Citizens v. Rtg–oak Lawn Llc

• Decision Date: 25 February 2011
• Docket Number: No. 1–10–1729.,1–10–1729.
• Citation: 347 Ill.Dec. 908,407 Ill.App.3d 183,943 N.E.2d 198
• Parties: RBS CITIZENS, NATIONAL ASSOCIATION, as Successor by Merger to Charter One Bank, N.A., Plaintiff–Appellee,v.RTG–OAK LAWN, LLC, an Illinois Limited Liability Company, RTG–Bloomingdale, LLC, an Illinois Limited Liability Company, Richard S. Gammonley, Richard T. Gammonley, 51st Avenue Station Condominium Association, Unknown Owners and Nonrecord Claimants, Defendants–Appellants.
• Court: United States Appellate Court of Illinois

407 Ill.App.3d 183
943 N.E.2d 198
347 Ill.Dec. 908

RBS CITIZENS, NATIONAL ASSOCIATION, as Successor by Merger to Charter One Bank, N.A., Plaintiff–Appellee,
v.
RTG–OAK LAWN, LLC, an Illinois Limited Liability Company, RTG–Bloomingdale, LLC, an Illinois Limited Liability Company, Richard S. Gammonley, Richard T. Gammonley, 51st Avenue Station Condominium Association, Unknown Owners and Nonrecord Claimants, Defendants–Appellants.

No. 1–10–1729.

Appellate Court of Illinois, First District, Fourth Division.

Feb. 3, 2011.Rehearing Denied Feb. 23 and 25, 2011.

[943 N.E.2d 202]

Michael S. Pomerantz, Andrew A. Jacobson, Brown, Udell, Pomerantz & Delrahim, Ltd., Chicago, IL, for Defendants/Appellants.Michael Weininger, Lawrence M. Karlin, Lupel Weininger LLP, Chicago, IL, for Plaintiff/Appellee.

[347 Ill.Dec. 912 , 407 Ill.App.3d 184] OPINION Justice LAVIN delivered the judgment of the court, with opinion:I. BACKGROUND

Before us is an interlocutory appeal challenging the circuit court's orders striking and dismissing with prejudice certain affirmative defenses and counterclaims raised by defendants in response to an action to foreclose on a junior mortgage by plaintiff. For the reasons elucidated below, we affirm the judgment of the circuit court.

RTG–Bloomingdale, LLC, is a limited liability company controlled by the Gammonley Group, of which Richard T. Gammonley and Richard S. Gammonley are the principals. RTG–Bloomingdale and RBS Citizens (RBS) executed an “Open–End Construction Mortgage and Security Agreement” (Bloomingdale Loan) on December 16, 2005, for $27 million to finance the development of a residential condominium project located at 105–135 North Lakeview Drive in Bloomingdale, [407 Ill.App.3d 185] Illinois. A “Revolving Credit Promissory Note” (Note), the financial instrument primarily at issue here, was signed by RTG–Bloomingdale to evidence the loan, which the Gammonleys guaranteed by individually executing “Guaranty Agreements.”

RTG–Bloomingdale defaulted on the Bloomingdale Loan in 2007, and subsequently RBS, the Gammonleys, and RTG–Bloomingdale executed a series of forbearance agreements between January and June 2008. In a January 15, 2008, forbearance agreement, RTG–Bloomingdale, through the Gammonleys, granted RBS additional security for the Bloomingdale Loan in the form of a junior mortgage on property located at 5114–5130 West 95th Street in Oak Lawn, Illinois (Oak Lawn Mortgage), which is owned by RTG–Oak Lawn, LLC, a related entity to RTG–Bloomingdale. The forbearance agreement required a certain number of condominium units at the Bloomingdale project to be sold by March 2008; however, the requirement was not met. The parties amended the forbearance agreement to reduce the number of condominium units required to be sold and extended the deadline to May 15, 2008, but this reduced requirement was not met either. The second, and final, forbearance agreement was entered into providing that the Gammonleys would pay RBS $200,000 for each unsold unit below the aforementioned sales requirement, labeled “Sale Deficiency Amounts.”

The Gammonleys were unable to satisfy the sales requirements and also failed to make any payments towards the Sale Deficiency Amounts. The controlling forbearance period expired on December 31, 2008, and the Note became due on January 1, 2009. The Note remained unpaid and RBS subsequently filed the underlying complaint for foreclosure on February 24, 2009. The complaint sought to foreclose on the Oak Lawn Mortgage and a related security interest, and stated causes of action against defendants seeking

[347 Ill.Dec. 913 , 943 N.E.2d 203]

recovery of any unpaid amounts under the Bloomingdale Loan and Note. In response, defendants filed an answer, which also contained the affirmative defenses and counterclaims at issue here based on alleged violations of the Interest Act (815 ILCS 205/1 et seq. (West 2006)), the duty of good faith and fair dealing, the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 2006)), and common law fraud. The allegations revolved around the general contention that RBS did not disclose its method of computing and charging interest, and unlawfully increased the amount of interest charged on the Bloomingdale Loan. On September 8, 2009, RBS moved to strike and dismiss all affirmative defenses and counterclaims pursuant to sections 2–615 and 2–619 of the Code of Civil Procedure (Code) (735 ILCS 5/2–615, 2–619 (West 2008)). In a written order [407 Ill.App.3d 186] entered on January 20, 2010, the circuit court granted the motion, dismissing the affirmative defenses and counterclaims with prejudice. Defendants moved for reconsideration which, after briefing and oral arguments, the circuit court denied in another written order. Defendants instant interlocutory appeal followed.

