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Dearborn Maple Venture, LLC v. Sci Illinois Services

April 24, 2012


Appeal from the Circuit Court of Cook County. No. 07 CH 19373 Honorable Nancy J. Arnold Judge Presiding.

The opinion of the court was delivered by: Justice Cunningham

JUSTICE CUNNINGHAM delivered the judgment of the court, with opinion. Justices Connors and Harris concurred in the judgment and opinion.


¶1 Following a bench trial in the circuit court of Cook County, the trial court entered judgment in favor of the defendant-appellee, SCI Illinois Services, Inc. (SCI), and against the plaintiff-appellant, Dearborn Maple Venture, LLC (DMV), and the third-party defendants-appellants, JDL Development Interests, LLC (JDL), and 1035 N. Dearborn, LLC (1035 LLC), in the amount of $1,757,703, plus costs. On appeal, DMV, JDL and 1035 LLC argue that: (1) SCI's first amended counterclaim against them was collaterally estopped by a prior arbitration award; (2) SCI did not have a separate claim under the parties' executed "Earnest Money Contract"; (3) the trial court erred in entering judgment against 1035 LLC; and (4) the trial court miscalculated the damages pursuant to the terms of the parties' agreements. For the following reasons, we affirm in part the judgment of the circuit court of Cook County and vacate the award of damages and remand for further proceedings consistent with this opinion.


¶3 SCI was an Illinois corporation engaged in the business of owning and operating funeral homes. In 2000, SCI owned a parcel of real estate, along with its onsite funeral home, at 1035 North Dearborn Street in Chicago, Illinois (the property).

¶4 In October 2000, SCI decided to sell the property to a developer, JDL, on the condition that aside from constructing a high-rise building on the property, JDL would also demolish the existing funeral home on the property, build a new funeral home in its place and convey the new funeral home back to SCI in fee simple. After negotiations began, the city of Chicago re-zoned the property such that the maximum "floor area ratio" (FAR) permitted to be built on the property was reduced from a FAR of 12.0 to 5.0. In connection with this redevelopment project, SCI's vice president, Michael Decell (Decell), and JDL's president and sole owner, James Letchinger (Letchinger), executed three agreements: the "Development Agreement," an "Earnest Money Contract" and the "West Maple Lease Agreement" (lease agreement).

¶5 The development agreement set forth the details of the redevelopment of the property. Specifically, it described the redevelopment as a two-part project, which was comprised of the construction of a new funeral home and the construction of a high-rise residential condominium building. The development agreement specified the size of the new funeral home, which shall be completed "within thirty (30) months after the [c]losing," and required the high-rise residential condominium to consist of "no greater than 77,895 square feet of gross buildable area." The opening paragraphs of the development agreement expressly stated that the parties "simultaneously" executed the earnest money contract and the lease agreement, which provided for the sale of the property from SCI to JDL and provided for the temporary relocation of SCI's funeral business to a nearby property, respectively. Paragraph 1(g) of the development agreement required JDL to deliver a "letter of credit" in the amount of $3.5 million to SCI at closing, in order to ensure JDL's "[full performance of] its agreements set out herein and in the other agreements between the parties referred to herein." Paragraph 5 provided that in the event of a breach of or default on any terms of "this [a]greement," the face amount of the letter of credit shall become immediately due and payable to SCI, and that JDL "shall be released from all obligations hereunder to convey [the new funeral home] to SCI and SCI shall have no other or further claim or cause of action against JDL under this [a]greement." Under paragraph 9, all disputes, except equitable claims, between the parties "arising under this

[a]greement or in any other agreement or document executed *** by the parties in connection with the transactions contemplated hereby" shall be solved by binding arbitration. The development agreement further stated, in paragraph 11(a), that "this [a]greement when executed and delivered, and the [d]ocuments referred to herein, collectively constitute the entire agreement of the parties with respect to the subject matter hereof."

¶6 The earnest money contract set forth the terms of the sale of the property. Under paragraph 1, SCI agreed to sell the property to JDL for $4 million, and that JDL shall pay SCI an "additional sales price" in an amount "equal to [$51.35] times the number of square feet of gross buildable area in excess of [77,895 square feet] for which [JDL], its successors or assigns, obtain the requisite governmental approvals and which is available to [JDL], its successors and assigns, to build out, or which is in fact built out, at any time prior to December 31, 2010." The earnest money contract expressly stated that paragraph 1 "shall survive [c]losing."

¶7 The lease agreement was executed by JDL and SCI whereby JDL agreed to lease the premises at 12 West Maple Street in Chicago as a temporary location for SCI to continue the operation of its funeral business while the new funeral home was being constructed by JDL on the property at issue.

¶8 In December 2000, near the time of closing, JDL and DMV entered into an assignment agreement by which JDL assigned its rights and obligations under the development agreement and earnest money contract to DMV. DMV was an Illinois limited liability company whose sole member was Letchinger. Letchinger, in his capacity as the sole owner for both JDL and DMV, was the only signatory to the assignment agreement. It is undisputed that in December 2000, SCI transferred the property to DMV.

¶9 In June 2003, JDL and DMV failed to construct and convey the new funeral home back to SCI to meet the time deadline directed by the development agreement. This failure to meet the time deadline was allegedly as a result of the collapse of the real estate market. On July 3, 2003, SCI drew upon the entire amount of the letter of credit and, as a result, received $3.5 million. Thereafter, DMV challenged SCI's actions and filed a demand for arbitration. It is undisputed that on May 24, 2004, DMV transferred the property to 1035 LLC. At that time, Letchinger held a majority ownership interest in1035 LLC and served as its sole manager. It is also undisputed that in August 2004, the city of Chicago again re-zoned the property such that the maximum FAR permitted to be built on the property increased to an FAR of 5.8. In 2006, the development of the high-rise residential condominium was completed on the property.

¶10 On April 2, 2007, SCI made a demand on JDL for the "additional sales price" under paragraph 1 of the earnest money contract. Thereafter, JDL, DMV and 1035 LLC all refused to make any additional payment to SCI for the purchase price of the property.

¶11 In October 2007,*fn1 an arbitration hearing was held regarding SCI's actions of drawing upon the entire amount of the letter of credit in July 2003. The issue of SCI's 2007 demand for an "additional sales price" under the terms of the earnest money contract was not the subject of the arbitration. On January 22, 2008, in a written arbitration award, the arbitrator found that SCI was uncooperative with JDL and DMV in finding a solution to the issues surrounding the delay of constructing the new funeral home, that SCI unreasonably and incorrectly assumed that it did not need to provide JDL and DMV with an extension of time for this construction, and that SCI wrongly concluded that, under the circumstances, it could simply rescind the development agreement and take the entire $3.5 million pursuant to the letter of credit. The arbitrator further determined that JDL and DMV's delay in completing construction of the new funeral home by June 2003 was a material breach of the parties' development agreement, that the $3.5 million letter of credit did not constitute a valid and enforceable liquidated damage for the breach committed by JDL and DMV, and that the actual damages for the breach was $2,118,809 ($1,729,640 plus interest)-which was measured by putting SCI in the same position it would have been in had the development agreement never been executed, namely, by calculating what extra amount of money SCI would have received from JDL had it sold the entire ...

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