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Dorothy Pielet, Individually and As v. James Pielet

November 29, 2010

DOROTHY PIELET, INDIVIDUALLY AND AS PLAINTIFF-APPELLEE,
v.
JAMES PIELET, J.P. INVESTMENTS, INC., PIELET BROS. SCRAP IRON AND METAL, INC., PIELET CORPORATION, NATIONAL MATERIAL, L.P., AND N.M. HOLDING, INC., DEFENDANTS



Appeal from the Circuit Court Executor of the Estate of Arthur Pielet, of Lake County. No. 98--CH--1223 Honorable David C. Hall and P.B.S. One, Inc., and Cyrus Tang, Mitchell L. Hoffman, Defendants-Appellants. Judges, Presiding.

The opinion of the court was delivered by: Justice O'malley

Defendants, P.B.S. One, Inc. (PBS One), National Material, L.P. (National Material), N.M. Holding, Inc. (NM Holding), and Cyrus Tang (Tang), appeal the order granting summary judgment in favor of plaintiff, Dorothy Pielet, on counts IX, X, and XI of her fifth amended complaint. The allegation basic to all three counts is that defendants failed to honor a consulting agreement mandating lifelong monthly payments to plaintiff's late husband, Arthur Pielet (Arthur), and, after his death, to plaintiff for life (Consulting Agreement). Defendants also appeal the award of attorney fees to plaintiff pursuant to a fee-shifting provision in the Consulting Agreement. We reverse and remand.

PBS and Tang appealed in No. 2--09--0210, and National Material and NM Holding appealed in No. 2--09--0242. We consolidated the cases for review.

I. Plaintiff's Complaint

Plaintiff initiated this lawsuit in 1998 and filed her fifth amended complaint (complaint) on July 19, 2005. She pled 11 counts. Counts I, II, and III named James Pielet (James), who is plaintiff and Arthur's son, and alleged breach of contract, promissory estoppel, and equitable estoppel. Count IV named J.P. Investments, Inc., and alleged breach of contract. Count V named Tang and PBS One and alleged fraudulent conveyance. Counts VI, VII, and VIII alleged director liability, breach of fiduciary duty, and distributee liability against Tang. Counts IX and X named National Material and NM Holding and alleged breach of contract and successor liability, respectively. Finally, count XI named PBS One and alleged breach of contract.

Only counts IX, X, and XI are at issue in these appeals. The common allegations in these counts are as follows. In December 1986, Arthur entered into the Consulting Agreement with James, then president of Pielet Bros. Scrap Iron and Metal, Inc. (Pielet Inc.). In 1988, Pielet Brothers Scrap Iron and Metal LP (Pielet LP) was formed in a two-step transaction. First, Pielet Inc.*fn1 sold an undivided one-half interest in its assets to PBS One, a company of which Tang was "the sole director, sole shareholder, and president." PBS One "expressly assumed [Pielet Inc.'s] obligations *** under the Consulting Agreement." Second, Pielet Inc. and PBS One transferred their respective one-half shares in Pielet Inc. to Pielet LP and consequently each gained a 49.5% limited partnership interest in Pielet LP. The remaining 1% general partnership interest was owned by Pielet/Tang Enterprises (PT Enterprises). James owned 49% of the stock in PT Enterprises and Tang owned the remaining 51%. Pielet LP consistently made monthly payments to Arthur under the Consulting Agreement. On June 1, 1994, PBS One was dissolved by the Illinois Secretary of State.

In January 1991,*fn2 PBS One transferred its 49.5% share in Pielet LP to National Material. NM Holding was then the general partner of National Material. In 1993, Pielet LP changed its name to Midwest Metallics. Thereafter, Midwest Metallics made payments under the Consulting Agreement until July 1998, when payments ceased altogether.

Count IX, the breach-of-contract claim against National Material, alleged that, as part of the January 1991 transfer, National Material "assumed the right, title, interest[,] and obligations" of PBS

One, including the Consulting Agreement. Plaintiff asserted that National Material's obligations under the Consulting Agreement were paid by Pielet LP and Midwest Metallics though the latter entities had "never contracted to assume the Consulting Agreement." Plaintiff alleged that, when Midwest Metallics ceased paying under the Consulting Agreement in July 1998, National Material "remained obligated to satisfy those payments" but did not pay. Plaintiff further alleged that NM Holding was liable as the general partner of National Material.

