McGinley Partners, LLC v. Royalty Props., LLC

• Decision Date: 30 August 2018
• Docket Number: No. 1-17-1317,1-17-1317
• Citation: 2018 IL App (1st) 171317,117 N.E.3d 1207,427 Ill.Dec. 270
• Parties: MCGINLEY PARTNERS, LLC, an Illinois Limited Liability Company, Plaintiff-Appellee, v. ROYALTY PROPERTIES, LLC, a Florida Limited Liability Company; Richard Kirk Cannon, an Individual; and Meryl Squires Cannon, an Individual, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

2018 IL App (1st) 171317
117 N.E.3d 1207
427 Ill.Dec. 270

MCGINLEY PARTNERS, LLC, an Illinois Limited Liability Company, Plaintiff-Appellee,
v.
ROYALTY PROPERTIES, LLC, a Florida Limited Liability Company; Richard Kirk Cannon, an Individual; and Meryl Squires Cannon, an Individual, Defendants-Appellants.

No. 1-17-1317

Appellate Court of Illinois, First District, Fourth Division.

August 30, 2018

James M. Messineo, of Inverness, and Norman J. Lerum and Catherine E. Lerum, of Norman J. Lerum, P.C., of Chicago, for appellants.

Katherine M. Saldanha Olson and Joseph S. Messer, of Messer Strickler, Ltd., of Chicago, for appellee.

JUSTICE GORDON delivered the judgment of the court, with opinion.

427 Ill.Dec. 273

¶ 1 The instant appeal arises from the attempt of plaintiff McGinley Partners, LLC, to enforce a note and guaranty executed by defendants Royalty Properties, LLC; Richard Kirk Cannon; and Meryl Squires Cannon in connection with the purchase of a horse farm. The trial court

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427 Ill.Dec. 274

granted summary judgment in plaintiff's favor and set the matter for prove-up. Defendants challenged the interest claimed by plaintiff in the prove-up affidavit, arguing that the rate was usurious. The trial court initially permitted defendants to amend their answer to include an affirmative defense of usury. However, it granted plaintiff's motion to reconsider and denied defendants leave to amend their answer, finding the issue waived and finding that the defense of usury was unavailable. The trial court entered judgment against defendants in the amount of $8,320,669.43. Defendants appeal and, for the reasons that follow, we affirm.

¶ 2 BACKGROUND

¶ 3 The underlying real estate transaction involved in the instant appeal has been considered twice by this court, first in BMO Harris Bank, N.A. v. Royalty Properties, LLC , 2016 IL App (1st) 151338-U, and later in Royalty Farms, LLC v. Forest Preserve District , 2017 IL App (1st) 161409, 419 Ill.Dec. 234, 92 N.E.3d 943. Accordingly, where appropriate, we draw from our prior decisions for our facts.

¶ 4 Defendants Richard and Meryl Cannon owned 43 horses, which resided on a farm in Barrington Hills owned by Horizon Farms, Inc. (Horizon Farms). In 2006, Horizon Farms solicited bids in an effort to sell the farm, and the Cannons submitted a bid of $19.35 million for the property, which was accepted. The Cannons made an earnest money deposit of nearly $2 million and financed the rest of the purchase price, primarily through obtaining a loan of $14.5 million from Amcore Bank in exchange for a mortgage on the property and the personal guaranties of the Cannons. In order to obtain this financing, Amcore Bank required the Cannons to form a limited liability corporation to sign for the loan. Accordingly, the Cannons created Royalty Properties, LLC (Royalty Properties), also named as a defendant in the instant litigation. In addition to the financing from Amcore Bank, Horizon Farms loaned $1.5 million to Royalty Properties. It is this loan that is the subject of the instant litigation.

