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09/13/88 Clifford H. Grunloh Et Al. v. Effingham Equity

September 13, 1988

CLIFFORD H. GRUNLOH ET AL., PLAINTIFFS-APPELLANTS

v.

EFFINGHAM EQUITY, INC., DEFENDANT-APPELLEE



APPELLATE COURT OF ILLINOIS, FOURTH DISTRICT

528 N.E.2d 1031, 174 Ill. App. 3d 508, 124 Ill. Dec. 140 1988.IL.1371

Appeal from the Circuit Court of Coles County; the Hon. William J. Sunderman, Judge, presiding.

APPELLATE Judges:

JUSTICE McCULLOUGH delivered the opinion of the court. GREEN, P.J., and LUND, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MCCULLOUGH

The principal question in this case is whether an amendment to a complaint alleging the plaintiffs are suing in their capacities of assignees of a claim of a dissolved corporation, in addition to their individual capacities, relates back to the filing of the plaintiffs' original complaint, so that the claim which the corporation assigned is not barred by the statute which at the relevant times allowed a corporation two years from the date of its dissolution in which to file lawsuits. (Ill. Rev. Stat. 1981, ch. 32, par. 157.94.) Additional issues are whether a chose in action, which was owned by a dissolved corporation, was properly assigned to plaintiffs; whether the defendant received proper notice of the assignment; and whether a claim for punitive damages arising out of alleged damage to property is assignable by a corporation and survives a dissolution of the assignor corporation which occurs simultaneously with the assignment.

The facts are relatively simple. On July 2, 1982, plaintiffs Clifford H. Grunloh and Marian Grunloh filed a complaint against defendant Effingham Equity, Inc., which alleged that plaintiffs are the owners of a golf course and country club known as "Park Hills" located in Effingham County. Defendant was, according to the complaint, the owner and operator of a feed, fertilizer, and chemical business located directly west of plaintiffs' property. Plaintiffs alleged Sur's Creek flows from defendant's property across plaintiffs' property and that plaintiffs constructed a pond on their property to hold water from Sur's Creek. The water from the pond was utilized for watering the greens of the golf course located on plaintiffs' property. The plaintiffs alleged defendant polluted Sur's Creek with petroleum products and other toxic chemicals and discharged toxic "exhaust scrubbers" into a tile which carried them onto plaintiffs' property and into the pond which was used for watering the greens. The plaintiffs asserted that as a result of the pollution of their pond, the pumping of water from the pond onto the greens totally destroyed the greens, causing plaintiffs to have to close the golf course. The plaintiffs further alleged that defendant's actions deprived plaintiffs of their investment in their golf course and country club and damaged the property to such an extent that no repair of the land is possible until the buildup of toxic materials in the soil has been broken down and dissipated. The plaintiffs finally alleged that they discovered the defendant's actions on or about July 1, 1981. Count I of plaintiffs' complaint alleged that defendant acted negligently in committing the above acts, which proximately caused damage to plaintiffs' property.

Count II alleged all of the above matters except for the defendant's purported negligent pollution of Sur's Creek and the pond on plaintiffs' property. In lieu of these allegations, the plaintiffs alleged that defendant wilfully and wantonly (1) discharged contaminants into the environment which caused pollution of Sur's Creek, contrary to section 12(a) of the Environmental Protection Act (Ill. Rev. Stat. 1981, ch. 111 1/2, par. 1012(a)); (2) failed to take any precautions in the handling of toxic materials in order to prevent pollution of Sur's Creek; (3) failed and omitted to warn plaintiffs of defendant's continuous pollution of Sur's Creek; (4) concealed its acts of pollution from plaintiffs when it knew its discharge of materials into Sur's Creek would cause permanent and irreparable damage to plaintiffs' property; and (5) continued polluting Sur's Creek after obtaining knowledge that various of its activities would damage plaintiffs' property and would create damage that would be irreparable for many years. On the basis of the allegations of count II, plaintiffs requested punitive damages in addition to the actual damages requested in count I.

