Terra Found. for Am. Art v. DLA Piper LLP

• Decision Date: 12 August 2016
• Docket Number: No. 1–15–3285.,1–15–3285.
• Citation: 61 N.E.3d 202,406 Ill.Dec. 598
• Parties: TERRA FOUNDATION FOR AMERICAN ART and Terra Michigan Avenue Property, LLC, Plaintiffs–Appellants, v. DLA PIPER LLP (US), Defendant–Appellee.
• Court: United States Appellate Court of Illinois

61 N.E.3d 202

406 Ill.Dec. 598

TERRA FOUNDATION FOR AMERICAN ART and Terra Michigan Avenue Property, LLC, Plaintiffs–Appellants,

v.DLA PIPER LLP (US), Defendant–Appellee.

No. 1–15–3285.

Appellate Court of Illinois, First District, Sixth Division.

Aug. 12, 2016.

Chapman Spingola, LLP, of Chicago (Robert A. Chapman and Shannon T. Knight, of counsel), for appellants.

Much Shelist, P.C., of Chicago (Martin J. O'Hara and Shawn M. Staples, of counsel), for appellee.

OPINION

Presiding Justice ROCHFORD

delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs-appellants, Terra Foundation for American Art, a not-for-profit organization, and Terra Michigan Avenue Property, LLC (collectively referred to as Terra), brought this action alleging malpractice against defendant-appellee, DLA Piper LLP (US) (DLA), a law firm, which Terra had retained in connection with the sale of real estate. The circuit court dismissed Terra's complaint finding that it was barred as a matter of law by the applicable statute of repose. 735 ILCS 5/13–214.3(c)

(West 2014). We affirm the dismissal of Terra's action.

¶ 2 I. BACKGROUND

¶ 3 In 2005, Terra agreed to sell three pieces of property located at 664, 666, and 670 North Michigan Avenue in Chicago (the property) to entities controlled by Prism Development Co., which were later succeeded in interest by NM Project. DLA represented Terra throughout the negotiations for the sale, including the final closing in 2013.

¶ 4 NM Project intended to build a 40–story mixed use building (the building) on the property, which would include retail, office and residential parcels. As part of the sale, Terra was to receive an “up front” payment of $17.5 million and, upon closing, ownership of the retail and office parcels. NM Project would own the residential parcel.

¶ 5 Because the ultimate square footage of the retail parcel would control its potential rental income and its resulting economic value to Terra, NM Project's cash payment was to be adjusted at the closing based on the completed size of the retail parcel (the retail parcel credit). On April 27, 2005, Terra and NM Project executed a term sheet that included a formula for determining the retail parcel credit using baseline estimates for the space of the retail parcel: 8041 square feet for the first floor and 10,728 square feet for the second floor. Upon completion of the building, if the resulting rentable square footage of the first floor was less than the baseline estimate, NM Project would pay Terra $5500 for every square foot of reduced space. If the actual rentable square footage of the first floor was greater than the baseline estimate, Terra would pay NM Project $5500 per square foot of increased space. As to the second floor, if the resulting rentable square footage was less than the baseline estimate, NM Project would pay $800 per square foot for any such reduction. If the rentable square footage of the second floor was greater than the baseline estimate, Terra would owe nothing to NM Project for this additional square footage.

¶ 6 Consistent with Terra's wish that the common space for the other parts or parcels of the building not be included in the measurement of the retail parcel, the term sheet referred only to the “contiguous” space of the first floor of the retail parcel, and expressly excluded “the Common Area Parcel ^{[1 ]}and lobbies for the Office Parcel and Condominium/Parking Parcel [residential parcel] and building service areas (including, but not limited to, loadings docks, freight elevator lobby, mechanical space and other ‘back of the house’ space)” (exclusionary language) from the rentable area of the retail parcel.

¶ 7 In the several years following execution of the term sheet, but before the final closing, Terra and NM Project entered into a series of agreements that governed the transaction (collectively referred to as the agreements). These agreements included the following, none of which included the exclusionary language.

¶ 8 On June 21, 2005, Terra and NM Project executed a purchase agreement that, in section 9, set forth the formula for determining the retail parcel credit. That formula was consistent with the language contained in the term sheet, except that section 9 did not contain the exclusionary language.

