PHL, INC. v. Pullman Bank and Trust Co.

836 N.E.2d 351, 216 Ill. 2d 250, 296 Ill. Dec. 828, 2005 Ill. LEXIS 947
CourtIllinois Supreme Court
DecidedJune 3, 2005
Docket96250, 96294 cons.
StatusPublished
Cited by38 cases

This text of 836 N.E.2d 351 (PHL, INC. v. Pullman Bank and Trust Co.) is published on Counsel Stack Legal Research, covering Illinois Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
PHL, INC. v. Pullman Bank and Trust Co., 836 N.E.2d 351, 216 Ill. 2d 250, 296 Ill. Dec. 828, 2005 Ill. LEXIS 947 (Ill. 2005).

Opinions

CHIEF JUSTICE McMORROW

delivered the opinion of the court:

Section 8(b) of the Court of Claims Act provides that the Court of Claims shall have exclusive jurisdiction over “[a]ll claims against the State founded upon any contract entered into with the State of Illinois.” 705 ILCS 505/ 8(b) (West 2000). At issue in this case is whether plaintiffs’ claim for breach of contract, which was brought against the Treasurer of the State of Illinois, constitutes an action “against the State” so as to come within this provision. The appellate court concluded that it did not. No. 5 — 00—0206 (unpublished order under Supreme Court Rule 23). For the reasons that follow, we reverse.

BACKGROUND

In 1982, the State of Illinois established the Illinois Insured Mortgage Pilot Program (Mortgage Program) in an effort to stimulate economic development within the state. Although the workings of the Mortgage Program are somewhat complicated, it may be said, in general, that the program was implemented through the creation of a trust, funded with state money, from which loans were made to various commercial enterprises that had difficulty obtaining conventional financing.1

The details of the Mortgage Program, including the terms governing the creation of the trust and the manner in which loans were to be made by the trustee, were embodied in a purchase agreement, a trust indenture and a servicing agreement (collectively, the Trust Agreement). The Trust Agreement was executed on July 14, 1982, by the State of Illinois, acting through Treasurer Jerome Cosen tino, with the concurrence of Governor James Thompson, and American National Bank and Trust Company of Chicago, both individually and as trustee. Under the terms of the Trust Agreement, the state is the sole owner of the trust estate and, through the Treasurer, directs the trust’s activities.

In November 1982, in connection with the Mortgage Program, a first mortgage loan in the amount of $13.4 million was made to an Illinois limited partnership known as the Collinsville Hotel Venture. The funds from the loan were used by the partnership to finance a hotel in Collinsville, Illinois, which is now known as the Collinsville Holiday Inn. In December 1983, a first mortgage loan was made to another limited partnership, known as the President Lincoln Hotel Venture, in the amount of $15.5 million. The funds from this loan were used to finance the construction of a hotel in Springfield, Illinois, which is now known as the Springfield Renaissance Hotel.

Throughout the 1980s, both hotel ventures had difficulties meeting their obligations under the Mortgage Program loans. As a result, both loans were restructured on at least two occasions. In 1992, a dispute arose between the hotel ventures and then-Treasurer Patrick Quinn regarding a term of the restructured loan agreements which required each hotel venture to provide the Mortgage Program trustee with a yearly “reliance letter.” The trustee and Treasurer threatened to declare the loans in default because they believed that the reliance letters they had received were inadequate. In response, the hotel ventures filed suit against the Treasurer and trustee to enjoin the declaration of default.

The circuit court of Cook County dismissed the hotel ventures’ action based on the doctrine of sovereign immunity. In October 1994, the appellate court affirmed. See President Lincoln Hotel Venture v. Bank One, 271 Ill. App. 3d 1048 (1994). The hotel ventures’ request for rehearing in the appellate court was denied on May 5, 1995. Thereafter, the hotel ventures filed a petition for leave to appeal in this court, which remained pending until October 1995.

In November 1994, defendant Judy Baar Topinka was elected Treasurer of the State of Illinois. After assuming office, Treasurer Topinka installed defendant Pullman Bank and Trust Company (Pullman Bank) as trustee of the Mortgage Program trust.

Beginning in December 1994, and continuing through the first part of 1995, the hotel ventures engaged in discussions with Treasurer Topinka about the possibility of purchasing the hotel venture loans from the state. The terms of sale which were discussed included the settlement of the reliance letter litigation, which was still ongoing at that time. As a result of these discussions, the plaintiffs in this case, which are two entities described in the record as having a “business relationship” with the hotel ventures, agreed to purchase the hotel venture loans. Plaintiff PHL, Inc., agreed to buy the first mortgage loan relating to the Collinsville Holiday Inn for $6.3 million, while plaintiff The President Lincoln Hotel Corporation agreed to pay $3.7 million to acquire the first mortgage loan relating to the Springfield Renaissance Hotel.

On April 19, 1995, plaintiffs entered into separate buy-sell agreements with Pullman Bank, as trustee of the Mortgage Program trust, to purchase the hotel venture loans. The agreements were identical, except for the name of the buyer and the purchase price. Joinders to the agreements were signed by the hotel ventures and Treasurer Topinka. Both buy-sell agreements expressly stated that they were being entered into, in part, to settle the reliance letter litigation and both agreements contained provisions in which the state agreed not to pursue any claims against the hotel ventures in relation to the loans. Closing on the buy-sell agreements was set for June 1995.

After the Treasurer and trustee signed the buy-sell agreements, Attorney General Jim Ryan publicly stated that he would review the terms of the agreements. In July 1995, the Attorney General announced that he would not approve the buy-sell agreements.

The Attorney General’s decision to withhold approval of the agreements rested on two grounds, the first of which was financial. In a report prepared by a group of University of Illinois professors, the combined value of the two hotel venture loans was estimated at approximately $18 million to $19 million. Thus, because the state was to receive a total of only $10 million under the buy-sell agreements, the Attorney General concluded that the consideration the state was to receive for the hotel venture loans and the settlement of the reliance letter litigation was inadequate.

The second reason the Attorney General gave for withholding approval of the buy-sell agreements was found in an opinion letter issued by the Attorney General on July 10, 1995. See 1995 Ill. Att’y Gen. Op. No. 95— 003. In this opinion, the Attorney General observed that the Trust Agreement, as it then existed, did not authorize the Mortgage Program trustee to settle mortgage loans for an amount less than their full value. The buy-sell agreements, however, did so. Therefore, the Attorney General concluded, unless the Trust Agreement was amended, at the direction of the state, the trustee would have no authority to surrender or execute the documents necessary to close on the buy-sell agreements.

The Attorney General’s opinion further observed that the Trust Agreement did not specify who may execute the consent to amend the Trust Agreement on behalf of the state, nor the form the consent should take. The Attorney General noted, however, that the Governor’s involvement was “indispensable to the creation and ongoing operation” (1995 Ill. Att’y Gen. Op. No.

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Bluebook (online)
836 N.E.2d 351, 216 Ill. 2d 250, 296 Ill. Dec. 828, 2005 Ill. LEXIS 947, Counsel Stack Legal Research, https://law.counselstack.com/opinion/phl-inc-v-pullman-bank-and-trust-co-ill-2005.