Karris v. US Equities Development, Inc. ( 2007 )

THIRD DIVISION
SEPTEMBER 12, 2007
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NICHOLAS A. KARRIS, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant and Cross-Appellee, ) Cook County.
)
v. )
)
US EQUITIES DEVELOPMENT, INC.; )
U.S. EQUITIES REALTY, INC.; 95th AND STONY )
ISLAND I, LLC; 95th AND STONY ISLAND II, LLC, ) No. 04 CH 4408
)
Defendants-Appellees and Cross-Appellants, )
)
(Johnny Young, Andres Son and Robert Wislow, ) Honorable
) David R. Donnersberger,
Defendants). ) Judge Presiding.
JUSTICE CUNNINGHAM delivered the opinion of the court:
The plaintiff, Nicholas A. Karris (Karris), appeals from the orders of the circuit court of Cook
County granting summary judgment to the defendants-appellants, US Equities Development, Inc, US
Equities Realty, Inc., 95th & Stony Island I, LLC and 95th & Stony Island II, LLC (defendants),1 on
counts I and II of his complaint seeking specific performance of a contract for the sale of a developed
property (subject property). There were no other counts. Counts I and II, respectively, sought
specific performance of sale of the subject property for $25,850,000 and $25,333,000 (98% of
$25,850,000). On appeal, Karris contends that the trial court misapplied the law when it granted
summary judgment on counts I and II and asks this court to reverse and remand the cause for trial
on the merits. The defendants cross-appeal from the order of the trial court denying a prior motion
1
In their notice of cross-appeal, defendants state that 95th & Stony I, LLC and 95th &
Stony II, LLC, were the correct names under which those two entities should have been sued.
We will use the names contained in the pleadings and the notices of appeal.
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to dismiss count II of the complaint. The defendants contend that the sale of the subject property to
a third party mooted Karris’s claim for specific performance of his alleged right to control the sale.
BACKGROUND
Our factual summary is based on the parties’ pleadings, briefs, affidavits, depositions, and
exhibits. In January 1995, World Premier Properties, Inc. (World Premier) and two bank trusts
controlled by Karris entered into a purchase agreement (Purchase Agreement). The Purchase
Agreement provided that Karris would sell certain real property located at 95th and Stony Island
Avenue in Chicago to World Premier and World Premier would develop the property. The Purchase
Agreement provided that Karris would receive up to half of the sale proceeds in a deferred payment
after the subject property was sold.
In late 1997 and early 1998, World Premier and Karris negotiated an amendment to the
Purchase Agreement and finalized the amendment on January 23, 1998. The parties refer to this
amendment as the “1998 ROFO Amendment.” The 1998 ROFO Amendment modified and replaced
the earlier deferred payment plan with a detailed formula to calculate the deferred payment due to
Karris. The 1998 ROFO Amendment also provided that, in the event that World Premier desired to
sell all or substantially all of the subject property before it paid Karris the balance of the deferred
payment, World Premier would offer Karris a right of first offer (ROFO) to purchase the subject
property. The price, terms and closing date would be determined by World Premier in its sole
discretion. After receiving the ROFO notice, Karris would have 20 days to agree to purchase the
subject property or deliver a written counteroffer to World Premier. In the event of a counteroffer,
the parties would have an additional 10 days to negotiate the terms of a sale. If the parties still did
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not agree, Karris would be deemed to have rejected the ROFO, and within 240 days of the failed
ROFO negotiation date, the subject property could be sold to a third-party buyer.
After the execution of the 1998 ROFO Amendment but before the closing, 95th & Stony I,
LLC (Stony I) and 95th & Stony II, LLC (Stony II), acquired World Premier’s interests under the
Purchase Agreement and became the owners of the property and the new “Buyer[s]” under the 1998
ROFO Amendment.2 Stony I and Stony II are owned in part by US Equities. The actual closing of
the sale of the vacant land under the Purchase Agreement occurred on November 23, 1998.
Thereafter, the defendants developed the property and Stony Island Plaza was built and leased.
Pursuant to the closing, Karris received $300,000 in cash and $2.5 million in TIF bonds (City of
Chicago “Tax Increment Financing” bonds). Because Karris is only seeking an equitable remedy of
specific performance in this case, there is no issue regarding the monetary amount allegedly due
Karris for the sale of his vacant land.
