Court Opinion

ID: 2994572
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:15:26.939346+00
Date Added: 2024-06-11T11:45:21.600235
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 99-4051

Acequia, Inc.,

Plaintiff-Appellant,

v.

Prudential Insurance Company
of America,

Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 1100--Elaine E. Bucklo, Judge.

Argued May 15, 2000--Decided September 1, 2000

  Before Flaum, Chief Judge, and Cudahy and Evans,
Circuit Judges.

  Cudahy, Circuit Judge. Acequia, Inc., an Idaho
family farming operation, obtained a $4 million
loan from Prudential in 1977. The security for
the loan was Acequia’s 7,600 acres of farm
property. The note was to mature on March 15,
1992. In 1981, Acequia defaulted on the loan.
Prudential began foreclosure proceedings, but
Acequia filed for bankruptcy protection. For the
next two years, Acequia worked on a
reorganization plan; Prudential approved this
Bankruptcy Plan (the Plan) and the bankruptcy
court confirmed it in 1984. But the two companies
continued feuding, and in 1987, Acequia sued
Prudential in Idaho state court because of a
dispute regarding the terms of the promissory
note required by the Plan. This dispute ended in
a 1989 Settlement Agreement, under which
Prudential and Acequia agreed to extend the
deadline for Acequia to repay Prudential. The
Settlement Agreement called for the parties to
execute an amended and restated promissory note,
which they did. Prudential maintains that as part
of the Settlement Agreement, it agreed to
transform the loan into a non-recourse loan
secured only by the land. Under the Settlement
Agreement parcels of land could be sold by
Acequia, but only at minimum prices and under
other prescribed conditions. It is unclear from
the record exactly what recourse Prudential
originally had against Acequia, but there is no
dispute that under the new Settlement Agreement,
Prudential does not have in personam recourse
against Acequia for the unpaid portion of the
loan.

  The parties are again in court because Acequia
contends that Prudential has improperly allocated
the proceeds of its land sales to Acequia’s debt,
and that due to the misapplication of funds,
Prudential’s books show Acequia owing too large
an amount. Consequently, because the Settlement
Agreement sets a minimum sale price for the farm
parcels based on the amount of remaining debt,
Acequia maintains that Prudential is asking it to
sell the parcels for unreasonably high prices
that the market will not bear. The basis for
Acequia’s charge of improper accounting is
language in the Bankruptcy Plan directing the
application of farmland proceeds. That language
is not identical to the provision governing the
application of proceeds in the subsequent
Settlement Agreement. Acequia has labelled its
complaint "breach of contract," and both parties
treat the Settlement Agreement as a contract. See
Appellant’s Br. at 14; Appellee’s Br. at 17. They
debate the question whether the Settlement
Agreement must be read in conjunction with the
Bankruptcy Plan "as a single contract." See
Appellant’s Br. at 14. Notably, the Settlement
Agreement was hammered out independent of the
bankruptcy court, but the bankruptcy court later
approved it after it had been challenged by an
equity security holder. See In re Acequia, 996
F.2d 1223 (9th Cir. 1993) (table), 1993 WL 219865,
*2. While in other contexts, plans and agreements
adopted pursuant to a declaration of bankruptcy
might be viewed as something other than
contracts, we agree with the parties that it is
reasonable to treat them as contracts here, where
they capture a negotiated agreement between two
parties which fixes the rights and obligations of
each. Our task, therefore, is one of contract
interpretation. We must decide how to read the
two provisions and whether based on that reading
Prudential has acted improperly in applying the
terms of the Settlement Agreement.
  There is one other issue: namely, whether the
court erred in granting summary judgment for
Prudential on all eight of Acequia’s claims even
though Prudential’s motion for summary judgment
asked for a resolution only of "the accounting
issue." The court determined that none of
Acequia’s claims was viable in light of its
favorable ruling for Prudential on the accounting
issue. It therefore granted summary judgment on
all of the claims.

