Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-02261/USCOURTS-ca8-04-02261-0/pdf.json

Parties Involved:
Banco Panamericano
Appellant
Leon A. Greenblatt
Appellant
Loop Corp.
Appellant
MJK Clearing
Not Party
Nola
Appellant
Repurchase Corp.
Appellant
James P. Stephenson
Appellee

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 04-2261

___________

In re: MJK Clearing, Inc., *

*

 Debtor. *

----------------------------- *

James P. Stephenson, Trustee for *

the Estate of MJK Clearing, Inc., * Appeal From the United States

* District Court for the

Trustee-Appellee, * District of Minnesota.

*

v. *

*

Leon A. Greenblatt; Banco *

Panamericana, Inc.; Loop Corp.; *

Nola, LLC; Repurchase Corp. *

*

 Creditors-Appellants. *

___________

Submitted: March 16, 2005

Filed: May 24, 2005

___________

Before MURPHY, HEANEY, and SMITH, Circuit Judges.

___________

HEANEY, Circuit Judge.

James Stephenson, trustee for the Estate of MJK Clearing, Inc. (MJK), brought

this proceeding against Appellants Leon A. Greenblatt, Banco Panamericano, Inc.,

Loop Corp., Nola LLC, and Repurchase Corp. (collectively, the Greenblatt entities),

for amounts due under promissory notes signed by the Greenblatt entities and

Appellate Case: 04-2261 Page: 1 Date Filed: 05/24/2005 Entry ID: 1906330
1

The Honorable David S. Doty, United States District Judge for the District of

Minnesota.

2

Repurchase has filed for Chapter 11 bankruptcy protection, and the trustee is

therefore not seeking relief from Repurchase. 

-2-

Greenblatt’s personal guaranty of those notes. The bankruptcy court granted

summary judgment to the trustee. Greenblatt appealed this decision to the district

court,1

 which affirmed that the promissory notes were valid and enforceable. In the

present appeal, the Greenblatt entities claim that the agreements cannot be enforced

because there was a failure of consideration. We affirm the decision of the district

court. 

BACKGROUND

Loop, Banco and Repurchase2

 are Illinois corporations formed by Leon A.

Greenblatt. Nola is an Illinois limited liability company formed by Greenblatt. These

entities operate as holding companies for investments and real estate. They held

margin loan accounts with the firm R.J. Steichen & Co., a brokerage owned by John

E. Feltl. The brokerage was sold to Stockwalk Group, Inc., which formed Miller,

Johnson, Steichen, Kinnard, Inc. (MJSK), on January 1, 2001. MJSK later became

a subsidiary of MJK, which itself was a subsidiary of Stockwalk. 

In early 2001, the value of the stock held in the Greenblatt entities’ margin loan

accounts fell dramatically, resulting in a combined negative balance of over

$7,100,000. MJSK issued margin calls in May 2001, requiring the Greenblatt entities

to deposit funds to the accounts to cover the debit balances. No funds were deposited

in the accounts, and the appellants entered into a series of agreements to settle the

debt. In a letter dated July 12, 2001, the parties set out the terms relating to the

purchase of the debit balances existing in the MJSK margin accounts. Greenblatt,

Banco, and Loop agreed to execute promissory notes for a total of $3,850,000, and

Appellate Case: 04-2261 Page: 2 Date Filed: 05/24/2005 Entry ID: 1906330
3

This amount had been paid by Feltl as part of a settlement with MJK of all

claims, including the guaranty of the Greenblatt entities’ debit margin accounts. 

-3-

all the entities agreed to take the actions necessary to transfer to MJSK and MJK the

benefit of up to $3,000,000 in tax credits generated by another venture. On

August 22, 2001, Banco and Loop each signed promissory notes in the amount of

$1,425,000 plus interest, to be paid by August 1, 2002. Greenblatt signed a

promissory note in the amount of $1,000,000 plus interest, to be paid by August 1,

2002, and executed a personal guaranty for payment of the amounts due under the

Loop and Banco promissory notes in the event of a default. MJSK also negotiated

a guaranty of up to $3,000,000 of the Greenblatt entities’ indebtedness with John E.

Feltl, who had originally opened the margin accounts. 

In September 2001, MJK entered bankruptcy. MJSK assigned the promissary

notes, Greenblatt guaranty, and rights to tax credits to MJK in June 2002 as part of

a settlement relative to the bankruptcy. The notes matured August 1, 2002, and MJK

submitted demand letters to the entities and Greenblatt. No payment was made and

the tax credits were not delivered. MJK initiated this suit in February 2003, seeking

recovery on the original margin accounts and in the alternative seeking recovery

based on the July 12 Agreement, promissory notes, and Greenblatt guaranty. MJK

moved for summary judgment on the claims rising out of the promissory notes,

Greenblatt guaranty, and July 12 Agreement. The bankruptcy court granted this

motion, and Greenblatt, Banco, and Loop appealed to the district court. The district

court affirmed the grant of summary judgment, but reduced the award to MJK by

$3,000,000.3

 Greenblatt, Loop, and Banco appeal. 

