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Bank of America National Association, Successor By Merger To v. Bassman Fbt

June 18, 2012


Appeal from the Circuit Court of Du Page County No. 10-CH-2806 Honorable Bonnie M. Wheaton, Judge, Presiding.

The opinion of the court was delivered by: Justice Hudson

JUSTICE HUDSON delivered the judgment of the court, with opinion.

Justices Hutchinson and Zenoff concurred in the judgment and opinion.



¶ 2 Defendants (Bassman FBT, L.L.C. (Bassman), and Maximum Management, LLC) appeal a grant of a summary judgment of foreclosure and sale by the circuit court of Du Page County in favor of plaintiff (Bank of America National Association, successor by merger to LaSalle Bank National Association, as trustee for the registered certificateholders of Morgan Stanley Capital I, Inc., commercial mortgage pass-through certificates, series 1998-HF2). Defendants raise two main arguments on appeal. First, they contest the trial court's determination that plaintiff had standing to foreclose certain mortgages. Second, they assert that summary judgment is inappropriate in light of a purported breach of contract committed by plaintiff. Plaintiff responds that defendants lack standing to advance these arguments. For the reasons that follow, we agree with plaintiff and affirm. All outstanding motions are denied as moot.

¶ 3 As this appeal comes to us following a grant of summary judgment, we conduct de novo review. Kociscak v. Kelly, 2011 IL App (1st) 102811, ¶ 23. This means that we owe no deference to the trial court (Khan v. BDO Seidman, LLP, 408 Ill. App. 3d 564, 595 (2011)) and may freely disregard its judgment and substitute our own (People v. Pineda, 373 Ill. App. 3d 113, 116 (2007)). Summary judgment should be granted only if the moving party's right to prevail is "clear and free from doubt." (Internal quotation marks omitted.) Kociscak, 2011 IL App (1st) 102811, ¶ 23. A grant of summary judgment is appropriate where "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 2010). A "material fact" is one that might affect the outcome of a case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When considering a motion for summary judgment, a court must construe the record strictly against the movant and liberally in favor of the opposing party. Hunt v. Farmers Insurance Exchange, 357 Ill. App. 3d 1076, 1077 (2005). All reasonable inferences are to be drawn in favor of the opponent of the motion. Eakins v. New England Mutual Life Insurance Co., 130 Ill. App. 3d 65, 68 (1984).

¶ 4 Construing the record in defendants' favor, we will accept the following factual propositions and inferences for the purpose of resolving this appeal. Defendant Bassman executed two mortgages in favor of Heller Financial, Inc., for property known as the Glen Corporate Center in Glen Ellyn. Plaintiff foreclosed on these mortgages in the action below. Plaintiff's authority to foreclose on them was derived from a document referred to as the pooling and services agreement (PSA). The PSA created a trust, naming plaintiff's predecessor as trustee. It further stated that "Depositor-Morgan Stanley Capital I, Inc.-'will acquire certain Mortgage Loans form Heller Capital Funding, Inc., as seller *** and the Depositor will be the owner of the Mortgage Loans.' " The depositor is then to convey the mortgages to the trust. The mortgages executed by Bassman were conveyed from Heller Financial, Inc., to Heller Capital Management, Inc., and then to the trust. Heller Financial, Inc., Heller Capital Management, Inc., and Heller Capital Funding, Inc., are separate entities. Thus, neither Morgan Stanley Capital I, Inc., nor Heller Capital Funding, Inc., was involved in the transfer of the mortgages to the trust administered by plaintiff, which, we will assume for the purpose of resolving this appeal, is contrary to the manner set forth in the PSA. Defendants point out that the PSA also states that the trustee "is not permitted to 'accept any contribution of assets to the Trust not specifically contemplated by [the PSA], unless the Trustee shall have received any Nondisqualification Opinion at the expense of the Person desiring to contribute such assets with respect to such contribution.' " Defendants note that there is no evidence that plaintiff received any such opinion.

¶ 5 Pertinent to the second issue in this appeal, defendants state that third-party defendant Berkadia Commercial Mortgage, LLC (Berkadia), is the servicer of the mortgages at issue in this case. As such, it is a party to the PSA. Its duties include dealing with loans that are in default. The PSA instructs Berkadia to take corrective action in such circumstances and specifies four ways in which such situations can be resolved: the loan can be paid current; the loan can be paid in full; there can be an agreed modification; or a foreclosure can be initiated. The PSA states that a foreclosure should be pursued only where Berkadia has "determined in its 'reasonable and good faith judgment' that 'corrective action has been unsuccessful' and that 'no satisfactory arrangement can be made for the collection of delinquent payments and no other alternative' can be negotiated."

¶ 6 After a drop in occupancy of the Glen Corporate Center, Bassman sought to restructure its debt to plaintiff. Berkadia informed Bassman that it would not engage in discussion unless payments were three months in arrears. Bassman stopped making payments, in reliance on this advice. Bassman and Berkadia entered preliminary negotiations. A representative of Berkadia (Bolen) visited the property. Bolen sent a follow-up letter requesting additional documents and $164,771.11. Bassman promised to provide everything Berkadia had requested and sent a check for $37,314.63 to cover real estate taxes. Bassman also stated that it was willing to pay the full amount requested by Berkadia, but was concerned as to what funds would be available to maintain the property if the full amount were paid to Berkadia. It expressed these concerns to Berkadia. Berkadia did not respond. Shortly thereafter, this lawsuit was initiated. The trial court granted a summary judgment of foreclosure and sale. This appeal followed.

