McGINLEY PARTNERS, LLC, an Illinois Limited Liability Company, Plaintiff-Appellee, v. ROYALTY PROPERTIES, LLC, a Florida Limited Liability Company; RICHARD KIRK CANNON, an Individual; and MERYL SQUIRES CANNON, an Individual, Defendants-Appellants.
No. 1-17-2976
Appellate Court of Illinois, First District, Fourth Division
December 20, 2018
2018 IL App (1st) 172976
Hon. John C. Griffin, Judge, presiding.
Appeal from the Circuit Court of Cook County, No. 2014-L-005231. Judgment Affirmed.
Norman J. Lerum and Catherine E. Lerum, of Norman J. Lerum, P.C., of Chicago, for appellants.
Katherine M. Saldanha Olson and Joseph S. Messer, of Messer Strickler, Ltd., of Chicago, for appellee.
Presiding Justice McBride and Justice Reyes concurred in the judgment and opinion.
OPINION
¶ 1 The instant appeal arises from a lawsuit by plaintiff McGinley Partners, LLC, to enforce a note and guaranty executed by defendants Royalty Properties, LLC, Richard Kirk Cannon, and Meryl Squires Cannon in connection with the purchase of a horse farm. The trial court granted summary judgment to plaintiff and entered judgment against defendants in the amount of $8,320,669.43 on February
BACKGROUND
¶ 2 ¶ 3 The underlying real estate transaction involved in the instant appeal has been considered three times by this court, first in BMO Harris Bank, N.A. v. Royalty Properties, LLC, 2016 IL App (1st) 151338-U, followed by Forest Preserve District v. Royalty Properties, LLC, 2017 IL App (1st) 171564-U, and Royalty Farms, LLC v. Forest Preserve District, 2017 IL App (1st) 161409. Additionally, we recently considered the propriety of the trial court‘s grant of summary judgment in the instant litigation in McGinley Partners, LLC v. Royalty Properties, LLC, 2018 IL App (1st) 171317. Accordingly, we draw the pertinent facts from our prior decisions.
¶ 4 Defendants Richard and Meryl Cannon owned 43 horses, which resided on a farm in Barrington Hills owned by Horizon Farms, Inc. (Horizon Farms). In 2006, Horizon Farms solicited bids in an effort to sell the farm, and the Cannons submitted a bid of $19.35 million for the property, which was accepted. The Cannons made an earnest money deposit of nearly $2 million and financed the rest of the purchase price, primarily through obtaining a loan of $14.5 million from Amcore Bank in exchange for a mortgage on the property and the personal guaranties of the Cannons. In order to obtain this financing, Amcore Bank required the Cannons to form a limited liability corporation to sign for the loan as the mortgagee. Accordingly, the Cannons created Royalty Properties, LLC (Royalty Properties), also named as a defendant in the instant litigation. In addition to the financing from Amcore Bank, Horizon Farms, the seller, loaned $1.5 million to Royalty Properties, evidenced by a promissory note and secured by a second mortgage on the property. Horizon Farms subsequently assigned its interest in the note and guaranty to the William J. McGinley Marital Trust (trust) upon the dissolution and liquidation of Horizon Farms. On November 10, 2009, the trust assigned all of its right, title, and interest in the note and guaranty to plaintiff McGinley Partners, LLC, the plaintiff in this action. It is this loan that is the subject of the instant litigation.
¶ 5 In 2009, Amcore Bank filed a complaint to foreclose its primary mortgage. In 2010, during the pendency of the lawsuit, the loan was sold to BMO Harris Bank, which took over the foreclosure action. BMO Harris Bank, in turn, sold the loan to the Forest Preserve District of Cook County (Forest Preserve) in June 2013. In August 2013, the trial court granted summary judgment in favor of the Forest Preserve and entered a judgment of foreclosure and sale of the farm. The Forest Preserve was the highest bidder at the foreclosure sale, and the trial court entered a $6.2 million deficiency judgment against defendants.1
¶ 7 The complaint set forth two counts. Count I was for breach of the promissory note and was against Royalty Properties. Count I alleged that the note was in default as a result of nonpayment and that, as of May 14, 2014, $3,509,025.22 was due and owing under the note. Count I further alleged that under the terms of the note, interest continued to accrue at an annual rate of 20% and that Royalty Properties has refused to pay the amounts due and owing under the note.
