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Dorothy Pielet, Indiv. and As Ex'r of the Estate of Arthur Pielet v. James Pielet et al. (P.B.S. One

October 18, 2012

DOROTHY PIELET, INDIV. AND AS EX'R OF THE ESTATE OF ARTHUR PIELET, APPELLEE,
v.
JAMES PIELET ET AL. (P.B.S. ONE, INC., ET AL., APPELLANTS).



The opinion of the court was delivered by: Justice Karmeier

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

Chief Justice Kilbride and Justices Thomas, Garman, and Theis concurred in the judgment and opinion.

Justice Burke concurred in part and dissented in part, with opinion, joined by Justice Freeman.

OPINION

¶ 1 P.B.S. One, Inc., National Material L.P. and N.M. Holding, Inc., appeal from a judgment of the appellate court which reversed an order granting summary judgment in favor of plaintiff, Dorothy Pielet, and against them on certain counts of her fifth amended complaint alleging breach of contract and successor liability, but rejected their contention that summary judgment should have been entered in their favor as to those same counts and remanded the cause to the circuit court for further proceedings. 407 Ill. App. 3d 474. For the reasons that follow, we hold that the appellate court properly reversed the circuit court of Lake County's entry of summary judgment in favor of Dorothy and against P.B.S. One, Inc., on count XI of Dorothy's fifth amended complaint, but erred when it rejected P.B.S. One, Inc.'s argument that it was entitled to judgment as a matter of law on that count. The appellate court was also correct when it held that a genuine issue of material fact remained as to whether there was a novation involving another defendant in the case and that the existence of that question should have precluded entry of summary judgment in favor of Dorothy and against National Material and N.M. Holding, Inc., on counts IX and X of the complaint. The appellate court erred, however, when it went beyond those matters and addressed issues pertinent to whether National Material and N.M. Holding, Inc., would be liable in the absence of a novation. The appellate court's judgment is therefore affirmed in part and reversed in part, and the cause is remanded to the circuit court for further proceedings consistent with this opinion.

¶ 2 BACKGROUND

¶ 3 At issue in this case are the contractual obligations of successors to a scrap metal business founded by Dorothy's husband, Arthur Pielet, and his brothers shortly after the conclusion of the Second World War. The business, a Delaware corporation, was known as Pielet Brothers Scrap Iron and Metal, Inc. (PBSIMI).

¶ 4 Arthur sold his interest in PBSIMI to his sons James and Robert in 1986. Part of the consideration for the sale was a consulting agreement which provided that Arthur would "continue to act as a general advisor and consultant" to PBSIMI and, so long as he desired, would be a member of the company's board of directors and chairman of its board. In exchange, he was to receive a company car, health insurance and a yearly fee of $130,000, payable in equal monthly installments.

¶ 5 Under the terms of the agreement, which was executed on December 23, 1986, Arthur was to be paid the fee until his death, after which his widow would receive the fee for as long as she lived. The agreement further 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." In addition, the agreement specified that it was binding "upon the parties [thereto], and their respective heirs, legal representatives, successors and assigns."

¶ 6 In 1988, PBSIMI changed its name to Pielet Corp. and James bought all of his brother Robert's shares in the company, leaving James as the sole shareholder. James then took steps to combine his interests in the scrap metal business with those of an individual named Cyrus Tang.

¶ 7 Forming the combined enterprise required a number of steps.

First, Tang established a new corporation known as P.B.S. One, Inc., of which he was the sole shareholder. Next, P.B.S. One, Inc., purchased an undivided one-half interest in Pielet Corp.'s assets. In exchange for this acquisition, P.B.S. One, Inc., agreed to pay Pielet Corp. the sum of $6 million, plus additional sums based on Pielet Corp.'s taxable income, and to assume half of Pielet Corp.'s liabilities. Pielet Corp.'s obligation to pay Arthur Pielet annual consulting fees in the amount of $130,000 "for a term to end at the later to occur of the death of Arthur Pielet or his wife" was specifically listed in an attachment to the asset purchase agreement executed by P.B.S. One, Inc., and Pielet Corp.

¶ 8 Under the agreement, P.B.S. One, Inc. agreed "to perform all the covenants, agreements and obligations of [Pielet Corp.]" with respect to the liabilities it was assuming. The agreement governing the assumption further provided that its provisions would "inure to the benefit of and bind the parties hereto and their respective successors and assigns."

