GERALD S. KAUFMAN and GERALD S. KAUFMAN CORPORATION, a Delaware Corporation, Plaintiffs-Appellants,
ANTHONY V. BARBIERO, Defendant-Appellee, Nanette Appel-Bloom and Alan S. Jacobs, Defendants
Appeal from the Circuit Court of Cook County. No. 12 CH 30537 Honorable Franklin U. Valerrama, Judge Presiding.
PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion. Justices McBride and Taylor concurred in the judgment and opinion.
GORDON PRESIDING JUSTICE
¶ 1 The circuit court of Cook County dismissed this suit solely against defendant Anthony V. Barbiero on the ground that it lacked personal jurisdiction over him. This appeal is based on only three facts, none of which are in dispute. The facts are that: (1) defendant is the beneficiary of a land trust; (2) the trust is administered in Illinois; and (3) defendant has no other contacts with the State of Illinois other than his ownership interest in a trust administered here. The issue on this appeal is solely a legal question. It is whether, by itself, an interest in a trust administered in Illinois may qualify as "minimum contacts" with the State of Illinois, such that the due process clause is not offended by haling a nonresident defendant into court here concerning that trust.
¶ 2 The Illinois long-arm statute specifically provides for personal jurisdiction over a nonresident defendant who owns "an interest in any trust administered within this State, " where the cause of action concerns this interest. 735 ILCS 5/2-209(a) (West 2012). Since personal jurisdiction is specifically provided for by our state's long-arm statute, the only question before us is whether constitutional due process is also satisfied when the beneficiary's ownership interest in a trust administered here creates the beneficiary's only points of contact with our state.
¶ 3 We granted plaintiffs' motion to accelerate this appeal, an action which was also requested by defendant Barbiero. For the following reasons, we reverse and remand for further proceedings consistent with this opinion.
¶ 4 BACK GROUND
¶ 5 Since the trial court did not hold an evidentiary hearing to decide the jurisdictional issue, the only evidence before the trial court and the only evidence before us in the record on appeal consists of documentary evidence, such as the complaint and the affidavits submitted by both parties. We describe these documents in detail below.
¶ 6 I. The Complaint
¶ 7 In the complaint, plaintiff trustee seeks to reform the trust agreement executed in 1959. The trust agreement denies the trustee the power to mortgage or sell the property without the written approval of all 600 beneficiaries. It is this provision which the trustee seeks to reform through this present action. This suit is brought as a class action, with the 600 beneficiaries compromising the class. There are three named class representatives: defendants Nanette Appel-Bloom, Alan S. Jacobs and Anthony V. Barbiero. All three named representatives have previously objected to the proposed reformation of the trust agreement. Of the three representatives, only defendant Barbiero has raised a jurisdictional challenge.
¶ 8 The complaint alleges that, in 1959, five individuals, including Benjamin Kaufman (father of Gerald, the present trustee), entered into an agreement with more than 600 beneficiaries for the purpose of purchasing the trust property. Under the 1959 agreement, the five original trustees agreed to hold the title to the trust property for the benefit of the beneficiaries, and the beneficiaries subscribed to beneficial ownership interests of $5, 000 each, or fractions of that amount, in order to fund the $4.5 million purchase price of the property. The property, which is known as the "Terminal Commerce Building, " is a large office and commercial building located at 401 North Broad Street in Philadelphia.
¶ 9 The trust agreement, which is attached to the complaint, states that all five original trustees reside in New York and that their office is in New York City. The agreement provides that the trustees will collect rents, keep full accounts and records, submit annual reports to the beneficiaries, retain attorneys and accountants as needed, maintain bank accounts for receiving and disbursing funds, and make distributions to the beneficiaries out of any surplus funds. Thus, from the inception of the trust, the trust property was located in one state (Pennsylvania), while the trustees were located in another state (New York).
¶ 10 The provision currently at issue states that the trustees "shall not sell or agree to sell, mortgage, encumber or transfer the real property or perform or cause to be performed any acts which will in any respect diminish or affect the title to the real property or create any liens, defects or encumbrances herein, other than as provided in the lease dated September 3, 1959, except upon the written direction of all" the beneficiaries. The complaint refers to this section as the "Written Approval Provision."
¶ 11 The complaint alleges that the reformation of the written approval provision is needed now because a mortgage on the property has matured and is currently in default, and the property is worth substantially more than the amount owed on the mortgage. However, the trustee is unable to pay the debt because he cannot mortgage or sell the trust property without the written approval of all 600 beneficiaries which, as a practical matter, is not possible to obtain.
¶ 12 The complaint alleges that, despite the written approval provision, between 1959 and 1978, the five original trustees entered into loans and mortgages, without the prior written approval of the beneficiaries.
¶ 13 In 1977, Gerald Kaufman succeeded his father, Benjamin Kaufman, as a successor trustee. In 1983, Benjamin Kaufman died, and the remaining four original trustees deeded the trust property to Gerald Kaufman as the sole successor trustee and signed an agreement conveying to him all their powers and authority under the 1959 trust agreement.
¶ 14 In 1983, when Kaufman became the sole trustee, he circulated a proposed agreement to the beneficiaries which, among other things, eliminated the written approval provision. The complaint alleges: that 511 beneficiaries, who hold approximately 90% of the beneficial interests under the trust, have approved and signed the proposed agreement; and that, of the remaining beneficiaries, "an estimated 45 are believed to be of an age and condition hindering them from being able to sign or otherwise decide" about the proposed agreement, and "another estimated 45 have not been located." The complaint alleges that "only four [beneficiaries], holding less than 1% of the beneficial interests, " object to the proposal.
¶ 15 The complaint alleges that, as the prior trustees had previously done, Kaufman obtained "loans and grant[ed] mortgages on the Trust Property to secure the loans which were used to pay off previous loans secured by mortgage, again with notice to the Beneficiaries upon grant of the mortgages and without objection by any Beneficiary at the time." In 1999, Kaufman formed the Gerald S. Kaufman Corporation (Kaufman Corp.), a Delaware corporation, and transferred title to the trust property to the corporation.
¶ 16 Kaufman entered into three mortgages, including one in 1999 which matured by its terms on June 30, 2009, and which was then held by the Wells Fargo Bank. Wells Fargo signed a forbearance agreement with Kaufman Corp. in which Wells Fargo agreed not to pursue its remedies including foreclosure, with the right to cease forbearance any time after July 1, 2010, in return for the rent from the property and other payments. Wells Fargo subsequently assigned the 1999 mortgage to ARIC Capital Holdings, L.L.C. (ARIC), which is not currently seeking foreclosure.
¶ 17 In 2007, defendant Nanette Appel-Bloom, along with Ronald and Rita Appel, sued Kaufman, Kaufman Corp. and Norwest Bank (which was later acquired by Wells Fargo). All three individuals had inherited interests from two of the original beneficiaries, and their collective beneficial interest was less than 1%. The suit alleged that Kaufman and Kaufman Corp. lacked the authority to mortgage the property and thus the 1999 mortgage (subsequently held by Wells Fargo and ARIC) was invalid. The complaint in the case at bar alleges that this prior suit was "ultimately dismissed, chiefly on grounds of [statute of] limitations and laches [(Appel v. Kaufman, 728 F.Supp.2d 684 (E.D. Pa. 2010))], and the dismissal was affirmed by the United States Court of Appeals for the Third Circuit [Appel v. Kaufman, 481 Fed.App'x 774 (3d Cir. 2012)]." The complaint alleges that, "[a]s a consequence of the Appel-Bloom suit, potential lenders are unwilling to extend loans on the security of any mortgage [that Kaufman Corp.] might execute and title insurers ...