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Happy R Securities, LLC, An Illinois Limited Liability Corporation, Assignee of First State Bank of Illinois v. Agri-Sources

March 28, 2013

HAPPY R SECURITIES, LLC, AN ILLINOIS LIMITED LIABILITY CORPORATION, ASSIGNEE OF FIRST STATE BANK OF ILLINOIS,
PLAINTIFF AND COUNTERDEFENDANT-APPELLANT,
v.
AGRI-SOURCES, LLC; THE INTERNAL REVENUE SERVICE, THE DEPARTMENT OF THE TREASURY, UNITED STATES OF AMERICA;
THE DEPARTMENT OF REVENUE OF THE STATE OF ILLINOIS;
JEFFERSON RIVER TERMINAL, A DIVISION OF CONSOLIDATED GRAIN AND BARGE COMPANY, A MISSOURI CORPORATION; OQUAWKA RIVER TERMINAL, LLC;
RYCO DISTRIBUTING, INC.; COUNTRY MUTUAL INSURANCE COMPANY; AND UNKNOWN OWNERS AND NON-RECORD CLAIMANTS, DEFENDANTS (OQUAWKA RIVER TERMINAL, LLC, AN ILLINOIS LIMITED LIABILITY COMPANY; AND ROBERT W. RYAN, JR., JEFFREY BUTLER, AND DAVID C. JOBE, INDIVIDUALLY AND AS MEMBERS OF OQUAWKA RIVER TERMINAL, LLC COUNTERPLAINTIFFS-APPELLEES AND CROSS- PLAINTIFFS-APPELLEES;
v.
KURT D. MCCHESNEY,
COUNTERDEFENDANT; AGRI-SOURCES, LLC,
COUNTERDEFENDANT AND CROSS-DEFENDANT).



Appeal from the Circuit Court of the 9th Judicial Circuit, Henderson County, Illinois, Circuit No. 11-CH-13 Honorable Paul L. Mangieri, Judge, Presiding.

The opinion of the court was delivered by: Justice Carter

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

Justices O'Brien and Schmidt concurred in the judgment and opinion.

OPINION

¶ 1 First State Bank of Illinois (FSBI) filed a foreclosure action against numerous defendants regarding a 20-acre parcel of commercial property in Gladstone, Illinois. FSBI later assigned its rights under the mortgage to Happy R Securities, LLC (HRS). Oquawka River Terminal, LLC (ORT), filed counter and cross-claims for specific performance, breach of fiduciary duty, and injunctive relief against HRS, Kurt D. McChesney, and Agri-Sources, LLC. After a hearing, the circuit court granted ORT's motion for a preliminary injunction, which, inter alia, stayed the foreclosure action and prohibited HRS, McChesney, and Agri-Sources from seeking or taking possession of an eight-acre parcel of land used by ORT that was contained within the aforementioned 20-acre parcel. HRS filed an interlocutory appeal, arguing that the circuit court erred when it granted ORT's motion for a preliminary injunction. We affirm.

¶ 2 FACTS

¶ 3 This case originated in the circuit court on September 9, 2011, when FSBI filed a foreclosure action against Agri-Sources regarding a 20-acre parcel of commercial property in Gladstone, Illinois. Numerous other defendants were added to the case, including ORT, and FSBI later assigned its rights under the mortgage to HRS. Subsequently, ORT filed counterclaims and cross-claims for specific performance (against Agri-Sources), breach of fiduciary duty to ORT (against McChesney), and injunctive relief (against McChesney, Agri-Sources, and HRS). In its pleading, ORT alleged, inter alia, that:

"McChesney, while a member of both ORT and Agri-Sources, engaged in a calculated course of conduct intended to specifically benefit his personal and business interests at the expense of the protected business interests of the ORT Parties. Specifically, McChesney breached his fiduciary duty obligations to the ORT Parties by, among other things, failing to fully disclose his personal dealings which were adverse to the business of the ORT Parties, and by suppressing and then usurping the corporate opportunities of ORT, including in particular ORT's contractually protected right to purchase real estate vital to ORT's operations."

¶ 4 The circuit court held a hearing over several days in March and April 2012 on ORT's motion for a preliminary injunction. While portions of the evidence were conflicting, the facts of this case can be generally summarized as follows.

¶ 5 In 2007, Kurt McChesney and Mage Farms, LLC (which was owned by McChesney and his mother), formed Agri-Sources, LLC. At some point, Peter Rousonelos took over Mage Farms' ownership interest in Agri-Sources, which sold various agricultural products and services from a 20-acre parcel of commercial property in Gladstone, Illinois. This 20-acre parcel was owned by the Gladstone Grain Company (GGC), which was a salvage grain business owned by McChesney and his relatives.

