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800 South Wells Commercial LLC v. Cadden

Court of Appeals of Illinois, First District, Third Division

May 9, 2018

800 SOUTH WELLS COMMERCIAL LLC, Plaintiff-Appellant,
JOHN CADDEN, Defendant-Appellee.

          Appeal from the Circuit Court of Cook County No. 11 L 2895 The Honorable Margaret A. Brennan, Judge Presiding.

          JUSTICE FITZGERALD SMITH delivered the judgment of the court, with opinion. Justices Howse and Lavin concurred in the judgment and opinion.



         ¶ 1 Upon the filing of the parties' cross-motions for summary judgment, the trial court granted defendant-appellee John Cadden's motion for summary judgment and denied plaintiff-appellant 800 South Wells Commercial LLC's motion for summary judgment. Plaintiff appeals, contending that the trial court erred in granting summary judgment for defendant where the evidence raised a question of fact as to whether defendant owed fiduciary duties to plaintiff and a question of fact as to whether he breached these duties. Plaintiff asks that we reverse the trial court's order and remand the cause for trial on the merits. For the following reasons, we affirm.

         ¶ 2 BACKGROUND

         ¶ 3 This cause has already been before our court, in some related form, several times. Its history, which now spans over a decade, is lengthy and, in many respects, complex. For purposes of the instant matter, we present only those facts that are most relevant to our determination herein.

         ¶ 4 In 1997, River City Complex (Complex) was an area that consisted of an apartment complex, a commercial space, a surface parking lot, a parking garage, and a marina. A development corporation owned by Nicholas Gouletas, known as American Invesco Development Corporation (Invesco), [1] purchased the Complex in April 1997.

         ¶ 5 Plaintiff, a manager-managed Illinois limited liability company, was formed in early 2001. Its members consisted of Gouletas and a Michigan company known as River City Investors, LLC (RCI). Pursuant to its operating agreement (Operating Agreement), plaintiff was formed specifically in order to obtain a leasehold interest in the Complex's commercial space and parking garage now held by Invesco. The Operating Agreement stated:

"The purpose of the Company is to acquire the Property and to lease, improve, sell the Property, and to engage in any and all activities related or incidental thereto."

         The Operating Agreement defined "the Property" as

"a leasehold interest in that portion of the property located at 800 South Wells Street, Chicago, Illinois, generally consisting of approximately 240, 000 square feet of net rentable commercial space and approximately 130 indoor parking spaces in the building located on the Property."

         The Operating Agreement named Gouletas as plaintiff's managing member with the "the sole and exclusive right to manage plaintiff" and permitted him, as manager, to appoint officers to assist in plaintiff's operations. Section 5.9 of the Operating Agreement, entitled "Officers, " stated:

"The Managing Member shall elect officers ("Officers") to carry out the policies and objectives of the Managing Member. Subject to the policies and objectives prescribed by the Managing Member, the Officers shall establish operating procedures for, and administer and direct, the day to day operations of the Company. The powers of the Officers may be broadened or limited from time to time in the discretion of the Managing Member and each Officer shall, at a minimum, be empowered to carry out (and shall carry out) any activity expressly authorized in a written resolution of the Managing Member. *** Each Officer shall serve until removed by the Managing Member. The Managing Member may remove any Officer at any time for any reason. *** No Officer shall receive any compensation for such Officer's services to the Company."

         Further, the Operating Agreement dictated that plaintiff, as a company:

"shall engage in no other business until such time as [any mortgages] *** have been repaid in full, at which time the purpose of the Company shall be expanded to include the acquisition(s) of additional properties, and to lease, sell, or improve the additional properties, and any and all activities related or incidental thereto."

         ¶ 6 On March 1, 2001, Gouletas, as plaintiff's manager and member, and RCI, as its only other member, unanimously issued a certificate of managing member authority (Certificate) on behalf of plaintiff. In it, Gouletas appointed defendant to be plaintiff's vice president "in accordance with the provisions of Section 5.9 of the Operating Agreement." This Certificate also authorized plaintiff to acquire the leasehold interest in the commercial space and the parking garage, as had been described in its Operating Agreement, pursuant to a leasehold purchase and sale by assignment agreement. Originally, the lease included rights to the marina. However, the lease was amended to separate out the marina and remove it from the deal, and the Certificate ordered and directed defendant to approve the amendment to the lease and proceed with the deal on plaintiff's behalf. Accordingly, at the closing, plaintiff received a leasehold interest in only the commercial space and the parking garage, pursuant to the amended lease and as had been described in its Operating Agreement and authorized in the Certificate.

         ¶ 7 With respect to the commercial space and the parking garage, these were encumbered by a first mortgage plaintiff secured from Parkway Bank and Trust Company and a second mortgage it secured from CIB Bank. Eventually, the second mortgage was purchased by D.A.N. Joint Venture III, L.P. (DJV). By the end of 2005, plaintiff was in default on both mortgages.

