U.S. Bank Nat'l Ass'n v. Randhurst Crossing LLC

• Citation: 2018 IL App (1st) 170348,105 N.E.3d 132
• Decision Date: 29 March 2018
• Docket Number: No. 1–17–0348,1–17–0348
• Parties: U.S. BANK NATIONAL ASSOCIATION, as Trustee, Successor–in–Interest to Bank of America, N.A., as Trustee Successor to Wells Fargo Bank, N.A., as Trustee for the Registered Holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass–Through Certificates, Series 2003–C5, By and Through Its Special Servicer, CWCapital Asset Management, LLC, Plaintiff–Appellee, v. RANDHURST CROSSING LLC; and Unknown Owners and Nonrecord Claimants, Defendants (Randhurst Crossing LLC, Defendant–Appellant).
• Court: United States Appellate Court of Illinois

2018 IL App (1st) 170348

105 N.E.3d 132

U.S. BANK NATIONAL ASSOCIATION, as Trustee, Successor–in–Interest to Bank of America, N.A., as Trustee Successor to Wells Fargo Bank, N.A., as Trustee for the Registered Holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass–Through Certificates, Series 2003–C5, By and Through Its Special Servicer, CWCapital Asset Management, LLC, Plaintiff–Appellee,

v. RANDHURST CROSSING LLC; and Unknown Owners and Nonrecord Claimants, Defendants(Randhurst Crossing LLC, Defendant–Appellant).

No. 1–17–0348

Appellate Court of Illinois, First District, Fourth Division.

March 29, 2018

Adam C. Toosley, of Freeborn & Peters LLP, of Chicago, for appellant.

Kori M. Bazanos, of Bazanos Law P.C., of Chicago, and Gregory A. Cross and Brent W. Procida, of Venable LLP, of Baltimore, Maryland, for appellee.

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

¶ 1 The instant appeal arises from the foreclosure of defendant Randhurst Crossing LLC's mortgage on commercial property. During the course of the foreclosure proceedings, prior to the appointment of a receiver, defendant filed for Chapter 11 bankruptcy in federal court, which stayed the foreclosure proceedings. After the automatic stay was lifted in the bankruptcy action, a receiver was appointed in the foreclosure proceedings, and the trial court ordered all rents paid during the bankruptcy to be turned over to the receiver. The trial court ultimately granted summary judgment in plaintiff's favor concerning the foreclosure action. In the judgment of foreclosure and sale, the trial court also awarded plaintiff its attorney fees, as provided in the loan documents. On appeal, defendant challenges: (1) the order requiring turnover of the prereceivership rents; (2) the trial court's award of attorney fees; and (3) the trial court's denial of defendant's request that the property manager that managed the property during the bankruptcy proceedings be paid. For the reasons that follow, we affirm the trial court's judgment.

¶ 2 BACKGROUND

¶ 3 The parties have engaged in years of extensive litigation, in both state court and in bankruptcy court. The instant appeal concerns three narrow issues: whether the trial court properly awarded plaintiff prereceivership rents; whether the trial court properly awarded plaintiff its attorney fees; and whether the trial court properly denied defendant's request that the property manager be paid. We focus on the facts relevant to those issues and provide other facts only as required for context.

¶ 4 I. Prebankruptcy Proceedings

¶ 5 In defendant's own words, defendant "is a single-asset real estate entity that was engaged in the business of owning and operating a retail shopping center located at the northwest corner of Rand Road, Route 83, and Kensington Road, in Mt. Prospect, Illinois" (the property). Defendant was the obligor on a note executed on October 31, 2002, in the amount of $3.9 million, which was secured by a mortgage on the property; the maturity date on the note was November 11, 2012. The plaintiff trust is the successor in interest to the note and mortgage, and the current lawsuit is being pursued by its servicer on its behalf; we refer to the trust and the servicer interchangeably as "plaintiff."

¶ 6 On the same day as the execution of the mortgage and note, defendant also executed an "Assignment of Leases and Rents," which provided, in relevant part, that defendant

"is hereby permitted, and is hereby granted a revocable license by Assignee, to retain possession of the Leases and to collect and retain the Rents unless and until there shall be an Event of Default under this Assignment, the Mortgage or the other Loan Documents. In the event of such Event of Default, the aforementioned license granted to Assignor shall automatically terminate without notice to Assignor, and Assignee may thereafter, without taking possession of the Property, take possession of the Leases and collect the Rents."

This assignment of leases and rents was recorded on November 4, 2002.

