1550 MP Rd. LLC v. Teamsters Local Union No. 700

• Citation: 433 Ill.Dec. 60,2019 IL 123046,131 N.E.3d 99
• Decision Date: 21 March 2019
• Docket Number: Docket No. 123046
• Parties: 1550 MP ROAD LLC, Appellee, v. TEAMSTERS LOCAL UNION NO. 700, Appellant.
• Court: Supreme Court of Illinois

2019 IL 123046
131 N.E.3d 99
433 Ill.Dec. 60

1550 MP ROAD LLC, Appellee,
v.
TEAMSTERS LOCAL UNION NO. 700, Appellant.

Docket No. 123046

Supreme Court of Illinois.

Opinion filed March 21, 2019

131 N.E.3d 102

Richard J. Prendergast, Michael T. Layden, Deirdre A. Close, Brian C. Prendergast, and Collin M. Bruck, of Richard J. Prendergast, Ltd., and Sherrie E. Voyles and Brandon M. Anderson, of Jacobs, Burns, Orlove & Hernandez, both of Chicago, for appellant.

Richard K. Hellerman, of Law Office of Richard K. Hellerman P.C., of Chicago, for appellee.

JUSTICE BURKE delivered the judgment of the court, with opinion.

433 Ill.Dec. 63

¶ 1 The Property of Unincorporated Associations Act (Act) ( 765 ILCS 115/2 (West 2010) ) requires a labor union to notify its members and obtain their approval prior to entering into an agreement to lease or purchase real estate. At issue in this case is whether a union's failure to follow these requirements rendered a real estate agreement executed by its representative unenforceable. Applying the analysis set forth in K. Miller Construction Co. v. McGinnis , 238 Ill. 2d 284, 345 Ill.Dec. 32, 938 N.E.2d 471 (2010), the circuit court of Cook County concluded that the agreement is enforceable on the grounds that the Act is silent as to the consequences of noncompliance. The appellate court affirmed. 2017 IL App (1st) 153300, 418 Ill.Dec. 743, 91 N.E.3d 444. This court allowed defendant's petition for leave to appeal. Ill. S. Ct. R. 315(a) (eff. Nov. 1, 2017). For the reasons that follow, we reverse that part of the lower courts' judgments pertaining to the enforceability of the agreement and remand the cause to the circuit court with directions.

¶ 2 BACKGROUND

¶ 3 At the time of these events, Teamsters Local Union No. 726 (Local 726) was a voluntary unincorporated association chartered by, and a local affiliate of, the International Brotherhood of Teamsters. In 2009, Local 726 represented approximately 4500 members in the state of Illinois. On May 2, 2008, Thomas Clair, the secretary-treasurer of Local 726, signed and executed a lease and purchase agreement (LPA) on behalf of the union with plaintiff, 1550 MP Road LLC. The LPA was prepared by plaintiff's attorney and signed by two individuals—Clair and Matthew Friedman, one of plaintiff's managers.

¶ 4 The LPA obligated Local 726 to occupy and pay rent on commercial property at 1550 South Mount Prospect Road in Des Plaines, Illinois, for 15 years. The monthly base rent was $ 12,549 per month in the first year of the lease, gradually increasing to $ 16,559 per month in year 15 of the lease. In addition to the base rent, Local 726 was obligated to pay plaintiff an amount equal to the operating expenses incurred by plaintiff and the real estate taxes for each calendar year. The LPA functioned as a "lease" agreement only for the first five years. At the end of the fifth year, Local 726 was obligated to purchase the property for the amount of $ 2,145,371. If Local 726 failed to purchase the property within five years, it was required to pay plaintiff an amount equal to 200% of the base rent for the remainder of the lease term (double-rent penalty). This provision would require Local 726 to pay plaintiff approximately $ 3,583,000 over 10 years without obtaining title to the property.

433 Ill.Dec. 64

131 N.E.3d 103

¶ 5 The LPA also contained a liquidated-damages provision in the event of tenant default. Under this provision, if Local 726 defaulted by failing to pay rent, it would be liable to plaintiff in the amount of the total rent owed for the remainder of the lease term. The liquidated-damages provision did not require an offset for the fair-market rental value of the property. In other words, if the fair-market rental value exceeded the amount owed under the liquidated-damages provision, plaintiff was not required to apply the excess value toward the amount owed by Local 726.

