Bank Of Am. v. 108 N. State Retail LLC
| Decision Date | 31 March 2010 |
| Docket Number | No. 1-09-3523.,1-09-3523. |
| Citation | 340 Ill.Dec. 323,401 Ill.App.3d 158,928 N.E.2d 42 |
| Parties | BANK OF AMERICA, N.A., a National Banking Association, Successor by Merger to LaSalle Bank National Association, as Agent for Lenders, Plaintiff-Appellee and Counterdefendant-Appellee,v.108 N. STATE RETAIL LLC, an Illinois Limited Liability Company, 108 N. State Transit LLC, an Illinois Limited Liability Company, and Unknown Owners and Nonrecord Claimants, Defendants-Appellants and (Laurance H. Freed and DDL LLC, an Illinois Limited Liability Company, Defendants and Counterplaintiffs; 108 N. State Retail LLC, an Illinois Limited Liability Company, 108 N. State Transit, LLC, an Illinois Limited Liability Company, Counterplaintiffs-Appellants). |
| Court | United States Appellate Court of Illinois |
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Lynch & Stern LLP, Chicago (Daniel Lynch, Avidan J. Stern and Justin D. Kaplan, of counsel) and Jenner & Block, LLP, Chicago (Robert L. Graham, Barry Levenstam, R. Douglas Rees and J. Andrew Hirth, of counsel), for Appellants.
Seyfarth Shaw, LLP, Chicago (John H. Anderson, Gus A. Paloian and Jerome F. Buch, of counsel), for Appellee.
Defendants 108 N. State Retail LLC, 108 N. State Transit LLC, Laurance H. Freed and DDL, LLC, appeal from an order of the trial court granting a motion for the appointment of a receiver in the mortgage foreclosure proceeding brought by plaintiff, Bank of America, N.A. On appeal, defendants contend that the trial court erred in appointing a receiver because (1) the plaintiff has no “reasonable probability” of prevailing on a final hearing of the cause; and (2) defendants have established good cause why they should remain in possession of the property pursuant to section 15-1701 (b)(2) of the Illinois Mortgage Foreclosure Law (Foreclosure Law) (735 ILCS 5/ 15-1701(b)(2) (West 2006)). For the reasons set forth below, we affirm the trial court.
The property that is the subject of this appeal is located at 108 North State Street in Chicago, Illinois, and is commonly referred to as “Block 37.” The property currently consists of a building with four floors of retail space, four additional levels underground, an adjacent office building (that is not part of this action), and an underground pedway, which connects to Chicago Transit Authority (CTA) trains. Block 37 had been vacant for more than a decade when the City of Chicago (City) sold it in 2005 to the Mills Corporation. Pursuant to the “108 North State Redevelopment Agreement” (Redevelopment Agreement), between Mills Corporation and the City, the site was to be developed into a shopping, dining, and entertainment destination, and a new subway station was to be built underneath the site to serve as a transit hub. The Redevelopment Agreement described the scope of the project and specified the types of tenants that would be permitted to lease retail space in the new development.
Mills began work on the office and retail components of Block 37 in 2005, but financial problems subsequently forced the company to sell the property. In 2007, Joseph Freed and Associates LLC (Freed), a Chicago-based real estate developer, formed two entities, 108 N. State Retail LLC and 108 N. State Transit LLC (the developers), that purchased and took over the development of the retail and CTA portions of the project. On or about March 22, 2007, the developers entered into a construction loan agreement (loan agreement), pursuant to which LaSalle Bank National Association (LaSalle) agreed to provide construction financing for the project in the maximum principal amount of $205,000,000. Freed's president, Laurance H. Freed, and Freed's parent company, DDL, LLC, guaranteed the loan, and pursuant to the loan agreement, were required to maintain $5 million in liquid assets. The loan was evidenced by a promissory note dated March 22, 2007, and secured by a construction mortgage, security agreement, assignment of rents and leases and fixture filing. The loan was amended by a modification agreement on or about May 21, 2007, pursuant to which certain portions of the original mortgaged property were released. Plaintiff, Bank of America, N.A. (bank), is the successor by virtue of the October 2008 merger of LaSalle into Bank of America. The bank brought the foreclosure action as agent for itself and other lenders.
