Court Opinion

ID: 3146189
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:14:06.669251+00
Date Added: 2024-06-11T11:55:11.309415
License: Public Domain

SECOND DIVISION
                                                                       June 27, 2006

No. 1-05-2096

CARLISLE INVESTMENTS GROUP, LTD.,                      )
GARY L. BLANK and JOHN G. FREZADOS,                    )
                                                       )       Appeal from the
                Plaintiffs-Appellants,                 )       Circuit Court of
       v.                                              )       Cook County.
                                                       )
JESSE WHITE, SECRETARY OF STATE, )
STATE OF ILLINOIS,                                     )       Honorable
                                                       )       Mary Ann Mason,
                Defendant-Appellee.                    )       Judge Presiding.
                                                       )

       JUSTICE SOUTH delivered the opinion of the court:

       Following an administrative hearing, the Secretary of State found that plaintiff and its

officers acted as loan brokers within the meaning of the Illinois Loan Brokers Act of 1995 (Act)

(815 ILCS 175/15-5.15 (West 1998)) when they agreed in November 1999 to arrange sources of

financing for, and to help rehabilitate, a building owned by Lorraine Phillips in return for a fee,

and that they violated sections 15-10 and 15-15 of the Act (815 ILCS 175/15-10, 15-15 (West

1998)) by not registering, or applying to register, as such. In addition, after plaintiffs failed to

comply with the Secretary=s subpoena, which requested that they provide monthly statements for

their bank and other financial accounts from January 1, 1999, forward, and which the hearing

officer found relevant over plaintiffs= objections, the Secretary found that they violated section

15-45 of the Act, which prohibits refusing to respond the Secretary=s written requests for

information. 815 ILCS 175/15-45 (West 2000). The Secretary then issued a permanent order

prohibiting plaintiffs from acting as loan brokers and assessed fines against them: $5,000
1-05-2096

against Carlisle, and $2,500 against each of the individual plaintiffs. The Secretary=s decision

was affirmed by the circuit court in a written order. This appeal followed.

                                      FACTUAL HISTORY

       On or about November 10, 1999, Carlisle Investment Group, Ltd. (Carlisle), through its

executive vice-president, John G. Frezados, entered into a consulting agreement (Agreement) as

to property located at 630 S. Wabash in Chicago, with Lorraine Phillips, the owner of the

property. The Agreement identified Carlisle as "specializing in the organization and

presentation of financial packages [with] established relationships with sources of financiers,"

and specified the desire of Phillips to "retain and employ the services of Carlisle for the analysis

and assistance in the presentation of the financial package and the necessary liaison required

between and/or among vendors and financiers," which contained the following terms and

provisions:

                       "a. Carlisle is hereby appointed as agent and consultant of Phillips, and

               otherwise [to] act on a full time basis as management and financial consultant and

               advisor.

                       b. Upon the culmination of a financing agreement by and between

               Phillips and any funding source disclosed by Carlisle, Phillips authorizes the

               Fiduciary or Escrow to recognize the presentation of this signed agreement [as an]

               earned demand for payment of an amount equal to 22% of the gross funding

               accepted by Phillips from the source and/or representative, agent, or broker

               thereof furnished through the efforts and/or Carlisle. This payment will be

                                                 2
1-05-2096

                 recognized as a completely earned fee by Phillips for Carlisle [sic] services.

                        c. It is understood that final approval of financing resides with the

                 financial providers and institutions and that this is not to be construed by Phillips

                 as a warranty that said proposed financing will be granted and that it is

                 understood that Carlisle is acting on a best efforts basis. Phillips recognizing the

                 foregoing, agrees to cooperate with Carlisle and provide the necessary

                 documentation and assistance required to complete the financing package and

                 redevelopment.

                        d. In further recognition of the management and consulting services

                 rendered by Carlisle to Phillips to oversee the redevelopment of the project and

                 building rehabilitation, Phillips agrees to compensate Carlisle from the

                 development budgeted funding a 5% fee to be charged against the gross amount

                 of the project and to be paid in semi-monthly payments, as authorized deductions

                 from and thru the fiduciary or escrow so established."

