F.R.S. Dev. Co. v. Am. Cmty. Bank & Trust

• Decision Date: 23 February 2016
• Docket Number: 2–15–0457.,Nos. 2–15–0157,s. 2–15–0157
• Citation: 58 N.E.3d 26,405 Ill.Dec. 219
• Parties: F.R.S. DEVELOPMENT COMPANY, INC., Plaintiff and Counterdefendant–Appellee, v. AMERICAN COMMUNITY BANK AND TRUST, Defendant and Counterplaintiff–Appellant (M & I Regional Properties, LLC, Counter–plaintiff–Appellant; The Village of Huntley, Defendant).
• Court: United States Appellate Court of Illinois

58 N.E.3d 26

405 Ill.Dec. 219

F.R.S. DEVELOPMENT COMPANY, INC., Plaintiff and Counterdefendant–Appellee,

v.AMERICAN COMMUNITY BANK AND TRUST, Defendant and Counterplaintiff–Appellant (M & I Regional Properties, LLC, Counter–plaintiff–Appellant; The Village of Huntley, Defendant).

Nos. 2–15–0157

2–15–0457.

Appellate Court of Illinois, Second District.

Feb. 23, 2016.

James L. Wright, of Zanck, Coen, Wright & Saladin, P.C., of Crystal Lake, for appellants.

Jennifer J. Gibson and David W. McArdle, both of Zukowski, Rogers, Flood & McArdle, of Crystal Lake, for appellee.

OPINION

Justice ZENOFF

delivered the judgment of the court, with opinion:

¶ 1 Defendant and counterplaintiff, American Community Bank & Trust, and counterplaintiff, M & I Regional Properties, LLC (collectively the bank), appeal from an order of the circuit court of McHenry County granting summary judgment in favor of plaintiff and counterdefendant, F.R.S. Development Co., Inc. (FRS), on the bank's amended counterclaim for declaratory judgment. The bank sought a declaration that it foreclosed certain “recapture rights” when it foreclosed on two parcels of real estate that were collateral for a defaulted loan. The trial court found that the recapture rights were personal property not subject to foreclosure. The bank appeals in Case No. 2–15–0157. Following the court's grant of summary judgment in FRS's favor, FRS sought attorney fees from the bank, pursuant to a fee-shifting provision in the parties' settlement agreement and mutual release that resulted in a consent foreclosure. The court awarded FRS $179,000, and the bank appeals in Case No. 2–15–0457. This court consolidated the appeals. We affirm.

¶ 2 I. BACKGROUND

¶ 3 A. Recapture Rights Explained

¶ 4 Section 9–5–1 of the Illinois Municipal Code (Code) (65 ILCS 5/9–5–1 (West 2010)

) provides that whenever a municipality requires a developer to install certain public improvements within the subdivision, and where, in the opinion of the corporate authorities of the municipality, the required improvements may be used for the benefit of property outside the subdivision, the municipality may contract with the developer to reimburse the developer for a portion of the cost of the improvements. The reimbursement is to be made from fees charged by the municipality to the owners of the outside property, “when and as collected from the owners.” 65 ILCS 5/9–5–1 (West 2010).

¶ 5 Section 9–5–2 of the Code requires that “[a]ny contract” entered into between the corporate authorities of a municipality and a developer pursuant to section 9–5–1 shall be recorded in order to “notify persons interested in such property of the fact that there will be a charge in relation to such property for the connection to and use of the facilities constructed under the contract.” 65 ILCS 5/9–5–2 (West 2010)

.

¶ 6 Although section 9–5–1 literally provides for a “reimbursement,” in common parlance a reimbursement is known as a “recapture.”

Hartz Construction Co. v. Village of Western Springs, 391 Ill.App.3d 75, 80, 330 Ill.Dec. 339, 908 N.E.2d 527 (2009)

(section 9–5–1 provides the statutory requirements for “recapture” in nonhome-rule municipalities). Hence, the parties in the present case use the term “recapture rights” when referring to the statutory and contractual reimbursement obligation of defendant, the Village of Huntley (Village).

¶ 7 Two types of recapture rights are implicated in the present litigation. FRS and the Village entered into a contract that required FRS to construct certain roadway and intersection improvements, as well as sewer improvements, in a proposed subdivision. The contract further provided that FRS would recapture a portion of the costs it expended in constructing those improvements, from fees that the Village would collect from the owners of certain benefited properties. Only the roadway and intersection recapture rights are at issue in this appeal. The parties agree that the value of those recapture rights is approximately $1.3 million. Although the sewer recapture rights are not at issue, they played a role in the complex transaction that resulted in the settlement agreement and mutual release. The settlement agreement and mutual release led to the entry of a consent foreclosure, by reason of which the bank now claims that FRS no longer owns the roadway and intersection recapture rights.

