2021 IL App (1st) 200390
Ill. App. Ct.2021Background
- Plaintiff McGinley obtained a $8.3M judgment (Feb. 2017) against Royalty Properties and guarantors Richard and Meryl (Squires) Cannon arising from a $1.5M note.
- Plaintiff issued citations to discover assets to the Cannons and a third-party citation with a restraining provision to Merix Pharmaceutical (Merix), a company founded by Squires. The citation prohibited transfers or payments to the judgment debtors.
- Merix initially denied paying Squires; citation testimony later revealed Merix paid Squires’ credit cards, vehicle payments, payroll/expenses for entities (Royalty Farms/Properties), and attorney fees; many payments were recorded as "loans" but documentation was not produced.
- Plaintiff moved for judgment against Merix for violating the citation and separately moved to set aside as fraudulent transfers of Squires’s Merix shares, patents, and trademarks to Meritus (an offshore company she formed). The trial court granted judgments against Merix and set aside the transfers.
- Trial court entered judgments totaling $1,401,722.78 but the appellate court affirmed as modified to correct a mathematical error to $1,393,834.29, and affirmed the order voiding the transfers to Meritus as fraudulent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court could enter judgment against Merix for violating the citation without an evidentiary hearing | Documentary record (citations, testimony, accounting) was sufficient; no hearing required | An evidentiary hearing was required before entry of judgment on citation violations | No hearing required where record evidence resolved the factual issues; judgment affirmed (modification for math error) |
| Whether payments made by Merix were property of Squires (i.e., violated the restraining provision) | Payments (credit cards, vehicle, payments to Royalty Farms/Properties, attorney fees) benefitted Squires or were funds she was entitled to; therefore violation | Payments were compensation or loans to entities (not Squires personally) and thus not subject to citation | Court found Squires had control/entitlement (managing member, signatory, sole decision-maker); payments violated the citation; judgment affirmed |
| Whether transfers of Merix shares, patents, trademarks to Meritus were time-barred and/or fraudulent under the Uniform Fraudulent Transfer Act | Transfers were effectively made/recorded in 2015 (not 2011), so timely; transfers were to an insider, for inadequate consideration, and taken while Squires faced litigation, so fraudulent | Transfers occurred in 2011 and were therefore time-barred; transfers were legitimate business/expansion planning | Transfers were "made" in 2015 (recordation/vesting conditions) so timely; trial court’s factual findings support fraudulent intent and inadequacy of consideration — set aside as fraudulent (manifest weight standard) |
| Whether Merix and Meritus were necessary parties to the fraudulent-transfer proceeding | Joinder not required; Squires adequately represented Meritus; Merix had no indispensable interest | Merix and Meritus had legal/beneficial interests and should have been joined | Joinder unnecessary: Merix not indispensable; Meritus was adequately represented by Squires (doctrine of representation); exclusion of belated Meritus records was within court's discretion |
Key Cases Cited
- Dowling v. Chicago Options Associates, Inc., 226 Ill. 2d 277 (2007) (contextual discussion of turnover orders and related due-process concerns)
- Harmon v. Ladar Corp., 200 Ill. App. 3d 79 (1990) (cases addressing turnover and supplementary remedies)
- Bazydlo v. Volant, 164 Ill. 2d 207 (1995) (manifest-weight standard for reviewing factual findings)
- Steel Co. v. Morgan Marshall Indus., Inc., 278 Ill. App. 3d 241 (1996) (use of multiple UFTA factors to infer fraudulent intent)
- Travelers Casualty & Surety Co. v. Bowman, 229 Ill. 2d 461 (2008) (statute-of-limitations questions reviewed de novo)
- Holzer v. Motorola Lighting, Inc., 295 Ill. App. 3d 963 (1998) (definition and tests for necessary parties)
- State Farm Fire & Casualty Co. v. John J. Rickhoff Sheet Metal Co., 394 Ill. App. 3d 548 (2009) (doctrine of representation and when absent parties need not be joined)
- In re Marriage of Olson, 223 Ill. App. 3d 636 (1992) (appellate correction of trial-court mathematical errors)
- Abbott v. Fluid Power Pump Co., 112 Ill. App. 2d 303 (1969) (same)