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Wlm Retail Trust v. Tramlaw Remainderman Limited Partnership

Court of Appeals of Illinois, First District, Fifth Division

February 16, 2018

WLM RETAIL TRUST, a Delaware Statutory Trust, Plaintiff-Appellee,
v.
TRAMLAW REMAINDERMAN LIMITED PARTNERSHIP, an Illinois Limited Partnership, Defendant-Appellant.

         Appeal from the Circuit Court of Cook County. No. 14 CH 12971 Honorable Neil H. Cohen, Judge Presiding.

          JUSTICE ROCHFORD delivered the judgment of the court, with opinion. PRESIDING JUSTICE REYES and JUSTICE LAMPKIN concurred in the judgment and opinion.

          OPINION

          ROCHFORD JUSTICE.

         ¶ 1 In this declaratory judgment action involving a contract dispute, defendant-appellant Tramlaw Remainderman Limited Partnership (Tramlaw), an Illinois limited partnership, appeals from summary judgment awarded in favor of plaintiff-appellee WLM Retail Trust (WLM), a Delaware statutory trust. For the following reasons, we affirm.

         ¶ 2 I. BACKGROUND

         ¶ 3 In 1991, United States Fidelity and Guaranty Company (USF&G) owned a portfolio of commercial real estate that was comprised of 30 properties improved with retail buildings. Pursuant to long-term leases, 29 of those properties were occupied by WalMart stores and 1 was occupied by a Sam's Club. One of those properties, occupied by a WalMart and located in Oklahoma City, Oklahoma, is at issue in this lawsuit (the property). WalMart's lease for the property contained an initial term that expired on January 31, 2009, with WalMart having the option to extend the lease for "five (5) successive individual extended terms of five (5) years each."

         ¶ 4 USF&G decided to sell all 30 properties in 1991 and placed the portfolio out for bid. Public Service Resources Corporation (PSRC) was the winning bidder.[1] PSRC was represented in the transaction by Cornerstone Financial Advisers LP (Cornerstone), an investment advisory firm located in Chicago. The structure of the resulting contract for sale was complex, with the parties to this lawsuit-WLM and Tramlaw-being entities created to facilitate the transaction.

         ¶ 5 Stripping the transaction to its essence, and excluding a number of contractual terms not relevant here, PSRC both created and was a beneficiary of WLM, which purchased an estate for years[2] in each of the 30 properties. The estate for years in each property was to run until the expiration of the initial term of the existing WalMart (or Sam's Club) lease upon that property, exclusive of any extensions thereof. In addition, a number of other individuals-including a number of Cornerstone employees-formed Tramlaw to purchase the remainder interest in the 30 properties, with that remainder interest commencing upon the expiration of the estate for years. By structuring the transaction in this fashion, WLM would be able to depreciate its interest in the land over the duration of the estate for years and obtain significant tax benefits. The contract for sale was executed on September 19, 1991. WLM paid $108, 614, 794.81 for the various interests it purchased, while Tramlaw paid $1, 226, 000.

         ¶ 6 In addition to the contract for sale-indeed, pursuant to the explicit terms thereof-WLM and Tramlaw also entered into an "Option and Estate for Years Agreement" for each of the properties, including the property at issue here (the Agreement). The Agreement, executed on February 26, 1992, provided WLM with two options with respect to the property in exchange for a payment of $48, 500: a "Ground Lease Option" and a "Purchase Option." The ground lease option, contained in section 2 of the Agreement, granted WLM the ability to lease the property at the conclusion of the estate for years for a term of 5 years, with the possibility to thereafter renew the lease for up to 9 additional 5-year terms. The purchase option, contained in section 3 of the Agreement, granted WLM the option to purchase the property, either before or after the expiration of the estate for years, upon the occurrence of a number of specified events. The very first event the Agreement identified as triggering WLM's purchase option was as follows: "The Wal-Mart Lease shall expire or terminate for any reason, whether by default or otherwise, and whether or not prior to the expiration of the stated term thereof."

         ¶ 7 Section 3(B) of the Agreement also provided that, in the event WLM sought to purchase the property due to the expiration or termination of the WalMart lease, then (1) the fair market value of the property had to be determined within 360 days of the date the WalMart lease ended, (2) WLM would have up to 30 days thereafter to decide whether or not to purchase the property, and (3) WLM and Tramlaw would have up to 90 days thereafter to complete the sale of the property to WLM. Thus, the parties had up to a total of 480 days following the expiration or termination of the WalMart lease to complete a sale of the property to WLM.

         ¶ 8 The Agreement also contains a choice-of-law provisions, mandating that the law of Oklahoma govern its construction.

         ¶ 9 On October 6, 2008, WLM provided Tramlaw notice that it was exercising the first of its ground lease options to extend its lease of the property for a five-year term running from February 1, 2009, to January 31, 2014. Notably, this occurred prior to the expiration of both the initial term of WalMart's lease and the estate for years held by WLM. On November 13, 2008, WalMart exercised the first of its options to extend its lease on the property for a five-year term that would run for the exact same duration as WLM's ground lease.

         ¶ 10 On December 5, 2013, WLM exercised the second of its ground lease options to extend its lease of the property for a five-year term running from February 1, 2014, to January 31, 2019. However, WalMart did not elect to further extend its lease on the property, and its lease therefore expired on January 31, 2014.

         ¶ 11 On June 16, 2014, WLM notified Tramlaw that, because the WalMart lease had expired, WLM now wished to initiate the appraisal process with respect to its possible exercise of the option to purchase the property. On July 17, 2014, Tramlaw responded by asserting that WLM had not timely sought to exercise the purchase option. Noting that the estate for years expired on January 31, 2009, Tramlaw contended that WLM's attempt to initiate the purchase option ran afoul of a termination clause contained in section 14 of the Agreement, which provided: "The Options contained in this Agreement ...


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