1515 North Wells v. 1513 North Wells

• Decision Date: 27 March 2009
• Docket Number: No. 1-07-1881.,1-07-1881.
• Citation: 913 N.E.2d 1
• Parties: 1515 NORTH WELLS, L.P., Plaintiff-Appellee, v. 1513 NORTH WELLS, L.L.C., and Thomas Bracken, Indiv., Defendants-Appellants. (1513 North Wells, L.L.C., Thomas Bracken, and 1515 North Wells, L.P., Counterplaintiffs-Appellants and Cross-Appellees; SP Development Corporation, Sutherland Pearsall Development Corporation, Mark Sutherland, Alex Pearsall, and Henry Pearsall, Third-Party Defendants-Appellees and Cross-Appellants).
• Court: United States Appellate Court of Illinois

913 N.E.2d 1

1515 NORTH WELLS, L.P., Plaintiff-Appellee, v. 1513 NORTH WELLS, L.L.C., and Thomas Bracken, Indiv., Defendants-Appellants (1513 North Wells, L.L.C., Thomas Bracken, and 1515 North Wells, L.P., Counterplaintiffs-Appellants and Cross-Appellees SP Development Corporation, Sutherland Pearsall Development Corporation, Mark Sutherland, Alex Pearsall, and Henry Pearsall, Third-Party Defendants-Appellees and Cross-Appellants).

No. 1-07-1881.

Appellate Court of Illinois, First District, Sixth Division.

March 27, 2009.

Rehearing Denied July 15, 2009.

As Modified on Denial of Rehearing July 17, 2009.

Robert A. Chapman of Chapman & Spingola, LLP, Chicago, IL, for Appellant.

Paul W. Carroll and Mark D. Brookstein, of Gould & Ratner LLP, Chicago, IL, for Appellee.

OPINION MODIFIED ON DENIAL OF REHEARING

Justice CAHILL delivered the modified opinion of the court:

The people and companies in this appeal and cross-appeal were part of a limited partnership formed in 1997 to build a condominium with residential and commercial space on the site of an existing building at 1515-17 North Wells Street in Chicago. A health club with the address of 1513 North Wells Street was to occupy retail space in the condominium. The proceedings in the circuit court spanned five years and took place before two different judges. One judge retired during the pendency of the case. The case was reassigned to another judge in 2006. The issues on appeal are breach of contract, breach of fiduciary duty and piercing the corporate veil. For the reasons that follow, we affirm.

We begin, in a search for clarity, by sorting out the people and the overlapping entities in this matter. There are three people involved: Thomas Bracken, Mark Sutherland and Alex Pearsall. Bracken, Sutherland, Pearsall and a fourth person, who is no longer a party in this case, formed 1515 North Wells, L.P. (the limited partnership). Sutherland and Pearsall then created a company, SP Development Corporation, to be the general partner for the limited partnership. Bracken also created a company, 1513 North Wells, L.L.C., to own the health club space (collectively, Bracken).

At the closing to purchase the property that would house the condominiums, rental space and health club, a dispute arose about Bracken's financial commitment to the purchase. An agreement was struck in which the limited partnership "loaned" Bracken $250,000, his share of the purchase price of the property. Bracken signed a promissory note to repay the loan not later than 15 days after he received an accounting from the limited partnership. The note also required that if Bracken disputed the accounting, he would still pay off the note and receive a refund later.

As noted, the general partner in the limited partnership was SP Development Corp., an entity created by Sutherland and Pearsall. The general partner was responsible for hiring a general contractor. It obtained bids from three contractors, including a bid from yet another Sutherland and Pearsall firm, Sutherland and Pearsall Development. Sutherland and Pearsall, acting as the general partner, then chose their own company, Sutherland and Pearsall Development, to be the general contractor. This company was chosen even though it submitted the only bid that failed to state a maximum price for the project.

In 2001, the limited partnership gave Bracken an accounting of the completed project. Bracken did not repay the loan, claiming the accounting was inadequate. In 2002, the limited partnership sued Bracken for breach of contract for failure to repay the loan. Bracken responded with a third-party complaint and counterclaim against Sutherland, Pearsall and the general partner, alleging breach of fiduciary duty. Bracken characterized himself as a "derivative counterplaintiff." His counterclaim alleged harm to the limited partnership by Sutherland and Pearsall's choice of their own company as the general contractor.

A series of motions for summary judgment followed. On February 4, 2003, the limited partnership moved for summary judgment on its claim that Bracken had breached the terms of the note because he had received an accounting but had not repaid the loan. Bracken responded that the financial statement provided by the limited partnership was inadequate as an accounting as a matter of law. On July 11, 2005, the general partner moved for summary judgment on Bracken's claim of breach of fiduciary duty. Sutherland and Pearsall argued that they did not personally owe a fiduciary duty to Bracken and they could not be reached personally because Bracken had not included a count to pierce the corporate veil.

