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Note: At the request of North Route 38, LLC (Developer/Applicant), Dubuque Bank and Trust Company (Issuer) issued five letters of credit in favor of City of Rochelle (City/Beneficiary) and Walmart (Second Beneficiary) to secure Developer/Applicant’s construction and finalization of a commercial development project in Ogle County, Illinois, USA. Under local law, Developer/Applicant was required to secure 110% of the estimated costs of the principal project and 10% of the estimated costs of improvements following practical completion. Relevant portions of local law were incorporated into the underlying agreement and each LC secured a different portion of the project. City/Beneficiary separately agreed to provide up to USD 3,310,000 of Developer/Applicant’s costs and to “use its best efforts to form a tax increment financing (TIF) district” to do so. The parties understood that as the project advanced, the respective LC values would be reduced pursuant to local law.

In a separate agreement, Developer/Applicant and City/Beneficiary engaged D.R. Gilbert & Sons, Inc. (Subcontractor) for the construction of a sewer line under the development project (Interceptor Agreement). The Interceptor Agreement provided that “[City/Beneficiary] was responsible for the installation of the sewer infrastructure and [Developer/Applicant] was required to pay for a portion of the installation costs.” When Subcontractor failed to perform, City/Beneficiary notified Developer/Applicant that Developer/Applicant “would have to pay [USD] 486,000 as its share of the sewer extension work”. Recognizing that it needed City/Beneficiary’s final plat approval to meet its obligations with Second Beneficiary, Developer/Applicant accepted the modification stating that “to avoid significant financial loss by delay in the issuance of the grading permit [by City/Beneficiary], it would pay…under protest.” Subsequently, Developer/Applicant sent a “notice of completion” regarding the development project to City/Beneficiary on 21 July 2011. Ultimately, City/Beneficiary never made a demand on any LC and all of the LCs were returned to Developer/Applicant by 18 November 2013.

On 6 September 2013, Developer/Applicant filed its first complaint against City/Beneficiary. Several months later, Developer/Applicant filed its first amended complaint which contained two counts. In its first count, Developer/Applicant sought a declaratory judgment that City/Beneficiary failed to timely return the LCs and that, due to the TIF funds and other bonds, certain LCs were “unnecessary or duplicative” security. The second count alleged that City/Beneficiary breached the Interceptor Agreement as Subcontractor failed to complete the work resulting in Developer/Applicant incurring substantial costs.

After nearly two years of pretrial motions, the trial court dismissed count two of Developer/Applicant’s complaint citing the modification and release under the Interceptor Agreement and denied City/Beneficiary’s motion to dismiss count one. Subsequently, Developer/Applicant filed its third amended five-count complaint on 6 March 2017. Developer/Applicant repeated its first two claims, preserving the second for appeal. In count III, Developer/Applicant alleged trespass to chattels on the basis that City/Beneficiary failed to timely release the “duplicative” LCs causing Developer/Applicant damages. In count IV, Developer/Applicant claimed that by unlawfully retaining the LCs, City/Beneficiary violated the incorporated provisions of local law and requested statutory damages. In count V, Developer/Applicant made a claim for promissory estoppel alleging that City/Beneficiary promised to release a certain LC in return for Developer/Applicant obtaining another form of security. The trial court granted summary judgment in favor of City/Beneficiary on counts I, III, IV and V on the basis that the claims were “barred by the [Illinois] Tort Immunity Act’s one-year statute of limitations.” The trial court also affirmed its dismissal of count II. Developer/Applicant appealed. The Appellate Court of Illinois, Hudson, Spence and Schostok, JJ., affirmed.

The appellate court first reviewed counts I, III and IV in affirming the trial court, noting that the Illinois Tort Immunity Act provides for a one-year statute of limitations beginning “from the date that the injury was received or the cause of action accrued.” Looking to either the date that Developer/Applicant issued its “notice of completion” or the date that Developer/Applicant considered its work “complete and accepted” (21 October 2011), Developer/Applicant’s first complaint on 6 September 2013, was filed beyond the one-year limitations period. As to count I seeking a declaratory judgment regarding “unnecessary or duplicative” security, the appellate court noted that “those claims accrued at the time the surety was taken” which were in all instances barred by the one-year limitations period.

The appellate court affirmed summary judgment in favor of City/Beneficiary on count V because Developer/Applicant’s claim of promissory estoppel failed to allege “an unambiguous promise” by City/Beneficiary that it would release a certain LC if Developer/Applicant provided a municipal bond. The evidence merely showed that City/Beneficiary would “review the final improvements, quantities and proposed bond” to “verify” that the bond would constitute “an acceptable form of surety” before releasing an LC.

The appellate court affirmed the trial court’s dismissal of count II regarding breach of the Interceptor Agreement. While Developer/Applicant acknowledged the agreed modification and release, it argued that it signed the release “under economic duress” based on its need to acquire plat approval for the main project. The appellate court rejected that argument noting that Developer/Applicant “was represented by counsel for the entire period that the release was negotiated, which was about three months.” The appellate court concluded that “even though [City/Beneficiary] arguably secured [Developer/Applicant]’s agreement to the release through a hard bargaining position and financial pressures, the totality of the circumstances does not, as a matter of law, establish economic duress.”

Comment: Developer/Applicant’s arguments repeatedly refer to the LCs as “other surety”, a term which the appellate court opinion adopts. As no LC text is provided by the opinion, it is unclear whether the inaccuracy arises from LC terms and conditions, or merely as a matter of argumentative convenience, given the presence of other bonds and TIF financing.

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