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Republic Bank of Chicago v. Desmond

United States District Court, N.D. Illinois

August 11, 2014

Republic Bank of Chicago, Plaintiff,
Michael K. Desmond, Trustee, and Melta Trading Company, Inc., Defendants.


RONALD A. GUZMAN, District Judge.

For the reasons stated below, Republic's motion to dismiss the amended counterclaim [33] is denied. The Trustee's motion for interim payment of use and occupancy [24] is granted in the amount of $20, 000.00 per month. The Trustee is directed to draft and provide to Republic's counsel a proposed order within 10 days of the date of entry of this order with the appropriate directions and information for Republic to make the interim payments. The Trustee shall then file a copy of the proposed order with a brief statement indicating whether it has been approved by Republic. If it has not, the statement shall include a description of Republic's objections to the proposed order.


On April 21, 2014, the Court granted the Trustee's motion for summary judgment regarding Republic's adversary complaint seeking a declaration that it, as assignee of the lease at issue ("Lease"), timely and properly exercised the purchase option contained in the Lease and the Trustee should be compelled to specifically perform and convey the property at issue ("Property") to Republic. The Court concluded that the purchase option was not assignable and thus, Republic could not exercise the option. In his amended counterclaim, the Trustee alleges that on October 10, 2012, he sent a letter to Republic Bank pursuant to § 12 of the Lease indicating that he was electing to treat Republic Bank as a holdover tenant on a month-to-month tenancy at double the monthly base rent then paid under the express terms of the Lease, or $52, 190.92. (Am. Counterclaim, Dkt. # 23, ¶ 9.) The amended counterclaim contains three counts: Count I alleges that Republic breached the terms of the Lease by failing to pay the Trustee all amounts due under the Lease as a holdover tenant since October 1, 2012; Count II seeks a judgment in favor of the Trustee for possession of the Property under the Forcible Entry and Detainer Act, 735 Ill. Comp. Stat. 5/9-101, et seq., and damages against Republic for rent as a holdover tenant; and Count III seeks judgment against Republic for statutory damages ( i.e., double yearly rent) for willful holdover under the Illinois holdover statute, 735 Ill. Comp. Stat. 5/9-202. Republic moves to dismiss all three counts.

As to the first count, that Republic has breached the Lease by failing to pay rents due as a holdover tenant, Republic contends that § 12 of the Lease, which governs holdover tenancy, is unenforceable as a penalty. Specifically, § 12 states in relevant part:

If Lessee retains possession of the Premises or any part thereof after the termination of the term by lapse of time or otherwise, then Lessor may at its option within thirty days after termination of the term serve written notice upon Lessee that such holding over constitutes either (a) renewal of this lease for one year, and from year to year thereafter, at double the rental (computed on an annual basis) specified in Section 1, or (b) creation of a month to month tenancy, upon the terms of this lease except at double the monthly rental specified in Section 1, or (c) creation of a tenancy at sufferance, at a rental of 150.00 dollars per day, for the time Lessee remains in possession. If no such written notice is served then a tenancy at sufferance with rental as stated at (c) shall have been created. Lessee shall also pay to Lessor all damages sustained by Lessor resulting from retention of possession by Lessee.

(Am. Counterclaim, Dkt. # 23, Ex. 1, Lease, at § 12.)

In Stride v. 120 W. Madison Bldg. Corp., 477 N.E.2d 1318, 1321 (Ill.App.Ct. 1985), the court noted:

The general rule of contracts that a plaintiff is only entitled to recover damages to the extent of his injury is applicable to cases of breach of a lease. Where damages are difficult to ascertain, the parties may specify a particular sum as liquidated damages. However, if the clause fixing damages is merely to secure performance of the agreement, it will be treated as a penalty and only actual damages proved can be recovered. In doubtful cases, we are inclined to construe the stipulated sum as a penalty.

Id. (internal citations omitted). "The determination of whether a contractual provision for damages is a valid liquidated damages provision or a penalty clause is a question of law" but "each one must be evaluated by its own facts and circumstances." Grossinger Motorcorp, Inc. v. Am. Nat. Bank and Trust Co., 607 N.E.2d 1337, 1345 (Ill.App.Ct. 1992). In construing these provisions, "courts lean toward a construction which excludes the idea of liquidated damages and permits the parties to recover only damages actually sustained." Id. (internal quotation marks and citation omitted). As noted by the Grossinger court:

[C]ourts will generally find a liquidated damages provision to be valid and enforceable in a real estate contract, when: (1) the parties intended to agree in advance to the settlement of damages that might arise from the breach; (2) the amount of liquidated damages was reasonable at the time of contracting, bearing some relation to the damages which might be sustained; and (3) actual damages would be uncertain in amount and difficult to prove.

Id. at 1345-46.

Here, the Court agrees that § 12 is unenforceable as a penalty. First, § 12 of Lease states that in addition to the rent elected by the Lessor, "Lessee shall also pay to Lessor all damages sustained by Lessor resulting from retention of possession by Lessee." This statement indicates that the parties believed that the amount of damages is ascertainable and thus the double rent provision is intended to secure performance and constitutes a penalty. Stride, 477 N.E.2d at 1321 (noting that relevant lease provision "by its express terms, allows the lessor to recover all damages sustained by reason of the Lessee's retention of possession'.... [which] evidences the parties' belief that such damages are ascertainable" and thus the provision for double rent was a penalty). Moreover, the quoted language requiring the lessee to pay all damages sustained by the lessee, in addition to the liquidated damages, "leaves the door wide open to [Lessor] to prove actual damage in addition to the so called liquidated damage. This is no settlement at all and it permits the [Lessor] to have his cake and eat it too." Grossinger, 607 N.E.2d at 1347 (internal quotation marks and citation omitted).

Further, the fact that § 12 allowed the Lessor to choose how it would treat the Lessee and the amount of rent it would charge evidences that the parties did not intend to set a specific amount as damages. Id. at 1346 (finding liquidated damages provision to be a penalty where "[o]n its face, the optional nature of the liquidated damages clause shows that the ...

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