Real Estate

Illinois Appellate Court Denies Request for a New Trial After $1.2 million Verdict for Fraudulent Misrepresentation in Commercial Property Transaction

February 23, 2012 | Peter S. Lubin and Patrick Austermuehle

Most businesses are of the brick and mortar variety, meaning that they have a physical location where they conduct operations, and as a result these business have to either buy or rent properties to acquire the space they need. At Lubin Austermuehle, our Elgin business attorneys have handled many commercial and industrial building sale disputes, and are always researching the law in that area to better serve our clients. Napcor Corporation v. JP Morgan Chase Bank, NA is one such case about material misrepresentations made in the sale of a commercial property.

In Napcor Corporation v. JP Morgan Chase Bank, NA, Plaintiff purchased a large commercial building from Defendants. Prior to the sale, the building’s roof allegedly began to leak significantly, and the building’s broker performed an inspection to determine the extent of the damage. The broker allegedly concluded that the existing roof needed to be removed and replaced to fix the problems. Instead of replacing the damaged roof, Defendant constructed a second roof over the first because it was a cheaper option. This second roof was constructed in spite of the fact that Defendant was allegedly warned that the new roof would be susceptible to being torn off by winds. Additionally, the original leakage problem allegedly remained after the new roof’s construction.

The building was then listed for sale, and the pertinent part of the listing stated that the building had a “new roof in 1994 (tear off).” In 1996, Plaintiff purchased the building for $1.309 million through a contract where Plaintiff agreed to accept the building “as is”, and had a 30-day due diligence period. Plaintiff was allegedly not made aware of the leaks, and relied upon Defendant’s alleged representation that the old roof had been torn off. Upon moving into the building, Plaintiff allegedly found the leakage problem and over several years three sections of the roof blew off on three different occasions. Plaintiff then filed suit for fraudulent misrepresentation, and was awarded a $1.2 million judgment after a trial by jury.

Defendant appealed the decision and asked for a judgment notwithstanding the verdict and a new trial based upon faulty jury instructions and the exclusion of evidence that Plaintiff agreed to accept the building in its “as is” condition. Defendant contended that the jury instruction failed to state that Plaintiff had the burden of proof to show all the elements of fraud by clear and convincing evidence. The trial court denied Defendant’s motion.

The Appellate Court affirmed the judgment and held that the trial court did not abuse its discretion by denying Defendant’s motion for a new trial. The Court made its decision because the ‘as is’ language in the purchase agreement did not preclude Plaintiff from claiming it relied on the alleged misrepresentations, and the clause also did not serve as a defense to fraud. As such, the Court decided, the verdict was not against the manifest weight of the evidence. Finally, the Court denied the request for a new trial because the lower court used an IPI civil jury instruction that accurately stated the law, and in doing so, the trial court did not abuse its discretion.

Appellate Court Applies 10 Year Statute of Limitations in Construction Indemnity Case

January 12, 2012 | Peter S. Lubin and Patrick Austermuehle

Lubin Austermuehle represents clients all over the Chicago-land area, and because Chicago is a growing metropolis, land comes at a premium. This means that there is constant property development going on all over our fair city, and with that development comes unique legal problems. Water Tower Realty Company v. Fordham is a case that was decided in the Appellate Court of Illinois, First District, Third Division that addresses some of the problems that arise when companies perform construction in close proximity to neighboring businesses.

In Water Tower Realty Company v. Fordham, Defendant Fordham constructed a building on a parcel of land in Chicago, and prior to its construction, Defendant agreed to indemnify Plaintiff Water Tower for losses suffered due to the erection of the edifice. Five years after the building was finished, Plaintiff filed suit alleging that during construction Defendant had “so used its property as to make it impossible to lease” an adjacent property. Plaintiff claimed that it had lost over $75,000 in rental business as a result and that Defendant had refused to indemnify Plaintiff for this loss. Plaintiff filed for a dismissal of the action, and the trial court dismissed the claims because they were barred by the applicable statute of limitations as set forth in 735 ILCS 2-619(a)(5). Defendant then appealed the trial court’s dismissal.

