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United States Fidelity and Guaranty Company v. Old Orchard Plaza Limited Partnership

August 30, 2002

UNITED STATES FIDELITY AND GUARANTY COMPANY, A MARYLAND CORPORATION, FIDELITY AND GUARANTY LIFE INSURANCE COMPANY, A MARYLAND CORPORATION, USF & G REALTY ADVISORS, INC., A MARYLAND CORPORATION, AND CHARLES R. WERHANE, AS TRUSTEE, PLAINTIFFS,
v.
OLD ORCHARD PLAZA LIMITED PARTNERSHIP, AN ILLINOIS LIMITED PARTNERSHIP, LP EQUITY ASSOCIATES LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP, AND LA SALLE PARTNERS ASSET MANAGEMENT LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP, DEFENDANTS (BRUNSWICK CORPORATION, A DELAWARE CORPORATION, INTERVENOR AND PLAINTIFF-APPELLEE, OLD ORCHARD PARK FIDELITY ASSOCIATES LIMITED PARTNERSHIP, AN ILLINOIS LIMITED PARTNERSHIP, DIVERSE REAL ESTATE HOLDINGS LIMITED PARTNERSHIP, F/K/A LP EQUITY ASSOCIATES LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP, S & S EQUITIES, INC., AN ILLINOIS CORPORATION, LAKEWOOD EQUITIES, INC., AN ILLINOIS CORPORATION AND OLD ORCHARD PARK FIDELITY LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, DEFENDANTS-APPELLANTS).



Appeal from the Circuit Court of Cook County. No. 92 CH 6435 The Honorable Lester D. Foreman, Presiding Judge.

The opinion of the court was delivered by: Justice Buckley

UNPUBLISHED

This case is before us a second time. In United States Fidelity & Guaranty Co. v. Old Orchard Plaza Limited Partnership, 284 Ill. App. 3d 765 (1996) (USF&G I) we held, inter alia, that the allegations in Brunswick Corporation's (Brunswick) second-amended complaint alleged facts sufficient to state a claim that Jerry Burin, a court-appointed receiver (Reciever), adopted a lease under which Brunswick was a lessee and, according to Brunswick, under which it was entitled to a $2 million termination payment. We reversed the trial court's dismissal of the complaint and remanded for a trial on the issue of whether Burin in fact adopted the lease.

On remand, Brunswick amended its complaint to substitute Old Orchard LP in lieu of Burin based upon an April 5, 1995, unopposed order entered by the trial court which discharged Burin and which, according to Brunswick, assigned to Old Orchard LP the lease at issue. After a two-day bench trial, the trial court entered judg-ment in favor of Brunswick and against Old Orchard LP for the $2 million termination payment, less amounts for real estate taxes owed by Brunswick, together with prejudgment interest for a total judgment of $2,459,981.06. The trial court also awarded Brunswick a judgment for attorney fees and costs of $521,708.91.

Old Orchard LP filed a timely notice of appeal. The follow-ing issues are before the court: (1) whether the trial court's conclusion that the Receiver adopted the lease was clearly errone-ous; (2) whether the trial court's finding that Old Orchard LP assumed the Receiver's liability pursuant to the April 5, 1995, order was an abuse of discretion; and (3) whether the trial court's award of prejudgment interest and attorney fees was an abuse of discretion. For the reasons that follow, we affirm.

I. STATEMENT OF FACTS

Because the facts preceeding our decision in USF&G I are relevant to the issues now before us, we restate them here in pertinent part.

On December 14, 1956, the United States Steel & Carnegie Pension Fund (the Fund) leased 32 acres of land and existing improvements, commonly known as Old Orchard Plaza (the Property), to International Minerals & Chemical Corporation (IMC). The lease was to expire on December 20, 2023, if all options to extend it were exercised.

