Tully v. McLean

ILLINOIS OFFICIAL REPORTS
Appellate Court
Tully v. McLean, 2013 IL App (1st) 113663
Appellate Court THOMAS M. TULLY, Trustee of the Thomas M. Tully Trust; and
Caption F.P.A., LLC, an Illinois Limited Liability Company, Individually and
Derivatively on Behalf of Old Town Development Associates, LLC,
Plaintiffs-Appellees, v. DANIEL E. McLEAN; PIPER’S ALLEY
MANAGEMENT, INC., an Illinois Corporation; LINCOLN PARK
DEVELOPMENT ASSOCIATES, LP, an Illinois Limited Partnership;
MCL COMPANIES OF CHICAGO, INC., an Illinois Corporation; MCL
MANAGEMENT CORPORATION, an Illinois Corporation; and OLD
TOWN DEVELOPMENT ASSOCIATES, LLC, an Illinois Limited
Liability Company and Nominal Defendant, Defendants-Appellants.
District & No. First District, Second Division
Docket No. 1-11-3663
Filed May 14, 2013
Rehearing denied June 18, 2013
Held In an action alleging that defendants were guilty of fraud and the breach
(Note: This syllabus of their fiduciary duties in connection with a development project, the
constitutes no part of case was rendered moot when the trial court’s order for a judicial sale was
the opinion of the court consummated by plaintiffs’ purchase of the development and the transfer
but has been prepared of defendants’ interests to plaintiffs in satisfaction of the judgment
by the Reporter of without a motion to stay enforcement by defendants or an appeal from the
Decisions for the final order granting the sale; therefore, the trial court was unable to grant
convenience of the effectual relief to defendants.
reader.)
Decision Under Appeal from the Circuit Court of Cook County, No. 06-CH-5431; the
Review Hon. Stuart E. Palmer, Judge, presiding.
Judgment Affirmed.
Counsel on David A. Epstein, Amanda C. Jones, and Jeffery R. Beck, all of Brown
Appeal Udell Pomerantz & Delrahim, Ltd., of Chicago, for appellants.
Michael H. Moirano and Claire Gorman Kenny, both of Nissen & Elliott
LLC, of Chicago, for appellees.
Panel JUSTICE SIMON delivered the judgment of the court, with opinion.
Presiding Justice Harris and Justice Quinn concurred in the judgment and
opinion.
OPINION
¶1 This matter is once again before this court following proceedings on remand from the
decision in Tully v. McLean, 409 Ill. App. 3d 659 (2011) (Tully I). In Tully I, Justice
Karnezis provided extensive analysis of the underlying proceedings in which plaintiffs
Thomas M. Tully, as trustee of the Thomas M. Tully Trust, and F.P.A., LLC (FPA),
individually and derivatively on behalf of Old Town Development Associates, LLC (OTD),
filed an action against defendants Daniel E. McLean, Piper’s Alley Management, Inc.
(PAM), Lincoln Park Development Associates, LP (LPDA), MCL Companies of Chicago,
Inc. (MCL), MCL Management Corp. (MCL Management) (collectively defendants) and
nominally against OTD. Plaintiffs asserted that defendants committed fraud and breach of
their fiduciary duties to plaintiffs in their management of OTD. This court affirmed the
judgment against defendants and the award of $4,242,222.22 in compensatory and punitive
damages for what was described as defendants’ “reprehensible” actions. In addition, the Tully
I court reversed the denial of defendants’ counterclaim for dissolution of OTD and remanded
the matter for further proceedings. Id. at 686.
¶2 During the course of the Tully I appeal and prior to remand, plaintiffs initiated and
completed postjudgment supplementary proceedings to enforce the money judgment against
defendants pursuant to the Code of Civil Procedure (735 ILCS 5/2-1402(a) (West 2010)) and
the Illinois Limited Liability Company Act (805 ILCS 180/30-20 (West 2010)) (Act). The
proceedings resulted in the judicial sale and transfer of defendants’ ownership interest in
OTD to plaintiffs for the total amount of the money judgment. On remand, defendants filed
a motion for relief in light of the reversal of defendants’ counterclaim for dissolution.
