1550 MP Road LLC v. Teamsters Local Union No. 700
2017 IL App (1st) 153300
| Ill. App. Ct. | 2017Background
- In May 2008 1550 MP Road LLC (plaintiff) and Teamsters Local 726 (an unincorporated union) executed a lease and purchase agreement (LPA) signed only by Secretary-Treasurer Thomas Clair; Local 726 did not follow its bylaws (member notice/vote and two officer signatures). Local 726 took possession in Jan 2009.
- The International Brotherhood of Teamsters investigated Local 726 for financial malfeasance; an Independent Review Board recommended trusteeship. An emergency trusteeship was imposed and Becky Strzechowski became trustee.
- In December 2009 the International revoked Local 726’s charter and consolidated Local 726 (and part of Local 714) into a newly chartered Local 700; Local 700 assumed Local 726’s members, books, assets, liabilities and CBAs and occupied the same premises on Jan 1, 2010. Local 700 refused to accept liability under the LPA.
- Plaintiff sued for breach of contract; alleged successor liability, alternative claims under the Uniform Fraudulent Transfer Act (fraudulent transfer of assets including CBAs), and tortious interference by individual officers including John Coli. After a bench trial the circuit court found the LPA enforceable, held Local 700 liable (successor and fraudulent-transfer theories), and found Coli liable for tortious interference; damages and fees were awarded.
- On appeal defendants argued the LPA was void for noncompliance with the Property of Unincorporated Associations Act and bylaws, Clair lacked authority, successor liability was improper, CBAs are not transferable assets under the Fraudulent Transfer Act, Coli’s conduct was privileged, and the LPA’s liquidated damages clause was unenforceable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of LPA despite noncompliance with the Property of Unincorporated Associations Act and Local 726 bylaws | LPA is valid and should be enforced; statute/bylaws noncompliance doesn't automatically void a contract | Noncompliance with statute/bylaws (member vote, notice, two signatures) renders LPA void ab initio | LPA enforceable: Act is silent on consequence of noncompliance; public policy favors enforcing lawful contracts; Alliance distinguishable |
| Clair's authority to sign LPA (actual or apparent) | Clair as principal officer had authority; plaintiff reasonably dealt with him | Clair lacked actual authority (bylaws required two signatures); plaintiff had duty to investigate, so no apparent authority | Clair lacked actual authority but had apparent authority and the executive board ratified the LPA; Local 726 bound |
| Successor liability: Is Local 700 liable for Local 726’s breach? | Local 700 is successor/continuation and assumed liabilities; consolidation was intended | Labor unions have no "owners" so classic tests inapposite; consolidation language was descriptive only | Local 700 liable under successor liability (consolidation/continuity/notice/state policy favored enforcing contracts) |
| Fraudulent Transfer Act: Are CBAs (and dues) transferrable assets and did a fraudulent transfer occur? | CBAs and future dues have value; transfer of Local 726’s assets to Local 700 was to avoid LPA obligations | CBAs do not constitute transferable assets of the union; International effectuated the transfer, not a debtor; plaintiff failed to prove value | Reversed: No transfer by a debtor under circumstances (International dissolved Local 726 and transferred assets); even if transfer, plaintiff failed to prove value of CBAs so fraud judgment cannot stand |
| Coli’s liability for tortious interference with the LPA | Coli orchestrated dissolution and then refused to honor LPA, inducing breach | Coli acted in official capacities (International board, trustee) and his conduct was privileged; he did not act alone to dissolve Local 726 | Reversed: Coli’s pre- and post-dissolution conduct was privileged fiduciary/business judgment and not tortious interference |
| Enforceability of LPA liquidated damages clause (Section 14(B)(i)) | Clause reasonably approximates landlord’s lost rent (present value) and is an agreed liquidated-damages measure | Clause is a penalty, duplicates actual damages and is not reasonably related to foreseeable loss | Affirmed: clause enforceable; present-value calculation of remaining rent is reasonable and damages award affirmed |
Key Cases Cited
- K. Miller Construction Co. v. McGinnis, 238 Ill. 2d 284 (statutory noncompliance does not automatically void contract; balance public policy)
- Vine Street Clinic v. HealthLink, Inc., 222 Ill. 2d 276 (courts reluctant to declare contracts void as against public policy)
- Bank of Minneapolis v. Griffin, 168 Ill. 314 (president/officer authority presumed in ordinary corporate dealings)
- George E. Lloyd & Co. v. Matthews, 223 Ill. 477 (when authority is challenged, party must prove agent’s authority)
- Yugoslav-American Cultural Center, Inc. v. Parkway Bank & Trust Co., 289 Ill. App. 3d 728 (ratification of unauthorized act equates to original authorization)
- Vernon v. Schuster, 179 Ill. 2d 338 (rationale of mere-continuation successor liability exception)
- Equal Employment Opportunity Comm’n v. Local 638, 700 F. Supp. 739 (S.D.N.Y.) (labor-union succession analysis: continuity, notice, policy)
- In re General Teamsters, Warehousemen & Helpers Union Local 890, 225 B.R. 719 (Bankr. N.D. Cal.) (CBAs as property of estate that may lack liquidatable value)
- HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill. 2d 145 (elements and privilege in tortious interference analysis)