First Am. Bank v. Poplar Creek, LLC

1

2024 IL App (1st) 230551

FIRST AMERICAN BANK, Plaintiff-Appellee, v. POPLAR CREEK, LLC; ESTATE OF GEORGE A. MOSER; DOUGLAS C. ALTENBERGER; GEORGE M. MOSER; MARTIN WALSH; STONEGATE CONFERENCE AND BANQUET CENTRE, LLC; UNKNOWN OWNERS; AND NONRECORD CLAIMANTS, Defendants,

(Estate of George A. Moser, Douglas C. Altenberger, and George M. Moser, Defendants-Appellants).

No. 1-23-0551

Court of Appeals of Illinois, First District, Sixth Division

June 21, 2024

Appeal from the Circuit Court of Cook County. No. 17 CH 14974 Honorable Patrick J. Heneghan, Judge, presiding.

Timothy R. Herman, of Clark Hill PLC, of Chicago, for appellant Estate of George A. Moser.

Charles R. Bernardini and Seth A. Horvath, of Nixon Peabody LLP, of Chicago, for appellant Douglas C. Altenberger.

Cornelius P. Brown and Amy E. Daleo, of Cohon Raizes &amp Regal LLP, of Chicago, for other appellant.

Neal H. Levin, of Rimon P.C., and Shira R. Isenberg, of Smith, Gambrell & Russell, LLP, both of Chicago, for appellee.

JUSTICE HYMAN delivered the judgment of the court, with opinion. Presiding Justice Johnson and Justice C.A. Walker concurred in the judgment and opinion.

OPINION

HYMAN, JUSTICE

¶ 1 In supplemental collection proceedings, First American Bank (First American) recovered a portion of a judgment against Poplar Creek, LLC (Poplar Creek), through a settlement with a guarantor. The remaining guarantors then sought a finding under section 12-183 of the Code of Civil Procedure (735 ILCS 5/12-183 (West 2022)) that the judgment had been satisfied when Poplar Creek assigned to First American as additional collateral a security interest in a tax increment financing (TIF) note from the Village of Hoffman Estates. The guarantors argued that (i) First American should have first applied payments it received from other sources to the judgment and (ii) First American's retention of a TIF note satisfied the judgment. The trial court denied the petition.

¶ 2 We affirm. The trial court did not err in finding that (i) First American was not required to sell the TIF note under the Uniform Commercial Code (UCC) (810 ILCS 5/1-101 et seq. (West 2022)) or principles of equity, (ii) retaining the TIF note did not satisfy the judgment, and (iii) First American had discretion in applying payments and credits it received on the debt.

¶ 3 Background

¶ 4 First American made a commercial property loan to Poplar Creek in 2004, secured by a mortgage lien and assignment of rents and the limited guarantees of Poplar Creek's managers-George A. Moser, Douglas C. Altenberger, George M Moser, and Martin M. Walsh, who is not a party to this appeal. (George A. Moser's estate was substituted as a party.) The guarantors' obligations were limited "to the amount of ten percent (10.00%) of the outstanding Obligations" plus interest, expenses including reasonable attorney's fees, and "all amounts reasonably necessary to protect, preserve and maintain the Premises (as defined in the Loan Agreement), including without limitation amounts paid to other lien holders or governmental entities." The guaranties stated that "[a]ny amounts received by the Bank from whatsoever source on account of the Obligations may be applied by it toward the payment of such of the Obligations, and in such order of application, as the Bank may from time to time elect."

¶ 5 In an amendment, Poplar Creek assigned a security interest to First American as additional collateral in the form of a TIF note from the Village of Hoffman Estates. A pledge and security agreement (TIF Pledge) memorialized the assignment. The TIF note had a principal amount of up to $3,584,840 and provided the holder with annual interest payments of several hundred thousand dollars from a portion of collected tax revenue. The TIF note provided:

"The note, together with the interest thereon, is a limited obligation of the Village, payable solely and only from the collection of the Pledged Taxes and the amounts on deposit in and pledged to the various funds and accounts as provided herein. No holder of the note shall have the right to compel the exercise of any taxing power of the Village for payment of principal thereof or interest thereon. The note does not constitute an indebtedness of the Village or a loan of credit thereof within the meaning of any statutory or constitutional provision."

¶ 6 The TIF Pledge stated, "The bank shall not be obligated to make any sale of the TIF note if it shall determine not to do so, regardless of the fact that notice of sale may have been given."

