YL Chi. Fund, LLC v. 5035 N. Lincoln Ave., LLC

YL CHICAGO FUND, LLC, Plaintiff, v. 5035 N. LINCOLN AVENUE, LLC; 5015 N. LINCOLN AVENUE, LLC;5019 N. LINCOLN AVENUE, LLC; 5025 N. LINCOLN AVENUE, LLC;5029 N. LINCOLN AVENUE, LLC; ZIVKOVIC FAMILY HOLDINGS,LLC; and JOSEPH ZIVKOVIC, Defendants.

No. 20-cv-3940

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

December 7, 2020

Judge Franklin U. Valderrama

MEMORANDUM OPINION AND ORDER

YL Chicago Fund, LLC ("Plaintiff") filed an action for Confession of Judgment and Declaratory Relief against 5035 N. Lincoln Avenue, LLC ("Borrower") and each of six Guarantors (5015 N. Lincoln Avenue, LLC; 5019 N. Lincoln Avenue, LLC; 5025 N. Lincoln Avenue, LLC; 5029 N. Lincoln Avenue, LLC; Zivkovic Family Holdings, LLC; and Joseph Zivkovic) (collectively, "Defendants") following Borrower's default on a promissory note. On July 10, 2020, based on a confession of judgment provision included in the promissory note and the securing commercial guaranty agreements, the Court issued an Order of Judgment by Confession against Defendants and awarded damages to Plaintiff in the amount of $2,742,307.00 plus late fees, attorneys' fees, expenses, and other reasonable costs. R. 10, Judgment.¹ Defendants now moveto vacate the Court's Judgment pursuant to Federal Rules of Civil Procedure 60(b)(4) and 60(b)(6). R. 13, Mot. to Vacate. Defendants also move to strike a declaration filed as an exhibit to Plaintiff's Sur-Reply in Opposition to the Motion to Vacate. R. 33, Mot. to Strike. For the reasons stated below, the Court denies Defendants' Motion to Strike as moot and denies Defendants' Motion to Vacate.

Background

On or about September 6, 2019, Borrower obtained a loan in the principal amount of $1.3 million from YL Chicago Fund, LLC (the "Loan"). R. 1, Compl. ¶ 15. The Loan was evidenced by a Secured Promissory Note between Borrower and Plaintiff, signed by Borrower's representative and notarized as of September 5, 2019 (the "Note"). Compl., Exh. 1, Note. The Note details the sum of the borrowed principal, includes a formula for calculating owed interest on the principal, and attaches a loan payment schedule. Paramount to this lawsuit, the Note also contains a confession of judgment clause, which, in the event of default, authorizes any attorney to confess judgment on behalf of Plaintiff for the unpaid Note amount. Specifically, the Note reads, in relevant part:

FOR VALUE RECEIVED, the undersigned, 5035 N. Lincoln Avenue, LLC, an Illinois limited liability company ("Maker"), promises to pay to the order of YL Chicago Fund LLC, an Illinois limited liability company ("Holder"), the principal sum of

One Million Three Hundred Thousand and No/100 Dollars ($1,300,000.00)

with interest from the date of this Note on the balance of principal remaining from time to time unpaid at the rate of the ninety three percent (93%) per annum, compounding monthly, from the date of this Note until paid, or the maximum amount allowed by applicable law,whichever is less, until the entire "Indebtedness" is paid in full. Interest shall be computed on the basis of a year of 360 days and the actual number of days elapsed.

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Maker will make payments pursuant to the payment schedule on Exhibit A attached hereto (each such payment a "Note Payment") until the Indebtedness is paid in full. [...] 180 days after the date of the Note ("First Payment Due"); Note Payment amount due: $800,000.00 [...].

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[I]f [...] default continues uncured for ten (10) days after notice specifying the default, shall at the election of the Holder cause the entire unpaid Indebtedness to become due and payable at once [...].

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5. [BORROWER] HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY-AT-LAW TO APPEAR IN ANY COURT OF RECORD AND TO CONFESS JUDGMENT AGAINST [BORROWER] FOR THE UNPAID AMOUNT OF THIS NOTE AS EVIDENCED BY AN AFFIDAVIT SIGNED BY AN OFFICER OR MANAGER OF [PLAINTIFF] SETTING FORTH THE AMOUNT THEN DUE, ATTORNEY'S FEES PLUS COSTS OF SUIT, AND TO RELEASE ALL ERRORS, AND WAIVE ALL RIGHTS OF APPEAL. IF A COPY OF THIS NOTE VERIFIED BY AN AFFIDAVIT, SHALL HAVE BEEN FILED IN THE PROCEEDING, IT WILL NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY. [BORROWER] WAIVE [SIC] THE RIGHT OF ANY STAY OF EXECUTION AND THE BENEFIT OF ALL EXEMPTION LAWS NOW OR HEREAFTER IN EFFECT. NO SINGLE EXERCISE OF THE FORGOING WARRANT AND POWER TO CONFESS JUDGMENT WILL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE INVALID, VOIDABLE, OR VOID; BUT THE POWER WILL CONTINUE UNDIMINISHED AND MAY BE EXERCISED FORM [SIC] TIME TO TIME AS [PLAINTIFF] MAY ELECT UNTIL ALL AMOUNTS OWING ON THIS NOTE HAVE BEEN PAID IN FULL. [BORROWER] HEREBY WAIVES AND RELEASES ANY AND ALL CLAIMS OR CAUSES OF ACTION WHICH [BORROWER] MIGHT HAVE AGAINST ANY ATTORNEY ACTING UNDER THE TERMS OF AUTHORITY WHICH BORROWER HAS GRANTED HEREIN

ARISING OUT OF OR CONNECTED WITH THE CONFESSION OF JUDGMENT HEREUNDER.

