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General Electric Capital Corporation v. Lease Resolution Corporation

October 24, 1997




Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.

No. 92 C 3828 -- George W. Lindberg, Judge.

Before Eschbach, Flaum, and Kanne, Circuit Judges.

Kanne, Circuit Judge.

Argued December 3, 1996

Decided October 24, 1997

On May 11, 1995, the district court dismissed two counts of General Electric Capital Corporation's ("GE Capital") fourth amended complaint for failure to state claims upon which relief may be granted. In making its determination, the court took judicial notice of facts from a prior unrelated proceeding and from a private document submitted in that proceeding. By taking judicial notice without determining that the facts were undisputed and that the sources relied upon have an accuracy that cannot reasonably be questioned, the district court erred. See Fed. R. Evid. 201(b). Reviewing GE Capital's assertions without these facts, we reverse the court's dismissal of the fraudulent transfer claim but affirm its dismissal of the successor liability claim.

I. History

Prior to March 4, 1993, Datronic Rental Corporation ("Rental") was the general partner of seven publicly traded limited partnerships that purchased and managed equipment lease portfolios. Datronic Aero, Inc. ("Aero") was a subsidiary of Rental, and Edmund J. Lopinski, Jr. was Rental's president and ninety-five percent shareholder.

On December 23, 1991, GE Capital financed the acquisition of an airplane by loaning $2,100,000 to Aero. Aero's sole business activity was to purchase and hold the airplane. In consideration for the loan, Aero executed a promissory note payable to GE Capital. GE Capital secured the loan with a mortgage on the airplane. In addition, GE Capital received a corporate guaranty from Rental and personal guaranties from Lopinski and Timothy C. Bullard, another executive officer of Rental.

By May 20, 1992, Aero was delinquent in its payments. GE Capital declared a default and demanded return of the airplane; this demand was refused. In response, GE Capital replevied the airplane. A court-approved sale of the airplane produced $1,965,000, leaving a deficiency of $175,000 plus costs and expenses. Under the terms of the financing documents, Aero, Rental, Lopinski, and Bullard were liable for the deficiency. On September 13, 1994, GE Capital obtained a judgment against Aero and Rental, jointly and severally, for $199,425.18.

Meanwhile, in early 1992, an investigation revealed that Lopinski had "looted" the limited partnerships that Rental managed. This revelation forced Lopinski to surrender control of Rental and place his controlling stock in a voting trust. On May 18, 1992, John Ventre, a limited partner, filed a class action lawsuit in the district court against Rental, Lopinski, Bullard, and others alleging that the defendants looted the limited partnerships and engaged in unlawful conduct that included violations of state and federal securities laws. The district court certified a class of 35,000 limited partners on August 14, 1992.

On March 4, 1993, the class settled its claims. As part of the settlement, Rental transferred ninety-five percent of its assets to Lease Resolution Corp. ("LRC") in exchange for a release from pending legal claims. LRC is a new corporation, organized to perform the same services Rental had performed and substituted as general partner in Rental's stead. It occupies the same physical location and offices from which Rental has operated its business. As provided by Fed. R. Civ. P. 23, the district court approved the settlement, finding that the settlement was fair, reasonable, and adequate. The settlement required that 95% of any proceeds Rental received from the settlement agreement would be assigned and paid to the Datronic Limited Partnerships. See Fourth Amended Complaint para. 17. The other 5% would remain for the payment of debts and reasonable expenses. After the settlement, Rental ceased conducting business. See id. Also, Aero was without assets since GE Capital had already replevied its sole asset. GE Capital believes the transfer of assets from Rental to LRC prevented Rental from satisfying its obligations.

On May 11, 1993, GE Capital brought an action against LRC *fn1 to recover its $170,500 claim against Rental from LRC. LRC moved to dismiss this complaint on June 14, 1993. In response, GE Capital sought and was granted leave to file a third amended complaint. On October 26, 1993, LRC filed a motion to dismiss three counts of this complaint.

The district court granted LRC's motion on March 16, 1994. The court specifically found that GE Capital "has failed to allege the de facto merger and fraud exceptions to the general rule of nonliability for successor corporations. Plaintiff has failed to allege any continuity of shareholders, which is required to state a claim against LRC for de facto merger." General Electric Capital Corp. v. Datronic Aero, Inc., No. 92 C 3828 (N.D. Ill. Mar. 16, 1994) (order granting LRC's motion to dismiss). GE Capital also failed to set forth its allegations of fraud with particularity as required by Fed. ...

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