I.   Breach of Contract
  The key issue in this case is what to make of
apparently conflicting language in the Bankruptcy
Plan and the Settlement Agreement. In order to
understand the language, we must review the
structure of the Settlement Agreement. As of
1989, when the parties entered that agreement,
Acequia owed $3.5 million in principal and $1
million in interest to Prudential. The Settlement
Agreement states that

Acequia’s existing Plan indebtedness will be set
at $4,500,000 as of July 1, 1989, (representing
a liquidated, principal balance of $3,500,000 and
a liquidated accrued but unpaid interest balance
of $1,000,000 under the existing Plan as of June
30, 1989), with interest to be earned thereon
from and after July 1, 1989 (the "Loan"). As used
hereinafter in this Agreement, "principal" shall
refer to all or any portion of the Loan balance,
as the case may be, and "interest" shall refer to
interest accruing on the Loan balance from and
after July 1, 1989.

Appellee’s App., Tab 1 at 1.

  The amended note executed pursuant to the
Settlement Agreement specifically states that
"[t]he indebtedness evidenced by this Amended
Note represents a liquidated principal balance of
$3,500,000 and a liquidated accrued but unpaid
interest balance of $1,000,000 under the Original
Note, under the Plan as of July 1, 1989
(collectively the "Loan Balance")." See
Appellee’s App., Tab 2 at 1. The Settlement
Agreement defined the $3.5 million principal
balance as "Segment A" of what had become the
loan balance and the $1 million interest portion
as "Segment B" of the loan balance.

  Additionally, it is important to understand the
Settlement Agreement’s terms regarding the sale
of Acequia’s farm land. The Agreement permits
Acequia to voluntarily sell farm land, but
requires the company to secure a minimum price
for each parcel. The minimum price is defined in
the Settlement Agreement. It consists of two
components. The first, "Release Value," is a
fixed amount the parties agreed to. The second,
"Release Interest Component" is the "proportional
share of current and accrued interest allocable
to that Release Value." Appellee’s App., Tab 1 at
4. Consequently, the more interest has accrued on
Acequia’s total indebtedness, the higher the
Release Interest Component on any parcel of farm
land, and the higher the Total Release Price.

  This background brings us to the contract
dispute. Acequia contends that Prudential should
have been applying more of the proceeds of its
farm land sales to interest than it has been. The
dispute came to a head in 1995 and 1996. Acequia
missed its scheduled June 1995 payment of
$425,000. It then stated that it intended to sell
several parcels of land. Prudential approved the
sales, they were completed in 1996, and Acequia
netted $1.4 million. Acequia contended the money
should be devoted first to cure the default, then
to satisfy the 1996 annual payment and then to
prepay sums thereafter coming due. Instead,
Prudential applied the entire $1.4 million to the
Segment A or Segment B debts and the associated
interest, as called for in the Settlement
Agreement. It applied none of the funds to the
1995 or 1996 annual payments, meaning that
Acequia’s accrued interest continued to rise.
Acequia then complained that Prudential had been
improperly applying land sale proceeds since
1990, during a period when annual payments
consisted of interest only. As a result, Acequia
charges that over the years, the total interest
on its indebtedness had been improperly inflated,
impermissibly driving up the Release Interest
Component and ultimately the Total Release Price
for every parcel of land it wishes to sell.
Because Acequia has been unable to fetch these
"inflated" prices for the land, Prudential has
not approved the land sales. See Appellant’s
Reply Br. at 3. Acequia concluded that Prudential
was thereby throwing up a roadblock to its
repayment of the debt.

  While it may seem to a casual observer that
Prudential’s allocation method is designed merely
to prolong Acequia’s indebtedness, Prudential
maintains that the Settlement Agreement did not
permit it to apply the sale proceeds to Acequia’s
defaults. And Prudential seems to defend the
Settlement Agreement as the only way to prevent
Acequia from squandering the land--Prudential’s
only collateral--to meet immediate obligations
and then running out of funds when remote
principal payments start coming due. See
Appellee’s Br. at 13. Prudential also refutes
Acequia’s contention that the Settlement
Agreement did not permit it to meet the demands
for annual payments with the land sale proceeds.
According to Prudential, Acequia was free to use
any proceeds in excess of the Total Release Price
of the land to meet its annual obligations. See
Appellee’s Br. at 25.

