CF SBC Pledgor 1 2012-1 Trust v. Clark/School, LLC , 2016 IL App (4th) 150568 ( 2016 )

2016 IL App (4th) 150568 FILED
September 8, 2016
NO. 4-15-0568 Carla Bender
4th District Appellate
IN THE APPELLATE COURT Court, IL
OF ILLINOIS
FOURTH DISTRICT
CF SBC PLEDGOR 1 2012-1 TRUST, a Delaware ) Appeal from
Statutory Trust, ) Circuit Court of
Plaintiff-Appellee, ) Vermilion County
v. ) No. 13CH252
CLARK/SCHOOL, LLC, an Illinois Limited Liability
)
Company; and NON-RECORD CLAIMANTS and )
UNKNOWN OWNERS, )
Defendants ) Honorable
(CLARK/SCHOOL, LLC, Defendant-Appellant). ) Craig H. DeArmond,
) Judge Presiding.
______________________________________________________________________________
JUSTICE HARRIS delivered the judgment of the court, with opinion.
Justices Steigmann and Appleton concurred in the judgment and opinion.
OPINION
¶1 Plaintiff, CF SBC Pledgor 1 2012-1 Trust, a Delaware statutory trust, brought a
mortgage foreclosure action against defendant, Clark/School, LLC, an Illinois limited liability
company, alleging defendant was in default under the terms of the mortgage. Ultimately, plaintiff
filed a motion for summary judgment, which the trial court granted. Defendant appeals, arguing
genuine issues of material fact exist as to whether it was in default and, as a result, the trial court
erred in granting plaintiff’s motion for summary judgment. We affirm.
¶2 I. BACKGROUND
¶3 This is the second appeal involving the parties and the underlying mortgage
foreclosure proceedings. Previously, defendant brought an interlocutory appeal after plaintiff
obtained an ex parte order appointing a receiver over the mortgaged property. See CF SBC
Pledgor 1 2012-1 Trust v. Clark/School, LLC, 2014 IL App (4th) 140416-U. The following
recitation of facts is partially taken from our decision in that previous appeal.
¶4 In June 2006, defendant obtained a loan from Washington Mutual Bank that was
secured by a mortgage on the property at issue, an eight-building apartment complex in Danville,
Illinois. Washington Mutual Bank’s interest was ultimately assigned to plaintiff. Under section
4.3 of the parties’ mortgage security agreement, defendant agreed to keep the property in good
condition and repair. Section 4.14 of that agreement noted the mortgage loan was being made in
reliance on defendant’s continued existence as a limited liability company (LLC). Under that
section, defendant agreed to “not alter its name, jurisdiction of organization, structure, ownership
or control without the prior written consent of the Lender” and to “do all things necessary to
preserve and maintain [its] existence and to ensure its continuous right to carry on its business.”
¶5 Section 5 of the mortgage security agreement set forth provisions relating to
default. Section 5.1(c) defined an “Event of Default” to include defendant’s failure to perform its
obligations under the parties’ agreement when that “failure continues for a period of [30] days
after written notice of such failure by Lender to Borrower.” However, that section further
provided that the notice requirement and the 30-day “cure period” did not apply under the
following circumstances:
“(i) any such failure that could, in Lender’s judgment, absent immediate exercise
by Lender of a right or remedy under [the parties’ agreements], result in harm to
Lender, impairment of the Note or this Security Instrument or any other security
given under any other Loan Document; (ii) any such failure that is not reasonably
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susceptible of being cured during such 30-day period; (iii) breach of any provision
that contains an express cure period; or (iv) any breach of *** section 4.14 of this
Security Instrument.”
Additionally, section 5.3 of the parties’ mortgage security agreement set forth the lender’s
remedies upon default, stating that “[u]pon the occurrence of any Event of Default all sums
secured hereby shall become immediately due and payable, without notice or demand, at the
option of [the] Lender.” Further, it permitted the lender to “[f]oreclose this security instrument,”
exercise any power of sale permitted by applicable law, and sue on the note.