Count X alleged that National Material was liable under the Consulting Agreement as the "successor" of PBS One. Specifically, plaintiff asserted:

"Because National Material is a mere continuation of [PBS One] [and] expressly assumed [PBS One's] rights and obligations under the Consulting Agreement, and has acknowledged that it is the successor to [PBS One] in writing, all of the liabilities of [PBS One], including its liability under the Consulting Agreement, have been transferred and assumed to and by National Material."

Plaintiff further alleged that National Material's liability as successor to PBS One extended as well to NM Holding, the general partner of National Material.

Count XI alleged that, after its dissolution in 1994, PBS One "remained obligated under the Consulting Agreement" and that PBS One breached the Consulting Agreement when payments under the Consulting Agreement ceased in July 1998.

On February 14, 2006, plaintiff moved for summary judgment against PBS One and Tang on counts V and XI, and for summary judgment against National Material and NM Holding on counts IX and X. PBS One and Tang together filed an opposition brief and also a cross-motion for summary judgment against plaintiff. National Material and NM Holding together filed their own opposition brief as well as a cross-motion for summary judgment against plaintiff.

II. Undisputed Facts On Summary Judgment In support of their summary judgment motions, the parties filed their proposed statements of undisputed facts. From these the trial court distilled a statement of undisputed facts as a basis for resolving the summary judgment motions. Aside from one issue that defendants claim involves a factual dispute (which we explain below), the parties do not challenge the trial court's statement of undisputed facts. We follow that statement here and in some instances incorporate some additional undisputed factual material in order to amplify and clarify certain points.

Pielet Inc. was formed by Arthur and his brothers shortly after World War II. Pielet Inc. was in the scrap metal business. In December 1986, Arthur sold his interest in Pielet Inc. to his sons James and Robert Pielet (Robert). On December 23, 1986, James, president of Pielet Inc., and Arthur signed the Consulting Agreement. The Consulting Agreement provided that Arthur would "act as a general advisor and consultant" to Pielet Inc. and that he would receive a yearly fee of $130,000, "payable in equal monthly installments." Arthur would be paid the fee until his death, after which his "widow" (unnamed) would receive the fee "for her life." The Consulting Agreement provided that the "inability [of Arthur] to render [consulting] services *** by reason of illness, disability or incapacity" would not be deemed "a breach or default by him." The Consulting Agreement further provided that it was binding "upon the parties [thereto], and their respective heirs, legal representatives, successors[,] and assigns."

In 1988, James, together with Tang, an outside investor with experience in the scrap metal business, agreed to form Pielet LP, a partnership. Tang was sole shareholder and owner of PBS One.

Shortly before the reorganization that led to Pielet LP, Pielet Inc. changed its name to Pielet Corporation (Pielet Corp.)*fn3 and James acquired Robert's shares, becoming sole shareholder. On April 12, 1988, several documents were executed to accomplish the restructuring. Each was signed by James as president of Pielet Corp. and by Tang as president of PBS One. The first was an "Asset Purchase Agreement" (Purchase Agreement). The preamble to the Purchase Agreement identifies Pielet Corp. as "Seller" and PBS One as "Buyer" and states:

"WHEREAS, Seller has its principal place of business in Argo, Illinois[,] and is engaged in the business of operating scrap metal shredding and recovery plants in Argo and McCook, Illinois[,] and Hammond and Indianapolis, Indiana (the 'Business');

WHEREAS, Seller and Buyer desire to form a limited partnership *** to own and operate the Business ***."

Article I is entitled "Purchase and Sale of Assets." Section 1.1 under article I is entitled "Agreement to Sell and Purchase" and states:

"Upon the terms and subject to the conditions set forth herein, and in reliance on the respective representations and warranties of the parties, Seller shall sell an undivided one-half (1/2 ) interest in and to the Assets (as defined below) to Buyer ***, and Buyer shall purchase such undivided one-half (1/2 ) interest in and to the Assets from Seller *** for the consideration and in accordance with the provisions of Article II hereof ***."

