover damages from Nomura Asset Capital Corporation (“Nomura”), the party who had assigned the loan to LaSalle. That suit was based on provisions in the assignment contract. In July 2006, LaSalle received $67.5 million from Nomura in settlement of the New York Litigation.

The debts claimed due in LaSalle's bankruptcy Proof of Claim are asserted in Count I of the Trustee's Counterclaim to be the same as LaSalle has already recovered in its settlement with Nomura. Movant argues that LaSalle's only damage sought in the New York case was thereby recovered in the litigation settlement, namely the principal balance, interest, and other amounts due on the mortgage loan. Movant argues that LaSalle seeks to recover those very claims a second time by its pending claim against the bankruptcy estate.

The following history is detailed and expanded on in the Undisputed Facts set forth below.

When the borrower on the Nomura Loan HPCH, LLC (“HPCH”) stopped making payments on the loan, LaSalle was thereby injured in the amount of the loan that was unpaid. It sought to recover in three ways. First, it filed a claim against Doctors Hospital's bankruptcy estate based on the hospital's guaranty of the loan. Second, it filed foreclosure proceedings against the real estate owned by the loan borrower. Third, LaSalle sued Nomura who had sold it the loan, asserting in the New York suit that Nomura had breached representations made about quality of the loan. The remedy LaSalle sought from Nomura was damages in the amount of the “repurchase price” of the loan, specifically defined in the assignment contract as an amount equal to the total of loan principal, interest, and related fees. Just as LaSalle's Proof of Claim against the bankruptcy estate sought to remedy its financial loss on the loan, LaSalle's suit against Nomura sought to recover for that same injury. That is why LaSalle, having recovered from Nomura on its Complaint seeking the same recovery, is said to be improperly seeking a double recovery by continuing to pursue its Proof of Claim for collection once again of its claim against the bankruptcy estate that was already paid to it in the settlement.

As applicable state law prohibits a party from seeking a double recovery on the same claim, the Trustee argues that Summary Judgment should offset LaSalle's recovery in the New York case against LaSalle's claim against the bankruptcy estate. As a party to a general release may release others against whom the party has the same claim, it is also argued that the General Release signed by LaSalle in the Settlement also released its Proof of Claim.

The Counterclaim is pleaded in nineteen counts. Only Count I is involved in the Motion for Summary Judgment. As originally presented, it relied on authority allowing only a “single recovery,” authority applicable under both New York and Illinois law. It asserted that LaSalle's Proof of Claim against the bankruptcy estate “should therefore be reduced by the funds and other considerations it received in a settlement of its claims against Nomura in the Nomura Litigation and by any other recoveries that it has received or will received....” Count I of the Trustee's Counterclaim prays for entry of judgment “offsetting the amounts received in the Nomura Settlement or otherwise received by Nomura in connection with the Nomura Loan against the amount claimed in the Proof of Claim and granting such other and further relief as is just and proper.”

The issues initially briefed presented issues that invited consideration of the possible application of non-bankruptcy law holding that giving a general release to a party may release other parties having the same claim. Since the parties had not discussed that precedent, an order (Dated April 10, 2013, Docket No. 84) requested briefing on that issue, and that was done.

No motion is pending under Counts XV and XVI of the Counterclaim that contest portions of the LaSalle claim against the bankruptcy estate. As determined hereinbelow, Paloian is entitled to summary judgment whereby the Nomura settlement payment that was received by LaSalle will be held to offset any valid elements of loan debt claimed by it in the Proof of Claim filed against the bankruptcy estate. Counts XV and XVI and the Claim itself will be set for trial to adjudicate the challenges to the contested elements of the Proof of Claim and to determine whether any net balance is due on the Proof of Claim after crediting the Settlement.

JURISDICTION AND VENUE

Jurisdiction lies under 22 U.S.C. § 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(c),(k), and ( o). Even if it were not core, or if questions under the Constitution as to authority of a bankruptcy judge to enter final judgment might have been considered under Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), the parties expressly consented to entry of final judgment by a bankruptcy judge (Docket Nos. 26 and 27) and such consent would, if necessary, moot any such Constitutional issues that might have been raised by Stern.In re Olde Prairie Block Owner, LLC, 457 B.R. 692, 699 (Bankr.N.D.Ill.2011).

Venue is based on 28 U.S.C. §§ 1408 and 1409.

UNDISPUTED FACTS

Introduction

From submissions of the parties under Local Bankruptcy Rule 7056–1 [pursuant to Rule 7056 Fed. R. Bankr.P.], the following undisputed facts have been demonstrated:

1. On August 28, 1997, Nomura loaned the principal amount of $50 million to HPCH, LLC (“HPCH”) the owner of the real property where the Debtor operated a hospital. (App. 1, ¶ 70) As more fully detailed below, the loan was secured by a mortgage on that property and the Debtor's guaranty. ( Id.) In October 1997, Nomura transferred all of its rights in the Nomura Loan to Asset Securitization Corporation, which in turn transferred its rights to LaSalle. (App. 2, Stipulated Facts ¶ 37)

2. In April 2000 Debtor filed its Chapter 11 petition and shortly thereafter ceased operations. Because HPCH's only source of income was the Debtor's rental payments, and the Debtor had stopped making those payments, HPCH was no longer able to make payments on the Nomura Loan, and LaSalle declared a default. LaSalle then filed a mortgage foreclosure suit against HPCH and a claim in the bankruptcy proceeding based on the Debtor's guaranty of the Nomura Loan. LaSalle's filed claim was broken down as follows (as detailed in its claim filed in the bankruptcy case):

+------------------------------------------------------------------------------+
¦        ¦Principal                                            ¦$47,856,102.39 ¦
+--------+-----------------------------------------------------+---------------¦
¦        ¦Accrued Interest 3/11/00 to 4/17/00 at $12,854.68 per¦$475,623.16    ¦
¦        ¦diem                                                 ¦               ¦
+--------+-----------------------------------------------------+---------------¦
¦        ¦Default Interest from 3/31/00 to 4/17/00 at          ¦$351,024.48    ¦
¦        ¦$19,501.36 per diem                                  ¦               ¦
+--------+-----------------------------------------------------+---------------¦
¦        ¦Yield Maintenance Premium                            ¦$13,111,986.00 ¦
+--------+-----------------------------------------------------+---------------¦
¦        ¦Travel/Inspection Expense                            ¦$1,745.54      ¦
+--------+-----------------------------------------------------+---------------¦
¦        ¦Less Unapplied Funds                                 ¦($1,505,518.83)¦

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