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Lakeview Collection, Inc. v. Bank of America, N.A.

United States District Court, N.D. Illinois

April 29, 2013

Lakeview Collection Inc., Plaintiff,
v.
Bank of America, N.A., Defendant

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[Copyrighted Material Omitted]

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For Lakeview Collection, LLC, Plaintiff: Steven Joseph Roeder, LEAD ATTORNEY, Jordan Douglas Shea, Williams Montgomery & John Ltd., Chicago, IL.

For Bank of America, National Association, Defendant: Lawrence Mitchell Benjamin, LEAD ATTORNEY, Eric Y. Choi, John Joseph Scharkey, III, Neal, Gerber & Eisenberg, Chicago, IL.

OPINION

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Memorandum Opinion and Order

Thomas M. Durkin, United States District Judge.

Plaintiff Lakeview Collection Inc. (" Lakeview" ) and defendant Bank of America, N.A. (" Bank" ),[1] executed three separate agreements related to a real estate development project. Lakeview purchased property from the Bank intending to redevelop it into a mixed-use complex where the Bank would then operate a bank branch. This sale was memorialized as the Purchase Agreement. Contemporaneously with this purchase, the Bank agreed to lease the property back from Lakeview until development began, continuing to operate bank facilities at that location. The leaseback agreement was memorialized as the Existing Space Lease Agreement. And finally, in connection with the two aforementioned agreements, the Bank agreed that upon termination of the Existing Space Lease, it would continue to lease one of the parcels of property on which it intended to operate its drive-through facility until it could take possession of lease space in the newly developed complex. This agreement was memorialized as the Temporary Space Lease Agreement. For some time thereafter, the Bank operated its banking facilities on the property and paid the carrying costs of that property or " rent" to Lakeview pursuant to the Existing Space Lease. Lakeview meanwhile pursued redevelopment and pre-construction activities. Lakeview did not begin construction on the property because of difficult credit markets, and the Bank subsequently vacated that property and eventually stopped paying rent.

Lakeview filed suit against the Bank in the Circuit Court of Cook County, Illinois. The Bank removed the case to federal court pursuant to 28 U.S.C. § § 1332(a), 1441(a). R. 1. Lakeview alleges three counts in the governing complaint. R. 62. Count I seeks a declaratory judgment that the Existing Space Lease has not terminated and that the Bank remains liable for rent and real estate taxes. Count II, pled in the alternative to Count I, alleges a breach of contract based on the Bank's failure to pay rent due under the Temporary Space Lease. Count III alleges that the Bank breached the Existing Space Lease by failing to pay rent, thereby causing Lakeview to default on its mortgage with its lender. The Bank now moves for partial summary judgment on counts I and III of Lakeview's amended complaint. R. 237, 256. Also before the Court are: (1) the Bank's Motion to Strike Lakeview's Supplemental Answer to Interrogatory No. 6 and Statements of Facts Based on Those Facts, R. 282; (2) the Bank's motion regarding the recent sale of the property to Target, R. 297; (3) Lakeview's motion for leave to take a Rule 30(b)(6) deposition of the Bank regarding its commercial lending practices, R. 304; and (4) Lakeview's motion to take limited discovery regarding witnesses recently identified in the Bank's

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untimely witness disclosures, R. 306. For the reasons below, the Bank's motions to strike and for partial summary judgment are denied. The remaining motions are also denied.

Background

The facts and evidence set forth below are construed as favorably to Lakeview as the record and Local Rule 56.1 require. See Hanners v. Trent, 674 F.3d 683, 691 (7th Cir. 2012). In considering the Bank's summary judgment motions, the Court gives Lakeview the " benefit of conflicts in the admissible evidence and favorable inferences from that evidence" but does not vouch for them. Smith v. Bray, 681 F.3d 888, 892 (7th Cir. 2012).

