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Elliot v. Mission Trust Services, LLC

United States District Court, N.D. Illinois, Eastern Division

May 18, 2015

SCOTT A. ELLIOT, et al., Plaintiffs/Counter-Defendants,
v.
MISSION TRUST SERVICES, LLC, CHRISTOPHER C. FINLAY, THE CORPORATION TRUST COMPANY, and MICHAEL T. HOSMER, Defendants/Counter-Plaintiffs

For Scott A. Elliott, Ming-Hang Ho, The Roxana H. Cupples Revocable Inter Vivos Trust, Plaintiffs, Counter Defendants: Mark Emil Leipold, LEAD ATTORNEY, Karin Therese O'Connell, Gould & Ratner, Chicago, IL; Jordan Michael Hanson, Gould & Ratner LLP, Chicago, IL.

For Mission Trust Services, LLC, Signatory Trustee, Christopher C. Finlay, in his capacity as Manager of Mission Trust Services, LLC, Defendants: Douglas R. Kay, LEAD ATTORNEY, Offit Kurman PC, Tysons Corner, VA; William G. Tishkoff, LEAD ATTORNEY, Tishkoff & Associates PLLC, Ann Arbor, MI; James Dominick Adducci, Marshall Lee Blankenship, Adducci, Dorf, Lehner, Mitchell & Blankenship, P.C., Chicago, IL; Michael R. Wolin, Sarah L. Wixson, PRO HAC VICE, Tishkoff & Associates PLLC, Ann Arbor, MI.

For The Corporation Trust Company, As Delaware Trustee, Defendant: Douglas R. Kay, LEAD ATTORNEY, Offit Kurman PC, Tysons Corner, VA; Courtney R. Baron, Kenneth Steven Ulrich, Goldberg Kohn Ltd., Chicago, IL.

For Mission Trust Services, LLC, Signatory Trustee, Counter Claimant: Douglas R. Kay, LEAD ATTORNEY, Offit Kurman PC, Tysons Corner, VA; William G. Tishkoff, LEAD ATTORNEY, Tishkoff & Associates PLLC, Ann Arbor, MI; James Dominick Adducci, Marshall Lee Blankenship, Adducci, Dorf, Lehner, Mitchell & Blankenship, P.C., Chicago, IL; Michael R. Wolin, Sarah L. Wixson, PRO HAC VICE, Tishkoff & Associates PLLC, Ann Arbor, MI.

MEMORANDUM OPINION AND ORDER

Jeffrey Cole, UNITED STATES MAGISTRATE JUDGE.

The Mission Trust Investors, now the counter-defendants in this case, have filed a motion for leave to amend the pleadings by filing instanter their answer and affirmative defenses to the Mission Trustees' counterclaim. [Dkt. #195]. While that filing is late -- it was due no later than December 30, 2014 -- given the backdrop of the case, sound discretion -- and an exercise of discretion is what is involved, Pioneer Inv. Servs. Co.v. Brunswick Associates Ltd. P'ship, 507 U.S. 380, 383, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993) -- warrants a finding that their motion be granted and they be allowed to file their answer instanter.[1]

The course this case has taken thus far has been discussed at length in my order of March 11, 2015 [Dkt. # 190] and, to a lesser extent, in my order of April 7, 2015, in Case No. 14-9625. [Dkt. # 49]. See Elliot v. Mission Trust Services, LLC, 82 F.Supp.3d 829, 2015 WL 1138265 (N.D.Ill. 2015); Elliot v. Mission Trust Services, LLC, 2015 WL 1567901 (N.D.Ill. 2015). The Mission Trustees never objected to the March 11 Order, and so they cannot be heard to quarrel with the accuracy of that account of their actions. And those actions form at least part of the basis for the resolution of the instant motion.

This case began as a simple one. The Investors filed a one-count declaratory judgment/injunction action in the Eastern District of Virginia seeking to force the Trustees to comply with the terms of the trust agreement. That agreement covered a North Carolina investment property that was teetering on the edge of foreclosure after defaulting on a $19 million loan. Under the agreement, if the trust defaulted or were in danger of defaulting on the loan, the Trustees were obliged to convert the trust to a Delaware limited liability company. The form of the converted enterprise was set forth in an exhibit to the agreement. [Dkt. #126, at 2-3].

With the loan in imminent danger of default, the Trustees sent the Investors a capital call seeking additional funds and indicating that they wanted to convert the trust into a different form of limited liability company that was not in conformity with the agreement. When the Trustees refused to follow the terms of the agreement, the Investors filed suit. Shortly thereafter, they filed a motion for summary judgment. The issues were cut and dried; Judge Norgle granted their motion and entered judgment on September 20, 2014. [Dkt. #126, at 2-3].

The flies in the ointment were the Trustees. While the Investors' motion for summary judgment was pending, they allowed the property to go into foreclosure and cancelled the trust agreement. They didn't bother to inform Judge Norgle of this, however, despite that fact that it happened about seven months before he ruled. Instead, they filed a counterclaim, and, once Judge Norgle ruled, a motion for " reconsideration." That motion revealed for the first time what they had done regarding the Trust. In the wake of that filing, the Investors filed a motion to dismiss the counterclaim given the fact that, with the trust cancelled, the trustee had no standing to pursue those claims. [Dkt. #134]. With the trust cancelled and the investors' claims thus rendered moot, Judge Norgle had no choice but to grant the Trustees' " motion for reconsideration." He also apparently denied the Investors' motion to dismiss the the Trustees' counterclaim based on lack of standing because he stated that the counterclaim remained before the court. [Dkt. #145].

In essence, those counterclaims take the Investors' to task for taking steps to protect their investment. When the Trustees sent out the capital call, it notified the Investors that their investment was in jeopardy. Unless the trust were converted to the limited liability company set forth in the agreement, no further funds could be funneled into it. [Dkt. #1, ¶ 13]. And so, the Investors demanded that the Trustees follow the terms of the agreement and convert the trust accordingly. [Dkt. #55, ¶ 14]. But the Trustees had other ideas, as already noted, and wanted to convert the trust into a different form of limited liability company. Under the trust agreement, under the terms of the new limited liability company, the Investors could remove the manager of the trust upon a 75% vote. Under the terms the Trustees proposed, the manager could only be removed upon a final adjudication of gross negligence, willful misconduct, or fraud. [Dkt. # 1, ¶ 28].

The Trustees also conditioned conversion of the trust upon complete releases of liability from the Investors. [Dkt. # 1, ¶ 28]. After what the Investors deemed mismanagement of the investment property, see [Dkt. #1, ¶ 27 (beneficiaries of the trust who visited the property after the capital call " document deterioration, significant deferred maintenance, and safety concerns, including the following: an unsightly dump site visible from the main road of the premises which included old mattresses, derelict furniture, and refuse; stagnant detention ponds filled and covered with algae due to broken aeration pumps; facade work, including wood rot and peeling paint; needed roof and gutter repairs; dead trees; visible mold; and exposed electrical wiring. . . ." )], the Investors were understandably reluctant to give the manager even more unchecked power along with more of their funds.

One of the provisions of the trust agreement allowed the lender to demand the conversion of the trust to the form of limited liability company specified under the agreement. [Dkt. #1, ¶ 32; Dkt. # 55, ¶ 15]. And so, with the Trustees being recalcitrant (and time, no doubt, of the essence) the Investors, through their attorney, contacted the lender by letter and requested it to take action. [Dkt. # 55, ¶ 15]. About a month after that, on August 21, 2013, the Investors filed their declaratory judgment/injunction suit against the Trustees. A second letter in October 2013 informed the lender that the Investors needed the lender's cooperation in order to convert the trust and infuse it with new capital. [Dkt. # 55, ¶ 16].

The Trustees' claim that these letters included many misrepresentations as to the conduct of the Trustees with regard to the property. [Dkt. # 55, ¶ 17]. Those misrepresentations, according to the Trustees, were that the property had been run into the ground, that vendors' accounts were seriously in arrears, and that the master tenant and the trust property were in default. [Dkt. # 55, ¶ ¶ 17, 34-36]. Other than that, for the most part, the documents do little more than indicate that over 75% of the Investors demand the conversion the Trustees were obligated to make under the terms of the trust agreement. The point is also made that the Trustees' ...


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