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Melissa S. Pielet, Individually and On Behalf v. Dennis J. Hiffman

January 20, 2011

MELISSA S. PIELET, INDIVIDUALLY AND ON BEHALF
THE I.B.P LIMITED PARTNERSHIP AND TB LIMITED PARTNERSHIP,
PLAINTIFF,
v.
DENNIS J. HIFFMAN, E. THOMAS COLLINS, JR., RICHARD E. HULINA, AND DANIEL G. ANDERSON, DEFENDANTS JOHN E. SHAFFER, THIRD-PARTY DEFENDANT; JOHN F. GIRSCH, EDWARD ZIFKIN, MARK MUNARETTO, AND MARK WHEELES, INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF TB LIMITED PARTNERSHIP; AND MARK MUNARETTO AND WILLIAM SKRZELOWSKI, INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF I.B.P. LIMITED PARTNERSHIP, INTERVENING PLAINTIFFS-APPELLANTS;
DENNIS J. HIFFMAN, JOHN E. SHAFFER, E. THOMAS COLLINS, JR., DANIEL G. ANDERSON, AND RICHARD E. DECEMBER 8, HULINA, 2005 ORDER AUGUST 13, 2009
DEFENDANTS-APPELLEES.



APPEAL Lower Court and Trial Judge(s) in form indicated in the margin: from the The Honorables David Donnersberger and Mary K. Rochford, Judges Presiding. Circuit Ct. of Cook County. No. 01 CH 21984

The opinion of the court was delivered by: Justice Lavin

FOURTH DIVISION

Appeal from Circuit Court of Cook County. Honorables David Donnersberger and Mary K. Rochford Judges Presiding. No. 01 CH 21984

JUSTICE LAVIN delivered the judgment of the court, with opinion.

Presiding Justice Gallagher and Justice Pucinski concurred in the judgment and opinion.

OPINION

This appeal stems from real estate partnerships that were formed nearly two decades ago to develop shopping centers in two suburbs largely financed through tax increment financing (TIF) bonds. This matter was litigated in the Chancery Division of the Circuit Court of Cook County for more than eight years and appellants-intervenors' cause of action was dismissed in two separate orders entered in 2005 and 2009, both times for a lack of standing. On appeal, appellants contend that both counts of their complaint were improperly dismissed. For the reasons discussed at length below, we reverse and remand.

I. BACKGROUND

The partnerships in question were formed by various persons who were employed in a Chicago real estate development firm. Appellants, intervening plaintiffs (intervenors) below,*fn1 were limited partners in two Illinois limited partnerships: I.B.P. Limited Partnership (IBP) and TB Limited Partnership (TB), of which Dennis J. Hiffman, John E. Shaffer, E. Thomas Collins, Jr., Daniel G. Anderson, and Richard E. Hulina (defendants) were the general partners in one or both of the partnerships. Defendants were principals in HSA Commercial Real Estate, Inc. (HSA), in the early 1990's, with intervenors then being either employees or contractors of HSA.

The first involved partnership, IBP, was formed by defendants in January 1992 for the purpose of developing a shopping center in Bedford Park, Illinois. Various employees and contractors of HSA were offered the opportunity to become limited partners of IBP in exchange for a nominal capital contribution of $10 per 1% of ownership. Intervenors Mark Munaretto and William Skrzelowski each became a 0.5% limited partner in this entity. The second partnership, TB, was formed in May 1993 by Hiffman, Shaffer, Collins and Hulina, for the purposes of acquiring and developing property in Broadview, Illinois. Again, employees and contractors were offered the opportunity to buy into the partnership as limited partners for $10 per 1% of ownership. In July 1993, intervenors John Girsch, Edward Zifkin, and Mark Wheeles each became 0.5% limited partners, and Munaretto became a 0.75% limited partner.

Simply stated, the two projects undertaken by IBP and TB involved substantial real estate redevelopment. The general partners planned to utilize TIF bonds issued by the respective municipalities involved in the projects. TIF bonds are financial instruments issued by municipalities to assist in the funding of redevelopment projects in designated areas. See 65 ILCS 5/11-74.4 et seq. (West 2008). The principal and interest on TIF bonds are paid from the increase in real estate taxes, and sales taxes in certain cases, that is anticipated to occur from a successful redevelopment project. IBP and TB entered into separate redevelopment agreements with the Villages of Bedford Park and Broadview, and pursuant to the agreements, each village issued senior lien TIF bonds (Senior Bonds) to the partnerships. Bedford Park issued $10.5 million in Senior Bonds and Broadview issued $23 million, with William Blair & Company and Dain Bosworth acting as the respective underwriters.

In addition to the Senior Bonds, the two villages agreed to issue TIF bonds subordinate to the Senior Bonds. Bedford Park issued "Developer Bonds" with a face value of $7 million and Broadview issued "Junior Bonds" in the amount of $8 million. Because the Developer and Junior Bonds were subordinate to the Senior Bonds, principal and interest would only be paid to the holders in the event that the incremental tax revenues exceeded the amounts required to satisfy all the principal and interest payments of the Senior Bonds. One of the general partners, E. Thomas Collins, Jr., stated in a sworn affidavit and a deposition that it was discussed and understood between the limited and general partners that the subordinate bonds would be taken by the general partners due to the personal investments they had made in creating the projects. Intervenors, on the other hand, deny being notified that the general partners would acquire the Junior or Development Bonds for themselves and the partnership agreements themselves were silent on the subject.

In any event, the Developer Bonds were issued in June 1992 to IBP, which were then purchased by the general partners of IBP for $550,000, netting the partners $5,500 per percentage point of interest. The purchase was disclosed to the limited partners in a June 11, 1992, letter, which also enclosed checks payable in appropriate amounts to each partner. The purchase price was based on a draft valuation letter by Charles Freeburg of William Blair & Company. In a separate transaction, the Junior Bonds were issued directly to the general partners of TB around September 1994. The issuance was treated as a distribution against their partnership capital accounts, which were reduced by the face amount of the Junior Bonds.

In the several years subsequent to the bond transactions, the redevelopment projects eventually became successful, and as a result, tax revenues were generated in excess of the projects' projections. Because of this, the Senior Bonds' obligations were able to be fulfilled (with cash distributions being made to all partners) and the Developer and Junior Bonds, in turn, increased in value. The transactions revolving around the Developer and Junior Bonds, and other certain events ...


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