  In order to determine whether Prudential has
improperly applied the proceeds of the farm land
sales, we must review the two provisions that
arguably apply to this question. Section 4.01 of
the Bankruptcy Plan, entitled "Sales of Land"
states that "[t]he funds required to implement
the Plan will be derived from rental income and
from sales of land presently owned by the
Debtor." It then specifies that

As long as there remains unpaid any Interest
Arrearage owed to Prudential as part of the
Prudential Secured Claim, the entire amount of
Net Proceeds from any sales of property subject
to Prudential’s mortgage will be paid over to
Prudential and applied against the Interest
Arrearage. . . . Once the Interest Arrearage has
been satisfied . . . [p]ayments made to
Prudential shall be applied first to unpaid
accrued interest on the Prudential Note and then
to principal.

Appellee’s App., Tab 3 at 11-13.

On the other hand, the Settlement Agreement
provides that:

The Total Release Price received by Prudential
with respect to such sale shall be applied as
follows: (x) the Release Value received with
respect to such sale shall be applied against the
Loan balance constituting a portion of, Segment
A if the sale is of a parcel comprising a portion
of Parcel A Property, or Segment B if the sale is
of a parcel comprising a portion of Parcel B
Property, and (y) the Release Interest Component
received with respect to such sale shall be
applied against the current and/or accrued
interest (whether or not then due) allocable to
the Loan balance being repaid under clause x
above.

Appellee’s App., Tab 1 at 5.

  The district court reasoned that the Settlement
Agreement provision was clear and unambiguous,
and therefore, did not require an examination of
the Bankruptcy Plan or extrinsic evidence to lend
meaning to its provisions. Acequia now asserts
that the district court erred by failing to apply
the rules of contract interpretation recognized
in Idaho, and therefore reached the wrong
conclusion. Among the extrinsic evidence Acequia
wanted the district court to consider was a Ninth
Circuit opinion holding that the Settlement
Agreement was not an impermissible modification
of the Bankruptcy Plan. The other key extrinsic
evidence was the fact that Acequia’s 1995, 1996
and 1997 land sales required approval by the
Bankruptcy Court. Acequia stated in its motions
seeking approval of those sales that it intended
to distribute the proceeds of sale "in accordance
with the terms of the Plan and the Agreements
between Acequia and Prudential in the same manner
as contemplated by Section 4.01 of the Plan."
Appellant’s App., Tab L., Ex. 1, Paras. 2, 7.
Prudential endorsed the sales, and the bankruptcy
court authorized Acequia "to distribute the
proceeds of said sales as set forth in the
Motion." Appellant’s App., Tab L., Ex. 1, Paras.
5, 10.

  The parties engage in some halfhearted back-and-
forth about whether or not Acequia waived the
choice of law issue by failing to cite Idaho
caselaw in its pleadings below. But these
pleadings cited few cases, and the district court
did not cite a single case or explicitly identify
whether it was applying Idaho or Illinois
contract principles in analyzing the case. So
there was no need for Acequia to press the issue
at that stage. Additionally, the Settlement
Agreement clearly states that Idaho law is to
apply to any dispute arising under it. See
Appellee’s App., Tab 1 at 9. So we think Acequia
may argue on appeal that the district court erred
by failing to apply the Idaho rules of contract
interpretation. However, it seems to us that
Acequia is not really concerned so much with the
court’s choice of law as with the court’s
application of the rules of contract
interpretation. The district court relied on the
tried and true rule that if a contract is
unambiguous, reference to extrinsic evidence is
not permitted. See Appellee’s App., Tab 4 at 5
(August 11, 1999 hearing on motion for summary
judgment). The district court found the later
document, the Settlement Agreement, unambiguous,
and therefore did not rely on the earlier
document or on extrinsic evidence to interpret
the Settlement Agreement. But there were two
agreements between these parties, and the
subsequent contract did refer to, and in some
provisions strive for consistency with, the
first. In such a circumstance, we are willing to
grant Acequia that an equally unexceptionable
rule of contract interpretation--related
documents must be read together--might have been
applied before the court analyzed whether the
contract at issue was ambiguous. See, e.g.,
Murphy v. Keystone Steel & Wire Co., 61 F.3d 560,
565 (7th Cir. 1995). One could argue that only
after determining whether the two documents could
be read together, or whether the latter
superseded the former, could the court determine
whether the resulting contract was ambiguous.

