FirstMerit Bank, N.A. v. Antioch Bowling Lanes, Inc., Case No. 12 C 9567

• Decision Date: 05 June 2015
• Docket Number: Case No. 12 C 9567
• Citation: 108 F.Supp.3d 618
• Parties: FirstMerit Bank, N.A., as Assignee of the FDIC, receiver for Midwest Bank and Trust Company, Plaintiff, v. Antioch Bowling Lanes, Inc., et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

108 F.Supp.3d 618

FirstMerit Bank, N.A., as Assignee of the FDIC, receiver for Midwest Bank and Trust Company, Plaintiff,

v.Antioch Bowling Lanes, Inc., et al., Defendants.

Case No. 12 C 9567

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

Signed June 5, 2015

Richard T. Reibman, Emily Louise Peel, Thompson Coburn LLP, Chicago, IL, for Plaintiff.

David E. Cohen, Fisher Cohen Waldman Shapiro, LLP, Glenview, IL, Timothy A. Scott, Law Office of David Freydin, Ltd., Lincolnwood, IL, for Defendants.

MEMORANDUM OPINION & ORDER

JOAN B. GOTTSCHALL, United States District Judge

The character Walter Sobchak once said, "This is bowling.There are rules."¹If only the same could be said regarding how the law classifies property items in a bowling alley.The issue in this case is whether various pieces of property at the Antioch Bowling Lanes qualify as fixtures or personalty under Illinois law.A finding that the items constitute fixtures would inure to the benefit of FirstMerit Bank, N.A., which seeks to foreclose on a mortgage; a finding that the items constitute personalty would allow a creditor, Kenneth Sterbenz, to lay claim to the items.What complicates the inquiry is that the governing state law principles derive from dated and, at times, inconsistent caselaw.In some instances, courts have relied on certain criteria in holding that an item was a fixture, while on other occasions, different criteria have proved decisive.

For the reasons set forth below, the court concludes that ABL's bowling lanes, including approaches, lane gutters, bowling ball return system, pin setting machines, and scoring consoles, are essential to the real property's long-time use as a bowling alley and are fixtures, subject to FirstMerit's mortgage.The court further holds that the laneside tables and chairs are personalty and removable and saleable by Kenneth Sterbenz.

I.FACTS

PlaintiffFirstMerit, N.A.("FirstMerit") is in the process of foreclosing on a mortgage extended to a Land Trust, the sole beneficiary of which is Antioch Bowling Lanes, Inc.("ABL")(Parties Joint Stipulation of Facts, hereinafter "Jt. Stip."¶ 3).In 1992, ABL caused the property at 750 West Highway 173 in Antioch, IL (the "Property"), and all improvements thereon, to be conveyed to the Land Trust.(Id.¶ 3.)The Property consists of a bowling alley (the primary business of the premises since the building was erected in approximately 1954) and attached rental real estate, occupied by various other businesses.

ABL has at all times been owned by the Sterbenz family.(Id.¶ 2.)As far as the court has been made aware, the Sterbenz family consists of Joseph Sterbenz, who operated ABL during his working life but is now in his 80's residing in Florida, and Kenneth Sterbenz, Joseph's son, the registered agent and secretary of ABL, who has been operating the affairs of ABL for some time.The current mortgage loan was extended by Midwest Bank & Trust, FirstMerit's predecessor, in September 2002, secured by the real estate at 750 West Highway 173.(Parties' Joint Exhibit 2.)ABL, Joseph Sterbenz, the Land Trust, the Bains (who were operating the bowling alley in anticipation of buying it) and the Bains' entity, Antioch Lanes, Inc., executed a promissory note with Midwest Bank & Trust in 2002, secured by the 2002 mortgage.(Parties' Joint Exhibit 1.)When this loan matured in 2007, ABL sought and entered into a new loan agreement with Midwest Bank & Trust, again secured by the 2002 mortgage.(Parties' Joint Exhibit 3.)ABL defaulted on the 2007 loan agreement, giving rise to this foreclosure action.

ABL purchased all of the bowling mechanisms currently located at the Property, including the bowling lanes, lane gutters, bowling ball return system, pin setting machines, scoring consoles, and bowling seats and tables installed in the Property.(Jt.Stip. ¶ 4.)On June 18, 2010, a microburst storm damaged the Property.(Id.¶ 5.)As a result of the damage caused by the microburst, the bowling lanes, ball return system and the lane gutters had to be replaced.(Id.¶¶ 5, 6.)Kenneth Sterbenz, who was then the primary decisionmaker for the Property, loaned ABL $920,000 for business operations and to purchase replacement equipment for the equipment damaged by the microburst.(Tx. ofApril 9, 2015at 94.)Kenneth Sterbenz has a secured interest in the "collateral," described at page 8 of the Parties' Joint Exhibit 11.)The collateral includes personal property, investment property, contract rights, inventory, goods, chattel paper, accounts, equipment, and general intangibles (for a fuller description, seeJoint Exhibit 11at 8.)

