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Kentucky Fried Chicken of Southern California

September 30, 1999

AMERICAN NATIONAL TRUST COMPANY OF CHICAGO, AS TRUSTEE, TRUST #1573 AS TRANSFERRED FROM AUSTIN BANK OF CHICAGO, SUCCESSOR TO NATIONAL BANK OF AUSTIN #4628,
PLAINTIFF-APPELLANT,
V.
KENTUCKY FRIED CHICKEN OF SOUTHERN CALIFORNIA, INC., F/K/A NAUGLES, INC., A SUBSIDIARY OF COLLINS FOODS INTERNATIONAL, INC.,
DEFENDANT-APPELLEE,
AND
COLLINS FOODS INTERNATIONAL, INC., COLLINS PROPERTY PORTFOLIO, INC., AND SIZZLER INTERNATIONAL, INC.,
DEFENDANTS.



Appeal from the Circuit Court of Cook County. No. 96 L 05576 Honorable David G. Lichtenstein, Judge Presiding.

The opinion of the court was delivered by: Justice Hartman

Plaintiff American National Trust Company of Chicago, as trustee, under Trust #1573 (ANT), appeals from the circuit court's orders granting the motion of defendant Kentucky Fried Chicken of Southern California, Inc. (KFCSC) to dismiss ANT's amended complaint pursuant to section 2-619 of the Code of Civil Procedure (Code)(735 ILCS 5/2- 619(West 1996) (section 2-619)) and denying ANT's motion to reconsider the court's dismissal of its amended complaint with prejudice.

ANT, the owner of commercial real estate located in Des Plaines, Illinois, had filed suit against defendants KFCSC, f/k/a Naugles, Inc. (Naugles), a subsidiary of Collins Foods International, Inc. (Collins Foods), Collins Property Portfolio, Inc. (Collins Properties), and Sizzler International, Inc. (Sizzler), alleging breach of contract based on a failure to pay rent and real estate taxes and failure to maintain the premises pursuant to the terms of a lease it had executed with Naugles. ANT raises as issues on appeal whether the circuit court (1) erred when it granted KFCSC's motion to dismiss ANT's amended complaint with prejudice where ANT alleges: (a) genuine issues of material fact exist which should have precluded dismissal; and (b) dismissal was inappropriate as a matter of law; and (2) abused its discretion when it denied ANT's motion to reconsider its order dismissing ANT's amended complaint with prejudice. The relevant facts derived from the pleadings follow.

ANT, an Illinois land trust, is the current legal and equitable owner of the commercial property located at 1505 S. Elmhurst Road in Des Plaines (Property). ANT holds the Property in trust for the beneficial owners, one of whom is Gregory C. Insolia, who acts as their agent; accordingly, ANT and Insolia are referred to collectively as plaintiff or ANT.

On December 15, 1982, ANT and Naugles executed a 15-year lease of the Property. Because the Property was to be specially designed for Naugles, the lease was to commence when certain conditions were met. On February 15, 1985, ANT communicated to Naugles that the building was available for occupancy and that the 15-year term of the lease would commence on that date. On about the same date, Naugles occupied the building and began paying rent under the lease provisions. *fn1 In 1988, Naugles merged with KFCSC and was subsequently renamed KFCSC. KFCSC assumed the liability under the lease.

On March 1, 1988, following the merger between Naugles and KFCSC, Naugles requested that ANT either terminate the lease on the Property or assign the lease to Collins Properties, a subsidiary of Collins Foods, a California corporation. Naugles set forth this proposal in a letter, signed by its President, Samuel L. Sibert, which requested that ANT choose an alternative by signing and returning the document. On March 11, 1988, ANT responded with its own letter, refusing to terminate the lease and further refusing to assign the lease to Collins Properties. Additionally, ANT stated "[t]his reply to your unsolicited proposal is in no way to be construed as a waiver or release by the lessor of any of the terms and conditions of the lease between the lessor and Naugles, Inc. ***."

ANT received a second letter regarding the assignment, dated June 8, 1988, and signed by Werner Poiser, President of KFCSC. ANT was again asked to consent to an assignment of the lease from KFCSC to Collins Properties. A consent to assignment form was enclosed, which was to be executed. The form set forth various conditions, including "that the Assignor shall not be relieved of any liability or obligation under the Lease."

