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A.G. Cullen Construction, Inc. v. Burnham Partners, LLC

Court of Appeals of Illinois, First District, Third Division

March 11, 2015

A.G. CULLEN CONSTRUCTION, INC., Plaintiff-Appellant,
v.
BURNHAM PARTNERS, LLC, LORI HALPIN, ROBERT HALPIN, and WESTGATE VENTURES, LLC, Defendants-Appellees

Page 580

Appeal from the Circuit Court of Cook County. No. 08 L 13121. The Honorable Vanessa A. Hopkins, Judge, presiding.

FOR PLAINTIFF-APPELLANT: Richard D. Kalson, Esq., Babst Calland Clements and Zomnir, P.C., Pittsburgh, PA; Brian A. Bosch, Esq., Western Springs, IL.

FOR DEFENDANTS-APPELLEES: James R. Cooney, Esq., David L. Fuchs, Esq., Pittsburgh, PA.

JUSTICE HYMAN delivered the judgment of the court, with opinion. Justices Lavin and Mason concurred in the judgment and opinion.

OPINION

Page 581

HYMAN, JUSTICE.

[¶1] Defendant Westgate Ventures, LLC, hired plaintiff A.G. Cullen Construction, Inc., to build a warehouse and distribution facility in Big Beaver, Pennsylvania. (Westgate was primarily owned by defendant Burnham Partners, LLC, which, in turn, was owned by defendant Robert Halpin.) When the project neared completion, Westgate and Cullen had a disagreement and Westgate stopped paying Cullen. This led to Cullen seeking relief through arbitration and obtaining an award of $457,416.37, which it reduced to judgment in Pennsylvania. Before the arbitration award was entered, Burnham, through Robert Halpin, began to wind down Westgate, liquidating all of the company's assets. After paying off a $2.5 million secured construction loan, the majority of Westgate's remaining cash was disbursed to Burnham in the form of a $400,000 development fee and to the Halpins, to repay a loan they made to Westgate, leaving Westgate with no funds to pay the arbitration award. Cullen filed a lawsuit against defendants in the circuit court of Cook County to recover the amount awarded, alleging, among other things, fraudulent conveyance and breach of fiduciary duty.

[¶2] After a bench trial, the circuit court entered judgment in defendants' favor on all counts and dismissed the complaint. Cullen contends: (i) the trial court abused its discretion by refusing its request for an adverse inference when defendants failed to produce numerous corporate records they claimed had been lost; (ii) defendants violated section 5 of the Uniform Fraudulent Transfer Act (UFTA) (740 ILCS 160/5 (West 2012)) by liquidating all of Westgate's assets before the arbitration hearing; (iii) defendants violated section 18-804 of the Delaware Limited Liability Company Act (Del. Code Ann. tit. 6, § 18-804 (West 2008)) by fraudulently preferring one unsecured creditor over the other; (iv) the trial court erred in refusing to pierce the corporate veil to hold Halpin personally liable for the money Westgate owes to Cullen; and (v) defendants owed Cullen a fiduciary duty once Westgate became insolvent.

[¶3] We reverse. Defendants violated the UFTA when, in winding down Westgate, they disbursed all of the company's assets to themselves and other unsecured creditors when they knew about their potential liability to Cullen on its arbitration claim. We disagree with the trial court's

Page 582

finding that Burnham was entitled to the $400,000 development fee or that the other transfers were made in good faith in the absence of documentary evidence to support that finding. Under section 8 of the UFTA a creditor in a case of fraudulent transfer may obtain " avoidance of the transfer or obligation to the extent necessary to satisfy" its claim. 740 ILCS 160/8 (West 2012). Thus, we remand to the trial court to permit Cullen to satisfy its Pennsylvania judgment. Further, because defendants were using Westgate as a shield to avoid personal liability, the corporate veil has been pierced and defendants are personally liable for the judgment amount, plus interest. Lastly, we need not address Cullen's claim under the Delaware Limited Liability Company Act having determined that defendants violated the UFTA by dissipating all of Westgate's assets.