One of the key provisions of the loan agreement at issue in this case was a requirement that the loan at all times be “in balance,” meaning that the amount of funds available under the loan must equal or exceed the amount budgeted to complete the project. Section 7.4(d) provided that if the loan was not in balance, borrowers, within 10 days after a request by the bank, could deposit funds in an amount sufficient to place the loan in balance. Further, pursuant to section 11(k) of the loan agreement, a failure by the borrowers to maintain the loan in balance for a period of 90 days after the date the bank requested that the borrowers make a deposit would constitute an “event of default.”
Shortly after the developers took over the project, they realized that major improvements to the physical space were needed. In addition, the fourth-floor tenant, Strike Holdings, a company that operates bowling alleys, informed the developers that it would not go forward with its lease. The developers searched for a new tenant that would satisfy the requirements of the Redevelopment Agreement and on April 22, 2008, with the bank's approval, entered into a lease with Muvico, a company that operates first-run movie theaters.
Due to the additional costs required to improve and change the physical space of the property, the developers informed the bank in December 2007, that an additional $26 million in financing would be needed. At this time, defendants assert, the parties began ongoing discussions about modifying the loan to increase the principal amount. However, because the loan was not modified and the amount budgeted to complete the project now exceeded the amount available under the loan, the loan was out of balance under the terms of the loan agreement.
Subsequently, in March 2008, the parties entered into the first of at least 23 separate letter agreements pursuant to which the bank agreed to continue to disburse funds under the loan agreement if certain conditions were met. Specifically, the letter agreements acknowledged that a number of circumstances existed which constituted defaults under the loan agreement including the fact that the loan was not in balance and the guarantors had not maintained at least $5 million in liquid assets. Further, the letter agreements stated that these defaults would constitute “events of default” under the loan agreement if not cured within 90 days. The letter agreements referred to these defaults as “specific defaults” and stated that the borrowers and guarantors requested that the bank continue to disburse funds despite “the existence of the Specific Defaults, and any other Defaults or Events of Default under the loan documents that may exist as of the date of the funding of the Disbursement Request.”
The bank's agreement to disburse the funds under the letter agreements was contingent upon the borrowers and guarantors acknowledging (1) that specific defaults had occurred and that the specific defaults will give rise to events of default if not cured within 90 days; (2) that by funding the disbursement request, the banks do not waive the specific defaults or events of default under the loan document or any of their rights or remedies available under the loan documents; and (3) that the borrowers and guarantors “do not have any defense, set-off or counterclaim to the payment or performance of any of their obligations under the Loan Documents, as modified and amended by the Modification.” The first letter agreement was entered into on March 28, 2008, and the final letter agreement was entered into on August 25, 2009.
Meanwhile, in June 2009, the fourth-floor tenant, Muvico, underwent a corporate restructuring and informed the developers that it could not honor its lease. However, Muvico and the developers reached an alternative arrangement, pursuant to which the developers would lease the movie theater space to a newly formed entity affiliated with Freed, and Muvico would manage the theater. The bank would not approve this arrangement because, it asserted, the new lease proposal would require substantially greater improvements than the developers could fund. On October 1, 2009, the developers presented to the bank a revised Muvico arrangement that did not include participation by the Freed entity, but the bank again informed the developers that the terms of this agreement were not acceptable due to several issues, including the increased tenant improvement allowance and the reduced rent.
On October 19, 2009, plaintiff filed a mortgage foreclosure complaint in the circuit court of Cook County. Three days later, on October 22, 2009, plaintiff filed an emergency motion for appointment of a receiver. On October 26, 2009, defendants filed a motion to dismiss the mortgage foreclosure complaint, pursuant to section 2-619(a)(9) of the Illinois Code of Civil Procedure (735 ILCS 5/2-619(a)(9) (West 2006)) and separately filed a response opposing the plaintiff's motion seeking the appointment of a receiver. The defendants' motion to dismiss was based on their argument that the plaintiff's claim for foreclosure was barred by the affirmative defenses of laches, unclean hands, and equitable estoppel in the defendants' answer, which they also filed on October 26, 2009. On October 28, 2009, pursuant to section 2-619(a)(9), plaintiff filed a motion to strike the defendants' affirmative defenses on the grounds that those defenses were barred by the parties' letter agreements and were legally insufficient.
In their response to plaintiff's motion to...
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