WEC 98C-3 LLC v. SFA Holdings Inc.

99 F.4th 961

WEC 98C-3 LLC, Plaintiff,and4 Stratford Square Mall Holdings, LLC, Plaintiff-Intervenor-Appellee, v. SFA HOLDINGS INC., formerly known as Saks Inc., Defendant-Appellant.

No. 23-1489

United States Court of Appeals, Seventh Circuit

Argued December 7, 2023

Decided April 24, 2024

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:20-cv-04356 — Harry D. Leinenweber, Judge.

Rachel Schaller, Attorney, BLANK ROME LLP, Chicago, IL, for Plaintiff.

Brent W. Procida, Attorney, VENABLE LLP, Baltimore, MD, Kori M. Bazanos, Attorney, BAZANOS LAW P.C., Chicago, IL, for Plaintiff-Appellee.

William Andrichik, Jr., Michael Dockterman, Geneva Ramirez, Attorneys, STEPTOE LLP, Chicago, IL, for Defendant-Appellant.

Before Wood, Kirsch, and Jackson-Akiwumi, Circuit Judges.

Jackson-Akiwumi, Circuit Judge.

This case involves two contracts, three litigants, four companies, and millions of dollars of unpaid rent. CPS Partnership operated a department store at an Illinois mall for over thirty years. The corporate entities changed over those years but suffice it to say that CPS leased the retail space from a company called WEC 98C-3 LLC, and Saks¹ guaranteed that it would pay the rent if CPS could not. But when CPS stopped paying rent, Saks did not send WEC a single payment. The lost income caused WEC to default on its mortgage, and 4 Stratford Square Mall Holdings, LLC ("Stratford"), the successor in interest to WEC's mortgagee, purchased the property at the foreclosure auction. Initially, WEC sued Saks for damages. Later, Stratford intervened with its own distinct claim for damages. The district court ruled only on Stratford's claim for unpaid rent, finding that it was entitled to payment from Saks. Stratford then waived its claim for non-basic rent damages, and the district court certified the judgment in favor of Stratford for immediate appeal pursuant to Federal Rule of Civil Procedure 54(b).

Saks took up the invitation and urges us to reverse. On the jurisdictional grounds for reversal that Saks raises, we conclude that Stratford did have standing to sue Saks even though it entered the story much later, and the district court did properly certify its judgment for appeal under Federal Rule of Civil Procedure 54(b). On the merits, we conclude that Saks cannot mount any of its desired defenses: It waived its right to present affirmative defenses to liability in the guaranty that it signed. We therefore affirm the district court's judgment.

I

At the heart of this dispute is a rental contract between CPS and WEC that Saks guaranteed. In 1985, CPS signed a lease with WEC to operate a Carson Pirie Scott Department Store at the Stratford Square Mall in Bloomingdale, Illinois. Under the lease terms, CPS agreed to pay WEC rent in monthly installments plus a penalty on any overdue rent. The parties agreed that the penalty would amount to

a rate of interest equal to the lesser of: (a) the maximum amount of interest permitted under applicable state law, or (b) the greater of (i) four percent (4%) in excess of the yield, from time to time, as quoted daily in the Wall Street Journal (or if the same is not then published, another similar national journal selected by Landlord), of U.S. Treasury Bonds having an maturity closest to that date which is ten (10) years after the date of the Event of Default, or (ii) sixteen percent (16%) per annum.

CPS and WEC amended the lease twice, in 1994 and 1998. The second amendment, which extended the rental period through January 2024, is when Saks entered the picture. At the same time WEC signed the second amendment, it entered into a corporate guaranty agreement with Saks's predecessor in interest, Proffitt's, Inc. Under the terms of the guaranty, if CPS defaulted on its rent, Saks, as its guarantor, would pay the outstanding rent on CPS's behalf. The guaranty established that "the liability and obligation of Guarantor hereunder shall be absolute and unconditional" and "not subject to any reduction, limitation, termination, defense, offset, counterclaim or recoupment" because of CPS's bankruptcy, default, or lease rejection.

For the next twenty years, CPS reliably paid rent to its landlord WEC. But in 2018, CPS's parent company, Bon-Ton Stores, filed for bankruptcy. CPS defaulted on its February 2018 rent, and then rejected the lease entirely in August 2018. So WEC asked Saks to pay the outstanding rent. Saks did not, even though Saks had reaffirmed its obligation as a guarantor as recently as 2017.