       On or about January 22, 2000, Carlisle, through Frezados, issued a letter to Phillips in

which Carlisle required Phillips to execute a quitclaim deed for the property to Carlisle, which

was executed by the parties on January 22, 2000, and recorded by Frezados on January 25,

2000. 1 The January 22, 2000, letter was considered by the parties to be an amendment to the

       1
           There was a factual dispute in the testimony concerning whether Carlisle required this

quitclaim deed in order to proceed with the Agreement; Phillips testified that it was required by

Carlisle and Gary Blank testified that Phillips suggested the quitclaim deed because she was

                                                   3
1-05-2096

original Agreement executed by the parties. Once the project was completed, Phillips was to

record a return quitclaim deed (Carlisle to Phillips).

       On or about March 20, 2000, Blank, on behalf of Carlisle, issued a letter to Bob Fioretti,

Phillips= attorney, entitled "Funding for restoration at 630 S. Wabash, Chicago, Illinois" in which

he stated that he had a construction commitment from J.W. Young through his local

representative, Wesley Taylor, and that he had, through attorney Bill Rochos, "set in motion to

have an interim bridge loan put in place this week." Attached to that letter was a letter from J.W.

Young dated March 2, 2000, in which Young agreed to "deposit and make available an

$8,000,000 line of credit for the rehabilitation of the hotel located at 630 S. Wabash. After the

hotel has been rehabed [sic] and is in operation, we will change the line of credit to a long-term

note with an interest rate of 1% over the prime rate." On March 21, 2000, Blank and Frezados

sent a letter to Fioretti on March 21, 2000, in which they stated that Bill Rochos scheduled a

closing for that Friday with his investor group. They then stated that, as a result, Carlisle would

be able to provide Phillips with funds. Wesley Taylor of the Taylor Group Corporation issued a

letter dated March 22, 2000, to Blank in which he confirmed the loan arrangements with J.W.

Young. However, on March 22, 2000, Phillips recorded the return deed, and neither she nor her

concerned about building violations from the city.

                                                 4
1-05-2096

attorney appeared at the March 24, 2000, closing, thus terminating the Agreement.

       Attorney Rochos issued a letter dated March 24, 2000, to Blank in which he confirmed

the availability of a $650,000 loan for 630 S. Wabash, making reference to a letter of

commitment for said loan issued to Blank dated March 21, in which the collateral for the loan

was specified as a "First Mortgage and Assignment of Rents encumbering the real estate at 630

S. Wabash."

       Carlisle subsequently sent a letter to Phillips dated March 28, 2000, asking her to execute

a quitclaim deed for the property to Carlisle and a land trust to allow Carlisle "to provide the

funding for the restoration work, and to allow us to use the property as collateral." Carlisle=s

attorney, John Partelow, sent a letter to attorney Fioretti as to the "closing on the $8.65 million

dollar financing package put together by Carlisle for this project." Taylor sent a letter to Carlisle

dated May 23, 2000, in which he confirmed the availability of an $8 million loan for which the

collateral would be a first mortgage on the property. According to Taylor=s letter, Carlisle would

be the initial borrower, but at the end of the 12-month construction period, the construction loan

would be converted to a permanent loan to Phillips, which would mature in seven years.

       Blank testified that when Phillips terminated the Agreement, Carlisle filed a verified

complaint against Phillips in the chancery division, case No. 00-CH-5638, on April 11, 2000.