On September 1, 1971, Brunswick acquired the leasehold estate from IMC. On April 27, 1983, Brunswick entered into a contract to sell its leasehold estate to Equity Associates (Equity). As con-sideration for the sale of the leasehold, Equity agreed to lease the office space Brunswick occupied at the time back to Brunswick at a below market rate pursuant to a sublease (the Lease). The Lease provided that Brunswick would occupy the office space through April 1993, at which point it would have an option to extend the term. The Lease further provided that if Brunswick vacated the premises without having exercised the option, Equity would pay Brunswick a termination payment of $2 million (the Termination Payment). The Termination Payment is the subject of the instant appeal.

On December 5, 1985, Equity acquired fee simple title to the Property from the Fund. The Lease with Brunswick remained in effect. In 1987, Equity sold the Property to LP Equity. A short time later, LP Equity sold the Property to Old Orchard Plaza Limited Partnership (OOPLP). Equity, LP Equity, and OOPLP are affiliates created and controlled by LaSalle Partners.

Sometime prior to October 5, 1988, OOPLP sought a mortgage loan on the Property from United States Fidelity and Guaranty Company (USF&G). On October 5, 1988, USF&G received a letter from its real estate consulting firm, Piedmont Realty Advisers, stating that if Brunswick vacated the premises in April 1993, the landlord would be liable for the Termination Payment.

On November 30, 1988, Brunswick executed a letter, at USF&G's request, certifying that upon any foreclosure sale or conveyance in lieu thereof, Brunswick would recognize the purchaser as its landlord under the Lease as if such purchaser were the original landlord, "provided, however, that such purchaser shall in no way be liable or responsible for any alleged default by the Landlord pertaining to any period prior to the time that the purchaser acquires actual possession or control of the Property, or any portion thereof."

On January 6, 1989, OOPLP received two mortgage loans on the property from USF&G totaling $23.5 million. On March 1, 1992, OOPLP defaulted on the mortgages by failing to pay real estate taxes, as required under the loan documents. On May 8, 1992, USF&G accelerated OOPLP's total indebtedness. On May 12, 1992, Brunswick sent Equity and LaSalle Partners written notice that it intended to vacate the office space on April 30, 1993. The notice further demanded payment of $2 million upon its vacation.

On July 7, 1992, USF&G filed a complaint in the chancery division of the circuit court of Cook County against OOPLP, LP Equity, Equity, and LaSalle Partners (the LaSalle Partner defen-dants) alleging various fraudulent transfers of funds. The com-plaint sought assignment of rents and appointment of a Receiver. It specifically stated that USF&G does not seek a foreclosure "at this time." On August 5, 1992, the circuit court appointed Jerry Burin as Receiver, and from that date until he was discharged, Burin demanded and received rents and managed the Property. Brunswick later sent letters demanding the Termination Payment to USF&G and Burin. All parties denied liability.

On March 8, 1993, Brunswick obtained leave to intervene and filed an intervenor's complaint against the LaSalle Partner defen-dants, USF&G, and Burin. The complaint sought declaratory judg-ments that the Termination Payment provision was a covenant run-ning with the land, that Brunswick had an equitable vendor's lien on the Property for the unpaid purchase price which took priority over any mortgage liens, that Burin had implicitly adopted the Lease, that the Termination Payment was an ordinary operating expense of Receivership, and that USF&G was a mortgagee in pos-session.

On April 26, 1993, USF&G settled its claim against the LaSalle Partner defendants and agreed to the following terms: (1) USF&G would dismiss the claim; (2) of the nine parcels constituting the Property, USF&G would release its interest in parcels 1 through 6 and foreclose only on parcels 7 through 9, which contained the Brunswick office space; (3) the LaSalle Partner defendants would assert no defense and consent to the foreclosure; (4) if OOPLP went into bankruptcy, it would consent to lift the automatic stay on the foreclosure; and (5) USF&G reserved indemnity and subrogation rights against the LaSalle Partner defendants for the Termination Payment. On April 30, 1993, Brunswick vacated the premises. On July 15, 1993, USF&G filed its complaint for foreclosure of parcels 7 through 9.

