Latimer LeVay Fyock, LLCLatimer LeVay Fyock, LLC

Recent LLF Victory: When An Opposing Party Has No Leg To Stand On, Don't Give Them One

People often reach out to an attorney with a simple question: “Can I be sued for this?” Regardless of the specific claims or issues involved, the answer is always “yes.” Anyone can sue anyone else for anything; all it takes is filing a complaint with the clerk of court and paying the applicable fee. Of course, just because someone can file a lawsuit does not mean they actually have a viable claim or even the flimsiest leg to stand on. That is why judges throw out countless cases well before trial. But even a meritless suit can cause headaches for the party on the receiving end, especially if that party has legitimate claims of its own.

A recent offensive summary judgment obtained for a lender by LLF’s Sheryl Fyock and Alexander Passo illustrates how a frivolous claim by a borrower can muddy the works for a bit, even if the lender ultimately and rightly prevails. It can also serve as a cautionary tale for any litigant with a contract-based claim to make every effort to avoid giving the opposing party any ammunition they could use to undermine their position.

LLF represented a lender that had agreed to provide a developer with a commercial loan for the rehabilitation and sale of two large homes in Naperville. In exchange for the loans, the lender would receive 40 percent of the net proceeds of the sale of the houses after the return of its capital investment. To secure the significant loans it provided the developer, the lender required the developer to execute mortgages for the properties and a pledge agreement of the developer’s interest in the entity that would be the legal owner of the properties while they were being developed.

In the event of a breach of the loan agreements, the lender had the option of either foreclosing on the mortgages or transferring the developer’s interest in the entity to itself. Ultimately, the developer breached numerous terms of the loan agreements, and the lender transferred the entity's interest to itself under the terms of the pledge agreements. The lender then transferred the pledged interest of the entity to itself and then quitclaimed the properties to one of its subsidiaries.

Even though the lender had advised the borrower in writing that they were in breach of the loan agreements, it did not provide explicit notice that it would be exercising its rights under the pledge agreement to transfer the developer’s interest in the holding entity of the real estate, and would subsequently be quitclaiming the properties.

Notwithstanding the borrower’s clear breaches of the underlying agreements, the borrower sued the lender asserting that the lender’s exercise of its contractual rights without “due notice” or “through legal process” constituted slander of title and trespassing, conversion, and several other claims. The lender then retained LLF in order to defend it in this action and to sort out whether it acted improperly.

Based on the multiple breaches of the loan agreements, the lender counterclaimed for breach of contract and to enforce an accompanying personal guaranty. On behalf of the lender, LLF moved for summary judgment on its counterclaims and prevailed.  The lender was granted declaratory judgment that it exercised its rights appropriately under the agreements and had clear title to the properties, the developer breached the agreement, and the court also entered a judgment in excess of $1,700,000.00 against the developer and guarantor in favor of the lender and keep possession of the properties.

Did the lender have to provide clear express notice of quitclaiming the properties before or at the time they did so? No, neither under the agreements nor the law. But it was enough of a hook for the borrower to cling to – at least for a while - in an effort to avoid the agreed-upon consequences of their breaches. While LLF was able to expose this threadbare effort for what it was, it is a reminder that when your opponent has nothing, don’t give them anything.