¶6 In December 2013, plaintiff filed a complaint against defendant to foreclose the
mortgage. It alleged defendant was in default under the terms of the mortgage for failing to (1)
maintain the property and (2) preserve and maintain its existence as an LLC. Plaintiff asserted
defendant allowed portions of the property to become uninhabitable and alleged as follows:
“More specifically, upon information and belief, a City of Danville building
inspector recently inspected the Property and identified numerous issues and code
violations, including, but not limited to, no electricity in multiple buildings due to
non-payment by [defendant], water pipes leaking and flooding apartments, and
garbage being dumped into a ravine on the Property near a city drinking water
source.
***
Additionally, upon information and belief, [defendant] has not maintained its
existence with the State of Illinois as an entity in good standing, and was
consequently dissolved on or about September 9, 2011.”
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Plaintiff attached various loan documents to its complaint, as well as e-mail correspondence
between individuals identified in the e-mails as the Danville city attorney, Richard Dahlenburg;
an environmental code inspector, Rick Brown; and a building inspector, Danita Anderson. The e-
mails indicated the inspectors identified several maintenance issues on the property, including a
lack of electricity due to nonpayment of electric bills by defendant, water leaks and flooding
from frozen pipes, and “dumping cabinets and vanities into [a] ravine behind” an apartment
building.
¶7 The same day it filed its complaint, plaintiff also filed an emergency motion to
appoint a receiver pursuant to section 15-1704 of the Illinois Mortgage Foreclosure Law
(Foreclosure Law) (735 ILCS 5/15-1704 (West 2012)). It reiterated the allegations from its
complaint regarding default and attached the same e-mail correspondence to its emergency
motion that it attached to its complaint. Also attached to plaintiff’s motion was the affidavit of
Kenneth L. Frank, who averred he was a managing director of plaintiff’s special servicer,
CWCapital Asset Management LLC, the entity responsible for administering defendant’s loan.
Frank stated he had access to and knowledge of plaintiff’s records regarding the loan account at
issue and he could testify to the truth of the following statement: “Defendant *** is in default for
failing to maintain the property at issue *** and failing to preserve and maintain [defendant’s]
existence as [an LLC].”
¶8 On December 24, 2013, the trial court granted plaintiff’s emergency motion. Its
docket entry stated as follows: “Matter presented to Court for review ex[ ]parte. Court grants
emergency motion to appoint receiver. Order appointing receiver entered.”
¶9 On January 21, 2014, defendant filed a petition to vacate the trial court’s ex parte
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order under section 2-1401(f) of the Code of Civil Procedure (Code) (735 ILCS 5/2-1401(f)
(West 2012)) and a motion to dismiss plaintiff’s mortgage foreclosure complaint pursuant to
section 2-619.1 of the Code (735 ILCS 5/2-619.1 (West 2012)). In connection with its petition to
vacate, defendant argued plaintiff failed to comply with the necessary statutory requirements for
seeking the ex parte appointment of a receiver. Specifically, defendant maintained plaintiff failed
to comply with section 15-1706(d) of the Foreclosure Law (735 ILCS 5/15-1706(d) (West
2012)), which it asserted required a showing of good cause by sworn evidence to support a
request to appoint a receiver without service upon one of the parties. Defendant argued Frank’s
affidavit, which was attached to plaintiff’s emergency motion, “failed to show good cause.”
Defendant also asserted that without meeting the requirements for an ex parte appointment of a
receiver, plaintiff was required to give defendant notice of the emergency motion. It contended
that because no notice was given, the court lacked jurisdiction over defendant and the court’s ex
parte order was void.
¶ 10 In its petition to vacate, defendant also argued that no default existed under the
mortgage. Specifically, it claimed no default existed under section 4.3 of the mortgage because
plaintiff failed to provide it with written notice or a 30-day “cure period” and no default existed
under section 4.14 because defendant had been reinstated as an active LLC on January 10, 2014,
and was, therefore, “deemed by law to have existed as an LLC without interruption” under
section 35-40(d) of the Limited Liability Company Act (LLC Act) (805 ILCS 180/35-40(d)
(West 2012)).
¶ 11 Finally, defendant further alleged “the circumstances cited by [p]laintiff as the
basis for proceeding under the emergency motion were cured well in advance of” the filing of the
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emergency motion. To support this contention, defendant relied on the affidavit of Mohammed
Abdul Khan, defendant’s property manager. Khan averred he was notified on December 10,
2013, that power had been shut off to portions of the property due to nonpayment of the electric
bill and that he paid the bill the same day. Khan further stated he became aware of a broken pipe
and subsequent leak and flooding on December 11, 2013, and had water to the building turned
off to stop the leak the same day. Khan asserted no emergency existed on the property on
December 24, 2013.
