Appeal from the Circuit Court of Cook County. The Honorable Sebastian T. Patti, Judge Presiding.
The opinion of the court was delivered by: Justice Harris
JUSTICE HARRIS delivered the judgment of the court, with opinion. Presiding Justice Quinn and Justice Connors concurred in the judgment and opinion.
¶ 1 Respondent Kenny Industries, Inc. (Kenny Industries), appeals the order of the circuit court denying its motion for release from a judgment confirming the arbitrator's final award in favor of petitioner Gerard M. Kenney's trust. On appeal, Kenny Industries contends the trial court erred in denying the motion because it retained its right of setoff under section 4.5 of the share purchase agreement (SPA). Kenny Industries also argues that petitioner Bank of America, N.A. (Bank of America), does not have a greater right to receive payments from the trust. For the following reasons, we affirm.
¶ 3 The trial court entered a final judgment in the instant case on March 5, 2011, and Kenny Industries filed a motion to reconsider on April 4, 2011. The trial court granted the motion but denied all relief requested on June 16, 2011. Kenny Industries filed its notice of appeal on June 24, 2011. This court granted leave to amend the notice of appeal on August 9, 2011, and the amended notice of appeal was filed on August 10, 2011. Accordingly, this court has jurisdiction pursuant to Illinois Supreme Court Rules 301 and 303 governing appeals from final judgments entered below.
Ill. S. Ct. R. 301 (eff. Feb. 1, 1994); R. 303 (eff. May 30, 2008).
¶ 5 Kenny Industries was formed in 1985 as a holding company for the Kenny family's business entities. Its shareholders consisted of Gerard and siblings James, Joan, John, Patrick, and Phillip. The shareholders entered into the SPA which governed the purchase and sale of Kenny Industries stock upon the death, total disability, or termination of employment with the Kenny Group of any shareholder. The SPA defines the Kenny Group as Kenny Industries, Northgate, Kenny Construction Company (KCC) and Seven K Construction Company (Seven K). The SPA further provides that shares cannot be transferred without prior written consent of Kenny Industries and all other shareholders, except transfer of shares to the shareholder as sole trustee of a Clifford trust or revocable living trust. However, any shares so transferred remain subject to the terms of the SPA. Section 4.5 of the SPA also states "If, at the time payments are to be made under this Agreement to the Shareholder ***, the Shareholder *** is indebted to any member of the Kenny Group, then [Kenny Industries], in its discretion, may withhold any payment, in whole or in part, and apply such withheld amount to the payment or partial payment of such indebtedness."
¶ 6 On November 2, 1999, Gerard transferred all his shares of Kenny Industries stock to a trust as permitted by the SPA (Gerard's trust). In August 2005, Gerard and his sister, Mary Ann Kenny Smith, each obtained a $3.5 million loan from LaSalle Bank, N.A. (which later merged into Bank of America, N.A.), for a hotel development project. In November 2005, Gerard's employment with Kenny Industries was terminated and the termination triggered Kenny Industries' obligation to purchase his shares pursuant to the SPA. It sent a letter to Gerard's trust, valuing its shares at about $5.4 million. It informed the trust, however, that it intended to exercise its right to set off a $7.6 million debt it claimed Gerard owed under a contribution agreement entered into between Gerard, his siblings, and KCC. The contribution agreement provided guarantees/agreements to indemnify certain obligations in the construction and development of the Bryn Mawr Hotel. As a result of the setoff, Kenny Industries claimed it owed nothing to Gerard.
¶ 7 On August 2, 2007, the trust initiated arbitration proceedings in which it disputed Kenny Industries' valuation of the shares and challenged its exercise of the setoff option. The arbitrator issued an interim award on January 12, 2009. In the award, the arbitrator valued the trust's shares of Kenny Industries stock at $6,989,626. He concluded that under the SPA, Kenny Industries must pay that "amount to the Trust in 15 yearly equal installments, plus interest." As for the $7.6 million setoff claimed by Kenny Industries under the contribution agreement, the arbitrator ruled that it had no right to exercise its setoff option because the debt owed under the agreement was to the siblings individually, and those individuals are not part of the Kenny Group. The arbitrator found "no indebtedness to any member of the Kenny Group." A final award was issued on March 25, 2009, and it incorporated the provisions of the interim award by reference. It calculated the amount due to the trust as of the final award date as $2,253,041.58.
¶ 8 Meanwhile, Gerard and Mary Ann negotiated an extension on their Bank of America loan in exchange for additional collateral which included a security interest in any right of Gerard's trust to payments under the SPA or any arbitration award or judgment related to the SPA. Bank of America perfected its new security interest on March 3, 2009.
¶ 9 The trust filed a petition seeking confirmation of the final award and entry of judgment. On November 3, 2009, it filed a motion for summary judgment on its petition. Kenny Industries filed a response in which it asked for a stay of enforcement pending the resolution of a separate case filed in 2005 (2005 case) involving Gerard and his siblings. In the 2005 case, the Kenny siblings sought payment of the $7.6 million debt owed by Gerard under the contribution agreement. On January 29, 2010, the trial court entered summary judgment in favor of the trust and denied Kenny Industries' request for a stay of enforcement. The court ...