¶ 9 The third and final step in creating the combined enterprise was for P.B.S. One, Inc. and Pielet Corp. to form a limited partnership known as PBSIM L.P. P.B.S. One, Inc. and Pielet Corp. contributed their respective one-half interests in Pielet Corp. to capitalize the business. In exchange, each of those entities was named a limited partner and granted a 49.5% share in the business. The remaining 1% interest in PBSIM L.P. was given to another company, Pielet/Tang Enterprises, Inc.

¶ 10 Several years later, in 1991, P.B.S. One, Inc., sold its 49.5% interest in PBSIM L.P. to National Material L.P., another limited partnership controlled by Cyrus Tang, for approximately $5.5 million. Under the sales agreement, National Material, succeeded P.B.S. One, Inc. as a limited partner in PBSIM L.P. and assumed the obligations previously borne by P.B.S. One, Inc., under the agreements by which PBSIM L.P. had been formed. On June 1, 1994, P.B.S. One, Inc., was dissolved. Its assets, including the approximately $5.5 million it received from the sale of its stake in PBSIM L.P., were distributed to Cyrus Tang.

¶ 11 Throughout these changes, the consulting agreement requiring monthly payments to Arthur continued to be honored. When PBSIM L.P. was formed, it was the entity which tendered the payments required by the contract. When PBSIM L.P. changed its name to Midwest Metallics in 1993, the monthly checks to Arthur were issued in the name of that company. This was done with Arthur's knowledge and approval. Midwest Metallics continued to tender monthly payments to Arthur pursuant to the original consulting agreement until 1998, when the payments ceased.

¶ 12 The reason Midwest Metallics stopped sending Arthur his monthly checks was because it was having serious financial difficulties. As a result of those difficulties, Midwest Metallics ceased paying virtually all its creditors. The following year, it filed for bankruptcy, listing assets of $550,683 and liabilities of $19,178,322. Of those liabilities, $17.4 million were to creditors holding secured claims. Arthur's claim was unsecured.

¶ 13 Shortly after Arthur stopped receiving the monthly payments he was due under the consulting agreement, he and his wife, Dorothy, brought this action in the circuit court of Lake County seeking damages based on breach of contract, promissory estoppel and equitable estoppel. Various parties were named as defendants including the Pielets' son James and Midwest Metallics.

¶ 14 Years of litigation ensued during which time Arthur died. Dorothy continued to press the case individually and as executor of his estate. In 2005, Dorothy sought and was granted leave to file her fifth amended complaint. That complaint contained 11 counts. Of those, only three are at issue in the proceedings before us today: count IX, alleging breach of contract against National Material and N.M. Holding, Inc., which was a general partner of National Material; count X, which sought to hold National Material and N.M. Holding, Inc., to the provisions of the consulting agreement on the grounds that they were a mere continuation of P.B.S. One, Inc.; and count XI, which asserted a claim for breach of contract against P.B.S. One, Inc.*fn1

¶ 15 Early in 2006, P.B.S. One, Inc., moved for summary judgment in its favor on count XI, arguing that claims asserted against it by Dorothy, individually and as executor of Arthur's estate, were barred as a matter of law because they did not accrue until after P.B.S. One, Inc., had dissolved. P.B.S. One, Inc., contended, in the alternative, that it breached no contractual obligations to Arthur or Dorothy and that nothing P.B.S. One, Inc., did or failed to do was a proximate cause of the damages claimed by Arthur and Dorothy.

¶ 16 Shortly after P.B.S. One, Inc., moved for summary judgment as to count XI of the fifth amendment complaint, National Material and N.M. Holding, Inc., moved for summary judgment in their favor with respect to counts IX and X. As grounds for their motion, National Material and N.M. Holding, Inc., asserted that they were entitled to judgment as a matter of law because they had no contract with Arthur and did not assume any obligation to make payments to Arthur under the consulting agreement. They further argued that National Material (of which N.M. Holding, Inc., was a general partner) was merely a limited partner in PBSIM L.P. and, as such, was not liable for PBSIM L.P.'s debts. They also contended there was no basis for finding them liable under a theory of successor liability. In addition, they asserted that the consulting agreement was a contract for personal services and therefore could not be assigned without Arthur's consent, which he did not give.

