Court Opinion

ID: 3148388
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:48:22.287654+00
Date Added: 2024-06-11T11:55:22.800640
License: Public Domain

ILLINOIS OFFICIAL REPORTS
                                         Appellate Court

                           Tully v. McLean, 2013 IL App (1st) 113663

Appellate Court            THOMAS M. TULLY, Trustee of the Thomas M. Tully Trust; and
Caption                    F.P.A., LLC, an Illinois Limited Liability Company, Individually and
                           Derivatively on Behalf of Old Town Development Associates, LLC,
                           Plaintiffs-Appellees, v. DANIEL E. McLEAN; PIPER’S ALLEY
                           MANAGEMENT, INC., an Illinois Corporation; LINCOLN PARK
                           DEVELOPMENT ASSOCIATES, LP, an Illinois Limited Partnership;
                           MCL COMPANIES OF CHICAGO, INC., an Illinois Corporation; MCL
                           MANAGEMENT CORPORATION, an Illinois Corporation; and OLD
                           TOWN DEVELOPMENT ASSOCIATES, LLC, an Illinois Limited
                           Liability Company and Nominal Defendant, Defendants-Appellants.

District & No.             First District, Second Division
                           Docket No. 1-11-3663

Filed                      May 14, 2013
Rehearing denied           June 18, 2013

Held                       In an action alleging that defendants were guilty of fraud and the breach
(Note: This syllabus       of their fiduciary duties in connection with a development project, the
constitutes no part of     case was rendered moot when the trial court’s order for a judicial sale was
the opinion of the court   consummated by plaintiffs’ purchase of the development and the transfer
but has been prepared      of defendants’ interests to plaintiffs in satisfaction of the judgment
by the Reporter of         without a motion to stay enforcement by defendants or an appeal from the
Decisions for the          final order granting the sale; therefore, the trial court was unable to grant
convenience of the         effectual relief to defendants.
reader.)

Decision Under             Appeal from the Circuit Court of Cook County, No. 06-CH-5431; the
Review                     Hon. Stuart E. Palmer, Judge, presiding.
Judgment                   Affirmed.

Counsel on                 David A. Epstein, Amanda C. Jones, and Jeffery R. Beck, all of Brown
Appeal                     Udell Pomerantz & Delrahim, Ltd., of Chicago, for appellants.

                           Michael H. Moirano and Claire Gorman Kenny, both of Nissen & Elliott
                           LLC, of Chicago, for appellees.

Panel                      JUSTICE SIMON delivered the judgment of the court, with opinion.
                           Presiding Justice Harris and Justice Quinn concurred in the judgment and
                           opinion.

                                            OPINION

¶1          This matter is once again before this court following proceedings on remand from the
        decision in Tully v. McLean, 409 Ill. App. 3d 659 (2011) (Tully I). In Tully I, Justice
        Karnezis provided extensive analysis of the underlying proceedings in which plaintiffs
        Thomas M. Tully, as trustee of the Thomas M. Tully Trust, and F.P.A., LLC (FPA),
        individually and derivatively on behalf of Old Town Development Associates, LLC (OTD),
        filed an action against defendants Daniel E. McLean, Piper’s Alley Management, Inc.
        (PAM), Lincoln Park Development Associates, LP (LPDA), MCL Companies of Chicago,
        Inc. (MCL), MCL Management Corp. (MCL Management) (collectively defendants) and
        nominally against OTD. Plaintiffs asserted that defendants committed fraud and breach of
        their fiduciary duties to plaintiffs in their management of OTD. This court affirmed the
        judgment against defendants and the award of $4,242,222.22 in compensatory and punitive
        damages for what was described as defendants’ “reprehensible” actions. In addition, the Tully
        I court reversed the denial of defendants’ counterclaim for dissolution of OTD and remanded
        the matter for further proceedings. Id. at 686.
¶2          During the course of the Tully I appeal and prior to remand, plaintiffs initiated and
        completed postjudgment supplementary proceedings to enforce the money judgment against
        defendants pursuant to the Code of Civil Procedure (735 ILCS 5/2-1402(a) (West 2010)) and
        the Illinois Limited Liability Company Act (805 ILCS 180/30-20 (West 2010)) (Act). The
        proceedings resulted in the judicial sale and transfer of defendants’ ownership interest in
        OTD to plaintiffs for the total amount of the money judgment. On remand, defendants filed
        a motion for relief in light of the reversal of defendants’ counterclaim for dissolution.
        Plaintiffs filed a motion to dismiss the case as moot pursuant to section 2-619 of the Code
        of Civil Procedure. 735 ILCS 5/2-619 (West 2010). The trial court denied defendants’
        motion for relief and dismissed the case as moot.

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¶3          Defendants appeal that order, arguing that the trial court erred in failing to implement the
       dissolution of OTD as this court ordered in Tully I. Defendants also argue that plaintiffs’
       mootness argument was forfeited for failure to raise this issue during proceedings in Tully
       I, claiming that the trial court could not dismiss the case on this basis. For the following
       reasons we affirm the judgment of the trial court.

¶4                                        I. BACKGROUND
¶5         Following a seven-day bench trial on plaintiffs’ complaint for breach of fiduciary duty
       and fraud against defendants, the trial court issued a memorandum opinion and order on
       January 21, 2009. The court found defendants liable to plaintiffs for common law fraud and
       breach of fiduciary duty by diverting millions of dollars from OTD’s accounts over a six-year
       period to, among other things, pay defendants’ debts unrelated to OTD’s business. The court
       awarded compensatory and punitive damages totaling $4,242,222.22.
¶6         A separate hearing was held on plaintiffs’ claim that PAM should be expelled from OTD
       and defendants’ counterclaim seeking dissolution of OTD. On April 28, 2009, the trial court
       ordered PAM expelled and disassociated from OTD, but concluded that dissolution of OTD
       was unwarranted. Final judgment was entered on September 28, 2009, and defendants
       appealed these orders. Defendants did not seek a stay of the judgment before either the trial
       court or this court and no supersedeas bond was posted.
¶7         In October and November 2009 plaintiffs filed citations to determine defendants’ assets.
       Defendants were each served with the citations and filed appearances in December 2009.
       Plaintiffs sought the sale of defendants’ interests in OTD to satisfy the judgment. On March
       26, 2010, the trial court entered an order appointing a selling agent to sell McLean’s 39%
       interest and LPDA’s 10% interest in OTD. McLean and LPDA were ordered to execute and
       deliver to the selling agent any forms of assignment or other documents necessary to transfer
       their interests to the successful bidder.
¶8         A judicial sale was conducted by the selling agent on May 4, 2010, and plaintiffs were
       the successful bidders. McLean and LPDA refused to execute and return forms to the selling
       agent to complete the assignment of McLean’s and LPDA’s interests in OTD. On June 1,
       2010, the trial court granted plaintiffs’ motion to authorize the selling agent to execute and
       deliver the assignment documents.
¶9         McLean moved to vacate the June 1, 2010, order, asserting that an agreement had been
       reached with a third party to sell defendants’ interest in OTD, but plaintiffs refused to
       complete the agreement because they could benefit more by purchasing the interest at the
       judicial sale. McLean contended that this bad-faith dealing required that the court vacate that
       order. The motion was denied and a final order was entered. Defendants did not appeal the
       final order authorizing the judicial sale.
¶ 10       On April 26, 2011, the court issued the opinion in Tully I, affirming in part and reversing
       in part the judgment of the trial court. Defendants admitted that McLean’s actions were
       legally improper and they were liable for losses, but challenged the trial court’s judgment as
       “ ‘seriously, unfairly and unjustifiably excessive’ and inequitable” and a case of “judicial
       overkill.” Tully I, 409 Ill. App. 3d at 663. Defendants sought to: reverse the judgment against

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       LPDA; vacate the judgment against MCL; dissolve OTD; and reverse and vacate the punitive
       damages award; reverse the judgment ordering defendants to forfeit management fees and
       to reduce the prejudgment interest rate imposed by the court on the misappropriated funds.
¶ 11       The Tully I court affirmed the trial court’s judgment on all grounds, but denied
       defendants’ counterclaim for the dissolution of OTD. The court extensively detailed
       defendants’ systematic and repeated acts of “intentional trickery and deceit” using their
       position of dominance and superiority over plaintiffs. Id. at 677, 683. Because of this
       fiduciary relationship, the court highlighted that defendants’ stance was untenable as a
       fiduciary should not benefit from its own wrongdoing. Id. at 680 (citing Caparos v. Morton,
       364 Ill. App. 3d 159, 180 (2006)). Accordingly, the court affirmed the compensatory and
       punitive damages awarded to plaintiffs and denied defendants’ arguments on these issues.
¶ 12       The Tully I court also found that the expulsion of PAM as a member and manager of
       OTD was a basis for dissolution under section 6.1 of the OTD operating agreement and
       section 35-45(6) of the Act (805 ILCS 180/35-45(6) (West 2008)). Tully I, 409 Ill. App. 3d
       at 666-69. Therefore, the court reversed the denial of defendants’ request for dissolution of
       OTD and the matter was remanded to the trial court to undertake dissolution proceedings.
       On remand, the trial court ordered the parties to file cross-motions concerning the relief
       sought upon resolution of the dissolution issue.
¶ 13       Plaintiffs moved to dismiss the case as moot pursuant to section 2-619, asserting that the
       Tully I opinion did not affect their right to enforce the judgment against defendants in the
       supplemental proceedings. Plaintiffs argued that they properly moved for a charging lien
       against defendants’ interests pursuant to the Act and that the subsequent orders completing
       the judicial sale of defendants’ interests in OTD were made final and were not appealed.
       Accordingly, plaintiffs claimed the issue on remand, the dissolution of OTD, was moot
       because defendants had been lawfully divested of all their interests in OTD and the trial court
       could not grant effectual relief.
¶ 14       Defendants sought an order vacating the judicial sale of OTD, an accounting, the
       dissolution and liquidation of OTD, the judicial sale of the primary asset of OTD, and
       distribution of the proceeds to creditors and the parties pursuant to the Act. On October 20,
       2011, the trial court dismissed the case as moot and denied in its entirety defendants’ motion
       for relief. Following the denial of defendants’ motion for reconsideration, this appeal was
       filed.

¶ 15                                       II. ANALYSIS
¶ 16       A cause of action is deemed moot if no actual controversy exists or if events occur that
       make it impossible for the court to grant effectual relief. Gatreaux v. DKW Enterprises, LLC,
       2011 IL App (1st) 103482, ¶ 12. A “moot case is one which seeks to determine an abstract
       question or a judgment which when rendered cannot have any practical legal effect on the
       controversy.” Betts v. Ray, 104 Ill. App. 3d 168, 171 (1982). A motion to dismiss pursuant
       to section 2-619 admits the legal sufficiency of a pleading, but asserts an affirmative defense
       or other matter that avoids or defeats the claim. A section 2-619 dismissal is reviewed de
       novo. Barber v. American Airlines, Inc., 241 Ill. 2d 450, 455 (2011). We agree that

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       intervening events rendered this matter moot and the trial court properly dismissed the case
       because any judgment of dissolution would have no practical legal effect.
¶ 17       Defendants did not file a motion to stay collection of the money judgment or a “bond or
       other form of security” to prevent plaintiffs from pursuing satisfaction of the trial court’s
       judgment in the supplementary proceeding. Ill. S. Ct. R. 305(a) (eff. July 1, 2004).
       Defendants are correct that Supreme Court Rule 305 provides protection specifically to the
       rights, title or interests acquired by third parties, not to parties to the underlying cause of
       action. Ill. S. Ct. R. 305(k) (eff. July 1, 2004). However, the failure to seek a stay allowed
       plaintiffs to pursue enforcement of the money judgment in supplemental proceedings
       pursuant to section 2-1402 of the Code of Civil Procedure. 735 ILCS 5/2-1402 (West 2010).
¶ 18       Service of the citation to discover assets resulted in plaintiffs acquiring a charging lien
       pursuant to section 30-20(b) of the Act (805 ILCS 180/30-20(b) (West 2010)) and section
       2-1402(m) of the Code of Civil Procedure (735 ILCS 5/2-1402(m) (West 2010)). Defendants
       filed appearances in the supplementary proceeding, but the sale was completed. Following
       the judicial sale of defendants’ interests in OTD, defendants refused to execute and return
       necessary forms to the selling agent. Accordingly, the trial court granted plaintiffs’ motion
       to authorize the transfer of defendants’ interests and entered a final order. McLean filed a
       motion to vacate the order, but that was denied. Defendants did not file an appeal, therefore,
       defendants forfeited consideration of the supplementary proceeding. Tully I, 409 Ill. App. 3d
       at 664. Furthermore, consideration of that final order and the propriety of the judicial sale is
       barred by the doctrine of res judicata. Levaccare v. Levaccare, 376 Ill. App. 3d 503, 510-11
       (2007).
¶ 19       Defendants point out that the judicial sale was sought by plaintiffs and completed with
       the possibility that the Tully I court could render an opinion finding the September 29, 2009,
       order erroneous, thereby remanding the matter to the trial court to vacate its order or for
       plaintiffs to provide restitution. Buzz Barton & Associates, Inc. v. Giannone, 108 Ill. 2d 373,
       381-82 (1985). Defendants claim that plaintiffs sought the judicial sale with this
       understanding and lost their bet because the Tully I court’s remand of the dissolution issue
       requires the sale to be vacated. However, as plaintiffs correctly argue, the Tully I court only
       reversed and remanded on the issue of the denial of defendants’ counterclaim for dissolution
       and contemporaneously affirmed the money judgment against defendants and all other
       detailed findings of the trial court concerning defendants’ breach of fiduciary duty. Tully I,
409 Ill. App. 3d at 666-69.
¶ 20       In addition to the foregoing bars to defendants’ claims, whether the dissolution issue is
       moot may be resolved by consideration of the provisions of the Act and the OTD operating
       agreement relating to dissolution. Defendants assert that because plaintiffs failed to present
       evidence of the judicial sale and the mootness argument in the direct appeal, they waived that
       argument on remand and in the instant matter pursuant to Supreme Court Rule 341 (Ill. S.
       Ct. R. 341(h)(7), (i) (eff. July 1, 2008)) which applies to the waiver of arguments by parties
       on appeal for their failure to include them in their briefs on appeal. In Tully I, defendants
       challenged the money judgment and plaintiffs had no basis to include discussion of ongoing
       proceedings that were not of record. Therefore, the mootness argument was premature at that
       time and plaintiffs did not waive that argument on remand or before this court.

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¶ 21       The Tully I court opined that OTD “should be dissolved under the [operating] agreement”
       and the Act, and that the trial court should conduct dissolution proceedings. Tully I, 409 Ill.
       App. 3d at 669. The court did not alter the money judgment or otherwise opine as to how
       OTD should be dissolved. Under the Act, the process of dissolution is just that, a process,
       and the company continues after dissolution. 805 ILCS 180/35-3(a) (West 2010). After
       dissolution and before the winding up of its business, the members may unanimously waive
       the right to have the company’s business wound up and the business continued. 805 ILCS
       180/35-3(b), (c) (West 2010). Likewise, section 10.3 of OTD’s operating agreement grants
       remaining members the opportunity to continue the business of the company after the
       withdrawal of a manager or other event causing a dissolution.
¶ 22       Therefore, the Act and operating agreement do not support defendants’ claim that
       dissolution affects the money judgment or the supplemental proceedings. Defendants cite to
       cases that involve the receipt of a benefit by a party based on an erroneous judgment, and
       thus are inapplicable to the instant case because the money judgment was affirmed. See, e.g.,
       First National Bank of Jonesboro v. Road District No. 8, 389 Ill. 156 (1945); Buzz Barton
       & Associates, 108 Ill. 2d 373; Meldahl v. West, 280 Ill. 421 (1917). As detailed above, the
       money judgment was not only affirmed, but the Tully I court extensively detailed defendants’
       malfeasance in repeatedly rejecting their attempts to receive compensation and reduction of
       the judgment. Unlike the scenarios in defendants’ proffered authority, in this case there is no
       erroneous receipt of benefit or modified monetary judgment requiring restitution.
¶ 23       When the Tully I opinion was filed, the judicial sale was already final and defendants’
       interests had been transferred to plaintiffs in satisfaction of the money judgment and the
       company continued to operate, even if technically in dissolution. Defendants did not seek a
       stay of enforcement of the money judgment, did not appeal the final order granting the
       judicial sale and, as a result, forfeited arguments concerning its validity. Therefore, that final
       order is res judicata on the issue of the satisfaction of the money judgment and nothing in
       the Act or the OTD operating agreement requires that the judicial sale be vacated. These
       intervening events transferred all of defendants’ interests in OTD to plaintiffs and made it
       impossible for the trial court to grant effectual relief to defendants or have any practical legal
       effect and the trial court properly dismissed the case as moot.

¶ 24                                   III. CONCLUSION
¶ 25       For the foregoing reasons, we affirm the judgment of the trial court.

¶ 26       Affirmed.

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