Court Opinion

ID: 3132675
Source: CourtListenerOpinion
Date Created: 2015-10-19 22:04:28.265799+00
Date Added: 2024-06-11T11:52:20.580919
License: Public Domain

Illinois Official Reports

                                       Appellate Court

                 Villaverde v. IP Acquisition VIII, LLC, 2015 IL App (1st) 143187

Appellate Court           MARCIAL VILLAVERDE, Plaintiff-Appellant and Cross-Appellee,
Caption                   v. IP ACQUISITION VIII, LLC, BARBARA M. SPAIN 2004
                          REVOCABLE TRUST, and PATRICK SPAIN, Defendants-
                          Appellees and Cross-Appellants.

District & No.            First District, Third Division
                          Docket No. 1-14-3187

Filed                     August 12, 2015

Decision Under            Appeal from the Circuit Court of Cook County, No. 12-CH-43070; the
Review                    Hon. Neil Cohen, Judge, presiding.

Judgment                  Affirmed.

Counsel on                Kristen E. Prinz, Jessica Fayerman, and Amit Bindra, all of Prinz Law
Appeal                    Firm, P.C., of Chicago, for appellant.

                          Paul W. Carrol and Jordan M. Hanson, both of Gould & Ratner, LLP,
                          of Chicago, for appellees.
     Panel                     JUSTICE HYMAN delivered the judgment of the court, with opinion.
                               Justices Lavin and Mason concurred in the judgment and opinion.

                                                OPINION

¶1         Defendant, Marcial Villaverde won a $166,000 judgment for unpaid wages against his
       former employer, S1 Audio, LLC, owned by Christopher Gantz. During the wage litigation,
       creditors of S1 Audio, defendants IP Acquisition VIII, LLC, Barbara M. Spain 2004
       Revocable Trust (Spain Trust or Trust) and Patrick Spain (collectively, defendants), conducted
       a foreclosure sale and acquired S1 Audio’s most valuable asset–its intellectual property,
       preventing Villaverde from being able to collect his judgment.
¶2         Villaverde filed suit alleging (1) successor liability; (2) civil conspiracy; and (3) violation
       of the Illinois Uniform Fraudulent Transfer Act (UFTA) (740 ILCS 160/1 et seq. (West 2010)).
       Defendants moved for summary judgment, and sanctions under Illinois Supreme Court Rule
       137 (eff. July 1, 2013) for filing the suit. The trial court granted summary judgment in favor of
       defendants, finding that IP Acquisition was not a successor corporation to S1 Audio and that
       no transfer of assets took place between S1 Audio and IP Acquisition in violation of the UFTA.
       The court also denied the motion for sanctions.
¶3         Villaverde seeks reversal of the summary judgment order, claiming IP Acquisition
       conducted the foreclosure sale solely to avoid paying Villaverde’s judgment. Villaverde
       contends a genuine issue of material fact exists on whether IP Acquisition constitutes a
       successor to S1 Audio. He further contends ample evidence exists to support his civil
       conspiracy claim. Defendants cross-appealed contending the trial court should have granted
       their motion for sanctions, arguing the complaint contains false statements and meritless legal
       claims.
¶4         We affirm the trial court’s grant of summary judgment on the basis that no exception to the
       doctrine of corporate successor nonliability applies under the facts of this case. Furthermore,
       the trial court acted well within its discretion in denying defendants’ motion for sanctions
       against Villaverde.

¶5                                             BACKGROUND
¶6          Christopher Gantz owned S1 Audio between 2007 and December 2011 and employed five
       individuals. Gantz paid $750,000 to acquire the rights to NxSet’s intellectual property for a
       headphone that sits on a person’s shoulders. S1 Audio developed and attempted to sell, license,
       and market NxSet.
¶7          Villaverde worked for S1 Audio from November 2008 to July 16, 2010. On September 24,
       2010, Villaverde filed suit against Gantz and S1 Audio for failing to pay him wages. On
       February 19, 2013, Villaverde obtained a judgment in the wage litigation against Gantz and S1
       Audio in the amount of $166,000.
¶8          On December 4, 2012, some 10 weeks before the trial court entered judgment in the wage
       litigation, Villaverde filed this suit against defendants and Gantz to recover the judgment from
       his unpaid wages. In his first amended complaint, Villaverde alleged: (1) a violation of the
       UFTA (740 ILCS 160/1 et seq. (West 2010)) based on the transfer of the intellectual property
       from the Trust to IP Acquisition, (2) successor liability (claiming IP Acquisition is a merger or

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       consolidation of S1 Audio and that defendants foreclosed the intellectual property to defraud
       Villaverde), and (3) civil conspiracy.

