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03/17/98 TEACHERS INSURANCE AND ANNUITY ASSOCIATION

TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, PLAINTIFF-APPELLEE,
v.
LASALLE NATIONAL BANK, AS TRUSTEE UNDER TRUST AGREEMENT DATED SEPTEMBER 4, 1984, AND KNOWN AS TRUST NO. 108920; 200 PARK PLAZA ASSOCIATES; W/H PARTNERSHIP NO. 2; MATTHEW M. WALSH, JR.; DANIEL J. WALSH; JOHN W. HIGGINS; CHRISTOPHER NOON; WALSH, HIGGINS AND COMPANY; NON-RECORD CLAIMANTS; AND UNKNOWN OWNERS, DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Du Page County. No. 95-CH-0829 Honorable John W. Darrah, Judge, Presiding.

The opinion of the court was delivered by: Justice Doyle

Defendants appeal from a summary Judgement entered by the circuit court of Du Page County against them and in favor of plaintiff, Teachers Insurance and Annuity Association of America. The trial court ruled that the Credit Agreements Act (Act) (815 ILCS 160/0.01 et seq. (West 1996)) barred defendants' affirmative defenses and counterclaims in plaintiff's action to foreclose a mortgage. Defendants raise the following issues for review: whether the Act barred their affirmative defenses and counterclaims; and whether applying the Act to bar their affirmative defenses and counterclaims was unconstitutional.

Plaintiff held a mortgage on real property improved with a commercial office building (the building) in Naperville known as 200 Park Plaza (the property). The mortgage secured two notes with an aggregate original indebtedness of $32,800,000 (collectively, the loan).

The First National Bank of Chicago was the original mortgagee. Defendant LaSalle National Bank, as trustee of a land trust, was the mortgagor. Defendant 200 Park Plaza Associates (200 PPA), a limited partnership, was the sole beneficiary of the land trust. Defendant W/H Partnership No. 2, a limited partnership, was the general partner of 200 PPA. The individual defendants are general partners of W/H Partnership No. 2. Defendant Walsh, Higgins & Co. (Walsh, Higgins), a construction and management company, constructed the building and managed the building from the time it was completed until the resolution of this action.

In September 1994, the tenant that had leased the entire building since it was opened in 1987 advised 200 PPA that it did not intend to renew its lease when the lease expired on September 30, 1995. 200 PPA immediately informed plaintiff of the tenant's decision and advised plaintiff that the loss of the building's sole tenant necessitated a restructuring of the loan.

Between October 1994 and June 1995, the parties engaged in periodic discussions regarding restructuring the loan. The parties never executed a written agreement to restructure the loan.

In each of their affirmative defenses and counterclaims, defendants allege that during their Discussions with plaintiff regarding a restructuring of the loan, plaintiff indicated that it required certain terms in order to agree to a restructuring. In an attempt to satisfy these terms, defendants developed and presented to plaintiff a recapitalization plan that included the following terms: (1) a capital contribution of $1 million by 200 PPA; (2) third-party financing of tenant improvements to the property; (3) an initial below-market interest rate coupled with a retroactive rent credit; (4) graduated increases in the interest rate during the life of the loan; and (5) a guaranteed "look back" rate of return based on a retrospective review of the transaction at the end of the loan term.

Defendants also allege that at various times during the restructuring Discussions between February 3, 1995, and June 29, 1995, different spokespersons for plaintiff made statements to defendants' agents that led defendants to conclude that the proposed restructuring plan was generally acceptable to plaintiff and that only details needed to be worked out in order to finalize a restructuring agreement. Defendants further allege that on June 29, 1995, a spokesperson for plaintiff advised defendants that the proposed restructuring would not work and that plaintiff expected defendants to fund improvements without third-party financing. Plaintiff later added a requirement that defendants contribute $8 million toward improvements on an unsecured basis.

Defendants' affirmative defenses and counterclaims allege that as a result of plaintiff's refusal to comply with the restructuring plan as it was proposed prior to June 29, 1995, defendants lost two large leases. Defendants further allege that plaintiff misled defendants regarding its intent to restructure the loan and therefore caused the loss of the leases. Defendants posit that plaintiff was motivated to mislead them by a desire to gain ownership of the property and that plaintiff has engaged in similar conduct with respect to other properties for which it was the lender.

