In the
United States Court of Appeals
For the Seventh Circuit
Nos. 11-2928 & 11-3378
BKCAP, LLC, GRAYCAP, LLC, and SWCAP, LLC,
Plaintiffs-Appellees,
v.
CAPTEC F RANCHISE T RUST 2000-1,
Defendant-Appellant.
Appeals from the United States District Court
for the Northern District of Indiana, South Bend Division.
No. 3:07-cv-00637—Roger B. Cosbey, Magistrate Judge.
A RGUED M AY 31, 2012—D ECIDED A UGUST 3, 2012
Before B AUER, S YKES, and T INDER, Circuit Judges.
T INDER, Circuit Judge. Quality Dining, Inc. owns dozens
of restaurants in several states, including Michigan,
Indiana, and Pennsylvania. To refinance its debt,
Quality Dining created subsidiaries (the plaintiffs-appel-
lants or “Borrowers”) and made a deal with Captec
Financial and GE Capital for 34 separate loans totaling
$49 million, with each loan secured by a restaurant. Captec
2 Nos. 11-2928 & 11-3378
Financial assigned 13 of its loans to Captec Franchise
Trust 2000-1 (the defendant-appellee or “Lender”). The
parties disagree about the prepayment requirements for
12 of those loans. This is the second time we have seen
this dispute, but the basic issue in this appeal is the
same as it was in the first: According to the loan agree-
ments, what is the prepayment penalty? In the first
appeal, the ambiguity of the prepayment provision
made answering that question impossible. In this
appeal, we have the benefit of a full trial on the merits.
Because this appeal is successive, we keep the back-
ground to a minimum. Interested readers should
consult our previous opinion. BKCAP, LLC v. Captec
Franchise Trust 2000-1, 572 F.3d 353, 355-57 (7th Cir. 2009)
(“BKCAP-1”). In a nutshell, then, here is what happened:
The Borrowers prepaid all the loans except those held
by the Lender, and they did so according to their own
interpretation of the prepayment provision. The other
lenders and holders’ acceptance of the Borrowers’ inter-
pretation of the prepayment provision, however, did not
convince the Lender that the Borrowers were inter-
preting it correctly, and they rejected prepayment. In
response, the Borrowers filed a complaint seeking a
declaratory judgment and alleging breach of contract.
In 2008, the parties moved for summary judgment.
Magistrate Judge Nuechterlein faced the unenviable task
of parsing the notes’ key provision, which states that
the prepayment premium is
equal to the positive difference between the pres-
ent value (computed at the Reinvestment Rate)
Nos. 11-2928 & 11-3378 3
of the stream of monthly payments of principal
and interest under this Note from the date of the
prepayment through the tenth (10th) anniversary
of the First Full Payment Date at the Stated Rate . . .
and the outstanding principal balance of this
Note as of the date of the prepayment (the “Dif-
ferential ”). In the event the Differential is less
than zero, the Prepayment Premium shall be
deemed to be zero. . . .
Unembellished, this provision always generates a nega-
tive number, and so a prepayment premium of zero. Id.
at 359. But some penalty was obviously intended. To
help Magistrate Judge Nuechterlein decide exactly
what, the parties suggested a couple imaginative read-
ings. The Lender argued that the premium is the difference
between
(1) the present value of the stream of monthly
payments from the date of prepayment through
year 10, plus the outstanding principal balance
at year 10; and
(2) the outstanding principal balance at the date
of prepayment.
The Borrowers saw it rather differently. They argued
the premium is the difference between
(1) the present value of the stream of monthly
payments from the date of prepayment through
year 10 computed at the Reinvestment Rate; and
(2) the present value of the same stream of monthly
payments computed at the Stated Rate of the Note.
4 Nos. 11-2928 & 11-3378
The court thought that the Lender had the better inter-
pretation and granted its motion for summary judgment.
On appeal, we concluded that there was no way to get
either the Lender’s or the Borrowers’ interpretation
from the text alone, and so we reversed and remanded
for the district court to consider extrinsic evidence to
resolve the ambiguity. BKCAP-1 at 362.
After a bench trial, the district court (Magistrate
Judge Cosbey, this time) concluded that extrinsic evi-
dence supported the Borrowers’ interpretation of the
prepayment premium. BKCAP, LLC v. Captec Franchise
Trust, No. 3:07-cv-637, 2011 WL 3022441 (N.D. Ind. July 21,
2011). In response to the Borrowers’ Rule 59 motion,
Judge Cosbey amended the judgment to include prejudg-
ment interest. BKCAP, LLC v. Captec Franchise Trust,
No. 3:07-cv-637, 2011 WL 4916573 (N.D. Ind. Oct. 14,
2011). And, also relevant to this appeal, he had previously
explained why the Lender is not entitled to have its at-
torney’s fees paid by the Borrowers. BKCAP, LLC v.
Captec Franchise Trust, 701 F. Supp 2d 1030 (N.D. Ind. 2010).
The Lender appeals everything, and on a variety of
grounds. See, e.g., Gagan v. Am. Cablevision, Inc., 77 F.3d 951,
955 (7th Cir. 1996) (urging appellants to hunt for relief
on appeal with a rifle, not a shotgun); United States v.