On January 8, 2004, Stony I sent the ROFO notice with the base price (purchase price) to
Karris to sell certain portions of the subject property to Karris on terms described in the notice. The
ROFO notice informed Karris that if he did not exercise his ROFO, the subject property would be
sold to a third party. On January 28, 2004, Karris’s attorney sent a response letter to Stony I stating
that the January 8, 2004 ROFO notice was invalid. However, the letter stated that Karris was willing
2
The defendants allege that Stony II is the owner of a portion of the developed property
that was not included in either (1) the ultimately unsuccessful ROFO negotiation process between
the parties in this case, or (2) Stony I’s subsequent sale of its own portion of the developed
property to a third party. Therefore, all actions regarding the sale of developed property in this
case were by or on behalf of Stony I.
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to purchase the property, or a portion thereof, “subject to a reasonable opportunity to analyze the
acquisition, the Project costs and the calculation of the Deferred Purchase Price.” This letter further
stated that Karris was unwilling to pay the brokerage commission and that “[h]e would be willing to
purchase *** at the price of $25,850,000, minus the brokerage commission.” Stony I treated Karris’s
January 28, 2004 letter as a counteroffer. Then on February 4, 2004, Stony I sent another letter to
Karris with a counteroffer of its own and extended the additional 10-day period under the 1998
ROFO Amendment by two days until February 9, 2004. When Karris did not accept that
counteroffer proposal by the deadline, Stony I informed Karris on February 10, 2004, that it
considered Karris’s inaction as a rejection of Stony I’s February 4 counteroffer. Stony I informed
Karris that it intended to proceed with a sale to a third party.
Thereafter, on March 11, 2004, Karris filed a two-count complaint against the defendants in
the chancery division and recorded a lis pendens notice against the subject property.3 Count I sought
specific performance of the sale of the subject property for $25,850,000 from Karris’s alleged
acceptance of the January 8, 2004 ROFO notice. Count II sought specific performance pursuant to
paragraph 13 of the 1998 ROFO Amendment, which would allow Karris to purchase the subject
property for $25,333,000 or 98% of $25,850,000. Essentially, the underlying issue in count II was
whether Karris or Stony I had the right to market the subject property within 240 days after the
ROFO negotiation had failed.
3
On June 4, 2004, the trial court granted Karris’s motion to voluntarily dismiss the
individual defendants, Robert Wislow, John Young (incorrectly sued as Johnny Young), and
Andrew Sun (incorrectly sued as Andres Son) without prejudice pursuant to section 2-1009 of the
Code of Civil Procedure (735 ILCS 5/2-1009 (West 2004)).
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On March 31, 2004, the defendants filed a motion for summary judgment on both counts.
On May 18, 2004, the trial court entered an order granting the defendants’ summary judgment motion
against count I but denied the summary judgment motion against count II. The trial court determined
that, under the facts presented, no enforceable contract was formed and therefore Karris had no right
to specific performance under count I. Subsequently, on October 22, 2004, the defendants filed their
second motion for summary judgment on count II under a new theory that Karris’s alleged right to
market the subject property within 240 days from the failed ROFO negotiation date had expired on
or about October 5, 2004, and therefore the specific performance issue became moot. While waiting
for an adjudication on the second motion for summary judgment on count II, on December 20, 2004,
the defendants filed a motion to dismiss count II. The defendants stated that the subject property in
the case was sold to a third party on December 17, 2004, and the sale rendered Karris’s relief under
count II moot. The trial court summarily denied that motion to dismiss on February 24, 2005.
On May 6, 2005, after a hearing, the trial court entered an order granting the defendants’
second motion for summary judgment on count II. The trial court determined that Karris’s alleged
right to market the subject property for 240 days from the failed ROFO negotiation had expired on
or about October 5, 2004, because Karris failed to take steps to toll the period. The court held that
because Karris’s alleged right had expired, the specific performance under count II became moot and
summary judgment in favor of the defendants was proper.
