Bank of Am., N.A. v. Chi. Title Ins. Co.

• Decision Date: 17 April 2020
• Docket Number: Case No. 17-cv-00407
• Citation: 455 F.Supp.3d 665
• Parties: BANK OF AMERICA, N.A., a national banking association, as successor-in-interest to LaSalle Bank, N.A., in its individual capacity and as authorized Agent, Plaintiff, v. CHICAGO TITLE INSURANCE COMPANY, a Nebraska corporation, as successor-in-interest to Ticor Title Insurance Company, Defendant.
• Court: U.S. District Court — Northern District of Illinois

455 F.Supp.3d 665

BANK OF AMERICA, N.A., a national banking association, as successor-in-interest to LaSalle Bank, N.A., in its individual capacity and as authorized Agent, Plaintiff,

v.CHICAGO TITLE INSURANCE COMPANY, a Nebraska corporation, as successor-in-interest to Ticor Title Insurance Company, Defendant.

Case No. 17-cv-00407

United States District Court, N.D. Illinois, Eastern Division.

Signed April 17, 2020

John Stanley Vishneski, Emily E. Garrison, Jessica Elizabeth Brown, Reed Smith LLP, Chicago, IL, for Plaintiff.

Clay H. Phillips, Britta Anne Sahlstrom, Lana J. Zaretsky Blair, SmithAmundsen LLC, Chicago, IL, for Defendant.

MEMORANDUM OPINION & ORDER

MARY M. ROWLAND, United States District Judge

Before the Court are the parties' cross-motions for summary judgment. For the reasons stated below, Bank of America's motion [92] is granted and Chicago Title Insurance Company's ("Chicago Title") motion [103 & 104] is denied.

BACKGROUND

1. The Kendall Marketplace Transaction

In 2007, Cannonball, LLC ("Cannonball") sought to build and develop a shopping center in Yorkville, Illinois called Kendall Market Place. (Dkt. 94 ¶ 5). LaSalle Bank, Bank of America's predecessor in interest, and Cannonball entered into a construction loan agreement for Kendall Marketplace. (Id. ). The loan was secured by a Construction Mortgage on the property. (Id. ).

In connection with its development of Kendall Marketplace, Cannonball sold approximately ten and a half acres to Home Depot pursuant to a Real Property Purchase Agreement ("Purchase Agreement"). (Dkt. 94 ¶ 5). Section 22(h) of the Purchase Agreement required Cannonball to reimburse Home Depot for excess taxes imposed by Yorkville—the SSA Tax Reimbursement Obligation.¹ (Dkt. 102 ¶¶ 19-20). It also granted Home Depot the right to place a lien on Cannonball's Property for untimely payment of the SSA tax and stated, "Section 22(h) shall survive the Closing" and the SSA Tax Reimbursement Obligation "shall be a covenant which shall run with the land and bind Seller's grantees, successors and assigns." (Id. ). Cannonball and Home Depot also executed a development agreement ("Development Agreement") that recites Cannonball's obligations under Section 22(h) of the Purchase Agreement. In addition, Section 12.4 of the Development Agreement expressly provides that Home Depot's rights would be subordinate to the Mortgage: "such lien shall be subordinate to the lien of any first mortgage or deed of trust." (Dkt. 94 ¶ 7).

Cannonball, Home Depot, and LaSalle Bank also entered into a payment and priority agreement ("Payment and Priority Agreement") that expressly limited LaSalle Bank's obligations. (Dkt. 94 ¶ 8). It provided that the "Lender shall have no obligations to the City or any of the Anchors under the Development agreements unless Lender expressly assumes Developer's obligations thereunder in writing." (Id. at ¶ 9).

2. The Title Insurance Policy

In connection with the Mortgage, LaSalle Bank purchased an insurance policy with Ticor Title's policy-issuing agent, Near North National Title ("NNNT"). (Dkt. 102 ¶ 35). LaSalle Bank's attorney, Stephen Malato negotiated the insurance policy. (Id. at ¶ 10). LaSalle Bank sought to insure the superiority of the Mortgage over other interests. The insuring clause provides:

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, AND EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, TICOR TITLE INSURANCE COMPANY, a California corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the Insured by reason of:

* * *

2. Any defect in or lien or encumbrance on the title;

* * *

6. The priority of any lien or encumbrance over the lien of the insured mortgage.

(Dkt. 94 ¶ 19). On May 3, 2007, prior to closing of the Kendall Marketplace Transaction, Mr. Malato sought a Special Endorsement providing "assurances that the lender's lien is superior to the liens that might come out of the site development agreements." (Dkt. 102 ¶¶ 36-37). NNNT responded by email, stating: "An endorsement for the Home Depot Lien Rights is not a problem, it is subordinate to the lien of the construction mortgage."² (Id. at ¶ 42). The requested Special Endorsement states:

The company hereby insures the insured that the priority of the lien of the mortgage insured in this Policy will not be impaired by the recordation of a lien document asserting lien rights arising under any of the following documents:

* * *

1. The Home Depot Site Development Agreement recorded May 24, 2007 as document 20070016696;

* * *

Nothing contained in this Policy of this endorsement should be construed as insuring the validity of the right to lien as created under the agreements described therein.

