Janivo Holding, BV v. Continental Bank, 91 C 7728.

• Decision Date: 04 August 1994
• Docket Number: No. 91 C 7728.,91 C 7728.
• Citation: 859 F. Supp. 316
• Parties: JANIVO HOLDING, B.V., Plaintiff, v. CONTINENTAL BANK, an Illinois Banking Association, and First Interstate Mortgage Company of Illinois, Defendants.
• Court: U.S. District Court — Northern District of Illinois

859 F. Supp. 316

JANIVO HOLDING, B.V., Plaintiff, v. CONTINENTAL BANK, an Illinois Banking Association, and First Interstate Mortgage Company of Illinois, Defendants.

No. 91 C 7728.

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

August 4, 1994.

Charles Louis Glick, Reuben L. Hedlund, Susan B. Silverman, Alex M. Liberman, Marion B. Adler, Edwin L. Durham, Hedlund, Hanley & John, Chicago, IL, Richard A. Edlin, Solovary & Edlin, New York City, for plaintiff.

James G. Hunter, Jr., Kenneth S. Goodsmith, Timothy B. Hardwicke, Gregory J. Zemanick, Latham & Watkins, Chicago, IL, for First Interstate.

Michael Rowe Feagley, Terri A. Mazur, Bennett W. Lasko, Dennis G. Friedman, Mayer, Brown & Platt, Chicago, IL, for Continental Bank.

MEMORANDUM OPINION AND ORDER

ALESIA, District Judge.

Defendants Continental Bank, an Illinois Banking Association ("Continental"), and First Interstate Mortgage Company of Illinois ("First Interstate") have jointly moved (1) to dismiss Counts I-IV and VI-VIII of plaintiff Janivo Holding, B.V.'s ("Janivo's") Second Amended Complaint ("Complaint"), FED.R.CIV.P. 12(b)(6); and (2) for summary judgment as to Count V, FED.R.CIV.P. 56. The Second Amended Complaint asserts eight counts, so the entirety of the Complaint is now before the court on one of the two motions.

I. BACKGROUND

This diversity suit is brought by Janivo against defendants to recover what it alleges to be $31 million improperly obtained and retained by defendants. Defendants were co-construction lenders on a project to construct a building at 633 St. Clair Place, Chicago, spearheaded by the developer St. Clair Associates, the general partner of which was Marvin Romanek. The following background is drawn from the Complaint.

A. Negotiation, Execution and Demise of the Preliminary Agreement

The Complaint alleges that in spring and early summer of 1989 "Romanek"¹ and Janivo discussed a proposal under which Janivo would purchase the land and the building for $155,737,000 free and clear, the amount to be paid in stages upon completion and lease-up of the building. The parties also discussed an alternative proposal under which Janivo would have the right to purchase a 20% investment in the land and building for $31,147,400.

Janivo alleges that under either alternative "Romanek was to guarantee completion of the Building, guarantee payment of all development and operating costs through lease-up, and guarantee specified minimum returns to Janivo. Ultimately, Romanek's failure to follow through on any of these guarantees caused Janivo to withdraw as a potential investor in the land and the Building." (Complaint at 4, ¶ 14.)

Plaintiff alleges that the above proposals were preliminarily agreed to, with good faith negotiations to follow, in an initial preliminary agreement of April 1989 and an addendum to that agreement of July 1989 (collectively "Preliminary Agreement").

Pursuant to the Preliminary Agreement, Romanek assigned Janivo a 20% interest in the land, and Janivo posted a $31,147,000 letter of credit. Janivo alleges the letter of credit "served to enforce Romanek's promise not to further encumber the property without Janivo's consent," while the parties negotiated toward a partnership agreement and final contract of sale pursuant to the Preliminary Agreement. (Complaint at 5, ¶ 20.) Janivo claims, however, that various conditions to its obligation to purchase or invest in the land and building were not met. Specifically, (1) the partnership agreement was not executed; (2) the final contract of sale or investment was not executed; and (3) a closing on the contract did not occur, with Romanek fulfilling all conditions to closing. Janivo claims among unfulfilled conditions to closing were Romanek's establishing security for all of Romanek's obligations under the Preliminary Agreement, Romanek's delivery of security for Romanek's cash-flow guarantee, and Romanek's delivery of closing documents. Janivo alleges that Romanek's failures in this regard allowed it to "walk away" from the deal with no obligation to purchase or invest. (Complaint at 7, ¶ 25.)

