from the Circuit Court of Du Page County. No. 11-L-87.
Honorable Ronald D. Sutter, Judge, Presiding.
S. DiVincenzo, of DiVincenzo Schoenfield Swartzman, of
Chicago, for appellant.
H. Jagel, of Law Offices of Peter H. Jagel, P.C., of
Naperville, for appellee.
and Birkett, Justices concurred in the judgment and opinion.
[¶1] I. INTRODUCTION
[¶2] Plaintiff, Advocate Financial Group,
LLC, obtained a judgment against 5434 North Winthrop, LLC
(North Winthrop), a corporation that was dissolved afterward.
North Winthrop's sole asset, a building in Chicago, had
been sold to a purchaser, Winthrop Real Estate, LLC (Winthrop
Real Estate), that later resold it to Steward Apartments, LLC
(Steward). To satisfy its judgment against North Winthrop,
plaintiff sought a turnover order against Steward (see 735
ILCS 5/2-1403 (West 2010)). After a bench trial, the trial
court granted the order, holding that, as the " mere
continuation" of North Winthrop, Steward was responsible
for its debts. Steward appealed, invoking the general rule
that a corporation that purchases another corporation's
assets is not liable for its debts. We reversed and remanded,
holding that resolving the case depended on a factual matter
that the trial court did not decide: in essence, whether the
transfer of assets from North Winthrop to Winthrop Real
Estate and then from Winthrop Real Estate to Steward had been
bona fide or a subterfuge. Advocate Financial
Group, LLC v. 5434 North Winthrop, LLC,
2014 IL App. (2d) 130998, 383 Ill.Dec. 789, 15 N.E.3d 955.
[¶3] On remand, based on the evidence from
the original hearing, the trial court found that Winthrop
Real Estate had been a " straw man" and that the
two sales were in reality one prearranged transfer from North
Winthrop to Steward, undertaken to avoid the judgment debt to
plaintiff. The court thus held Steward responsible for the
debt. Steward appeals. We affirm.
[¶5] Because this appeal centers on the
trial court's application of our opinion to the facts
that the court heard originally, we set out both the facts
and our opinion's reasoning in detail.
A. Underlying Facts
[¶7] North Winthrop was formed to develop a
residential building in Chicago and sell condominium units
there. Its " Operating Agreement," dated December
21, 2006, listed its members and their respective interests
as James and William Cartwright, brothers, who were also
managers (7.65% each); Bernard Botheroyd (15.4%); William
Severino (15.4%); Harry and Connie Powell jointly (7.7%);
Michael Prokop (7.7%); Theresa McLaughlin and Synthia Stryzek
jointly (15.4%); Margaret Haney (15.4%); and Ann Brensen and
Barbara Palmer jointly (7.7%). In 2007, National City Bank,
the predecessor to PNC Bank, National Association (PNC), lent
North Winthrop $1,662,000, secured by a mortgage on the
property, with most of North Winthrop's members
personally guaranteeing the loan. Later, North Winthrop
defaulted on the loan and PNC started foreclosure
[¶8] On January 15, 2010, plaintiff and
North Winthrop entered into a " working agreement"
under which plaintiff would assist North Winthrop in
obtaining financing to pay off PNC and complete the project.
On December 23, 2011, North Winthrop and PNC signed a
settlement under which PNC released North Winthrop from the
mortgage, released the personal guarantors from most of their
obligations as such, and reduced North Winthrop's debt to
$750,000. In return, North Winthrop agreed to sell the
property to CSM Capital, LLC (CSM). On December 30, 2011, the
sale closed for $650,000. CSM took title in the name of
Winthrop Real Estate, LLC. On June 8, 2012, North Winthrop
was involuntarily dissolved.
[¶9] On March 6, 2012, Steward filed its
operating agreement with the Secretary of State's office.
It stated that the company had been formed " to own and
operate" the Chicago property. It listed the members and
their respective interests as James Cartwright (17.99%);
William Cartwright (11.65%); Botheroyd (14.31%); Prokop
(10.32%); Haney (30.22%, including 15.11% transferred from
McLaughlin); and Brensen and Palmer jointly (15.51%). On
March 19, 2012, Winthrop Real Estate and Steward closed the
sale of the property for $676,008.20. Winthrop Real Estate
agreed to lend Steward $400,000 to complete the project.
[¶10] In the meantime, plaintiff had
obtained an arbitration award against North Winthrop for
unpaid fees under the working agreement. On September 7,
2011, plaintiff filed an amended complaint to confirm the
award, naming North Winthrop and its individual members as
defendants. On October 11, 2012, after North Winthrop had
been dissolved, the trial court entered judgment for
plaintiff and against North Winthrop, but not the individual
defendants, for $50,896.23 for plaintiff's services and
$36,550 in attorney fees.
[¶11] On February 7, 2013, plaintiff moved
for a turnover order against Steward, claiming that Steward
was liable for
North Winthrop's judgment debt because it was the "
mere continuation" of North Winthrop. Plaintiff observed
that North Winthrop's sole asset--the eponymous Chicago
real estate--was also Steward's sole asset. Further, most
of North Winthrop's members were now members of Steward,
and every member of Steward had been a member of North
Winthrop. Citing Dearborn Maple Venture, LLC v. SCI
Illinois Services, Inc., 2012 IL App. (1st) 103513, 968
N.E.2d 1222, 360 Ill.Dec. 469, and Workforce Solutions v.
Urban Services of America, Inc., 2012 IL App. (1st)
111410, 977 N.E.2d 267, 364 Ill.Dec. 778, plaintiff contended
that this case fit within an exception to the rule that a
corporation that purchases another corporation's assets
is not liable for the other corporation's debts.
[¶12] In response, Steward argued as
follows. North Winthrop sold the Chicago property in order to
satisfy its settlement with PNC. The sale to Winthrop Real
Estate, for $650,000, was an arm's-length transaction
between unaffiliated entities: no member of North Winthrop
had any interest in Winthrop Real Estate. On December 30,
2011, when the sale closed, the guarantors of the PNC note
were required to contribute an additional $140,000 to pay off
the note. Steward could not be North Winthrop's "
mere continuation," because North Winthrop sold the
building to Winthrop Real Estate, an independent corporation,
and, sometime later, Winthrop Real Estate voluntarily sold
the building to Steward. No case law held that one
corporation can be the mere continuation of another where the
assets of the first corporation were acquired and then resold
in arm's-length transactions by an independent entity.
[¶14] The trial court held a bench trial.
The sole witness was James Cartwright, through whose
testimony several exhibits were admitted. On examination by
plaintiff's attorney, Cartwright testified as follows. In
December 2006, North Winthrop was formed in order to purchase
the Chicago property with the aim of rehabilitating it and
selling condominium units. North Winthrop conducted no
business other than owning and developing the property. After
the tenants' leases expired, North Winthrop did not renew
any of them. It obtained a construction loan from National
City for approximately $1.5 million. PNC bought out National
City and acquired the interest in the loan. ...