"Assets" is defined generally as "all the assets of Seller used or usable in connection with the Business." "Assets" specifically includes, inter alia, "all of the contract rights of the Business, of any kind, nature or description, including rights arising under restrictive covenants and obligations of present and former officers and employees and of individuals and corporations, rights arising under joint venture agreements or arrangements, rights arising under leases of personal property, [and] rights arising under service and maintenance contracts ***, to the extent transferable."

Article II is entitled "Purchase Price and Payment Terms." Section 2.1 under article II is entitled "Purchase Price" and provides:

"The purchase price for the undivided one-half interest in the Assets *** shall be Six Million Dollars ($6,000,000) plus an assumption of one-half (1/2 ) of all the Seller's liabilities of every kind, nature or description whether fixed or contingent, choate or inchoate, perfected or otherwise, and whether due or to become due (the 'Assumed Liabilities'), which amount shall be allocated among the Assets as set forth on Schedule 2.1(a) attached hereto." Under "Assumed Liabilities," the Purchase Agreement states: "Attached hereto as Schedule 3.1(t) is a correct list of Seller's liabilities as of March 31, 1988. The Seller's liabilities shall not exceed $200,000 of the liabilities listed on Schedule 3.1(t)." Schedule 3.1(t), entitled "Liabilities," states:

"1. All liabilities set forth on the Seller's financial statements for the year ended December 31, 1987[,] except those liabilities which have been paid or otherwise satisfied by Seller since December 31, 1987.

2. All liabilities set forth on Seller's balance sheet for the month ended March 31, 1988[,] except those liabilities which have been paid or otherwise satisfied by Seller since February 29, 1988.

3. All other liabilities which have arisen in the ordinary course of business since February 29, 1988[,] and all other ordinary course of business liabilities of Seller, whether or not reflected on the Seller's balance sheet or financial statements.

4. All liabilities or obligations of Seller as reflected in this Asset Purchase Agreement or any other Schedule attached hereto." (Emphasis added.)

Under a section termed "Material Contracts," the Purchase Agreement states:

"Attached hereto as Schedule 3.1(m) is a correct and complete list of every material contract, agreement, relationship, or commitment, written or oral, to which [Pielet Corp.] is a party, including, without limitation, union contracts and agreements relating to employment and services of independent contractors ***."

Among the contracts listed in schedule 3.1(m) is: "Consulting Agreement with Mr. Arthur Pielet dated December 23, 1986[,] providing for the payment of annual consulting fees of $130,000 for a term to end at the later to occur of the death of Arthur Pielet or his wife."

James and Tang also signed an "Assignment and Assumption Agreement" (Assignment Agreement), which identifies Pielet Corp. as "Assignor" and PBS One as "Assignee" and states:

"WHEREAS, pursuant to that certain Asset Purchase Agreement *** between the parties hereto, Assignor is selling to Assignee an undivided one-half (1/2 ) interest in all of Assignor's Assets relating to the Business (as such terms are defined in the Asset Purchase Agreement);

WHEREAS, Assignor is an obligor of certain obligations as are set forth on Schedule

3.1(t) to the Asset Purchase Agreement (the 'Assumed Liabilities'); and WHEREAS, pursuant to [this] Agreement, Assignor desires to assign the Assignee the Assumed Liabilities and Assignee desires to assume the Assumed Liabilities each from and after the date hereof;

***

1. Assignor hereby assigns, transfers, grants and conveys to Assignee, effective as of the date hereof, the Assumed Liabilities;

2. Assignee does hereby accept the foregoing assignment of the Assumed Liabilities and from and after the date hereof, assumes and agrees to perform all of the covenants, agreements and obligations of the Assignor under the Assumed Liabilities."*fn4 Finally, the Assignment Agreement states that it shall "inure to the benefit of and bind the parties hereto and their respective successors and assigns."

The third of the three major documents signed by James and Tang on April 12, 1988, was a limited partnership agreement forming Pielet LP (Partnership Agreement). The Partnership Agreement specifies that, in exchange for their capital contributions, PBS One and Pielet Corp. each received a participating percentage of 49.5% and was made a limited partner. The general partner, PT Enterprises, received the remaining 1% participating percentage for its capital contribution. As Tang owned 51% of PT Enterprises, he had in effect a majority participating percentage in Pielet LP.