Lathrop, 634 F.3d 931, 936 (7th Cir. 2011) (same; col-
lecting cases).
The Lender’s lead argument is that the district court’s
adoption of the Borrowers’ interpretation of the prepay-
ment provision is clearly erroneous because it is unreason-
able. Woodbridge Place Apts. v. Washington Square Capital,
Nos. 11-2928 & 11-3378 5
Inc., 965 F.2d 1429, 1439 (7th Cir. 1992) (“Resolving the
nature of an ambiguous contract through extrinsic evi-
dence is a factual determination which is evaluated
under the clearly erroneous standard.”). According to
the Lender, not only is that true as a matter of fact,
but, based on what we said in BKCAP-1, it is the law of
the case.
That argument is way off base. The basic point of
BKCAP-1 was that the meaning of the prepayment provi-
sion could not be resolved in favor of the Borrowers or
the Lender based on the provision’s language alone—its
ambiguity prevented it—and so a trial was necessary.
But it is true, as the Lender has been pleased to note,
we did say that the Borrowers’ interpretation was “unrea-
sonable.” BKCAP-1 at 362. Having said that, however,
we did not go on to conclude that the Lender’s interpreta-
tion was reasonable or correct. To the contrary, we said:
Although Lender’s formula has the virtue of
producing a positive Prepayment Premium,
Lender’s concept of a “balloon payment” finds
no support in the contract language.
BKCAP-1 at 360. We did not realize that our failure to
use a parallel construction would cause such confusion.
Let’s clear that up now. Here is what we should have
said: ‘Although Lender’s formula has the virtue of pro-
ducing a positive prepayment premium, Lender’s concept
of a ‘balloon payment’ finds no support in the con-
tract language . . . and therefore, without additional evidence,
it is an unreasonable construction of the provision, and so we
cannot affirm summary judgment for the Lender.’ Fortunately
6 Nos. 11-2928 & 11-3378
the district court was not confused. It understood that
it was to consider extrinsic evidence to uncover the par-
ties’ intent and that nothing we said in the first appeal was
intended to prejudice that determination.
The Lender next argues that the district court’s inter-
pretation is clearly erroneous because it does not
achieve “yield maintenance.” By that the Lender means
that a yield maintenance provision must, by definition,
fully compensate a lender for its losses from prepay-
ment. The problem with the Lender’s fixed-meaning (or
yield-maintenance-by-definition-means-we-win) argu-
ment is that the evidence presented at trial overwhelm-
ingly supports the opposite conclusion. For example,
the Lender’s lead negotiator testified that “yield mainte-
nance” could mean a “couple different things” and an
attorney who worked on the deal for the original
lenders testified that it is a term “thrown around by
borrowers or lenders or other parties as a general
reference of some type of prepayment premium . . . that,
in my view, typically requires more detail in terms of
what that might be.” In fact, every witness that was
involved in the deal when the language was drafted
agreed that “yield maintenance” lacked a mathematically
precise definition. It refers to a prepayment premium
or penalty, but it does not provide (at least not ac-
cording to the evidence presented at trial) useful informa-
tion about precisely how it should be calculated.
The Lender falls back again to argue that its reading
is just better. To this, even if true, our response must be:
So what? The question in this appeal (and the previous
Nos. 11-2928 & 11-3378 7
one, for that matter) is not whether we like one of the
two options better, as if a court reviewing this judgment
is authorized to make that choice. And that was not the
district court’s job either, obviously. The district court’s
job was to look at extrinsic evidence and determine
what the agreement was. It did that. Our job is to decide
if the district court’s view of that evidence was clearly
erroneous (or legally wrong). The Lender’s job on
appeal, if it thinks the district court should be reversed,
is to tell us how the district court’s interpretation was
clearly erroneous (or legally wrong). No matter how
beautiful or elegant, the Lender’s interpretation of the
contested provision will never result in reversal of the
district court unless the Lender can tell us how the
district court erred in viewing the evidence the Borrow-
ers’ way. The argument, ‘The Borrowers’ position
was supported by the evidence presented at trial but our inter-
pretation is way, way better’ is a nonstarter. We are
looking to correct error, not reward elegance.
Finally getting specific, the Lender argues that the
district court should not have allowed the Borrowers’
lead negotiator (John Firth) to testify about an original
lenders’ lead negotiator’s (Robert Schrader’s) construc-
tion of the prepayment provision. Firth, it seems, was
still unclear at closing about the provision (small
surprise, considering its language) and so Schrader took
him aside to explain it. According to Firth, Schrader’s
interpretation was identical to the Borrowers’: The pre-
mium was fixed as the difference between the value of
payments from the date of prepayment through the
tenth anniversary of the note at the reinvestment rate
8 Nos. 11-2928 & 11-3378
and value of the same stream at the stated rate. As the
district court put it, “at closing, Firth and Schrader under-
stood and outwardly manifested their mutual con-
tractual intent that to pay off a note within the first ten
years, the Borrowers would have to pay a pre-payment
premium based on this methodology, together, of course,
with the outstanding principal balance of the note.”