  So the district court may have glossed over a
nicety of contract interpretation. But even the
Idaho law Acequia cites would not have altered
the district court’s conclusion that the second
contract governed, and was unambiguous. According
to the Idaho Supreme Court, "’a new contract with
reference to the subject matter of a former one
does not supersede the former and destroy its
obligations, except in so far as the new one is
inconsistent therewith, when it is evident from
an inspection of the contracts and from an
examination of the circumstances that the parties
did not intend the new contract to supersede the
old, but intended it as supplementary thereto.’"
Silver Syndicate, Inc. v. Sunshine Mining Co.,
101 Idaho 226, 235 (1979) (emphasis added). In
Silver Syndicate, two parties signed a mining
contract in 1943, and a dispute later arose. The
next year, they entered a second contract
designed to settle the dispute. The 1944 contract
specifically referred to the earlier contract,
and specifically stated that it was meant to
resolve uncertainties that the two parties had
with respect to the first contract. The 1943
contract had created a 400-foot wide zone within
which one party could mine another party’s land.
The court determined that because the 1944
contract referred to and relied on the 1943
contract, "it is clear that the parties did not
intend to rescind it in its entirety." Silver
Syndicate, 101 Idaho at 235. Because the 1943 and
1944 provisions did not contradict one another,
both applied. The court concluded that reading
both contracts together resulted in ambiguity
regarding the parties’ intentions about the 400-
foot zone. The court therefore examined extrinsic
evidence to determine the meaning of the
contract. Acequia contends that the district
court should have followed the same path in the
present case.

  But the present case is distinguishable from
Silver Syndicate because the two documents here
are contradictory and cannot be read together.
Contradiction is found where terms in two
documents cannot both be given effect. For
instance, in Costello v. Watson, an early
contract granted one party a 10 percent interest
in land to be developed by the other party, and
a later contract was silent about the 10 percent
interest. 111 Idaho 68, 72 (Idaho App. Ct. 1986).
The Idaho court did not find the two contracts
contradictory, so it read them together. See id.
In contrast, an Idaho bankruptcy court held that
where an initial contract for the financed
purchase of furniture did not create a purchase
money security interest, and a subsequent
contract for additional furniture did create a
PMSI for both the earlier-purchased items and the
later-purchased items, the later and
contradictory agreement indicated "an intent to
replace the prior [one]." In re Butler, 160 B.R.
155, 159 (D. Idaho 1993).

  In the present case, the Settlement Agreement
specifically refers to and relies on the
Bankruptcy Plan. One provision specifies that
mutual releases upon the closing of the
settlement will be conducted in a method
"consistent with the Plan." See Appellee’s App.,
Tab 1 at 7. But reading the two together, it is
clear that as in In re Butler, the second
contract, in the matter of applying land sales
proceeds, contradicts the first and indicates an
intent to replace it. The Bankruptcy Plan
specified that proceeds of Acequia’s land sales
would be allocated first to the interest
arrearage as of 1984, then to interest accrued
thereafter and finally to principal. The
Settlement Agreement takes a wholly inconsistent
approach.

