2014 IL App (1st) 132384
Ill. App. Ct.2015Background
- Charles Austin Limited (supplier) sued A-1 Food Services, Inc. in January 2012 for breach of contract after A-1 failed to pay ~ $185,000; A-1, its president Zheng, and guarantor Lin were originally parties.
- A-1 answered after initial procedural defaults; meanwhile A-1 sold all assets to Forever Green; Charles Austin amended its complaint in October 2012 to add Forever Green on a successor-liability and fraudulent-transfer theory.
- Sheriff’s office served Forever Green’s registered agent, Philip Chow, with the amended complaint on October 29, 2012; Forever Green did not appear or answer.
- The trial court entered default judgment against Forever Green on February 22, 2013; Charles Austin later pursued third-party citation (bank) collection and served notice to Chow in May 2013.
- Forever Green moved to vacate and filed a 735 ILCS 5/2-1401 petition in June 2013, arguing lack of proper service, meritorious defense (no successor liability), and diligence; the trial court denied relief, finding service proper, affidavits not credible, no meritorious defense, and lack of diligence.
- On appeal the Illinois Appellate Court affirmed, holding service was properly evidenced and Forever Green failed to establish the three 2-1401 elements (meritorious defense, diligence in original action, diligence in filing petition).
Issues
| Issue | Plaintiff's Argument (Charles Austin) | Defendant's Argument (Forever Green) | Held |
|---|---|---|---|
| Personal jurisdiction / service of process | Sheriff’s affidavit of service showing service on registered agent Chow is prima facie proof of valid service | Registered agent affidavits claiming they do not recall being served; service defective | Service was proper; challenger failed to overcome return of service by clear and convincing evidence |
| Meritorious defense to underlying claim (successor liability/fraud) | Complaint plausibly alleged fraudulent transfer/successor liability (sale occurred after suit filed; facts support inference of intent to escape creditors) | Forever Green argued general rule: purchaser not liable absent assumption; sale contract listed no creditors so no assumption; could have moved to dismiss | No meritorious defense established: pleadings and surrounding facts support a plausible fraudulent-transfer exception to successor nonliability |
| Diligence in defending original action | Charles Austin: Forever Green was properly served and had duty to appear or track case; no excuse for inaction | Forever Green: did not receive/recall service; changed registered agent; lacked notice of default motion | Forever Green lacked due diligence; failure to appear resulted from negligence, not excusable mistake |
| Diligence in filing 2-1401 petition | N/A—relief requires all elements; lack of earlier diligence fatal | Forever Green filed after bank account freeze when citation proceeded | Court found petition untimely/unpersuasive; but on appeal declined to reach this element because meritorious defense and diligence in original action failed |
Key Cases Cited
- BAC Home Loans Servicing, LP v. Mitchell, 2014 IL 116311 (statement that a court needs valid jurisdiction to act)
- Pineschi v. Rock River Water Reclamation District, 346 Ill. App. 3d 719 (registered agent affidavit denying recollection of service insufficient to rebut sheriff’s return)
- Smith v. Airoom, Inc., 114 Ill. 2d 209 (failure to appear despite service is not excused by out-of-court settlement negotiations; plaintiff not required to notify unappearing defendant of default)
- Vincent, 226 Ill. 2d 1 (party seeking 2-1401 relief must prove three elements by preponderance)
- Vernon v. Schuster, 179 Ill. 2d 338 (general rule that purchaser of assets is not liable for transferor’s debts unless exceptions apply)
- Ellman v. De Ruiter, 412 Ill. 285 (equitable vacation of judgment where plaintiff’s conduct misled defendant—distinguishable)
- Schnable v. Tuma, 351 Ill. App. 486 (case-specific finding of inadequate proof of service)
- Paul v. Ware, 258 Ill. App. 3d 614 (affidavit of non-receipt by registered agent is insufficient alone to impeach return of service)