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Centerpoint Enegery Services, Inc., A Delaware Corporation v. Wr Property Management

November 10, 2011

CENTERPOINT ENEGERY SERVICES, INC., A DELAWARE CORPORATION,
PLAINTIFF,
v.
WR PROPERTY MANAGEMENT, LLC, CAMEEL HALIM, HODA HALIM, THE CAMEEL HALIM LIVING TRUST DATED OCTOBER 24, 1996, AND THE HODA HALIM LIVING TRUST DATED OCTOBER 24, 1996, DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

This case reflects the efforts of CenterPoint Energy Services, Inc. ("CES") to collect a judgment obtained against Wilmette Real Estate & Management LLC ("Wilmette") for approximately $1.7 million in the Circuit Court of Cook County on December 7, 2009. The debt arose from Wilmette's failure to pay its invoices for natural gas that CES supplied to the rental properties managed by Wilmette. In this suit, CES alleges that Wilmette fraudulently transferred its assets to the Defendants for the purpose of avoiding the judgment debt in violation of Illinois's Uniform Fraudulent Transfer Act ("UFTA"). CES names the following as Defendants: Cameel Halim ("Halim") and Hoda Halim ("Mrs. Halim"), the Cameel Halim Living Trust and the Hoda Halim Living Trust ("the Living Trusts"), as well as their company Defendant WR Property Management LLC ("WR"). To that end, CES requests that the Court declare that the Halims are Wilmette's alter ego and that WR is the successor company of Wilmette, execute avoidance or attachment of the fraudulent transfers, and order levy execution of the proceeds of the fraudulent transfers, as well as attorneys' fees and costs and interest.

Before the Court is CES's motion for summary judgment on its claims of fraudulent transfer (Count I), successor liability (Count II) and alter ego liability (Count III). Also before the Court is Defendants' motion for summary judgment on the claim of fraudulent transfer (Count I) and alter ego liability (Count III). Defendants argue that the transfers were not fraudulent because the funds were drawn from the Halims' personal accounts rather than Wilmette's account. In addition, Defendants argue that CES, as a voluntary creditor, cannot complain of an "injustice" to pierce a debtor's corporate veil, if it knew or could have found out that Wilmette lacked sufficient assets to be able to pay the debt when it comes due. For the following reasons, the Court grants CES's motion with regard to Counts I and II, rendering Count III moot. Accordingly, the Court denies Defendants' motion with regard to Count I and III.

I. JURISDICTION

This Court has diversity jurisdiction over this action pursuant to 28 U.S.C §1332 because the matter in controversy exceeds $75,000, exclusive of interests and costs, and is between citizens of different states. This Court has personal jurisdiction over the Defendants because they are citizens of the State of Illinois and conduct business in the State of Illinois.

II. MATERIAL FACTS

Both Wilmette and WR are Illinois limited liability companies organized pursuant to the Illinois Limited Liability Company Act, 805 ICLS 1801/1-1 et seq. (Pltf. Resp. ¶2-3). Wilmette's only members are the Cameel Halim Living Trust and the Hoda Halim Living Trust, which have Halim and Mrs. Halim as their trustees and beneficiaries, respectively. (Pltf. SOF ¶8, 3-4). The Halims also directly or indirectly own 41 rental properties, an office building, two private boats, four restaurants, an entity that will be a clock museum and a number of private residential buildings. (Def. Resp. ¶9). All the companies, including Wilmette, are limited liability companies whose members are Halim and/or Mrs. Halim or their respective living trusts, and for whom the controlling member and manager is Halim; all use the same phone number and address. (Def. Resp. ¶9). None of the Halims' companies, other than the restaurants, have their own bank accounts. (Def. Resp. ¶9). Instead, the forty-or-so companies' funds are collectively held in an account as "[o]ne lump sum" along with the Halims' personal expenses, as to which Halim testified. (Def. Resp. ¶27). Defendants assert that the "cash management system" means that expenses are only logged when paid but that each company has its own "section" within the account. (Def. Resp. ¶25). However, Wilmette's internal accounting system does not maintain a "strict accounting" of the balances for each company, so the financial statements cannot attest to how much cash is actually available to each company. (Def. Resp. ¶27). The Halims refer to Wilmette's accounts as "trust accounts" or the "Trust Account" however no written trust agreement exists between Wilmette and any of the Halims' other companies that use the Account; no trust agreement exists Wilmette and its bank referring to the account as a trust, regulating or restricting the use of money, or segregating money, amongst the various entities using the Account. (Def. Resp. ¶24). Defendants deny that the Account is in Wilmette's name alone, and instead assert that Wilmette never had its own bank account, but instead a section within the Account. (Def. Resp. ¶24). The evidence submitted proves otherwise-the title holder of the bank account was "Wilmette Real Estate Management Co. LLC" and the checks drawn from the account were issued by the same to the personal "Halim Account" and others. (Doc. 104-6, Exs. A-F).