The Appellate Court analyzed whether the trial court was correct in applying the four year statutory period or whether a ten year period was appropriate. The Court found that the nature of the injury was determinative in making such a decision, with the four year term applying if the injury was due to a construction-related activity, and the ten year term applying if the harm was caused by a breach of contract. In reversing the lower court’s dismissal, the Appellate Court concluded that the appropriate statute of limitations was the ten year term because the Plaintiff’s injury was caused by Defendant’s failure to honor the indemnity agreement. The Court went on to hold that the agreement’s indemnity provisions applied to both first party and third party claims, and that it contained no language that could hold Defendant’s agents personally liable for Plaintiff’s damages.

Partnership Agreements May Not Eliminate One Partner’s Fiduciary Duty to Others, First District Rules

August 24, 2009 | Peter S. Lubin and Patrick Austermuehle

A trial court was correct to find a breach of fiduciary duty in a real estate partnership, the First District Court of Appeal ruled March 27. In 1515 North Wells LP v. 1513 North Wells LLC, No. 1-07-1881 (Ill. 1st. Dist. March 27, 2009), the appeals court also upheld the lower court’s rulings that one partner had breached his contract and that denied him a chance to amend his complaint to pierce the corporate veil.

The case grows out of a real estate development deal struck in 1997. Thomas Bracken, Mark Sutherland, Alex Pearsall and an uninvolved fourth partner formed 1515 North Wells LP, a limited partnership, to develop a condominium with retail space. Sutherland and Pearsall then created SP Development Corporation to serve as the general partner of 1515 North Wells LP. Bracken separately created 1513 North Wells LLC to own space in the building that was to be a health club. Bracken borrowed $250,000 to pay for his part of the property, and signed a note saying he agreed to pay it back no later than 15 days after receiving a financial statement from 1515 North Wells. He further agreed to pay it even if there was a dispute, then wait for a refund later.

To begin development, SP, the general partner, solicited bids for a general contractor. It hired yet another Sutherland and Pearsall company, Sutherland and Pearsall Development, even though its bid was the only one received that failed to state a maximum price for the project. The same general contractor, not 1515 North Wells, later received the profits from condominium upgrades.

Land Owners May Pursue Lawsuit Alleging Chicago Landmark Ordinance Violates Illinois Constitution, First District Rules

May 11, 2009 | Peter S. Lubin and Patrick Austermuehle

In a decision with wide-reaching implications for Chicago land owners and developers, the First District Court of Appeal found March 6 that at least part of the Chicago Landmarks Ordinance was unconstitutionally vague. Hanna v. City of Chicago, No. 1-07-3548 (Ill. 1st Dist. March 6, 2009) is an Illinois real estate lawsuit alleging that the ordinance was overly vague, improperly delegated the city’s legislative authority and violated the due process and equal protection clauses of the Illinois Constitution.

Plaintiff Albert Hanna owned property in Chicago’s Arlington Deming neighborhood, and plaintiff Carol Mrowka owned property in the East Village neighborhood. Both had been approved as Landmark Districts, which means that property owners in those areas must get approval from the Commission of Chicago Landmarks for any alteration, construction, demolition or other work on their property. Land owners may contest the designation at a hearing. The plaintiffs sued the City of Chicago, the Commission and several city officials to overturn the ordinance, which authorizes the designations.

Count I of the complaint alleges that the ordinance is so vague that citizens have no way to tell how they should behave to comply with it. Counts II and III allege that the ordinance violates provisions of the Illinois Constitution reserving legislative power to the city council and state legislature. Counts V through XX allege that the ordinance violates the constitution’s equal protection clause and substantive due process clause. In trial court, the city moved to dismiss the multiple counts of their complaint for failure to state a claim. The trial court granted the motion as to counts I through III and V through XX. The plaintiffs now appeal that decision.

