Romspen Mortg. Ltd. P'ship v. BGC Holdings LLC – Arlington Place One

• Decision Date: 13 December 2021
• Docket Number: No. 20-3017,20-3017
• Citation: 20 F.4th 359
• Parties: ROMSPEN MORTGAGE LIMITED PARTNERSHIP, Plaintiff-Appellee, v. BGC HOLDINGS LLC – ARLINGTON PLACE ONE, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

20 F.4th 359

ROMSPEN MORTGAGE LIMITED PARTNERSHIP, Plaintiff-Appellee,

v.BGC HOLDINGS LLC – ARLINGTON PLACE ONE, et al., Defendants-Appellants.

No. 20-3017

United States Court of Appeals, Seventh Circuit.

Argued September 13, 2021

Decided December 13, 2021

Jason J. DeJonker, Becky L. Huinker, Attorneys, Bryan Cave Leighton Paisner LLP, Chicago, IL, Barbara A. Smith, Attorney, Bryan Cave Leighton Paisner LLP, St. Louis, MO, Samuel Edward Hofmeier, Attorney, Bryan Cave Leighton Paisner LLP, Kansas City, MO, for Plaintiff-Appellee.

Thomas Richard Fawkes, Brian J. Jackiw, Attorneys, Tucker Ellis LLP, Chicago, IL, for Defendants-Appellants BGC Holdings LLC - Arlington Place One and Samuel K. Bobby.

Christopher V. Langone, Attorney, Skokie, IL, for Defendant-Appellant Puthenveetil K. Bobby.

Before Ripple, Rovner, and Scudder, Circuit Judges.

Ripple, Circuit Judge

This case brings to us a contract dispute over a piece of commercial real property in Arlington Heights, Illinois. After BGC Holdings, LLC, et al., ("BGC") defaulted on a loan secured by Romspen Mortgage Limited Partnership ("Romspen"), the parties negotiated an agreement to avoid foreclosure of the property (the "Arlington Property") and to salvage the loan. As a result of these negotiations, they entered into a Forbearance and Loan Extension Agreement (the "Forbearance Agreement" or the "Agreement"). By the terms of this document, Romspen agreed to hold off on the judicial sale of the property; for its part, BGC agreed to make a $1.6 million payment on the loan. While the parties were negotiating the Forbearance Agreement, BGC learned that Romspen had filed a lien against another property (the "1907 Property") in which one or more of the defendants had an ownership interest. This news created a problem for BGC because it had planned to refinance the 1907 Property so that it could make the payment on the Arlington property as required by the Forbearance Agreement. When BGC failed to provide proof of a refinancing plan for the Arlington Property, Romspen refused to remove the lien on the 1907 Property, and eventually BGC foreclosed on the Arlington Property.

After the foreclosure sale of the Arlington Property, BGC filed a motion for leave to file a counterclaim alleging that Romspen had breached the Forbearance Agreement. In response, Romspen filed a motion for an order confirming the judicial sale of the property. The district court denied BGC's motion to file a counterclaim. It ruled that Romspen had not breached the Forbearance Agreement because it made "commercially reasonable efforts" to remove the lien on the 1907 Property. The district court also granted Romspen's motion for confirmation and issued a separate order confirming the sale of the Arlington property and ordering the eviction of BGC.

BGC now appeals. For the reasons set forth in this opinion, we conclude that Romspen did not breach the Forbearance Agreement and that the district court's decision to confirm the sale of the Arlington property was proper. We therefore affirm the district court's judgment.

IBACKGROUND

In 2015, BGC secured a $3.1 million mortgage loan from Romspen for a piece of commercial real property located in Arlington Heights, Illinois. As part of this transaction, defendants Samuel K. Bobby and Puthenveetil Bobby executed personal guarantees of BGC's indebtedness to Romspen.¹ BGC defaulted on the loan. When Romspen filed this foreclosure action, BGC admitted default. On May 28, 2019, the district court entered a Judgment of Foreclosure and Sale (the "Foreclosure Judgment"), which, under Illinois law, does not finalize the foreclosure of property.²

Following the foreclosure judgment but prior to the sale of the property, the parties entered into a Forbearance and Loan Extension Agreement. Under the terms of the Forbearance Agreement, Romspen agreed that it would: 1) forbear from exercising remedies (including the judicial sale of the Arlington Property) for sixty days; and 2) reinstate the Arlington Property loan and extend the maturity date for two years.

These undertakings were not unconditional. In return, BGC had to make a partial paydown of the loan in the amount of $1.6 million.