¶ 8 Count II was for breach of guaranty against the Cannons. Count II alleged that the Cannons guaranteed all sums due and owing under the note and that if the note was in default, the holder of the note was permitted to demand payment of the note from the guarantors. Count II further alleged that plaintiff did demand payment but the Cannons refused to pay the amounts due and owing under the note.
¶ 9 Attached to the complaint were copies of the promissory note, the mortgage, the guaranty, and the affidavit of James McGinley, a trustee and beneficiary of the trust, which made the demand for payment prior to the trust‘s assignment to plaintiff.
¶ 10 After a denial of a motion to dismiss, the parties engaged in discovery, and plaintiff filed a motion for summary judgment on December 17, 2015, which it amended on June 10, 2016. The motion for summary judgment was granted on August 31, 2016, and on September 13, 2016, plaintiff filed a prove-up affidavit. On November 18, 2016, the trial court issued an opinion in which it found that there was a question of fact concerning the amount of damages. On November 29, 2016, plaintiff filed a motion to reconsider and, on February 2, 2017, the court granted plaintiff‘s motion for reconsideration, finding that there was actually no question of fact concerning the amount of damages, and entered judgment in favor of plaintiff against defendants in the amount of $8,320,669.43. We affirmed the trial court‘s grant of summary judgment in McGinley Partners, 2018 IL App (1st) 171317, ¶ 68.
¶ 11 On November 9, 2017, while the appeal from the grant of summary judgment was pending, defendants filed a petition to vacate the February 2, 2017, judgment pursuant to
¶ 12 Defendants claimed that the terms of the intercreditor agreement provided that plaintiff was precluded from enforcing the promissory note against defendants until the senior loan was fully paid. Defendants also claimed that plaintiff would have been required to send a notice to the senior lender prior to initiating an action and that there was no evidence that this notice was sent. Finally, defendants claimed that even if plaintiff was entitled to file its lawsuit, plaintiff was limited to recovering the principal amount of $1.5 million and a maximum of $200,000 in interest and attorney fees, not the $8 million that was sought by plaintiff. Defendants claimed that plaintiff was fully aware of the existence of the intercreditor agreement prior to filing the instant lawsuit and deliberately deceived the trial court by not disclosing its existence.
¶ 13 As relevant to the instant appeal, attached to the section 2-1401 petition was the affidavit of defendant Richard Cannon, who averred that he first received a copy of the intercreditor agreement at the December 21, 2006, closing on the property, where he was pressured to sign the loan documents, despite the lack of the ability to properly review them, or forfeit defendants’ nearly $2 million deposit. Cannon averred that, after the appeal concerning the senior loan had been decided and the case had been remanded to the trial court, the senior lender issued discovery subpoenas to third parties, including a law firm that had been present at the closing. On October 24, 2017, the law firm produced copies of the closing documents, including the intercreditor agreement. Cannon averred:
“Before the October 24, 2017 [law firm] production in the foreclosure case, I was generally aware that a document entitled ‘Intercreditor Agreement’ existed, but I had forgotten about it since I last saw it (in a hurried way) amongst over 500 pages of documents presented to me for signing at the December 21, 2006 closing, almost eleven years ago. Before my recent review of it on October 24, 2017, I was not consciously aware that there were provisions in the ‘Intercreditor Agreement’ which restricted, and limited, the ability of Horizon Farms [(the initial junior lender)], and its assignees, to enforce its separate Note.”
¶ 14 Also attached to the section 2-1401 petition was the intercreditor agreement, which provided that it was between Horizon Farms (the Junior Lender), Amcore Bank (the Senior Lender), and defendant
“A. Senior Lender is making a $14,500,000 ‘Senior Loan’ to Borrower evidenced by a Promissory Note dated December 21, 2006 (‘Senior Note‘) and is secured by a Mortgage dated December 21, 2006 (the ‘Senior Mortgage‘) on the property described on the attached Exhibit A (‘Mortgaged Property‘).