B. The Role of the Defendant Banks

During Janivo and Romanek's negotiation of the Preliminary Agreement, Romanek was separately negotiating with defendant Continental to obtain predevelopment and construction financing for the building. Romanek allegedly obtained an initial $17 million predevelopment loan, and a subsequent $90 million construction loan to repay acquisition and predevelopment debt and complete the building ("Construction Loan"). Continental and Romanek allegedly asked Janivo to "reissue the letter of credit and make it payable to Continental" in order to "facilitate negotiation" of the loan agreements. (Complaint at 7, ¶ 28.) Janivo complied, and caused a Dutch bank, Pierson Heldring & Pierson, N.V., to issue a new letter of credit with Continental as beneficiary ("Letter of Credit"). This Letter of Credit is the one at issue in the complaint. Janivo entered into a separate agreement with Continental defining conditions for drawing on the Letter of Credit; the agreement was later amended to add First Interstate, which, since the initial separate agreement, had become co-lender and subject to all rights and obligations of Continental (separate agreement and amendment collectively "Separate Agreement"). Janivo alleges that the "Separate Agreement referred both to the Preliminary Agreement and to the Construction Loan, and must be interpreted with reference to the provisions of both of those agreements." (Complaint at 8, ¶ 31.) The Separate Agreement, as characterized by Janivo, established that Janivo would not draw on the Letter of Credit "without first providing Janivo with a title policy endorsement declaring that the entire beneficial interest in the land trust was held by Romanek...., preventing Continental from drawing until Janivo received the partnership rights for which it had bargained in the Preliminary Agreement." (Complaint at 8-9, ¶ 32.) On July 10, 1989, a Continental Senior Vice President wrote to Dr. Harry Bergstra of Janivo to "confirm that Continental will hold the Letter of Credit in trust (and not as collateral for any loan to St. Clair Associates or Marvin presumably Romanek) and will be held or returned to you at your further direction." (Complaint at 10, ¶ 35 & Ex. I.)

Defendants allegedly made their Construction Loan in or about January 1990, before any conditions to Janivo's obligation to invest had occurred. Janivo was not a party to the loan. Janivo, however, was referenced in the Construction Loan. Janivo was to be admitted as a limited partner of Romanek and was to contribute over $31 million to the new partnership. As characterized by Janivo, the construction loan "acknowledged that the only purpose of the Letter of Credit was to secure Janivo's obligations to Romanek under the Preliminary Agreement," leaving Janivo with no obligation to make the contribution and defendants with no right to draw on the Letter of Credit if Janivo did not enter the partnership. (Complaint at 11, ¶ 38.)

Janivo and Romanek's negotiations stalled. Romanek allegedly "refused to make binding the guarantee he agreed to in the Preliminary Agreement. Among others, Romanek refused to provide the cash flow guarantee." (Complaint at 13, ¶ 43.) Janivo and Romanek did not enter into a partnership agreement or final contract of sale. This development lead Janivo to notify Romanek on October 30, 1991, that Janivo was terminating the Preliminary Agreement, and Janivo proffered its 20% beneficial interest in the land trust. Janivo now claims to no longer own any interest in the land trust. Janivo claims Continental was aware of all these developments, and specifically that Janivo on October 30, 1991, demanded return of the Letter of Credit.

On or about November 18, 1991, Continental delivered to Janivo a title policy insuring the building ("Title Policy"). On November 20, 1991, Continental made presentment to the confirming bank seeking payment of the full proceeds of Janivo's Letter of Credit. Janivo claims the Title Policy does not comply with the Separate Agreement, even under alternative interpretations of material portions of the Separate Agreement. A Continental Vice President allegedly presented to the confirming bank (Algemene Bank Nederland, N.V.) a certificate falsely claiming that all requirements to draw upon the Letter of Credit had been met. The confirming bank paid Continental the proceeds of the Letter of Credit, $31,147,400. The confirming bank charged the issuing bank, and the issuing bank charged Janivo. Defendants have allegedly applied the proceeds "on account of the balance due under the Construction Loan." (Complaint at 16, ¶ 58.)

Janivo now brings its eight-count Second Amended Complaint, each count of which is described below. The challenges to the eight separate counts are considered in turn.

II. DISCUSSION

A. Count I Against Continental for Breach of Trust

Count I is against defendant Continental for breach of trust. This count claims that Continental, as confirmed in its July 10, 1989, letter to Janivo, held the Letter of Credit in trust pending further direction. Despite Janivo's October 30, 1991, request for return of the Letter of Credit, and notification to Continental that the partnership negotiations with Romanek were not proceeding well, Continental drew on the Letter of Credit. In so doing, it failed to administer the trust according to the terms of the July 10, 1989, letter, willfully and maliciously violating its obligations.

Defendants' argument for dismissal is based upon the claim that the Separate Agreement between Janivo and Continental supersedes the July 10, 1989, letter on which the trust argument is based.² Defendants' argument is not per se that the allegations of breach of trust do not state a claim. Rather, defendant's argument is that plaintiff has pleaded itself out of court, cf....