¶ 5 In 2009, Amcore Bank filed a complaint to foreclose the primary mortgage. In 2010, during the pendency of the lawsuit, the loan was sold to BMO Harris Bank, which took over the foreclosure action; BMO Harris Bank, in turn, sold the loan to the Forest Preserve District of Cook County (Forest Preserve) in June 2013. In August 2013, the trial court granted summary judgment in favor of the Forest Preserve and ordered foreclosure of the mortgage and sale of the farm. The Forest Preserve was the highest bidder at the foreclosure sale, and the trial court entered a $6.2 million deficiency judgment against defendants.¹

¶ 6 On May 15, 2014, plaintiff filed a verified complaint against defendants to enforce the note and guaranty executed by them with respect to the Horizon Farms loan. The complaint alleged that, on December 21, 2006, Royalty Properties executed

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427 Ill.Dec. 275

a promissory note in favor of Horizon Farms in the amount of $1.5 million, which was secured by a mortgage. The note was personally guaranteed by the Cannons pursuant to a guaranty agreement dated December 21, 2006. The complaint alleged that Horizon Farms' interest in the note and guaranty was assigned to the William J. McGinley Marital Trust (trust) upon the dissolution and liquidation of Horizon Farms. The complaint further alleged that, on November 10, 2009, the trust assigned all of its right, title, and interest in the note and guaranty to plaintiff McGinley Partners, LLC, and that plaintiff became the current owner and holder of the note and guaranty.

¶ 7 The complaint set forth two counts. The first count was for breach of the promissory note and was against Royalty Properties. Count I alleged that the note was in default as a result of nonpayment and that, as of May 14, 2014, $3,509,025.22 was due and owing under the note. Count I further alleged that under the terms of the note, interest continued to accrue at an annual rate of 20%. However, Royalty Properties had refused to pay the amounts due and owing under the note.

¶ 8 Count II was for breach of guaranty and was against the Cannons. Count II alleged that the Cannons guaranteed all sums due and owing under the note and that if the note was in default, plaintiff, as holder of the note, was permitted to demand payment of the note from the guarantors. However, despite the default on the note, the Cannons refused to pay the amounts due and owing under the note.

¶ 9 Attached to the complaint was a copy of the promissory note, dated December 21, 2006. The note was in the amount of $1.5 million, and the holder of the note was listed as Horizon Farms; the note had a maturity date of December 31, 2007. Pursuant to the terms of the note, the default interest rate was listed as "Lesser of (i) the Contract Rate plus five percent (5%) per annum, or (ii) the maximum amount permitted by applicable law." The "Contract Rate" was defined as "[a] rate of interest equal to twelve percent (12%) per annum until July 1, 2007; as of July 1, 2007, a rate of interest equal to fifteen percent (15%) per annum."

¶ 10 Also attached to the complaint was a copy of the guaranty, dated December 21, 2006. Section 1.1 of the guaranty set forth the scope of the guaranty and provided:

"Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor."

¶ 11 Section 1.3 set forth the nature of the guaranty and provided:

"This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor and after (if Guarantor is a natural person) Guarantor's death (in which event this Guaranty shall be binding upon Guarantor's estate and Guarantor's legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced

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by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all of part of the Note."

¶ 12 Section 5.6 set forth the parties bound by the guaranty and provided: "This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives."

¶ 13 Also attached to the complaint was the affidavit of James McGinley, in which he averred, consistent with the allegations of the complaint, that Horizon Farms' interest in the note, mortgage, and guaranty was transferred to the trust in connection with the dissolution and liquidation of Horizon Farms. McGinley further averred that on November 10, 2009, the trust assigned all of its right, title, and interest in the note, mortgage, and guaranty to plaintiff McGinley Partners, LLC, and plaintiff was the current owner and holder of the note, mortgage, and guaranty. Finally, McGinley averred that the three beneficiaries of the trust were Robert McGinley, Margaret McGinley, and himself.²

¶ 14 Finally, attached to the complaint was a document entitled "Assignment Agreement by and between Robert R. McGinley, James W. McGinley, Margaret McGinley as Trustees of The William J. McGinley Marital Trusts and McGinley Partners, LLC, an Illinois limited liability company." This assignment was dated November 10, 2009, and provided, in its recitals:

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