  Recall that the Settlement Agreement essentially
bundled the principal and interest owed as of
1989. The Settlement Agreement referred to that
collective debt as the "loan," and the Amended
Note referred to it as the "loan balance."
Interest was then charged from 1989 forward on
the collective debt known as the loan balance.
The parties elected to apply different interest
rates to the portion of the loan balance
reflecting pre-1989 principal and to the portion
reflecting pre-1989 interest. Therefore, the two
components of the loan balance were labeled
"Segment A" and "Segment B." All of Acequia’s
land parcels were assigned as security for either
the Segment A or Segment B portion of the loan
balance. The Settlement Agreement stated that the
Total Release Price obtained for any parcel sold
would be broken down into a Release Value
Component and a Release Interest Component. The
value component would be applied against either
Segment A or Segment B, depending on the segment
to which the parcel was assigned. And the
interest component would be applied against the
current and/or accrued interest allocable to the
segment of the loan balance to which the property
was assigned.

  For example, if Acequia sold a parcel
designated as security for Segment A (the pre-
1989 principal), the release value portion of the
sale price would be allocated against the pre-
1989 principal, and the release interest portion
of the sale price would be allocated against the
post-1989 interest accrued or accruing on that
pre-1989 principal. If Acequia sold a parcel
designated as security for Segment B (pre-1989
interest), the release value portion of the sale
price would be allocated against the pre-1989
interest, and the release interest portion of the
sale price would be allocated against the post-
1989 interest on that pre-1989 interest.

  As we see it, the Settlement Agreement’s
complex and comprehensive scheme contradicts--and
therefore revokes--the simple "interest
arrearage, interest, principal" payment scheme
called for in the Bankruptcy Plan. The two
documents cannot stand together. Therefore,
Silver Syndicate dictates that the Settlement
Agreement amounts to a partial rescission of the
Bankruptcy Plan. Acequia maintains that the only
purpose of the Settlement Agreement scheme is to
differentiate between Segment A properties and
Segment B properties, and that once a sold
property is categorized as Segment A or Segment
B, the proceeds of the sale must first pay down
the interest on that segment of the loan before
they can be used to pay down the principal.
Acequia bolsters this argument by noting that the
relevant provision of the Settlement Agreement
does not refer to "principal" or "interest," and
therefore cannot be said to change the "interest
arrearage, interest, principal" hierarchy
established in the Bankruptcy Plan. This
interpretation ignores paragraphs 2, 8 and 9 of
the Settlement Agreement. In those passages, the
parties specified that Segment A represented pre-
1989 principal and Segment B represented pre-1989
interest. When one plugs in "pre-1989 principal"
or "pre-1989 interest" for "Segment A" or
"Segment B," respectively, it becomes entirely
clear that the Settlement Agreement contradicts
the Bankruptcy Plan’s "interest arrearage,
interest, principal" hierarchy. The Settlement
Agreement specifically calls for a portion of the
proceeds of Segment A properties to be allocated
to the pre-1989 principal (Segment A of the loan
balance) at the same time as a portion of those
proceeds are allocated to the post-1989 interest
accruing on that principal. So the Settlement
Agreement clearly does not require that all
interest must be paid before any principal may be
paid./1 Such a stark contradiction with the
Bankruptcy Plan’s provisions must be interpreted
as a revocation. Therefore, the district court
was ultimately correct that the Settlement
Agreement, which could not be read together with
the Plan, was unambiguous. The court correctly
refused to examine extrinsic evidence. Prudential
clearly followed the terms of the Settlement
Agreement in applying the proceeds of the farm
land sales.

