The Groves of Palatine Condominium Association v. Walsh Construction Co.
2017 IL App (1st) 161036
| Ill. App. Ct. | 2017Background
- The Groves Condominium Association sued Walsh Construction (general contractor) for construction defects; Walsh filed third-party complaints alleging its subcontractor, K & K Iron Works, Inc. (the corporation), was liable. The corporation was involuntarily dissolved in 2012 and did not defend.
- Walsh later filed a third-party complaint against K & K Iron Works, LLC (the LLC), alleging the LLC was "merely a continuation" of the corporation and therefore liable for the corporation's breaches.
- The corporation had been sold in 2006 to K & K Iron Works Holding, Inc. (the holding company) controlled by H.I.G.; original owners Karl and Jerry Kulhanek retained small shareholdings in the holding company and remained involved for a time.
- In 2011 Jerry formed the LLC and, via an asset purchase agreement supervised by the corporation's lender, the LLC bought specified corporate assets while expressly excluding assumed liabilities; the holding company retained no ownership in the LLC.
- The LLC moved to dismiss under Ill. Sup. Ct. Rule 2-619, arguing lack of successor (mere-continuation) liability and that Walsh's claim was time-barred; the trial court found the LLC was not a mere continuation and dismissed with prejudice.
- On appeal Walsh argued the LLC was a mere continuation of the corporation (continuity of ownership/management and same business/locations) and that the complaint related back; the appellate court affirmed dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether LLC is a "mere continuation" of the corporation (successor liability) | LLC continued the same business, shared locations, key personnel, website/project listings, and Jerry (common owner historically) owned the LLC — so identity of ownership/management exists | The corporation was sold in 2006 to an unrelated holding company; LLC purchased only assets in 2011 (excluding liabilities); there was a multi-year break in ownership/management continuity and no identity of ownership | LLC was not a mere continuation; no continuity of corporate entity/ownership existed, so successor liability does not apply |
| Whether collateral estoppel barred relitigation because a related court dismissed on the same issue | N/A (Walsh argued issue on merits) | LLC argued Walsh was precluded by the Columbian action dismissal | Collateral estoppel did not apply because the same issue was litigated simultaneously in two cases and defendant failed to prevent parallel proceedings; estoppel not invoked here |
| Whether dismissal could be affirmed on statute-of-limitations ground | Walch argued relation back and merits; did not prevail on relation back | LLC contended Walsh's third-party claim against LLC was time-barred | Trial court did not reach statute-of-limitations; appellate court affirmed on merits (mere-continuation failure), so SoL not decided |
Key Cases Cited
- Vernon v. Schuster, 179 Ill. 2d 338 (Illinois 1997) (articulates exceptions to successor nonliability and emphasizes identity of corporate entity rather than mere business continuation)
- Nilsson v. Continental Machine Manufacturing Co., 251 Ill. App. 3d 415 (Ill. App. 1993) (Illinois precedent requiring identity of ownership for mere-continuation successor liability)
- Bud Antle, Inc. v. Eastern Foods, Inc., 758 F.2d 1451 (9th Cir. 1985) (describes successor-as-"reincarnation" and the "different clothes" metaphor)
- Tucker v. Paxson Machine Co., 645 F.2d 620 (8th Cir. 1981) (majority rule emphasizing common identity of officers, directors, and stock as key to continuation analysis)
- Baltimore Luggage Co. v. Holtzman, 562 A.2d 1286 (Md. Ct. Spec. App. 1989) (explains the exception’s purpose: prevent transfer to evade predecessor creditors)