WEC 98C-3 LLC v. SFA Holdings Inc.

Summarized by Amir Shachmurove , Brown Rudnick LLP
1 year 10 months ago

Case Type:

Business

Case Status:

Affirmed

Citation:

23-1489 (7th Circuit, Apr 24,2024) Published

Tag(s):

Ruling:

Reviewing a non-bankruptcy judgment of the U.S. District Court for the Northern District of Illinois (DC), the U.S. Court of Appeals for the Seventh Circuit (Circuit) held an original mortgagee's successor to have had standing to sue the defaulting renter's guarantor and the DC to have properly certified its judgment as final for appeal under Federal Rule of Civil Procedure 54, thus rejecting the guarantor's jurisdictional reversal grounds, and the guarantor to have waived its right to present affirmative liability defenses in the guaranty, the guarantor thus luckless on the merits too.

Procedural context:

In July 2020, WEC 98C-3 LLC (WEC), the original landlord of retail space rented to CPS Partnership (CPS), sued SFA Holding (Saks), the new name of the entity - Saks, Inc. (Saks) - formed out of the merger of CPS' original guarantor and Saks Holdings, Inc., for breach of the guaranty after the public sale of that same retail space to 4 Stratford Square Mall Holdings LLC (Stratford), as a result of CPS' and Saks' failures to pay any rent once CPS' parent filed for bankruptcy. In October 2020, Stratford, as the property's new owner, intervened to assert its own breach of guaranty claim against Saks. Having granted summary judgment to a party in Stratford's position relative to Saks pursuant to a guaranty with identically absolute language as to liability to the guaranty at issue between Stratford and Saks in an earlier case, the DC granted Stratford's motion for summary judgment in the instant case with "heavy reliance" on the reasoning from that older case. Finding no reason for delay, the DC certified its judgment as final for appeal. Saks appealed, arguing that the Stratford lacked standing to bring its claim and that the DC had erred in both certifying its judgment for immediate appeal under Federal Rule of Civil Procedure 54 and rejecting Saks' affirmative defenses.

Facts:

Though the relevant corporate entities changed over the year, this whole case boiled down to two contracts. In 1985, CPS leased retail space from a company called WEC; under the lease terms, CPS agreed to pay WEC rent in monthly installments plus a penalty on any overdue rent. This original lease was first updated in 1994. A second amendment followed in 1998. At the same time as CPS signed this second amendment, it entered into a corporate guaranty agreement with Profitt's, Inc., (Proffitt) which merged with the company originally known as Sakes Holdings, Inc., in 1998 to forms Saks, the latter thereby made into the original guarantor's successor-in-interest. Under the terms of this guaranty, Profitt, and therefore Saks, would pay CPS' outstanding rent if CPS defaulted on its rent. Critically, this guaranty expressly deemed the obligation and liability of the guarantor to be "absolute and unconditional," and "not subject to any reduction, limitation, termination, defense, offset, counterclaim or recoupment" due to CPS' bankruptcy, default, or lease rejection. In 2018, after twenty years of reliably paying rent, CPS' parent company, Bon-Ton Stores, filed for bankruptcy. CPS defaulted on its February 2018 rent, and then rejected the lease entirely in August 2018. When WEC asked Saks to pay the outstanding rent, Saks did not, "even though [it] had reaffirmed its obligation as guarantor as recently as 2017." As a result, WEC fell into arrears on its own mortgage, eventually prompting the current mortgagee's predecessor to initiate foreclosure proceedings. At a public auction, Stratford purchased the property.

Judge(s):

Candace Jackson-Akiwumi; Diane Wood; and Thomas Kirsch

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