Karris timely appealed the trial court’s granting of the defendants’ motions for summary
judgment on both counts I and II. As an alternative basis for affirmance, the defendants cross-
appealed the trial court’s denial of the defendants’ earlier motion to dismiss count II. Jurisdiction is
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proper under Illinois Supreme Court Rules 301 and 303 because final judgment was entered on both
counts of the complaint. 134 Ill. 2d Rs. 301, 303.
ANALYSIS
There are essentially three issues in this case: (1) whether the trial court properly granted
summary judgment in favor of the defendants on the claim of specific performance of a contract to
purchase real property in count I of Karris’s complaint where the trial court concluded that the parties
failed to agree to terms for Karris’s purchase of the developed property; (2) whether the trial court
properly granted summary judgment in favor of the defendants on the claim for specific performance
of an alleged contractual right in count II of Karris’s complaint where the trial court concluded that
the alleged right was for a finite period and had expired, rendering the claim moot; and (3) whether
the trial court erred in denying the defendants’ original motion to dismiss the specific performance
claim in count II of Karris’s complaint where the trial court concluded that the defendants’ selling of
the property did not render moot Karris’s claim for specific performance of his alleged right to
control the sale of the property.
The standard of review of a trial court’s summary judgment ruling is de novo. Illinois State
Chamber of Commerce v. Filan, 216 Ill. 2d 653, 661, 837 N.E.2d 922, 928 (2005). Summary
judgment is proper if, when viewed in the light most favorable to the nonmoving party, “the
pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law.” 735 ILCS 5/2-1005(c) (West 2004). The standard of review of dismissals pursuant to
section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619 (West 2004)) is also de novo.
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Williams v. Davet, 345 Ill. App. 3d 595, 598, 802 N.E.2d 1255, 1258 (2003). The reviewing court
considers all well-pleaded facts in the plaintiff’s complaint as true. American National Bank & Trust
Co. v. Thomas, 288 Ill. App. 3d 343, 346, 680 N.E.2d 480, 482 (1997). The trial court’s granting
of a section 2-619 motion to dismiss is proper only if there exists no set of facts which could entitle
the plaintiff to recover. American National Bank, 288 Ill. App. 3d at 346, 680 N.E.2d at 482.
In count I of the complaint, Karris is seeking specific performance on the January 8, 2004
ROFO from Stony I that gave him a right to purchase the subject property for $25,850,000. Karris
contends that he accepted the essential terms of the January 8, 2004 ROFO when he responded to
the ROFO on January 28, 2004, and agreed to purchase the subject property for the $25,850,000
ROFO price without a broker’s commission. In response, the defendants contend that Karris did not
accept the January 8, 2004 ROFO and no enforceable contract was formed from it because Karris and
Stony I never agreed on the purchase price. The defendants argue that Karris’s own assertion that
the terms of the January 8, 2004 ROFO were improper or ambiguous due to the inclusion of an
unspecified brokerage fee demonstrates that the parties never agreed to terms of the sale. The Illinois
Frauds Act provides, in relevant part:
“No action shall be brought to charge any person upon any
contract for the sale of lands, tenements or hereditaments or any
interest in or concerning them, for a longer term than one year, unless
such contract or some memorandum or note thereof shall be in
writing, and signed by the party to be charged therewith, or some
other person thereunto by him lawfully authorized in writing, signed
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by such party.” 740 ILCS 80/2 (West 2004).
Illinois courts have recognized that, to be enforceable, a real estate sale contract must: (1)
be memorialized in a written document or documents; (2) contain a description of the property and
the sales terms, including price and manner of payment; and (3) bear the signature of the party to be
charged. Hubble v. O’Connor, 291 Ill. App. 3d 974, 983, 684 N.E.2d 816, 832 (1997).