¶ 8 Throughout this opinion, we use the term “recapture rights” when referring to the reimbursement for the roadway and intersection improvements. Although this is consistent with the parties' nomenclature, our understanding and usage of the term differ from those espoused by the bank. The bank states that “recapture rights” refers to the developer's right to recapture from the owners of the benefited property a portion of the cost of the improvements. More accurately, section 9–5–1 grants the municipality the power to reimburse the developer, from fees the municipality collects pursuant to its contract with the developer. 65 ILCS 5/9–5–1 (West 2010)

. “[T]he legislature intended to make a broad grant of authority to municipalities in order to recapture a portion of the costs a developer expends on improvements * * *.” (Emphasis added.) Hartz, 391 Ill.App.3d at 80, 330 Ill.Dec. 339, 908 N.E.2d 527. We keep this distinction in mind as we proceed through the facts and our analysis.

¶ 9 B. Transactions Occurring Before the Bank Loan

¶ 10 Frank Sajtar controlled FRS and F.G.M. of Huntley, LLC (FGM). In 2003, FRS was under contract to purchase a parcel of real estate known as Talamore, located northwest of state Route 47 and Reed Road in the Village. FRS owned a parcel that was adjacent to Talamore, known as the Garlieb–Hardy parcel.¹ FGM owned a 40–acre parcel (the 40–acre parcel) that was also adjacent to Talamore.

¶ 11 On September 12, 2003, FRS and the Village entered into a Facilities Expansion Agreement (FEA) relating to the development of Talamore. Pertinent to this appeal, the FEA required FRS to construct certain roadway and intersection improvements at FRS's own expense.² The FEA also provided that FRS would recapture a portion of its costs pursuant to the terms of a “Road Improvement Recapture Agreement.” The Road Improvement Recapture Agreement designated the 40–acre parcel and the Garlieb–Hardy parcel as benefited properties whose owners would be charged fees for the use of the improvements. Under the terms of the Road Improvement Recapture Agreement, the Village would collect and remit those fees to FRS.

¶ 12 In February 2004, FRS obtained title to Talamore and simultaneously conveyed it to Huntley Venture, LLC (Huntley Venture). As part of that transaction, FRS assigned the recapture rights to Huntley Venture. Ultimately, Huntley Venture constructed the public improvements.

¶ 13 Needing more land for the improvements, Huntley Venture acquired a strip of the 40–acre parcel from FGM and a strip of the Garlieb–Hardy parcel from FRS. Those acquisitions were embodied in a “Right–of–Way Purchase and Sale Agreement,” dated January 27, 2005. As part of the consideration for the purchase, Huntley Venture permanently waived the recapture rights against the 40–acre parcel and limited the recapture rights against the Garlieb–Hardy parcel to $358,220. A memorandum of that agreement was recorded.

¶ 14 A dispute over development issues arose among Huntley Venture, FRS, and FGM. On February 9, 2006, they entered into a written settlement agreement.³ Pertinent here, Huntley Venture purported to rescind its waiver of the recapture rights as to the 40–acre parcel and its limitation as to the Garlieb–Hardy parcel and to assign them back to FRS and FGM. The assignment was recorded.

¶ 15 C. The Bank Loan

¶ 16 On May 17, 2006, the bank loaned FGM $12,500,000. FGM mortgaged the 40–acre parcel as collateral for the loan. As additional collateral, FRS mortgaged the Garlieb–Hardy parcel. As further security, FGM and FRS executed a “Commercial Security Agreement,” which included a Uniform Commercial Code–1 (UCC–1) financing statement. The UCC–1 covered “all proceeds relating to” the February 9, 2006, settlement agreement among Huntley Venture, FRS, and FGM.

¶ 17 FGM defaulted on the loan, and on January 30, 2009, the bank filed a foreclosure action.

¶ 18 D. The Foreclosure Suit

¶ 19 The bank sought to foreclose on the 40–acre parcel and the Garlieb–Hardy parcel. Additionally, in count XIII of the amended foreclosure complaint, the bank sought to foreclose on its security interest as evidenced by the UCC–1 statement.

¶ 20 The parties negotiated a settlement that culminated in a consent foreclosure. Pertinent here, in a July 14, 2009, draft of that agreement, FRS agreed to assign the bank 80% of its sewer recapture rights, and the bank agreed to release its security interests in “all other chattel paper, accounts, and general intangibles of FRS (including but not limited to all rights under the Settlement Agreement by and between FRS, FGM, and Huntley Venture dated February 9, 2006).” On August 21, 2009, counsel for FRS and FGM formally requested that the bank release its security interests in the roadway and intersection recapture rights. Counsel for FRS and FGM also indicated his clients' intention to assign those rights to Nelson's– Florida, LLC (Nelson's–Florida),⁴ before title to the 40–acre parcel and the Garlieb–Hardy parcel was conveyed to the bank in the foreclosure process.

¶ 21 In the final settlement agreement and mutual release, executed by the parties on August 25, 2009, FRS and FGM consented to the entry of a judgment of foreclosure, except as to “intangible collateral.” In paragraph 8, FRS agreed to assign to the bank FRS's rights to receive 80% of the sewer recapture amount. In subparagraph (c) of paragraph 8, the bank agreed to release its security interests in “all other chattel paper, accounts, and general intangibles of FRS and FGM (including, but not limited to, all rights under the Settlement Agreement by and between FRS, FGM, and ...