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Scottie Pippen and Air Pip, Inc v. Pedersen and Houpt; James J. Clarke Ii; and Peer Pedersen

February 26, 2013

SCOTTIE PIPPEN AND AIR PIP, INC.,
PLAINTIFFS-APPELLANTS,
v.
PEDERSEN AND HOUPT; JAMES J. CLARKE II; AND PEER PEDERSEN, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County No. 04 L 3444 Honorable Brigid Mary McGrath, Judge Presiding.

The opinion of the court was delivered by: Justice Simon

JUSTICE SIMON delivered the judgment of the court, with opinion. Quinn and Connors, JJ., concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiffs, Scottie Pippen and Air Pip, Inc. (Air Pip), appeal from multiple orders of the circuit court of Cook County in connection with a jury trial on their claim of negligence against defendants, Pedersen & Houpt, James J. Clarke, and Peer Pedersen, that resulted in an entry of judgment in their favor in the sum of $790,901.89. On appeal, plaintiffs contend that the circuit court erred by granting summary judgment on their breach of fiduciary duty claim in favor of defendants because that claim was not duplicative of their negligence claim and they should have been permitted to pursue both claims even if they were duplicative. For the reasons that follow, we affirm.

¶ 2 BACKGROUND

¶ 3 Plaintiffs filed a four-count amended complaint against defendants to recover damages allegedly caused by defendants' inadequate representation in connection with the purchase of a Gulfstream II aircraft. Prior to trial, plaintiffs withdrew one of their claims and the circuit court granted summary judgment in favor of defendants on another, and it is the remaining claims for negligence and breach of fiduciary duty that are at issue in this appeal.

¶ 4 In their complaint, plaintiffs set forth numerous factual allegations that were incorporated into both claims. Plaintiffs asserted that Lunn Partners, LLC (Lunn Partners), an investment advisory firm, acted as Pippen's financial advisor and agent with regard to various financial matters. Robert Lunn, who owned and/or controlled Lunn Partners, was Pippen's investment advisor. The law firm of Pedersen & Houpt represented Lunn Partners and many of its entities. Peer Pedersen, an attorney at and founding member of Pedersen & Houpt, was a member and part owner of Lunn Partners. Around December 2001, Lunn began negotiations on Pippen's behalf to purchase an interest in a Gulfstream II aircraft from VG in Flight, Inc. (VG in Flight). In January 2002, James J. Clarke, an attorney at and partner of Pedersen & Houpt, was retained to represent Pippen's interests in the purchase of the aircraft.

¶ 5 Plaintiffs also asserted that Lunn and defendants structured a deal whereby Air Pip, which was to be formed on Pippen's behalf, and CF Air, LLC (CF Air), which was to be formed by Craig Frost, would purchase the aircraft for $7 million from VG in Flight. Frost was a shareholder of VG in Flight and a licensed pilot, and he had flown private charters for Pippen in the past. The deal, as structured by Lunn and defendants, was comprised of multiple agreements.

Air Pip, CF Air, and VG in Flight were to enter into an aircraft purchase agreement. Pippen, Air Pip, and CF Air were to enter into a co-ownership agreement, under which Air Pip would own a 51% interest in the aircraft and CF Air would own a 49% interest. CF Air and Air Pip were to enter into an aircraft lease agreement with Air Charter Professionals Inc. (Air Charter), a company owned and/or controlled by Frost, whereby Air Pip and CF Air would lease the aircraft to Air Charter, which would pay all operating and maintenance expenses for the aircraft and a monthly rental payment. In addition, Pippen and Air Charter were to enter into an open charter agreement whereby Pippen could charter the aircraft at a certain specified price. Each of the aforementioned agreements was drafted by Clarke and Pedersen & Houpt. The purchase of the aircraft was to be financed by payments by Pippen and Frost and through a loan obtained by Pippen, Air Pip, Frost, and CF Air. Plaintiffs asserted that, taken as a whole, the transactions provided that Air Pip would own a 51% interest in the aircraft and that the aircraft would then be leased out to Air Charter which would generate sufficient funds to pay the debt service on the loan and Air Charter would pay the aircraft's operating and maintenance expenses.

