Alden Nursing Center of Poplar Creek, Inc. v. Meditrust of Illinois, Inc.

618 N.E.2d 1088, 249 Ill. App. 3d 406
CourtAppellate Court of Illinois
DecidedJune 30, 1993
DocketNo. 1—92—0966
StatusPublished
Cited by1 cases

This text of 618 N.E.2d 1088 (Alden Nursing Center of Poplar Creek, Inc. v. Meditrust of Illinois, Inc.) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Alden Nursing Center of Poplar Creek, Inc. v. Meditrust of Illinois, Inc., 618 N.E.2d 1088, 249 Ill. App. 3d 406 (Ill. Ct. App. 1993).

Opinion

JUSTICE CERDA

delivered the opinion of the court;

Plaintiff, Alden Nursing Center of Poplar Creek (Alden), brought a declaratory action to determine the rights and liabilities of the parties regarding certain provisions of a lease agreement between the parties. The trial court granted summary judgment in favor of defendant, Meditrust of Illinois, Inc. (Meditrust). On appeal, Alden asserts that the trial court erred in granting summary judgment because Alden is not obligated to pay (1) greater financing costs associated with refinancing than the original financing arrangements, which provided only for variable costs due to varying interest rates and bond costs; and (2) attorney fees associated with refinancing the bonds because the lease does not provide for such payment. In addition, Alden asserts that the trial court erred in denying its request for an evidentiary hearing on the issue of reasonableness and necessity of the attorney fees claims. We affirm in part and reverse and remand in part.

Alden operated a nursing center on premises leased from Meditrust. In January 1988, a three-part transaction closed between Alden, Meditrust, and a nonparty to this action, Midwest Cambridge, Inc. (Midwest). Under the transaction, which was memorialized in an agreement for purchase and sale and for lease, Meditrust bought a nursing home from Midwest and simultaneously leased it to Alden pursuant to a lease and security agreement executed at the closing. Meditrust made a $2 million cash payment and assumed Midwest’s obligations relating to the existing tax-exempt bond financing on the facility. Meditrust assumed $6.8 million variable rate, tax-exempt revenue bonds (bonds) with the Illinois Health Facilities Authority. The bonds were supported with a $6.8 million letter of credit.

The lease agreement provides that Alden will pay as part of its minimum rent:

“3.1 (a) Minimum Rent:
* * *
(iii) An amount equal to the monthly sum of all principal, interest and other payments of any kind payable in connection with any Assumed Indebtedness ***. Such amount may vary from month to month, owing to the variable rate of interest on the Bonds as well as the varying periodicities for payment of Bond-related costs, fees and expenses.”

The lease agreement defines assumed indebtedness as follows:

“2.1 Assumed Indebtedness: [Defined] Any indebtedness or other obligations existing at the time of acquisition of the Leased Property by Lessor secured by a mortgage, deed of trust or other security agreement in or on the Leased Property and taken subject to or assumed by Lessor pursuant to the terms of the Purchase and Sale Agreement, and any indebtedness resulting from the refinancing thereof (which refinancing shall not (i) result in the financing costs to the Lessee related thereto being greater than the costs associated with the financing arrangement being replaced, or (ii) be on terms materially more burdensome to the Lessee than those associated with the financing arrangement being replaced) and/or any subsequent indebtedness resulting from Lessor’s financing of, or Lessor’s reimbursement of Lessee’s financing of any Capital Additions during the Term, but specifically excluding any indebtedness or other obligations of Lessee not assumed by Lessor prior to or during the Term.”

Initial security for the $6.8 million bonds assumed by Meditrust was provided by a five-year letter of credit issued by National Westminster Bank USA (Natwest) in which Natwest agreed to honor the purchase price of the tendered bonds and the draws by the trustee to pay the bonds’ interest and principal as they became due. Meditrust was required to reimburse Natwest for any draws made against the letter of credit account.

The purchase, sale and lease agreement was executed by Midwest, Alden, and Meditrust at the same time that the lease and security agreement was signed. It was understood by all parties that if the letter of credit lapsed, the bonds had to be redeemed immediately. Section 2.14 of the purchase, sale and lease agreement provided in part:

“The Buyer [Meditrust] shall assume the Bonds and shall take title to the Premises subject to and shall assume the outstanding balance, as of the Closing Date, of the Bond Mortgage Note and the Bond Mortgage ***. All carrying costs, fees, expenses relating to the Bonds, including but not limited to payments of principal of and interest on the Bonds, trustee fees, letter of credit fees and remarketing agent fees shall be paid by the Lessee as a component of the rent payable under the Lease.”

The five-year letter of credit was due to expire on January 15, 1990, by which time it had to be either renewed or replaced. If not, the bonds would be immediately redeemed. Natwest refused to renew its letter of credit. To prevent the bonds from being redeemed, Meditrust obtained an alternative letter of credit from Barclays Bank PLC. The closing costs totaled $169,199. Due to timing problems, it was also necessary to get two emergency temporary extensions of the Natwest letter of credit, which cost $116,116.22.

In June 1990, Meditrust sought reimbursement from Alden for the incurred costs and fees of $288,715.22 associated with obtaining the extensions and new letter of credit. Under protest, Alden paid a portion of those fees and costs. Then, without Alden’s consent, Meditrust removed $105,386.02 from an escrow account under a renovation and closing expense escrow agreement entered into between the parties at the time the lease agreement was made. Meditrust then demanded that Alden pay the remaining amount of $70,742.98.

Denying that it had any obligation under the lease agreement to pay those expenses, Alden filed a declaratory action in March 1990. On January 3, 1991, Meditrust filed a motion for summary judgment arguing that Alden agreed to pay all costs associated with the bond financing. Alden filed a cross-motion for summary judgment. After a hearing on May 23, 1991, the trial court entered summary judgment in favor of Meditrust and denied Alden’s cross-motion for summary judgment.

On appeal, Alden’s argument is as follows. Alden asserts that the new letter of credit was a refinancing for which it is not obligated to pay the associated extraordinary fees and costs. Alden contends that the bonds and letter of credit securing the bonds are inextricably linked, forming the assumed indebtedness, which was refinanced. The lease agreement provides that it is not liable for refinancing costs that are greater than those associated with the original financing arrangements or that are materially more burdensome. Instead, it is required to pay as minimum rent the usual and ordinary costs, fees, and expenses, including variations due to variable rate of bond interest and varying periodicities for related costs, fees, and expenses. Alden argues that the lease reflects an intention of the parties to keep the costs relatively constant, limited to varying periodicities, not extraordinary costs associated with refinancing the assumed indebtedness.

Meditrust responds that the refinancing limitations in the lease were not triggered because no refinancing took place. Instead, Meditrust contends that the. bonds were the financing and the letter of credit is the security for the bonds.

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Bluebook (online)
618 N.E.2d 1088, 249 Ill. App. 3d 406, Counsel Stack Legal Research, https://law.counselstack.com/opinion/alden-nursing-center-of-poplar-creek-inc-v-meditrust-of-illinois-inc-illappct-1993.