Legacy Re, Ltd. v, 401 Properties, Ltd. Partnership

2023 IL App (1st) 220855, 230 N.E.3d 707

• Court: Appellate Court of Illinois
• Decided: May 19, 2023
• Docket: 1-22-0855
• Status: Published

Opinion

2023 IL App (1st) 220855 No. 1-22-0855 Opinion filed May 19, 2023

SIXTH DIVISION

IN THE

APPELLATE COURT OF ILLINOIS

FIRST DISTRICT

LEGACY RE, LTD., a British Virgin Islands ) Appeal from the Circuit Court Insurance Company, and ROCK SOLID ) of Cook County. GELT LIMITED, a Delaware Limited ) Partnership, in Their Own Names as Well as ) in the Name of Fortuna Stream LP, a ) California Limited Partnership, ) ) Plaintiffs ) ) ) v. ) ) 401 PROPERTIES LIMITED PARTNERSHIP,) No. 14 CH 09664 an Illinois Limited Partnership; 401 ) PROPERTIES, INC, an Illinois Corporation; ) The Honorable 330 SOUTH WELLS, LLC, an Illinois ) Gerald Cleary, Limited Liability Company; 401 LaSALLE ) Judge, presiding. LENDERS, LLC, an Illinois Limited Liability ) Company; BRIDGEVIEW BANK GROUP, ) as Trustee Under Trust Agreement Dated ) September 16, 2010, and Known as Trust ) Number 1-3432; THE CITY OF CHICAGO; ) THE CITY OF CHICAGO DEPARTMENT ) OF WATER MANAGEMENT; ABM ) JANITORIAL SERVICES-MIDWEST, LLC; ) and UNKNOWN OWNERS AND ) NONRECORD CLAIMANTS, ) ) Defendants ) ) ) (Rock Solid Gelt Limited, Plaintiff-Appellee; ) 330 South Wells, LLC, Defendant-Appellant). ) No. 1-22-0855

JUSTICE ODEN JOHNSON delivered the judgment of the court, with opinion. Justices C.A. Walker and Tailor concurred in the judgment and opinion.

OPINION

¶1 This mortgage foreclosure action was filed by plaintiffs almost 10 years ago. In the

instant appeal, defendant 330 South Wells, LLC (South Wells), appeals an interlocutory

foreclosure order, issued on May 11, 2022, that, among other things, imposed a constructive

trust in favor of plaintiff Rock Solid Gelt Limited (Rock Solid) over Rock Solid’s share of a

mortgage note. The order also transferred the case to another judge for the entry of “form

orders of judgment of foreclosure” and for further proceedings including the sale of the subject

property.

¶2 South Wells filed a notice of appeal claiming that this court had jurisdiction to hear an

appeal from this interlocutory foreclosure order, pursuant to subsection (2) of Illinois Supreme

Court Rule 307 (eff. Nov. 1, 2017). In its appellate brief, South Wells also asserts jurisdiction

pursuant to subsections (1) and (3) of Rule 307(a). In response, Rock Solid argues that we lack

jurisdiction under all three of the claimed subsections of Rule 307(a). For the following

reasons, we find that we lack jurisdiction, dismiss the appeal, and remand for further

proceedings.

¶3 BACKGROUND

¶4 On May 11, 2022, the trial court entered a detailed nine-page memorandum order that

stated that the “matter was before the Court for [a] bench trial for the foreclosure of the property

located at 401 S. La Salle St., Chicago.” 401 Properties Limited Partnership (401 LP) is the

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beneficial owner of the subject property, although the legal title to the property is held by the

Chicago Land Trust Company under a land trust.

¶5 At issue were two mortgages, which the trial court labeled as the “BBG” note and

mortgage and the “Fortuna” note and mortgage. On March 10, 2009, 401 LP obtained a loan

from the Bridgeview Bank Group (BBG) for approximately $7.9 million, secured by a

mortgage on the subject property, which is the BBG note and mortgage. On that same day,

March 10, 2009, 401 LP also obtained a loan from Fortuna Stream LP (Fortuna), a California

limited partnership, for approximately $3.2 million, which was also secured by a mortgage on

the subject property, and which is the Fortuna note and mortgage. Also on March 10, 2009,

401 LP, BBG and Fortuna entered into an agreement that the Fortuna note, and mortgage were

subordinate to the BBG note and mortgage.

¶6 On September 22, 2009, Fortuna assigned interests in the Fortuna note to plaintiffs

Legacy Re, Ltd. (Legacy Re), and Rock Solid. However, in September 2018, Legacy Re

assigned all its interest in the Fortuna note to Rock Solid. As a result, Rock Solid now holds a

28.4729% interest in the Fortuna note. In February 2015, South Wells acquired all of the

interest in the Fortuna note, except for the interest currently held by Rock Solid. South Wells’

interest is 71.527%.