  Additionally, even if the district court should
have examined the extrinsic evidence, we are not
convinced it would have changed the outcome.
First, Acequia seems to find persuasive an
unpublished opinion in which the Ninth Circuit
rejected the challenge of an equity security
holder (a husband who split his shares with his
co-owner wife after their divorce) to the
adoption of the Settlement Agreement. See In re
Acequia, Inc., 996 F.2d 1223 (9th Cir. 1993)
(table), 1993 WL 219865. The husband filed a
motion to terminate the Settlement Agreement,
arguing that it constituted an impermissible
modification of the Plan, in violation of section
1127 of the Bankruptcy Code. The court focused
primarily on whether the extension of the
maturity date for the amended note, as called for
in the Settlement Plan, was a modification. See
id. at *2. The Bankruptcy Code permits changes to
reorganization plans if the changes are designed
to effectuate the plan. See id. But
"modifications" of plans that are not meant to
help implement the ultimate goals of the plan are
not allowed. See id. Extending the maturity date
of the note was necessary to effectuate the broad
goals of the Plan, and was consistent with the
plan, the court concluded. See id. Therefore, the
court held, it was not an impermissible
modification of the Plan. See id. The district
court viewed the Ninth Circuit opinion as holding
that the Settlement Agreement permissibly
modified the Bankruptcy Plan, while Acequia
viewed the opinion (along with the opinion of the
district court that it affirmed) as holding that
the Settlement Agreement did not change the
Bankruptcy Plan. We don’t think the Ninth Circuit
opinion is relevant, regardless how it is
interpreted. It dealt with the maturity date of
the note, not the change in terms regarding
allocation of land sale proceeds. And it applied
rules derived from the Bankruptcy Code, not from
Idaho contract law. So the Ninth Circuit opinion
is not persuasive evidence that Section 4.01 was
not modified.

  We do not, by the way, think the Ninth Circuit
opinion raises any issue preclusion problems.
Issue preclusion occurs when, after an issue that
was necessary to the outcome of a previous suit
was fully litigated in that suit, a litigant
tries to revive it in a separate suit involving
a different party. See Parklane Hosiery Co., Inc.
v. Shore, 439 U.S. 322, 326 n.5 (1979). The Ninth
Circuit resolved only the narrow question whether
extension of the amended note’s maturity date was
such a wholesale modification that it violated
the Bankruptcy Code. The determination of that
issue did not bar the district court in the
present case from deciding the very different
question whether the Settlement Agreement’s
allocation of land sale proceeds was a rescission
of Section 4.01 of the Bankruptcy Plan. Notably,
no party in the present case has contended that
the Settlement Agreement’s modification of the
Bankruptcy Plan’s land sale allocation scheme
amounts to an impermissible modification under
the Bankruptcy Code. Instead, the parties save
their fire for the common-law issue of whether
Prudential breached the terms of the parties’
contract by applying the proceeds as it did.
  Acequia also offers as evidence its motions
asking the Bankruptcy Court to approve the 1995,
1996 and 1997 land sales. In those motions, it
stated that it intended to distribute the
proceeds of sale "in accordance with the terms of
the Plan and the Agreements between Acequia and
Prudential in the same manner as contemplated by
Section 4.01 of the Plan." Appellant’s App., Tab
L., Ex. 1, Paras. 2, 7. Prudential endorsed the
sales, and the bankruptcy court authorized
Acequia "to distribute the proceeds of said sales
as set forth in the Motion." Appellant’s App.,
Tab L., Ex. 1, Paras. 5, 10. Therefore, Acequia
argues, both the Bankruptcy Court and Prudential
agreed with the proposition that even after the
Settlement Agreement was executed, the Plan
provisions for allocating land sale proceeds
still applied. We do not take that view. First,
the motion specifically refers to both the Plan
and the Agreement, suggesting that the Plan
provisions no longer stood alone. Second, while
all parties appeared to agree in these documents
that Acequia would turn over the money to
Prudential according to the dictates of Section
4.01, the documents do not specifically state
that Prudential will allocate the money to the
various segments of the indebtedness as called
for in Section 4.01.

  Finally, Acequia offers us the opinion of an
Idaho magistrate judge ruling in a parallel
foreclosure suit pending in Idaho. The magistrate
judge denied Acequia’s motion for summary
judgment in the Idaho action, reasoning that it
was unclear how the changes incorporated in the
Settlement Agreement affected the integrity of
the Plan, and concluding that "[t]hese types of
issues are best resolved at trial." See
Appellant’s Br. at 24. As the district court
correctly noted, its grant of summary judgment
preceded the Idaho magistrate judge’s
recommendation. Therefore the magistrate judge’s
recommendation is in no way binding. Moreover, it
is instructive that because Acequia was the party
moving for summary judgment, the Idaho magistrate
judge’s recommendation essentially rejected
Acequia’s position that the Settlement Agreement,
as a matter of law, did not rescind Section 4.01
of the Bankruptcy Plan. So in reality, the
magistrate judge’s recommendation is not an
endorsement of Acequia’s position, and therefore
is not persuasive as extrinsic evidence of how
the two contracts should be synthesized.

