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Musa Financial LLC v. Merchants Bank of Indiana

United States District Court, S.D. Indiana, Indianapolis Division

July 12, 2017

MUSA FINANCIAL LLC doing business as MORTGAGES USA; formerly known as J&M MORTGAGE BROKERS, LTD., Plaintiff,
v.
MERCHANTS BANK OF INDIANA, P/R MORTGAGE AND INVESTMENT CORPORATION doing business as PR MORTGAGE & INVESTMENTS, and MICHAEL F. PETRIE, Defendants.

          ORDER

          Jane Magntis-Stinson, Chief Judge

         This case involves a series of interrelated contractual relationships among and between the parties spanning more than five years. The complex facts of the case largely arise out of transactions in which mortgage loans are originated, closed, and sold to other entities.

         Presently pending before this Court are three motions - (1) a Motion for Judgment on the Pleadings filed by Plaintiff MUSA Financial LLC (“MUSA”), [Filing No. 26]; (2) a Motion for Leave to File an Amended Answer and Affirmative Defenses filed by Defendants Merchants Bank of Indiana (“Merchants”), P/R Mortgage and Investment Corporation (“P/R Mortgage”), and Michael Petrie, [Filing No. 39]; and (3) a Motion to Stay, also filed by Defendants, [Filing No. 42].

         I.

         Standard of Review

         “After the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings.” Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings is subject to the same standard as a motion to dismiss under Rule 12(b)(6). Gill v. City of Milwaukee, 850 F.3d 335, 339 (7th Cir. 2017) (citing Buchanan-Moore v. City of Milwaukee, 570 F.3d 824, 827 (7th Cir. 2009). In considering a motion for judgment on the pleadings, courts “are confined to the matters presented in the pleadings” and must consider those pleadings in the light most favorable to the non-moving party. Unite Here Local 1 v. Hyatt Corp., 2017 WL 2874805, at *5 (7th Cir. July 6, 2017) (citing Nat'l Fid. Life Ins. Co. v. Karaganis, 811 F.2d 357, 358 (7th Cir. 1987)). When the plaintiff moves for judgment on the pleadings, “the motion should not be granted unless it appears beyond doubt that the non-moving party cannot prove facts sufficient to support his position.” Hous. Auth. Risk Retention Grp., Inc. v. Chicago Hous. Auth., 378 F.3d 596, 600 (7th Cir. 2004) (citation omitted).

         II.

         Background

         Plaintiff MUSA is a mortgage lender that originates and closes mortgage loans for the purpose of selling such loans to other parties. [Filing No. 1 at 3.] From May 2011 to February 2015, MUSA was owned by two members, each of whom had a 50 percent stake in the company - Jeff Morgan and Bernard Malone. [Filing No. 1 at 3; Filing No. 1 at 5.]

         Merchants is a banking corporation that entered into a series of loan transactions and contracts with MUSA, beginning in May 2011. [Filing No. 1 at 2-3.] P/R Mortgage is a corporation that “sometimes competes with MUSA for the generation and sale of loans on multifamily properties.” [Filing No. 1 at 2.] Michael Petrie is both the Chairman and CEO of Merchants and the President of P/R Mortgage. [Filing No. 1 at 3.]

         On June 20, 2011, Merchants extended a $3 million line of credit to MUSA. [Filing No. 1 at 4.] ¶ 2013, Merchants extended a second line of credit to MUSA, which was raised to $800, 000 (collectively, with the 2011 line of credit, the “MUSA Lines of Credit”). [Filing No. 1 at 5.] Merchants and MUSA also entered into two Participation and Servicing Agreements, (the “Participation Agreements”), in 2011 and 2012, respectively. [Filing No. 1 at 4.]

         In 2015, Mr. Malone passed away, leaving Mr. Morgan as the sole member of MUSA. [Filing No. 1 at 2; Filing No. 1 at 5.] Prior to his death, Merchants extended an approximately $1.5 million line of credit to Mr. Malone, (the “Malone Line of Credit”), which was, in part, secured by two life insurance policies. [Filing No. 1 at 4.]

         Shortly after Mr. Malone's death, MUSA originated and closed on a multi-family loan in the amount of $36 million, which MUSA then sold to P/R Mortgage on May 1, 2015. [Filing No. 1 at 5.] Pursuant to the terms of the related loan purchase agreement, P/R Mortgage was periodically required to remit payments to MUSA, and did so for the first few months after entering into the agreement. [Filing No. 1-1 at 3; Filing No. 20 at 4.]

         In December 2015, MUSA originated and closed a loan in excess of $17 million, which it then sold to a company other than ...


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