¶ 6 Also in 2007, Oquawka River Terminal, LLC (ORT), was formed by McChesney (25% membership interest), Mage Farms (25%; Rousonelos later took over Mage Farms' ownership interest), Jeffrey Butler (25%), David Jobe (121/2 %), and Robert Ryan, Jr. (121/2 %) to store, handle, and distribute agricultural fertilizer. ORT was based on an 8-acre parcel of land (the ORT Property) that was a part of the aforementioned 20-acre parcel owned by GGC. In 2007, ORT began leasing the use of two storage buildings located on the ORT Property from GGC (the Gladstone Lease).

¶ 7 In December 2008, Agri-Sources purchased the 20-acre parcel (hereinafter the Agri-Sources Property) from GGC, and assumed GGC's position in the Gladstone Lease.

¶ 8 ORT also entered into three other lease agreements related to its fertilizer business. In 2010, ORT was assigned Agri-Sources' rights under a lease to use a river dock owned by Consolidated Grain and Barge Company (the River Dock Lease). Also in 2010, ORT began leasing the use of a railroad spur located one-quarter mile from the ORT Property (the Railroad Spur Lease). In 2011, ORT began leasing the use of another building from Agri-Sources, which was to be used as overflow storage (the Hoop Building Lease).

¶ 9 According to Ryan, the leases were essential to ORT's continued operation, as it received 75% of its shipments via railroad car and two of its major customers transported most of their product via the Mississippi River. Ryan testified that in March 2012, ORT received notice from HRS of the termination of the Hoop Building Lease and the Gladstone Lease. Ryan also testified that ORT had already lost a customer due to this case; the customer was approximately 10% to 15% of ORT's business. In addition, another customer of ORT testified that he would likely pull his fertilizer business if ORT could not continue to operate out of its current facility. This customer stated that ORT provided a particular blend of fertilizer that he could not obtain from other fertilizer businesses.

¶ 10 In mid-2009, ORT undertook an expansion of its business. ORT sought an expansion loan in 2010 from FSBI, which told ORT that it would not agree to fund the expansion until ORT substantially completed the improvements.

¶ 11 ORT used defendant RYCO Distributing, Inc. (RYCO), to install the improvements. RYCO was a construction business, primarily operating in the agricultural industry, which was owned by Ryan's parents and which employed Ryan, Butler, and Jobe. ORT used RYCO to fund the costs of the expansion. According to Ryan, RYCO (Ryan, Butler, and Jobe) agreed not to charge ORT finance charges, and the other two members of ORT, McChesney and Rousonelos, agreed as the owners of Agri-Sources not to charge ORT rent.*fn1 Ryan testified that he understood this agreement to last until the expansion loan was approved, while McChesney testified that he understood the agreement to last for only six months. RYCO completed the expansion and recorded a mechanic's lien on the property; the expansion allegedly cost over $400,000.

¶ 12 During mid-2010, FSBI changed its position on the expansion loan and told ORT that a traditional loan was no longer feasible. FSBI encouraged ORT to apply for a United States Small Business Administration (SBA) loan through FSBI. To do so, however, FSBI told ORT that Jobe could not be a party to the loan. Accordingly, Ryan drafted a new operating agreement in August 2010 for ORT (the 2010 ORT Operating Agreement), which Ryan, Butler, McChesney, and Rousonelos signed. The 2010 ORT Operating Agreement purported to change ORT from a member-managed limited liability company (LLC) to a manager-managed LLC, with Ryan to serve as the initial manager. Ryan testified that the 2010 ORT Operating Agreement was not supposed to take effect until the expansion loan was approved. McChesney testified that he understood the agreement to take immediate effect.

¶ 13 On August 18, 2010, two days after the 2010 ORT Operating Agreement was signed, ORT entered into an agreement with Agri-Sources to purchase the eight acres upon which ORT operated for $225,000 (the Purchase Agreement). Ryan made a capital call for ORT in the amount of $51,000. Ryan, Butler, and Rousonelos agreed that McChesney did not have to contribute to the capital call because he was experiencing financial difficulties.

¶ 14 The Purchase Agreement was originally supposed to be closed on October 15, 2010. However, the closing date was extended twice; first, to March 25, 2011, and second, to June 1, 2011. Apparently, the closing date was extended by Agri-Sources due in part to the inability to convey clear title. An FSBI vice president testified that liens and judgments on the Agri-Sources property had arrested the expansion loan process.

ΒΆ 15 According to Ryan, ORT was still intent on consummating the Purchase Agreement by June 1, 2011, and he understood that FSBI was still willing to go forward with financing the Purchase Agreement at that time. Accordingly, ORT deposited 10% of the purchase price with a title company and provided notice to Agri-Sources that it was ready to close on the Purchase Agreement. However, McChesney's attorney ...


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