A. Negotiation

In 2005, LaSalle Bank, N.A. (" LaSalle" ) owned property at 3201 North Ashland Avenue (the " Main Parcel" ) and at 3301 North Ashland Avenue (the " Drive-Up Parcel" ), both located in Chicago, Illinois. R. 273, Pl. Statement of Additional Facts (" PSAF" ) ¶ 1. LaSalle operated a branch bank on the Main Parcel and a drive-through ATM facility on the Drive-Up Parcel. PSAF ¶ 1; R. 241, Def. Statement of Facts (" DSOF" ) ¶ ¶ 6, 7. LaSalle also had an option to purchase another property located at 3225 North Ashland Avenue in Chicago, Illinois (the " Option Parcel" ). PSAF ¶ 1. Other tenants occupied the building space at the Option Parcel. DSOF ¶ 7.

LaSalle wanted to sell the Main Parcel and the Drive-Up Parcel before the end of 2005. PSAF ¶ 2. To achieve this goal, LaSalle negotiated with Lakeview on a deal where Lakeview would purchase the properties from LaSalle and redevelop them. DSOF ¶ ¶ 8, 14. Lakeview then intended to demolish the buildings on the Main and Option Parcels, construct new buildings, and redevelop the properties into a " mixed-use complex" (" Complex" ), consisting of retail facilities, underground parking, and a residential condominium building on top of the retail facilities. DSOF ¶ 14. Also included in the new Complex would be a new branch bank for LaSalle. DSOF ¶ 15. While construction and development was occurring on the Main Parcel to develop it into the Complex, LaSalle anticipated that its branch currently on the Main Parcel would be relocated to a temporary location until development and construction was complete, at which time LaSalle would then occupy a space in the new Complex. DSOF ¶ 15. Although LaSalle wished to close the deal by the end of 2005 to show a " substantial profit on its 2005 results," that was sooner than Lakeview could begin development. PSAF ¶ 5. To accommodate LaSalle's desire to close by the end of 2005, Lakeview agreed to purchase the property " early." PSAF ¶ 5. As part of this agreement, LaSalle would pay the " carry costs" of these parcels, in the form of rent, while Lakeview completed the process necessary to begin demolition and construction. PSAF ¶ ¶ 9, 12.

B. Agreements

On December 29, 2005, LaSalle and Lakeview executed three separate agreements regarding the sale of the property: (1) the Purchase Agreement; (2) the Existing Space Lease Agreement; and (3) the Temporary Space Lease Agreement. R. 242-2, Exh. 2, Purchase Agreement; R. 242-8, Exh. 6, Existing Space Lease Agreement; R. 242-8, Exh. 7, Temporary Space Lease Agreement. At the time these agreements were executed, there was a " rather robust market of development activity." PSAF ¶ 18.

1. Purchase Agreement

The Purchase Agreement governed the sale of the property, providing that Lakeview would purchase the Drive-Up Parcel

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from LaSalle for $5,455,000; the Option Parcel for $1,375,000; and the Main Parcel for $13,273,000. R. 242-2 at 2. The purchase price of the three properties plus closing costs totaled $20,250,750. DSOF ¶ 8. The Rider to the Purchase Agreement made the sale contingent on the entry of the Existing Space Lease Agreement, the Temporary Space Lease Agreement, and a Branch Lease for space in the newly constructed Complex. R. 242-2 at 4-6, Purchase Agreement § R-3(a)-(c). It further memorialized Lakeview's plan to redevelop the properties into a mixed-use complex.