Plaintiffs filed a motion to dismiss the case as moot pursuant to section 2-619 of the Code
of Civil Procedure. 735 ILCS 5/2-619 (West 2010). The trial court denied defendants’
motion for relief and dismissed the case as moot.
-2-
¶3 Defendants appeal that order, arguing that the trial court erred in failing to implement the
dissolution of OTD as this court ordered in Tully I. Defendants also argue that plaintiffs’
mootness argument was forfeited for failure to raise this issue during proceedings in Tully
I, claiming that the trial court could not dismiss the case on this basis. For the following
reasons we affirm the judgment of the trial court.
¶4 I. BACKGROUND
¶5 Following a seven-day bench trial on plaintiffs’ complaint for breach of fiduciary duty
and fraud against defendants, the trial court issued a memorandum opinion and order on
January 21, 2009. The court found defendants liable to plaintiffs for common law fraud and
breach of fiduciary duty by diverting millions of dollars from OTD’s accounts over a six-year
period to, among other things, pay defendants’ debts unrelated to OTD’s business. The court
awarded compensatory and punitive damages totaling $4,242,222.22.
¶6 A separate hearing was held on plaintiffs’ claim that PAM should be expelled from OTD
and defendants’ counterclaim seeking dissolution of OTD. On April 28, 2009, the trial court
ordered PAM expelled and disassociated from OTD, but concluded that dissolution of OTD
was unwarranted. Final judgment was entered on September 28, 2009, and defendants
appealed these orders. Defendants did not seek a stay of the judgment before either the trial
court or this court and no supersedeas bond was posted.
¶7 In October and November 2009 plaintiffs filed citations to determine defendants’ assets.
Defendants were each served with the citations and filed appearances in December 2009.
Plaintiffs sought the sale of defendants’ interests in OTD to satisfy the judgment. On March
26, 2010, the trial court entered an order appointing a selling agent to sell McLean’s 39%
interest and LPDA’s 10% interest in OTD. McLean and LPDA were ordered to execute and
deliver to the selling agent any forms of assignment or other documents necessary to transfer
their interests to the successful bidder.
¶8 A judicial sale was conducted by the selling agent on May 4, 2010, and plaintiffs were
the successful bidders. McLean and LPDA refused to execute and return forms to the selling
agent to complete the assignment of McLean’s and LPDA’s interests in OTD. On June 1,
2010, the trial court granted plaintiffs’ motion to authorize the selling agent to execute and
deliver the assignment documents.
¶9 McLean moved to vacate the June 1, 2010, order, asserting that an agreement had been
reached with a third party to sell defendants’ interest in OTD, but plaintiffs refused to
complete the agreement because they could benefit more by purchasing the interest at the
judicial sale. McLean contended that this bad-faith dealing required that the court vacate that
order. The motion was denied and a final order was entered. Defendants did not appeal the
final order authorizing the judicial sale.
¶ 10 On April 26, 2011, the court issued the opinion in Tully I, affirming in part and reversing
in part the judgment of the trial court. Defendants admitted that McLean’s actions were
legally improper and they were liable for losses, but challenged the trial court’s judgment as
“ ‘seriously, unfairly and unjustifiably excessive’ and inequitable” and a case of “judicial
overkill.” Tully I, 409 Ill. App. 3d at 663. Defendants sought to: reverse the judgment against
-3-
LPDA; vacate the judgment against MCL; dissolve OTD; and reverse and vacate the punitive
damages award; reverse the judgment ordering defendants to forfeit management fees and
to reduce the prejudgment interest rate imposed by the court on the misappropriated funds.
¶ 11 The Tully I court affirmed the trial court’s judgment on all grounds, but denied
defendants’ counterclaim for the dissolution of OTD. The court extensively detailed
defendants’ systematic and repeated acts of “intentional trickery and deceit” using their
position of dominance and superiority over plaintiffs. Id. at 677, 683. Because of this
fiduciary relationship, the court highlighted that defendants’ stance was untenable as a
fiduciary should not benefit from its own wrongdoing. Id. at 680 (citing Caparos v. Morton,
364 Ill. App. 3d 159, 180 (2006)). Accordingly, the court affirmed the compensatory and
punitive damages awarded to plaintiffs and denied defendants’ arguments on these issues.