Carlisle sought to quiet title, for specific performance and other relief, including $750,000 as

damages. Blank stated that the benefit Carlisle would have received from the Agreement with

Phillips was a fee of at least $615,000. In that verified complaint, Carlisle stated the following:

                       "a. On November 10, 1999, Carlisle and Phillips entered into a written

                                                  5
1-05-2096

            agreement for the development of property. The agreement provided that Carlisle

            would act as agent of, and consultant for, Phillips in connection with the

            redevelopment and management of the rehabilitation of the property.

                   b. The agreement provided, among other things, that Carlisle would seek

            and arrange financing for the redevelopment and rehabilitation of the property

            into a hotel and would manage the project during the construction and

            rehabilitation phase.

                   c. After the signing of the agreement, Carlisle did the following in

            furtherance of the agreement: (a) reviewed preliminary engineering reports

            regarding the property and prepare initial plans for the project; (b) met with the

            following departments of the City of Chicago: Building, Zoning, and the

            Department of Planning to obtain preliminary approvals for the project; (c)

            undertook substantial efforts to clear numerous title defects on the property

            including multiple pending City of Chicago building violation cases, judgements

            and other matters which represented clouds on the title; (d) obtained title

            commitments and surveys of the property; (e) engaged in preliminary discussions

            with general contractors regarding the project; and (f) sought and arranged

            commitments for $650,000 in interim financing and $8,000,000 in construction

            financing for the project.

                   d. Thereafter, and in furtherance of the agreement between the parties,

            Carlisle did the following: (a) sought and obtained commitments for $8,650,000

                                              6
1-05-2096

            in interim and construction financing for the project on terms acceptable to all

            parties, including Phillips, (b) met and consulted with various government

            agencies to seek preliminary approvals for the project, (c) met and consulted with

            the City Department of Planning to confirm the availability in Tax Increment

            Financing District, (d) met and consulted with Villager Franchise Systems, Inc.

            regarding a franchise agreement for the proposed hotel, (e) met with Hinkle

            Engineering and reviewed preliminary engineering performed by Hinkle, (f)

            developed preliminary budget projections and estimates, and (g) discussed the

            project with prospective contractors. All of these efforts were undertaken with

            the knowledge, authorization and participation of Phillips.

                   e. By mid March of 2000, Carlisle had completed its preliminary efforts,

            with the full knowledge and participation of Phillips, and the parties scheduled a

            closing on the loans obtained by Carlisle for the project. That closing was set by

            agreement of the parties, including Phillips, for March 24, 2000. With the

            knowledge and consent of Phillips, a title commitment was obtained, the survey

            was updated and various documents were prepared and reviewed by the parties

            and their attorneys, including Phillips= attorney, in anticipation of the closing set

            for March 24, 2000.

                   f. By virtue of the terms of the November 10, 1999, consulting agreement

            and the January 22, 2000, letter amending the original agreement, Carlisle was the

            equitable owner of the property."

                                               7
1-05-2096

       Meanwhile, on May 3, 2000, the Secretary of State sent Frezados and Blank a letter,

advising them that Phillips had brought to the attention of the Illinois Securities Department of

its office (Department) that Carlisle had been acting as a loan broker, but that the Department=s

records indicated that Carlisle had neither registered as a loan broker nor claimed an exemption

from registration. The letter requested Carlisle to provide certain information about its

transaction with Phillips, including why it had required her to transfer ownership of the building

to it, and about its loan broker transactions since January 1, 1997. In response, Carlisle denied

that it had ever acted as a loan broker and stated that it had never engaged in loan broker

activities. On June 14, 2000, the Secretary issued a temporary order of prohibition against

plaintiffs, stating that the consulting agreement was a loan broker agreement and they had not

registered as loan brokers. The order also prohibited them from acting as loan brokers until

further order. Plaintiffs then requested a hearing.

       At the hearing, plaintiffs contended that they were not loan brokers and had not acted as

such in their transaction with Phillips, so they were not required to register. Plaintiffs made no

argument concerning any exemption to the registration requirement based on that contention.

Phillips testified that plaintiffs insisted that she convey the property to them by quitclaim deed.

Conversely, Blank testified that Phillips asked Carlisle to take title to the building because she

was concerned about building code violations and a potential eminent domain proceeding by the

City. Blank also testified that the funding he had arranged would not be extended to Phillips, but

would be made available to Carlisle, and that he intended to personally guarantee the loan.

Taylor testified that he intended to make a loan to Carlisle and that the loan would be secured by

                                                  8
1-05-2096

the property. He stated that he would not have agreed to make the loan if it had not been secured

by the property and had there been a default on the loan, he would have expected to take the

property.