Under section 9(c) of the Rider:

Upon Closing, Purchaser shall endeavor to obtain zoning and access approvals from applicable governmental authorities (" Approvals" ), prepare the Final Redevelopment Plans, and commence and complete construction of the Complex, in accordance with the time-line agreed to by the parties set forth below (" Redevelopment Time-Line" ), subject in the case of each deadline (except for the " Outside Date" hereinafter defined), to Force Majeure. For purposes hereof, " Force Majeure" shall mean any failure to comply or delay in complying with any obligations under this Agreement if such failure or delay is due to acts of God, the acts of Seller, the Option Parcel owner or their respective affiliates, strikes or other labor disturbances, lockouts, the reasonably unforeseeable inability to obtain materials, future governmental restrictions, reasonably unforeseen interpretations of existing governmental restrictions, delays in receiving permits not due to the actions of Purchaser, enemy actions, civil commotion, fire, unavoidable casualty, adverse weather conditions or other similar causes beyond Purchaser's reasonable control and not reasonably foreseeable, but not including delays caused by lack of funds.

R. 242-2 at 11, § R-9(c). The redevelopment timeline also provided, among other things, that Lakeview would: (1) " diligently pursue" all zoning approval relating to the Complex and receive those approvals by October 1, 2006; (2) " diligently proceed" with demolition of the existing structures on the Main and Option Parcels and to complete that demolition no later than February 28, 2007; (3) " diligently pursue" all building permits relating to the construction of the Complex and endeavor to receive such building permits by April 2, 2007; and (4) commence construction of the improvements and site work for the Complex no later than 20 business days after receipt of the building permits. DSOF ¶ 25; R. 242-2 at 11, § R-9(a), (c)(i), (iii)-(v).

Section 9(d) of the Rider then sets out deadlines for obtaining building permits, construction contracts, and zoning amendments and dates by which Lakeview was to have completed demolition and commenced construction of the Complex:

No later than Monday, June 30, 2008 (" Outside Date" ), Purchaser shall have (i) obtained all Building Permits required for the construction of the Complex; (ii) obtained all amendments, special use permits, variances, approvals or other changes to the zoning and/or other use ordinances and restrictions affecting the Complex, (iii) obtained signed construction contracts in connection with the construction of the Complex, (iv) completed the demolition of existing structures on the Main Parcel and the Option Parcel and site clearing, and (v) commenced substantial construction of the Complex (" Outside Date Requirements" ). A failure to comply with all of the Outside Date Requirements shall constitute a " Material Delay" and thereupon Seller may elect to terminate the Temporary Space Lease and the Branch Lease without any further obligations

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thereunder by providing written notice to Purchaser (" Lease Termination Option Notice" ) delivered no later than August 1, 2008. Seller shall vacate and surrender the premises within a time period mutually agreed to by the parties . . . . The foregoing remedy shall be Seller's exclusive remedy applicable to the failure of Purchaser to satisfy the Outside Date, the parties acknowledging and agreeing that in no event shall Seller be entitled to recover any monetary damages from Purchaser or enforce any other remedies. With regard to the Outside Date, Seller and Purchaser expressly agree and acknowledge that Time is of the Essence and shall not be subject to delays by Force Majeure or any other events except for delays related to the Option Parcel Third Party Leases.

R. 242-2 at 12, § R-9(d).

To finance the purchase, Lakeview obtained an Acquisition Loan of $17 million; $15,250,750 of that $17 million was initially drawn and used to buy the property, and the remaining balance of $1,750,000 was reserved for pre-development expenses. DSOF ¶ 9. Lakeview contributed $5 million to purchase the property and financed the remainder of the balance through two promissory notes secured by a mortgage, an assignment of rent, and additional security given to LaSalle and Wachovia Bank, N.A. DSOF ¶ ¶ 9, 67; PSAF ¶ 6. Under the Notes, LaSalle and Wachovia each agreed to lend Lakeview up to $8,500,000. PSAF ¶ 6; see also DSOF ¶ 67. Lakeview's principals Arthur Slaven, Sol Barket, and John McLinden personally guaranteed all of Lakeview's obligations to the lenders. PSAF ¶ 6. LaSalle would later sell its 50% interest in the Lakeview Promissory Note to Wachovia, which then eventually became Wells Fargo. DSOF ¶ 67; PSAF ¶ 24. The initial maturity date of the Acquisition Loan was June 29, 2007. DSOF ¶ 12. LaSalle profited from the sale " somewhere between five and ten million" dollars. PSAF ¶ 7.