Wilmette's primary business is managing the Halims' rental properties; CES claims that Wilmette also processes the financial transactions for all of the Halims' limited liability companies but Defendants characterize Wilmette's processing of financial transactions of the non-building companies as de minimis. (Def. Resp. ¶10). Because the rental properties do not maintain their own bank accounts, Wilmette enters into contracts with vendors for services, along with other purchases for the Halims' properties, and all of the bills are kept in Wilmette's name. (Def. Resp. ¶25). Defendants do not dispute that the Account contains funds received by Wilmette as management fees from the rental properties, rental income collected by those rental properties, and credit fees received from prospective tenants. (Def. Resp. ¶26).

In September 2006, CES was providing natural gas to the apartment buildings managed by Wilmette.*fn1 CES's supplying of gas was pursuant to an agreement between CES and Wilmette, which stated that if Wilmette "fails to pay the amounts when due, [CES] may collect from [Wilmette], in accordance with applicable law, a late charge equal to the lessor of one and one-half percent of the outstanding balance per month or the maximum interest rate allowed by law," which was 18% per annum under Texas law, which governs the Agreement. (Def. Resp ¶43). In the agreement, Wilmette represents through Halim's signature that Wilmette was "financially able to continue in business, unaware of any situation which would alter its financial abilities and has not filed, planned to file or have had [sic] filed any bankruptcy proceeding." (Pltf. SOAF ¶1). A dispute arose in November 2007, though CES continued until February 2008 to deliver natural gas and send bills to Wilmette in a total sum of approximately $1.2 million, which Wilmette failed to pay. (Pltf. Resp. ¶ 19-21). On June 11, 2008, CES filed suit against Wilmette for breach of the energy services agreement in the Circuit Court of Cook County ("State Court"). (Pltf. SOF ¶45). The State Court granted summary judgment to CES on August 19, 2009, and final judgment for additional late charges, attorneys' fees and costs on December 7, 2009, in the amount of $1.7 million. (Def. Resp. ¶46).

On July 1, 2008, less than one month after CES had filed suit, the Halims created a new limited liability company called WR to which they transferred all of Wilmette's management agreements, office equipment, employees and other assets. (Plt. SOF ¶49, 52, 54).*fn2 Wilmette executed an Assignment of Leases that expressly assigned all of Wilmette's "rights and obligations as managing agent for the properties" to WR. (Pltf. SOF ¶54). Defendants also transferred the entire balance from Wilmette's bank accounts to WR's bank accounts. (Pltf. SOF ¶ 53, 56, 59).

Halim testified that commodity bills were paid by Wilmette in either of two ways: either the bill was directly paid from the buildings' "section" within the Trust Account to the gas company, or the bill was indirectly paid when the buildings' section paid Wilmette who then paid the gas company. (Doc. 85-13, Ex. M, January 11, 2011 Deposition of Cameel Halim, p. 212-214). These buildings are purportedly categorized as either Division I or Division II, but Halim testified that money is freely transferred between Division I, Division II, and the supply account; how the transfers are treated on the books "means nothing" and "the final result is the same." (Halim Dep. p. 216, 235). If at the end of the year, there was a positive balance in an account, it was considered a profit. (Halim Dep. p. 244).

However, there was rarely a profit at the end of the year, as Wilmette reported a negative net income every year it was in existence except for 2008, as follows: net loss of $247,500 in 2005, net loss of $775,889 in 2006, $498,980 in 2007. (Def. Resp. ¶21). Halim testified that he tried to keep the "Trust" Account at a "zero balance," so that whenever the account had insufficient funds to pay the expenses of a property under management, he would deposit funds into their "Personal Account Section" of the "Trust" Account, and when the managed properties had sufficient funds, the excess funds would be deducted to return to "zero balance." (Def. Resp. ¶28).

In October 2008, the only month in 2008 when income exceeded expenses, the buildings paid $1.22 million for the natural gas that CES had provided to those properties. The $1.22 million was logged in the Division I and Division II accounts. Divisions I and II paid $1.22 million to the supply account, which was then paid as income to Wilmette and logged as a "Gas Sale" transaction. (Halim Dep. p. 237). The $1.22 million was then deposited back into Division I. (Halim Dep. p. 246). Halim wrote two checks from the Division I account-one for $1 million and the other for $220,000-to his personal bank account. (Halim Dep. p. 238-239). Halim testified at his deposition that he and his wife executed the transaction in anticipation of ending Wilmette and beginning WR, specifically to keep the Halims' properties out of the dispute with CES regarding the unpaid gas invoices. (Def. ...


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