In a letter dated June 25, 1988 and sent to the executive office of Collins Foods, ANT again denied the request for consent. ANT stated it had no knowledge of the financial standing of the assignor or assignee, and requested such financial information, as well as sales reports. ANT also queried, "Will the assignor guarantee lessee's performance and observance of all covenants and agreements under the lease?" ANT did not execute or return the consent to assignment form to Poiser.

Neither KFCSC, Naugles, nor Poiser responded to ANT's June 25, 1988 letter. In a letter to KFCSC dated October 30, 1988, Gregory C. Insolia, in his capacity as agent for ANT's beneficial interests, stated he never received a response to his letter and that "[u]nder these circumstances the lessor is not unreasonable to withhold his consent which is the lessor's position at this time."

On March 12, 1991, allegedly without ANT's knowledge, KFCSC assigned all its "right, title and interest in" the lease to Collins Properties, the assignment having been executed by the respective presidents and secretaries of KFCSC and Collins Properties. ANT did not consent to the assignment. Collins Properties, the assignee under the lease, handled the real estate aspects of Collins Foods. Prior to 1996, Collins Foods and Collins Properties were acquired by Sizzler, a large corporation which owns and operates numerous divisions, subsidiaries and affiliates.

Over the course of the next five years, ANT accepted rent checks issued to it by Sizzler, for Collins Properties on a monthly basis. Further, during a tax appeal, ANT requested Sizzler and Collins Properties to execute affidavits on ANT's behalf, stating that Collins Properties was ANT's lessee of the property. On May 17, 1996, ANT filed a complaint in the circuit court of Cook County against each of the four defendants, alleging breach of contract based on their failure to pay rent and demanding damages in the amount of $105,000, as payment for the remainder of the rental term or until December 1997. The complaint alleged that on April 1, 1996, defendants defaulted under the lease terms by failing to pay rent and real estate taxes or to maintain the premises. ANT served a notice of default dated April 8, 1996, pursuant to the terms of the lease. On May 22, 1996, KFCSC was served, and it subsequently filed its appearance, answered the complaint and, as affirmative defenses to the action, asserted that ANT had either expressly or impliedly consented to an assignment of the lease to Collins Properties and, as a result, either waived or was estopped from collecting rents from KFCSC.

On September 30, 1996, Sizzler, Collins Foods and Collins Properties were served. No appearances were filed for them.

On June 2, 1996, allegedly without ANT's knowledge, Sizzler and its subsidiaries, including Collins Foods and Collins Properties, filed for bankruptcy in United States Bankruptcy Court for the Central District of California. As part of the bankruptcy proceedings, Sizzler and Collins Properties rejected the subject lease as an executory contract; possession of the premises was returned to ANT; the lease was terminated; and Collins Properties was no longer monetarily obligated under the lease. On October 7, 1996, ANT filed a proof of claim against Sizzler and Collins Properties in the bankruptcy proceedings, demanding the amount of $90,233.42 for rent, taxes, and maintenance, claimable under the Bankruptcy Code. Defendants allege that ANT formally acknowledged the assignment of the lease to Collins Properties, when it filed its proof of claim against Sizzler and Collins Properties.

On November 22, 1996, KFCSC filed a motion for stay of proceedings, requesting that the circuit court of Cook County stay the state court action until resolution of the California bankruptcy proceedings. ANT filed a response, objecting to a stay of the proceedings against KFCSC, a non-party to the bankruptcy action, and maintaining that KFCSC's obligations under the lease were independent and unrelated to those of the bankrupt parties. On January 2, 1997, the court denied KFCSC's motion for stay of proceedings without prejudice and instead stayed the proceedings against only the bankrupt parties. The court removed and transferred that portion of the case relating to the bankrupt parties to the presiding Judge of the Law Division. The action against KFCSC alone proceeded in the circuit court.

On July 17, 1997, as part of the bankruptcy proceedings, ANT, Collins Properties and Sizzler executed a stipulation, which was filed with and entered by the Bankruptcy Court on August 26, 1997, and August 29, 1997, respectively. The stipulation created a contract between ANT, Collins Properties and Sizzler and provided that ANT would withdraw all but one of its claims and reduce that claim from $90,233 to ...


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