¶ 9 The first amendment to the purchase agreement (first amendment), which was executed on May 29, 2007, provided for how the retail parcel would be measured for purposes of determining the retail parcel credit. Specifically, paragraph 5 of the first amendment provided that rentable square footage or rentable square feet was to be calculated pursuant to the “Standard Method for Measuring Floor Area in Office Buildings (ANSI/BOMA Z65.1–1996), An American National Standard Approved June 7, 1996 by American National Standards Institute, Inc., published by Building Owners and Managers Association International” (hereinafter BOMA 96). According to Terra, BOMA 96 is a method of measurement which would allocate a pro rata share of the common space of the building to the rentable area of the retail parcel unless that space was, otherwise, expressly excluded.

¶ 10 In March 2008, Terra and NM Project entered into a third amendment to the purchase agreement and other related agreements (third amendment). Section 6 of the third amendment required that Terra provide a letter of credit as security for any possible retail parcel credit to be made by Terra. To determine the amount of the line of credit, NM Project was to provide an estimate of the rentable square feet of the retail parcel based on the final or substantially final plans for the building. Terra and NM Project were then to agree on the amount, if any, Terra might be responsible to pay under the retail parcel credit based on those estimates. Terra would submit a letter of credit for that amount before construction began. However, if there was a dispute as to the measurement of the retail parcel, the issue was to be resolved through an agreed alternative dispute procedure which included arbitration.

¶ 11 In October 2009, Terra and NM Project executed a declaration of covenants, conditions, restrictions, and easements (the 2009 declaration), which defined how the rental, residential and office parcels were to share the building and its various components. The 2009 declaration was superseded by a 2012 declaration of covenants, conditions, restrictions, and easements (the 2012 declaration).

¶ 12 On March 2, 2010, NM Project and Terra entered into a letter agreement (the March 2010 letter) that amended the purchase agreement and other related agreements. The March 2010 letter included agreements to exclude the basement space of the building² from both the retail and the office parcels, exclude a designated limited portion of the retail parcel from the rental square footage of the first floor and remeasure the space under the fire stairs or beams upon completion of the retail parcel and adjust the amount due under section 9 of the purchase agreement accordingly.

¶ 13 At different stages of the building's development, Terra and NM Project disputed the size of the rentable space of the retail parcel.

¶ 14 In order to determine Terra's obligation for posting a line of credit, pursuant to the third amendment, in late 2010 NM Project provided Terra with its calculations of the expected square footage of the retail parcel based on the final plans. NM Project projected the rentable area for the first floor of the retail parcel to be 10,363 square feet, 2332 square feet greater than the baseline estimate, and therefore NM Project contended it would be entitled to a retail parcel credit of $12,771,000. The rentable square feet area for the second floor of the retail parcel was calculated to be 12,587 square feet, which was 1859 square feet greater than the baseline estimate. Pursuant to the parties' agreements, NM Project was not entitled to receive a credit relating to the second floor.

¶ 15 Terra disagreed with NM Project's calculations, because they included an allocated share of the common areas for the other parcels. Terra believed that, upon completion, the first floor rentable area would be 7403 square feet and the second floor rentable area would be 9183 square feet. Therefore, Terra contended NM Project would owe an additional $4,737,000 at the closing as the retail parcel credit.

¶ 16 To resolve the dispute, Terra and NM Project engaged in the agreed alternative dispute procedures. An October 11, 2010, arbitration award provided that, based on the final plans, the first floor rental space would be 8801 square feet and the second floor would be 10,363 square feet. Based on this award, Terra would owe NM Project in excess of $3.8 million at the closing as the retail parcel credit, and was therefore required to post an appropriate line of credit pursuant to the third amendment.

¶ 17 Near the completion of the building in late 2012, NM Project determined that the final rentable square footage of the first floor of the retail parcel was 8857 square feet and the second floor was comprised of 10,450 rentable square feet. NM Project asserted that, based on these measurements, Terra would owe a retail parcel credit of $4,265,000 at closing.

¶ 18 Terra again challenged NM Project's measurements, contending that only the contiguous space within the retail parcel should be measured. Terra calculated the rentable square feet of the first floor to be 7835 square feet, with the second floor including 8839 square feet. Using these measurements, Terra maintained that NM Project would owe a retail parcel credit of $2,643,619 at the closing.

¶ 19 To resolve their differences, NM Project and Terra again engaged in arbitration. On January 30, 2013, the arbitration panel issued an award, which provided that the BOMA 96 calculations showed that, as constructed, the first floor rentable space included 8733 square feet and the second floor included 10,628 square feet. Pursuant to this award, Terra paid...