Court of Appeals of Illinois, First District, Third Division
EDWARD J. JOYCE, Not Individually but, Derivatively on Behalf of Neighborhood Rejuvenation Partners, L.P., Plaintiff-Appellant,
FIDELITY REAL ESTATE GROWTH FUND II, L.P., and NEIGHBORHOOD REJUVENATION PARTNERS, L.P., Defendants-Appellees.
Rehearing denied July 23, 2013
Summary judgment was properly entered for defendant lender in an action alleging that defendant breached the parties’ forbearance agreement by filing a deed in lieu of foreclosure, since the record did not support plaintiff’s claims that it cured the default or, in the alternative, that the default was not material.
Appeal from the Circuit Court of Cook County, No. 10-CH-05321; the Hon. Raymond W. Mitchell, Judge, presiding.
Arthur W. Aufmann, of Law Offices of Edward T. Joyce & Associates, P.C., of Chicago, for appellant.
Theresa L. Davis, of Loeb & Loeb LLP, of Chicago, for appellees.
Presiding Justice Neville and Justice Sterba concurred in the judgment and opinion.
¶ 1 While the real estate tumble over the past several years may have doomed many real estate projects and investments, it also caused a mini-boom for lawsuits by disgruntled developers, owners, and investors. This is one of those cases. In 2005, a limited liability company, the owner and developer of a highly touted luxury condominium, borrowed $18 million in exchange for a second loan on the property and a pledge of 100% of its ownership interest. Four years later, the project agreed to a forbearance agreement to stave off foreclosure. But, almost immediately after the forbearance failed, plaintiff, Edward T. Joyce, on behalf of Neighborhood Rejuvenation Partners, L.P. (NRP), sued defendant Fidelity Real Estate Growth Fund II, L.P., claiming that Fidelity breached the forbearance agreement by filing a deed in lieu of foreclosure in the absence of a material default by NRP. Except, the trial court concluded NRP committed a material default, and entered an order granting Fidelity summary judgment. We affirm.
¶ 2 Background
¶ 3 The Columbian, LLC, a Delaware limited liability company, owned and developed a luxury condominium building at 1160 S. Michigan Avenue in Chicago's South Loop neighborhood. The Columbian was wholly owned by NRP, a Delaware limited partnership. The general partner of NRP, Allison Davis, managed the Columbian project. In September 2005, the Columbian obtained a $92 million loan from Corus Bank in exchange for a first mortgage lien on the Columbian property. The Columbian also executed a loan agreement with Fidelity Real Estate Growth Fund II, L.P., for $18 million in exchange for a second lien on the property and a pledge of a 100% ownership interest in the Columbian. Davis, individually and on behalf of Neighborhood Rejuvenation Partners, L.P., signed a guaranty and noncompetition agreement with Fidelity.
¶ 4 In March 2009, the Columbian defaulted on both the Corus Bank loan and the Fidelity loan. The Corus Bank loan was fully paid off in May 2009. Fidelity wrote Columbian's managers and the loan's guarantors notifying them of the default, as well as reserving Fidelity's rights and remedies, and offering to negotiate a forbearance agreement. On March 10, 2009, the parties signed an interim letter agreement stating their mutual interest in negotiating a forbearance agreement. After four months of negotiations, on July 9, 2009, the Columbian, NRP, and Davis, individually and on behalf of the Columbian and NRP (collectively borrowers), entered into a forbearance agreement with Fidelity. Under the terms of the forbearance agreement, which stated Massachusetts law governed, the borrowers acknowledged that existing defaults had occurred and were continuing, and that they had no disputes, defenses, or counterclaims with respect to the defaults. The borrowers also acknowledged Fidelity had the right to immediately enforce its security interest in the property and any other collateral.
¶ 5 To induce Fidelity to forgo exercising its rights and remedies, the borrowers agreed to use their best efforts to repay the loan in full by selling any unsold condominium units before the expiration of the forbearance period on September 30, 2012. To ensure the borrowers would make progress in selling condominium units to repay the loan, the borrowers had to achieve "aggregate sales goals" every three months, as set forth in schedule II of the forbearance agreement. The aggregate sales goal for December 31, 2009, was $5 million. Schedule II stated that "the sales goals are measured by the gross sales price of Units."
¶ 6 The forbearance agreement provided that the borrowers would be in default if they "fail[ed] to achieve any of the Aggregate Sales Goals as and when specified in Schedule II, " if "such failure continue[d] for thirty (30) days after the time specified for the applicable Aggregate Sales Goal." The agreement further provided that, "Upon the occurrence of any Forbearance Default, Lender may by notice to Borrower, immediately terminate the Forbearance Period and/or declare all of the Obligations immediately due and payable. In the event that all outstanding Obligations shall not be paid in full promptly upon the expiration or termination of the Forbearance Period, Lender shall be entitled to exercise all of its rights and remedies hereunder, under the other Forbearance Documents, under the ...