¶ 12 In its motion to dismiss, defendant argued plaintiff’s mortgage foreclosure
complaint had to be dismissed because no event of default occurred under the mortgage. It
reiterated the same arguments regarding the lack of default as raised in its petition to vacate.
Included within the attachments to defendant’s motion was a letter to defendant from the Illinois
Secretary of State dated January 10, 2014. The letter noted defendant’s “application for
reinstatement ha[d] been placed on file” and stated, “the company has now been returned to good
standing.”
¶ 13 In April 2014, the trial court entered an order denying both defendant’s petition to
vacate and its motion to dismiss. As stated, defendant filed an interlocutory appeal challenging
the court’s ex parte order appointing a receiver over the mortgaged property. On review, we
found the trial court committed no error “in ruling on plaintiff’s emergency motion to appoint a
receiver prior to service of the motion on defendant” and affirmed the court’s judgment. CF SBC
Pledgor, 2014 IL App (4th) 140416-U, ¶ 29.
¶ 14 In February 2015, plaintiff filed a motion for summary judgment in the
underlying proceedings. It asserted defendant was in default of the terms of the loan and
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mortgage documents on the date it filed its complaint, December 24, 2013, because defendant
failed to (1) maintain the property at issue in good condition such that certain parts of the
property were rendered uninhabitable and (2) preserve and maintain its existence as an LLC.
Plaintiff alleged it performed all of its duties under the loan and mortgage documents and, upon
learning of defendant’s default, it accelerated the maturity of the loan. It asserted that, despite its
demand of full payment, defendant had not repaid the loan.
¶ 15 Plaintiff attached various documents to its motion, including loan documents,
previous court orders, the same e-mail exchange attached to its complaint, and the affidavit of
James R. DeAngelo. DeAngelo averred he was the vice president of CWCapital Asset
Management LLC, the entity responsible for administering defendant’s loan. He asserted he
had access to and knowledge of the loan and its administration. DeAngelo further averred
defendant “defaulted *** by failing to maintain the property *** in good condition, and by
failing to preserve and maintain its existence as [an LLC].”
¶ 16 In March 2015, defendant filed a response to plaintiff’s motion for summary
judgment. It argued plaintiff’s motion lacked any affirmative evidence of default by defendant
under either section 4.3 or section 4.14 of the mortgage documents. Regarding the alleged
default by defendant in failing to maintain the property, it asserted DeAngelo’s affidavit
contained only a single “conclusory sentence” and was, therefore, insufficient. As for
defendant’s alleged default in failing to preserve and maintain its existence as an LLC, defendant
asserted its later reinstatement by the Secretary of State resulted in it being deemed to have
continued as an LLC without interruption, notwithstanding its prior dissolution. Defendant
maintained that, as a result, plaintiff failed to meet its summary judgment burden of establishing
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each element of its claim and the absence of a genuine issue of material fact.
¶ 17 In April 2015, the trial court conducted a hearing and found plaintiff entitled to
summary judgment. In May 2015, it entered an order for judgment of foreclosure, finding
defendant in default as alleged by plaintiff. In July 2015, the court entered an order approving the
sale of the property.
¶ 18 This appeal followed.
¶ 19 II. ANALYSIS
¶ 20 On appeal, defendant argues the trial court erred by granting plaintiff’s motion for
summary judgment. It contends plaintiff failed to establish, by affirmative evidence, any default
by it under section 4.3 of the mortgage for failing to maintain the property at issue in good
condition. Defendant additionally argues it was not in default under section 4.14 of the mortgage
and loan documents for failing to maintain its existence as an LLC. It argues that, although it had
been dissolved at the time plaintiff’s complaint was filed, its status as an LLC was later
reinstated and, therefore, its existence as an LLC should be deemed to have continued without
interruption pursuant to section 35-40(d) of the LLC Act (805 ILCS 180/35-40(d) (West 2012)).
