Urban P'ship Bank v. DKY Developers

2019 IL App (1st) 181918-U

URBAN PARTNERSHIP BANK, as assignee of the Federal Deposit Insurance Corporation,as receiver for Shore Bank, Plaintiff/Counterdefendant-Appellee, v. DKY DEVELOPERS a/k/a DKY DEVELOPERS, RLLP, CITY OF CHICAGO,DOROTHY APPIAH, UNKNOWN OWNERS and NON-RECORD CLAIMANTS, Defendants

(DKY Developers a/k/a DKY Developers, RLLP

and Dorothy Appiah, Defendants/Counterplaintiffs-Appellants).

No. 1-18-1918

APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT SIXTH DIVISION

August 2, 2019

NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Cook County.

No. 15 CH 12400

Honorable Bridgid Mary McGrath Judge Presiding.

JUSTICE CONNORS delivered the judgment of the court.

Presiding Justice Delort and Justice Cunningham concurred in the judgment.

ORDER

¶ 1 Held: The trial court properly granted the bank's section 2-619 motion to dismiss defendants' counterclaims where such claims were explicitly barred by a waiver and release provision contained in a loan modification that defendants signed and the trial court properly granted summary judgment in the bank's favor on its breach of note and breach of guarantee claims where no genuine issue of material fact existed; affirmed.

¶ 2 Defendants/counterplaintiffs, DKY Developers a/k/a DKY Developers, RLLP (DKY) and Dorothy Appiah, appeal from the trial court's orders that dismissed their amended counterclaim and granted summary judgment in favor of plaintiff/counterdefendant, Urban Partnership Bank (UPB). Defendants argue that the court below erred when it dismissed their amended counterclaim pursuant to a waiver and release provision because their claims alleged fraud in the inducement. Further, defendants argue that summary judgment should not have been entered in UPB's favor because significant questions of material fact remained regarding UPB's right to bring such claims. For the reasons that follow, we affirm.

¶ 3 BACKGROUND

¶ 4 This case stems from a commercial breach of contract action filed by UPB, as successor in interest to the Federal Deposit Insurance Corporation (FDIC) as receiver for ShoreBank, against defendants.

¶ 5 For a number of years, Appiah provided tutoring services to children in Chicago Public Schools. Appiah created DKY to provide tutoring and education services at a facility purchased for that purpose. On May 15, 2009, DKY bought the real estate located at 6803 South Throop in Chicago (property). Appiah then sought a small business loan from ShoreBank for working capital, purchase of furniture and fixtures, and rehabilitation of the property so that she could conduct her tutoring business at the property.

¶ 6 On July 28, 2010, ShoreBank made a $120,000 revolving line of credit loan to DKY. The loan was evidenced by a U.S. Small Business Administration Note (note) executed by DKY in favor of ShoreBank. Additionally, Appiah executed a U.S. Small Business Administration Unconditional Guarantee (guarantee) in favor of ShoreBank. The note was secured by a July 28, 2010, mortgage on the property. The loan required interest-only payments on disbursedprincipal amounts for six months and monthly principal and interest payments thereafter, with all remaining principal and accrued interest due and payable 13 years from the date of the note.

¶ 7 On August 20, 2010, ShoreBank was closed by the Illinois Department of Financial and Professional Regulation, Division of Banking, and the FDIC was appointed as receiver thereof. ShoreBank's assets, including the $120,000 loan to DKY, were transferred from the FDIC to UPB pursuant to a Purchase and Assumption Agreement (PAA) dated August 20, 2010.

¶ 8 Defendants subsequently encountered construction issues. As a result, UPB and defendants entered into five loan modification agreements. The initial Modification to Loan Documents was entered into in May 2013, and required that DKY provide UPB with a certificate of occupancy from the City of Chicago no later than October 28, 2013, and provide evidence to UPB that DKY was operating its business in the property as of that date. The First Amended and Restated Modification to Loan Documents was entered into on October 18, 2013, and required that DKY provide UPB with a certificate of occupancy from the City of Chicago no later than January 31, 2014, and provide evidence to UPB that DKY was operating its business in the property as of that date. The Second Amended and Restated Modification to Loan Documents was entered into on January 31, 2014, and required that DKY provide UPB with a certificate of occupancy from the City of Chicago no later than April 30, 2014, and provide evidence to UPB that DKY was operating its business in the property as of that date. The Third Amended and Restated Modification to Loan Documents was entered into on April 30, 2014, and required that DKY provide UPB with a certificate of occupancy from the City of Chicago no later than July 31, 2014, and provide evidence to UPB that DKY was operating its business in the property as of that date. Most relevant to this appeal, on July 31, 2014, UPB and defendant entered into the Fourth Amended and Restated Modification to Loan Documents (fourth loan modification). Thefourth loan modification required DKY to provide UPB with a certificate of occupancy from the City of Chicago no later than October 31, 2014, and provide evidence to UPB that DKY was operating its business in the property as of that date.

