Appeal from the Circuit Court of Cook County. Honorable MONICA REYNOLDS, Judge Presiding.
Rehearing Denied May 5, 1995. Released for Publication May 26, 1995.
Buckley, Campbell, O'connor, Jr.
The opinion of the court was delivered by: Buckley
JUSTICE BUCKLEY delivered the opinion of the court:
Plaintiffs, the President Lincoln Hotel Venture ("Lincoln") and the Collinsville Hotel Venture ("Collinsville"), brought an action seeking a declaratory judgment, injunctive relief and specific performance against defendants, Bank One, Springfield ("Bank One") and the Treasurer of the State of Illinois, Patrick Quinn ("Treasurer Quinn"), in relation to the provisions of a loan restructuring agreement which arose out of the Illinois Insured Mortgage Pilot Program ("Mortgage Program"). The trial Judge dismissed plaintiffs' action on the grounds that it was barred by the doctrine of sovereign immunity. The trial Judge also disqualified the law firm of Winston & Strawn from representing plaintiffs because the firm previously had represented and counseled American National Bank & Trust Co. ("American National"), defendant Bank One's predecessor as trustee of the Mortgage Program. On appeal, plaintiffs contend that: (1) sovereign immunity does not apply where Treasurer Quinn has acted unlawfully and in excess of his statutory authority; (2) the circuit court, and not the court of claims, has exclusive jurisdiction over a case that seeks only equitable relief and not money damages against a State official who acted outside of his lawful authority, and; (3) the court's decision to disqualify Winston & Strawn from representing plaintiffs in this action was erroneous because defendants are not former clients of the firm and the firm's former representation of American National was not "substantially similar" to the subject matter of this litigation.
The State of Illinois established the Mortgage Program in 1982 when, through its Treasurer, the State entered into a Purchase Agreement, Trust Indenture and Servicing Agreement ("Program Trust Agreement") with American National, in American National's individual capacity and as trustee. Under the Mortgage Program, State investment monies would be loaned to certain commercial developers through American National. The State owns 100% of the trust estate and, through the State Treasurer, has full power and authority to direct the trustee's activities.
In the early 1980's, plaintiffs borrowed money from the State through the Mortgage Program in order to build several hotels. Pursuant to the Program Trust Agreement, American National, as Trustee, administered the loans on behalf of the parties. American National retained Winston & Strawn to advise it regarding the nature and scope of its responsibilities and obligations, as administrator, in servicing these loans.
Subsequently, the State agreed to increase the principal and restructure plaintiffs' loans. In 1990, when plaintiffs were unable to meet their loan payments, then State Treasurer Jerome Cosentino directed American National to enter into second restructuring agreements with plaintiffs. The second restructuring agreements were negotiated by Kathleen M. Vyborny, a solo practitioner, on behalf of plaintiffs and Joyce and Kubasiak, P.C. on behalf of the Treasurer. Winston & Strawn did not have any role in negotiating the second restructuring agreements and, along with plaintiffs, merely received circulation copies of the preliminary drafts of the agreements from Joyce and Kubasiak. Apparently, the terms of the second restructuring agreements were very favorable to plaintiffs. Under the original agreements, the loans carried an interest rate of 12.25% and plaintiffs were required to make monthly payments and repay the loans within seven years. Under the second restructuring agreements, the interest rate was reduced to 6% and plaintiffs were only required to make quarterly payments from cash flow available, if any, after operating expenses. Additionally, any unpaid interest was deferred on an interest free basis until the principal was paid and, absent fraud or malfeasance, the loans could not be defaulted until 1999 even if plaintiffs were unable to make any payments due to a lack of cash flow.
The second restructuring agreements also required that plaintiffs provide the trustee with audited financial statements "of the Mortgage Property and [of the] Borrower" certified by an accounting firm approved by the trustee and prepared in accordance with generally accepted accounting principles. In addition to the requirement that plaintiffs provide the trustee with audited financial statements, the second restructuring agreements also obligated plaintiffs to deliver to the trustee a reliance letter from the accounting firm "in form acceptable to Trustee, acknowledging Trustee's reliance on such Financial Statements or other financial information."