2. Existing Space Lease Agreement

Under the terms of the Existing Space Lease Agreement, Lakeview and LaSalle agreed that LaSalle would lease the Main Parcel and the Drive-Up Parcel from Lakeview for an annual rent of $1,457,467.50, payable in monthly installments. DSOF ¶ 18. This Lease included the following recitals:

Whereas, the parties entered into a [Purchase Agreement] and Rider of even date herewith (" Sales Contract" ) for the sale and purchase of certain real estate including certain parcels located at 3201 North Ashland Avenue (" Main Parcel" ); 3301 North Ashland Avenue (" Drive- Up Parcel" ); and 3225 North Ashland Avenue (" Option Parcel" ) in Chicago, Illinois;
Whereas, the Landlord intends to redevelop the Main Parcel and the Option Parcel in accordance with the terms of the [Purchase] Agreement and as mutually agreed to by the parties;
Whereas, after the closing of the transaction contemplated in the [Purchase] Agreement (the " Closing" ), Tenant intends to continue its business operations at the Main Parcel until such time as Tenant has constructed a temporary, alternate site for its business operations on the Drive-Up Parcel and/or on an alternate site and Tenant has moved its Main Parcel operations to the Drive-Up Parcel and/or alternate site;
Whereas, contemporaneously herewith, the parties entered into a Temporary Space Lease Agreement dated of even date herewith, for the Drive-Up Parcel (" Temporary Space Lease" ); and
Whereas, the parties desire that the Landlord lease to Tenant the Premises, as hereinafter defined, subject to the terms and conditions of this Lease.

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R. 242-8 at 4, Exh. 6, Existing Space Lease Agreement Recitals. Section 2, which governs the lease term, provides:

2. Lease Term. The term of this Lease (" Term" ) shall commence on the Closing . . . and shall terminate on the date that is the later of (i) August 31, 2006, or (ii) one hundred and twenty days (120) after Landlord provides written notice to Tenant that Landlord intends to demolish the structures on the Main Parcel and commence construction at the Main Parcel, in any event subject to the terms of Section 3(b) below.

R. 242-8 at 4, § 2. Section 3 is titled " Rent" and section 3(b) in turn provides:

Notwithstanding the foregoing, in the event that and for so long as (x) the tenants under the third party leases on the Option Parcel . . . remain in possession after the Expiration Date, or (y) Tenant has not relocated its business operations to a temporary branch space, then this Lease shall remain in full force and effect . . . until (aa) the date that the last [third party tenants] vacate[ ] the Option Parcel . . .; and (bb) the date that Tenant relocates its business operations to a temporary branch space and surrenders possession of the Main Parcel . . . . The provisions of this Paragraph shall survive the termination of this Lease.

R. 242-8 at 5, § 3(b). Other relevant provisions in the Existing Space Lease Agreement include sections 9 and 13, which provide respectively: " At the end of the Term, Tenant shall deliver the Main Parcel to Landlord in an 'as is' condition" ; and " In [the event of condemnation], the Temporary Space Lease shall go into effect." R. 242-8 at 7, § § 9, 13.

3. Temporary Space Lease Agreement

The Temporary Space Lease Agreement provided that LaSalle would lease the Drive-Up Parcel from Lakeview for an annual rent of $395,487.50, payable in monthly installments. DSOF ¶ 21.

Whereas, Landlord intends to redevelop the Property pursuant to the time-line and other terms and conditions contained in the [Purchase] Agreement[.]
Whereas, Tenant intends to operate a bank branch in the new development referred to herein as the " Complex" in accordance with the terms of the [Purchase] Agreement, and intends to enter into a " Branch Lease" for certain premises in the Complex described in the [Purchase] Agreement (" Replacement Bank Branch" ).
Whereas, during the Construction of the Complex, the parties desire that the Landlord lease to Tenant the Drive-Up Parcel to allow Tenant to continue its operations until Tenant takes possession of the new leased space in the Complex[.]