The defendant filed an answer denying the crucial allegations of plaintiffs' complaint, and the parties engaged in extensive pretrial discovery. This cause was set for jury trial on June 14, 1987.

On June 12, 1987, the defendant filed a motion in limine alleging that the golf course in question was owned and operated by a corporation (known from 1972 through 1976 as Grunloh Development, Inc., and from 1977 through 1981 as the Grunloh Corporation (hereinafter referred to as "the corporation")), as opposed to the individual plaintiffs, and that any losses which had occurred up to some time in 1981 which resulted from defendant's acts would be recoverable only by the corporation and not by the plaintiffs, who owned the corporation's stock. The motion further alleged allowing plaintiffs to recover for both the corporate losses prior to 1981 and their personal losses in connection with a diminution in value of the golf course property would impermissibly allow the plaintiffs to "'stack'" claimed corporate losses on their claimed individual losses. Finally, the motion in limine stated that plaintiffs did not allege that they somehow acquired causes of action belonging to any corporate owner of the property in question, and that plaintiffs had no standing to assert any claims for an alleged loss of the corporation's profits or income. On this basis, defendant requested that plaintiffs be barred from placing before the jury any claims for losses suffered by the corporation during its operation of the golf course.

At a hearing held June 15, 1987, the circuit court allowed the above motion and ordered that plaintiffs' evidence be restricted to damages which they suffered after they acquired the Park Hills golf course and country club. However, the court did allow plaintiffs leave to amend their complaint so as to allege a May 28, 1981, assignment and conveyance to plaintiffs of all of the corporation's assets, which included choses in action. On the same date, the circuit court denied a motion by defendant for summary judgment, or alternatively, dismissal of plaintiffs' complaint with prejudice, on the basis that the corporation is a necessary party to this action.

On July 2, 1987, plaintiffs filed an amended complaint. In addition to listing additional breaches of duty on the part of defendant, including some premised on purported violations of Federal laws (e.g., 7 U.S.C. 136j(a)(2)(1976); 33 U.S.C. § 1311(a) (1976)), plaintiffs stated that they are the actual, bona fide owners of a chose in action of Grunloh Corporation against defendant, for the damages alleged in the complaint. The plaintiffs stated they obtained an assignment of the corporation's cause of action on May 28, 1981, by virtue of an assumption agreement and bill of sale of the same date. The plaintiffs asserted that they therefore had standing to maintain an action for all of the damages sustained by both the corporation and by them individually.

Copies of both the assumption agreement and bill of sale are attached to the plaintiffs' amended complaint. The assumption agreement provides:

"[For] and in consideration of the surrender and cancellation of the stock owned by [plaintiffs], the conveyance [by the corporation] to [plaintiffs] of all assets, and for the sum of One Dollar ($1.00) and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, the [plaintiffs] [do] hereby assume and agree to pay for and on behalf of [the corporation] any and all liabilities of [the corporation] . . .."

The bill of sale provides in part:

"KNOW ALL MEN BY THESE PRESENTS, that GRUNLOH CORPORATION, an Illinois Corporation, of the City of Effingham, County of Effingham and State of Illinois, for and in consideration of the surrender of stock of grantees in grantor corporation for cancellation and the further consideration of the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby sell, transfer, quit-claim and convey unto CLIFFORD GRUNLOH and MARIAN GRUNLOH, all right, title and interest in and to the following goods and chattels and items of personal property, to-wit: An itemized list of such goods, chattels and personal property marked Exhibit 'A' is attached hereto and incorporated herein by this reference as fully and completely as if the same had been completely set forth herein."

Exhibit "A" of the bill of sale describes the property transferred as: "All goods and chattels and personal and intangible property of every kind and description wheresoever the same may be situated, including, but not limited to, the following . . .." Choses in action are not among the property specifically listed in exhibit "A" of the bill of sale.

