Pittsfield Dev., LLC v. Lynd

Pittsfield Development, LLC; Pittsfield Residential II, LLC;and Pittsfield Hotel Holdings, LLC, Plaintiffs, v. Adam David Lynd, Defendant.

No. 19-cv-01321

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

November 13, 2020

Judge Franklin U. Valderrama

MEMORANDUM OPINION AND ORDER

Pittsfield Development, LLC (Development), Pittsfield Hotel Holdings, LLC (Hotel), and Pittsfield Residential II, LLC (Residential) (collectively, Plaintiffs) brought a three-count Complaint against the Defendant, Adam David Lynd (Lynd).¹ Lynd now moves to dismiss the Plaintiffs' amended complaint under Federal Rule of Civil Procedure 12(b)(6). R. 17, Mot. Dismiss.² For the reasons below, the Court grants the motion to dismiss without prejudice.

Background

This dispute centers around the Pittsfield Building (the Building), a historic building purchased by Development in July 2000. R. 15, Am. Comp. ¶ 9. The Building is divided into four properties. Id. ¶ 11. Development owns and operates the ground floor, the basement and sub-basements, along with portions of floor 22 and floors 23-40 (the Tower). Id. Hotel, a limited liability company created to build and operate a hotel in the Building, owns floors 2-9. Id. ¶ 12 (collectively, all of the real property owned by the Plaintiffs are referred to as the Properties). Residential owns floors 10-12. Id. ¶ 13. Development, Hotel, and Residential are all related entities. Id. ¶ 14. A third party, 55 E. Washington Development, LLC, owns Floors 13-21 and uses them primarily for student housing. Id. ¶ 15.

At the time of purchase in 2000, the Building was zoned DX-16 Downtown Mixed Use District (DX-16). Am. Compl. ¶ 16. DX-16 zoning allowed Plaintiffs to implement their plan to build and operate a hotel on floors 2-9 and to add twenty-seven additional "spectacular" residential units within the Building's Tower. Id. ¶¶ 17-18, 34. In 2015, the City issued a building permit allowing construction of a hotel. Id. ¶ 22, Exh. A, Building Permit.

In August 2015, Plaintiffs entered into a contract to sell their properties in the Building for $36,000,000 to Adam David Partners I, LLC (Partners), which was owned by Lynd and organized for this purpose. Am. Compl. ¶¶ 23-25. Ultimately, the parties failed to close on the contract, and Partners forfeited a deposit to the Plaintiffs. Id. ¶¶ 24, 26. Subsequently, Partners filed a complaint against Plaintiffs in the Circuit Court of Cook County³ and filed a lis pendens against the Properties, creating a cloud on title. Id. ¶ 28. The Circuit Court dismissed four counts of the complaint with prejudice, and Partners voluntarily dismissed the remaining counts. Id. ¶ 28.

On December 22, 2015, Lynd's company (the Lynd Company) made a $1,500 campaign contribution to Alderman Reilly.⁴ Am. Compl. ¶ 31. Three days later, on December 28, 2015, Lynd's attorney corresponded with Lynd regarding a possible zoning change, including whether there was "anything the Alderman can do to stop someone from converting floors 2-9 to a hotel." Id., Exh. D at 2. Shortly afterwards, Alderman Reilly publicly expressed that he would oppose a hotel in the Building. Id. ¶ 33. Reilly sponsored Ordinance O2016-811, which only affected the Building and changed its zoning from DX-16 Downtown Mixed Use to DR-10 Downtown Residential Use District. Id. ¶¶ 33-34, 37.

Alderman Reilly wrote a letter to the Chairman of the Committee on Zoning, Landmarks and Building Structures in March 2016. Am. Compl. ¶ 35. Reilly explained that he "introduced this ordinance as a temporary measure to halt a building program that I believe is incompatible with this landmark structure ... ." Id. Exh. E, Mar. 9, 2016 Letter at 2. He further elaborated that he "was alerted of the sale of the Pittsfield Building by potential buyers who sought [his] counsel on what uses [he] considered compatible ... [He] saw an opportunity to assist new ownership with returning this structure to its previous strength ... . Unfortunately, ownership chose not to meet with [him] even after potential buyers reported back to them that [he] could not support hotel use ... ." Id. at 2-3. Around a week later, the City of Chicago passed the Ordinance. Am. Compl. ¶ 36.

According to Plaintiffs, DR-10 zoning restricted the number of allowed residential units in the Building in a manner that prevented new construction. Am. Compl. ¶ 34. Additionally, DR-10 zoning prohibited hotel use, effectively revoking the hotel permit. Id. Plaintiffs allege that the Ordinance required much of their property interests in the Building to sit empty. Id. Plaintiffs engaged a broker to sell their interests in the Building at an auction held on February 28 and March 1, 2017. Id. ¶ 38. Plaintiffs allege that several buyers who were otherwise willing and able to make a purchase were uninterested because of the Ordinance's restrictions. Id. ¶ 39. Plaintiffs were thus unable to sell the Properties at auction. Id. ¶ 40.