¶ 6 Plaintiffs also asserted that defendants failed to ensure that Pippen did not execute and deliver documents relating to the aircraft purchase until the agreements comprising the purchase had been signed and executed by all relevant parties. On April 11, 2002, Pippen, individually and/or as Air Pip, executed all of the agreements that comprised the aircraft purchase and Frost and CF Air signed the purchase agreement and the co-ownership agreement shortly thereafter. Unbeknownst to plaintiffs, Frost and CF Air had unilaterally modified the co-ownership agreement after it had been signed by plaintiffs to provide that Frost would own a 50% interest in the aircraft, rather than the 49% interest upon which the parties had agreed. Frost and Air Charter never signed the lease agreement or open charter agreement. On April 18, 2002, Clarke sent an e-mail to Lunn Partners requesting that it obtain the relevant signed documents, and continued to send e-mails to Lunn and Lunn Partners until as late as May 30, 2002, at which time Clarke indicated that he had not yet received the signed documents. On July 8, 2002, Clarke wrote to Lunn and related that the agreements had not yet been signed. On April 18, 2003, John Muehlstein, an attorney at Pedersen & Houpt, sent a letter to an attorney from another firm who also represented Pippen and related that Pedersen & Houpt did not have any documents executed by Frost in its files.

¶ 7 Plaintiffs also asserted that defendants failed to discover through the exercise of proper due diligence that Frost had misrepresented his finances. Other than Clarke sending an e-mail to Asha Sindha, an employee of Lunn Partners, on January 30, 2002, regarding the financial soundness of VG in Flight and an e-mail to Lunn and Sindha on February 6, 2002, regarding that same topic, defendants did not conduct any further due diligence in connection with the aircraft purchase. Instead, defendants relied on Lunn to do so, even though they knew or should have known that Lunn had a financial interest in the completion of the deal where he was to receive a $150,000 management fee upon its completion.

¶ 8 Plaintiffs also asserted that defendants permitted Lunn to control the disbursement of substantial sums of Pippen's money and failed to ensure that he did not disburse those funds until all of the agreements comprising the aircraft purchase had been executed. Plaintiffs asserted that on January 28, 2002, Pedersen & Houpt established an escrow account into which $100,000 of Pippen's money was transferred as a refundable deposit toward the purchase of the aircraft. On March 20, 2002, Lunn wired $250,000 of Pippen's money to Air Charter. On March 21, 2002, Lunn authorized the release to VG in Flight of the $100,000 that had been placed in escrow and also transferred in excess of $1 million of Pippen's money to bank accounts controlled by Frost. Only a fraction of the $1 million was applied to the purchase price of the aircraft as portions of those funds went to Frost and Lunn, and another portion was applied to VG in Flight's debt service, even though Pippen had no obligations as to that debt. In addition, some of Pippen's money was disbursed to Pedersen & Houpt to pay for the attorney fees accrued in connection with the aircraft purchase.

¶ 9 Plaintiffs also asserted that on or about April 5, 2002, Pippen signed a promissory note, an aircraft security agreement and assignment, and an unconditional guaranty in connection with a loan he received from JODA, LLC (JODA), for $5,007,000 to finance the aircraft purchase. Plaintiffs asserted that Pippen was fraudulently induced into executing the promissory note where he did so in reliance upon and anticipation of the execution and delivery by all parties of the agreements relating to the aircraft purchase. The promissory note had since been extended and/or refinanced at times, and Pippen was alleged to have owed the principal on the note, plus interest, late fees, penalties, and attorney fees. In addition, Air Charter, CF Air, and Frost had failed to make loan payments as due, which led to a default and exposed Pippen to the risk that he might be fully liable under the note as guarantor. JODA and/or its assignees, Frost, and CF Air subsequently instituted various lawsuits and arbitration proceedings against Pippen, including an ongoing lawsuit against him as the alleged guarantor of the $5,007,000 loan.

ΒΆ 10 Plaintiffs also asserted that defendants were aware of numerous problems regarding the aircraft purchase, but failed to communicate their concerns to Pippen. On March 20, 2002, Clarke sent an e-mail to Lunn Partners in which he raised questions as to the formation of CF Air and the sufficiency of the financial information he had received about VG in Flight and related that VG in Flight was refusing to warrant its financial information and that a conflict of interest existed where Frost owned other flight companies that would be in competition with Air Pip. On March 26, 2002, Clarke sent an e-mail to Lunn relating that he did not believe Pippen had signed any agreements with VG in Flight, Frost, or CF Air; the Secretary of State of Delaware had reported there was no record of CF Air's formation; the only documents Pippen had signed with regard to the loan from JODA did not reflect the improved terms Clarke had negotiated on behalf of Pippen; Pippen had not signed the organizational documents for Air Pip; and several key business points remained open. On March 27, 2002, an executive at JODA wrote to Clarke and stated that the loan at issue was one of the strangest he had ever seen, that "$1,100,000.00 has been remitted as partial payment for purchase of an aircraft for which no written executed agreement exists and no transaction has occurred," and that "the ...


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