¶ 9 All five of the loan modification agreements contained a provision titled "Waiver and Release" that stated:

"Borrower [(DKY)] and Guarantor [(Appiah)] do hereby certify, represent and warrant to Lender that Borrower and Guarantor have no defenses, setoffs, claims or counterclaims of any kind or nature whatsoever against Lender in connection with the Loan Documents or any extensions, amendments, or modifications thereof or any action taken or not taken by Lender with respect thereto or which would otherwise have the effect of diminishing the amount of the indebtedness owing to Lender or impairing in any way Lender's rights with respect to the repayment of the Loan or the collateral security for the Loan. Without limiting the generality of the foregoing, and in consideration of Lender's agreements hereunder, Borrower and Guarantor hereby release and forever discharge Lender, its affiliates and each of their officers, agents, employees, attorneys, insurers, successors and assigns (collectively, the "Released Parties"), from and against any and all liabilities, rights, potential claims, losses, expenses or causes of action, known or unknown, for which Borrower and Guarantor had, now have, or may hereinafter acquire, arising in conjunction therewith. Borrower and Guarantor also waive, release and forever discharge the Released Parties and each of them from and against any and all known or unknown rights to setoff, defenses, potential claims, counterclaims, causes of action and any other bar to enforcement of this Agreement or the other Loan Documents." (Emphasis in original.)

¶ 10 On October 31, 2014, the loan went into default because DKY failed to provide a certificate of occupancy or proof that DKY was operating its business at the property. As a result, the loan was accelerated and declared immediately due and payable.

¶ 11 Thereafter, the FDIC executed an Assignment of Mortgage and Other Loan Documents (assignment) that assigned defendants' note and guarantee to UPB and provided as follows:

"For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the [FDIC], a corporation organized and existing under an Act of Congress, as receiver of ShoreBank, a former Illinois banking corporation ('Assignor'), as holder, hereby assigns, without recourse, to [UPB], an Illinois banking corporation ('Assignee') pursuant to that certain [PAA] dated August 20, 2010, by an between Assignee and Assignor, all of its right, title and interest to:

a. That certain Mortgage executed by [DKY] in favor of ShoreBank, dated July 28, 2010 and recorded in the County Recorder's Office, Cook County, Illinois on January 6, 2011 as document number 1100633109, regards real estate described in Exhibit A¹ attached hereto;

b. That certain Assignment of Rents executed by [DKY] in favor of ShoreBank, dated July 28, 2010 and recorded in the County Recorder's Office, Cook County, Illinois on January 6, 2011 as document number 1100633110, regards real estate described in Exhibit A attached hereto;

c. That certain Commercial Security Agreement dated July 28, 2010, executed by [DKY] and in favor of ShoreBank, as Lender;d. That certain Unconditional Guarantee dated July 28, 2010, executed [by] [Appiah] to and in favor of ShoreBank, as Lender;

This Assignment is made without recourse, representation or warranty, express or implied, by the [FDIC] in its corporate capacity or as Receiver.

Dated this 11th day of August, 2015 and effective as of August 20, 2010."

¶ 12 The assignment was executed by Gregory A. Paulus, the attorney-in-fact for the FDIC. Additionally, the FDIC executed an Endorsement and Allonge to Note (allonge) that endorsed and assigned the note executed by DKY and all modifications thereto to UPB. The allonge was also dated August 11, 2015, and effective as of August 20, 2010.

¶ 13 On August 18, 2015, UPB filed a complaint to foreclose commercial mortgage and for other relief in the circuit court of Cook County. Defendants filed their answer and counterclaim on October 5, 2015. Defendants' counterclaim contained counts for common law fraud and violation of the Consumer Fraud Act, and in the alternative, breach of contract.

¶ 14 On December 21, 2015, UPB filed an amended complaint. The amended complaint contained the following three, respectively-numbered counts: (1) breach of mortgage against defendants; (2) breach of promissory note against DKY;...