The district court considered Firth’s testimony im-
portant and mentioned it several times in its opinions.
If Firth’s testimony is inadmissible, it is unlikely that
its use was harmless, and the Borrowers do not make
much of an effort to convince us otherwise. But they
don’t think they have to go down that road. They argue
that the statement was not hearsay because it was
offered as a statement of the parties’ mutual intent and
not to prove the truth of Firth’s statement. Fed. R. Evid.
801(c). Catalan v. GMAC Mortg. Corp., 629 F.3d 676, 694-95
(7th Cir. 2011), appears to support their view, and the
district court relied on it in admitting the testimony.
In Catalan, the defendant mortgage company improp-
erly reported to credit agencies that the plaintiff’s home
was in foreclosure. Those reports prevented the plaintiff
from getting loans, including one from LaSalle Bank. A
LaSalle Bank representative testified that the loan re-
quested by the plaintiff would have been denied
regardless of the improper reports about the foreclosure.
The plaintiff, however, testified that a LaSalle Bank loan
officer told her that the loan would not be approved
until the foreclosure was removed. The defendant
argued that the plaintiff’s statement was inadmissible
Nos. 11-2928 & 11-3378 9
hearsay, but we disagreed: “The loan officer’s statement
to [the plaintiff] was not hearsay. It was not an assertion
of a factual matter but a statement describing the
bank’s collective intentions; we won’t approve a loan
until you get the foreclosure issue resolved.” Id. at 694.
Similarly, it was not an abuse of discretion for the
district court to admit Firth’s testimony: It was not
offered for its truth, but as evidence of the parties’ inten-
tions at closing.
Those are the Lender’s main arguments on appeal, but
it presses a few more: The Borrowers’ notice of intent to
prepay was inadequate, the Lender’s repudiation was
not a breach, the Borrowers waived their breach claim
because they kept paying on the notes, and the claims
are moot. Magistrate Judge Cosbey addressed this blast
of meritless arguments with admirable patience and
attention to detail. We find nothing to criticize in his
analysis and see no need to repeat it. BKCAP 2 2011 WL
3022441 at *11-*14 (bad notice, no-breach, waiver);
BKCAP, LLC v. Captec Franchise Trust 2000-1, No. 3:07-cv-
637, 2010 WL 2346323 (N.D. Ind., June 8, 2010) (mootness).
The Lender also appeals the district court’s decisions
on prejudgment interest and attorney’s fees. The
district court did not abuse its discretion in deciding
either. First, prejudgment interest. There is no question
that the Borrowers are entitled to prejudgment interest
after September 2009. The question is whether they are
entitled to prejudgment interest for the two years
between their notice of intent to prepay and the ten-
year anniversary of the loans (when they could prepay
10 Nos. 11-2928 & 11-3378
without penalty). The district court concluded that they
are. The Lender asserts (without explanation) that this
would be double recovery. The Lender’s idea seems to be
that because the damage award is to compensate the
Borrowers for excess interest payments—the higher rate
the Borrowers had to pay because they were not permit-
ted to prepay—the judgment is already prejudgment
interest. But just because this case is, in essence, about
interest does not mean that the Borrowers are not
entitled to the time value of their money. A judgment
stated in today’s dollars does not give them that. To
give them the time value of their money, the district
court correctly awarded prejudgment interest from the
time of their injury—October 2007.
We conclude, as often happens, with a discussion
of attorney’s fees. But the claim in this case is unusual:
The Lender—the judgment loser—insists that the notes’
reimbursement provision entitles it to fees, win or lose.
9. REIMBURSEMENT OF EXPENSES. Borrower
shall reimburse Lender for all costs and expenses,
including attorneys’ fees, incurred by lender in
enforcing the rights of Lender under this Note
or the other Loan Documents.
But this cannot mean win or lose: “Enforcement” means
more than just participating in a lawsuit—being sued. As
the district court put it, “[enforcement] plainly contem-
plates an offensive, coercive act—such as filing a lawsuit
after default—to compel observance or obedience. [It]
presupposes that an act of disobedience (e.g., contractual
non-compliance) has occurred.” But the Borrowers did not
Nos. 11-2928 & 11-3378 11
breach, and so the Lender is not enforcing anything. It
claimed it was, but there was a trial to decide the issue
and it lost (and we are affirming). Moreover, the parties
understood the difference between enforcement of contrac-
tual rights and simple involvement in a lawsuit.
10. WAIVER OF JURY TRIAL. Each party . . .
waives any right to trial by jury in the event of
litigation regarding the performance or enforce-
ment of, or in any way related to, this note or the
indebtedness.
The waiver provision conspicuously includes not only
“enforcement” but also litigation “in any way related
to” the note. All the more reason to believe that enforce-
ment requires some element of contractual non-
compliance by the other party. The district court did not
abuse its discretion by reading the reimbursement pro-
vision to mean that the Lender could not breach, force
the Borrowers to sue on the notes, win in court, and
then, despite their unqualified victory, still be required
to cover the Lender’s attorney’s fees.
A FFIRMED.
8-3-12