Bracken then cross-moved for summary judgment on his claims of breach of fiduciary duty and breach of contract against Sutherland, Pearsall and the general partner. Bracken argued: "Through a web of interlocking ownership of [the] general partner, and, the entities with which it contracted, * * * [Sutherland and Pearsall] enriched themselves to the exclusion of [the limited partnership]." Bracken did not ask to amend his complaint to include a count to pierce the corporate veil.

In the meantime, the trial court set September 19, 2005, for a bench trial on issues left unresolved by summary judgment. About seven weeks before then, on August 2, 2005, Bracken moved for leave to file an amended counterclaim. He asked to add a count for piercing the corporate veils of the general partner, general contractor and First Chicago Realty, another company owned by Sutherland and Pearsall that served as the broker in the sale of the residential units in the condominium building. The trial court denied Bracken's motion for leave to amend. The trial court later postponed the trial and continued with proceedings on the summary judgment motions.

After considering the parties' written submissions, exhibits and oral arguments, the trial court entered a memorandum opinion dated October 25, 2005, on the motions for summary judgment. The court granted the limited partnership's motion for summary judgment, finding Bracken had been obligated to repay the promissory note in the amount of $250,000 no later than January 8, 2002. The court denied Bracken's motion for summary judgment on his allegations of breach of contract and breach of fiduciary duty but found genuine issues of material fact. These issues included: (1) whether the general partner breached its fiduciary duty to the limited partnership and Bracken; or (2) if the general partner breached the limited partnership agreement by selecting a Sutherland and Pearsall company as general contractor and granting it lucrative benefits. These benefits included a "cost plus fee" contract and the right to keep revenue generated by the sales of condominium upgrades to buyers. The trial court partially granted the general partner's motion for summary judgment, finding, among other things, that Sutherland and Pearsall could not be held personally liable for their acts in their corporate capacities. The trial court also addressed Bracken's proposal to add to his complaint a count of piercing the corporate veils of Sutherland's and Pearsall's firms:

"[Bracken] aver[s] that [he] always intended to prove that [the general partner] and [the general contractor] were merely shell corporations by asking this [c]ourt to pierce the corporate veil—yet these allegations are nowhere to be found in the [c]ounterclaim. Rather than raise this argument when the [c]ounterclaim was originally filed, or in almost three years of litigation and motion practice, [Bracken] waited until [Sutherland and Pearsall] raised the issue, or lack thereof, for [Bracken] on the eve of trial. Moreover, instead of formally requesting leave to amend the [c]ounterclaim, [Bracken] [placed] an informal request to amend near the end of [the] [r]esponse to [Sutherland and Pearsall's] [m]otion for [s]ummary [j]udgment. * * * [Bracken's] casual offer to replead [the] [c]ounterclaim is of no help—not only is it in improper form but it comes in a motion that was filed on an abbreviated briefing schedule and only weeks before their * * * trial was scheduled to begin. In the interests of justice, judicial economy, and all parties' right to due process, the [c]ourt finds that the time for amendment has passed."

The trial court entered a judgment of $447,839.31 against Bracken which included $250,000 due on the note, plus interest and late fees. The order provided that interest would continue to accrue until the judgment was paid and the limited partnership would be allowed to seek reasonable attorney fees and costs of enforcing the note.

Bracken filed motions to reconsider and to stay enforcement, pending the full resolution of all claims. On February 10, 2006, the trial court denied Bracken's motion to reconsider its decisions on the motions for summary judgment but granted his motion to stay enforcement. The court set June 19, 2006, for a trial on the remaining issues. The trial later was postponed.

The bench trial began on December 4, 2006. At the conclusion on December 7, 2006, the trial court entered judgment for Bracken and against the general partner for $900,000 for breach of fiduciary duty. Bracken petitioned for attorney fees. Bracken also moved for reconsideration of the 2005 summary judgment orders in light of the general partner's breach of fiduciary duty. He argued that the court's finding of breach of fiduciary duty canceled the earlier ruling that required him to repay the promissory note. In a written order dated May 15, 2007, the court: (1) found the general partner breached its fiduciary duty to the limited partnership, but not to Bracken personally; (2) refused to reconsider the 2005 summary judgment that obligated Bracken to repay the promissory note before challenging the accounting; and (3) refused to reconsider the earlier denial of Bracken's request to amend his complaint to add piercing the corporate veil. As noted, the first judge...