¶9                                         Gantz-Spain Relationship
¶ 10       Gantz had been friends with Patrick Spain since 1979. Between 2007 and 2010, Spain,
       either individually or through the Spain Trust, provided eight different loans to Gantz and S1
       Audio. In 2009, the Spain Trust loaned S1 Audio $100,000 in exchange for a security interest
       in the company’s intellectual property. S1 Audio did not make any loan payments to Spain or
       the Spain Trust. On November 4, 2011, the Spain Trust provided the only notice of default,
       informing S1 Audio it had until November 11 to satisfy the $267,276.74 owed the Trust. S1
       Audio did not cure the default and the Trust exercised its right as the primary secured creditor
       to foreclose its security interest.
¶ 11       In December 2011, the Spain Trust advertised in the Chicago Daily Law Bulletin the
       foreclosure sale of the intellectual property. On December 7, 2011, the date of the public sale,
       no outside bids were made for the intellectual property. The sale was extended and, on
       December 19, 2011, the Trust sold its security interest in S1 Audio to IP Acquisition of which
       Spain served as the managing member. The next day, IP Acquisition acquired the intellectual
       property of S1 Audio by making a credit bid–offering the amount of the debt S1 Audio owed.
¶ 12       Spain admitted IP Acquisition has only one asset–the S1 Audio intellectual property.
       Unlike S1 Audio, which developed and attempted to sell, license, and market the headphones,
       IP Acquisition’s business involved only selling or licensing the intellectual property. IP
       Acquisition attempted to sell the intellectual property at a targeted online auction but received
       only one bid of $5,000. IP Acquisition claims that before the auction, they offered Villaverde
       the right to share in the proceeds of any sale, but he refused.
¶ 13       On October 1, 2012, IP Acquisition hired Gantz as an independent sales representative.
       The agreement, dated June 1, 2012, provides Gantz with 20% of any money that IP Acquisition
       receives for the intellectual property. Gantz continued to try to license or market the
       intellectual property by working with prospective investors in America, Korea, and Japan.
       Gantz communicated with the potential investors; Spain did not participate in the
       conversations.
¶ 14       Neither Spain, the Trust, nor IP Acquisition entered into an agreement with S1 Audio to
       assume its liabilities after purchasing its assets.

¶ 15                              Communications Between the Parties
¶ 16                                     Settlement Negotiations
¶ 17        IP Acquisition contends that Spain, as the Trust’s trustee, periodically sought information
       on when the loans to S1 Audio would be repaid. Defendants claim that in 2011, five months
       before the foreclosure, Spain threatened to foreclose on the Trust’s secured interest in S1
       Audio’s intellectual property. That fall, Spain advised Gantz that the Trust lost confidence in
       the ability of S1 Audio to meet its obligations and advised Gantz that the trust would foreclose
       its security interest. According to defendants, Gantz was “not happy with the situation” and
       stayed out of the foreclosure process.
¶ 18        Between September 2011 (before the foreclosure) and January 24, 2012 (after the
       foreclosure), Spain, through his then counsel, Ken Obel, and Villaverde, through his counsel,

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       the Prinz Law Firm, participated in settlement conversations. During a September 2011
       meeting, Spain explained that he was attempting to settle Villaverde’s litigation against S1
       Audio because he was trying to sell the intellectual property. During defendants’ first written
       offer for Villaverde to share in the proceeds from any sale or license of the intellectual
       property, defendants outlined three different payment scenarios in exchange for Villaverde
       agreeing to dismiss his wage litigation, and, in all three, Villaverde’s ability to share in the
       proceeds was second only to Spain’s. The agreement would allow Villaverde to still pursue the
       amounts he was owed if S1 Audio could not sell or license the intellectual property within six
       months of the agreement. Defendants sent Villaverde their second written settlement offer in
       December 2011. Again, Villaverde’s payment would be second only to Spain, but Gantz could
       receive proceeds only after Villaverde was paid in full. Defendants made a third written offer
       in January 2012–if Villaverde was not fully paid by April 29, 2012, the release he provided
       would be ineffective and he could pursue a claim for any deficiency. Again, Gantz would not
       receive proceeds from the sale or license of the intellectual property until Villaverde was paid
       in full.
¶ 19       On May 31, 2013, Gantz filed for bankruptcy and was removed from this litigation.

¶ 20                                        Email Correspondence
¶ 21       On February 9, 2011, Spain emailed Gantz,
               “It may be time to go BK to clear a bunch of this stuff up or at a minimum do an
               assignment for creditors. This will get rid of EAR [investor–Equipment Acquisition
               Resources] as well. Does Gould [counsel for Defendants] have a BK lawyer we can
               talk to? I will get the IP in a BK, but I will contribute it to a new company.”
       On February 17, Spain wrote, “If we BK the company, which I think we must, I will have a
       total nuisance of a co-security interest holder with an aggressive uninformed atty.” That same
       day, he wrote, “I really don’t want them to have access to IP. Please don’t give them that.” Five
       days later, Spain wrote, “getting the IP out of Sync1 ASAP is very important though.”
¶ 22       On March 28, 2011, Spain stated,
               “I looked at Assignment FBC again and I think this may be a viable way to go if you
               abandon the old company and sell the assets to the new company. I am not sure how
               slow you can go. Also, it does not stop court proceedings but makes them pretty
               pointless, effectively stopping many of them.”
¶ 23       In October 2011, Spain sent two emails to Gantz. In the first email, Spain wrote,
               “We need to be ready to foreclose on the assets by Monday, as we don’t want a
               judgment entered next week. It will go better for all if we have your cooperation and get
               your signature on the documents this week.”
       The next day, Spain emailed Gantz again and wrote,
               “And if Villaverde gets a judgment and the IP is still in the company he will likely get
               paid before me. The only way [I] know that I can make sure I get paid first and
               completely (assuming there is any cash) is to own the IP.”
¶ 24       On March 12, 2013, well after Villaverde received a judgment on his unpaid wages, Spain
       wrote Gantz, “It would have been simple as hell not to book [employees’] compensation as
       salary and we would both have been spared a lot of grief and expense.”

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¶ 25                            Summary Judgment and Sanction Motions
¶ 26       On February 19, 2014, the trial court granted summary judgment in favor of IP
       Acquisition, holding that IP Acquisition had a perfected security interest and did not violate the
       UFTA (740 ILCS 160/1 et seq. (West 2010)). The court further found no evidence of civil
       conspiracy.
¶ 27       The court denied Villaverde’s motion to reconsider, stating:
               “This court found that even assuming IP Acquisition was the successor of S1Audio,
               Inc. a fact for which there was no evidentiary support, there was no wrongdoing for
               which IP Acquisition could be held liable. The foreclosure of the IP was not fraudulent,
               but specifically authorized by the Uniform Commercial Code ***. IP Acquisition
               foreclosed on a valid lien as it was entitled to under the Uniform Commercial Code.”
¶ 28       On September 19, 2014, the trial court denied IP Acquisition’s Rule 137 motion. The court
       held that sanctions would “punish a party or attorney for being zealous, yet unsuccessful.” The
       court explained that although it found Villaverde’s legal arguments to be “unconvincing,”
       sanctions could not be used to punish him for “misapplying the law.” Even though the court
       found the evidence did not support Villaverde’s position, it concluded that Villaverde acted
       reasonably in filing suit.

¶ 29                                          ANALYSIS
¶ 30       Villaverde argues errors of law and fact and that the trial court’s holding “allows
       unscrupulous businesspersons to avoid a court judgment by merely changing the form of the
       transfer of assets.”
¶ 31       Summary judgment is proper where there are no genuine issues of material fact and the
       moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005 (West 2010).
       Summary judgment should be entered whenever the plaintiff fails to establish a prima facie
       case on an essential element of his or her claim. Pyne v. Witmer, 129 Ill. 2d 351, 358 (1989).
       We review the trial court’s decision to grant summary judgment de novo. Outboard Marine
       Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992).

¶ 32                Uniform Commercial Code Applicability to Successor Liability
¶ 33       Villaverde asserts that the trial court premised its denial of his claims on the notion that a
       Uniform Commercial Code sale preempts any claim for successor liability. IP Acquisition
       responds that the trial court did and said no such thing. We agree. The ruling on summary
       judgment does not turn on whether a UCC sale preempts successor liability, and Villaverde’s
       argument to the contrary is without merit. The trial court entered summary judgment in IP
       Acquisition’s favor because “there was no evidence in the record to support [Villaverde’s]
       allegations that any of the defendants qualified as successors of S1” and “the record was
       devoid of any evidence of a tortious or unlawful act by IP Acquisition, Spain, or the Trust
       which would support a conspiracy claim.”

¶ 34                          Illinois Uniform Fraudulent Transfer Act
¶ 35       Villaverde maintains that IP Acquisition served as a continuation of S1 Audio and
       defendants concocted the foreclosure sale for the fraudulent purpose of escaping liability.
       Villaverde accuses S1 Audio, through Gantz, of colluding with Spain, to place the only

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       valuable asset–the intellectual property (NxSet)–into a new corporation (IP Acquisition) to
       avoid paying Villaverde’s wage litigation judgment. Villaverde raises, as genuine issues of
       material fact, whether the foreclosure proceedings and public sale were fraudulent. According
       to Villaverde, the trial court improperly concluded that IP Acquisition could be liable under the
       fraud exception to successor liability only after a fraudulent transfer as provided in the UFTA
       (740 ILCS 160/1 et seq. (West 2010)).
¶ 36        Defendants respond that they did not participate in fraud. Rather, as a secured creditor of
       S1 Audio, IP Acquisition properly foreclosed and bought S1 Audio’s intellectual property at a
       public sale. IP Acquisition offered to share the proceeds of any sale or license of the
       intellectual property with Villaverde, both before and after the foreclosure of S1 Audio, despite
       no legal obligation to do so. Villaverde counters that the facts as presented, specifically the
       relevant email correspondence, as well as Spain’s and Gantz’s conduct, create issues of
       material fact sufficient to defeat IP Acquisition’s motion for summary judgment.
¶ 37        The UFTA allows a creditor to defeat a debtor’s transfer of assets to which the creditor was
       entitled. 740 ILCS 160/5 (West 2010). Under the controlling definitions of the UFTA, the
       intellectual property here was not an “asset” and its “transfer” could not be a violation of the
       UFTA. “ ‘Asset’ means property of a debtor, but the term does not include *** property to the
       extent it is encumbered by a valid lien.” 740 ILCS 160/2(b)(1) (West 2010). Accordingly, the
       trial court properly granted summary judgment on count I of Villaverde’s complaint.
¶ 38        We disagree with Villaverde that the trial court based its ruling on count II (successor
       liability) and count III (civil conspiracy) on its denial of count I. The trial court addressed each
       claim individually, as will we.

¶ 39                                   Successor Corporate Liability
¶ 40       Generally, when a corporation sells its assets to another corporation, the seller’s liabilities
       do not become a part of the successor corporation unless an agreement so provides. Diguilio v.
       Goss International Corp., 389 Ill. App. 3d 1052, 1060-61 (2009) (citing Vernon v. Schuster,
       179 Ill. 2d 338, 345 (1997)). But, four exceptions apply: (1) the transaction includes an express
       or implied agreement of assumption; (2) the transaction constitutes a consolidation or merger
       of the purchaser or seller corporation; (3) the purchaser is a continuation of the seller; or (4) the
       transaction is an improper attempt to escape liability for the seller’s obligations. Id. at 1060.
¶ 41       Villaverde argues, based on the evidence, that he met two exceptions to the general rule of
       successor corporate nonliability: (1) the transaction between S1 Audio and IP Acquisition was
       an attempt by the seller to escape liability for its obligations to Villaverde (exception 4) and (2)
       IP Acquisition exists as a continuation of S1 Audio (exception 3).

¶ 42                                   Evading Liability Exception
¶ 43       Villaverde argues IP Acquisition’s conduct before and after the 2011 foreclosure sale
       offers evidence that fraud tainted the transactions. As support, Villaverde offers these facts he
       claims are undisputed: (1) Villaverde filed a successful lawsuit for unpaid wages; (2) during
       the wage litigation, Spain sent several emails to Gantz in which Spain expressed concern
       Villaverde would receive a judgment; (3) Spain sent Gantz the only default notice less than two
       weeks after the emails and four years of no repayment; and (4) IP Acquisition conducted the
       foreclosure sale less than two months after Spain admitted he did not want a “judgment

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       entered.” Villaverde also attaches great significance to his claim that Spain sought Gantz’s
       “corroboration.” As further evidence the sale attempts to escape liability, Villaverde questions
       the notice of the foreclosure sale being published solely in the Chicago Daily Law Bulletin and
       appearance of only the secured creditor at the public auction. Villaverde challenges the
       relevancy of IP Acquisition’s security interest in the intellectual property because “it is clear”
       the intent of the foreclosure sale was to avoid his judgment.
¶ 44       In addition, Villaverde relies on the factors outlined in the UFTA to support his claim of
       fraud. The UFTA offers 11 “badges of fraud” to consider when determining actual intent: “(1)
       the transfer or obligation was to an insider; (2) the debtor retained possession or control of the
       property transferred after the transfer; (3) the transfer or obligation was disclosed or concealed;
       (4) before the transfer was made or obligation was incurred, the debtor had been sued or
       threatened with suit; (5) the transfer was of substantially all the debtor’s assets; (6) the debtor
       absconded; (7) the debtor removed or concealed assets; (8) the value of the consideration
       received by the debtor was reasonably equivalent to the value of the asset transferred or the
       amount of the obligation incurred; (9) the debtor was insolvent or became insolvent shortly
       after the transfer was made or the obligation was incurred; (10) the transfer occurred shortly
       before or shortly after a substantial debt was incurred; and (11) the debtor transferred the
       essential assets of the business to a lienor who transferred the assets to an insider of the
       debtor.” 740 ILCS 160/5(b) (West 2010); see also Kennedy v. Four Boys Labor Services, Inc.,
       279 Ill. App. 3d 361, 369 (1996). The presence of these “badges of fraud” may give rise to an
       inference or presumption of fraud; they are “considerations” the trial court should use in
       determining whether fraud occurred. Steel Co. v. Morgan Marshall Industries, Inc., 278 Ill.
       App. 3d 241, 251 (1996) (citing Kaibab Industries, Inc. v. Family Ready Homes, Inc., 80 Ill.
       App. 3d 782, 786 (1978) (four “badges of fraud” sufficient to give rise to inference of fraud)).
¶ 45       Villaverde relies on badges 4, 5, 8, 9, and 10, arguing the following: Before the foreclosure,
       Spain was aware that Villaverde had filed suit against Gantz and S1 Audio for unpaid wages
       (4). IP Acquisition acquired the intellectual property–S1 Audio’s most valuable asset–during
       the foreclosure (5 and 9), after which, Gantz personally filed bankruptcy (9). Although Gantz
       originally paid $750,000 for the intellectual property, IP Acquisition received their security
       interest in the intellectual property for $100,000 (8). During the wage litigation, the court
       entered a substantial judgment against S1 Audio and Gantz for Villaverde’s unpaid wages
       (10).
¶ 46       Villaverde further contends the record supports finding badges 1, 2, 3, and 11. Spain and
       Gantz have been friends since 1979 and, hence, even if they are not “insiders,” their 30-year
       relationship meant they were unable to bargain at arm’s-length (1). After the foreclosure,
       Gantz continued with his same day-to-day duties. Potential clients assumed Gantz owned the
       patent and rarely spoke to Spain (2). By advertising the intellectual property sale in the
       Chicago Daily Law Bulletin, the defendants essentially concealed the transfer, particularly in
       light of the absence of an outside bidder at the auction (3). Lastly, when the Spain Trust
       transferred its interest in the intellectual property to IP Acquisition, the debtor transferred
       essential assets to a lienor who transferred the assets to an insider, because Spain controls both
       entities (11).
¶ 47       We disagree with Villaverde’s major contention–that the trial court held the foreclosure
       sale automatically terminates successor liability. The court’s holding relates only to the facts as
       presented. The foreclosure sale was not an improper attempt to shed the debt obligations of

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       unsecured creditors, such as Villaverde, but a proper means for the secured creditor to collect
       on its debt after a default and, therefore, any exception to the general rule against successor
       liability was inappropriate. See 15 William Meade Fletcher et al., Private Corporations § 7333,
       at 642-44 (perm. ed. 1999) (“where an individual purchases the assets of a corporation at a
       foreclosure sale and then resells to a new company composed largely of the members of the
       company whose assets were sold, and there is no fraud, the new company is not liable for the
       debts of the old”).
¶ 48        We agree with the trial court that the so-called badges of fraud identified by Villaverde do
       not establish, individually or collectively, that the foreclosure transaction was a fraud to avoid
       paying Villaverde his judgment. Examining the factors listed in section 5(b) of the UFTA,
       there is not a significant number of “badges of fraud” present to support a presumption of
       fraud. Under the UFTA, when the debtor is a corporation, like S1 Audio, an “insider” includes
       a director of the corporation, an officer of the corporation, anyone in control of the corporation,
       and a relative of a person in control of the corporation. 740 ILCS 160/2(g)(2) (West 2010).
       Spain does not qualify as an insider but as a creditor of S1 Audio (1). His friendship with Gantz
       does not alter his role relative to the corporation. Neither S1 Audio nor Gantz retained
       possession or control of the intellectual property after the foreclosure sale (2). Before the
       foreclosure sale, the Trust irrevocably sold and assigned its security interest in S1 Audio to IP
       Acquisition, whose managing member was Spain (who never worked for S1 Audio).
       Subsequently, IP Acquisition bid an amount equal to the amount S1 Audio owed under the
       promissory notes and obtained its intellectual property. IP Acquisition hired Gantz as an
       independent contractor for his expertise to help in IP Acquisition’s efforts to sell or license the
       intellectual property; Gantz’s employment does not mean he possessed or controlled the
       intellectual property. Spain and IP Acquisition controlled the intellectual property after the
       foreclosure. Defendants never tried to conceal the transfer of the asset (3) and actually kept
       Villaverde up to date on the intellectual property and offered to share the proceeds of any sale
       or license before or after the foreclosure. The debtor had not been sued or threatened with suit
       before the transfer was made or the obligation incurred (4). Between 2009 and 2010, the Trust
       purchased promissory notes from S1 Audio in return for a security interest in the intellectual
       property. Villaverde did not seek judgment or any other relief against S1 Audio and Gantz until
       at least December 14, 2011. Accordingly, the obligation was incurred well before the threat of
       suit.
¶ 49        Whether the transfer was of substantially all the debtor’s assets (5) is the only factor that
       potentially supports a finding of fraud. From the record before us, S1 Audio’s only asset was
       the intellectual property. This factor, however, is neutral at best because there is no in-depth
       discussion concerning whether S1 Audio owned other intellectual property or was involved in
       any other business pursuits. Gantz has not absconded (6); he actively sought to sell or license
       the intellectual property as an employee of IP Acquisition after the foreclosure sale. The
       intellectual property is the only asset at issue and Villaverde never contended its existence was
       concealed from him (7). The valuation of the intellectual property does not support finding
       fraud (8) where the undisputed facts establish the current value as $5,000 based on an outside
       bid at the online auction. The record shows Gantz personally filed bankruptcy, but there is no
       evidence concerning how S1 Audio fared following the foreclosure, so (9) does not support a
       finding of fraud. No allegation was made that the transfer of the intellectual property occurred
       before a substantial debt (10); in fact, the foreclosure sale took place four years after the

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       promissory notes were executed. Lastly, there was no allegation that a third party was involved
       (11)–neither S1 Audio nor Gantz transferred the intellectual property to a lienor who
       transferred the assets to an insider. The undisputed facts do not support finding an inference of
       fraud based on the factors listed in section 5(b) of the UFTA.
¶ 50       Further, we are unpersuaded by Villaverde’s position regarding the value of the intellectual
       property. Even though a third party valued the intellectual property at $800,000 at one point
       and Gantz originally paid $750,000 for it, the only current valuation was the $5,000 bid
       received during the public online auction in the Spring 2012. Accordingly, Spain’s acquiring
       of the intellectual property as a security interest for his loan of $100,000 was not inadequate.
       Likewise, we are unpersuaded that the foreclosure process itself establishes fraud. Villaverde’s
       suggestion cannot be reconciled with defendants’ repeated attempts to have Villaverde share in
       the proceeds from any sale or license of the intellectual property. Additionally, after the
       foreclosure, defendants attempted to sell or market the intellectual property almost
       immediately and continued their offer to have Villaverde share in the proceeds.
¶ 51       Nor does the email correspondence indicate fraudulent intent. The email exchange shows a
       creditor exercising its right to be informed about its loan and the likelihood of repayment.
       Undisputed is that only Spain and his counsel participated in the foreclosure process.
¶ 52       Both before and after the foreclosure sale, defendants, who were under no legal obligation
       to do so, offered to enter into an agreement with Villaverde to provide him with proceeds from
       the license or sale of the IP, but he refused. Before the foreclosure sale, defendants were
       motivated by their need to sell the IP to recoup their investment and likely believed it would be
       easier to sell without Villaverde’s judgment. After the foreclosure, defendants, as a successor
       corporation, were under no legal obligation to pay Villaverde’s judgment but, again, probably
       believed it would be easier to sell the IP without it.

¶ 53                                      Continuation Exception
¶ 54        Villaverde argues the undisputed facts also establish that IP Acquisition serves as a
       continuation of S1 Audio and should be liable for his wage litigation judgment. Villaverde
       finds it significant that both before and after the foreclosure, Gantz and Spain were the only
       individuals who could receive any money from the sale or license of the intellectual property,
       and both had the same essential duties before as after the sale.
¶ 55        The correct standard for evaluating whether the continuation exception applies is set out in
       Vernon v. Schuster, 179 Ill. 2d 338, 346 (1997), cited by defendants, and not Steel Co. v.
       Morgan Marshall Industries, Inc., 278 Ill. App. 3d 241 (1996), as suggested by Villaverde.
       Illinois courts have held that the most important factor in determining whether a merger has
       occurred for purposes of the continuation exception is the identity of the ownership of the new
       and former corporations. Vernon, 179 Ill. 2d at 346-47; see also Diguilio v. Goss International
       Corp., 389 Ill. App. 3d 1052, 1062 (2009) (deciding factor whether there is a continuation of
       corporate entity of seller, not whether seller’s business operation continues). The exception
       seeks to avoid the situation that would “allow the predecessor to escape liability by merely
       changing hats.” (Internal quotation marks omitted.) Vernon, 179 Ill. 2d at 346.
¶ 56        Spain, the owner of IP Acquisition, was not an officer, director, or stockholder of S1
       Audio–he was a creditor. Gantz, the CEO of S1 Audio is not an officer, director, or stockholder
       of IP Acquisition–he is an employee/independent contractor. The focus for the continuation
       exception is on the corporate entity of the seller and not whether there is a continuation of the

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       seller’s business operation. See id. at 347 (identity of ownership necessary to impose successor
       liability).
¶ 57       No identity of ownership between S1 Audio and IP Acquisition exists that would justify
       the application of the continuation exception to the general rule of successor corporate
       nonliability. Under these facts, IP Acquisition, as a secured creditor of S1 Audio, properly
       foreclosed on the secured collateral following default and collected on its debt. As a successor
       corporation, IP Acquisition is not liable for the debts of S1 Audio and, because none of the four
       exceptions apply, summary judgment in IP Acquisition’s favor is proper.

¶ 58                                         Civil Conspiracy
¶ 59       Villaverde argues the foreclosure sale was a civil conspiracy intended to delay recovery of
       his unpaid wages.
¶ 60       “Civil conspiracy consists of a combination of two or more persons for the purpose of
       accomplishing by some concerted action either an unlawful purpose or a lawful purpose by
       unlawful means. *** A cause of action for civil conspiracy exists only if one of the parties to
       the agreement commits some act in furtherance of the agreement, which is itself a tort.” Adcock
       v. Brakegate, Ltd., 164 Ill. 2d 54, 62-63 (1994).
¶ 61       As support for this position, Villaverde relies on Zokoych v. Spalding, 36 Ill. App. 3d 654,
       667 (1976), in which the court found a secured creditor bank cooperated with a co-owner of a
       business in a scheme to breach his fiduciary obligations to his fellow owner and, thus, engaged
       in a conspiracy to commit fraud. The bank claimed to be protecting its secured interest in
       company machinery from a third-party creditor by allowing the defendant co-owner to
       unilaterally transfer the secured machinery. Id. The court found the bank acted against the
       company and other co-owner’s rights by knowingly allowing the secured assets to be
       converted by the defendant co-owner without default on the underlying loan and with
       knowledge of the plaintiff co-owner’s interest in the company. Id.
¶ 62       We disagree that Zokoych resembles the facts here. The Spain Trust, the primary secured
       creditor of S1 Audio, enforced its undisputed right to foreclose on the secured collateral
       (intellectual property) following default. IP Acquisition took no action that defrauded,
       hindered, or delayed Villaverde from receiving his judgment. In contrast, IP Acquisition
       presented evidence of communication with Villaverde both before and after the foreclosure for
       him to share in any proceeds from the sale or license of the intellectual property.
¶ 63       The trial court properly found that the foreclosure and subsequent licensing of the
       intellectual property did not violate the UFTA and, therefore, there is no unlawful act to
       support a cause of action for a civil conspiracy. We affirm the trial court’s decision to grant
       summary judgment on the civil conspiracy claim.

¶ 64                                  Summary Judgment Affirmed
¶ 65       Villaverde fails to present a question of material fact precluding summary judgment for
       defendants and the trial court correctly found no exception to the doctrine of successor
       nonliability.

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¶ 66                           Cross-Appeal on Denial of Rule 137 Sanctions
¶ 67        Defendants’ cross-appeal on the denial of Rule 137 sanctions for the filing of a vexatious
       and harassing lawsuit. They argue that Villaverde and his counsel sought a guaranteed
       payment through a lawsuit which purposely omitted key facts. As defendants tell it, Villaverde
       and his counsel “twist the story and try to make it fit into the theory underlying their nuisance
       pleading, ultimately setting forth a false and misleading version of the truth.”
¶ 68        Rule 137 provides a mechanism to keep parties from abusing the judicial process through
       the availability of sanctions for “vexatious and harassing actions” based on unsupported
       allegations of fact or law. (Internal quotation marks omitted.) Burrows v. Pick, 306 Ill. App. 3d
1048, 1050 (1999). The party moving for sanctions must show the other side made untrue and
       false allegations without reasonable cause. Id. at 1050-51. The trial court uses an objective
       standard to determine whether the party made a reasonable inquiry into the facts and law
       supporting the allegations. Id. at 1051.
¶ 69        We will uphold a ruling on Rule 137 sanctions unless the trial court abused its discretion.
       Yassin v. Certified Grocers of Illinois, Inc., 133 Ill. 2d 458, 467 (1990). The trial court, which
       sits in the best position to evaluate the circumstances, abuses its discretion only if no
       reasonable person would take its view. Fremarek v. John Hancock Mutual Life Insurance Co.,
       272 Ill. App. 3d 1067, 1074 (1995). Courts consider an allegedly offending complaint at the
       time of its filing rather than engage in hindsight. Lewy v. Koeckritz International, Inc., 211 Ill.
       App. 3d 330, 334 (1991). In reviewing the trial court’s decision, we determine whether it was
       “informed, based on valid reasons, and followed logically from the circumstances of the case.”
       Burrows, 306 Ill. App. 3d at 1051 (citing In re Estate of Smith, 201 Ill. App. 3d 1005, 1009-10
       (1990)).
¶ 70        The trial court thoroughly examined the sanctions’ motion before issuing its ruling. As the
       trial court observed in its Memorandum and Order, “[w]hile this court ultimately found
       plaintiff’s legal arguments to be unconvincing, sanctions are not intended to punish litigants
       for misapplying the law.” As for the evidence, the trial court observed that despite having
       concluded that the evidence did not support Villaverde’s claims, “this does not mean that
       plaintiff could not reasonably argue that the facts supported [his] position. Defendants have
       failed to persuade us that the trial court abused its discretion in finding that Villaverde made a
       reasonable inquiry into the facts, a good faith argument, and did not file his suit for the
       improper purpose of harassment. Accordingly, we will not disturb the trial court’s denial of
       Rule 137 sanctions.

¶ 71                                     CONCLUSION
¶ 72      We affirm both the grant of summary judgment and the denial of sanctions.

¶ 73      Affirmed.

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