ANALYSIS

Appellants contend that the July 12 Agreement was essentially an agreement

to sell the debit balance accounts to Greenblatt in exchange for the promissory notes,

Appellate Case: 04-2261 Page: 3 Date Filed: 05/24/2005 Entry ID: 1906330
-4-

tax credits, and guaranty. They claim that there are genuine issues of material fact

regarding whether the debit balances were actually transferred to Greenblatt. If they

were not transferred, appellants argue, the July 12 Agreement, notes, and guaranty are

not enforceable for failure of consideration.

We review the district court’s grant of summary judgment de novo, viewing the

record in the light most favorable to the nonmoving party. Credit Card Debt

Solutions, Inc. v. Home Fed. Bank, 363 F.3d 805, 808 (8th Cir. 2004). Summary

judgment is appropriate if there is no genuine issue of material fact and the moving

party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The parties

have agreed that the applicable laws of Illinois and Minnesota are sufficiently similar

that the court need not resolve which of the conflicting choice-of-law provisions in

the parties’ agreements should be applied. 

Viewing the record in the light most favorable to the nonmoving parties leads

to the conclusion that the debit account balances were not transferred to Greenblatt

prior to August 2002. The parties agree that there was no physical transfer of the

debit balances, nor was there any record of a transfer. The issue on appeal is whether

this constitutes a failure of consideration rendering the July 12 Agreement,

promissory notes, and Greenblatt guaranty unenforceable.

Consideration is something of value exchanged for a performance or promise

of performance. E.J. Baehr v. Penn-O-Tex Oil Corp., 104 N.W.2d 661, 665 (Minn.

1960). It means “not so much that one party is benefitted, as that the other suffers

detriment.” Estrada v. Hanson, 10 N.W.2d 223 (Minn. 1943) (quoting Johnson v.

Kruse, 285 N.W. 715, 717 (Minn. 1939); Weger v. Robinson Nash Motor Co., 172

N.E. 7, 10 (Ill. 1930). “When there is failure of consideration, a contract valid when

formed becomes unenforceable because the performance bargained for has not been

rendered.” Franklin v. Carpenter, 244 N.W.2d 492, 495 (Minn. 1976); Watson v.

Hobson, 81 N.E. 2d 885, 888-89 (Ill. 1948). Where a promisor received what he

Appellate Case: 04-2261 Page: 4 Date Filed: 05/24/2005 Entry ID: 1906330
4

Because the parties do not dispute either the initial amounts owed, or that

those amounts were reduced in the July 12 Agreement, the district court did not

engage in improper fact finding to reach this conclusion. 

-5-

bargained for, however, there is no failure of consideration. Miller v. O.B.

McClintock Co., 297 N.W. 724, 730 (Minn. 1941). In addition, where one express

term in the contract is not completed, the contract may nonetheless be enforceable

where supported by other consideration. Estrada, 10 N.W.2d at 223; accord

Stellwagon v. Schmidt, 234 Ill. App. 325 (Ill. App. Ct. 1924). 

A promise to perform an act in the future may constitute consideration for a

promissory note; in that case the promise, not the performance, is the consideration.

 Noreen v. Park Constr. Co., 96 N.W.2d 33, 37-38 (Minn. 1959); Keller v. Hyland

Builders Corp., 186 N.E.2d 787, 789 (Ill. App. Ct. 1963). Non-performance of an act

does not result in failure of consideration in these cases; rather, the non-breaching

party may have a claim for damages. See Franklin, 244 N.W.2d at 495 (rejecting the

argument that there was a failure of consideration where a promise to purchase

insurance was never fulfilled). 

The July 12 Agreement sets out the terms of the purchase of the debit balances

existing in the MJSK margin accounts. The guaranty signed by Greenblatt indicates

that it is related to the purchase of the debit balances of the Greenblatt entities.

Despite the purchase and sale language in the July 12 Agreement and Greenblatt

guaranty, the transfer of the debit balances was not the only consideration given to

the defendants. The parties do not dispute that their agreements set out a reduction

in the amount to be paid, and allowed the Greenblatt entities an additional year in

which to make payment. Both the bankruptcy and district court correctly concluded

that this was the substance of the agreement between the parties.4

 The reduction in

the amount owed, and the agreement granting the Greenblatt entities an additional

Appellate Case: 04-2261 Page: 5 Date Filed: 05/24/2005 Entry ID: 1906330
5

At oral argument, counsel for MJK represented that MJK would do everything

it could to complete the debit balance transfers. We assume it will do so. 

-6-

year in which to make payment each constitute adequate consideration for the parties’

agreements. 

Because they were adequately supported by other consideration, the guaranty,

promissory notes, and July 12 Agreement are valid and enforceable, despite the

parties’ failure to transfer the margin accounts. The Greenblatt entities therefore may

not avoid the obligation of their promissory notes; they may, however, bring an action

to recover the debit accounts.5

The Greenblatt entities have in large measure received what they bargained for;

the promissory notes secured both a reduction in the debt owed and additional time

to make payment. These concessions by MJK are consideration for the notes, and we

conclude that there was not failure of consideration. We therefore affirm the decision

of the district court.

______________________________

Appellate Case: 04-2261 Page: 6 Date Filed: 05/24/2005 Entry ID: 1906330