R. 242-8 at 19, Exh. 7, Temporary Space Lease Agreement Recitals. Section 2 governs the term of the lease and provided in part:

The term of this Lease (" Term" ) shall commence on the date of termination of the lease between Landlord and Tenant executed on the date hereof (the " Existing Space Lease" ), which Existing Space Lease includes the Premises as part of the leased premises thereof (" Commencement Date" ) and shall terminate on the date the earlier to occur of (i) one hundred eighty (180) days after notice from Landlord to Tenant delivering possession of the Replacement Bank Branch (as defined in the Recitals), or (ii) the date Tenant commences business operations at the Replacement Bank Branch (" Expiration Date" ).

R. 242-8 at 19, § 2.

The parties thus contemplated that following the termination of the Existing Space Lease, LaSalle would continue to

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occupy the Drive-Up Parcel and pay rent pursuant to the Temporary Space Lease, and LaSalle would use the Drive-Up Parcel during the construction of the new development on the Main and Option Parcel. DSOF ¶ 20.

C. Events Leading up to the Bank's Vacating of the Property

For some time thereafter, LaSalle continued to operate banking facilities on the Main Parcel and Drive-Up Parcel and paid " rent" to Lakeview pursuant to the Existing Space Lease. Meanwhile, Lakeview pursued completion of demolition and construction. On December 20, 2006, LaSalle entered into an agreement to lease property located at 3111 North Ashland Avenue, intending to use the location as a temporary branch location pending construction of the Complex. DSOF ¶ 28. As part of the redevelopment of the property, on June 15, 2007, Lakeview took steps to clear out the building on the Main Parcel by terminating the leases of two of the existing tenants occupying the building, informing them that construction would begin in the summer of 2007. DSOF ¶ 30.

A few months later, on September 28, 2007, Lakeview and LaSalle executed an agreement--memorialized as the Retail Branch Bank Lease--where LaSalle agreed to lease space from Lakeview in the Complex. DSOF ¶ 34. The Retail Bank Branch Lease provided a preliminary development schedule that contemplated that demolition would commence on January 30, 2008 and be completed by February 19, 2008. DSOF ¶ 35. Such a schedule was realistic at the time of the formation of the Retail Branch Bank Lease. DSOF ¶ 36. In December, LaSalle obtained a building permit to construct the temporary bank branch at 3111 North Ashland Avenue. DSOF ¶ 37.

Unfortunately, by the late fall of 2007, the market for condominiums had " stopped" ; indeed, financing sources for condominium projects " became difficult, if not impossible" towards the end of 2007. DSOF ¶ 40; PSAF ¶ ¶ 19, 20. As a result, Lakeview was forced to adjust its development plan, ultimately deciding to turn the condominium component of the project into apartment housing because that would be the optimum use of the property given the shaky market. DSOF ¶ ¶ 40, 41; PSAF ¶ 20. The change in the redevelopment plan from condominiums to apartment housing delayed the commencement of construction because it required modification of the architectural plans, thereby delaying the issuance of building permits. DSOF ¶ 44. When Lakeview informed LaSalle of its change in plans, LaSalle was not surprised given the downturn in the economy. PSAF ¶ 21.

In February 2008, Lakeview sent a letter to LaSalle, informing LaSalle that it was moving forward with the development of the Complex. R. 242-14, Exh. 20, Letter dated Feb. 29, 2008. In the letter, Lakeview noted that it did not expect to begin demolition until the fall of 2008 and proposed moving the June 30, 2008 Outside Dates in the Branch Bank Lease and Temporary Space Lease to March 30, 2009. Id. By April 2008, the construction start date had been delayed until October 2008, but Lakeview still felt " reasonably confident" that development would ...


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