Ppm Finance, Incorporated, in Its Capacity as Agent for Jackson National Life Insurance Company, Plaintiff-Counter-Defendant-Appellee v. Norandal Usa, Incorporated, Defendant-Counter-Plaintiff-Appellant v. Ppm America Special Investments Cbo Ii, L.P. And Ppm America Special Investments Fund, L.P., Counter-Defendants-Appellees

Citation: 392 F.3d 889Docket: 04-1401

Court: Court of Appeals for the Seventh Circuit; December 15, 2004; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Jackson National Life Insurance Company sued Norandal USA, Incorporated for $4.4 million, claiming Norandal breached a subordination agreement by not returning payments received from Scottsboro while it was in default. Scottsboro had obtained funding from both Jackson and PPM America for an acquisition of Norandal's processing plant, leading to a subordination agreement designating Jackson's senior security interest. Despite Scottsboro defaulting on payments, Jackson continued to extend credit, allowing Scottsboro to make payments to Norandal. Jackson did not notify Norandal of these defaults until after filing for Scottsboro's bankruptcy. Norandal counterclaimed, arguing that Jackson's failure to provide timely notice of defaults negated its right to recovery. The case centers around contract interpretation under Illinois law, focusing on the clarity of the subordination agreement's language. The district court's summary judgment favoring Jackson is subject to de novo review.

Under the subordination agreement, Norandal is prohibited from accepting payments from Scottsboro while Scottsboro is in default to Jackson. Section 2.3 explicitly states that no payments may be made by Scottsboro or received by Norandal until the Senior Debt is fully paid, except for scheduled payments on an unaccelerated basis if no Senior Default is occurring. Furthermore, Section 2.5 mandates that any payments received by Norandal in violation of this restriction must be held in trust for Jackson and used to pay down the Senior Debt. The district court found these provisions to be clear and unambiguous, requiring Norandal to return any payments received from Scottsboro during its default.

Norandal contends that the agreement is ambiguous, claiming that the payments made were permissible because Jackson facilitated them by extending further loans to Scottsboro. However, the court determined that such loans do not affect the obligations outlined in section 2.3, which clearly prohibits payments during default. Norandal also argues that Jackson's failure to notify it of Scottsboro's default should prevent Jackson from recovering the funds. The district court noted that there is no requirement in the subordination agreement for Jackson to notify Norandal of such defaults, and Norandal had specifically requested a notice provision during negotiations, which Jackson declined.

Norandal presents three arguments regarding the lack of a notice requirement in a subordination agreement, all of which are rejected. Firstly, Norandal claims that the absence of a notice provision indicates a "gap" that should be filled, but this argument is forfeited due to its failure to raise it in the district court. Even if considered, the argument is deemed frivolous, as the parties had deliberately excluded a notice requirement from the agreement, indicating it was not an oversight. Courts do not rewrite contracts for dissatisfied parties. Secondly, Norandal contends that the inclusion of "senior default notice" in the definition section necessitates notification, but this term does not confer any rights as it is not referenced elsewhere in the agreement. In contrast, "subordinated default notice" is defined and explicitly requires Norandal to notify Jackson if Scottsboro defaults, highlighting the lack of a reciprocal obligation. Lastly, Norandal argues that the district court erred by not considering extrinsic evidence to demonstrate a notice requirement. However, courts only examine extrinsic evidence when an agreement is ambiguous, which this one is not. Furthermore, the evidence presented by Norandal does not substantiate its claim, as Jackson's prior notification of default does not imply an obligation to notify earlier in the process.

Norandal argues that the district court erred in determining there was no genuine issue of material fact regarding Scottsboro's default status. Krupinski provided testimony and financial statements indicating Scottsboro's failure to meet key financial ratios, unauthorized capital expenditures, undisclosed inventory, and a labor strike, all of which violated the subordination agreement. Norandal's defense relied on Jeff Podwika's vague testimony, which did not specifically counter Krupinski's evidence of default. Consequently, Norandal's lack of concrete evidence to suggest non-default undermines its claim for a jury trial, as established in Salvadori v. Franklin Sch. Dist.

Additionally, Norandal contested Krupinski's credibility, asserting he lacked personal knowledge of Scottsboro's default. However, Krupinski was involved in preparing the financial statements and thus had relevant knowledge. Norandal failed to specify which parts of his testimony were beyond his knowledge, and under Fed. R. Civ. P. 30(b)(6), Krupinski was permitted to testify on matters available to the organization.

Lastly, Norandal claimed that Jackson waived its recovery rights by facilitating payments to Scottsboro. The court disagreed, noting that waiver must be in writing per the agreement, which was not fulfilled. Norandal's assertion that Jackson's post-default loans implied waiver was rejected as the loans did not contradict Jackson's intention to recover funds, consistent with section 3 of the agreement allowing for additional loans without impacting Norandal's obligations.

Norandal contests the district court's decision to award prejudgment interest, which is reviewed for abuse of discretion. Under the Illinois Interest Act, creditors are entitled to 5% annual interest on overdue amounts tied to a written instrument. The purpose of prejudgment interest is to restore the plaintiff to a whole position. For a creditor to prove debt on such an instrument, three criteria must be met: a written instrument establishing indebtedness, an explicit or inherent due date, and the ability to easily calculate the indebtedness. 

In this case, all criteria were satisfied. Norandal argued the subordination agreement lacked a specified due date for payments, but the agreement indicated that payment was due upon Norandal’s failure to remit payments from Scottsboro, which was in default to Jackson. This established a clear default date, recognized as an inherent due date for prejudgment interest. Norandal also claimed no debtor-creditor relationship existed since Jackson did not loan money; however, the Illinois Interest Act applies broadly to all creditors, not just lending institutions. The agreement positioned Norandal as a debtor to Jackson. Furthermore, Norandal's assertion that the owed amount was not easily calculable was dismissed as unfounded, given that it received 15 payments totaling nearly $3.8 million after Scottsboro's default. The district court's judgment is thus affirmed.