Breach-of-contract – Conversion of Property

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7^th Circuit Court of Appeals

Case Name: New West, L.P., et al., v. Marcia L. Fudge

Case No.: 21-1372

Officials: SYKES, Chief Judge, and EASTERBROOK and BRENNAN, Circuit Judges.

Focus: Breach-of-contract – Conversion of Property

After the City of Joliet, Illinois, condemned a housing development managed by New West and New Bluff (collectively New West), and paid $15 million for the properties, the parties disagreed about the appropriate disposition of a fund worth roughly $2.7 million. This fund established under contracts between New West and the Department of Housing Development – had a stated goal of ensuring that money would be available for maintenance and repair of the properties if New West defaulted on its obligations to tenants or the Department. New West maintains that, because it is no longer responsible for maintenance or repair, it should receive the money. But the Department has refused New West’s demands for payment and is holding the money for the benefit of Joliet, which succeeded New West as the buildings’ proprietor.

A dispute about the disposition of the reserve fund arose during the condemnation proceeding, but we held in Joliet v. New West, L.P., 921 F.3d 693 (7^th Cir. 2019) (New West V), that the issue calls for a separate suit with the Department as defendant. This suit is the result. The district judge granted the Department’s motion for summary judgment. 2021 U.S. Dist. LEXIS (N.D. I11. Feb. 4, 2021).

New West V reaches two conclusions pertinent to current suit: first, that 12 U.S.C. §1702 waives the Department’s sovereign immunity to a claim based on a contract; second, that only a contract, rather than a statute or regulation, offers New West any prospect of success. The parties take these conclusions as given, so we need to resolve a dispute about the meaning of the contracts between New West and the Department.

To have a claim for tortious conversion of property, New West must first establish that the money in the reserve find is its property. In other words, to win a tort claim New West must first win its contract claim – and if it had been able to prevail on the contract claim (which it didn’t) New West would not have needed a conversion claim as a fallback.

Affirmed

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Derek A Hawkins is Corporate Counsel, at Salesforce.