Wachovia Securities, LLC v. Neuhauser, 04 C 3082.

• Decision Date: 29 November 2007
• Docket Number: No. 04 C 3082.,04 C 3082.
• Citation: 528 F.Supp.2d 834
• Parties: WACHOVIA SECURITIES, LLC, Plaintiff, v. David NEUHAUSER, Andrew A. Jahelka, Richard O. Nichols, Leon A. Greenblatt IIII, Banco Panamericano, Inc., Loop Corp., Loop Properties, Inc., and Scattered Corp., Defendants.
• Court: U.S. District Court — Northern District of Illinois

528 F.Supp.2d 834

WACHOVIA SECURITIES, LLC, Plaintiff, v. David NEUHAUSER, Andrew A. Jahelka, Richard O. Nichols, Leon A. Greenblatt IIII, Banco Panamericano, Inc., Loop Corp., Loop Properties, Inc., and Scattered Corp., Defendants.

No. 04 C 3082.

United States District Court, N.D. Illinois, Eastern Division.

November 29, 2007.

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Steven Pascal Gomberg, Adam Brent Rome, Beau T. Greiman, Christopher Scott Griesmeyer, Gary Irwin Blackman, Levenfeld Pearlstein, LLC, Chicago, IL, for Plaintiff.

James Worlton Naisbitt, James W. Naisbitt, Ltd., C. Philip Curley, Robinson, Curley & Clayton, P.C., Chicago, IL, for Defendants.

Gerald C. Willis, Jr., Paul W. McAndrews, McAndrews, Held & Malloy, P.C., Chicago, IL, for Defendant Loop Corp. A South Dakota Corporation.

Alan R. Dolinko, John Henry Wickert, Robinson, Curley & Clayton, P.C., Chicago, IL, for Defendants Scattered Corp. A South Dakota Corporation, Banco Panamericano, Inc.

Gregory James Jordan, Peter James Schmidt, Polsinelli Shalton Flanigan Suelthaus PC, Chicago, IL, for Respondents.

MEMORANDUM OPINION AND ORDER

VIRGINIA M. KENDALL, District Judge.

Plaintiff, Wachovia Securities, LLC ("Wachovia") brings a ten-count Revised Second Amended Complaint against Defendants, David Neuhauser ("Neuhauser"), Andrew A. Jahelka ("Jahelka"), Richard O. Nichols ("Nichols"), Leon A Greenblatt, III ("Greenblatt") (collectively "the Individual Defendants"), Banco Panamericano ("Banco"), Loop Corp. ("Loop"), Loop Properties, Inc. ("Loop Properties"), and Scattered Corp. ("Scattered") (collectively "the Defendants") seeking damages for common law fraud, breach of contract and all remedies available under' the Illinois Uniform Fraudulent Transfer Act ("UFTA"). Wachovia also seeks a declaratory judgment that Neuhauser, Jahelka, Nichols, and Greenblatt (the "Individual Defendants") are jointly and severally liable for the obligations of their alter egos, Loop and NOLA, LLC ("NOLA").

Wachovia moves for Partial Summary Judgment against Neuhauser and Greenblatt. Neuhauser and Greenblatt moves to strike several paragraphs and two exhibits associated with Wachovia's Motion for Partial Summary Judgment. Banco, Loop, Loop Properties, and Scattered (the "Corporate Defendants") and the Individual Defendants move for summary judgment against Wachovia on all counts of the Revised Second Amended Complaint.

For the reasons stated herein, Defendants' Motion to Strike Paragraphs 31-36 and 39-43 and Exhibits 9 and 12 of Wachovia's Amended Statement of Material Facts is granted. Plaintiffs Motion for Partial Summary Judgment is denied. The Individual Defendants' Motion for Summary Judgment as to Counts I and VI is granted. The Individual Defendants' Motion for Summary Judgment as to Counts II through V is denied as to Loop, Greenblatt, Jahelka, and Nichols, granted as to Loop and Neuhauser, and granted as to NOLA and the Individual Defendants. The Corporate Defendants' Motion for Summary Judgment as to Counts VII through X brought under the Illinois Uniform Fraudulent Transfer Act is denied. Additionally, the Individual Defendants' Motion to Bar Wachovia's New Fraud Claim is granted and the Corporate Defendants' Motion to Bar Alleged Fraudulent Conveyances not in the Complaint is denied.