A review of the correspondence between the parties makes it clear that there was no real
estate sales contract formed between them. The record indicates that Karris did not accept the
January 8, 2004 ROFO notice unconditionally. Instead, he made his acceptance conditional on
certain factors, including an opportunity to analyze the property and subtraction from the price of a
brokerage commission. The subsequent negotiation between Karris and the defendants did not result
in a written, enforceable real estate sales contract that contained essential terms. A conditional
acceptance is no acceptance. Hubble, 291 Ill. App. 3d at 980, 684 N.E.2d at 830. Rather, the
conditional acceptance becomes a counteroffer to the original offeror. Hubble, 291 Ill. App. 3d 980,
684 N.E.2d at 830. At best, both parties were negotiating with counteroffers of their own. “A
distinction must be drawn between preliminary negotiations toward an agreement and the actual
existence of a final contract.” Leekha v. Wentcher, 224 Ill. App. 3d 342, 349, 586 N.E.2d 557, 604
(1991). No contract is formed until an execution and delivery of a formal agreement where the
parties’ intention is that neither will be legally bound until such execution and delivery of a formal
document. Leekha, 224 Ill. App. 3d at 348, 586 N.E.2d at 561.
In this case, there was no final agreement between the parties regarding the ROFO purchase
and no valid real estate sales contract was formed from it. First, Karris’s January 28, 2004 response
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letter did not accept the terms outlined in Stony I’s January 8, 2004 ROFO notice. Karris’s purported
acceptance was conditioned upon a reasonable opportunity to analyze the acquisition. It did not
constitute an acceptance of an offer and at best, it was a counteroffer to Stony I by Karris. Second,
Karris’s January 28, 2004 response was ambiguous regarding the final purchase price because it
purportedly lowered the purchase price by an undetermined brokerage amount. In his January 28,
2004 response letter, Karris stated that “[h]e would be willing to purchase *** at the price of
$25,850,000, minus the brokerage commission.” (Emphasis added.) Karris’s response was
ambiguous because it was not clear whether he was willing to purchase the subject property for
$25,850,000 or $25,850,000 reduced by the unspecified broker’s commission. There was no
agreement between Karris and Stony I regarding the specific purchase price because Stony I did not
accept Karris’s January 28, 2004 counteroffer. Third and finally, in the same letter, Karris stated that
“[t]his proposal *** would be subject to the execution of a contract containing customary terms and
conditions as is apparently contemplated by the purported ROFO Notice.” (Emphasis added.) This
statement demonstrates that Karris did not want his January 28, 2004 response to equate to an
acceptance of Stony I’s January 8, 2004 ROFO notice. It is clear from his statement that Karris did
not want a binding and enforceable contract until a document containing customary terms and
conditions of the contract was executed by both parties.
The defendants never agreed to Karris’s January 28, 2004 response. Rather, on February 4,
2004, the defendants acknowledged Karris’s January 28, 2004 letter as an attempted counteroffer,
presented a new counteroffer of their own, and asked Karris to either accept or reject the proposed
counteroffer by February 9, 2004. Because Karris did not accept the February 4, 2004 ROFO terms
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before the offer expired on February 9, 2004, no enforceable real estate contract was formed.
Hubble, 291 Ill. App. 3d at 980, 684 N.E.2d at 830. In the absence of an enforceable contract,
Karris’s claim for specific performance cannot overcome the requirements of the Illinois statute of
frauds. Therefore, the trial court was correct in granting summary judgment on count I in favor of
the defendants.
In count II, Karris is seeking to enforce his alleged right, under paragraph 13 of the 1998
ROFO Amendment, to market the subject property within 240 days of the lapsed ROFO purchase
date. The underlying issue in count II arose from the following sentence in paragraph 13 of the 1998
ROFO Amendment:
“In the event Seller fails to respond in writing to the ROFO Notice
within the twenty (20) day period or rejects, or is deemed to have
rejected the ROFO Notice, subject to the time restrictions set forth
below, Seller shall thereafter have the right to sell such portion of the
Project to any party for a purchase price greater than or equal to
ninety eight percent (98%) of the Base Price. In the event Buyer fails
to enter into an agreement to sell such portion of the Project within
two hundred forty (240) days, and close on the sale of the project
within three hundred sixty five (365) days, after the expiration of said
twenty (20) day period, plus the additional ten (10) day period, if
applicable (‘ROFO Period’) then this ROFO shall survive and Buyer
shall again be obligated to notify Seller as set forth herein with respect
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to any proposed sale of the project.” (Emphasis added.)