Also on April 12, 1988, Tang sent a letter to Pielet Corp. stating:

"Pursuant to the Partnership Agreement [of April 12, 1988], [PBS One] directs Pielet Corp. to transfer to the Partnership the undivided one-half (1/2 ) interest in and to all of the Company's Assets purchased by [PBS One] pursuant to the Purchase Agreement." (The trial court's statement of undisputed facts states: "[B]oth Pielet Corp. and PBS One conveyed their respective one-half interests to [Pielet LP] in exchange for a 49.5% limited partnership interest in that entity." Although the parties agree that this occurred, we have found no document in the record that purports to effect that transfer.)

Attorney Michael Zavis's law firm represented Pielet Corp. in connection with the formation of Pielet LP in April 1988. In a February 22, 1999, affidavit, Zavis described the two-step process by which Pielet LP was created:

"4. In the first step of the restructuring, [Pielet Corp.] sold an undivided 50% interest in all of its assets to an Illinois Corporation named [PBS One], which was owned by [Tang]. This undivided 50% interest included various contracts to which [Pielet Corp.] was a party, including a written Consulting Agreement between [Arthur] and [Pielet Corp.] ***.

5. In the second step of the restructuring, a limited partnership was formed known as [Pielet LP] ***. In this second step of restructuring, [Pielet Corp.] and [PBS One] each contributed their respective undivided half interests in the assets and liabilities of the scrap metal business to the limited partnership [Pielet LP], which transaction included a transfer to the limited partnership of the Consulting Agreement and an assumption of [Pielet Corp.'s] liabilities and obligations under the Consulting Agreement."

Zavis described a conversation he had with Arthur before the April 1988 restructuring occurred:

"6. In 1988, before the restructuring transaction had been effected, I participated in at least one face-to-face meeting at my law offices at which [James], [Arthur], and [plaintiff] were present. During this meeting, I discussed with both [Arthur] and [plaintiff] various aspects of the restructuring, including, but not limited to, what was intended to happen with respect to Arthur's Consulting Agreement once the limited partnership [Pielet LP] was formed. I explained that the limited partnership was assuming [Pielet Corp.'s] obligations under the Consulting Agreement, that the limited partnership was substituting itself for [Pielet Corp.] under the Consulting Agreement, and would thereafter be making the payments to him in lieu of [Pielet Corp.]. I explained to Arthur that [Pielet Corp.] would no longer be obligated to him under the Consulting Agreement, and that the limited partnership would thereafter have such obligation. He agreed thereto expressing his desire to have the transaction concluded as soon as possible since the new entity would be financially stronger than [Pielet Corp.]."

At his September 21, 1999, deposition, Zavis was asked about the April 1988 formation of Pielet LP and about his conversations with Arthur and plaintiff beforehand:

"A. How would you characterize this meeting you had with Arthur and [plaintiff]?

Q. *** I discussed what was transpiring, and that--discussed the nature of the transaction and the contract obligations being taken over and assumed, ultimately, when it's all said and done, by this new entity that was being created between Cyrus Tang and [James] and--and--Cyrus Tang and [Pielet Corp.], and how it all transferred down.

A. Did you say anything else to him?

Q. I said that the payments now would be coming from--ultimately payments would be coming from the new entity.

Q. It was your intent at this meeting to get a release from Arthur?

A. Absolutely not. For whom?

Q. For anyone.

A. No.

Q. Was it your intent to work a novation for anyone here? ***

A. No.

Q. Was it your intent to have Arthur release rights that he had against [Pielet Corp.]?

A. No.

A. [N]ow, as far as your understanding of the meeting, Arthur never gave up any of his rights against the original debtor; is that correct?

Q. That is my understanding. Well, my understanding of the meeting was that he wasn't asked to give up any rights against anyone on anything.

He was being informed of the transaction that was occurring and that it would have an impact on him because this was a significant transaction. Other than information purposes, I had no purpose of discussing it with him.

Q. Nobody ever asked you to get a novation from him?

A. No.

Q. Nobody ever asked you to get a--to release his rights ...


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