II. ANALYSIS

Defendants first contend that the circuit court erred in dismissing their affirmative defenses and counterclaims. As stated, the circuit court dismissed defendant's affirmative defenses and counterclaims pursuant to sections 2–615 and 2–619 of the Code. A motion to dismiss under section 2–615 admits all well-pleaded facts and attacks the legal sufficiency of the complaint. La Salle National Bank v. City Suites, Inc., 325 Ill.App.3d 780, 790, 259 Ill.Dec. 259, 758 N.E.2d 382 (2001). A motion to dismiss under section 2–619, on the other hand, admits the legal sufficiency of the complaint but raises defects, defenses, or other affirmative matters that appear on the face of the complaint or are established by external submissions that act to defeat the claim. Krilich v. American National Bank & Trust Co. of Chicago, 334 Ill.App.3d 563, 569–70, 268 Ill.Dec. 531, 778 N.E.2d 1153 (2002). We review an order granting a motion to dismiss pursuant to section 2–615 or section 2–619 de novo. Illinois Non–Profit Risk Management Ass'n v. Human Service Center of Southern Metro–East, 378 Ill.App.3d 713, 719, 318 Ill.Dec. 732, 884 N.E.2d 700 (2008).

Defendants first contend that they adequately pled: (1) their affirmative defense and counterclaim based upon the Interest Act; (2) their affirmative defense and counterclaim based upon a breach of the duty of good faith and fair dealing; and (3) their counterclaim based upon statutory and common law fraud. As noted above, the affirmative defenses and counterclaims revolve around a general assertion that the Note's interest terms were breached or, at the least, that they were ambiguous.

We first note that the forbearance agreements signed by the Gammonleys contain language providing that the Gammonleys have “no claims or defenses to the enforcement of the rights and remedies of Lender thereunder,” and that the agreements and relevant loan documents “constitute the legal, valid and binding obligations of Borrower, enforceable against it in accordance with their respective terms, and Borrower has no valid defense to the enforcement of such obligations.” The forbearance agreements containing a waiver of defenses were executed in 2008 and the offenses, as alleged, occurred upon the execution of the Note in 2005. We have held that Illinois permits a party to contractually waive all defenses, and this court is not

[347 Ill.Dec. 914 , 943 N.E.2d 204]

precluded from upholding it. [407 Ill.App.3d 187] Bank of America, N.A. v. 108 N. State Retail LLC, 401 Ill.App.3d 158, 172, 340 Ill.Dec. 323, 928 N.E.2d 42 (2010). This court, however, has stated that the duty of good faith and fair dealing is not waived absent an “express disavowal.” Bass v. SMG, Inc., 328 Ill.App.3d 492, 504, 262 Ill.Dec. 471, 765 N.E.2d 1079 (2002). The waiver of defenses here did not specifically address the duty of good faith and fair dealing, and therefore we cannot find there was an express disavowal of the duty. Furthermore, waiver of defenses are inapplicable to claims originating under the Consumer Fraud Act. 815 ILCS 505/10c (West 2006). Accordingly, we will not consider those claims to be waived.

As to the remaining claims of common law fraud and violation of the Interest Act, it is less explicit how they are affected by the waiver of defenses. In Bank of America, N.A., however, this court found that a waiver of defenses was applicable to various affirmative defenses and counterclaims, including breach of contract, unclean hands, fraud, and estoppel, which suggests to us that claims of common law fraud can be waived. Bank of America, N.A., 401 Ill.App.3d at 172, 340 Ill.Dec. 323, 928 N.E.2d 42. As for the Interest Act claims, as an initial matter, we agree with defendants' observation that the Interest Act is penal in nature. See Saskill v. 4–B Acceptance, 139 Ill.App.3d 143, 145, 93 Ill.Dec. 653, 487 N.E.2d 97 (1985). We fail to see, however, how this translates into a conclusion that affirmative defenses based on the Interest Act are not subject to a waiver of defenses and defendants notably fail to cite to any authority indicating as such. Unlike the Consumer Fraud Act, the Interest Act is silent on whether a waiver of defenses is prohibited for claims under the Interest Act. Furthermore, the waiver of defenses in this case was essentially part of the consideration that RBS received in exchange for a forbearance agreement. To allow defendants to be the sole party to enjoy the benefit of the forbearance agreement would be contrary to Illinois' public policy favoring the enforcement of contracts. See Royal Extrusions Ltd. v. Continental Window & Glass Corp., 349 Ill.App.3d 642, 651, 285 Ill.Dec. 734, 812 N.E.2d 554 (2004). With these principles in mind, we would be inclined to find that defendants also waived any affirmative defense or counterclaim based upon the Interest Act and common law fraud. However, despite this potential contractual waiver, and because we are bound to analyze the terms of the Note in the context of defendants' remaining arguments, we will nevertheless address defendants' contentions for the sake of...