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Psl Realty Co. v. Granite Investment Co.

OPINION FILED SEPTEMBER 30, 1981.

PSL REALTY COMPANY ET AL., APPELLANTS,

v.

GRANITE INVESTMENT COMPANY ET AL., APPELLEES (FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, APPELLANT).



Appeal from the Appellate Court for the Fifth District; heard in that court on appeal from the Circuit Court of Madison County, the Hon. Joseph J. Barr, Judge, presiding.

MR. JUSTICE RYAN DELIVERED THE OPINION OF THE COURT:

The complexity of the factual picture surrounding this litigation makes it extremely difficult to succinctly state the nature of the case and its issues. Broadly stated, this case involves the issuance of an injunction by the appellate court of this State enjoining the holder of certain notes and mortgages on real estate from proceeding with a foreclosure proceeding in the Federal district court and, in turn, an injunction issued by the Federal district court enjoining State court appellate and circuit judges from interfering with the jurisdiction of the Federal court in the foreclosure proceeding. A clearer understanding of the case must await the recitation of facts.

During the 1960's, defendant James Green (Green), with others, developed and constructed several apartment complexes in Madison, Clinton, St. Clair and Sangamon counties, Illinois. To obtain funds for the projects, first-lien mortgages were executed in favor of Piasa Savings and Loan Association (Piasa). Financial difficulties were encountered in the completion and operation of the units, requiring a restructuring of the debt. To accomplish this, the parties entered into an agreement, termed the "base agreement," on August 1, 1970. Under its terms, title to the real estate was conveyed to a newly formed corporation named PSL Realty Company (PSL), which was wholly owned by Piasa. PSL then entered into contracts for deed to the same properties with Granite Investment Company (Granite), a limited partnership of which Green was the principal partner. The contract provided that Granite was to manage the properties and provided for conveyance to Granite after payments had been made and certain conditions fulfilled. Piasa continued to hold the first-lien mortgages as mortgagee. By the terms of the base agreement, rental proceeds of the units were to be delivered to PSL by Granite.

This arrangement did not improve the financial situation, and in 1971 the Federal Savings and Loan Insurance Corporation (FSLIC) determined Piasa was on the verge of insolvency and procured the merger of Piasa into Illini Savings and Loan Association (Illini). Illini thus became the sole owner of PSL Realty Company, which, under the base agreement, was the holder of legal title to the properties subject to a contract for deed to Granite. Also, by virtue of the merger, Illini became the owner of the mortgages. As an inducement to Illini, a contribution agreement was entered into whereby FSLIC agreed to subsidize Illini for certain losses and FSLIC was granted an option to terminate the subsidy by purchasing certain assets from Illini at book value. At the time of the merger, the Green loans totaled about $14 million and were delinquent. The apartment complexes continued to lose up to $30,000 per month. On March 27, 1972, PSL and Illini demanded the books and records from Granite, but they were refused. On April 11, PSL and Illini sought, and received, a temporary injunction in the circuit court of Madison County. The injunction ordered Granite and Green to refrain from collecting rents and not to interfere with PSL's collection of the same, and to turn over their books for examination. Also, in April 1972, notice of default and forfeiture of the contracts for deed between PSL and Granite were served upon Granite and Green. On April 28, 1972, the trial court denied a motion by Granite and Green to dissolve the temporary injunction and on motion of PSL and Illini appointed FSLIC receiver of the properties pendente lite. Pursuant to authority contained in the receivership order, FSLIC designated Illini as its local agent in the management of the properties.

Green and Granite filed an interlocutory appeal contesting the issuance of the temporary injunction and the appointment of the receiver. The original opinion of the appellate court, dated July 23, 1976, dissolved the temporary injunction and receivership on the ground that they were merely ancillary remedies, and that they were inappropriate in the absence of a complaint stating an underlying cause of action. (P.S.L. Realty Co. v. Granite Investment Co. (1976), 42 Ill. App.3d 697.) The cause was remanded for an accounting of the receivership, the distribution of the net income, and the setting of fees for the receiver.

On August 13, 1976, PSL and Illini filed a petition for rehearing in the appellate court. They pointed out that they had received no installment payments on the contracts for deed, contrary to an assumption in the opinion, and requested an order of the appellate court directing the receiver to apply accumulated monies in its hand to the contracts.