With neither CPS nor Saks paying rent, WEC fell into arrears on its mortgage. WEC's mortgagee (Stratford's predecessor in interest) initiated foreclosure proceedings, and Stratford purchased the property at public auction. Bereft of its property, in July 2020, WEC sued Saks for breach of the guaranty. In October 2020, Stratford, who now owned the property, intervened to assert its own breach of guaranty claim against Saks.

At the time, the district court was overseeing an unrelated case in which a different party was attempting to hold Saks liable for breaching a guaranty with identical language to the guaranty at issue here. See WEC 98C-4 LLC v. Saks Inc., No. 20 C 4363, 2021 WL 5280947 (N.D. Ill. Nov. 12, 2021). In that case, the district court granted summary judgment to the party in Stratford's position, ruling that Saks could not assert affirmative defenses to liability. See id. at *4-5. Consequently, when Stratford moved for summary judgment in the instant case, the district court granted the motion with heavy reliance on the reasoning from the court's other summary judgment decision. The court ruled that Saks was liable to Stratford for CPS's unpaid rent from February 2018 through September 2022, plus 9% interest on that unpaid rent pursuant to the penalty provision. Finding no just reason for delay, the court certified its judgment as final for appeal.

Saks now appeals, arguing that (1) Stratford lacked standing to bring its claim, (2) the district court erred in certifying its judgment in favor of Stratford for immediate appeal pursuant to Rule 54(b), and (3) the district court erred in rejecting Saks's affirmative defenses. We evaluate each argument in turn.

II.

We begin with Saks's contention that Stratford lacked standing to sue for rent owed before Stratford even purchased the property. To establish standing, Stratford must show that it "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Taylor v. McCament, 875 F.3d 849, 853 (7th Cir. 2017) (quoting Spokeo, Inc. v. Robins, 578 U.S. 330, 338, 136 S.Ct. 1540, 194 L.Ed.2d 635 (2016)). A district court may only dismiss a case for lack of standing when "there are no set of facts consistent with the complaint's allegations that could establish standing." Lac Du Flambeau Band of Lake Superior Chippewa Indians v. Norton, 422 F.3d 490, 498 (7th Cir. 2005).

Saks claims that Stratford failed to show that it suffered an actual, concrete, and particularized injury because it did not establish it had the right to recover rent for the period before it owned the property. Saks is incorrect.

Under Illinois law, a mortgagor may include an assignment-of-rent clause in the mortgage, which gives the mortgagee an interest in any rent the mortgagor is entitled to once the mortgagee gains possession of the property. See Matter of Wheaton Oaks Office Ltd. P'ship, 27 F.3d 1234, 1242 (7th Cir. 1994). Such affirmative action may include actual possession of the mortgaged property or constructive possession by seeking a court-appointed receiver. See BMO Harris Bank N.A. v. Joe Contarino, Inc., 2017 IL App (2d) 160371, ¶ 42, 412 Ill.Dec. 168, 74 N.E.3d 1091.

Stratford demonstrated that the mortgage included an assignment-of-rent clause and that it had constructive and actual possession of the property. Stratford produced WEC's mortgage agreement, which assigned Stratford's predecessor in interest the right to CPS's lease and Saks's guaranty agreement. The mortgage also provided that the mortgagee could apply for a receiver to enforce its rights. When CPS rejected the lease, the Illinois court appointed a receiver, giving Stratford's predecessor in interest constructive possession and the right to the outstanding rent. See id. And when Stratford's predecessor in interest foreclosed on the property, the foreclosure included "all personal property subject to the security interest held by" the mortgagee. Stratford then gained actual possession of the property and the interest in the rent when it purchased the foreclosed property in February 2020. As a result, Stratford owns the mortgagee's interest in the lease and guaranty. Saks's failure to abide by the guaranty harmed Stratford by depriving it of the rent to which it was entitled. That concrete harm satisfies our standing inquiry.

III.

We next consider Saks's assertion that the district court erred in certifying its judgment for appeal. Under Rule 54(b) of the Federal Rules of Civil Procedure, a district court "may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay." Appellate courts employ a two-step framework to evaluate whether a district court properly certified a judgment under Rule 54(b). First, we review de novo whether the district court's order "was truly a final judgment." Peerless Network, Inc. v. MCI Commc'ns Servs. Inc., 917 F.3d 538, 543 (7th Cir. 2019). Next, we ask "whether the district court abused its discretion in finding no just reason to delay the appeal of the claim that was finally decided." Id. Appellate courts give "[s]ome deference" to the opinion of the district court "that the Rule 54(b) requirements are satisfied." 10 Wright, Miller & Kane, Federal Practice and Procedure § 2655 (4th ed. 2023) (citing c...