B. Junior Lender is making a $1,500,000 ‘Junior Loan’ to Borrower which will be evidenced by Promissory Note dated December 21, 2006 (‘Junior Note‘) and is secured by a Mortgage dated December 21, 2006 (the ‘Junior Mortgage‘) on the Mortgaged Property.
C. As a condition to the extension of the Senior Loan and the Junior Loan, Senior Lender and Junior Lender have required the execution of this Agreement to set forth certain rights and obligations of Senior Lender and Junior Lender with respect to the Senior Loan and the Junior Loan.”
¶ 15 Section 2.1 of the agreement provided:
“Junior Lender hereby agrees that unless and until the Senior Loan shall have been indefeasibly paid as herein provided, except as otherwise provided under Section 2.2 below or elsewhere in this Agreement: (a) the Junior Loan is and shall be subordinate, to the extent and in the manner hereinafter set forth, to the prior indefeasible payment in full of the Senior Loan, (b) no payment shall be made by or on behalf of Borrower for or on account of the Junior Loan, (c) Junior Lender shall not take or receive from Borrower, directly or indirectly, in cash or other property or by setoff or in any other manner, including without limitation, from or by way of collateral, payment of all or any of the Junior Loan and (d) Junior Lender shall not initiate any formal actions, unless and until it has given Senior Lender ninety (90) days prior written notice. Senior Lender and Junior Lender acknowledge that Senior Lender shall be entitled to receive the first $14,500,000 of proceeds from any Enforcement Action plus interest and its reasonable costs of any Enforcement Action Foreclosure, not to exceed $1,000,000 in the aggregate and that Junior Lender shall after such payment to Senior Lender then be entitled to receive from any Enforcement Action the amount due on the Junior Note up to a maximum of $1,500,000, plus interest and its reasonable costs of any Enforcement Action, not to exceed $200,000 in the aggregate.”
“Enforcement Action” was defined in the agreement as meaning,
“with respect to any Person, the commencement of the exercise of any remedies against such Person including, without limitation, the commencement of any litigation, action, suit, claim, remedy or proceeding, including the commencement of any Insolvency Proceeding or foreclosure proceeding, the exercise of any power of sale, right of setoff, sale by advertisement, the taking of a deed or assignment in lieu of foreclosure, the obtaining of a receiver, the exercise of any other remedies available under the Uniform Commercial Code of any state, or the taking of any other enforcement action against, or the taking of possession or control of, any collateral by the secured party of such Person.”
¶ 16 Section 4.1 of the agreement set forth representations, warranties, covenants, and agreements that Horizon Farms, as the junior lender, owed to Amcore Bank, as the senior lender. Similarly, section 4.2 of the agreement set forth representations, warranties, covenants, and agreements that Amcore Bank owed to
“No Third Party Beneficiaries. Nothing contained in this Agreement shall be deemed to indicate that this Agreement has been entered into for the benefit of any Person other than Senior Lender and Junior Lender.”
The intercreditor agreement was signed by both defendants Richard and Meryl Cannon on behalf of defendant Royalty Properties.
¶ 17 On November 15, 2017, plaintiff filed a combined motion to dismiss the section 2-1401 petition pursuant to
¶ 18 With respect to the issue of whether defendants had raised a meritorious defense, plaintiff claimed that none of the defendants had standing to enforce the intercreditor agreement. Plaintiff noted that the Cannons were not parties or intended beneficiaries of the agreement. Plaintiff also argued that section 2.1 of the agreement did not preclude the judgment and that, even if it did, defendant Royalty Properties lacked standing to enforce it because it was not made for its benefit. Plaintiff also noted that no proceeds from the judgment had yet been sought or collected, making arguments about the priority of payment premature.