¶ 21 Summary judgment is appropriate when “the pleadings, depositions, admissions,
and affidavits on file, when viewed in the light most favorable to the nonmoving party, show that
there is no genuine issue as to any material fact and that the moving party is clearly entitled to
judgment as a matter of law.” Gurba v. Community High School District No. 155, 2015 IL
118332, ¶ 10, 40 N.E.3d 1. “The purpose of summary judgment is not to try a question of fact,
but to determine whether a genuine issue of material fact exists.” Illinois State Bar Ass’n Mutual
Insurance Co. v. Law Office of Tuzzolino & Terpinas, 2015 IL 117096, ¶ 14, 27 N.E.3d 67. “The
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interpretation of a statute is a matter of law appropriate for summary judgment.” 1010 Lake
Shore Ass’n v. Deutsche Bank National Trust Co., 2015 IL 118372, ¶ 20, 43 N.E.3d 1005. The
trial court’s grant of a party’s summary judgment motion is subject to de novo review. Wade v.
Wal-Mart Stores, Inc., 2015 IL App (4th) 141067, ¶ 12, 39 N.E.3d 1141.
¶ 22 As stated, this matter was previously before this court pursuant to an interlocutory
appeal by defendant. In that first appeal, defendant challenged the trial court’s ex parte
appointment of a receiver but raised the same arguments with respect to plaintiff’s allegations of
default that it now raises in this second appeal. In affirming the trial court’s judgment, we noted
section 15-1706(d) of the Foreclosure Law (735 ILCS 5/15-1706(d) (West 2012)) permitted the
court to rule on an ex parte motion to appoint a receiver when the nonmoving party was in
default. CF SBC Pledgor, 2014 IL App (4th) 140416-U, ¶ 24. We found that defendant was in
default under section 4.14 of the mortgage for failing to maintain its existence as an LLC
because, at the time the trial court considered plaintiff’s ex parte motion, defendant was not in
good standing with the Secretary of State and had been dissolved. Id. ¶ 26. In so holding, we
rejected defendant’s contention that, since it was later reinstated as an LLC by the Secretary of
State, its existence should have been deemed to have continued without interruption such that it
was not in default of the terms of the parties’ agreement. Id. ¶ 27.
¶ 23 Defendant now challenges the trial court’s entry of summary judgment and raises
the same arguments. Specifically, it cites the relation-back provision in section 35-40(d) of the
LLC Act (805 ILCS 180/35-40(d) (West 2012)) and contends that although it was
administratively dissolved at the time plaintiff filed its complaint, it was reinstated as an LLC in
January 2014 and, therefore, must be deemed to have continued without interruption. Again, we
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reject defendant’s argument.
¶ 24 Section 35-40(d) of the LLC Act (805 ILCS 180/35-40(d) (West 2012)) provides
as follows:
“Upon the filing of the application for reinstatement, the [LLC] existence shall be
deemed to have continued without interruption from the date of the issuance of
the notice of dissolution, and the [LLC] shall stand revived with the powers,
duties, and obligations as if it had not been dissolved; and all acts and proceedings
of its members or managers, acting or purporting to act in that capacity, that
would have been legal and valid but for the dissolution, shall stand ratified and
confirmed.”
Our research reveals no case addressing section 35-40(d) of the LLC Act or the specific issue
presented on appeal. However, we note section 12.45 of the Business Corporation Act of 1983
(805 ILCS 5/12.45(d) (West 2012)) contains a similar relation-back provision. Cases addressing
that provision are instructive.
¶ 25 Section 12.45(d) of the Business Corporation Act provides as follows:
“Upon the filing of the application for reinstatement, the corporate existence for
all purposes shall be deemed to have continued without interruption from the date
of the issuance of the certificate of dissolution, and the corporation shall stand
revived with such powers, duties and obligations as if it had not been dissolved;
and all acts and proceedings of its officers, directors and shareholders, acting or
purporting to act as such, which would have been legal and valid but for such
dissolution, shall stand ratified and confirmed.” Id.
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This section “permits a reinstated corporation to ratify actions taken on its behalf while it was
dissolved, giving those actions legal effect from the time they were taken.” Chicago Title &
Trust Co. v. Brooklyn Bagel Boys, Inc., 222 Ill. App. 3d 413, 420, 584 N.E.2d 142, 146 (1991).