Note at 1-2, 4.

Payment and performance of the Note was guaranteed pursuant to a Guaranty Agreement between Plaintiff and each of the six Guarantors (a "Guaranty" and collectively, the "Guarantees"). Compl., Exhs. 2-7, Guarantees. Under the Guarantees, each of the Guarantors unconditionally and irrevocably guaranteed full and punctual payment and satisfaction of the indebtedness of Borrower to Plaintiff for the Loan and all of Borrower's obligations to Plaintiff under the Note and other loan documents. Id.; see also Compl., ¶ 17. The Guarantees each contained a confession of judgment provision identical to the confession of judgment provision included in the Note (copied above). See, e.g., Compl., Exh. 2 ¶ 23. The Loan was additionally secured by a Pledge Agreement dated as of September 6, 2019. Compl., Exh. 8, Pledge Agreement.

Plaintiff maintains that in March of 2020, Borrower defaulted under the Note by failing to timely make the first payment of $800,000.00 per the Payment Schedule, among other defaults. Compl. ¶ 19. On June 19, 2020, Plaintiff delivered a notice of default to Borrower and copied the Guarantors. Compl., Exh. 9, Notice of Default. At that point, the amounts due under the Note were accelerated. Compl. ¶ 21. According to Plaintiff, neither Borrower nor Guarantors had paid Plaintiff the amounts due and owing under the Loan or otherwise cured any of the defaults as required under the Note and Guarantees. Id.

Accordingly, and pursuant to the Note and Guarantees' confession of judgment provisions, Plaintiff filed a federal suit for confession of judgment and declaratory relief on July 6, 2020. Compl. ¶ 1. Plaintiff contemporaneously filed the Declaration of Yuval Lapidot, Plaintiff's manager, with the Complaint. R. 2, Lapidot Decl. In his Declaration, Mr. Lapidot testified that as of the filing of the lawsuit, the amount of principal and interest due and owing to Plaintiff under the Loan and pursuant to the Note was $2,742,307.00 (comprised of $1,300,000.00 in principal and $1,442,307.00 in calculated interest). Id. at ¶ 9. Mr. Lapidot further testified that $2,742,307.00 was exclusive of late fees, attorneys' fees, costs, and expenses. Id.

On July 9, 2020, Plaintiff filed a motion for partial judgment on the pleadings as to Counts I through VII of the Complaint (the "Confession Counts"), asserting that the Court should enter judgment where Borrower and each of the Guarantors have confessed judgment (per the confession of judgment provisions of the Note and Guarantees) and waived any and all defenses. R. 7, Mot. Part. J. On July 10, 2020, the Court² entered an Order of Judgment by Confession. See Judgment at 2 ("Borrower and each of the Guarantors, by its or his attorney, consents to the entry of judgment in favor of YL and against each of Borrower and Guarantors, jointly and severally, for the amount of the damages for the sum of $2,742,307.00 and for late fees and attorneys' fees, expenses and other reasonable costs of collection.").

On July 31, 2020, three weeks after the Judgment was entered, Defendants' attorney filed an appearance and moved to vacate the Court's Judgment. R. 12, Defs.'Att'y App.; Mot. to Vacate. In the course of briefing the Motion to Vacate, Defendants raised a new argument in their Reply brief concerning a Note provision regarding an affidavit. See R. 24, Defs.' Reply at 6-7. The Court afforded Plaintiff an opportunity to respond to this argument. R. 29, 09/09/20 Min. Entry. Plaintiff filed its Sur-Reply³ and attached a Declaration of Plaintiff's counsel, Alon Applebaum. R. 30, Exh. A, Applebaum Decl. Shortly thereafter, Defendants filed a motion to strike Mr. Applebaum's Declaration. R. 33. The Court now rules on both the pending motion to vacate and the motion to strike. The Court addresses the motion to strike as part of the motion to vacate discussion regarding affidavits. See infra at 17-20.

Legal Standards

Under Federal Rule of Civil Procedure 60, a court may relieve a party from a final judgment or order based on one of six reasons. See Fed. R. Civ. P. 60(b)(1)-(6). The Seventh Circuit has clarified that relief under any of Rule 60(b)'s reasons may only be granted "under exceptional circumstances." Wehrs v. Wells, 688 F.3d 886, 890 (7th Cir. 2012); see also Bakery Machinery & Fabrication, Inc. v. Traditional Baking, Inc., 570 F.3d 845, 848 (7th Cir. 2009) (relief from judgment under Rule 60(b) is "an extraordinary remedy and is granted only in exceptional circumstances") (internal citations omitted). This principle is rooted in a "strong policy favoring the finality of judgments." Lee v. Village of River Forest, 936 F.2d 976, 978 (7th Cir.1991) (quoting Margoles v. Johns, 798 F.2d 1069, 1073 (7th Cir. 1986)). Defendants bring their motion to vacate under Rules 60(b)(4) and 60(b)(6).

Rule 60(b)(4) provides that, "[o]n motion and just terms, the court may relieve a party or its legal representative from a final judgment, order or proceeding...[if] the judgment is void[.]" Fed. R. Civ. P. 60(b)(4). "The list...