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Franz v. Calaco Development Corp.

June 21, 2001

WILLIAM M. FRANZ, PLAINTIFF-APPELLEE,
v.
CALACO DEVELOPMENT CORPORATION, AND NUNZIO CASALINO, DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of McHenry County. No. 99-LA-187 Honorable Maureen P. McIntyre, Judge, Presiding.

The opinion of the court was delivered by: Justice McLAREN

Defendants, Calaco Development Corp. and Nunzio Casalino, brought this interlocutory appeal from an order granting a preliminary injunction in favor of plaintiff, William M. Franz. We reverse.

This action began with the filing of plaintiff's complaint for breach of contract and breach of fiduciary duty against defendants. Plaintiff was a limited partner in an entity known as Calaco Limited Partnership. Defendant Calaco Development Corp. was the general partner, and defendant Nunzio Casalino was the chief operating officer. The purpose of the limited partnership was to develop and sell vacant lots of land for the construction of single-family residences and town homes in a development known as Wedgewood.

Plaintiff's complaint alleged that defendants breached the partnership agreement by selling vacant lots of land in the development to an entity known as the Villas of Wedgewood, an entity affiliated with Casalino, without the written consent of plaintiff as a limited partner and for prices less than set forth in the partnership agreement. As a result, plaintiff claims that he, as a limited partner, lost profits in excess of $1 million. After defendants filed an answer to the complaint, affirmative defenses, and a counterclaim against plaintiff, plaintiff filed a motion for a preliminary injunction. The motion asserted that the terms of the partnership agreement provided that plaintiff was to receive 33.5% of the profits from the partnership, projected at $5 million to $8 million. The motion further alleged that the partnership agreement prohibited the general partner, Calaco, from selling any of the lots to related parties without the written consent of 50% of the limited partners. Plaintiff asserted that, in violation of the partnership agreement, Calaco sold lots to defendant Casalino and other third parties at a discounted price of $40,000. As a result, plaintiff claimed irreparable harm in that the partnership assets would be depleted and insufficient funds would remain in the partnership to satisfy a judgment in plaintiff's favor. Plaintiff's motion sought a preliminary injunction prohibiting defendants from selling, conveying, or otherwise transferring any residential lots in the Wedgewood development pending a hearing on a motion for a permanent injunction.

An evidentiary hearing was conducted on plaintiff's motion for a preliminary injunction. In lieu of a transcript from the hearing, the parties have provided a bystander's report pursuant to Supreme Court Rule 323(c). 166 Ill. 2d R. 323(c). The report indicates that plaintiff, defendant Casalino, and Frederic Franz were called as witnesses.

Plaintiff testified that he and his brother, Frederic Franz, were the owners of the Wedgewood property since 1961. Three contracts for the sale of the property did not close. Plaintiff's attempts to sell or develop the property failed. In 1990, plaintiff entered into a partnership agreement for the development of the Wedgewood property. Under the partnership agreement, plaintiff and his brother would provide the Wedgewood land, valued at $3 million. Calaco was to contribute $1 million due at closing. A schedule set forth payment of the remaining sum of $2 million to plaintiff and his brother. Under the agreement, plaintiff and his brother were limited partners and were to receive 50% of any profits from the development. Calaco was to act as general partner and was responsible for the day-to-day sales and marketing of the development.

Plaintiff was shown two exhibits identified as contracts for deed for lots from Calaco to Casalino and Sebastian Lorenzo. Plaintiff testified that he believed his own signature and that of his brother were required because the partnership agreement prohibited the selling of a group of lots to defendants or entities related to defendants without the written consent of 50% of the limited partners. Plaintiff denied that he consented in writing or orally to sell lots to defendants or related entities for terms other than those set forth in the partnership agreement.

In 1996, plaintiff learned Casalino was selling lots to related entities contrary to the terms set forth in the partnership agreement and without plaintiff's written consent. Plaintiff was shown a number of closing statements that identified the seller as Villas of Wedgewood, an entity owned by Casalino that built villas or town homes on lots in Wedgewood.

Under the terms of the partnership agreement, plaintiff was to receive a share of the profits of the Wedgewood development. Since the inception of the partnership, he did not receive any profits or distribution from defendants other than the repayment of his share of the $3 million land contribution.

Plaintiff reviewed Casalino's plan for the termination of the partnership. He disagreed with the assessment that there would be little, if any, profit to distribute to the partnership. Based on his own calculations, plaintiff estimated that defendants made a profit of either $645,435 or $1,316,794 by selling villa lots to related entities, depending on the land valuation ratio used. Contrary to defendants' assessment of profits, plaintiff's estimate of profits was slightly less than $3 million.

Frederic Franz was called to testify next. He admitted that he had very little knowledge of the arrangement set forth in the partnership agreement because he relied on his brother, an attorney, to prepare the agreement. He signed the partnership agreement at his brother's direction.

In 1991, Frederic Franz was advised by Casalino that the lots were not selling at the price set forth in the partnership agreement and would have to be reduced. He attended a meeting at plaintiff's law office where Casalino complained that the price of the lots was too high, that they would not sell to other builders or developers, and that his construction company would not be able to make a profit buying the lots and building town homes unless the selling price was reduced to $40,000.

Frederic Franz admitted that the limited partners had been paid the balance owed to them by the partnership for their contribution of land to the project and that they were fortunate to receive these payments given the inability to sell lots to anyone other than the Villas of Wedgewood. He denied signing any document authorizing the sale of lots to entities related to defendants.

The last witness was Casalino. He testified that there was difficulty selling both the villa and single-family lots in Wedgewood at the prices set forth in the partnership agreement from the inception of the project because builders could not build and sell for a profit at those prices. Casalino's construction ...


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