Bank of Am., N.A. v. Cannonball LLC

• Decision Date: 05 August 2014
• Docket Number: No. 2-13-0858,2-13-0858
• Parties: BANK OF AMERICA, N.A., as Successor by Merger to LaSalle Bank National Association, Individually and as Authorized Agent, Plaintiff and Counterdefendant-Appellee, v. CANNONBALL LLC; DAVID BOSSY; TARGET CORPORATION; KOHL'S ILLINOIS, INC.; UNKNOWN OWNERS; and NONRECORD CLAIMANTS, Defendants (Home Depot U.S.A., Inc., Defendant and Counterplaintiff-Appellant).
• Court: United States Appellate Court of Illinois

2014 IL App (2d) 130858

BANK OF AMERICA, N.A., as Successor by Merger to LaSalle Bank National Association,Individually and as Authorized Agent, Plaintiff and Counterdefendant-Appellee, v. CANNONBALL LLC; DAVID BOSSY; TARGET CORPORATION;KOHL'S ILLINOIS, INC.; UNKNOWN OWNERS;and NONRECORD CLAIMANTS, Defendants(Home Depot U.S.A., Inc., Defendant and Counterplaintiff-Appellant).

No. 2-13-0858

APPELLATE COURT OF ILLINOIS SECOND DISTRICT

Opinion filed May 29, 2014

August 5, 2014

Appeal from the Circuit Court of Kendall County.

No. 10-CH-869

Honorable Alan W. Cargerman Timothy J. McCann and Bradley J. Waller, Judges, Presiding.

JUSTICE McLAREN delivered the judgment of the court, with opinion.

Presiding Justice Burke and Justice Hudson concurred in the judgment and opinion.

OPINION

¶ 1 Bank of America, as successor by merger to LaSalle Bank National Association (LaSalle Bank), filed a mortgage foreclosure complaint against Home Depot U.S.A. (Home Depot), et al., to enforce various lending agreements that Bank of America had with Cannonball LLC (Cannonball), in connection with the development of the Kendall Marketplace shopping center (shopping center), a multibuilding, multitenant commercial development in Yorkville, Illinois.

Home Depot's counterclaim sought, inter alia, a declaration that, pursuant to its agreements with Cannonball, it had certain covenants that ran with the land and were binding against Bank of America. Bank of America and Home Depot filed cross-motions for summary judgment. The trial court determined that the covenants at issue did not run with the land, granted summary judgment in favor of Bank of America, and denied Home Depot's motion for summary judgment. Subsequently, the trial court entered an order confirming the sale of the property at issue.

¶ 2 On appeal, Home Depot argues that summary judgment should have been granted in its favor and denied to Bank of America. Home Depot argues that the covenants run with the land and bind Bank of America pursuant to the explicit terms of the pertinent recorded documents and the sequence of recording those documents. We agree and reverse and remand.

¶ 3 I. BACKGROUND

¶ 4 In the spring of 2007, Cannonball entered into various agreements leading to the development of the shopping center. LaSalle Bank and Cannonball entered into a construction loan agreement for the purpose of acquiring real property and constructing the shopping center. Around this time, Cannonball sold certain tracts (anchor tracts) within the shopping center to Home Depot, Target Corporation (Target), and Kohl's Illinois, Inc. (Kohl's) (collectively, the anchor stores). Cannonball retained the central and remaining outlying portions of the shopping center for sale or lease to other retailers, and it retained roads, driveways, sidewalks, and parking areas that were not part of the anchor tracts. The construction loan agreement was secured by a mortgage in favor of LaSalle Bank and granting a lien on Cannonball's property (the mortgaged property), consisting of the shopping center except for the anchor tracts.

¶ 5 Also around this time, Cannonball and the anchor stores together entered into an operation and easement agreement (OEA) that granted nonexclusive easements to, inter alia, parking,driveway, and sidewalk areas of each party's tract and the "Common Drive." Section 6.7 of the OEA provides:

"The terms of this OEA and all easements granted hereunder shall constitute covenants running with the land and shall bind the Parcels described therein and inure to the benefit of and be binding upon each Party."

¶ 6 In addition, Yorkville issued and sold bonds to provide money to assist in the development of the shopping center with on- and off-site improvements. To recover the money, Yorkville imposed against all tracts within the shopping center a special tax that was called the "Special Service Area Tax" or the "SSA tax."

¶ 7 Cannonball and the anchor stores entered into separate purchase agreements. In March 2007, Home Depot and Cannonball entered into a "Real Property Purchase Agreement" (purchase agreement) under which Home Depot purchased from Cannonball approximately 10 half-acres of land in the shopping center. Paragraph 20(l) of the purchase agreement provides:

"(1) Successors and Assigns. This Agreement shall be binding upon and shall inure

to the benefit of the respective successors and assigns of the parties hereto (as permitted

pursuant to the provisions of this Agreement)."