¶ 6 Pursuant to the LPA, Local 726 took possession of the property in January 2009 and paid rent until August 2009. At that time, Local 726 went into emergency trusteeship as a result of an investigation into its finances by the International Brotherhood of Teamsters (International). From September to November 2009, Local 726's trustees attempted to reach a new lease agreement with plaintiff but were unsuccessful. Local 726's last rental payment was made to plaintiff in December 2009 for the month of January 2010. In December, International voted to revoke the charters of Local 726 and Teamsters Local Union No. 714 (Local 714) and to charter a new union, Teamsters Local Union No. 700 (Local 700). Accordingly, on December 31, 2009, Locals 726 and 714 were dissolved, and Local 700 was chartered.

¶ 7 As of December 31, 2009, the membership rolls, assets, and liabilities of Locals 726 and 714 were transferred to Local 700. From January 1, 2010, to April 30, 2010, Local 700 occupied the property formerly occupied by Local 726. In February 2010, Local 700 proposed a "rent/standstill" agreement to plaintiff. Under the proposed agreement, Local 700 would occupy the property on a month-to-month basis and pay rent equal to the amounts set forth in the LPA, while plaintiff would not waive any of its rights regarding the enforcement of the LPA. Plaintiff never responded to that proposal.

¶ 8 On or about March 10, 2010, plaintiff began advertising the property to potential renters and/or buyers by placing a sign on the front lawn. On April 30, Local 700 vacated the premises and moved its operations to another property. On May 12, plaintiff served Local 700 with a notice of default demanding rent payments, real estate taxes, insurance payments, and late charges for the months of February through May 2010. When Local 700 failed to respond, plaintiff formally terminated the lease.

¶ 9 Plaintiff subsequently filed a 22-count verified amended complaint seeking damages related to Local 700's alleged failure to perform according to the terms of the LPA. Count I, the sole count at issue in this appeal, alleged breach of contract against defendant, Local 700.¹ The claim alleged that defendant was liable for Local 726's breach of the parties' agreement under a theory of corporate successor liability. Plaintiff requested damages under both the liquidated-damages provision and the double-rent penalty. The case proceeded to a bench trial in September 2014.

¶ 10 Clair testified that he worked for the City of Chicago for 28 years, retiring in 2003. His education consisted of two years at community colleges. In 1971, while working as a truck driver for the City, he became a member of Local 726. In 1995, he attained the position of business agent for Local 726, and in 1996, he became the recording secretary. In 2003, he

433 Ill.Dec. 65

131 N.E.3d 104

was appointed as Local 726's secretary-treasurer, a position he maintained until his retirement from the union in 2009. Clair testified that he had no background in real estate. He testified that, as the secretary-treasurer and principal officer of Local 726, he had the authority to negotiate and sign leases on behalf of the union.

¶ 11 Clair stated that he signed a lease renewal agreement for Local 726's former premises on December 30, 2003. That lease and the LPA were the only lease agreements he had signed for the union. Clair testified that, in late 2007 or early 2008, the union was in the market for new office space. He testified that he unilaterally negotiated the LPA with Friedman and Mick Bess, plaintiff's comanager. Clair admitted that he did not seek advice from an attorney or real estate agent during the negotiations of the LPA. He also admitted that Local 726's membership did not receive notification of the LPA before he signed it, nor was a vote taken of the members to authorize the agreement. Clair testified that he thought the members would be notified when it came time for Local 726 to purchase the property pursuant to the terms of the LPA.

¶ 12 Friedman testified that he had been involved in the construction and the commercial real estate and development industries since 1984. He had worked for two or three companies before starting his own company doing commercial development and construction. He testified that, over the course of his career, he had been involved in over 250 commercial real estate transactions. Friedman stated that he thought Clair had the authority to sign leases on behalf of Local 726. He testified that, following negotiations with Clair, he asked his attorney, Jeffrey Rochman, to draft a lease agreement memorializing the terms agreed to by the parties.

¶ 13 According to witness testimony, on May 8, 2008, six days after Clair signed the LPA, he met informally with some of the members of the executive board. No minutes were taken. At this meeting, five of the seven board members, including the president, signed a document titled "Unanimous Consent of the Executive Board in Lieu of Meeting of the Executive Board of Teamsters Local Union Number 726." The document was drafted by Rochman. It purported to authorize the union's secretary-treasurer, president, and/or secretary, acting...