       The hearing officer further found that on July 18, 2000, pursuant to section 15-45 of the

Act (815 ILCS 175/15-45 (West 2000)), the Department issued to plaintiffs a subpoena duces

tecum for the production of books, documents, papers, charts and graphs regarding the current

matter, returnable on or before August 4, 2000. 2 Plaintiffs failed to produce those items, and an

order was entered on October 2, 2000, in which plaintiffs were to fully comply with the terms of

the subpoena by 9 a.m. on October 13, 2000. Because plaintiffs failed to comply, an order was

entered on November 22, 2000, in which plaintiffs were banned from presenting any witness

testimony except from themselves personally.

       The Secretary ultimately concluded that plaintiffs were loan brokers as defined by the

Act and that they had failed to register and file applications for registration as such. The

Secretary also concluded that plaintiffs failed to fully comply with the Department=s subpoena,

all of which resulted in plaintiffs being permanently prohibited from acting as loan brokers and

engaging in loan brokerage services in the State of Illinois. Carlisle was also fined $5,000 and

plaintiffs Blank and Frezados were each fined $2,500.

       2
           The scope of the original subpoena had been reduced, instead of seeking financial

records from January 1, 1997, forward, the subject subpoena sought financial records from

January 1, 1999, forward.

                                                  9
1-05-2096

       After the hearing, plaintiffs sought judicial review in the circuit court. Before the circuit

court, plaintiffs challenged the Secretary=s determinations that they had violated the following

sections of the Act: section 15-5.15 (815 ILCS 175/15-5.15 (West 1998)), section 15-10 (815

ILCS 5/15-10 (West 1998)), and section 15-45 (815 ILCS 175/15-45 (West 2000)).

       The circuit court found it uncontroverted that plaintiffs had acted as loan brokers within

the meaning of the Act and that they had failed to register as required by the Act. The court also

found that plaintiffs did not meet the exemption from registration provision of the Act (815 ILCS

175/15-80(5) (West 2000)) because they were to receive a fee prior to procurement of the

financing, namely, title to the property. As to plaintiffs= due process claim, the court found it to

be unclear, as the Act specifically authorized the Secretary to compel the production of

documents. The court further found that as plaintiffs had the opportunity to contest the scope of

the subpoena before the hearing officer and the hearing officer made a determination as to the

subpoena, plaintiffs received all process that was due. This appeal followed.

       On appeal, plaintiffs raise the following issues for review: (1) whether the evidence, as

adduced at the hearings through the witnesses and documentary evidence provided, supports the

Secretary of State=s conclusions of fact and law that: (a) plaintiffs violated section 15-10 of the

Illinois Loan Brokers Act by failing to register, (b) plaintiffs were not exempt from registration

as loan brokers pursuant to section 15-80(5) of the Act; and (c) plaintiffs violated section 15-45

of the Act by failing to comply with certain paragraphs of the subpoena duces tecum issued by

the Secretary of State; and (2) whether the Secretary considered all of the evidence in making his

findings of fact, and whether those factual findings support the conclusions of law.

                                                 10
1-05-2096

                                            ANALYSIS

       On appeal, we review the administrative agency=s decision and not the circuit court=s

determination. Village of Oak Park v. Village of Oak Park Firefighters Pension Board, 362 Ill.

App. 3d 357, 365 (2005). " 'The applicable standard of review, which determines the degree of

deference given to the agency=s decision, depends on whether the question presented is one of

fact, one of law, or a mixed question of law and fact.' " Village of Oak Park, 362 Ill. App. 3d at

365, quoting AFM Messenger Service, Inc. v. Department of Employment Security, 198 Ill. 2d
380, 390 (2001). The factual findings of the administrative agency are considered prima facie

true and a correct (Schultz v. Edgar, 170 Ill. App. 3d 36, 38 (1988)), and a reviewing court will

only reverse if the administrative decision is against the manifest weight of the evidence (Murdy

v. Edgar, 103 Ill. 2d 384, 391 (1984)). Pure questions of law are reviewed de novo. MacDonald

v. Board of Trustees of the Park Ridge Police Pension Fund, 294 Ill. App. 3d 379, 382 (1998).

