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11/27/96 MID-AMERICAN ELEVATOR COMPANY v. NORCON

November 27, 1996

MID-AMERICAN ELEVATOR COMPANY, INC., PLAINTIFF AND CITATION PETITIONER-APPELLEE AND CROSS-APPELLANT,
v.
NORCON, INC., DEFENDANT, DOUGLAS KAULAS AND PATRICIA KAULAS, CITATION RESPONDENTS-APPELLANTS AND CROSS-APPELLEES.)



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE ALBERT GREEN, JUDGE PRESIDING.

Rehearing Denied April 23, 1997. As Modified on Denial of Rehearing May 2, 1997. Released for Publication May 12, 1997.

Presiding Justice Hoffman delivered the opinion of the court. Cahill and O'brien, JJ., concur.

The opinion of the court was delivered by: Hoffman

MODIFIED OPINION ON DENIAL OF REHEARING

PRESIDING JUSTICE HOFFMAN delivered the opinion of the court:

The petitioner, Mid-American Elevator Company, commenced supplementary proceedings against the respondents, Douglas and Patricia Kaulas, to discover assets belonging to the judgment creditor, Norcon, Inc. The court determined that the Kaulases were unlawfully holding property belonging to Norcon and entered judgment against them for the unpaid balance of an underlying judgment against Norcon in favor of Mid-American. The Kaulases now appeal, raising as issues whether (1) the court relied upon an inapplicable statute in holding them liable for the remainder of the judgment against Norcon; (2) the court denied them due process by entering judgment against them without a trial; and (3) the court erroneously entered judgment against Patricia Kaulas when there was no evidence she was involved in the continuation of Norcon's business after dissolution. On cross-appeal, Mid-American argues that the court erred in denying its motion to recover attorney fees and costs for the citation proceedings.

Norcon was a closely-held corporation engaged in construction contracting. At all times relevant, its primary shareholders were Douglas and Patricia Kaulas, who alternated as its president and secretary. On March 6, 1991, Norcon was employed as general contractor for a comprehensive renovation job, and subcontracted with Mid-American to install a service elevator for the project. On November 18, 1991, Mid-American brought suit against Norcon for breach of this subcontract.

On September 1, 1994, while Mid-American's suit remained pending, Norcon was involuntarily dissolved by the Secretary of State for failing to pay franchise taxes. It is undisputed that although the corporation was never reinstated, it continued doing business from the date of dissolution until after the initiation of the citation proceedings at issue.

On May 19, 1995, the court in the contract suit entered judgment in favor of Mid-American and against Norcon in the amount of $75,930, plus prejudgment interest and costs. When the judgment remained unpaid on May 25, 1995, Mid-American served the Kaulases, as Norcon's officers of record, with the citation petition at issue. See 735 ILCS 5/2-1402 (West 1994). The citation contained a standard restraining provision, prohibiting the Kaulases from transferring or disposing of Norcon's property until after the resolution of the citation proceedings.

The evidence at the citation proceedings was undisputed. At a June 2, 1995, hearing, Douglas admitted that Norcon was still in business and that he was its president and Patricia was its secretary. Mid-American offered uncontested documentary proof that from the date of the dissolution through the time of the proceedings, Norcon maintained an active bank account, paid Douglas from corporate proceeds, and continued to employ workers and pay them from a corporate account. Since the dissolution, Norcon had bid on several projects, two of which it had been awarded and was performing; namely, one for Frederic Lane, dated August 29, 1994, and executed by Lane on October 3, 1994, and another for Linda and Benjamin Ruff, dated June 1995.

The evidence also showed that on June 2, 1995, Douglas endorsed a $20,474 check, payable to Norcon from Lane, over to Henry Electric Company, Inc., a subcontractor on the Lane project. According to the affidavit of Robert Pype, an employee of Henry Electric, the check was to settle a Norcon debt to Henry in the amount of $12,150. At Douglas's instruction, the $8,324 overpayment was then returned by Henry in the form of a check made payable to Patricia Kaulas. A check in the amount of $10,000 was also issued to Patricia by Henry Electric on June 2, 1995.

Further, upon receipt of the citation, Douglas began depositing checks made payable to Norcon into a separate account designated "Norenco". He deposited into the Norenco account a check from Lane to Norcon in the amount of $10,485 and a check from the Ruffs to Norcon totalling $38,550. Douglas also admitted making disbursements from the Norenco account after June 2, 1995, to pay Norcon's suppliers and subcontractors.

In June and July of 1995, checks totalling over $9000 were drawn on the Norenco account and deposited into a personal account held by Patricia at the Midtown Bank and Trust Company. Funds from Patricia's account were then disbursed to pay Norcon's employees and other creditors. Money was also withdrawn from this account to cover the Kaulas' personal expenses.

On August 22, 1995, Mid-American filed motions seeking the turnover of $11,026.15 held in a Norenco account, and $545.82 held in a Norcon account, all in partial satisfaction of the unpaid underlying judgment. The court granted the motion, and also extended temporary restraining orders previously entered ...


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