On November 8, 1995, plaintiff filed a verified complaint against defendants seeking a Judgement of foreclosure and other relief, including a judicial sale of the property. Plaintiff's complaint alleged that the loan was in default and that as of October 31, 1995, outstanding principal, accrued interest, and late charges on the loan totaled $33,778,040.15. Defendants responded with a verified answer and affirmative defenses. Plaintiff then moved for summary judgment. After a hearing on the matter, the trial court entered an order that treated plaintiff's motion for summary Judgement as a motion to strike defendants' affirmative defenses on the ground that they were insufficient at law. The order then granted the motion to strike but allowed defendants to amend and refile their answer and affirmative defenses.

On July 11, 1996, defendants filed an amended answer, affirmative defenses, and counterclaims. The affirmative defenses were based on theories of breach of fiduciary duty, breach of contract, unclean hands, fraud, constructive fraud, and estoppel. The counterclaims alleged breach of fiduciary duty, breach of contract, fraud, constructive fraud, and estoppel.

Plaintiff subsequently renewed its motion for summary judgment. In support of its motion for summary judgment, plaintiff argued that the Act barred each of defendants' affirmative defenses.

On November 1, 1996, the trial court entered an order granting plaintiff's renewed motion for summary Judgement as to defendants' affirmative defenses. On November 12, 1996, plaintiff moved for summary judgment on defendants' counterclaims. Plaintiff argued that the counterclaims were substantively identical to the affirmative defenses and that the Act barred the counterclaims for the same reasons that it barred the affirmative defenses.

On December 2, 1996, the trial court entered a Judgement of foreclosure and sale ordering the judicial sale of the property. On December 6, 1996, defendants filed a notice of appeal from the judgment of foreclosure and sale. The appeal was to this court and was docketed as No. 2--96--1423.

On April 10, 1997, the trial court entered an order granting plaintiff's motion for summary Judgement as to defendants' counterclaims. Defendants subsequently appealed from that order. We consolidated the appeal from the April 10 order with defendants' first appeal under docket No. 2--96--1423.

Defendants subsequently filed two additional related appeals in the appellate court, third district. One of these appeals, the third appeal, was from an agreed order confirming the sale of the property. The fourth appeal was from an amended confirmation order. The third and fourth appeals were later transferred to this court. We consolidated the third and fourth appeals with the first and second appeals. The parties have not filed additional briefs regarding the third and fourth appeals. Thus, on appeal, the parties only really dispute whether the trial court erred when it granted summary Judgement in favor of plaintiff on the ground that the Act barred defendants' affirmative defenses and counterclaims.

After the consolidation of the four appeals in this court, plaintiff moved to dismiss the first, third, and fourth appeals (all the appeals except the appeal from the summary Judgement order regarding defendants' counterclaims). Defendants objected and the motion was taken with the case.

We now address the motion to dismiss the first, third, and fourth appeals. Plaintiff contends that the appeals should be dismissed because they are moot. Plaintiff bases its contention on Supreme Court Rule 305(j) (155 Ill 2d R. 305(j)) and cases decided under Rule 305(j). Plaintiff maintains that these authorities support the proposition that an appeal is moot when a disinterested third party purchases property that is the subject of the appeal and a stay of the underlying judgment has not been perfected. Plaintiff argues that the appeals in question here are moot because a disinterested third party has purchased the property and a stay has not been perfected.

Defendants respond by noting that they have challenged the constitutionality of the application of the Act to bar their affirmative defenses. Defendants contend that if they prevail on their constitutional challenges, then the Act, as applied, would be deemed void ab initio and they would be entitled to reclaim the property. Defendants argue that plaintiff's reliance on Rule 305(j) to extinguish their right to an appeal hearing regarding their constitutional challenges would be a denial of due process.

We agree with defendants. We recognize that, in general, courts avoid determining whether a statute is unconstitutional if a case can be decided on other grounds. See, e.g., First National Bank v. Kusper, 98 Ill. 2d 226, 236 (1983). We also recognize that Rule 305(j) and related cases arguably render defendants' appeal moot and therefore would make it unnecessary for us to reach defendants' constitutional arguments.

However, a determination that Rule 305(j) renders the appeals in question moot also prevents the resolution of defendants' constitutional arguments. This is despite the fact that if defendants are correct as to their constitutional arguments, Rule 305(j) would then operate to improperly deprive defendants of their property. In view of this possible deprivation of a fundamental right, we conclude that, under the circumstances of this case, Rule 305(j) does not render the appeals moot. See Boddie v. Connecticut, 401 U.S. 371, 379, 28 L. Ed. 2d 113, 120, 91 S. Ct. 780, 787 (1971) (generally valid statute may be ...


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