During the parties' negotiations over the Forbearance Agreement, BGC learned that Romspen had filed a lien against a second property it owned—the 1907 Property. ³

This filing presented a problem for BGC because it had planned to refinance the mortgage on the 1907 Property (and another property in Itasca, Illinois), so that BGC could make the paydown payment on the Arlington Property required by the Forbearance Agreement. To recognize BGC's reliance on the 1907 Property for the paydown funds, the parties agreed to include language in the Forbearance Agreement about the lien. Section 4(g) of the Agreement addresses the lien on the 1907 Property:

(g) Liens Upon the 1907-29 Property. Upon the request of Loan Parties, Lender shall use all commercially reasonable efforts to promptly remove or release any liens or encumbrances it may have against the real property located at 1907-29 South Arlington Heights Road, Arlington Heights, Illinois ... and irrespective of such request shall do so sufficiently before the Closing Date so that the Loan Parties can use such property as collateral to obtain funds to support the transactions contemplated by this Agreement.⁴

On April 20, 2020, after the parties executed the Forbearance Agreement, BGC sent a request via email to Romspen referencing Section 4(g) of the Agreement and asking that the lien on the 1907 Property be removed.⁵ Romspen emailed the following response:

[W]e need some proof that y'all are likely going to close on a deal—otherwise, we lose our lien priority if you are not going to be successful. Are you planning on completing a refinancing in the near term with respect to that property, and how much of that money will be coming to Romspen?⁶

The parties dispute what transpired following this email exchange. Romspen asserts that BGC did not provide the necessary proof it requested. BGC points to term sheets that it sent to Romspen as proof that it was working to obtain refinancing on the Arlington Property. Notably though, the term sheets were from February 2020 and stated that they were "not a commitment to lend."⁷

Ultimately, Romspen did not remove the lien on the 1907 Property, and BGC did not make the paydown payment by the May 2020 closing date required by the Forbearance Agreement. Several months later, and two days before the scheduled sale of the Arlington Property, BGC filed an emergency petition to stay the judicial sale. Romspen objected, noting that although it had negotiated and executed the Forbearance Agreement with BGC to afford it more time to obtain financing, BGC was unable to secure additional funding. The district court denied the emergency motion.

On July 28, 2020, the Arlington Property was sold at auction. Romspen, the only bidder, won the bid. A week later, BGC filed a motion for leave to file a counterclaim for breach of contract, alleging that Romspen had breached the Forbearance Agreement. In response, Romspen filed a motion seeking confirmation of the public sale and immediate possession of and title to the Arlington Property.

The district court disposed of both motions in the same order. The court first denied BGC's motion for leave to file a counterclaim, specifically stating that the evidence did not suggest that Romspen breached the Forbearance Agreement. The court believed BGC's argument was at odds with the express terms of the Forbearance Agreement, which only required Romspen to use "commercially reasonable efforts" to remove the lien. The district court explained that nothing in BGC's motion for leave hinted at any basis for concluding that Romspen's efforts were not commercially reasonable or explained how resolution of the disputed facts in BGC's favor would entitle it to judgment on any theory consistent with the terms of the Forbearance Agreement.

The court then turned to Romspen's motion for confirmation of the sale. In response to the motion, BGC had requested that the court take the motion under advisement and enter a ninety-day schedule for discovery limited to the breach of the Forbearance Agreement. It also requested that the court schedule an evidentiary hearing to determine whether specific performance should be ordered or if the sale should be confirmed. Instead, applying Illinois law, the district court granted Romspen's motion for an order confirming the judicial sale of the Arlington Property. The district court ruled that BGC could not establish any of the grounds recognized by the Illinois Mortgage Foreclosure Law ("IMFL") as a reason for declining to confirm the judicial sale.⁸

Finally, on September 25, 2020, the district court entered an order approving the Report of Sale and Distribution, confirming the sale of the Arlington Property, and ordering the eviction of BGC. Following the order approving the sale, BGC did not move to stay the enforcement of the district court's order and judgment under Federal Rule of Civil Procedure 62. On September 29, Romspen transferred the deed of the Arlington Property to RIC (Arlington), LLC. BGC timely appealed the final judgment.⁹

IIDISCUSSION

A.

Romspen submits that BGC's appeal is moot. It points out that, after the district court entered judgment, it transferred its right to the Arlington Property to a nonparty. In its view, this transfer renders the present appeal moot and therefore deprives us of appellate jurisdiction. Because this issue directly implicates our jurisdiction under Article III of the Constitution, we address it before any discussion of the merits. United States v. Sanchez-Gomez , ––– U.S. ––––, 138 S. Ct. 1532, 1537, 200 L.Ed.2d 792 (2018).

In support of its argument, Romspen invites our attention to Federal Rule of Civil Procedure 62. It submits that this rule required BGC to obtain a stay of the district court's judgment in order to preserve...