¶ 19 Plaintiff also claimed in its motion to dismiss the section 2-1401 petition that defendants had notice of the agreement since 2006 and were therefore not diligent in bringing the matter to the trial court‘s attention in November 2017. Defendants had produced the agreement in their discovery responses and claimed that they failed to read it prior to judgment. Plaintiff asserted that this was “concrete proof” that defendants’ failure to raise the agreement as a defense in the original action is solely the result of their own negligence. Plaintiff noted that 16 months passed between defendants’ production of the agreement in October 2015 and the final judgment being entered in February 2017. Plaintiff also noted that the agreement was additionally produced in December 2015 by the law firm representing Horizon Farms in the sale, in response to a subpoena issued by defendants.3
¶ 20 Attached to the motion to dismiss was a copy of defendants’ response to plaintiff‘s requests to produce, dated October 2, 2015, which referenced “documents produced in this matter [B]ates stamped 1 through 269,” as well as a copy of the intercreditor agreement, which bore Bates stamps of 257 through 269. Also attached
¶ 21 On November 22, 2017, the parties appeared before the trial court for a hearing on the section 2-1401 petition, as well as plaintiff‘s motion to dismiss the petition.5 At the hearing, defendants’ counsel did not dispute that the agreement was produced in defendants’ discovery responses and admitted that counsel “didn‘t fly spec it,” but argued that he was not required to do so “[b]ecause the issues were defined. And *** my due diligence is confined to the issues as framed.” After hearing argument from the parties, the trial court found:
“I don‘t believe there are questions of fact in this matter. I believe that the record is clear. The underlying case, when litigated, was litigated. Both sides fought very hard. There were motions to dismiss, motions to reconsider, motions for judgment on the pleadings, discovery. Extensive litigation took place as part of the underlying case.
*** [T]here‘s just no question of fact that the defendants had the intercreditor agreement. They produced it. Attached to their production was certification by the defendants themselves that it was complete and true. Then [the law firm], who represented Horizon—I think they were the seller, but it was in the real estate deal—they produced it. *** [T]here‘s just no question of fact that it was in the defendants’ possession for a significant period of time prior to the judgment being entered.
Therefore, the Court has no alternative other than to find there wasn‘t due diligence in the underlying case. That‘s the standard I‘m dealing with, is the 2-1401 standard. So I‘m going to grant the motion to dismiss.”
¶ 22 The trial court later expanded on the basis for its decision:6
“I‘m not granting the motion to dismiss based on due diligence in bringing the motion. It was due diligence in the underlying action.
But most importantly, I believed there was no meritorious defense. I believed that the intercreditor agreement does not preempt the judgment. And therefore, there would be no meritorious defense.
I think the [defendants] lack standing to enforce the lien. I think the intercreditor agreement is unambiguous. *** [T]hey don‘t have standing. And the lien payment priority terms of it have not come into play. So *** whether it was timely argued in the underlying case or not, I don‘t think it provides a meritorious defense to the [defendants].”
The trial court entered an order dismissing defendants’ section 2-1401 petition with prejudice “for the reasons stated on the record.” The same order denied defendants’ request for an evidentiary hearing “as there is no question of fact.”
ANALYSIS
¶ 24 ¶ 25 On appeal, defendants claim that the trial court erred in finding that they had not alleged a meritorious defense or shown due diligence in raising the defense in the underlying proceedings.
¶ 26 In the case at bar, defendants claim that they have presented such a “purely legal claim” such that de novo review is appropriate and they are excused from complying with the other requirements of
¶ 27 “Whether a
¶ 28 In the case at bar, the trial court found that defendants had failed to demonstrate the existence of a meritorious defense and also had failed to show due diligence in presenting that defense to the trial court. Since we agree with the trial court that defendants failed to establish due diligence in raising their defense, we need only consider that element and need not discuss whether defendants had a meritorious defense or were diligent in presenting their petition to the court.
¶ 29 As noted, to prevail on a
¶ 30 In the case at bar, we cannot find that the trial court abused its discretion in finding that defendants had failed to establish due diligence in raising their defense. On appeal, defendants focus heavily on plaintiff‘s alleged failure to attach the intercreditor agreement to its pleadings or to produce the agreement in discovery. However, they gloss over the fact that defendants had this document in their possession since the closing. First, defendant Richard Cannon admitted to signing the document at the closing in December 2006. Furthermore, even leaving aside this fact (given the arguments concerning the circumstances under which the agreement was signed), defendants produced the agreement in their October 2, 2015, document production, meaning that they certainly could be charged with knowledge of the document by that point at the latest. Additionally, the law firm that represented Horizon Farms at the closing also turned over the intercreditor agreement in response to a December 15, 2015, subpoena by defendants. Thus, all of the evidence in the record shows that defendants had the agreement in their possession and should have known of its existence (even if Cannon had “forgotten” that he had originally signed it in 2006) by the end of 2015 at the latest. Since summary judgment was not granted until August 31, 2016, eight months after the document was produced by the law firm, we cannot find that the trial court abused its discretion in finding that the due diligence requirement had not been satisfied.