I. Background

Wachovia is a lending and banking institution and a successor to Prudential Securities Incorporated¹ ("Prudential"). Prudential's customer debits became Wachovia's assets after a July 2003 merger. Pl. 56.1 Resp. ¶ 1.² Wachovia is a limited liability company and a voluntary contract creditor. Pl. Resp. Ind. 56.1 ¶ 31, 41. Neuhauser, at Greenblatt's direction, opened two trading accounts at Wachovia using two entities, Loop and NOLA. The Individual Defendants began acquiring HRMI stock through the Loop and NOLA accounts on margin, and in doing so, incurred a substantial margin debt. Subsequently, the NASDAQ halted trading of HRMI stock, the stock plummeted, and the Loop and NOLA margin accounts became due. After the margin call, Wachovia contends that the Individual Defendants looted Loop by transferring its assets to the Individual Defendants, insiders, and, related entities making it impossible for Wachovia to collect on its $2,900,000 margin call. Wachovia contends that Loop and NOLA were shell corporations and that the Individual Defendants are liable for the unpaid margins either directly or as alter egos of the two entities.

II. Statement of Facts

Relationships between the Individual and Corporate Defendants

Greenblatt, Jahelka, and Nichols either own, operate, or have an interest in a web of corporate entities including Loop, Scattered, Banco, and Loop Properties. Loop is a small, closely-held company incorporated on September 12, 1997 and owned by Greenblatt, Jahelka, and Nichols. Neuhauser Resp. 56.1(b) ¶¶ 1, 6. Loop's shareholders are Greenblatt, Jahelka, and Nichols. Neuhauser Resp. 56.1(b) ¶¶ 1-2. Its officers are Greenblatt (Secretary), Jahelka (President), and Nichols (Treasurer). Neuhauser Resp. 56.1(b) ¶ 2; Pl. Resp. Ind. 56.1 ¶ 34. Loop is a "holding company" and until September 2002, it held ownership interests in limited partnerships which in turn, owned various parcels of commercial real estate in Chicago. Neuhauser Resp. 56.1(b) ¶ 8. Loop operates out of the 7th Floor of 330 South Wells, Chicago, Illinois (the "Wells building"). Neuhauser Resp. 56.1(b) ¶ 7. Neuhauser is Loop's "agent." Neuhauser Rep. 56.1(b) ¶ 28.

NOLA is a small, closely-held company that was organized on July 27, 1994. Neuhauser Resp. 56.1(b) ¶ 14. NOLA's "members" are Greenblatt's, Jahelka's, and Nichols's fathers. Pl. Resp. Ind. 56.1 ¶ 27. NOLA's manager is Teletech Systems, Inc. ("Teletech"). Pl. Resp. Ind. 56.1 ¶ 27; Neuhauser Resp. 56.1(b) ¶ 17. Teletech operates out of the Wells building. Neuhauser Resp. 56.1(b) ¶ 17. Teletech had the authority to manage NOLA's assets limited only by the provisions of the Limited Liability Company Act. Neuhauser Resp. 56.1(b) ¶ 16. Greenblatt was Teletech's sole officer and employee, and therefore, made day-to-day decisions on NOLA's behalf including whether NOLA would enter into trades. Neuhauser Resp. 56.1(b) ¶ 16, 18. Greenblatt, though never a shareholder of Teletech, acted at times as its Secretary during the relevant time period. Greenblatt became NOLA's registered agent on June 6, 2001. Id.

Scattered is owned by Greenblatt, Jahelka and Nichols and also operates out of the Wells building. Corp. Rep. 56.1 ¶ 26; Ind. Rep. 56.1 ¶ 13. Loop Properties is a wholly-owned subsidiary of Loop. Pl. Resp. Corp. 56.1 ¶ 20. Loop Properties' officers and directors are Greenblatt (Secretary), Jahelka (President), and Nichols (Treasurer). Corp. Rep. 56.1 ¶ 29. Banco is wholly owned by one of Greenblatt's family trusts. Neuhauser Resp. 56.1(b) ¶ 12. Greenblatt is solely responsible for running Banco's day-to-day operations. Corp. Rep. 56.1 ¶ 28. When Loop deals with Banco, it does so through Greenblatt. Id. Banco operates out of the Wells building and its only employee is Greenblatt. Neuhauser Resp. 56.1(b) ¶ 13; Ind. Rep. 56.1 ¶ 23.

Loop held an ownership interest in EZ Links Golf, Inc. ("EZ Links") when EZ Links was established. Corp. Rep. 56.1 ¶ 40. Greenblatt and Jahelka have an interest in EZ Links via their ownership of Loop. Ind. Rep. 56.1 ¶ 27.

Shared Office Space

Loop, Loop Properties, Banco, Scattered, Loop Telecom, Resource Technology Corporation ("RTC"), and EZ Links operate out of the Wells building. Ind. Rep. 56.1 ¶ 13, 18, 20. Greenblatt, Jahelka and Nichols worked out of the Wells building and each had only one phone number. Id. Neuhauser described the 7th Floor of the Wells building as "a little cluster of offices" that are all "basically connected." Ind. Rep. 56.1 ¶ 18. Scattered rented the 7th floor suites from 200 West Partners, LLP. The general partner of 200 West Partners is 200 West Properties, Inc. and the owner of 200 West Properties is Loop. Id. Jahelka signed Scattered's lease. Id. Scattered did not make rental payments from 1999 to 2003. Id. Loop may have also been on the 7th Floor lease, but assuming it was, Loop did not reimburse Scattered for using its space. Id.

Shared Employees and Expenses

Michael May ("May") was Loop's in-house accountant from 1999 through 2002. Corp. Rep. 56.1 ¶ 27. May's office was located in the Wells building. Ind. Rep. 56.1 ¶ 13, 18. May did not keep records of this time when he was employed by Loop. Ind. Rep. 56.1 ¶ 31. Although he was a Loop employee, May prepared Greenblatt's individual tax returns without receiving additional compensation. Ind. Rep. 56.1 ¶ 30. Additionally, May worked with other companies such as RTC, EZ Links, Loop Telecom, and Banco. Ind. Rep. 56.1 ¶ 31. While working for Loop, May received medical benefits from RTC and then through EZ Links. Ind. Rep. 56.1 ¶ 33. The parties dispute whether Greenblatt owned and controlled RTC. Corp. Rep. 56.1 ¶ 49. May did not know what benefits RTC received in exchange for providing employment benefits to Loop's employees. Id.

In 2002, Jahelka, Loop's President, advised May that his employment at Loop was terminated and that he would now be a Loop Properties employee. Ind. Rep. 56.1 ¶ 29. When May changed positions from Loop to Loop Properties, his salary, day-to-day obligations, office, business cards, phone and fax numbers, and office equipment did not change. Ind. Rep. 56.1 ¶ 29. Subsequently, Jahelka told May that he was a Scattered employee. Id.

Elizabeth Sharp ("Sharp") initially served as Loop's in-house counsel. Ind. Rep. 56.1 ¶ 15. Sharp worked in the Wells building. While working for Loop, Sharp performed legal services for other limited partnerships such as 200 West Properties and RTC, and viewed those entities as "clients." Ind. Rep. 56.1 ¶ 15. Sharp does not know if other entities, such as 200 West Properties, reimbursed Loop for her time. Id. Sharp did not...