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Anderson Dundee 53 L.L.C. v. Terzakis

October 14, 2005

ANDERSON DUNDEE 53 L.L.C.; WINIFRED BOFFO-MCCOY; CARL BOFFO; THOMAS CAYLOR; ZORINA CAYLOR; CLAYTON AND BARBARA CITRANO; D C COMPASS, LLC; EDMUNDS 1500 DUNDEE, LLC; HANNAH 1500, LLC; HOWES 1500 DUNDEE, LLC; HUEY 1500 DUNDEE, LLC; KELLEY 1500, L.L.C.; KLUCKHOHN 1500 DUNDEE, LLC; MARTINEZ 1500 DUNDEE LLC; LAWRENCE MCCUNE; BARBARA MCCUNE; JAMES D. AND JUNE M. MERCER; MOCKINGBIRD RESOURCES LLC; 1500 WEST DUNDEE MORELAN, LLC; NELSON ROOFING 1500 DUNDEE, LLC; OAK PROPERTIES DUNDEE 53, LLC; RALPH C. OGDEN III; JONI F. OGDEN; ORTH 1500 DUNDEE, LLC; DONALD R. AND CARLEE PETELLE; ROGER AND CAROL POIRIER; CW PURDOM 1500 DUNDEE, L.L.C.; PW PURDOM 1500 DUNDEE L.L.C.; GILBERT REESE; FREDERICK L. RICHARDS AND JENNIFER GOODMAN, SFS, L.L.C.; SANTINI 1500 DUNDEE, L.L.C.; SUCHY 1500, LLC; TF REAL ESTATE 1500 LLC; WENTWORTH 1500 DUNDEE, LLC; AND REDD RASMUSSEN 1500 LLC, PLAINTIFFS-APPELLEES,
v.
JOHN TERZAKIS; ROXANNE GARDNER; AND URBAN INVESTMENT TRUST, INC., DEFENDANTS-APPELLANTS (RUDY MULDER; DUNDEE 53, LLC; MASTER DUNDEE 53, LLC, A DELAWARE LIMITED LIABILITY COMPANY; MANAGER DUNDEE 53, INC., AN ILLINOIS CORPORATION; CENTERPOINT PROPERTIES TRUST; AND THOMAS P. LOWERY AND ASSOCIATES, LTD., DEFENDANTS).



Appeal from the Circuit Court of Cook County Honorable Aaron Jaffe, Judge Presiding

The opinion of the court was delivered by: Justice McNULTY

Opinion on denial of rehearing December 2, 2005

The trial court held appellants in contempt for disobeying an order for the corporate appellant to turn over certain funds to a receiver. The court later denied appellants' motion to purge the contempt. On appeal from denial of the motion to purge appellants seek review of the original turnover order and the contempt order, as well as the finding that they failed to purge the contempt.

We hold that we lack jurisdiction to review the merits of the turnover order and the contempt order. We find that the trial court had jurisdiction to order the corporation to turn over the funds, and it had jurisdiction to hold corporate officers in contempt for disobeying the order. However, the trial court lacked jurisdiction to hold in contempt an appellant who no longer served as an officer of the corporation at the time the court ordered the corporation to turn over the funds at issue. The evidence at the purge hearing supported the court's finding that the corporate appellant and its officers failed to purge the contempt. Thus, we affirm the judgment in part and we vacate the judgment in part.

BACKGROUND

Urban Investment Trust sought to purchase a commercial development called the Honeywell property. To facilitate the transaction it created a corporation it named Master Dundee 53 to serve as the property's master tenant. Tenants of the property paid rent and property taxes to the master tenant. The master tenant forwarded the sums it collected to Urban. Urban and the master tenant failed to pay the property taxes for 2000 and they allowed property insurance to lapse. In March 2002 the plaintiffs, tenants of the Honeywell property, sued Urban and the master tenant for mismanaging the property. The trial court appointed a receiver to manage the property during proceedings on the complaint. The court gave the receiver responsibility for collecting and paying taxes and purchasing insurance for the property.

In July 2002 the receiver moved for an order compelling Urban to turn over to the receiver more than $4 million Urban received in connection with the Honeywell property. At a hearing in July 2002, Roxanne Gardner testified that she had been president of Urban until November 2001, when she resigned. She admitted that CenterPoint Properties, a tenant at the Honeywell property, bought out its obligation under its lease for $2.5 million. CenterPoint paid $1.5 million directly to Urban, and the balance of more than $1 million cancelled a promissory note reflecting a personal debt John Terzakis owed to CenterPoint.

Terzakis testified at a further hearing in August 2002 that only Gardner, Rudy Mulder and he, who served as Urban's officers, had authority to sign checks disbursing Urban's funds. The same three persons owned Master Dundee 53, and Master Dundee 53 had contractual responsibility for paying taxes on the Honeywell property. Terzakis admitted that when Urban received funds specifically from the Honeywell property, it put the funds into its own account, mixed with funds for operating many other properties.

A witness for plaintiffs testified that plaintiffs wired to Master Dundee 53 more than $700,000 for payment of property taxes from September 2000 through December 2001.