[¶4] BACKGROUND

[¶5] In 1998, Robert Halpin formed Burnham Partners, LLC, an Illinois limited liability real estate development company. Halpin is the sole member of Burnham. In June 2005, Burnham created Westgate Ventures, LLC, a Delaware limited liability company, to develop a warehouse and distribution facility in Big Beaver, Pennsylvania. The sole members of Westgate were Burnham, which owned a 90% interest, and Felix Fukui, who owned the remaining 10% interest. (Fukui, an architect, was also hired to design the warehouse property; he is not a party.) Westgate was governed by the Westgate Ventures I, LLC, limited liability agreement (LLC agreement). Article IX of the LLC agreement named Burnham as the initial manager of Westgate and listed numerous duties of the manager, including acquisition, ownership, improvement, sale, and lease of company property. Article XI of the LLC agreement required each member to make a capital contribution to Westgate. Burnham never made a capital contribution. Instead, Robert Halpin and his wife, Lori Halpin, borrowed money from Northern Trust Bank and then loaned $175,000 to Westgate. Westgate executed a note in favor of the Halpins, which was payable on the sale of the property.

[¶6] On July 1, 2005, Westgate and Burnham entered into a development and asset management agreement (development agreement) in which Burnham agreed to provide development services to Westgate, including purchasing land, hiring an architect, engineers, and contractors, overseeing construction of the building, finding a tenant, and ultimately, selling the building. Robert Halpin drafted the development agreement, represented both Westgate and Burnham in negotiating its terms, and signed the development agreement on behalf of both parties. The development agreement provided that the duties of the project manager, Burnham, would be performed and supervised by Robert Halpin and that Westgate would pay Burnham a development management fee of $400,000.

[¶7] Westgate hired A.G Cullen, Inc., a Pennsylvania construction company, as its building contractor. On November 17, 2005, Westgate entered into a standard construction contract with Cullen. Halpin signed the contract on behalf of Westgate, as its managing partner. The construction contract required Cullen to submit to the architect, Fukui, monthly applications for payment. Once Fukui approved payment, Westgate's lender, S& T Bank, would remit a check to Cullen. In April 2006, a dispute arose when Westgate, through Fukui, refused to approve Cullen's request for payment of about $360,000. In June of that year, Cullen filed a demand for arbitration. A hearing took place in July 2007, and on September 7, 2007, the arbitrator entered an award in favor of Cullen and

Page 583

against Westgate. The award included $360,790.38 in unpaid contract work, $9,284.71 for extra work, $37,021.15 in attorney fees, $3,000 in arbitration costs, and $89,990.13 for interest and penalties under the Pennsylvania Contractor and Subcontractor Payment Act (73 Pa. Stat. Ann. § 501 et seq. (West 2008)). The arbitrator deducted $45,000 for liquidated damages and $3,680 for unperformed work under the contract, for a total award of $448,406.87. On November 27, 2007, the court of common pleas of Allegheny County, Pennsylvania, reduced the award to a judgment.

[¶8] On April 5, 2007, three months before the July 2007 arbitration hearing, Westgate sold the warehouse facility for $3.2 million. After the sale, Westgate engaged in no further business and Halpin began to windup Westgate and liquidate its assets. From the proceeds of the sale Halpin paid $2,513,984.01 to S& T Bank, a secured creditor. With the remaining $686,015.99, Halpin disbursed to Northern Trust $120,000, the remaining balance on the $175,000 loan the Halpins made to Westgate; paid Burnham's development fee of $400,000, which was later transferred to Halpin; and gave an additional $70,000 to himself and his wife. Westgate was left with a remaining balance of $27,530.44, which Halpin transferred to himself on July 15, 2007, leaving Westgate with a zero balance in its operating account. Thus, when the Pennsylvania court entered the $457,416.37 judgment in favor of Cullen, Westgate had no remaining assets with which to pay the judgment.

[¶9] On November 24, 2008, Cullen filed a complaint against defendants in the circuit court of Cook County to recover the amount owed by Westgate on the Pennsylvania judgment. Cullen's third amended, six-count complaint filed on December 5, 2011, alleged breach of fiduciary duty (count I), breach of section 18-804 of the Delaware Limited Liability Act (Del. Code Ann. tit. 6, § 18-804 (West 2008)) (count II), and violation of the Pennsylvania Contractor and Subcontractor Payment Act (73 Pa. Stat. Ann. § 501 et seq. (West 2008)) (count III), fraudulent conveyance against Westgate, Burnham, and the Halpins (count V), and against Westgate and the Halpins (count VI). Cullen also sought to pierce Westgate's corporate veil to hold Burnham and the Halpins jointly and severally liable.

[¶10] During discovery, Cullen requested numerous documents, including Westgate's books, minutes, and records regarding corporate formalities, business activities, and debt. The Halpins failed to turn over many requested documents, claiming not to know what happened to them but suggesting that documents kept in their home were lost when they moved in 2007 and 2009.

[¶11] While the case was pending, Westgate filed for bankruptcy in the United States District Court for the Western District of Pennsylvania. All claims against Westgate were stayed and, thus, only the claims against the ...


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