Guarantors of Commercial Lease Are Liable Even After Lease Changes Hands, First District Rules

December 11, 2008 | Peter S. Lubin and Patrick Austermuehle

As Naperville, Oak Brook, Wheaton, and Chicago business trial lawyers with substantial experience in shopping center claims, we were interested to see a recent decision by the First District Court of Appeal on the obligations of people who guarantee a lease. A change in the lease and a directed verdict at trial do not relieve a couple of their liability as guarantors of a commercial lease, the court has ruled. In Chicago Exhibitors Corporation v. Jeepers! Of Illinois and Swento, 1-06-3313 (Aug. 30, 2007), the court ruled that a guaranty agreement written to survive changes to the lease is enforceable even if the lease is assigned to a new tenant who changes it without the guarantor’s approval.

Harvey and Cherry Swento owned a business that leased space from a predecessor landlord to Chicago Exhibitors Corporation (CEC). To sweeten that lease, the Swentos in 1991 personally guaranteed their lease payments and all of their other obligations as tenants, with a clause specifying that the guaranty would survive changes to or assignment of the lease. In 1997, they sold their business to Jeepers! of Illinois, Inc. and executed an agreement in which Jeepers! indemnified them from losses stemming from their personal guaranty. Jeepers! then failed to pay its rent, causing CEC to demand an amendment to the lease that reaffirmed the Swentos’ personal guaranty. CEC declined to recognize the transfer of lease obligations from the Swentos’ company to Jeepers! until rent was paid in full and Jeepers! executed its own guaranty.

Jeepers! never did take on the guaranty, but it failed to pay its rent again several times. In an effort to avoid eviction, it agreed to several changes to the lease in January of 2001. The Swentos did not sign this amendment, even though it called for the ratification of all guarantors. When CEC eventually sued Jeepers! for unpaid rent and repairs, it included the Swentos as guarantors. In the trial, the Swentos asserted that the January 2001 amendment was a material change that discharged them from their obligations as guarantors; CEC successfully moved in limine for a ruling that it was not. The parties then agreed to move straight to the damages phase of the trial, so the judge granted a directed verdict on liability. The Swentos were eventually found liable for unpaid rent and damages as well as attorney fees. They appealed the in limine motion, the directed verdict and the award of attorney fees.

Illinois Tenants Entitled to Interest on Security Deposit, Fifth District Rules

December 4, 2008 | Peter S. Lubin and Patrick Austermuehle

As Chicago class action attorneys, our firm has been able to help many Illinois tenants protect their rights under a special state law that not every renter knows about. The Illinois Security Deposit Interest Act requires many Illinois landlords to pay their renters the interest on security deposits. The law applies to landlords of buildings with 25 or more rental units, and to deposits held six months or more. Under those circumstances, the law requires landlords to pay interest on security deposits once a year, after the end of the yearly rental agreement, except when the renter owed unpaid rent. Landlords who willfully fail to do this can be sued for the amount of the withheld interest, as well as attorney fees and court costs.

That was the case in Wang v. Williams and Royal Rentals, 343 Ill.App.3d 495, 797 N.E.2d 179, 277 Ill.Dec. 832 (Sept. 10, 2003). Zhiyuan Wang of Carbondale sued his landlord, Royal Rentals, for failing to return his security deposit, failing to pay interest during the two years he rented from Royal, consumer fraud and breach of contract. The trial court dismissed his interest claim and his breach of contract claim, both of which were based on the Security Deposit Interest Act, because Wang’s lease included a provision stating “TENANTS agree to waive right to interest on security deposit.” Wang appealed to the Fifth District Court of Appeal.

On appeal, Royal Rentals argued that legal rights, including Wang’s rights under the Security Deposit Interest Act, can be waived when the right in question is conferred only for the benefit of individuals rather than the public. The court found this unconvincing. It pointed out that the Security Deposit Interest Act protects the rights of renters, a class of people. In support, it cited several cases, including Gittleman v. Create, Inc., 189 Ill. App. 3d 199, 545 N.E.2d 237, 240 (1989), a similar case in which tenants sued their landlord for a security deposit refund and interest. That lease had a provision reading “It is understood that the security deposit is net of security deposit interest, if any.” That court found for the tenants, saying the provision was intentionally vague about how interest should be paid and suggesting that the landlord used that vagueness to try to circumvent the Security Deposit Interest Act.