Although the trial court’s denial of the defendants’ first motion for summary judgment is not
an issue in this appeal, it is instructive. At that hearing the defendants argued that the second use of
the word “Seller” in this sentence was a mutual mistake in drafting and that “Seller” should actually
read “Buyer,” meaning Stony I or US Equities. Karris, on the other hand, argued that there was no
mutual mistake in drafting and that he negotiated this right to market the property in the event of a
failed ROFO negotiation. The trial court denied the defendants’ first motion for summary judgment
on count II because the court reasoned that there was a material factual dispute regarding the alleged
mistake in usage of “Seller” and “Buyer” in paragraph 13 of the 1998 ROFO Amendment. After the
denial, the defendants filed their second motion for summary judgment on a theory of mootness. The
trial court granted the defendants’ second motion for summary judgment on count II.
On appeal, Karris contends that his right to market the subject property could not be mooted
because the defendants denied his right to market it and affirmatively obstructed exercise of this right.
Because the defendants allegedly blocked his ability to market the subject property from the outset
of this case, Karris contends he did not have an opportunity to exercise that right. The defendants
counter that even if Karris did have the right to market the subject property for 240 days following
the failed ROFO negotiation, that right expired on or about October 5, 2004. The defendants argue
that because Karris did not exercise his right or take necessary steps to toll the running of the period
before the period expired, any question of specific performance pursuant to paragraph 13 of the 1998
ROFO Amendment became moot. Additionally, the defendants argue that Karris presented no
evidence that the defendants took any steps to prevent or obstruct Karris from exercising the alleged
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240-day marketing rights.
Karris also argues that the 240-day period was not running because the defendants’ mutual
mistake defense was yet to be resolved. However, Karris does not cite any authority to support his
contention that the defendants’ opposite position necessarily and automatically tolled the running of
240 days. In fact, as the defendants point out, Karris was aware or at least under the belief that the
240-day period was running. The record shows that in Karris’s brief opposing the defendants’ first
summary judgment motion, he asked the court to deny the defendants’ motion and set the case for
trial because both parties needed an early trial. Karris explained that he needed an early trial because
he must act within 240 days.
First, the record shows that except for recording a lis pendens notice, Karris did not take
additional steps to protect his rights. Karris presents no evidence that he actively sought to market
the subject property or solicit potential buyers. Second, Karris failed to ask the trial court to toll or
suspend the 240-day period during the pendency of this suit. While Karris alleges that the defendants
affirmatively obstructed his right to market the subject property, he is unable to present any evidence
that any particular actions taken by the defendants prevented him from exercising his alleged right to
market the subject property.
Interestingly, in his deposition, Karris admitted that his alleged right to market the subject
property was not exclusive and the defendants were also allowed to solicit sales offers from third
parties during the same 240-day period. In this case, that is exactly what happened. After the ROFO
negotiation had failed, the defendants received an offer and entered into a real estate sales contract
with Principal Life Insurance Company (Principal) on March 16, 2004. Then, on December 17, 2004,
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the defendants closed the sale with Principal in accordance with the 365-day window provided in
paragraph 13 of the 1998 ROFO Amendment. The sales price of $27,450,000 far exceeded the
requirement of 98% of the Base Price of $25,850,000 and satisfied the terms of the 1998 ROFO
Amendment. The record shows that throughout the sales process to Principal, the defendants were
not surreptitious but instead informed both the trial court and Karris regarding the outstanding sales
contract and subsequent sales closing with Principal. Because neither the contractual language in the
1998 ROFO Amendment nor any statutory provision provided for an automatic tolling of the 240-day
period during the pendency of this dispute and because Karris did not request tolling or suspension
of the 240-day period, we hold that the 240 days began to run when the ROFO negotiation failed on
February 9, 2004. As a result, the 240-day period expired on or about October 5, 2004. Thus, the
trial court correctly granted the defendants’ second motion for summary judgment based on the
expiration of Karris’s alleged right to market the subject property. Therefore, we affirm the trial
court’s granting of the defendants’ second motion for summary judgment on count II.
Because we have affirmed summary judgment on count II, we need not address defendants’
alternative contention concerning the denial of their original motion for summary judgment on that
count.
Accordingly, we affirm the judgment of the circuit court of Cook County.
Affirmed.
GREIMAN and THEIS, JJ., concur.
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