Johnson & Bell, Ltd., ALFAI’s member firm in Chicago, IL and Crown Point, IN, defeated a claim against its client, Sugar Beets, Inc., in which the plaintiff sought to enforce a $3.6 million penalty provision in a co-tenant agreement based on an alleged default. The trial court dismissed the claim with prejudice and the Appellate Court of Illinois, First Judicial District affirmed. Shareholder Carlos Vera handled the litigation in the trial court and associate Adam Sedia prepared and argued the appeal.
The case turned on a dispute between the defendant and the plaintiff Paper Source, LLC over a co-tenant agreement on a commercial property in Chicago. Paper Source and Sugar Beets occupied the space together as co-tenants and joint leaseholders but in 2021 Paper Source filed for bankruptcy. Its joint lease with Sugar Beets was assigned to the plaintiff as part of the asset purchase agreement approved by the bankruptcy court, but the asset purchase agreement did not mention the co-tenant agreement. The property landlord sent notice of default, and the plaintiff settled, then sued the defendant under the default provisions of the co-tenant agreement. The circuit court dismissed the complaint, finding that the co-tenant agreement was never assigned to the new post-bankruptcy Paper Source business. The appellate court agreed and held that the co-tenant agreement and the lease were not “inseparable,” and therefore not assigned as one unit. The appellate court also rejected plaintiff’s alternative argument that an implied contract was formed to adopt the terms of the co-tenant agreement. Adam said, “This case illustrates the importance of ensuring that all contractual and business arrangements are in order and highlights the Illinois courts’ pragmatic approach to holding parties to the plain language of their agreements.”