In 1991, Patrick Quinn became Illinois State Treasurer. On September 4, 1991, after American National and plaintiffs had entered into the second restructuring agreements, Treasurer Quinn replaced American National with Bank One as trustee and loan administrator. According to the affidavit of David Milling, the trust administrator at Bank One, Winston & Strawn prepared "certain legal documents pursuant to which the responsibilities and duties of [the] Trustee under the Program Trust Agreement were transferred from American to Bank One." Additionally, Milling's affidavit avers that, as successor trustee and pursuant to authorization and direction from the Treasurer's office, Bank One reimbursed American $7,500 which American National paid to Winston & Strawn in connection with the transfer of the duties of trustee to Bank One.
After Bank One replaced American National as trustee and administrator, Bank One and the State, through Treasurer Quinn, entered into a new Mortgage Program Agreement. This new agreement expanded the trustee's responsibilities with regard to servicing Mortgage Program loans and also greatly increased the treasurer's power to control and direct the actions of the trustee. At no time did Winston & Strawn represent Bank One, Treasurer Quinn or the State.
Pursuant to a letter dated January 16, 1992, Bank One provided plaintiffs with the names of seven accounting firms which it and Treasurer Quinn would find acceptable for the annual audits. Bank One noted that the purpose of the audits was "to determine, among other things, whether sufficient payments have been made to comply with the cash flow repayment system agreed to by you in the second restructuring." In March 1992, Bank One approved the accounting firm of Altschuler, Melvoin & Glasser ("Accountant") to conduct the audits. After the audits were completed, the audit reports and a Reliance Letter from the Accountant were submitted to Bank One. Treasurer Quinn's office directed Bank One to reject the reliance letter because it was not in the exact language which they had informed plaintiffs would be acceptable to them. Plaintiffs and the Accountant submitted at least six additional alternative drafts of the reliance letter. Bank One, at the direction of the Treasurer's office, also proposed two other slightly different formats for the letters. Ultimately, however, all the alternative drafts submitted by plaintiffs and the Accountant were rejected. During these "negotiations" on the language of an acceptable reliance letter, the Treasurer's office authorized Bank One to grant at least two extensions of the deadline. The last deadline for the submitting of an acceptable reliance letter was May 1, 1992. Upon the expiration of the final deadline, defendants stated their intention to declare plaintiffs' loans in default.
On May 5, 1992, plaintiffs filed a verified complaint for injunctive relief, declaratory judgment and specific performance. Plaintiffs asserted that defendants were unreasonably and wrongfully refusing to accept the Accountant's reliance letters, that the reliance letters were standard and customary, that the refusal to accept the letters was in violation of Bank One's legal duty, and that the refusal was pursuant to an unlawful scheme by Treasurer Quinn to void the second restructuring agreements and rescind the Mortgage Program. As evidence of this unlawful scheme, plaintiffs cited to several newspaper articles which reported Treasurer Quinn's belief that these were bad loans and his desire to declare the loans in default. Plaintiffs also filed an emergency motion for a temporary restraining order ("TRO"). The trial court entered a TRO which precluded defendants from declaring the loans in default, from impairing the loans, and from taking any action adverse to plaintiffs' security or injurious to the hotels.
On May 19, 1992, defendants filed a motion pursuant to sections 2-615 and 2-619(a)(1) of the Illinois Code of Civil Procedure (Ill. Rev. Stat. 1991, ch. 110, pars. 2-615 & 2-619(a)(1) (now 735 ILCS 5/2-615 and 5/2-619 (West 1992))) to dissolve the TRO and dismiss the complaint on the ground that sovereign immunity barred plaintiffs' suit in the circuit court. Defendants also moved to have Winston & Strawn disqualified as counsel for plaintiffs ...