II.   Grant of Summary Judgment

  Having determined that Prudential’s accounting
method was sound, the district court granted
summary judgment for Prudential on all of its
claims. Prudential’s motion for summary judgment
requested that the court grant summary judgment
"on the accounting issues arising from and
alleged in each claim for relief in Acequia’s
Second Amended Complaint." This is a slightly odd
request for summary judgment, in that it does not
specifically request relief on any particular
claim, and appears to stop short of specifically
requesting relief on all the claims.

  A district court is permitted to enter summary
judgment sua sponte if the losing party has
proper notice that the court is considering
granting summary judgment and the losing party
has a fair opportunity to present evidence in
opposition. Simpson v. Merchants Recovery Bureau,
171 F.3d 546, 549 (7th Cir. 1999). For instance,
in Simpson, we held that the district court
improperly granted summary judgment for a
defendant. In that case, the plaintiff verbally
mentioned during a conference with the opponent
and the judge that she might amend her complaint
to outline a different theory against the
defendant. The court asked both sides to submit
cases on the new theory, and the defendant
submitted a detailed statement of facts, legal
argument, affidavits and exhibits. Based on this
filing, the district court entered summary
judgment in favor of the defendant. We concluded
that the plaintiff had no notice summary judgment
was under consideration, and therefore the court
erred in granting it. In contrast, we have stated
that where one defendant succeeds in winning
summary judgment on a ground common to several
defendants, the district court may also grant
judgment to the non-moving defendants, if the
plaintiff had an adequate opportunity to argue in
opposition. See Malak v. Associated Physicians,
Inc., 784 F.2d 277, 280 (7th Cir. 1986).

  In the present case, seven of Acequia’s eight
claims, namely breach of contract, breach of duty
of good faith, tortious interference,
interference with the business advantage,
defamation, disparagement of commercial business
and violation of the Illinois Consumer Fraud Act,
rely explicitly on the allegation that Prudential
misapplied to principal Acequia payments that
should have been devoted to interest. Acequia
alleges that Prudential thereby drove up the
Total Release Price required for the land, and
obstructed Acequia’s business, giving rise to the
breach of contract, breach of duty of good faith,
tortious interference, interference with business
advantage and Illinois Consumer Fraud Act claims.
Relatedly, Acequia alleges that Prudential
informed third parties that Acequia had defaulted
on its obligations, giving rise to the defamation
and disparagement of commercial business claims.
So, if Prudential properly applied the funds,
then it was entitled to a higher release price on
the land, and was correct in telling third
parties that Acequia had defaulted. Therefore,
resolution of the accounting issue in
Prudential’s favor inevitably meant that Acequia
would lose on those seven counts. While the
motion for summary judgment did not explicitly
request relief on the seven counts, the obvious
inference was that success on the "accounting
issue" would amount to success on those seven
counts. For this reason, we are not sure we can
characterize the district court’s grant of
summary judgment on those counts as a sua sponte
grant of summary judgment. The court was--albeit
indirectly--asked to grant summary judgment on
those counts.