In March 2017, Development filed for Chapter 11 bankruptcy protection. Am. Compl. ¶ 42. The bankruptcy court ordered a June 2017 auction of the Properties. Id. ¶¶ 43-44. The Properties sold for $20,800,000—the highest bid. Id. ¶¶ 44, 45. The sale of the properties closed on August 25, 2017. Id. ¶ 45.

In February 2019, Plaintiffs brought a three-count action against Lynd. R. 1. Plaintiffs subsequently filed an amended complaint. R. 15. Counts I and II assert Illinois common-law claims for "intentional interference with prospective contractual relationships" and "intentional interference with contractual relationship," respectively. Count III is an Illinois common-law claim for "willful and malicious injury to property."

Lynd, in turn moved to dismiss the Amended Complaint pursuant to Rule 12(b)(6), arguing that Plaintiffs' Complaint fails for three reasons: (1) Plaintiffs fail to state a claim for either intentional interference with contractual relations or intentional interference with contractual relations; (2) Plaintiffs cannot state a claim for willful and malicious injury to property because Illinois does not recognize any such cause of action; and (3) Development lacks standing to pursue any of its causes of action because any such causes of action are property of its Bankruptcy Estate.⁵ The Court addresses each in turn.

Legal Standard

To survive a 12(b)(6) motion to dismiss, a complaint must "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has facial plausibility when the claimant "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When considering a motion to dismiss, the court will accept all well-pleaded factual allegations as true and view them in the light most favorable to the non-moving party. Lavalais v. Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013). On the other hand, "[t]he complaint must do more than recite the elements of a cause of action in a conclusory fashion." Roberts v. City of Chicago, 817 F.3d 561, 565 (7th Cir. 2016) (citing Iqbal, 556 U.S. at 678).

Discussion

I. Standing to Sue Due to Pending Bankruptcy Claims

First, the Court addresses whether Development has standing to pursue its claims considering its pending bankruptcy petition. Lynd argues that the claims in this case are the property of Development's bankruptcy estate, meaning that only the trustee of the estate has standing to pursue them.⁶ Although "standing" is most often considered a jurisdictional issue, Federal Rule of Civil Procedure 17(a), which requires every action to be "prosecuted in the name of the real party in interest," is a "flexible rule[] for deciding when a case should not go forward" but does not limit the subject matter jurisdiction of federal courts. Bargo, 734 F. App'x at 377.

The Amended Complaint alleges the Building was downzoned on March 16, 2016 and Lynd's alleged tortious conduct occurred prior to the downzoning. R. 17-1, Mot. Dismiss Br. at 14 (citing Am. Compl. ¶¶ 29-32, 36). Development filed for Chapter 11 bankruptcy on March 26, 2017. Id. (citing Am. Compl. ¶ 42). Therefore, reasons Lynd, any claims predating Development's bankruptcy that it could have asserted now belong to the bankruptcy estate. Id. Plaintiffs' response fails to address Lynd's standing argument.

Under the Bankruptcy Code, the "estate" includes "all legal or equitable interests of the debtor in property as of the commencement of the case," 11 U.S.C. § 541(a)(1), as well as "[a]ny interest in property that the estate acquires after the commencement of the case," id. § 541(a)(7). Lynd is right that if these claims belong to the estate, the trustee is the real party in interest. See Matthews v. Potter, 316 F. App'x 518, 521 (7th Cir. 2009) ("The trustee may abandon a legal claim, but until then only the trustee, as the real party in interest, has standing to sue."); Biesek v. Soo Line R. Co., 440 F.3d 410, 413 (7th Cir. 2006) (noting the threshold issue of whether the plaintiff is the "real party in interest," rather than "an interloper, trying to prosecute a claim that belongs to his estate in bankruptcy"). However, Development has filed for Chapter 11 reorganization. Am. Compl. ¶¶ 42, 46-47. In a Chapter 11 case, unless a trustee is appointed, the debtor becomes a "debtor-in-possession." 11 U.S.C. § 1101(1). Debtors in possession in Chapter 11 cases possess the powers of a trustee. Id. § 1107(a). If Development is a debtor-in-possession in its Chapter 11 case, it has standing to bring these claims, even if they belong to the bankruptcy estate. See Long v. One W. Bank, FSB, 2011 WL 3796887, at *2 (N.D. Ill. Aug. 24, 2011).

On the face of the pleadings, it is not apparent that a trustee has been appointed in Development's bankruptcy case. Plaintiffs allege that the claimants that still await distributions under the confirmed reorganization...