Restrictive Covenant Does Not Apply to Shopping Center Lease, Fourth District Decides

November 27, 2008 | Peter S. Lubin and Patrick Austermuehle

As Chicago business trial attorneys with substantial experience in disputes involving shopping centers, our firm was interested to see a recent Fourth District Court of Appeal decision allowing a shopping center to go through with its lease despite a restrictive covenant in a land sale by its predecessor. In Regency Commercial Associates v. Lopax, 4-06-0332 (May 4, 2007), the appeals court upheld the trial court’s ruling that the business at issue was not covered by the covenant, and that starting the lease while the case was still pending did not bar it from requesting a declaratory judgment.

Regency Commercial Associates, LLC and Lopax, Inc. are companies that own neighboring parcels of land in Savoy, Ill. The prior owner of Regency’s land, Arbours Development Limited Partnership, sold Lopax its land, which Lopax then leased to a Kentucky Fried Chicken franchisee. The sales contract between Lopax and Arbours restricted Arbours from allowing another “fast-food restaurant … or restaurant facility whose principal food product is chicken[.]” It also lists the types of businesses allowed, which include “casual dining.” Regency later purchased Arbours’ rights under the contract.

When Regency wanted to lease to a Buffalo Wild Wings restaurant, it negotiated with Lopax, arguing that the restaurant is “casual dining” and not fast food. Lopax disagreed, saying it believed the contract restricts any restaurant that primarily serves chicken. Regency filed for declaratory judgment, asking the court to find that Buffalo Wild Wings is not fast food and that the covenant restricts only fast-food restaurants that primarily sell chicken. Finding that there was a genuine issue of material fact to try, the court denied Lopax’s motion to dismiss.

Tenants Do Not Need to Prove Willful Violation of Chicago Ordinance to Recover Security Deposit Interest, First District Rules

November 20, 2008 | Peter S. Lubin and Patrick Austermuehle

As Chicago class action attorneys with a focus on consumer rights and consumer protection law, we know that renters in Chicago are fortunate to be protected by a law requiring landlords to pay interest on the renters’ own security deposits once a year, as long as the tenant stays for more than six months. Section 080 of the Chicago Residential Landlord and Tenant Ordinance (PDF) also specifies that landlords must return security deposits, minus unpaid rent or reasonable costs of repairs, within 45 days of the tenant’s departure. Unlike with the corresponding state law, this is true regardless of the number of units the landlord owns. If a landlord fails to comply, the tenant has the right to sue for twice the amount of the deposit, plus interest and attorneys’ fees.

The ordinance also applies even if the landlord did not willfully (that is, intentionally) withhold the payment. That provision was established by the decision of the First District Court of Appeal in Lawrence v. Regent Realty Group, 307 Ill.App.3d 155, 717 N.E.2d 443, 240 Ill.Dec. 350 (1999). In that case, Aurelia Lawrence sued her landlord for withholding interest on a pet deposit. At trial, the court decided that a pet deposit is a security deposit for the purposes of the law (rather than a fee or charge). But because the landlord didn’t willfully refuse to pay interest on that pet deposit, it declined to impose the penalty of twice the deposit plus interest and attorney fees. Lawrence moved for a new trial, which was denied, and appealed to the First District.

In its analysis, the appeals court noted that it did not need to decide whether the landlord actually did willfully fail to pay; what mattered was whether the ordinance required willfulness in the first place. In order to require willfulness, the court wrote, a law must be penal (intended to punish) rather than remedial (intended to make the victim whole). Both sides agreed that the case turned on the issue of penal versus remedial. The court first decided that its decision should not be controlled by Szpila v. Burke, 279 Ill. App. 3d 964, 665 N.E.2d 357 (1996), in which the appeals court decided that a tenant was entitled to damages once rather than for each separate violation of the ordinance. In that case, the First District said, it found willfulness because to do otherwise would give a result that was out of proportion to the violation and unjust. A similar case, Namur v. Habitat Co., 294 Ill. App. 3d 1007, 691 N.E.2d 782 (1998), was dismissed because it did not address the question at issue here.