¶7 On October 30, 2015, the BBG note and mortgage were acquired by Excel Acquisitions

LLC (Excel). The sole shareholder of Excel is South Wells.

¶8 In 2014, this foreclosure action was initiated by plaintiffs Rock Solid and Legacy Re.

Legacy Re still had an interest in the Fortuna note at that time. In an order dated December 8,

2014, the trial court appointed Eric Janssen of Chicago Real Estate Resources, Inc. as receiver

for the subject property. As receiver, Janssen was charged with the responsibility of

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“manag[ing] the property as would a reasonably prudent person.” The order “authorized”

Janssen “to collect all rents relating to the property” and to allocate “receipts from the

operations of the real estate.”

¶9 After holding a bench trial in connection with this foreclosure action, the trial court

made a number of factual findings in its 2022 interlocutory order. First, the court found (1) that

Leon Greenblatt, Andrew Jahelka, and Richard Nichols “controlled 95% of” 401 LP, which is

the beneficial owner of the subject property, and (2) that these same people owned or were

“the controlling entities” of another entity, “which in turn owned and controlled” South Wells.

As noted above, South Wells had acquired the majority interest in the Fortuna note and the

sole interest in the BBG note.

¶ 10 The trial court further found that, since the same people were both creditor and debtor,

the BBG note was extinguished as a result of the merger doctrine, and the Fortuna note was

extinguished up to the amount that South Wells controlled it. The trial court explained: “If

those debts were not cancelled and the property was foreclosed and sold at auction, then

Greenblatt, Jahelka and Nichols would obtain a double recovery ***. Such a result would be

patently unfair, unjust and unwarranted.”

¶ 11 The trial court found “that Rock Solid is entitled to a constructive trust” over its share

of the Fortuna note. The trial court appointed “Mitchell Lieberman, who is currently the

attorney for the court appointed receiver over the subject property, as the trustee of the

constructive trust for the benefit of Rock Solid.” The order stated that “[t]he matter is hereby

transferred back to Judge Flannery in [room number] for transfer to Calendar 63 of the

Chancery Division for the entry of the form orders of judgment of foreclosure and sale of the

subject property.”

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¶ 12 On June 9, 2022, South Wells filed a notice of interlocutory appeal, and this appeal

followed.

¶ 13 ANALYSIS

¶ 14 On this appeal, South Wells argues that the trial court erred in finding that the merger

doctrine extinguished its interest in the Fortuna note and in imposing a constructive trust in

favor of Rock Solid. South Wells argues further that there are issues with the trial court’s order,

such as creating a conflict of interest for the trustee, and that Rock Solid is precluded from

maintaining this suit for its alleged failure to follow state registry laws. However, the first issue

we must resolve is whether, as Rock Solid argues, we lack jurisdiction to hear this appeal.

People v. Brindley, 2017 IL App (5th) 160189, ¶ 14 (“[t]he first issue we must address is the

jurisdiction of this court to hear” the appeal).

¶ 15 As an appellate court, our jurisdiction is limited, and those limits are expressly set forth

in our state’s constitution. The Illinois Constitution provides appellate courts with the

jurisdiction or authority to review final judgments entered by a trial court. Ill. Const. 1970, art.

VI, § 6. Specifically, section 6 provides that “[a]ppeals from final judgments of a Circuit Court

are a matter of right to the Appellate Court.” Ill. Const. 1970, art. VI, § 6. As a result, an appeal

to this court is generally taken only after a trial court has resolved all claims against all parties

in an action. Ely v. Pivar, 2018 IL App (1st) 170626, ¶ 28.

¶ 16 However, section 6 of article 6 also provides that “[t]he Supreme Court may provide

by rule for appeals to the Appellate Court from other than final judgments of Circuit Courts.”

Ill. Const. 1970, art. VI, § 6. Thus, when we are presented with a nonfinal judgment, our

authority to hear that appeal is based solely on what our supreme court has permitted us to hear

under its rules. EMC Mortgage Corp. v. Kemp, 2012 IL 113419, ¶ 9 (“absent a supreme court

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rule, the appellate court is without jurisdiction to review” nonfinal orders). If we lack

jurisdiction, we must dismiss the appeal. In re Barion S., 2012 IL App (1st) 113026, ¶ 34 (if

we determine we lack jurisdiction, we must dismiss the appeal).

¶ 17 As noted above, the appellant here asserts jurisdiction under the first three subsections

of Rule 307(a), that provide, in relevant part:

“(a) An appeal may be taken to the Appellate Court from an interlocutory order of

court:

(1) granting, modifying, refusing, dissolving, or refusing to dissolve or

modify an injunction;

(2) appointing or refusing to appoint a receiver or sequestrator ***;

(3) giving or refusing to give other or further powers or property to a

receiver or sequestrator already appointed[.]” Ill. S. Ct. R. 307(a) (eff. Nov. 1,

2017).

