Mortgage Trust Servicer Holds Equitable Title To Mortgage Claim And Is Real Party In Interest
CW CAPITAL ASSET MANAGEMENT v. CHICAGO PROPERTIES (June 29, 2010)
Blockbuster, the movie rental company, has been hurt by increasing competition and changing business models. As a result, it has abandoned some of its stores. One of those stores was leased from Chicago Properties, a commercial landlord. Blockbuster settled the ensuing breach of lease lawsuit for $161,000, although it owed Chicago Properties future rents of $471,000. The mortgage on the property was held in trust as part of a mortgage-backed security. Bank of America is the trustee and CW Capital Asset Management is the servicer. CW Capital has been granted comprehensive power and authority with respect to the management of the trust’s assets. It brought suit under the parties' "Subordination, Non-Disturbance and Attornment Agreement" (the “Agreement”) for the $471,000. Judge Zagel (N.D. Ill) found for the defendants after a bench trial but then dismissed the suit on the grounds that CW Capital, as servicer, was not the real party in interest. CW Capital appeals.
In their opinion, Chief Judge Easterbrook and Judges Posner and Evans reversed with directions (still finding for the defendants but on the merits). The Court first addressed the real party in interest issue. It concluded, based on its review of the law and the documents, that the trust held legal title to the claim but delegated equitable ownership to CW Capital. That was enough to be a real party in interest. Alternatively, even if CW Capital is not a real party in interest, the Court noted that the case should proceed under Rule 17(a)(3) since the trustee ratified CW Capital's suit in the district court. On the merits, the court noted that the Agreement defines the rights of the parties in the event of a default. Here, notwithstanding Blockbuster's breach, Chicago Properties has not defaulted. Since it continues to meet its monthly obligations, the terms of the Agreement relied on by CW Capital have not been triggered. With respect to the claims based on the mortgage itself and the owners' guaranty, the Court concluded that the settlement with Blockbuster was not a violation. Finally, the Court upheld the district court's award of attorney's fees to Blockbuster under a "prevailing party" term of the Agreement. The Court concluded that the fact that Blockbuster did not prevail on an "unimportant" counterclaim did not change its status as a prevailing party under the Agreement. Although the defendants had prevailed in the district court (on the real party in interest dismissal), the Court reversed that dismissal with directions to enter judgment on the merits for the defendants.
