Reef-PCG, LLC v. 747 Props., LLC
| Decision Date | 29 June 2020 |
| Docket Number | No. 2-20-0193,2-20-0193 |
| Citation | 157 N.E.3d 1122,2020 IL App (2d) 200193,441 Ill.Dec. 765 |
| Parties | REEF-PCG, LLC, Plaintiff-Appellee, v. 747 PROPERTIES, LLC; R.G. Construction Services, Inc.; Graybar Electric Company, Inc.; Vader National Electric LLC ; Professional Decorating & Painting, Inc. ; Hill Fire Protection LLC ; Kingston Tile Company, Ltd.; AVI Systems, Inc.; Imbert International Inc.; Air Comfort Corporation; and Unknown Owners and Nonrecord Claimants, Defendants (Vader National Electric, LLC, and Hill Fire Protection, LLC, Defendants and Counterplaintiffs-Appellants; Imbert International, Defendant and Counterplaintiff; Hill Mechanical Corporation, Intervenor and Counterplaintiff-Appellant; Clune Construction Company, L.P., Intervenor and Counterdefendant-Appellee; Air Comfort Corporation, Defendant-Appellee; Gregory S. Gann, Receiver-Appellee; and Applied Controls, Inc., Intervenor-Appellee). |
| Court | United States Appellate Court of Illinois |
Daniel Brennan, Chad Shifrin, and Craig G. Penrose, of Laurie & Brennan, LLP, of Chicago, for appellant Vader National, LLC.
Samuel H. Levin, of Bryce Downey & Lenkov LLC, of Chicago, for appellant Imbert International, Inc.
Phillip Luetkehans and Brian J. Armstrong, of Luetkehans, Brady, Garner & Armstrong, LLC, of Itasca, for other appellants.
John Lipinsky and Gregory P. Adamo, of Clingen, Callow & McLean, LLC, of Lisle, for appellee REEF-PCG, LLC.
Gregory R. Meeder and James P. Chivilo, of Holland & Knight LLP, of Chicago, for appellees Air Comfort Corporation and Applied Controls, Inc.
Jeffrey L. Hamera and Keith M. St. Aubin, of Duane Morris LLP, of Chicago, for other appellee.
Gregory Gann, of Deerfield, receiver.
¶ 1 Mechanic's lienholders, Vader National Electric, LLC (Vader); Hill Fire Protection, LLC (Hill Fire Protection); and Hill Mechanical Corporation (Hill Mechanical) (lienholders), appeal from the trial court's order subordinating their liens to $12 million in new debt, to be issued through receiver certificates, for improvements to secure a 10-year lease with the General Services Administration of the United States government (GSA). For the following reasons, we reverse.
¶ 3 In October 2018, 747 Properties, LLC (747 Properties), borrowed approximately $16.9 million from a syndicate of individuals and corporations, including PCG Credit Partners LLC (PCG), who named REEF-PCG, LLC (REEF-PCG), as the agent. The purpose of the loan was to buy and remodel the four-story office building located at 747 E. 22nd Street in Lombard, IL (747 property). The loan is secured by a mortgage on the property. Thereafter, 747 Properties entered into lease agreements with Pomeroy IT Sales (Pomeroy) for the first two floors and with the GSA for the third and fourth floors.
¶ 4 Pomeroy hired Clune Construction Company, L.P. (Clune Construction), to complete approximately $15 million in repairs to both its leased space and the common elements of the building. Clune Construction in turn hired numerous subcontractors to perform the work, including Vader, Hill Fire Protection, Hill Mechanical, and Imbert International (Imbert). Pomeroy allegedly breached its lease and defaulted on its payments to Clune Construction and the subcontractors, resulting in $15 million in mechanic's liens on the 747 property, filed by Clune Construction and the subcontractors.
¶ 5 The third and fourth floors of the 747 property, leased by the GSA, are currently vacant. The lease is for 10 years and contains the following terms. It obligates 747 properties to make $8.5 million in tenant improvement repairs (buildout), the specifics of which are detailed in the lease. The buildout costs will be repaid by the GSA over 10 years at a 6% interest rate. Additionally, the GSA will pay "Building specific Amortization Costs" of $1.6 million over 10 years. Finally, the GSA will pay additional rent and operating costs, totaling approximately $1.4 to $1.6 million per year over the 10-year lease.