         ¶ 8 WRT-Marc RC, LLC (WRT) became interested in purchasing the commercial space (but not necessarily the parking garage) from plaintiff. It sought to purchase the first mortgage from Parkway Bank and foreclose upon the commercial space and parking garage. At this time, although plaintiff was the lessee of the commercial space and parking garage, another entity owned by Gouletas, 800 South Wells Phase I, LLC, also known as River City Commercial (RCC), was their fee simple owner and lessor. Thus, WRT sought both plaintiff's and RCC's consent to a foreclosure, so that WRT could obtain a fee simple interest in these two assets.

         ¶ 9 Defendant, while still vice president of plaintiff, had also by this time become vice president of RCC.[2] During negotiations with WRT, an agreement arose that neither plaintiff nor RCC would contest the foreclosure of the commercial space and parking garage provided that WRT grant an option to acquire the parking garage from WRT at WRT's cost. Defendant consulted with plaintiff's counsel about the potential for this option agreement.

         ¶ 10 Thereafter, WRT prepared a document with respect to the option agreement, known as Px1. In this document, WRT wrote that:

"[WRT] will grant the borrower (or another group) the option to buy the indoor 133 parking spaces for the amount of our outstanding loan balance above $10, 000, 000. The borrower will have 30 days after the completion of the foreclosure & pay-off of the new condominium loan in #4 to exercise the option to purchase the 133 in-door parking spaces."

         Px1 was never signed nor dated by WRT, nor anyone else, and never specified what entities were involved in the potential option agreement, other than "the borrower (or another group)."

         ¶ 11 Eventually, WRT and defendant, in his capacity as RCC's vice president, executed a written and signed option agreement whereby RCC was granted the option to acquire the parking garage. RCC then assigned its rights under this option agreement to another entity, River City Parking, LLC (River City Parking). In April 2006, WRT, which had by this time purchased the first mortgage on the commercial space and the parking garage, filed suit to foreclose on that mortgage. Plaintiff did not contest the foreclosure, and a foreclosure judgment was entered in favor of WRT in October 2006. WRT went on to purchase the parking garage and commercial space at a foreclosure sale.

         ¶ 12 In November 2006, DJV, which held the second mortgage, took control of plaintiff's voting rights. It removed Gouletas as plaintiff's manager, and defendant's role as plaintiff's vice president ended.

         ¶ 13 Plaintiff filed a complaint against Gouletas, RCC, Invesco, River City Parking, its own attorneys, and defendant, asserting various counts. With respect to defendant, [3] plaintiff alleged he breached fiduciary duties he owed to plaintiff as its vice president. Specifically, plaintiff alleged that defendant diverted a corporate opportunity when he failed to obtain the option to acquire the parking garage for plaintiff (which WRT eventually granted to RCC), improperly transferred an asset when he allowed the transfer of the marina out of the initial deal in which plaintiff obtained the commercial space and parking garage without receiving valuable consideration for it, and improperly allocated expenses.

         ¶ 14 As litigation progressed, plaintiff's counsel, against whom plaintiff asserted claims of aiding and abetting Gouletas and defendant in allegedly breaching their fiduciary duties with respect to the option to acquire the parking garage, filed a motion to dismiss the counts against them. The trial court granted counsel's motion, and we affirmed counsel's dismissal from the suit on appeal. See 800 South Wells Commercial, LLC v. Horwood Marcus & Berk Chartered, 2013 IL App (1st) 123660.

         ¶ 15 Similarly, River City Parking, who had acquired the parking garage via the written option with WRT and against whom plaintiff also asserted claims of aiding and abetting Gouletas and defendant's alleged breach of fiduciary duties, likewise filed a motion to dismiss the count against it. The trial court granted its motion. It held that Px1, which plaintiff insisted was an agreement between it and WRT for the option, was not such an agreement but, rather, only a "document" embodying "a term sheet that indicates further discussion is necessary, not a final offer." Additionally, and specifically highlighting that document's express language that WRT will grant the option to "the borrower (or another group), " the court further held that, even were it a firm agreement (which it was not), the document never granted plaintiff the sole option to purchase. Plaintiff did not appeal this holding of the trial court.[4] See 800 South Wells Commercial, LLC v. Gouletas, No. 11-L-2895 (Cir. Ct. Cook County, July 11, 2014).

         ¶ 16 Following all this, defendant filed a motion for summary judgment.[5] He stated that, as a matter of law, he did not owe plaintiff any fiduciary duties and that, even if he did, he had not breached them. In support of his argument, he referenced several portions of plaintiff's Operating Agreement, the Certificate, affidavits, and depositions. Plaintiff filed a cross- motion for summary judgment stating that, as a matter of law, ...

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