Capital One Equip. Fin. Corp. v. Adela Inc., No. 17‑cv‑0304, 2017 U.S. Dist. LEXIS 181632 (N.D. Ill. Nov. 2, 2017)
In a motion for summary judgment, the District Court for the Northern District of Illinois (the “Court”) found that borrowers and guarantors were in default and liable to the creditor for the unpaid amounts on their loans and guaranties.
Capital One Equipment Finance Corporation (“Capital One”) sought to recover the aggregate principal amount, as well as costs, attorneys’ fees, and interest, with respect to 32 mature and unpaid loans (the “Loans”) to Adela Inc. and related parties (the “Borrower Defendants”) received from Transit Funding Associates 4, LLC (“Transit Funding“) and Tri‑Global Financial Services, Inc. (“Tri‑Global”) (collectively, the “Original Lenders”). The Loans were guaranteed by affiliates of the Borrower Defendants (the “Guarantor Defendants”; together with the Borrower Defendants, the “Defendants”) pursuant to a separate payment Guaranty. The Borrower Defendants executed and delivered a single Promissory Note for each Loan (each a “Note”).
Capital One entered into a Master Joint Participation Agreement (“MJPA”) with Tri‑Global in August 2010 and Transit Funding in March 2010. The MJPAs gave Capital One the right to revoke servicing from the Original Lenders and to enforce the Loans. The MJPA required the Original Lenders to deliver to Capital One the original Note executed in connection with each Loan, an allonge indorsing each Note to Capital One, and a present assignment of the loan, guarantees, and other documents the Defendants executed in connection with each Loan. Capital One exercised its rights pursuant to the MJPA to terminate the Original Lenders’ rights to enforce the subject Loans and to succeed to their rights to enforce the Loans. Additionally, at the closing of each Loan, the Original Lenders executed an assignment and transfer agreement (“Assignment and Transfer Agreements”), which assigned and transferred all their rights in each Loan to Capital One. Capital One also took possession of the Notes in connection with each Loan at or shortly after closing and the Original Lenders authorized Capital One to indorse the Notes, but all payments Borrower Defendants made on the Loans were to the Original Lenders.
Ultimately, the Borrower Defendants defaulted in the payment on the Loans. Capital One then filed suit against the Defendants to recover the full amount remaining on the Loans. The Defendants did not dispute that the Loans were in default; however, they argued that Capital One could not enforce the Loans because the MJPAs underlying Capital One’s relationship with the Original Lenders were missing certain documents and attachments and some of the Assignment and Transfer documents were executed in blank and therefore did not include sufficient information to be enforceable. The Court disagreed, holding that Capital One could enforce the Loans purely on the basis of its possession of the Notes and Allonges which granted Capital One the right to enforce the Loans and guaranties. Accordingly, the Court found that the Defendants’ arguments regarding the MJPAs and the allegedly missing documents from the MJPAs were not relevant.
In respond to the Defendants’ claim that Capital One could not enforce the Loans based upon deficiencies in the MJPAs, Capital One argued that (1) Defendants, as non‑parties to the Assignment and Transfers assigning their respective Loans to Capital One, did not have standing to attack those assignments; (2) the Assignments and Transfers were sufficiently identifiable because Capital One maintained them with all the documents it received from the Original Lenders consistent with Capital One’s regular business practices; and (3) the Participation Schedule, which was attached to the transfer documents, identified each Loan, and thus the transfer documents read as a whole sufficiently identified which Assignment and Transfer documents related to each Loan.
The Court agreed with Capital One. The Court noted that the Defendants did not have standing to challenge the validity of the Assignment and Transfer documents because they were not parties to those assignments. Accordingly, the Defendants only have standing to challenge the assignment if the defect Defendants identify in the assignment would render it void. Here, the blank line in the Assignment and Transfer documents did not render the assignment void because the assignment of Loans was effectuated through multiple documents, including not only the Assignment and Transfer documents, but also the Participation Schedule. Additionally, since the Participation Schedule associated clearly identified the name of the original borrower and provided identifying information about the Loans, the relevant collective documentation contained sufficient identifying information about the original borrowers and the assigned Loans to render the assignment valid. For the foregoing reasons, the Court granted Capital One’s motion for summary judgment.
