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02/24/94 CLASSIC HOTELS v. KEVIN LEWIS

February 24, 1994

CLASSIC HOTELS, LTD., AN ILLINOIS LIMITED PARTNERSHIP AND ROBERT S. FRITZSHALL, PLAINTIFFS-APPELLANTS,
v.
KEVIN LEWIS, LARRY E. MORTON, GREGORY W. FESS, PEDDLER'S INN, LTD., A MISSISSIPPI CORPORATION, EQUITY SERVICE CORPORATION, AN ARKANSAS CORPORATION, EQUITY SERVICE MANAGEMENT COMPANY, AND CLASSIC HOTELS, INC., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. Honorable Monica D. Reynolds, Judge Presiding.

Released for Publication April 19, 1994. As Corrected October 19, 1994.

Cahill, Johnson, Hoffman

The opinion of the court was delivered by: Cahill

PRESIDING JUSTICE CAHILL delivered the opinion of the court:

Plaintiffs, Robert Fritzshall and Classic Hotels, Ltd., appeal the trial court's order dismissing their complaint under section 2-615 of the Illinois Code of Civil Procedure (Ill. Rev. Stat. 1991, ch. 110, par. 2-615) for lack of standing. Fritzshall argues he has standing to sue in the name of the limited partnership, Classic Hotels, Ltd., because the partnership has not been terminated. He further argues he has standing to sue in his own name under a theory of subrogation because he is a creditor to the limited partnership. We reverse in part and remand and affirm in part.

Classic Hotels, Ltd., is a limited partnership. The certificate of limited partnership was filed with the Cook County recorder's office on July 31, 1986. Classic Hotels, Ltd., originally consisted of two general partners and seven limited partners. The general partners were Classic Hotels, Inc., and Robert Fritzshall. Fritzshall was also president and sole shareholder of Classic Hotels, Inc.

In May 1986 Classic Hotels, Ltd., bought the Rodeway Inn from Peddler's Inn, Ltd. for approximately 4 million. Larry Morton and Gregory Fess are general partners of Peddler's Inn, Ltd. In addition to cash payments, the buyers gave the sellers a promissory note for $3,750,000 and agreed to make monthly payments to the sellers. The contract of sale provided "if any payment is received by Seller more than thirty (30) days late, all payments heretofore made shall be considered and shall be rent. Seller may thereafter at any time retake such property and premises and Purchaser shall have no claim thereto." The buyers also agreed to contract with Equity Service Corporation to manage the hotel. Morton and Fess are officers of Equity Service Corporation.

In February 1988 Fritzshall resigned as general partner of Classic Hotels, Ltd., and as president of Classic Hotels, Inc. He transferred all issued and outstanding shares of Classic Hotels, Inc., to Kevin Lewis. Classic Hotels, Inc., was then the sole general partner of Classic Hotels, Ltd.

Soon after Fritzshall resigned, Classic Hotels, Ltd., defaulted on its monthly payments, and so, in May 1988 the sellers retook the property under the sales contract. Lewis resigned as president of Classic Hotels, Inc., in July 1988.

In January 1989 plaintiffs filed an 11 count complaint against defendants alleging claims that arose from the sale, management, and Disposition of the Rodeway Inn. Count I alleged negligent misrepresentation. Count II alleged fraud and deceit. Count III alleged violation of the Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1987, ch. 121 1/2, par. 261 et seq.). Counts IV and V alleged breaches of management contracts. Count VI alleged Lewis' breach of fiduciary relationship. Count VII alleged violation of the Uniform Limited Partnership Act (Ill. Rev. Stat. 1985, ch. 106 1/2, par. 44 et seq.). Count VIII alleged interference with prospective economic advantage. Count IX alleged conspiracy. Count X alleged violation of the Uniform Commercial Code Bulk Transfers (Ill. Rev. Stat. 1987, ch. 26, par. 6-101 et seq.), and count XI alleged fraudulent conveyance.

Defendants moved to dismiss the complaint on the grounds that Fritzshall lacked standing to sue, both individually and on behalf of the limited partnership. Defendants argued Fritzshall did not have the right to bring an action in his own name because he was not a party to any of the agreements which formed the basis of the lawsuit. They also argued Fritzshall did not have the right to bring an action on behalf of the limited partnership because he had resigned as general partner.

Plaintiffs filed an amended complaint in October 1989 and alleged the limited partners appointed Fritzshall as a liquidator to wind up the partnership's affairs under article XV of their limited partnership agreement. This authorization included the right to represent the limited partnership in a lawsuit against defendants for alleged wrongs committed against the limited partnership.

On July 8, 1991, the trial court granted defendants' motion to dismiss for lack of standing. The court stated, "Plaintiffs allege that Lewis improperly conducted the winding up, but admit nonetheless that he wound up the partnership's affairs." The court cited In re Marriage of Malec (1990), 205 Ill. App. 3d 273, 562 N.E.2d 1010, 150 Ill. Dec. 207, for the holding that a partnership is terminated upon the winding up of its affairs. The trial court ruled that the limited partnership had no legal standing to bring suit. The court also ruled that Fritzshall's individual claims failed because "Lewis owed him no fiduciary duty after dissolution." The court cited Babray v. Carlino (1971), 2 Ill. App. 3d 241, 251, 276 N.E.2d 435, and stated, "The alleged breach occurred nearly four months after the dissolution * * *."

Plaintiffs then filed a second amended complaint. On November 19, 1992, the court dismissed it stating, "The court has already determined that defendant Lewis wound up the partnership's affairs. Therefore, the partnership has no legal existence and no standing to bring suit." The court also stated that it had determined ...


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