¶ 18 Starting first with the first subsection quoted above, we observe that subsection (1) of

Rule 307(a) “applies only to interlocutory injunction orders that merely preserve the status quo

pending a decision on the merits, conclude no rights, and are limited in duration, in no case

extending beyond the conclusion of the action.” Santella v. Kolton, 393 Ill. App. 3d 889, 903

(2009). Rule 307(a)(1) “does not apply to permanent orders, which are orders that are not

limited in duration and alter the status quo.” Santella, 393 Ill. App. 3d at 903. Permanent orders

“constitute final orders and are only appealable under Rule 301 or 304(a), if those rules are

applicable.” Santella, 393 Ill. App. 3d at 903.

¶ 19 In the case at bar, the order at issue was a permanent order not subject to review under

Rule 307(a)(1). The permanency of the order is evidenced by the fact that the constructive

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trust, imposed by the trial court, altered the status quo, concluded the rights of the parties, and

was not limited in duration. Thus, we do not have jurisdiction pursuant to subsection (1) of

Rule 307(a). 1 In re Marriage of Winter, 387 Ill. App. 3d 21, 27 (2008) (a constructive trust

was not permanent where it “preserve[d] the status quo of the marital estate” for further

proceedings); 2 see also In re Marriage of Tetzlaff, 304 Ill. App. 3d 1030, 1038 (1999) (appeal

dismissed where this court did not have jurisdiction under Rule 307(a)(1) to review an order

placing monies in an escrow account).

¶ 20 In support of its argument that jurisdiction is proper under subsection (1), South Wells

cites In re A Minor, 127 Ill. 2d 247, 253, 263 (1989), in which our supreme court found

appealable under this subsection an interlocutory order by a trial court forbidding a local paper

from publishing the name and whereabouts of a minor who had been charged in connection

with a fatal shooting. In that case, the State asserted that the issue was moot on the ground that

the order would not survive the termination of the juvenile proceeding; however, the supreme

court found an exception to the mootness doctrine, since the order concerned an event of short

duration capable of repetition, yet evading review. In re A Minor, 127 Ill. 2d at 258. The case

at bar, which involves imposing a constructive trust on funds, bears little resemblance to In re

A Minor, which involved a prior restraint on publication and the inherently short shelf-life of

1 On appeal, Rock Solid relied on Stevard LLC v. S-R. Investments LLC, 2022 IL App (1st) 220623-U, where this court considered whether appellate jurisdiction existed pursuant to Rule 307(a)(1) over a trial court order that imposed a constructive trust. However, the supreme court directed this court to vacate its judgment in Stevard and consider whether jurisdiction existed under Rule 301, which we did. Stevard LLC v. S-R. Investments LLC, 2023 IL App (1st) 220623-UB. As such, we do not find Stevard to be analogous to the case at bar and will not rely on it in our analysis. 2 South Wells also cites in support the almost half-century old appellate case of American Re- Insurance Co. v. MGIC Investment Corp., 73 Ill. App. 3d 316, 323-25 (1979), where the appellate court chose to exercise jurisdiction under Rule 307(a), in order to review a deposit order that a trial court had entered ex parte. The appellate court noted the need “to permit the interlocutory review of a court’s equitable discretion to prevent its abuse.” American Re-Insurance, 73 Ill. App. 3d at 324. The instant case is far from ex parte, with every issue well-argued and well-briefed by all. 7 No. 1-22-0855

newsworthiness. See In re Marriage of Eckersall, 2015 IL 117922, ¶ 17 (distinguishing In re

A Minor, since it involved a “newspaper’s interest in the publication of newsworthy

information”).

¶ 21 In its appellate brief, South Wells quotes the part of In re A Minor, which quoted an

1869 case as describing an injunction as “ ‘a judicial process, by which a party is required to

do a particular thing, or to refrain from doing a particular thing, according to the exigency of

the writ.’ ” In re A Minor, 127 Ill. 2d at 261 (quoting Wangelin v. Goe, 50 Ill. 459, 463 (1869)).

However, shortly after the quote, the supreme court observed that “[n]ot every nonfinal order

of a court is appealable, even if it compels a party to do or not do a particular thing.” In re A

Minor, 127 Ill. 2d at 261-62. The supreme court found that a nonfinal order was not appealable

if it did “not affect the relationship of the parties in their everyday activity apart from the

litigation.” In re A Minor, 127 Ill. 2d at 262. In the case at bar, the constructive trust imposed

on anticipated sale proceeds, for Rock Solid’s amount of the mortgage note, did not affect the

relationship of the parties in their everyday activity apart from the litigation. Thus, the rule

does not authorize us to engage in piecemeal appeals in this case.

