Court of Appeals of Illinois, First District, Sixth Division
TERRA FOUNDATION FOR AMERICAN ART and TERRA MICHIGAN AVENUE PROPERTY, LLC, Plaintiffs-Appellants,
DLA PIPER LLP (US), Defendant-Appellee.
from the Circuit Court of Cook County, No. 15-L-001866; the
Hon. Sanjay T. Tailor, Judge, presiding.
Chapman Spingola, LLP, of Chicago (Robert A. Chapman and
Shannon T. Knight, of counsel), for appellants.
Shelist, P.C., of Chicago (Martin J. O'Hara and Shawn M.
Staples, of counsel), for appellee.
PRESIDING JUSTICE ROCHFORD delivered the judgment of the
court, with opinion. Justices Hoffman and Delort concurred in
the judgment and opinion.
ROCHFORD PRESIDING JUSTICE
1 Plaintiffs-appellants, Terra Foundation for American Art, a
not-for-profit organization, and Terra Michigan Avenue
Property, LLC (collectively referred to as Terra), brought
this action alleging malpractice against defendant-appellee,
DLA Piper LLP (US) (DLA), a law firm, which Terra had
retained in connection with the sale of real estate. The
circuit court dismissed Terra's complaint finding that it
was barred as a matter of law by the applicable statute of
repose. 735 ILCS 5/13-214.3(c) (West 2014). We affirm the
dismissal of Terra's action.
2 I. BACKGROUND
3 In 2005, Terra agreed to sell three pieces of property
located at 664, 666, and 670 North Michigan Avenue in Chicago
(the property) to entities controlled by Prism Development
Co., which were later succeeded in interest by NM Project.
DLA represented Terra throughout the negotiations for the
sale, including the final closing in 2013.
4 NM Project intended to build a 40-story mixed use building
(the building) on the property, which would include retail,
office and residential parcels. As part of the sale, Terra
was to receive an "up front" payment of $17.5
million and, upon closing, ownership of the retail and office
parcels. NM Project would own the residential parcel.
5 Because the ultimate square footage of the retail parcel
would control its potential rental income and its resulting
economic value to Terra, NM Project's cash payment was to
be adjusted at the closing based on the completed size of the
retail parcel (the retail parcel credit). On April 27, 2005,
Terra and NM Project executed a term sheet that included a
formula for determining the retail parcel credit using
baseline estimates for the space of the retail parcel: 8041
square feet for the first floor and 10, 728 square feet for
the second floor. Upon completion of the building, if the
resulting rentable square footage of the first floor was less
than the baseline estimate, NM Project would pay Terra $5500
for every square foot of reduced space. If the actual
rentable square footage of the first floor was greater than
the baseline estimate, Terra would pay NM Project $5500 per
square foot of increased space. As to the second floor, if
the resulting rentable square footage was less than the
baseline estimate, NM Project would pay $800 per square foot
for any such reduction. If the rentable square footage of the
second floor was greater than the baseline estimate, Terra
would owe nothing to NM Project for this additional square
6 Consistent with Terra's wish that the common space for
the other parts or parcels of the building not be included in
the measurement of the retail parcel, the term sheet referred
only to the "contiguous" space of the first floor
of the retail parcel and expressly excluded "the Common
Area Parcel ' and lobbies for the Office Parcel
and Condominium/Parking Parcel [residential parcel] and
building service areas (including, but not limited to,
loadings docks, freight elevator lobby, mechanical space and
other 'back of the house' space)" (exclusionary
language) from the rentable area of the retail parcel.
7 In the several years following execution of the term sheet
but before the final closing, Terra and NM Project entered
into a series of agreements that governed the transaction
(collectively lrThe term sheet defined the common
area parcel as "[t]he common lobby, elevators, spaces,
and shafts for the building's plumbing, electrical, and
mechanical systems and similar spaces." referred to as
the agreements). These agreements included the following,
none of which included the exclusionary language.
8 On June 21, 2005, Terra and NM Project executed a purchase
agreement that, in section 9, set forth the formula for
determining the retail parcel credit. That formula was
consistent with the language contained in the term sheet,
except that section 9 did not contain the exclusionary
9 The first amendment to the purchase agreement (first
amendment), which was executed on May 29, 2007, provided for
how the retail parcel would be measured for purposes of
determining the retail parcel credit. Specifically, paragraph
5 of the first amendment provided that rentable square
footage or rentable square feet was to be calculated pursuant
to the "Standard Method for Measuring Floor Area in
Office Buildings (ANSI/BOMA Z65.1-1996), An American National
Standard Approved June 7, 1996 by American National Standards
Institute, Inc., published by Building Owners and Managers
Association International" (hereinafter BOMA 96).
According to Terra, BOMA 96 is a method of measurement which
would allocate a pro rata share of the common space
of the building to the rentable area of the retail parcel
unless that space was, otherwise, expressly excluded.
10 In March 2008, Terra and NM Project entered into a third
amendment to the purchase agreement and other related
agreements (third amendment). Section 6 of the third
amendment required that Terra provide a letter of credit as
security for any possible retail parcel credit to be made by
Terra. To determine the amount of the line of credit, NM
Project was to provide an estimate of the rentable square
feet of the retail parcel based on the final or substantially
final plans for the building. Terra and NM Project were then
to agree on the amount, if any, Terra might be responsible to
pay under the retail parcel credit based on those estimates.
Terra would submit a letter of credit for that amount before
construction began. However, if there was a dispute as to the
measurement of the retail parcel, the issue was to be
resolved through an agreed alternative dispute procedure
which included arbitration.
11 In October 2009, Terra and NM Project executed a
declaration of covenants, conditions, restrictions, and
easements (the 2009 declaration), which defined how the
rental, residential and office parcels were to share the
building and its various components. The 2009 declaration was
superseded by a 2012 declaration of covenants, conditions,
restrictions, and easements (the 2012 declaration).
12 On March 2, 2010, NM Project and Terra entered into a
letter agreement (the March 2010 letter) that amended the
purchase agreement and other related agreements. The March
2010 letter included agreements to exclude the basement space
of the building from both the retail and the office
parcels, exclude a designated limited portion of the retail
parcel from the rental square footage of the first floor and
remeasure the space under the fire stairs or beams upon
completion of the retail parcel and adjust the amount due
under section 9 of the purchase agreement accordingly.
13 At different stages of the building's development,
Terra and NM Project disputed the size of the rentable space
of the retail parcel.
14 In order to determine Terra's obligation for posting a
line of credit, pursuant to the third amendment, in late 2010
NM Project provided Terra with its calculations of the
expected square footage of the retail parcel based on the
final plans. NM Project projected the rentable area for the
first floor of the retail parcel to be 10, 363 square feet,
2332 square feet greater than the baseline estimate, and
therefore, NM Project contended it would be entitled to a
retail parcel credit of $12, 771, 000. The rentable square
feet area for the second floor of the retail parcel was
calculated to be 12, 587 square feet, which was 1859 square
feet greater than the baseline estimate. Pursuant to the
parties' agreements, NM Project was not entitled to
receive a credit relating to the second floor.
15 Terra disagreed with NM Project's calculations,
because they included an allocated share of the common areas
for the other parcels. Terra believed that, upon completion,
the first floor rentable area would be 7403 square feet and
the second floor rentable area would be 9183 square feet.
Therefore, Terra contended NM Project would owe an additional
$4, 737, 000 at the closing as the retail parcel credit.
16 To resolve the dispute, Terra and NM Project engaged in
the agreed alternative dispute procedures. An October 11,
2010, arbitration award provided that, based on the final
plans, the first floor rental space would be 8801 square feet
and the second floor would be 10, 363 square feet. Based on
this award, Terra would owe NM Project in excess of $3.8
million at the closing as the retail parcel credit and was,
therefore, required to post an appropriate line of credit
pursuant to the third amendment.
17 Near the completion of the building in late 2012, NM
Project determined that the final rentable square footage of
the first floor of the retail parcel was 8857 square feet and
the second floor was comprised of 10, 450 rentable square
feet. NM Project asserted that, based on these ...