This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy of any prior endorsements.

(Dkt. 102 ¶ 45).

The Policy includes an additional endorsement titled, "ALTA 9 ENDORSEMENT." (Dkt. 94 ¶ 22). The ALTA 9 Endorsement insured LaSalle Bank against loss if an instrument listed on Schedule B contains a "covenant, conditions or restrictions on the land" and "provides for a private charge or assessment." (Dkt. 94 ¶22). That endorsement stated:

The Company hereby insures the insured against loss or damage which the insured shall sustain by reason of the following:

1. The existence, at Date of Policy, of any of the following:

(A) Covenants, conditions or restrictions under which the lien of that mortgage referred to in Schedule A can be divested, subordinated, or extinguished, or its validity, priority or enforceability impaired.

(B) Unless expressly excepted in Schedule B:

* * *

(2) Any instrument referred to in Schedule B as containing covenants, conditions or restrictions on the land which in addition, ... (iii) provides for a private charge or assessment.

(Id. ). Schedule B, Part II of the Policy states:

In addition to the matters set forth in Part I of this schedule, the title to the estate or interest in the land described or referred to in schedule A is subject to the following matters, ...:

* * *

4. Memorandum of Agreement recorded May 15, 2007 as document number 200700016696 by and between Cannonball LLC, an Illinois limited liability company, and Home Depot U.S.A., Inc., a Delaware Corporation, are parties to (1) a Real Property Purchase Agreement and (2) a Development Agreement, and the terms and provisions contained therein.

Note: Contains a provision to create a lien on the Land.

* * *

6. Memorandum of Development Agreement recorded May 15, 2007 as document number 200700016698 by and between Cannonball LLC, an Illinois limited liability company, and Home Depot U.S.A., Inc., a Delaware corporation and the terms and provisions contained therein.

Note: Contains a provision to create a lien on the Land.

(Id. ).

3. The Closing of the Kendall Marketplace Transaction

On May 24, 2007, the Purchase Agreement, Development Agreement, and the Construction Mortgage were recoded—in that order—with the Office of the Kendall County Recorder. (Dkt. 94 ¶ 17). On that same day, Ticor Title issued the title insurance policy (the "Policy"). (Id. ).

Prior to the closing, Cannonball, HomeDepot and LaSalle Bank engaged in email correspondence. Chicago Title argues the email string shows that LaSalle Bank had actual knowledge of Home Depot's tax reimbursement rights under the Purchase Agreement, and that LaSalle Bank consented to the recording of Home Depot's tax reimbursement and lien rights prior to recording of the Mortgage. (Dkt. 102 ¶¶ 47, 48, 58, 73). Bank of America argues the same email string shows that Mr. Malato repeatedly stated his understanding that the sequence of recording would not impact the Bank's eventual rights upon foreclosure with respect to the SSA Tax Reimbursement Obligation.³ (Dkt. 94 ¶ 11).

Bank of America additionally argues that LaSalle did not intend for the lien to be an encumbrance that runs with the land, even though it allowed the lien to be recorded first—a fact Chicago Title contests.

4. The Foreclosure Action and Appeal

Eventually, Cannonball defaulted on its loan obligation. (Dkt. 94 ¶ 24). Bank of America sought to foreclose the Construction Mortgage in the Circuit Court of Kendall County. (Dkt. 102 ¶ 69). Home Depot filed a counterclaim seeking a declaration that the SSA Tax Reimbursement Obligation ran with the land and was binding on the grantees, successors and assigns of Cannonball, including Bank of America. (Dkt. 94 ¶ 24). The trial court denied Home Depot's motion for summary judgment on the SSA Tax Reimbursement Obligation issue, holding that the SSA Tax Reimbursement Obligation was personal between Cannonball and Home Depot and was not a covenant that ran with the land. (Id. ).

Home Depot appealed. The Appellate Court reversed the trial court's order in part, concluding that Home Depot's SSA Tax Reimbursement Obligation and lien rights are covenants that run with the land and binding on Bank of America. The Appellate Court ruled that "Home Depot's tax reimbursement and lien rights are part of agreements that Bank of America's predecessor was aware of when it entered into the construction loan agreement with Cannonball." Bank of America, N.A. v. Cannonball LLC , 2014 Il App (2d) 130858, ¶ 29, 382 Ill.Dec. 562, 12 N.E.3d 841. The Appellate Court further stated:

In this case, the LaSalle Bank mortgage was recorded on the same day, but after, Home Depot's memorandum of the purchase agreement and memorandum of the

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