¶ 17 At the same time summary judgment was sought by P.B.S. One, Inc., and National Material and N.M. Holding, Inc., Dorothy Pielet filed her own motions for partial summary judgment. In the first motion, Dorothy argued, inter alia, that she was entitled to judgment as a matter of law on the claim for breach of contract which she asserted against P.B.S. One, Inc., in count XI of her fifth amendment complaint. In a companion motion, Dorothy asserted that she was entitled to judgment as a matter of law in her favor and against National Material and N.M. Holding, Inc., on the claims she asserted against them for breach of contract and successor liability in counts IX and X of her fifth amended complaint.

¶ 18 The parties' respective motions for summary judgment were heard by the circuit court and decided in a written order entered August 31, 2006. In that order the court concluded that summary judgment should be entered in favor of Dorothy and against P.B.S. One, Inc., on count XI of Dorothy's complaint, which alleged breach of contract. The court likewise found that summary judgment should be entered in favor of Dorothy and against National Material and N.M. Holding, Inc., on the claims she asserted against them for breach of contract and successor liability in counts IX and X.*fn2

¶ 19 Following a year of additional proceedings, the circuit court also granted summary judgment in favor of Dorothy and against P.B.S. One, Inc., and National Material and N.M. Holding, Inc., on the question of damages, finding that those defendants were jointly and severally liable for a total of $1,180,832.97 in back payments on the consulting agreement (109 missed payments of $10,833.33 each), plus prejudgment interest of $268,275.63. The court denied Dorothy's claim for an award of the present value of expected future monthly payments under the agreement, and held that P.B.S. One, Inc., and National Material and N.M. Holding, Inc., were not obligated to make payments to her for health insurance or automobile expenses. It reserved for later determination a request by Dorothy for an award of her attorney fees based on the provisions of the consulting agreement defendants were determined to have breached. That resolution came in January of 2009, after all remaining issues in the case were disposed of. At that time the court entered an order awarding Dorothy $967,705.29 in attorney fees and $67,640.48 in costs. Judgment thereupon became final.

¶ 20 P.B.S. One, Inc., promptly appealed pursuant to Supreme Court Rule 301 (Ill. S. Ct. R. 301 (eff. Feb. 1, 1994)), as did National Material and N.M. Holding, Inc. The issue presented by those appeals, which were consolidated, was whether the circuit court erred in granting summary judgment in favor of Dorothy and against defendants on counts IX, X and XI of her fifth amended complaint and in then awarding her attorney fees and costs. P.B.S. One, Inc., for its part, asserted that the circuit court's judgment should be reversed and that judgment should be entered in its favor for two reasons: (1) its obligations under the consulting agreement were transferred to and assumed by the entities which succeeded it through a novation under which the successor entities became substitutes for P.B.S. One, Inc., under the consulting agreement, or, in the alternative, (2) that any claims Dorothy may have had against P.B.S. One, Inc., did not accrue until after it dissolved in 1994 and were not subject to the survival provisions of the Business Corporation Act of 1983 (805 ILCS 5/12.80 (West 2006)).

¶ 21 National Material and N.M. Holding, Inc., in turn, contended that summary judgment was improper on count IX, which alleged breach of contract, because genuine issues of fact remained as to whether there was a novation and as to whether the consulting agreement was one of the obligations they assumed during the restructuring of the business. National Material and N.M. Holding, Inc., also asserted that genuine issues of material fact should have barred entry of summary judgment against them on count X, which was premised on principles of successor liability.

ΒΆ 22 The appellate court concluded that Dorothy's breach of contract claim against P.B.S. One, Inc., was subject to the survival provisions of the Business Corporation Act of 1983 (805 ILCS 5/12.80 (West 2006)) despite the fact that the claim did not accrue until after P.B.S. One, Inc.'s dissolution. 407 Ill. App. 3d at 629. The court held, however, that triable issues of material fact remained as to whether the obligation to make payments under the consulting agreement had been assumed by another entity by means of a novation, thereby relieving P.B.S. One, Inc., or National Material and N.M. Holding, of any liability. Because resolution of the novation issue was necessary before the question of liability could be resolved, the court reversed the entry of summary judgment in favor of Dorothy on all three counts, affirmed the denial of summary judgment in favor of the defendants, and remanded to the circuit court for further proceedings. Correspondingly, it vacated the award of attorney fees and costs to her. 407 Ill. App. 3d at 512. Citing considerations of judicial economy, the appellate court then went on to consider additional points which would be dispositive should it turn out that there was no ...


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