¶ 31 Defendants’ only response to the arguments concerning their diligence is to argue that the due diligence requirement should be relaxed in the instant case. Our supreme court has noted
¶ 32 “Relaxation of the due diligence requirement thereby entitling a defendant to a motion to vacate a judgment is justified only under extraordinary circumstances.” Ameritech Publishing of Illinois, Inc. v. Hadyeh, 362 Ill. App. 3d 56, 60 (2005) (citing All-Steel Employees Credit Union v. Singh, 345 Ill. App. 3d 1005, 1008 (2004)); Gonzalez v. Profile Sanding Equipment, Inc., 333 Ill. App. 3d 680, 686 (2002). “Although it is true that some decisions have relaxed or even excused the due diligence requirements, courts have only done so in the extraordinary circumstances where it is necessary to prevent an unjust entry of default judgment [citation], or where there is unconscionable conduct by the opposing party that would require that the due diligence requirement be relaxed [citation].” (Emphasis in original.) Gonzalez, 333 Ill. App. 3d at 689. “[I]n each case there was evidence of fraudulent conduct by the plaintiff in procuring or concealing the judgment, or other unusual circumstances which made enforcement of the judgment unjust.” European Tanspa, Inc. v. Shrader, 242 Ill. App. 3d 103, 108 (1993). Our supreme court has cautioned that, “[w]hile a liberal construction must be given to the petition to prevent an unjust result [citation], ‘the ambit of section [2-1401] relief must not be overbroadened to such an extent that principles of equity and an ordered concept of justice are diluted’ [citation].” Airoom, 114 Ill. 2d at 227 (quoting Lammert v. Lammert Industries, Inc., 46 Ill. App. 3d 667, 676-77 (1977)).
¶ 33 In the case at bar, we cannot find that the facts alleged justify the relaxation of the due diligence requirement. Defendants make a number of serious allegations against plaintiff, including accusing plaintiff of fraud, perjury, filing false affidavits, and deliberately concealing the existence of the intercreditor agreement from the trial court. However, none of these arguments are persuasive. For instance, defendants claim that the intercreditor agreement was a “loan document” that should have been attached to the complaint. However, “loan documents” as defined by the note consist of “This Note, the Mortgage and any and all other documents now or hereafter executed by Maker and/or others in favor of Holder, which wholly or partially secure or guarantee payment of this Note or pertain to indebtedness evidenced by this Note, and any modification, renewal or extension thereof.” An agreement between the lenders governing the priority of the loans would not be encompassed by this definition. Similarly, defendants claim that plaintiff failed to produce the agreement in response
¶ 34 “Due diligence requires the section 2-1401 petitioner to have a reasonable excuse for failing to act within the appropriate time.” Airoom, 114 Ill. 2d at 222. “Specifically, the petitioner must show that his failure to defend against the lawsuit was the result of an excusable mistake and that under the circumstances he acted reasonably, and not negligently, when he failed to initially resist the judgment.” Airoom, 114 Ill. 2d at 222. ” ‘Relief under
¶ 35 Since defendants have failed to establish one of the requirements for vacating the judgment, we have no need to consider whether they also failed to establish that they had a meritorious defense to the underlying action or whether they established due diligence in presenting their petition to the trial court.
CONCLUSION
¶ 36 ¶ 37 The trial court did not abuse its discretion in finding that defendants had failed to demonstrate due diligence in presenting their defense in the underlying lawsuit, where defendants had actual knowledge of the intercreditor agreement no later than eight months prior to the entry of summary judgment.
¶ 38 Affirmed.