II.DISCUSSION

This case, which the parties have to a limited extent resolved, involves a simple-sounding question: Whether the bowling lanes, lane gutters, bowling ball return system, pin setting machines, scoring consoles, bowling seats and tables are fixtures, which would make them subject to FirstMerit's mortgage and current foreclosure action, or personalty, such that Kenneth Sterbenz can remove and sell them.The case is not simple, however, since relevant Illinois authority tends to be very old; not consistently theorized; and usually holds "intent" to be determinative, even though parties in these cases rarely seem to think about this issue, let alone harbor intent.Another difficulty is that a commonly-relied-upon factor in characterizing property as fixture or personalty is whether the property can easily be moved from the premises without damaging the real estate.See, e.g.,Sword v. Low,122 Ill. 487, 497, 13 N.E. 826(1887).Over time, as the cases have aged, bowling alley equipment such as that involved here has become more portable and less long-lived, as laminates, rather than wood or metal, have been used for the construction of much of the equipment.

Although the court was initially swayed by Sterbenz's evidence of the portability of modern, laminate bowling equipment, the court's more thorough study of Illinois law has convinced it that this case must be resolved in FirstMerit's favor.If one looks only to cases arising in the mortgage and real estate assessment contexts (standards in the landlord/tenant context are different),² an old doctrine called the "integrated industrial doctrine" emerges.

This doctrine looks less to the permanency of annexation (i.e., whether the property in question can be moved) and more to the issue of whether the property in question is appropriated or adapted to the use or purpose of the part of the realty to which it is annexed.SeeCommonwealth Edison,219 Ill.App.3d at 556–57, 162 Ill.Dec. 268, 579 N.E.2d 1082.Although property may not be attached to the real estate and may be easily movable, the cases recognize a concept of constructive annexation, applied when the property is so necessary to the use of the mortgaged realty that the intent of the property's owner (and the court views the Sterbenz family as the owner, even though the Land Trust actually holds the real estate) to make a permanent annexation can be inferred.SeeOwings v. Estes,256 Ill. 553, 556, 100 N.E. 205(1912).In short, since the Sterbenz family is for all practical purposes the owner of the bowling alley, and since the bowling alley can function as such only if it has lanes, pinsetters, ball returns and gutters, the integrated industrial doctrine compels the court to infer an intent to annex this property permanently to the real estate.Nor do the cases seem to care that this annexation be permanent in the sense that the property is annexed only for its useful life and when necessary replaced.If the property is essential to the use to which the real estate is put, it is covered by the real estate mortgage.

Illinois' recognition of the "integrated industrial doctrine" was confirmed recently in a February 2015 Update of the "Illinois Real Property Service."SeeJohn P. Fitzgerald, 11 Illinois Real Property§ 58:7(citingCommonwealth Edison Co. v. Property Tax Appeal Bd.,219 Ill.App.3d 550, 162 Ill.Dec. 268, 579 N.E.2d 1082(2d Dist.1991) ).The Update described the doctrine as considering "all machinery of a plant or factory necessary for its operation as a complete, ongoing concern to be part of the real estate."Id.

The application of the doctrine, although not called by its current name, can be seen in an early Illinois Supreme Court case, Fifield v. Farmers' Nat'l Bank of Princeton,148 Ill. 163, 35 N.E. 802(1893).In this litigation between a shoe manufacturer, whose shoe factory had become bankrupt, and the bank which held a trust deed, the question was whether the shoe-making equipment should be characterized as fixtures, in which case it belonged to the bank, or personal property of the shoe manufacturer.Id. at 168, 35 N.E. 802.The court stated the relevant test as follows:

First, real or constructive annexation of the thing in question to the realty; second, appropriation or adaptation to the use or purpose of that part of the realty with which it is connected; third, the intention of the party making the annexation to make it a permanent accession to the freehold, this intention being inferred from the nature of the article affixed, the relation and situation of the party making the annexation and the policy of the law in relation thereto, the structure and mode of the annexation, and the purpose or use for which the annexation has been made.

148 Ill. at 169–170, 35 N.E. 802(citation omitted).The court quoted approvingly from a Massachusetts case, Pierce v. George,108 Mass. 78(1871), which stated the following: " ‘Articles placed in a mill by the owner to carry out the obvious purpose for which it was erected, and adapted to that purpose, are generally part of the realty, notwithstanding the fact that they could be removed and used elsewhere.’ "148 Ill. at 172, 35 N.E. 802(citation omitted).

The Illinois Supreme Court reached a similar conclusion in Owings v. Estes,256 Ill. 553, 100 N.E. 205(1912).Noting that...