On May 21, 1993, Brunswick and the Receiver entered into a stipulation which provided in part:

"3. Brunswick asserts its claim against the Receiver only in his official capacity, and thus seeks to recover from the Receiver only to the extent that the Receiver has rent or other monies in his possession from his operation of Old Orchard Plaza or has control or possession of the real estate which is the subject of the lease or other property which can be used to satisfy Brunswick's claim.

4. Brunswick and the Receiver stipulate and agree that the Receiver's right and duty to use any property in his possession and control to satisfy Brunswick's claim is condi-tioned upon the Court entering orders direct-ing the Receiver to use said property in such manner.

5. Brunswick does not seek a money judg-ment against either the Receiver in his personal capacity, or against his agent, The John Buck Management Group arising out of any of the acts or circumstances alleged in Inter-venor's Complaint."

On August 6, 1993, Brunswick amended its complaint to add requests for declaratory judgments that it has a vendor's lien against parcels 7 through 9, which is superior to USF&G's mortgage interest, and against parcels 1 through 6. USF&G filed a motion to dismiss for failure to state a claim. On August 25, 1993, the cir-cuit court granted the motion, finding (1) the Termination Payment provision was not a covenant running with the land because it did not touch and concern the Property and there was no privity between Brunswick and USF&G; (2) Brunswick was not entitled to a vendor's lien; (3) USF&G was not a mortgagee in possession; and (4) Bruns-wick was estopped from asserting a claim for the Termination Pay-ment against USF&G by its letter of November 30, 1988. On Septem-ber 22, 1993, Brunswick filed its first notice of appeal.

On October 5, 1993, Brunswick received an invoice from Burin demanding payment for Brunswick's alleged share of 1992 real estate taxes on the Property. On December 7, 1993, Brunswick filed a second-amended complaint against the LaSalle Partner defendants and Burin, containing two counts. Count I sought declaratory judgments that the LaSalle Partner defendants were each personally liable for the Termination Payment and that Brunswick had a vendor's lien against the Property. Count II sought declaratory judgments that Burin had adopted the Lease and was liable for the Termination Payment as successor to the landlord's interest, that the Termina-tion Payment was an ordinary operating expense of Receivership, and that Burin's nonpayment of the Termination Payment was a material breach of the lease that entitled Brunswick to set off any of its further obligations.

The circuit court granted USF&G leave to intervene as defen-dant. On December 28 and 29, 1993, USF&G, the LaSalle Partner defendants and Burin each filed motions to dismiss Brunswick's second-amended complaint. On March 23, 1994, the circuit court granted USF&G's and Burin's motions in their entirety. The court found that Burin never adopted the Lease or succeeded the landlord in interest, and that nonpayment of the Termination Payment did not excuse Brunswick from paying real estate taxes. With respect to the LaSalle Partner defendants' motion, the circuit court granted Brunswick leave to file a third-amended complaint instanter, in which count I alleged a vendor's lien and count II alleged personal liability for the Termination Payment. The court then dismissed count I, citing its earlier ruling on the vendor's lien issue, and sustained count II. The next day, Burin filed a counterclaim against Brunswick for unpaid real estate taxes due under the Lease.

Also, on March 24, 1994, Brunswick filed its second notice of appeal. On May 23, 1994, this court entered an order consolidating the two appeals.

In the meantime, with Brunswick's appeal pending, USF&G pro-ceeded with the foreclosure. The trial court entered judgment of foreclosure on March 23, 1994. A sheriff's sale of the Property took place on November 9, 1994. USF&G was the bidder and for a $6,750,000 bid received the certificate of sale. On December 20, 1994, USF&G assigned the notes, mortgage, loan documents and claims and defenses in the litigation to Old Orchard Park Fidelity Associates Limited Partnership (Old Orchard LP). On January 6, 1995, the court entered its order confirming the sheriff's report of sale and ordering execution of a deed to Old Orchard LP.

As of March 1995, Burin had completed his final report and the Receiver's estate consisted of $8,184.09. On March 27, 1995, Old Orchard LP filed a motion to discharge the Receiver. On April 5, 1995, the court entered an order drafted by Old Orchard LP's counsel and agreed ...


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