2014 IL App (2d) 130998
Ill. App. Ct.2014Background
- Advocate Financial Group obtained judgment against North Winthrop, a dissolved corporation that owned a Chicago property.
- North Winthrop’s sole asset was sold to CSM/Winthrop Real Estate to satisfy a mortgage settlement with PNC Bank.
- CSM/Winthrop Real Estate then sold the property to Steward Apartments, LLC; Steward was later formed with largely North Winthrop’s former members.
- Advocate sought a turnover order against Steward as the “mere continuation” of North Winthrop for the debts.
- The trial court held Steward was liable under the mere-continuation doctrine; Steward appealed.
- Appellate court vacated the turnover order and remanded for consideration of fraud aspects intertwined with mere-continuation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does mere-continuation apply where an intermediary buyer is used? | Steward is North Winthrop’s continuation via an intermediary; ownership and control continuity exist. | There was an arm’s-length intermediary; no direct transfer and no identity of ownership, so mere-continuation fails. | Remand to address bona fides; majority vacates and remands. |
| Should fraud within the transfers trigger the fraud exception to successor liability? | Evidence suggests a non-bona fide scheme to defraud creditors and avoid debts. | Fraud was not proven; no basis to apply fraud exception. | Fraud question intertwined with mere-continuation; remand required to address. |
| Did the trial court err by not addressing the intermediary’s bona fides and its role from North Winthrop to Steward? | Intermediary structure demonstrates continuity and lack of arm’s-length transaction. | Intermediary was legitimate; not a mere continuation. | Court must reconsider; fraud and bona fides to be evaluated on remand. |
Key Cases Cited
- Vernon v. Schuster, 179 Ill. 2d 338 (1997) (four-exception successor liability rules; mere continuation requires continuity of ownership)
- Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640 (5th Cir. 2002) (intermediaries may not defeat successor liability where substance shows unity of ownership)
- Ed Peters Jewelry Co. v. C&J Jewelry Co., 124 F.3d 252 (1st Cir. 1997) (foreclosure transfers may still support successor liability where integrated in fact)
- G.P. Publications, Inc. v. Quebecor Printing-St. Paul, Inc., 481 S.E.2d 674 (N.C. Ct. App. 1997) (prearranged transfers via foreclosing creditor can still create liability)
- Continental Insurance Co. v. Schneider, Inc., 873 A.2d 1286 (Pa. 2005) (notes persuasive foreign authority on successor liability and intermediate transfers)
- Comstock v. Great Lakes Distributing Co., 496 P.2d 1308 (Kan. 1972) (illustrates limitations of mere-continuation when no direct transfers; bona fides matter)