¶ 7 Before turning to the merits, we must address a threshold issue. The parties disagree as to whether Illinois or New York law controls this case. Neither party, however, provides significant analysis of this issue. Defendants simply state that New York law is "the governing law for the PSA under its own choice of law provisions." Unhelpfully, as the PSA exceeds 100 pages, defendants fail to provide a citation to this provision. Plaintiff replies only that it does not agree with defendants and that the pertinent laws of the two states are not materially different. In their reply brief, defendants acknowledge that Illinois law controls generally; however, defendants maintain that New York law determines whether the mortgages were validly transferred to the trust.

¶ 8 Regarding the choice-of-law provision in the PSA, under Illinois law an entity that is not a party to a contract cannot typically invoke a choice-of-law provision contained in the contract. Jakubik v. Jakubik, 208 Ill. App. 3d 119, 122 (1991). Under the law of New York, a third-party beneficiary,*fn1 an alter ego of a signatory, a successor in interest, or an entity that owns or is owned by the signatory may invoke such a provision even though not a party to the contract. Sealord Marine Co. v. American Bureau of Shipping, 220 F. Supp. 2d 260, 270 (S.D.N.Y. 2002). Defendants do not appear to fit into any of these categories.

¶ 9 Hence, defendants could not invoke the choice-of-law provision of the PSA even if they so desired. Instead, we will look to Illinois's choice-of-law rules to determine which state's law controls. See Yessenow v. Executive Risk Indemnity, Inc., 2011 IL App (1st) 102920, ¶ 14 (holding that, in the absence of an effective choice-of-law agreement, the choice-of-law rules of the forum state control). Illinois courts employ the Restatement (Second) of Conflict of Laws (Restatement) to resolve choice-of-law questions. Morris B. Chapman & Associates, Ltd. v. Kitzman, 193 Ill. 2d 560, 568 (2000).Generally, the object is to apply the law of the state with the most significant relationship to the issue. Gregory v. Beazer East, 384 Ill. App. 3d 178, 196-97 (2008). Here, two entities (Bassman and Heller Financial, Inc.) that conduct business in this state entered into mortgages secured by property in this state. The only relationship to New York is the PSA, to which Bassman lacks privity. The mortgages themselves contain choice-of-law provisions indicating that Illinois law will govern the relationship between the parties, and we are aware of no reason why this provision would not control. Freeman v. Williamson, 383 Ill. App. 3d 933, 938 (2008). Thus, to the extent the law of New York differs from ours, we will apply Illinois law generally.

¶ 10 As for which state's law should be used to assess the validity of the transfer of the mortgages into the trust administered by plaintiff, we agree with defendants. The contract for this purported transaction included a choice-of-law provision that specified that New York law governs the trust. Courts "should give effect to a choice-of-law provision in a contract [citation] unless the contract chooses a foreign law that is ' "dangerous, inconvenient, immoral, [or] contrary to the public policy of the local government" ' [citation]." Khan, 408 Ill. App. 3d at 581; see also Glazer's Distributors of Illinois, Inc. v. NWS-Illinois, LLC, 376 Ill. App. 3d 411, 421-22 (2007); cf. Restatement (Second) of Conflict of Laws § 190 (1971) ("The contractual duties imposed upon the parties to a deed of transfer of an interest in land are determined, in the absence of an effective choice of law by the parties, by the local law of the state where the land is situated." (Emphasis added.)); Restatement (Second) of Conflict of Laws § 195 (1971) ("The validity of a contract for the repayment of money lent and the rights created thereby are determined, in the absence of an effective choice of law by the parties, by the local law of the state where the contract requires that repayment be made." (Emphasis added.)). We are aware of no aspect of the pertinent law of New York that could be characterized as inconvenient, dangerous, immoral, or contrary to the public policy of Illinois. Khan, 408 Ill. App. 3d at 581. Thus, to the extent the laws of Illinois and New York conflict on this issue, we will apply New York law to determine whether the mortgages were validly transferred to the trust.

¶ 11 We are cognizant that we have already concluded that defendants are not entitled to rely on the PSA's choice-of-law provision; however, we do not view the application of New York law under these circumstances as an invocation by defendants. Quite simply, plaintiff was a party to a transaction that took place under and contained a choice-of-law provision expressly contemplating the application of New York law. At oral argument, plaintiff suggested that the purportedly significant contacts between the transaction and this state should trump the parties' choice of law in the PSA. This is not the law. See Westchester Fire Insurance Co. v. G. Heileman Brewing Co., 321 Ill. App. 3d 622, 628 (2000) (holding that choice-of-law principles control only in the absence of an effective choice-of-law provision). Indeed, giving effect to a choice-of-law provision only when it is consistent with choice-of-law rules would render such provisions ineffective, since they would apply only when (in this state) the most-significant-relationship test already selected the law of the jurisdiction chosen in the choice-of-law provision. Put ...

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