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Inc. v. BMO Harris Bank N.A.

Court of Appeals of Indiana

June 9, 2015

Merrillville 2548, Inc. successor to Merrillville GC 2548, Inc., Appellant/Intervenor/Counterclaim Plaintiff,
BMO Harris Bank N.A. f/k/a Harris N.A., as the assignee of the Federal Deposit Insurance Corporation as the receiver for Amcore Bank, N.A., Appellee/Plaintiff/Counterclaim Defendant

Appeal from the Lake Superior Court. The Honorable Calvin D. Hawkins, Judge. Cause No. 45D02-1301-MF-26.

ATTORNEYS FOR APPELLANT: R. Brian Woodward, David E. Woodward, Woodward & Blaskovich, LLP, Merrillville, Indiana.

ATTORNEYS FOR APPELLEE: Scott B. Cockrum, John R. Terpstra, Schererville, Indiana.

Bradford, Judge. Kirsch, J., concurs. Vaidik, C.J., concurs in part and dissents in part with opinion.


Bradford, Judge.

Case Summary

[¶1] In 2006, MCSS Merrillville, L.L.C. (" Borrower" ), executed a promissory note (" the Note" ) and leasehold mortgage (" the Mortgage" ) as security for the note in favor of Amcore Bank, N.A.; the debt and mortgage were later assigned to Appellant-Plaintiff-Counterclaim Defendant BMO Harris Bank, N.A., (" BMO Harris" ). Borrower had entered into a lease (" the Lease" ) for real property in Century Plaza in Merrillville (" the Parcel" ), on which it operated a Golden Corral restaurant. The Lease required Borrower to refrain from assigning the Lease or subletting the Parcel. Since 2007, however, Appellee-Intervenor GC 2548, Inc. (" GC 2548" ), has actually operated the Golden Corral, although it has never been made party to the Lease and there was no assignment of rights under the Lease from Borrower to GC 2548.

[¶2] In 2013, BMO Harris sued Borrower and various guarantors of Borrower's debt for breach of contract, foreclosure, and appointment of a receiver. Eventually, BMO Harris moved for default judgment against Borrower and all but one of the guarantors and for an order of possession of the leasehold interest. In August of 2014, the trial court entered default judgment against Borrower and all but one of the guarantors and ruled that any right to possession by those parties was barred. At a hearing, GC 2548 argued that Borrower had abandoned the Parcel and that GC 2548 was an equitable assignee of the Lease. The trial court rejected this argument and ruled that: (1) BMO Harris's default judgment against Borrower entitled it to foreclose on its interest in the Parcel; (2) Article 9.1 of the Indiana Uniform Commercial Code (" UCC" ) dictated the result of this case, rather than Indiana Code provisions governing mortgage foreclosure actions; and (3) GC 2548 was bound by the default judgment against the defendants and was given thirty days to vacate the Parcel.

[¶3] On appeal, GC 2548 contends that (1) the trial court erred in concluding that Article 9.1 applied; (2) GC 2548 is an equitable assignee of Borrower's Lease; and (3) the equitable assignment of the Lease terminated BMO Harris's security interest; and (4) that, even if BMO Harris is entitled to foreclose the Mortgage, it is not entitled to immediate possession of the Parcel. BMO Harris counters that (1) GC 2548 waived certain arguments, (2) GC 2548 was bound by the default judgment against defendants, (3) Article 9.1 of the UCC applies, (4) GC 2548 is not entitled to equitable relief, and (5) the trial court correctly entered its order of possession in favor of BMO Harris. We conclude that although GC 2548 preserved its argument that it was equitably assigned the lease, it has failed to establish equitable assignment, the provisions of Article 9.1 of the UCC do not apply to leasehold mortgages, and BMO Harris is not entitled to an order of possession of the Parcel. We therefore affirm in part, reverse in part, and remand for further proceedings.

Facts and Procedural History

[¶4] At some point in 2005, Borrower entered into the Lease with Century Plaza, LLC (" Landlord" ), for the Parcel, located in Century Plaza, with a term of fifteen years and on which Borrower was operating a Golden Corral restaurant. Inter alia, the Lease required Borrower to " refrain from assigning, selling, or in any manner transferring this Lease or any interest therein, by operation of law or otherwise; to refrain from subletting this Leased Premises or any portion or portions thereof; to refrain from permitting the occupancy by anyone with, through or under it." Defendant's Ex. 2. P. 22. On September 22, 2006, Borrower executed the Note in the principal sum of $1,520,000.00, payable to Lender.[1] The Note required Borrower to make payments on the twentieth of each month until maturity on September 22, 2011, at which point Borrower was required to make a final principal and interest payment. The Note was secured by the Mortgage, originally dated June 2, 2006, and modified on September 22, 2006. In the Mortgage, Borrower granted Lender " a security interest in and all of [Borrower's] rights, titles, and interest in the Lease and [Borrower's] leasehold estate ... located in Lake County at 8215 Broadway, Merrillville, Indiana, 46410." Appellant's App. pp. 129-30. The Mortgage was recorded with the Lake County Recorder on or about February 28, 2007. At some point, BMO Harris was assigned all of Lender's rights and obligations pursuant to the Note and the Mortgage.

[¶5] Since August of 2007, William Niemet has operated the Golden Corral Restaurant at 8215 Broadway on behalf of GC 2548. Borrower transferred the franchise agreement for the Golden Corral to GC 2548, and ever since, GC 2548 has operated pursuant to the terms of the Lease, making payments directly to Landlord while also paying property taxes and improving the real estate. GC 2548, however, is not associated with Borrower, has never been made a party to the Lease, and has not been assigned any of Borrower's rights pursuant to the Lease. Moreover, GC 2548 has made no payments to BMO Harris on the Note.

[¶6] On January 23, 2013, BMO Harris filed a complaint for breach of contract, foreclosure of the Mortgage, and appointment of a receiver. BMO Harris named Borrower as principal defendant and also named, as guarantors of Borrower's debt, MCSS Illinois, L.L.C.; Kipling Homes, L.L.C.; Kipling Development Corporation; Edward Mattox; and Peter Cinquegrani. BMO Harris alleged that Borrower breached the terms of the Note by, inter alia, failing to repay the indebtedness and all other sums due on the maturity date of September 22, 2011. The complaint also sought to foreclose BMO Harris's interest in the Parcel. Of the defendants, only Cinquegrani appeared and answered the complaint.

[¶7] On April 18, 2013, the trial court granted BMO Harris's request for the appointment of a receiver. On May 29, 2013, GC 2548 moved to intervene, which motion the trial court granted on June 18, 2013. On June 20 and October 29, 2013, the receiver filed reports, neither of which was objected to by GC 2548. On December 20, 2013, the ...

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