¶ 6 On November 22, 2019, REEF-PCG filed a mortgage foreclosure action against 747 Properties, concerning the 747 Property. REEF-PCG also sued the mechanic's-lien claimants, including Vader, Hill Fire Protection, Hill Mechanical, Imbert, and Clune Construction, as additional defendants and necessary parties. The foreclosure suit claimed that 747 Properties was in breach for failing to pay amounts due under the mortgage agreement and allowing mechanic's liens to be placed on the property. The mechanic's liens totaled approximately $15 million. REEF-PCG sought accelerated repayment of all amounts due under the loan, totaling $17 million including interest and fees. REEF-PCG also sought the appointment of a receiver, to which 747 Properties had consented in the loan documents, in the event of default.
¶ 7 On January 3, 2020, upon REEF-PCG's motion, the trial court appointed Gregory Gann as the receiver and indicated that the receiver would have "all duties, responsibilities and powers enumerated as a receiver in the Illinois Foreclosure Law." See 735 ILCS 5/15-1101 et seq. (West 2018) (Illinois Mortgage Foreclosure Law). On January 22, 2020, REEF-PCG and Gann (jointly referred to as the Receiver for purposes of this appeal) filed a joint motion for receiver certificates. Essentially, the Receiver asked the court to approve receiver certificates in the amount of $12 million to build out lease space and make general improvements for a future tenant. To make this feasible from a lending standpoint, the Receiver's motion requested that the loans under the receiver certificates receive priority over all other incumbrances, including the previously filed mechanic's liens.
¶ 8 In support, the Receiver's motion stated that, in October 2018, 747 Properties entered into a 10-year lease agreement with the GSA to rent the third and fourth floors of the 747 property. Under the GSA lease, 747 Properties is required to perform the buildout for $8.5 million, to be amortized back through the 10-year lease. The Receiver alleged that 747 Properties had no funds to complete the buildout but that doing so, to secure GSA as a tenant, would result in the "highest potential value" for the property. The Receiver alleged that, if $10 million in additional funds (the $8.5 million plus at least $1.5 million in additional costs) are not obtained the property will be "underwater." The Receiver's motion alleged that PCG was willing to loan the additional $12 million at 12% interest to ensure this "highest potential use" but that PCG demanded priority above all other incumbrances in order to make the loan.
¶ 9 The trial court ordered that any written responses objecting to the Receiver's motion be filed by February 10, 2020, and it set oral argument on the motion for February 13, 2020. On February 10, 2020, Vader filed a brief in opposition to the Receiver's motion, arguing, inter alia , that granting the motion would violate section 16 of the Mechanics Lien Act ( 770 ILCS 60/16 (West 2018) ), that there was insufficient evidence in support of the motion to meet the common-law standard for reprioritizing the liens, and that the motion was not supported by the equities. Hill Fire Protection and Hill Mechanical also filed briefs in opposition. Imbert did not file a brief but argued against the Receiver's motion at the hearing. Clune Construction also filed a response brief but did not object to the issuance of the receiver certificates; rather, it sought assurances that the receiver certificates would benefit all the parties to the underlying action, especially the lienholders. Vader, Hill Fire Protection, Hill Mechanical, and Imbert also answered and filed counterclaims.
¶ 10 On February 13, 2020, the trial court entertained a relatively brief argument on the Receiver's motion, and we summarize the arguments of the parties as follows.
¶ 11 The Receiver and those parties arguing in favor of its motion contended that the court had the equitable power to reprioritize the liens, giving the monies advanced pursuant to the receiver certificates first priority. They argued that no lender would provide the additional $12 million needed for the buildout unless given a first-lien position through the receiver certificates. With the GSA as the tenant for the third and fourth floors, $28 million would be received over 10 years, which includes repayment for the buildout at 6% interest. Moreover, Clune Construction's counsel mentioned tentative and incomplete appraisals purportedly suggesting that the building is worth $5 to $6 million as an empty shell but might be worth $19 to $20 million with GSA as a tenant and in the middle of the $20-million range with an additional tenant. Counsel for REEF-PCG argued that the value of the building would be in the $30- to $40-million range, perhaps more. However, no documentation in support of any of these estimates or appraisals was produced. It was noted further that, without the receiver certificates, the only other viable option was Chapter 11 bankruptcy. Gann informed the court that he was seeking additional tenants for the building and had submitted bids to the GSA for other government tenants. Counsel for Clune Construction expressed hope that a significant parking issue affecting the value of the building could be resolved with the City of Lombard.
¶ 12 Vader and the other parties opposed to the Receiver's motion made a variety of arguments. First, they contended that section 16 of the Mechanics Lien Act prohibited subordinating the mechanic's liens in the manner sought by the Receiver. Further, even if such were allowable, they argued, the court had insufficient facts to conclude that doing so was in the best interests of all the parties. Moreover, notwithstanding the pre- and post-buildout/lease values proffered to the court by those supporting the Receiver's motion, no estimates or appraisals were submitted, by affidavit or otherwise, regarding the present...
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