C.O.A.L., Inc. v. Dana Hotel, LLC
2017 IL App (1st) 161048
Ill. App. Ct.2017Background
- C.O.A.L., Inc. (manager) and Dana Hotel, LLC (owner) formed Argent Restaurant, LLC as a 50/50 member LLC to operate a restaurant; COAL had a written five-year Restaurant Management Agreement to manage the restaurant for fees and profit participation.
- Disputes arose when Dana allegedly commingled restaurant funds, controlled POS/accounting, provided error-prone P&L statements, refused COAL access to books, and withheld management fees and return of capital.
- Parties negotiated a March 25, 2013 "Separation Agreement" under which COAL would resign and Dana would purchase COAL’s LLC interest; the Separation Agreement contained a merger clause and referenced releases and conditions for payment tied to documentation and waivers of lien.
- COAL alleges it rescinded the Separation Agreement before it became effective and continued to perform under the Management Agreement; Dana locked COAL out of the premises on April 2, 2013 and produced an executed Separation Agreement.
- COAL sued for (I) breach of the Management Agreement, (II) breach of the Separation Agreement (later dismissed), and (III) breach of fiduciary duty as a co‑member. The trial court dismissed counts I and III under section 2‑615, finding the Separation Agreement superseded the Management Agreement and released fiduciary claims. COAL appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Separation Agreement became effective and superseded the Management Agreement | Separation never became effective because Dana had not signed/delivered and COAL revoked acceptance before effectiveness | Separation was effective as of its dated effective date (Mar 25, 2013); execution by parties made it binding and its merger clause superseded prior agreement | Separation Agreement was effective as dated, but its merger clause only superseded prior agreements as to the Separation Agreement’s subject matter and did not bar COAL’s claims for earlier breaches of the Management Agreement |
| Whether Separation Agreement released COAL’s breach of fiduciary duty claims | COAL argues no release exists in the Separation Agreement; no express release language appears | Dana argues Separation referenced and contemplated releases and thus released COAL’s fiduciary claims | No release appears in the contract text; the provisions cited are definitional or referential and do not operate as an express release; COAL’s fiduciary claim was not released |
| Whether COAL pleaded a viable breach of fiduciary duty claim | COAL: alleged co‑member fiduciary duties, commingling, diversion, denial of access, and resulting damages | Dana: argued inadequate pleading and that any claim was released by Separation Agreement | Court found COAL sufficiently alleged existence of fiduciary duty, breaches (commingling, diversion, denial of records), and proximate damages; claim survives dismissal |
| Appellate jurisdiction after plaintiff voluntarily dismissed remaining count | COAL: appealed dismissal of counts I and III after voluntarily dismissing count II | Dana: implicit position that voluntary dismissal might affect appealability | Court held modern Illinois precedent treats voluntary dismissal as rendering prior final orders immediately appealable; appellate court had jurisdiction |
Key Cases Cited
- Thompson v. Gordon, 241 Ill. 2d 428 (interpretation of contract focuses on parties’ intent and plain language)
- Air Safety, Inc. v. Teachers Realty Corp., 185 Ill. 2d 457 (discussion of merger/clause scope)
- Kahle v. John Deere Co., 104 Ill. 2d 302 (plaintiff cannot appeal voluntary dismissal without prejudice)
- Dubina v. Mesirow Realty Development, Inc., 178 Ill. 2d 496 (voluntary dismissal renders previously nonappealable final orders appealable)
- Richter v. Prairie Farms Dairy, Inc., 2016 IL 119518 (recent supreme court reaffirmation that voluntary dismissal renders final orders appealable)