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Meadowdale Apartments Unit I, LLC v. American Housing Solutions

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

May 17, 2018

MEADOWDALE APARTMENTS UNIT I, LLC et al., Plaintiffs/Counter-defendants,
AMERICAN HOUSING SOLUTIONS, Defendant/Counter-plaintiff.


          Hon. Virginia M. Kendall United States District Judge.

         Plaintiffs Meadowdale Apartments Unit I, LLC, Meadowdale Apartments Unit II, LLC, and Meadowdale Apartments Unit III, LLC, owners of three residential real estate developments, entered into three nearly identical purchase agreements with Defendant American Housing Solutions (“AHS”). Plaintiffs filed suit against AHS in the Circuit Court of Kane County, Illinois seeking a declaratory judgment that each of the three agreements terminated by its own terms and are of no further force and effect and that Plaintiffs did not default in any of its obligations under the agreements (Count I). (Dkt. 1-2). AHS removed the case and it was assigned to this Court. (Dkt. 1). AHS then filed two counterclaims against Plaintiffs seeking declaratory judgment that the agreements are still valid and enforceable (Count I) and alleging breach of contract and seeking an order of specific performance (Count II). (Dkt. 9). Plaintiffs moved for judgment on the pleadings in their favor and against AHS on all counts in their Complaint and AHS' Counterclaims. (Dkt. 16). For the following reasons, Plaintiffs' Motion for Judgment on the Pleadings Pursuant to F.R.C.P. 12(c) [16] is denied.


         Plaintiffs own three separate apartment developments in Carpentersville, Illinois, each of which consists of 216 residential units. (Dkt. 1-2 at ¶ 6). On July 24, 2017, each of the Plaintiffs executed a Purchase Agreement and Escrow Instructions with AHS for one of the properties in Carpentersville (the “Agreements”). (Id. at ¶ 3, Exs. 1-3). The Agreements are governed by Illinois law and are identical in all respects material to the parties' allegations. (Id. at Exs. 1-3). Each agreement provides a 90-day period of investigation of the respective property and requires AHS' approval of the investigation as a condition to the Closing. (Id.). The terms of the Agreements related to the investigation and approval state, in relevant part:

6. Buyer's Investigation and Other Matters. On or prior to Ninety (90) days following the date of this Agreement (“Decision Date”), Buyer shall conduct the investigations of the Property described in Sections 6.1, 6.2, and 6.3. Buyer's approval of such investigations shall constitute a condition to the Closing. Such period of time is referred to as the “Feasibility Period.”
6.3 Property Documents. Buyer shall review on or before the Decision Date, all documents or materials in the possession of Seller, or reasonably available to the Seller, issued or prepared in connection with the ownership, operation, management, use, and/or proposed development of the Property, including [list of documents] and any other reports of documents reasonably requested of the Seller by the Buyer, which the Buyer determines in their sole and absolute unfettered right is needed to evaluate the Real Property for acquisition, excluding the Excluded Documents (as defined below) (collectively, “Property Documents”). Seller shall deliver the Property Documents to Buyer or shall make the Property Documents available to Buyer for inspection. Buyer's failure to approve or disapprove the Property Documents by delivery of written notice thereof to Seller and Escrow Holder on or before the Decision Date shall be deemed Buyer's disapproval. . . .
6.4 Termination. If, on or prior to the Decision Date, Buyer fails, for any reason or for no reason, to deliver written notice (“Approval Notice”) to Seller and Escrow Holder approving the Title Report described in Section 6.1 above, approving its investigation of the Property pursuant to Section 6.2 above, approving the Property Documents pursuant to Section 6.3 above, and approving the matters set forth in Section 6.4 with respect to the Wetlands, which approval or disapproval shall be in Buyer's sole and absolute discretion, then this Agreement shall automatically terminate, in which event: . . . (b) Escrow Holder shall return the Initial Deposit to Buyer (regardless of whether or not Seller has signed a consent or cancellation instructions), less one-half (1/2) of Escrow Holder's cancellation fees and expenses and the Independent Consideration; . . . and (f) this Agreement shall terminate and neither party hereto shall have any further obligation or responsibility hereunder or liability of any nature or amount whatsoever to the other party hereunder, except those obligations that expressly survive the termination of this Agreement.

(Id. at Exs. 1-3 (emphasis added)).

         The Decision Date marking the end of the 90-day Feasibility Period fell on October 23, 2017. AHS did not provide Approval Notice on or before October 23, 2017. (Dkt. 1-2 at ¶ 5). AHS alleges it was precluded from doing so because Plaintiffs failed to provide or otherwise make available all Property Documents, as required by Section 6.3, within the 90-day Feasibility Period. (Dkt. 9 at ¶ 37). Plaintiffs deny that they failed to meet any obligations under Section 6.3. (Dkt. 1-2 at ¶ 18; Dkt. 13 at ¶ 36). The parties disagree on the current status of the Agreements and which party, if any, is in breach.

         Plaintiffs contend that, pursuant to Section 6.4, the Agreements automatically terminated by their own terms on October 23, 2017 when AHS failed to provide Approval Notice within the 90-day Feasibility Period. (Dkt. 9 at ¶ 19). They argue, therefore that the Agreements have no further force or effect. (Id.) Plaintiffs argue also that whether they provided all Property Documents is irrelevant because Section 6.4 unambiguously states that the Agreements “automatically terminate” if AHS does not provide Approval Notice by the Decision Date “for any reason or no reason at all.” (Dkt. 1-2 at ¶ 17; Dkt. 16 at ¶ 5, 8-9).

         AHS claims the Agreements are still valid and enforceable and that Plaintiffs are in breach. Specifically, AHS argues that the obligation to deliver or otherwise make available all Property Documents under Section 6.3 constitutes a condition precedent to AHS' obligation to provide Approval Notice under Section 6.4 and, because Plaintiffs failed to meet the condition precedent in Section 6.3, Section 6.4 was never triggered. (Id. at ¶¶ 41-43). AHS further alleges that Plaintiffs breached the Agreements by failing to meet its obligations under Section 6.3 and seeks specific performance of the Agreements pursuant to Section 11.2, which states:

11.2 Buyer's Remedies. In the event Seller shall default under any of the terms and provisions of this Agreement on or prior to Closing, Buyer shall have the right, but not the obligation, either (a) to terminate Buyer's obligations under this Agreement and the Escrow created hereby in which event Buyer shall be entitled to the immediate refund of the Deposit and any other funds deposited by Buyer into Escrow, including all interest earned thereon; or (b) enforce specific performance of this Agreement, and Buyer shall not be entitled to recover any damages whether actual, direct, indirect, consequential, punitive or otherwise notwithstanding such failure or breach by Seller.

(Dkt. 1-2, Exs. 1-3 (emphasis added); Dkt. 9 at ¶¶ 49-50).

         LEGAL ...

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