¶ 22 We turn next to subsections (2) and (3), which concern the appointment or refusal to

appoint a receiver or the giving or refusal to give further powers to an already appointed

receiver. Ill. S. Ct. R. 307(a)(2), (3) (eff. Nov. 1, 2017). In support of jurisdiction, South Wells

quotes In re Marriage of Padilla, 2022 IL App (1st) 200815, ¶ 17, where this court found

jurisdiction under subsections (2) and (3) “[b]ecause one of the trial court’s *** orders [at

issue] appointed a receiver over respondent’s estate and the other gave certain powers to that

receiver.” In the case at bar, the trial court’s nine-page order stated in one line: “As a

consequence of finding a constructive trust over Rock Solid’s share of the Fortuna Note, the

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Court hereby appoints Mitchell Lieberman, who is currently the attorney for the court

appointed receiver over the subject property, as the trustee of the constructive trust for the

benefit of Rock Solid.” However, as this line indicates, Lieberman was neither the receiver

himself nor appointed to be a receiver in this order. 3 Thus, the express words of the rule do not

apply.

¶ 23 A receiver is different from a constructive trustee, as this case aptly illustrates. A

receiver is authorized to take possession of and manage the property “for the benefit of the

party ultimately entitled.” In re Marriage of Pick, 167 Ill. App. 3d 294, 299 (1988). In the case

at bar, the 2014 order appointing Eric Janssen of Chicago Real Estate Resources, Inc., as

receiver, ordered him “to manage the property as would a reasonably prudent person.” The

order “authorized” him “to collect all rents relating to the property” and to allocate “receipts

from the operations of the real estate.” In contrast to these powers that the receiver was

authorized to exercise outside the presence of the court, Lieberman held the place of

constructive trustee as the case was transferred back to the auspices of another judge to oversee

the entry of further orders and the sale of the property. The positions here, of receiver and

trustee, with their disparate levels of responsibility, are not comparable.

¶ 24 “It is well settled that a judgment ordering the foreclosure of mortgage is not final and

appealable until the trial court enters an order approving the sale and directing the distribution.”

EMC Mortgage Corp., 2012 IL 113419, ¶ 11. “The reason such a judgment is not final and

appealable is because it does not dispose of all issues between the parties and it does not

terminate the litigation.” EMC Mortgage Corp., 2012 IL 113419, ¶ 11. Similarly, in the case

3 Later, in South Wells’ appellate brief, South Wells makes substantive arguments with respect to attorney Lieberman, as distinct from the role of receiver. However, South Wells cannot have it both ways: Lieberman cannot be the receiver for purposes of jurisdiction and then be the attorney for purposes of arguing a conflict with, among others, the receiver. 9 No. 1-22-0855

at bar, the order at issue here did not terminate the litigation, but expressly contemplated further

proceedings. “[A]lthough a judgment of foreclosure is final as to the matters it adjudicates,” it

is not appealable, “because the trial court has still to enter a subsequent order approving the

foreclosure sale and directing distribution.” EMC Mortgage Corp., 2012 IL 113419, ¶ 11.

Similarly, in the case at bar, the order was final as to the matters it adjudicated, but it was not

appealable, because the trial court still had to enter subsequent orders. “Accordingly, it is the

order confirming the sale, rather than the judgment of foreclosure, that operates as the final

and appealable order in a foreclosure case.” EMC Mortgage Corp., 2012 IL 113419, ¶ 11. We

choose not to upset this well-settled rule regarding foreclosure orders. Where “any inequity in

the temporary order could be addressed before the final” order by the trial court, “an

interlocutory appeal was not appropriate.” Tetzlaff, 304 Ill. App. 3d at 1038.

¶ 25 CONCLUSION

¶ 26 Since this is an appeal from an interlocutory foreclosure order and we lack jurisdiction

pursuant Rule 307(a), we must dismiss the appeal. There is no reason or justification for either

more delay or piecemeal litigation in this decade-old foreclosure action.

¶ 27 Appeal dismissed.

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Legacy Re, Ltd. v, 401 Properties, Ltd. Partnership, 2023 IL App (1st) 220855

Decision Under Review: Appeal from the Circuit Court of Cook County, No. 14-CH-09664; the Hon. Gerald Cleary, Judge, presiding.

Attorneys Robert G. Black, of Law Offices of Robert G. Black, P.C., of for Naperville, for appellant. Appellant:

Attorneys Lawrence M. Benjamin, of Reed Smith LLP, of Chicago, for for appellee. Appellee: