The Groves of Palatine Condominium Association v. Walsh Construction Co.
2017 IL App (1st) 161036
| Ill. App. Ct. | 2017Background
- The Groves Condominium Association sued general contractor Walsh Construction; Walsh filed third-party complaints alleging its subcontractor, K&K Iron Works, Inc. (the corporation), was responsible for construction defects.
- K&K Iron Works, Inc. was sold in 2006 to a holding company (majority-owned by H.I.G.); original owners (Karl and Jerry Kulhanek) retained a small equity interest and continued working for a period, but Jerry later resigned.
- In June 2011 Jerry formed K&K Iron Works, LLC (the LLC) and, on June 21, 2011, the LLC purchased specified assets of the corporation under an asset purchase agreement that expressly excluded most liabilities.
- Walsh alleged the LLC was "merely a continuation" of the corporation and therefore liable for the corporation’s alleged breaches; the LLC denied continuity and moved to dismiss under section 2-619, also asserting a statute-of-limitations defense.
- Two parallel cases (the Groves and the Columbian actions) litigated the same successor-liability issue; the Columbian court dismissed on mere-continuation grounds and the Groves court later dismissed Walsh’s third-party complaint against the LLC for the same reason.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the LLC is a "mere continuation" of the corporation, imposing successor liability | LLC retained continuity through Jerry (original owner), same business, same locations, shared employees and website representations | No continuity of corporate entity or ownership: bona fide arms-length 2006 sale to a holding company interrupted continuity; LLC purchased assets but excluded liabilities; ownership/management changed during the holding-company period | Court affirmed dismissal: no identity of ownership or continuity of corporate entity; mere continuation exception does not apply |
| Whether collateral estoppel barred relitigation after the Columbian dismissal | Walsh argued the issue was not previously decided in a way that precludes relitigation because appeals and simultaneous litigation occurred | LLC argued the Columbian dismissal should preclude relitigation in Groves | Court held collateral estoppel did not apply because the same issue was litigated simultaneously in two cases and the LLC failed to object to parallel proceedings |
| Whether the complaint related back to avoid statute-of-limitations bar | Walsh argued relation back via prior pleadings against the corporation | LLC argued the third-party claim was time-barred; trial court did not reach this issue | Court did not decide statute-of-limitations; affirmed dismissal on mere-continuation ground |
Key Cases Cited
- Vernon v. Schuster, 179 Ill.2d 338 (continuation exception requires identity of corporate entity/ownership)
- Nowak v. St. Rita High School, 197 Ill.2d 381 (elements and purpose of collateral estoppel)
- Gumma v. White, 216 Ill.2d 23 (threshold requirements for collateral estoppel)
- Nilsson v. Continental Machine Manufacturing Co., 251 Ill. App.3d 415 (Illinois courts require identity of ownership for mere-continuation successor liability)
- Werderman v. Liberty Ventures, LLC, 368 Ill. App.3d 78 (simultaneous consideration of same evidence by different tribunals does not invoke collateral estoppel)