¶ 12 The Tully I court also found that the expulsion of PAM as a member and manager of
OTD was a basis for dissolution under section 6.1 of the OTD operating agreement and
section 35-45(6) of the Act (805 ILCS 180/35-45(6) (West 2008)). Tully I, 409 Ill. App. 3d
at 666-69. Therefore, the court reversed the denial of defendants’ request for dissolution of
OTD and the matter was remanded to the trial court to undertake dissolution proceedings.
On remand, the trial court ordered the parties to file cross-motions concerning the relief
sought upon resolution of the dissolution issue.
¶ 13 Plaintiffs moved to dismiss the case as moot pursuant to section 2-619, asserting that the
Tully I opinion did not affect their right to enforce the judgment against defendants in the
supplemental proceedings. Plaintiffs argued that they properly moved for a charging lien
against defendants’ interests pursuant to the Act and that the subsequent orders completing
the judicial sale of defendants’ interests in OTD were made final and were not appealed.
Accordingly, plaintiffs claimed the issue on remand, the dissolution of OTD, was moot
because defendants had been lawfully divested of all their interests in OTD and the trial court
could not grant effectual relief.
¶ 14 Defendants sought an order vacating the judicial sale of OTD, an accounting, the
dissolution and liquidation of OTD, the judicial sale of the primary asset of OTD, and
distribution of the proceeds to creditors and the parties pursuant to the Act. On October 20,
2011, the trial court dismissed the case as moot and denied in its entirety defendants’ motion
for relief. Following the denial of defendants’ motion for reconsideration, this appeal was
filed.
¶ 15 II. ANALYSIS
¶ 16 A cause of action is deemed moot if no actual controversy exists or if events occur that
make it impossible for the court to grant effectual relief. Gatreaux v. DKW Enterprises, LLC,
2011 IL App (1st) 103482, ¶ 12. A “moot case is one which seeks to determine an abstract
question or a judgment which when rendered cannot have any practical legal effect on the
controversy.” Betts v. Ray, 104 Ill. App. 3d 168, 171 (1982). A motion to dismiss pursuant
to section 2-619 admits the legal sufficiency of a pleading, but asserts an affirmative defense
or other matter that avoids or defeats the claim. A section 2-619 dismissal is reviewed de
novo. Barber v. American Airlines, Inc., 241 Ill. 2d 450, 455 (2011). We agree that
-4-
intervening events rendered this matter moot and the trial court properly dismissed the case
because any judgment of dissolution would have no practical legal effect.
¶ 17 Defendants did not file a motion to stay collection of the money judgment or a “bond or
other form of security” to prevent plaintiffs from pursuing satisfaction of the trial court’s
judgment in the supplementary proceeding. Ill. S. Ct. R. 305(a) (eff. July 1, 2004).
Defendants are correct that Supreme Court Rule 305 provides protection specifically to the
rights, title or interests acquired by third parties, not to parties to the underlying cause of
action. Ill. S. Ct. R. 305(k) (eff. July 1, 2004). However, the failure to seek a stay allowed
plaintiffs to pursue enforcement of the money judgment in supplemental proceedings
pursuant to section 2-1402 of the Code of Civil Procedure. 735 ILCS 5/2-1402 (West 2010).
¶ 18 Service of the citation to discover assets resulted in plaintiffs acquiring a charging lien
pursuant to section 30-20(b) of the Act (805 ILCS 180/30-20(b) (West 2010)) and section
2-1402(m) of the Code of Civil Procedure (735 ILCS 5/2-1402(m) (West 2010)). Defendants
filed appearances in the supplementary proceeding, but the sale was completed. Following
the judicial sale of defendants’ interests in OTD, defendants refused to execute and return
necessary forms to the selling agent. Accordingly, the trial court granted plaintiffs’ motion
to authorize the transfer of defendants’ interests and entered a final order. McLean filed a
motion to vacate the order, but that was denied. Defendants did not file an appeal, therefore,
defendants forfeited consideration of the supplementary proceeding. Tully I, 409 Ill. App. 3d
at 664. Furthermore, consideration of that final order and the propriety of the judicial sale is
barred by the doctrine of res judicata. Levaccare v. Levaccare, 376 Ill. App. 3d 503, 510-11
(2007).