However, relation back “cannot be invoked to shift individual liability to the corporation, nor to
impose a legal fiction that belies *** real world fact[s].” Department of Revenue v. Semenek, 194
Ill. App. 3d 616, 619, 551 N.E.2d 314, 316 (1990).
¶ 26 In Virendra S. Bisla, M.D., Ltd. v. Parvaiz, 379 Ill. App. 3d 567, 574, 884 N.E.2d
790, 796 (2008), the First District rejected an argument that the Business Corporation Act’s
relation-back provision could be applied to prevent a finding of a breach of an employment
agreement based on the involuntary dissolution of a medical corporation. In that case, the parties,
a medical corporation and a doctor, entered into an employment agreement, which defined
dissolution of the corporation as an event that automatically terminated the agreement. Id. at 571,
884 N.E.2d at 794. During the parties’ employment relationship, the corporation was
involuntarily dissolved and, several months later, reinstated. Id.
¶ 27 On appeal, the medical corporation argued the trial court erred in finding that
dissolution of the corporation constituted a material breach of the employment agreement
because the relation-back provision in section 12.45(d) applied. Id. at 573, 884 N.E.2d at 796. As
stated, the First District disagreed, noting the parties’ agreement contained no provision stating it
remained valid when the medical corporation was dissolved and finding the corporation could
not “successfully argue that the clause [in the parties’ agreement regarding dissolution of the
corporation did] not mean what its plain language set[ ] forth.” Id. at 574, 884 N.E.2d at 796.
¶ 28 In this case, section 4.14 of the parties’ mortgage security agreement plainly
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stated that the mortgage loan was made in reliance on defendant’s continued existence as an
LLC. Defendant agreed to maintain its existence and ensure its continuous right to carry on its
business. The parties’ agreement defined defendant’s breach of section 4.14 as an “Event of
Default.” In its December 2013 complaint, plaintiff alleged defendant failed to maintain its
existence as an LLC because it was not in good standing with the Secretary of State and
dissolved in September 2011. Defendant acknowledges that, at the time plaintiff filed its
complaint, it was not in good standing and had been dissolved. Under these circumstances, we
hold the LLC Act’s relation-back provision does not apply to prevent defendant’s dissolution
from constituting an “Event of Default” under the parties’ agreement.
¶ 29 The relation-back provision allows a reinstated LLC to ratify actions taken on its
behalf while it was dissolved but, like the relation-back provision in the Business Corporation
Act, cannot impose a legal fiction that belies actual, real world facts. As in the initial appeal, we
find the trial court correctly addressed the relation-back provision when stating it does not “apply
in this situation where [defendant’s] failure to maintain [its LLC] status triggers by contract, by
agreement of the parties entered into by both parties freely and voluntarily[,] the default.” The
undisputed facts in this case show defendant defaulted by failing to maintain its existence as an
LLC. Like in Bisla, nothing in the parties’ agreement addressed the effect of reinstatement after
dissolution, and the plain language of the agreement cannot be disputed.
¶ 30 We note that, in its reply brief, defendant argues any breach for failing to maintain
its existence as an LLC was not a material breach warranting a judgment of foreclosure.
However, “points not argued in an appellant’s opening brief ‘are waived and shall not be raised
in the reply brief.’ ” People v. Smith, 2015 IL 116572, ¶ 22, 26 N.E.3d 335 (quoting Ill. S. Ct. R.
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341(h)(7) (eff. July 1, 2008)). As defendant raised this particular argument for the first time in its
reply brief, it is not properly before this court, and we decline to address it.
¶ 31 Here, the trial court committed no error in finding defendant was in default under
the mortgage security agreement for failing to maintain its existence as an LLC. Thus, no
genuine issue of material fact exists with respect to plaintiff’s claims of default, and summary
judgment was appropriately entered in its favor. As a result of this finding, it is unnecessary for
us to address the parties’ remaining arguments regarding whether defendant was also in default
under the mortgage for failing to maintain the property in good condition and repair.
Additionally, we note that, on appeal, plaintiff filed a motion to dismiss defendant’s appeal and a
motion for sanctions. Given the foregoing discussion, we deny the motions.
¶ 32 III. CONCLUSION
¶ 33 For the reasons stated, we affirm the trial court’s judgment.
¶ 34 Affirmed.
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