On August 18, 1976, asserting its contractual right under the contribution agreement with Illini, FSLIC purchased the first-lien mortgages on the property, which was in receivership, for $10,673,000, and on August 26, 1976, filed a mortgage foreclosure action in the Federal District Court for the Southern District of Illinois.

On August 31, 1976, Granite and Green also petitioned the Illinois Appellate Court for rehearing of its decision which dissolved the temporary injunction and receivership. Granite and Green, in addition to asserting that they were entitled to an award of part of the money held by the receiver, alleged that FSLIC had acquired the mortgages and was prosecuting a foreclosure action in Federal court, both in contravention of its duty as receiver.

On the same day, FSLIC petitioned the Federal district court for an order authorizing it to remain in possession of the subject real estate as mortgagee. Granite opposed the petition on the grounds that FSLIC was estopped, by its conduct, from proceeding with foreclosure and that FSLIC had no legal right to purchase the mortgages in light of the State court's jurisdiction. On September 2, 1976, the Federal district court entered an order authorizing FSLIC to remain in possession of the properties as mortgagee, but provided specifically:

"That this order shall become operative upon the effective date of the mandate from the Illinois Appellate Court for the Fifth District dissolving FSLIC's status as receiver of the subject properties."

On September 23, 1976, the appellate court denied the petitions for rehearing and filed a supplemental opinion to the one previously filed. The mandate issued October 13, 1976. We will later consider the nature of the mandate in more detail. After the mandate issued, the district court, pursuant to its order of September 2, proceeded with the foreclosure action.

When the State court case returned to the trial court on remand, the receiver, FSLIC, filed a petition for an order directing it to file a final report and setting a hearing thereon. On November 1, 1976, Granite and Green filed both an objection to the petition of FSLIC and a petition of their own alleging that, contrary to representation, FSLIC had a substantial interest in the properties when it was appointed receiver. The petition also alleged that, in breach of its fiduciary duty, FSLIC purchased the 48 mortgages on the properties of which it was receiver, accelerated the payments due upon such mortgages, and filed suit to foreclose all 48 mortgages. The petition concluded with a prayer that the receiver be ordered to immediately reassign the mortgages to Illini, account for all its expenditures, and return physical possession and management of the properties to petitioners.

FSLIC filed a response to the November 1, 1976, petition of Granite and Green in which it denied any wrongdoing in its actions as receiver, set out the authority by which it acquired the mortgages, and alleged that it acquired the mortgages and instituted foreclosure only after the appellate court had ordered the receivership dissolved. On December 22, 1976, on its own motion, the trial court struck the Granite and Green petition of November 1, 1976, and the response of FSLIC thereto for the reason that neither of the pleadings was responsive to the mandate of the appellate court. The court also ordered the filing of the final account of the receiver and objections thereto.

In the trial court numerous motions, objections and other pleadings not relevant to this opinion were filed by various parties. A detailed recitation of these pleadings and the court's rulings thereon is contained in the appellate court opinion filed in deciding the appeal from the judgment of the circuit court on remand, which we are now reviewing. (76 Ill. App.3d 978.) The final account of the receiver and objections thereto were filed in the trial court as directed. A hearing was held thereon and on other pending pleadings. On April 29, 1977, the trial court entered an order, the pertinent parts of which did the following: (1) approved and adopted the final report of the receiver, including all actions taken by the receiver and its managing agent; (2) awarded the receiver a fee of 4% of the gross receipts generated by the receivership and directed payment from the undistributed proceeds; (3) directed that the balance of the undistributed funds be paid to the mortgagee (FSLIC) for application to the indebtedness encumbering the property; and (4) discharged and released the receiver and its agents, effective September 30, 1976. Granite and Green appealed both from the order striking their petition of November 1, 1976, which charged FSLIC with breaching its fiduciary duty and from the final order entered April 29, 1977.

While the appeal by Granite and Green was pending before the appellate court, the trial of the foreclosure case in Federal court was proceeding. On November 16, 1978, FSLIC rested its case and Granite's motion for a directed verdict was denied. The trial was subsequently recessed, and in the spring of 1979 the district court advised the parties that the trial would resume on September 24, 1979.

On September 13, 1979, the Illinois Appellate Court entered its judgment in the appeal of the circuit court order discharging the receiver. The appellate court held that FSLIC breached its fiduciary duty as a receiver by acquiring the notes and mortgages to the property, remanded the case to the circuit court and directed it to order FSLIC to credit its receiver's fee to the mortgages, and directed FSLIC to convey the notes ...


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