Mixed questions of law and fact are reviewed under the clearly erroneous standard. Village of

Oak Park, 362 Ill. App. 3d at 365.

       In order to address plaintiffs= contention that the evidence did not support the Secretary=s

conclusion that they violated the Act by failing to register as loan brokers, we must first

determine whether the evidence supports a determination that they were in fact loan brokers.

       Under section 15-5.15 of the Act, a loan broker is defined as "any person who, in return

for a fee from any person, promises to procure a loan for any person or assist any person in

procuring a loan from any third party, or who promises to consider whether or not to make a loan

to any person." 815 ILCS 175/15-5.15 (West 1998).

                                                 11
1-05-2096

        Here, the evidence presented at the hearing clearly established that plaintiffs agreed to

assist Phillips in obtaining a loan from a third party, namely Taylor, for a fee. The fact that

plaintiffs also committed to perform, and did perform, other services does not detract from the

main purpose of the consulting agreement between the parties, to assist Phillips in obtaining a

loan to rehabilitate the property. Accordingly, plaintiffs were acting as loan brokers within the

meaning of the statute as a matter of law.

        Section 15-10 of the Act makes it unlawful for any person to engage in the business of

loan brokering unless registered under the Act. 815 ILCS 175/15-10 (West 1998). It is

uncontroverted that plaintiffs did not register as loan brokers with the Secretary of State. Since

we have concluded that plaintiffs were loan brokers within the meaning of the Act, it necessarily

follows that they violated the Act by failing to register.

        For the first time on appeal, plaintiffs contend that they were exempt from registration as

loan brokers pursuant to section 15-80(5) of the Act, which provides that the following category

of persons are exempt from registration: "[a]ny person whose fee is wholly contingent on the

successful procurement of a loan from a third party and to whom no fee, other than a bona fide

third party fee, is paid before the procurement." 815 ILCS 175/15-80(5) (West 1998).

        It bears noting that throughout these proceedings, it has been plaintiff=s contention that

they are not loan brokers and therefore not subject to any provisions of the Act, making an

exemption unnecessary. Apparently plaintiffs intend to abandon that theory on appeal, and

instead raise the exemption issue. "The law in Illinois is well established that if an argument is not

presented in an administrative hearing, it is waived and may not be raised for the first time on appeal." James

                                                      12
1-05-2096

L. Hafele & Associates v. Department of Employment Security, 308 Ill. App. 3d 983, 987

(1999). Since this argument was not presented during the hearing, plaintiffs have waived it. Even if the

argument was considered on its merits, the fact that plaintiffs required Phillips to quitclaim the property to

them prior to procurement of the loan that was to be made in Carlisle=s name without any consideration to

Phillips establishes that title to the property was a "fee."

        Finally, the evidence presented at the hearing supports the Secretary=s conclusion that plaintiffs

violated section 15-45 of the Act by failing to fully comply with the Department=s subpoena. That

section lists the powers of the Secretary of State to, among other things, "[c]ompel the production of

books, records and other documents." 815 ILCS 175/15-45(12) (West 1998).

        Here, the Department=s subpoena requested certain financial records of plaintiffs, which they

refused to submit, indicating that the records were irrelevant as they were not loan brokers or subject to

the Act. As noted previously, the Agreement between plaintiffs and Phillips was clearly a loan

brokering agreement within the meaning of the Act and, as such, subjected plaintiffs to the

requirements of the Act. Plaintiff's failure to comply with the subpoena was a direct violation of

the Act and is supported by the evidence.

        We conclude that the evidence presented at the hearing support the findings of fact and

conclusions of law made by the Secretary.

        For the foregoing reasons, the judgment of the circuit court is affirmed.

        Affirmed.

        GARCIA, P.J., and WOLFSON, J., concur.

                                                       13