¶ 7 Poplar Creek defaulted when the loan matured on September 1, 2017. First American presented the TIF note to the Village and became its holder and registered owner. The Village made four interest payments on the TIF note to First American between July 2019 and November 2021, totaling $1,275,222.72, which First American applied toward the loan balance, as required by the terms of the note. The TIF note expired on December 31, 2021, with the Village's expected final payment of about $386,000 coming in 2022.

¶ 8 In November 2017, First American sued Poplar Creek, the guarantors, and others to foreclose the mortgage. Poplar Creek filed for bankruptcy, staying the foreclosure case against it. First American filed a proof of claim for nearly $6.8 million in the bankruptcy case, representing amounts due on the loan as of May 15, 2018. The bankruptcy court approved the claim and ordered a sale of the real property securing the loan. First American submitted a credit bid of $2.1 million and applied it to the debt.

¶ 9 With the case against Poplar Creek stayed, First American moved for partial summary judgment against the guarantors. After briefing, the trial court entered a written order granting First American's motion against each guarantor for $905,061.49 (which included 10% of the outstanding principal or $658,700.21 plus $246,361.28 in real estate taxes First American paid) as well as $1,000,832.44 in accrued interest, attorney's fees, and costs. The trial court later clarified that the judgment amounts for the accrued interest involved a single satisfaction among the judgment debtors. The guarantors appealed, and this court affirmed. First American Bank v. Poplar Creek, LLC, 2020 IL App (1st) 192450.

¶ 10 In supplementary proceedings, First American obtained $4,280,222.82 of the nearly $6.8 million owed on the loan, which included Walsh's $905,000 settlement payment, the $2.1 million credit bid for the property, and the $1,275,222.72 in TIF note interest payments.

¶ 11 The three remaining guarantors filed a petition under section 12-183 of the Code of Civil Procedure (735 ILCS 5/12-183 (West 2022)) for an order that the judgment had been satisfied. The guarantors contended that (i) under the UCC and principles of equity, First American had to either sell the TIF note or accept it as complete satisfaction of the judgment and (ii) First American should have applied money it received from other sources to the judgment.

¶ 12 After briefing and discovery, the parties waived an evidentiary hearing and submitted a joint statement of undisputed facts. The parties also submitted documentary exhibits, affidavits, and deposition transcripts, including from their expert witnesses, who testified about the value of the TIF note. First American's expert, Mary O'Connor, averred the TIF note was a nonrecourse note because the Village had no obligation to pay principal or accrued interest at the end of the agreement and opined that "there is no liquid public market for a contract of this nature." The guarantors' expert, Howard Samuels, acknowledged the Village had no obligation to pay principal under the TIF note but opined First American could have sold it because "there's a market for anything and everything." Samuels admitted that he never tested the TIF note's market value, nor did he provide an amount the bank could have obtained.

¶ 13 A Village employee who managed the TIF note payments testified at a deposition that the Village had never paid principal on the note because of insufficient tax revenues and the TIF note did not contain a guarantee or obligation of payment, as the Village pays principal and interest only if sufficient incremental tax revenues exist.

¶ 14 The trial court entered a written order denying the petition for satisfaction of judgment. The court found that (i) First American had discretion under the guaranties to allocate payments and credits as it saw fit, (ii) Illinois law did not require First American to apply the payments and credits it received to the judgment against the guarantors rather than to the principal debt, and (iii) double recovery was not an issue because the loan amount exceeded the amount First American had recovered.

¶ 15 The trial court also rejected the guarantors' argument that the UCC required First American to sell the TIF note on the grounds that (i) the guarantors relied on permissive, not mandatory, provisions of the UCC, (ii) the TIF Pledge gave First American discretion not to sell the TIF note, and (iii) First American "acted in a commercially reasonable manner in retaining the TIF Note and receiving the few remaining annual interest-only payments due under the Note."

¶ 16 In addressing commercial reasonableness, the court listed the "known challenges and obstacles" First American faced in trying to sell the TIF note, including "(1) it was an underperforming TIF Note; (2) no principal sum had ever been paid on the Note because of insufficient tax revenue; (3) all of the interest that had accrued on the Note had not been paid because of insufficient tax revenue; (4) the tax revenue to pay interest or principal was deficient and stagnant; (5) the Village was only conditionally responsible for...