¶ 8 Pursuant to the purchase agreement, Cannonball agreed to reimburse Home Depot for part of the SSA tax Home Depot paid (reimbursement right). Paragraph 22(h) of the purchase agreement provides:

"Seller hereby agrees that Seller shall be obligated to reimburse Purchaser for any portion of such SSA tax assessment which exceeds an amount equal to $0.50 per square foot of Purchaser's Floor area (as defined in the OEA), exclusive of the garden center. If Seller fails to pay any such excess SSA tax assessment within thirty (30) days after Purchaser bills Seller therefore, then in addition to any other rights and remedies availableto Purchaser, Purchaser shall have lien rights against Seller's land in the Shopping Center in accordance with the terms of the Development agreement. The terms of this Section 22(h) shall survive the Closing and shall be included in a memorandum of agreement to be executed, delivered and recorded by Seller and Purchaser at Closing. The form of the memorandum of agreement shall be approved by Seller and Purchaser within the Inspection Period; provided, however, Purchaser agrees that the memorandum of agreement shall not specifically reference the economic terms of the foregoing reimbursement obligation from Seller to Purchaser pursuant to this Section 22(h) which shall be a covenant which shall run with the land and bind Seller's grantees, successors and assigns including provisions regarding the SSA Tax." (Emphasis added.)

¶ 9 Cannonball and Home Depot entered into a development agreement, dated May 15, 2007. Section 7.8(c) of the development agreement provides in relevant part:

"[P]ursuant to Section 22(h) of the Purchase Agreement, Developer is obligated to reimburse Home Depot for any portion of such [tax] assessment which exceeds, in aggregate, an amount equal to $.50 per square foot of Floor Area ***. If Developer fails to pay any such excess [tax] assessment within thirty (30) days after Home Depot bills Developer therefore [sic], then in addition to any other rights and remedies available to Home Depot, Home Depot shall have lien rights against Developer's Property in accordance with the terms of this Agreement."

The development agreement also provides:

"12.1 Grant of Lien. Developer hereby grants and conveys to Home Depot a lien on Developer's Property to secure the performance by Developer of its obligations hereunder. Such lien shall be foreclosed in accordance with this Article 12.

* * *

12.4 Priority. The priority of a lien created pursuant to this Article 12 shall be established solely by reference to the date of the recordation of the Memorandum of Development Agreement pursuant to Section 17.4 below; provided, however, such lien shall be subordinate to the lien of any first mortgage or deed of trust.

* * *

17.2 Binding Effect. Subject to any provision hereof restricting assignment, this Agreement shall be binding upon and inure to the benefit of the executing parties and their respective successors, assigns, heirs, executors and administrators."

¶ 10 Cannonball, Home Depot, and LaSalle Bank entered into a payment and priority agreement, dated May 15, 2007, that provides, in relevant part:

"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."

¶ 11 On May 24, 2007, and in the following order, the following documents were recorded with the office of the Kendall County recorder: the OEA; a "Memorandum of Agreement" regarding the purchase agreement between Cannonball and Home Depot; a "Memorandum of Development Agreement" regarding the development agreement between Cannonball and Home Depot; and the LaSalle Bank mortgage. The recorded memorandum regarding the purchase agreement provides, in part:

"Notice is hereby given of the execution and delivery by the parties of the Purchase Agreement (which Purchase Agreement is hereby incorporated herein by reference). Notice is specifically provided that Developer has certain reimbursement obligations under Section 22(h) of the Purchase Agreement and that if Developer fails to comply with such obligations, the Purchase Agreement creates a lien on the property described on Exhibit'B' in accordance with lien provisions contained in the Development Agreement. Developer's obligations under Section 22(h) of the Purchase Agreement shall be a covenant which shall run with the land and shall be binding upon Seller's grantees, successors, and assigns."

¶ 12 After Cannonball defaulted under the construction loan agreement, Bank of America filed a four-count amended complaint. Counts I through III, against Cannonball and David Bossy (Cannonball's loan guarantor), alleged breach of contract and sought money damages. Count IV, against Cannonball, Bossy, Home Depot, Target, and Kohl's, sought the foreclosure of the mortgaged property. Regarding Home Depot, Bank of America alleged only the following:

"The recorded and unrecorded claims and interests of this Defendant, if any, including but not limited to any actual or potential rights to record liens or exercise any other rights against the Property, pursuant to the Home Depot Purchase Agreement, the Home Depot [development agreement] or any other agreements, are subordinate and inferior to the lien and interest of Agent."

¶ 13 Home Depot filed an answer to Bank of America's amended complaint, denying that its rights were inferior to those of Bank of America. Home Depot also asserted affirmative...