On August 3, 1987, the defendant filed a motion to dismiss the plaintiffs' amended complaint. The motion alleged plaintiffs were not entitled to assert the corporate causes of action for the reasons stated with respect to defendant's first motion in limine and defendant's motion for summary judgment and alternative relief. The motion further alleged that any cause of action owned by the corporation ceased to exist in May 1983, on the second anniversary of the corporation's dissolution, by virtue of section 94 of the Business Corporation Act of 1933 (Ill. Rev. Stat. 1981, ch. 32, par. 157.94). Also, defendant contended that the claimed assignment of the corporation's causes of action for damage to the golf course did not increase the survivability of that action and did not vitiate the corporation's failure to file suit with respect to that claim within two years of its dissolution. Finally, defendant alleged the assumption agreement and bill of sale attached to the amended complaint were insufficient as a matter of law to convey or transfer the corporate causes of action sought to be asserted in the amended complaint.

In an order entered January 22, 1988, the circuit court held that the claims of the individual plaintiffs alleged in the amended complaint "are proper," but ordered the portions of the amended complaint, wherein the plaintiffs sought to recover the alleged damages accruing to Grunloh Corporation, stricken. The court ordered that plaintiffs are barred and foreclosed from attempting to recover for any claims or causes of action which belonged to the corporation. As the basis for its decision, the circuit court relied on Poliquin v. Sapp (1979), 72 Ill. App. 3d 477, 390 N.E.2d 974, and Canadian Ace Brewing Co. v. Joseph Schlitz Brewing Co. (7th Cir. 1980), 629 F.2d 1183. The court held that there was no just reason to delay enforcement or appeal of this order, since it terminated that part of the litigation which pertained to the effort to assert a cause of action and collect damages which belonged to the corporation.

In appealing the circuit court's January 22, 1988, order, the plaintiffs argue that the two cases on which the circuit court relied in reaching its decision are not in point, because in those cases the question was whether individual shareholders could bring suit on corporate claims which had not been assigned to them. The plaintiffs note that here, unlike in those two cases, the claims have been assigned to the former shareholders who are suing on them.

The plaintiffs further argue that causes of action for injuries to real or personal property are assignable, and suit on assigned causes of action may be brought in the name of the assignee. Plaintiffs additionally contend their failure to allege in their initial complaint that they were bringing suit in their capacities as assignees, in addition to their individual capacities, is a mere technical defect, which may be cured by the filing of an amended complaint which relates back to the filing of their initial complaint, pursuant to section 2-616 of the Code of Civil Procedure. (Ill. Rev. Stat. 1985, ch. 110, par. 2-616.) They point out that their initial complaint furnished defendant with all of the information necessary in order to prepare its defense to this action. The plaintiffs finally note that an assignment of a chose in action owned by a corporation divests the corporation of its right to file suit with respect to the action, and thus, Grunloh Corporation could not have brought suit on the corporate claims after the transfer of all of the corporation's assets to plaintiffs in May 1981.

The defendant asserts that the circuit court properly barred the plaintiffs from recovering the losses purportedly incurred by the corporation. The defendant maintains that it did not discover the true state of ownership of the Park Hills golf course until the production at a June 11, 1987, deposition of plaintiffs' accountant, James H. Houston, of documents which conclusively established that the Park Hills golf course and country club had been owned by a corporation prior to May 1981. Also, defendant asserts plaintiffs are bound by a statement in a June 3, 1983, response to interrogatories that they purchased the Park Hills golf course and country club in 1965, and by a statement of Mr. Grunloh at a deposition that he and his wife acquired title to the property. The defendant maintains that the plaintiffs should not now be permitted to argue that the subject property was owned by a corporation and that they have acquired title to a cause of action belonging to the corporation. The defendant also asserts that the corporation's cause of action was never properly assigned to plaintiffs because (1) it is not specifically described in the May 1981 assumption agreement and bill of sale; (2) the corporation's cause of action, which plaintiffs admittedly did not discover until July 1, 1981, could not have been among the property intended to be assigned by the parties when they executed the assumption agreement and bill of sale; and (3) the defendant ...


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