¶ 19 Defendants point out that the judicial sale was sought by plaintiffs and completed with
the possibility that the Tully I court could render an opinion finding the September 29, 2009,
order erroneous, thereby remanding the matter to the trial court to vacate its order or for
plaintiffs to provide restitution. Buzz Barton & Associates, Inc. v. Giannone, 108 Ill. 2d 373,
381-82 (1985). Defendants claim that plaintiffs sought the judicial sale with this
understanding and lost their bet because the Tully I court’s remand of the dissolution issue
requires the sale to be vacated. However, as plaintiffs correctly argue, the Tully I court only
reversed and remanded on the issue of the denial of defendants’ counterclaim for dissolution
and contemporaneously affirmed the money judgment against defendants and all other
detailed findings of the trial court concerning defendants’ breach of fiduciary duty. Tully I,
409 Ill. App. 3d at 666-69.
¶ 20 In addition to the foregoing bars to defendants’ claims, whether the dissolution issue is
moot may be resolved by consideration of the provisions of the Act and the OTD operating
agreement relating to dissolution. Defendants assert that because plaintiffs failed to present
evidence of the judicial sale and the mootness argument in the direct appeal, they waived that
argument on remand and in the instant matter pursuant to Supreme Court Rule 341 (Ill. S.
Ct. R. 341(h)(7), (i) (eff. July 1, 2008)) which applies to the waiver of arguments by parties
on appeal for their failure to include them in their briefs on appeal. In Tully I, defendants
challenged the money judgment and plaintiffs had no basis to include discussion of ongoing
proceedings that were not of record. Therefore, the mootness argument was premature at that
time and plaintiffs did not waive that argument on remand or before this court.
-5-
¶ 21 The Tully I court opined that OTD “should be dissolved under the [operating] agreement”
and the Act, and that the trial court should conduct dissolution proceedings. Tully I, 409 Ill.
App. 3d at 669. The court did not alter the money judgment or otherwise opine as to how
OTD should be dissolved. Under the Act, the process of dissolution is just that, a process,
and the company continues after dissolution. 805 ILCS 180/35-3(a) (West 2010). After
dissolution and before the winding up of its business, the members may unanimously waive
the right to have the company’s business wound up and the business continued. 805 ILCS
180/35-3(b), (c) (West 2010). Likewise, section 10.3 of OTD’s operating agreement grants
remaining members the opportunity to continue the business of the company after the
withdrawal of a manager or other event causing a dissolution.
¶ 22 Therefore, the Act and operating agreement do not support defendants’ claim that
dissolution affects the money judgment or the supplemental proceedings. Defendants cite to
cases that involve the receipt of a benefit by a party based on an erroneous judgment, and
thus are inapplicable to the instant case because the money judgment was affirmed. See, e.g.,
First National Bank of Jonesboro v. Road District No. 8, 389 Ill. 156 (1945); Buzz Barton
& Associates, 108 Ill. 2d 373; Meldahl v. West, 280 Ill. 421 (1917). As detailed above, the
money judgment was not only affirmed, but the Tully I court extensively detailed defendants’
malfeasance in repeatedly rejecting their attempts to receive compensation and reduction of
the judgment. Unlike the scenarios in defendants’ proffered authority, in this case there is no
erroneous receipt of benefit or modified monetary judgment requiring restitution.
¶ 23 When the Tully I opinion was filed, the judicial sale was already final and defendants’
interests had been transferred to plaintiffs in satisfaction of the money judgment and the
company continued to operate, even if technically in dissolution. Defendants did not seek a
stay of enforcement of the money judgment, did not appeal the final order granting the
judicial sale and, as a result, forfeited arguments concerning its validity. Therefore, that final
order is res judicata on the issue of the satisfaction of the money judgment and nothing in
the Act or the OTD operating agreement requires that the judicial sale be vacated. These
intervening events transferred all of defendants’ interests in OTD to plaintiffs and made it
impossible for the trial court to grant effectual relief to defendants or have any practical legal
effect and the trial court properly dismissed the case as moot.
¶ 24 III. CONCLUSION
¶ 25 For the foregoing reasons, we affirm the judgment of the trial court.
¶ 26 Affirmed.
-6-