¶ 7 On December 18, 2012, plaintiff sent a letter to defendant, informing defendant that an event of default had occurred due to defendant's failure to pay the outstanding indebtedness due on November 11, 2012, the maturity date, and making a demand for the payment of all unpaid amounts due and owing. On the same day, plaintiff sent a letter to defendant providing that, upon execution of the agreement by both parties and the payment of a forbearance fee of $20,000, the letter would constitute a forbearance agreement by which plaintiff would forbear exercising its rights and remedies against defendant and the property from November 11, 2012, through March 18, 2013. This letter was executed by both parties, with defendant executing it on January 23, 2013, and there is no dispute that defendant paid the $20,000 forbearance fee.

¶ 8 On April 12, 2013, plaintiff sent a letter to defendant, indicating that plaintiff would agree to extend the forbearance period to June 16, 2013, upon execution by both parties of the letter and upon tender by defendant of an additional forbearance fee of $30,000. This letter purports to have been executed by defendant on March 14, 2013;¹ the copy of the letter contained in the record on appeal does not contain plaintiff's signature.²

¶ 9 On June 18, 2013, plaintiff filed a complaint for foreclosure against defendant, alleging that defendant was in default and, in addition to a judgment of foreclosure and sale, requested the appointment of a receiver.

¶ 10 On June 20, 2013, plaintiff filed a separate motion for appointment of a receiver, as authorized by the mortgage. The motion claimed that upon its appointment, the receiver would also provide property management services. On September 23, 2013, the motion was entered and continued to November 14, 2013.

¶ 11 On March 17, 2014, the day that the motion for appointment of receiver was to be heard, the trial court entered an order staying the case due to defendant's March 14, 2014, filing of Chapter 11 bankruptcy.

¶ 12 II. Bankruptcy Proceedings

¶ 13 As relevant to the instant appeal, on May 14, 2014, plaintiff filed a motion in bankruptcy court, in which plaintiff requested that the rents collected from the property's tenants be considered "cash collateral" pursuant to the Bankruptcy Code ( 11 U.S.C. § 363(a) (2012) ) and that defendant be prohibited from using such cash collateral. The motion claimed that plaintiff had sent defendant a letter stating that the rents were considered cash collateral under the Bankruptcy Code and "the Debtor did not have permission to use cash collateral." However, the motion claimed that "[t]he Debtor's first Small Business Monthly Operating Report * * * raises significant questions about whether the Debtor is engaging in the unauthorized use of Cash Collateral and properly segregating and accounting for these funds." Accordingly, plaintiff sought a court order "prohibiting the Debtor from further use of [plaintiff's] Cash Collateral and compelling the Debtor to account for and segregate all Cash Collateral, together with such other relief as may be just and proper."

¶ 14 On May 20, 2014, the bankruptcy court entered an order that "[u]pon the Motion of [plaintiff] to Prohibit Use of Cash Collateral and Compel Segregation and Accounting; the Court being duly advised in the Premises; it is hereby: ORDERED, the Debtor is prohibited from using any proceeds of the real property * * * without permission from the Trust or Court authorization" and further ordering defendant to segregate all proceeds of the property. We refer to this as the "cash collateral order."³

¶ 15 On July 15, 2014, the bankruptcy court held a hearing on a "Motion to Hold the Debtor in Contempt" filed by plaintiff due to defendant's lack of compliance with the cash collateral order and, on March 30, 2015, the bankruptcy court entered an order holding defendant in contempt. The transcript of the hearing and the order reflect that defendant had made postpetition payments from a bank account containing rents collected from tenants without first seeking the bankruptcy court's permission, and the order required defendant to return the payments to the account.

¶ 16 On April 28, 2015, the bankruptcy court continued defendant's motion to dismiss the bankruptcy action,⁴ but indicated that it would be inclined to lift the automatic stay, noting:

"I had said at the last hearing that what I was thinking about doing was vacating the automatic stay upon appropriate motion to permit the parties to go back to the state court or the state court to appoint the receiver. Upon reflection—and then the receiver could come back, and we could proceed with the dismissal and let things proceed.

On reflection, it occurs to me that I think that would be putting my thumb on the scale too much for one side or the other. It seems to me the state court has the option to let the debtor have the money and the property, to appoint a receiver to do it, to let the trust have the money. I have no idea what the state court would want to do.

But it strikes me that we have what is—what at this point both parties admit is a two-party dispute and that the appropriate place for that to be determined is not in this court, but in state court.

My main concern just to simplify everything and what I'm trying to accomplish—and I don't really care how we accomplish it—but this is what I want to see done, is to ensure that in the process of transferring the litigation and the dispute from this court to the state court, that neither side is advantaged or disadvantaged by the fact that the bankruptcy was filed in the first place or how the bankruptcy is dismissed."

An order granting the motion to lift the automatic stay does not appear in the record on appeal but, according to plaintiff's motion for appointment of a receiver, the bankruptcy court entered such an order on May 12, 2015.

¶ 17 III. Postbankruptcy Proceedings

¶...