Wednesday, July 1, 2020

Shell Games and Series

Shell Games and Series

            In a decision handed down the second week of March (i.e., pre-pandemic lockdown), an Illinois court rejected an effort to play shell games and avoid the consequences of a ruling by a late assertion that its was a series of an LLC, and not the LLC itself, that was the owner of the property that was the subject of the dispute.  City or Urbana, Illinois v. Platinum Group Properties, LLC, 2020 Il. App. (4th) 190356, __ N.E.3d ___, 2020 WL 1164502 (Ill. Ct. App 4th Dist. March 11, 2020).

After the City of Urbana sued Platinum Group for property maintenance code violations, a judgment of $473,700 was entered.  That decision was appealed, and the code violations judgment was affirmed. However, the monetary judgment was in part reversed and the balanced remanded for reconsideration.  A new judgment of $45,000 was entered.  Thereafter the City moved to amend the record to reflect the name of the defendant as “Platinium Group Properties, LLC-Sunnycrest Series.”  The defendant objected, but the court entered the requested order.  After entering a special appearance to object that the court had no personal jurisdiction over it, the court denied it the requested relief, leading to this appeal.

            As recited by the Court of Appeals:

In November 2018, the City filed its misnomer motion, seeking to amend the record to reflect “Defendant by its full name, ‘Platinum Group Properties, LLC-Sunnycrest Series’ rather than its short-form name, ‘Platinum Group Properties, LLC.’” The City asserted (1) it intended to sue Sunnycrest since it was the owner of the three building and the real party in interest, (2) the City served Sunnycrest's agent and manager with the summons, (3) the summons and complaint used a shortened form of Sunnycrest's name because that is what Sunnycrest used when communicating with the City prior to the lawsuit, and (4) Sunnycrest was put on notice of the lawsuit. The City also attached numerous exhibits to its misnomer motion, one of which was a printout of the Secretary of State's website page for the Platinum Group. The printout stated the Platinum Group had four series LLCs, including Sunnycrest.

The Platinum Group filed a memorandum in opposition to the City's section 2-401(b) motion, asserting Sunnycrest was an independent entity from the Platinum Group. It further claimed service had never been made on Sunnycrest and this was a case of the plaintiff suing the wrong entity and not misnomer. The Platinum Group did not attach any exhibits to its response.

The City filed a reply, noting the Secretary of State's website listed Harold Adams as the registered agent for Sunnycrest and Paul Zerrouki as the manager of Sunnycrest. The City also noted the Platinum Group vigorously defended the lawsuit for more than three years and represented to the court it was the real party in interest by admitting it owned the buildings at issue in this case. The City attached Zerrouki's trial testimony to its reply. 2020 WL 1164502, **2-3; slip op. ¶¶ 11-13.

      After reviewing the “misnomer” statute that permits the correct identification of a defendant over whom the court has personal jurisdiction, which may include voluntary submission to the court’s jurisdiction, the court turned its attention to the series provisions of the Illinois LLC Act. Given that the defendant never presented to the court a copy of the series certificate or designation and never cited section 37-40 of the LLC Act, the series:

failed to establish to the circuit court that it was a separate entity from Platinum Group. Given the numerous requirements of section 37-40 and its provisions stating what is conclusive evidence of the series legal formation under the Act, a mere statement of series LLC is a separate entity from the LLC is insufficient to establish such According, we find the circuit court did not err in denying Sunnycrest’s motion to vacate. 2020 WL 1164502, *6; slip op. ¶ 34.

The Court of Appeals would go on to hold that even had the burden of showing separateness been carried, estoppel would have barred it from relying upon the original failure to identify the series.

Here, Sunnycrest and the Platinum Group had the same agent for service and the same manager. Moreover, Sunnycrest's name is the same as the Platinum Group with the addition of two words, “Sunnycrest Series.” The title holder of the properties charged with ordinance violations was Sunnycrest. While the complaint and summons listed the Platinum Group, manager Zerrouki appeared at trial and testified. He testified the properties in question were “part of the company called Platinum Group Properties.” Zerrouki further testified he and his wife were “the principal owners of Platinum Group Properties.” He also testified he bought the properties in 1998 or 1999. Moreover, after the conclusion of the evidence in August 2015, the parties filed written memoranda supporting their respective positions. In its memorandum, the Platinum Group admits it is the owner of the properties at issue and cites Zerrouki's aforementioned testimony at trial. As manager of both Sunnycrest and the Platinum Group, Zerrouki knew which of his corporate entities held legal title to the properties in question. Thus, as in Marsden, Zerrouki's testimony and the Platinum Group's memorandum indicate Sunnycrest conceded there was a misnomer. Accordingly, Sunnycrest would be estopped from asserting no misnomer. Like Marsden, absent the admission of ownership at trial and in the memorandum, this would be a case of mistaken identity and not misnomer. 2020 WL 1164502, *7; slip op. ¶ 38.

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