  Moreover, even if we were to say this grant of
summary judgment was sua sponte, we do not think
it was improper. Acequia, the losing party, had
proper notice that the court was being asked to
consider the accounting issue, and should have
known based on its familiarity with the complaint
that a ruling favorable to Prudential would spell
doom for seven of its eight claims. Malak states
that a holding common to all defendants may
result in summary judgment for all defendants,
even if fewer than all of them moved for summary
judgment. In the present case, the district court
reached a holding common to seven of Acequia’s
claims, and even though Prudential did not
explicitly request summary judgment on all seven
claims, the district court merely reasoned
logically in stating that the common holding
defeated the seven claims. Further, as required
in Simpson and Malak, Acequia had an ample
opportunity to present evidence on the accounting
issue. Not only did it submit memoranda of law
and affidavits from its officers explaining their
understanding of the Settlement Agreement’s
terms, Acequia’s attorney engaged in a lengthy
colloquy with Judge Bucklo in which the attorney
was allowed to develop her contractual theory. So
both requirements were met for entry of summary
judgment sua sponte. See Simpson, 171 F.3d at
549.

  The single count that does not depend
explicitly on the outcome of the accounting issue
is the fraud count, in which Acequia alleges that
Prudential misrepresented the import of the
Bankruptcy Plan and the Settlement Agreement,
intending all the while to apply the funds so as
to drive up the accrued interest and block
Acequia’s land sales. At the hearing in which the
district court indicated it would grant summary
judgment for Prudential on every count, Acequia
maintained that the fraud claim was independent
of the accounting issue and therefore
inappropriate for summary judgment. The trial
court expressed skepticism about the viability of
the fraud claim, noting that Acequia could not
have been defrauded by Prudential’s verbal
representations if the contract clearly spelled
out how land sale proceeds were to be accounted
for. Nevertheless, the court gave Acequia two
days to submit authority for the proposition that
Prudential’s verbal assurances amounted to fraud.
So Acequia had notice that summary judgment was
under consideration, as required by Simpson.
Despite this notice, Acequia submitted nothing.

  Moreover, the court sent the case back to the
magistrate judge for further confirmation that no
outstanding accounting issues remained. Though
the court did not expressly give Acequia the
opportunity to re-argue its fraud position to the
magistrate judge, the fact remains that the
district court did not hastily enter the summary
judgment against Acequia. Acequia knew that the
district court planned to enter summary judgment
at the conclusion of the magistrate’s review, and
did not take advantage of its opportunity to
persuade the district court or the magistrate
judge that summary resolution of the fraud claim
was ill-considered.

  Acequia complains that because the magistrate
judge had limited discovery to the accounting
issue, it was not able to point to a genuine
issue of material fact to preclude the entry of
summary judgment on the fraud count. Under other
circumstances, this might violate the requirement
of Simpson that the losing party have an
opportunity to present evidence favorable to its
position. But the trial court clearly indicated
that if Acequia could show as a matter of law
that it might prevail on the fraud count under
the facts it alleged, the court would hold off on
summary judgment and let Acequia develop further
evidence. So Acequia’s hands were not tied by the
lack of evidence available to it.

  In sum, we think the district court was
ultimately correct that Prudential properly
applied the proceeds of the farm land sales to
either interest or principal, as called for in
the Settlement Agreement, and we Affirm that
decision. We also think the trial court acted
properly in granting summary judgment on all
eight claims, and Affirm that decision as well.

/1 This is so regardless whether one defines
"principal" as the principal that had accumulated
as of the 1989 Settlement Agreement (Acequia’s
preference) or as the entire $4.5 million
designated the "loan balance" in the 1989
Promissory Note (the district court’s
preference). Under either definition, when a
Segment A parcel is sold, principal will be paid
contemporaneously with interest. The only time
the definition will make a difference is when a
Segment B parcel is sold. If one defines
"principal" only as pre-1989 principal, then
paying down the pre-1989 interest represented by
Segment B constitutes an interest payment,
whereas if one defines "principal" as pre-1989
principal and interest, then paying down the pre-
1989 interest represented by Segment B
constitutes a principal payment. This distinction
is not relevant, however, because the fact
remains that the Settlement Agreement
specifically calls for the pre-1989 principal--
which both parties agree is properly defined as
principal--to be paid simultaneous with interest.
So regardless how one defines "principal" under
the Settlement Agreement, the Agreement abrogates
the Bankruptcy Plan’s "interest arrearage,
interest, principal" hierarchy.