Appeal from the Circuit Court of Cook County No. 12 CH 10805 Honorable Peter A. Flynn Judge Presiding.
The opinion of the court was delivered by: Justice Connors
JUSTICE CONNORS delivered the judgment of the court, with opinion. Justices Quinn and Simon concurred in the judgment and opinion.
¶ 1 Plaintiff Five Mile Capital Westin North Shore SPE, LLC, brought this action seeking, among other things, an injunction against the sale of a multimillion dollar property. The circuit court denied Five Mile's request for a preliminary injunction, and we affirm.
¶ 2 This is a simple case about an investment gone wrong. The Westin North Shore is a hotel located in Wheeling, Illinois, and it is the collateral for an $86 million loan taken out in 2007 by the owner of the building. JPMorgan Chase Bank, N.A., provided the funds for the loan and received a mortgage on the property to secure the note. Shortly after making the loan, however, JPMorgan Chase decided to sell off partial interests in the note to other investors. The plan called for three levels of investment (or "participation," as the formal documents termed it), each with differing amounts of risk. The "Senior A Participant" was the highest level and received the most protection for its investment but the smallest rate of return, and below that was the "Junior B Participant," who received slightly less protection but a better return than the A participant. The lowest level was the "Junior C Participant." This was the riskiest of the three levels, but it also received the highest rate of return out of the three levels. In this case, the Senior A position is held by defendant U.S. Bank National Association as a trustee for other investors who are not involved in this case, and the Junior B position is held by defendant Inland American Wheeling Investment, LLC. Plaintiff holds the Junior C interest, for which it originally paid $24 million.
¶ 3 The trouble started when the property owner defaulted on the loan, apparently sometime in 2010. This was not an unexpected contingency, however, and in this situation the relevant legal documents called for the appointment of a special servicer who would handle the loan servicing and any necessary foreclosure proceedings for the mortgage. The special servicer here is defendant Berkadia Commercial Mortgage, LLC. Although contractually vested with significant powers over the administration of the loan and the foreclosure, Berkadia has no investment interest in the loan itself. Berkadia initiated foreclosure proceedings in May 2010, and the circuit court entered a judgment of foreclosure and sale in mid-2011. Berkadia then took title to the property at the foreclosure sale on a credit bid.
¶ 4 Under the contract governing the investment (called the "participation agreement"),
Berkadia's administration of the mortgage loan, and consequently its decisions regarding the disposition of the property, is subject to several major limitations. First, Berkadia is authorized to take the property at the foreclosure sale solely for the purpose of promptly selling it off and paying out the proceeds to the various participants. The exact amount that each would receive depends on their relative precedence and the amount that the property sells for, but under ideal circumstances each would recoup their original investment plus a portion of the profit from any sale. Second, the agreement contains a "servicing standard," which requires Berkadia to take the best interests of the participants into account in any of its servicing activities, including the disposition of the property. Finally, the agreement grants one of the three participants the status of "controlling participant," which among other things essentially grants that participant the power to veto any of Berkadia's decisions that might adversely affect the investments of the participants. Which of the participants is the controlling participant at the time depends on a complex mechanism that is set forth in detail in the agreement, but the simplest answer is that the identity of the controlling participant depends on the appraised value of the property at a particular point in time.
¶ 5 After the foreclosure sale, Berkadia set about having the property appraised and finding potential buyers, but it quickly found a serious problem. Although the property had been valued at about $110 million in 2007, the value of the property plummeted in the years since the loan was made. Berkadia's appraisers estimated that, as of February 2012, the property was only worth somewhere between $55 million and $61 million. Berkadia received a few bids and managed to find a potential buyer, but the ready buyer offered to purchase the property for only $56.5 million.
¶ 6 This purchase price represented a severe blow to the investors, but it was the worst-case scenario for plaintiff. Recall that plaintiff is the most junior of the three investors and in the riskiest position, meaning that under the participation agreement the interests of the A and B investors must be satisfied before plaintiff, the C investor, can receive anything. At this price, plaintiff's entire $26 million investment would be wiped out, and even Inland (the B investor) would lose about $4 million. Even though the servicing standard required Berkadia to act prudently and to take the best interests of the participants into account in arranging any sale of the property, Berkadia's analysis of the appraisals and current state of the markets led it to believe that the value of the property would not significantly improve by waiting to sell. In fact, Berkadia felt that it might not be able to find any future buyers for the property, thus raising the possibility that none of the participants would receive any return on their investment at all. Berkadia decided that it was in the best interests of the A and B investors to sell the property now to a ready buyer rather than to pass on the opportunity in the off chance that both the property would increase in value and another ready buyer would be found at some future date.
¶ 7 Plaintiff was not happy with Berkadia's proposed course of action. In plaintiff's opinion (backed up by its own analysis and appraisals), the property should actually be valued at about $70 million as of February 2012, and was likely to increase in value over the next few years to about $76 million by 2014. Plaintiff argued that the investors should wait until the property increased in value before selling, or at the very least should not sell to the proposed buyer for only $56 million. Based on plaintiff's analysis, Berkadia was trying to sell the property for at least $15 million less than it should have.
¶ 8 The problem for plaintiff was that it had no say in the process because Inland, not plaintiff, was the controlling participant at the relevant time, at least according to both Inland and Berkadia. Although Inland would likely lose about $4 million in the deal, it agreed with Berkadia's analysis of the situation and decided that it would prefer to minimize its losses on the investment and sell to the ready buyer rather than take the risk of losing more of its investment by waiting for an increase in the property's value that might never happen. Without the status of controlling participant, plaintiff could not prevent Berkadia from going forward with the sale.
¶ 9 And so plaintiff filed this lawsuit, along with a lis pendens against the property. In its complaint, plaintiff contended first it, not Inland, is actually the controlling participant, and that it was therefore entitled to direct the disposition and sale of the property. Plaintiff also contended that Berkadia's conduct in the appraisal and sale process violated the servicing standard because it failed to properly take plaintiff's best interests into account. Plaintiff sought damages as well as injunctions stopping the sale and reinstating plaintiff as controlling participant. Defendants moved to dismiss the complaint pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)), as well as to lift the lis pendens and for permission to proceed with the sale. After extensive briefing and a hearing, the circuit court entered the order that is the subject of this appeal. After carefully considering the nature of the parties' dispute, the circuit court denied the defendants' motion to dismiss the complaint outright and denied the motion to lift the lis pendens and authorize the sale, but it did quash the lis pendens. The circuit court also treated plaintiff's arguments at the motion hearing as an oral motion for a preliminary injunction against the sale, which it then denied. The circuit court then struck plaintiff's prayers for injunctive relief from the complaint.
¶ 10 Plaintiff has now appealed two aspects of the circuit court's decision: the denial of the preliminary injunction and the quashing of the lis pendens. Before reaching the merits, however, we must first consider our own jurisdiction over these issues. See Clemons v. Mechanical Devices Co., 202 Ill. 2d 344, 349 (2002). Plaintiff has appealed under Illinois Supreme Court Rule 307(a)(1) (eff. Feb. 26, 2010), which allows for appeals by right of interlocutory orders "granting, modifying, refusing, dissolving, or refusing to dissolve or modify an injunction." The portion of the circuit court's order denying the motion for a preliminary injunction is therefore properly before us, but the harder question is our jurisdiction over the lis pendens issue. A lis pendens is not an injunction (see First Midwest v. Pogge, 293 Ill. App. 3d 359, 363 (1997)), so we cannot see how an order quashing a lis ...