On December 12, 2002, the trial court ordered "Urban and its[] officers *** to transfer *** funds, in the amount of $3,336,423.01, to the Receiver." The court amended the December 12 order on January 3, 2003, to identify "John Terzakis, Rudy Mulder and Roxanne Gardner as the officers of Urban to whom the [turnover] Order applies." Urban filed a notice of appeal from the December 12 order, but this court, on Urban's motion, dismissed the appeal.

The receiver, on January 7, 2003, moved for a rule to show cause why Urban and its officers should not be held in contempt for violating the December 12 order. The trial court issued the rule on January 13, 2003, and set the matter for hearing on the allegations of contempt. Urban filed its answer to the rule on January 16, 2003, and presented Terzakis as its first witness on that date. Terzakis testified that Urban had no money with which to pay the turnover amount.

On January 24, 2003, plaintiffs filed an amended complaint that added CenterPoint and others as new defendants. Terzakis and Gardner testified further in the contempt proceedings on January 29, 2003. The court continued the matter to permit Mulder to testify on March 5, 2003.

Before completion of the testimony in the contempt proceeding, CenterPoint and other parties filed motions for substitution of judge as of right.

The court completed the hearing on the rule to show cause in March, and on March 31, 2003, the court entered an order in which it held that it retained jurisdiction to complete the contempt hearing, despite CenterPoint's motion for substitution of judge. In the order the court said:

"[T]he court finds Urban and its[] officers, Mr. Terzakis, Mr. Mulder and Ms. Gardner in contempt of court. Accordingly, upon the entry of this order the aforementioned individuals shall be fined in the amount of $2500 each per day until such time that they either comply with the turnover order and tender the funds to the Receiver or provide the court with a detailed financial history of the turnover funds, which the court accepts.
*** The defendants are ordered to comply with this order immediately and the imposition of the $2500 fine shall begin to accrue as of April 8, 2003."

In the same order the court recounted Gardner's testimony that she "relinquished her position with Urban." The court commented that it "believe[d] that Ms. Gardner left because she felt Mr. Terzakis and Mr. Mulder were pushing her towards impending legal action, such as this matter." On April 8, 2003, the court amended the March 31 order to state explicitly its finding that "Roxanne Gardner was formerly a principal of Urban."

On April 7, 2003, Urban, Terzakis and Gardner filed a notice of appeal from the contempt order. Two weeks later the trial court granted their motion to dismiss voluntarily the notice of appeal. Terzakis moved to vacate the contempt order as void. Although the record on appeal does not include Gardner's motion to vacate the contempt order, the record does include her reply in support of her motion to vacate.

The trial court heard the two motions to vacate in May and on May 22, 2003, the court denied both motions. The court added:

"[T]here will be an evidentiary hearing at 1:30 p.m. on May

29, 2003[,] on contemnors' oral Motion to Purge Contempt." The record on appeal does not include a transcript of the May 22 proceedings, so we do not know the precise language of the oral motion to purge the contempt. No party appealed from denial of the motion to vacate the contempt order.

At the hearing on the motion to purge, Urban's accountant admitted that the master tenant had its own bank account, entirely separate from Urban's bank accounts. The money tenants paid for taxes went first to the master tenant and then to Urban. Gardner testified that Urban put all such funds in its own accounts for "ease of accounting." She admitted that she could not tell from the books of account what happened to the money Urban received when CenterPoint bought out its obligations under its lease for part of the Honeywell property. She also could not tell what happened to the money Urban received from the master tenant when the tenants paid their property taxes.

Urban's accountant testified that during March 2001, the month Urban received $1.5 million from CenterPoint for the buyout of its lease, Urban received a total of more than $11 million from all its sources. Urban used the $1.5 million as part of its general accounts, and it paid it out as part of its expenditures for that month. The expenditures that month exceeded $11 million.

The accountant listed for the court all of the payees of the $11 million in expenses, although he did not often specify the amount of each payment. Urban paid Mulder more than $70,000 that month; the books of account did not explain the payment. The books showed several entries simply as "funding" for other entities Urban controlled, much the way it controlled the master tenant for the Honeywell property. Urban paid Terzakis $55,000, and it separately funded a number of "entit[ies] that Johnny [Terzakis] owned and/or managed." The accountant admitted for many payments he did not "know what that's actually for." Urban paid $208,000 to Illinois Petroleum, "a company that Johnny owns." The accountant could not determine the purpose of the payment to Illinois Petroleum. Urban used some of the funds for mortgage payments for other properties it owned, and it made some political contributions.

Due to scheduling difficulties the hearing on the motion to purge extended over six hearing dates from May 2003 to September 2003. On November 26, 2003, the court entered its order finding that Urban, Terzakis and Gardner failed to purge the contempt. Because Mulder filed a bankruptcy petition, the court reserved all issues related to him, pending resolution of the bankruptcy proceedings. The court summarized the testimony and addressed the motion:

"So we now must ask the questions. Was the order of contempt purged? Did the contem[n]ors turn over, to the receiver the funds that Urban was given which proceeds were to be used for taxes, mortgage payments and expenses of the Honeywell property? Was the Court shown that the funds were used for purposes intended under the *** cont[r]acts? Was the court told why Urban had control of the Honeywell funds? The answer to all of the above questions is a resounding 'No.'
*** What is given the court is the answer that they do not have the ability to pay what the court ...

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