Fontana v. Tld Builders, Inc.

• Decision Date: 16 December 2005
• Docket Number: No. 2-05-0045.,2-05-0045.
• Parties: Joseph L. FONTANA and Angela D. Fontana, Plaintiffs-Appellees and Cross-Appellants, v. TLD BUILDERS, INC., Defendant (Nicola DiCosola, Defendant-Appellant and Cross-Appellee).
• Court: Illinois Supreme Court

840 N.E.2d 767

Joseph L. FONTANA and Angela D. Fontana, Plaintiffs-Appellees and Cross-Appellants, v. TLD BUILDERS, INC., Defendant (Nicola DiCosola, Defendant-Appellant and Cross-Appellee).

No. 2-05-0045.

Appellate Court of Illinois, Second District.

December 16, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Terry A. Ekl, Vincent C. Mancini, Connolly, Ekl & Williams, P.C., Clarendon Hills, for Nicola DiCosola, TLD Builders, Inc.

William T. Dwyer, Jr., O'Rourke, Hogan, Fowler & Dwyer, Chicago, for Angela D. Fontana, Joseph L. Fontana.

Justice KAPALA delivered the opinion of the court:

Defendant-appellant and cross-appellee, Nicola DiCosola (DiCosola), appeals the $1,271,816.10 judgment entered against him personally in the circuit court of Du Page County after a trial without a jury. DiCosola contends that the trial court erred when it pierced the corporate veil of defendant, TLD Builders, Inc. (TLD), and held him personally liable for the obligations of the corporation. Plaintiffs-appellees and cross-appellants, Joseph L. Fontana and Angela D. Fontana (the Fontanas), cross-appeal, contending that the trial court erred in failing to grant their motion for attorney fees. For the reasons that follow, we reject DiCosola's appellate contentions and affirm the trial court's judgment against DiCosola personally. In the cross-appeal, we reverse that portion of the trial court's order denying the Fontanas' request for attorney fees, and we remand the cause.

I. BACKGROUND

This lawsuit was originally filed on September 4, 2001, naming as defendants TLD¹ and architect Stanley L. Glodeck². On July 16, 2003, the Fontanas were given leave to file an amended complaint naming DiCosola as an additional defendant. In the amended complaint filed on July 30, 2003, the Fontanas alleged that they owned a parcel of real property commonly known as 347 Ruby Street, Clarendon Hills, Illinois (the property). The Fontanas alleged further that on September 24, 1999, they and TLD entered into a written construction contract in which TLD agreed to construct a single-family residence (the home) on the property for the sum of $1,475,800. In count I of the amended complaint, the Fontanas sought a declaration that they were excused from further performance of their obligations under the construction contract, as a result of TLD's material breach of the construction contract. In count II of the amended complaint, the Fontanas alleged that TLD breached the terms of the construction contract by failing to construct the home in accordance with the construction contract and by abandoning all work on the home in February 2001, leaving the home incomplete and uninhabitable. As a result of the breach, the Fontanas alleged, the costs and expenses necessary to correct the defects and deficiencies in the construction performed by TLD, and to complete the construction of the home, exceeded the fair market value of the home had it been completed in accordance with the architect's drawings. The Fontanas alleged further that, as of September 2002, the home had no value and could not be economically repaired or completed, so it was demolished in November 2002. As a result of the damages due to the breach, the Fontanas prayed for a judgment against TLD in an amount in excess of $2 million, and also prayed for interest, costs, and reasonable attorney fees.

In count III of the amended complaint, the Fontanas alleged that the architect breached the terms of the contract that he entered into with the Fontanas. In count IV of the amended complaint, titled "Piercing the Corporate Veil," the Fontanas alleged that DiCosola was the alter ego of TLD and is thereby liable for the damages sought from TLD in count II of the amended complaint. The Fontanas alleged further that since the commencement of the instant lawsuit against TLD, DiCosola has caused TLD to cease its business operations such that the corporation has no funds or income with which to compensate them for the damages resulting from the breach of the construction contract. The Fontanas alleged that adherence to the fiction of the separate corporate existence of TLD would promote injustice by denying them any recovery of the losses resulting from the direct actions of DiCosola.

At the conclusion of the bench trial of this cause, the trial court held that TLD materially breached the construction contract and failed to cure the breach. The trial court also found that the evidence was sufficient to establish that the amount of money the Fontanas paid to TLD, together with the cost to complete the unfinished home according to the plans and specifications referenced in the construction contract, would exceed the $2.2 million value of the home were it completed pursuant to the plans and specifications. As such, the trial court held that it was appropriate under the circumstances to demolish the unfinished home, and it calculated the Fontanas' damages to be $1,271,816.10. The trial court entered judgment in that amount in favor of the Fontanas and against TLD and DiCosola, jointly and severally.

The trial court's determination that TLD materially breached the construction contract and its calculation of the resulting damages have not been challenged on appeal. Instead, DiCosola contends that the trial court erred in piercing the corporate veil and holding him personally liable for the obligations of TLD. As such, we discuss only the evidence presented at trial that is necessary to the disposition of DiCosola's appeal.

The Fontanas called Theresa DiCosola, who testified that she believed that she and DiCosola, her husband, were equal owners of TLD until she learned that a corporation's president is not equal to a corporation's director. When asked if she was the incorporator of TLD, Theresa said, "[w]hatever my lawyer did." Theresa did not recall the date that TLD was incorporated, how many shares TLD issued, or the amount paid for the shares. After reviewing the articles of incorporation, Theresa recalled that she incorporated TLD and that 1,000 shares were issued to her at a price of $1 per share. Theresa agreed that on January 26, 2004, the date she gave her deposition in the instant case, she did not know that she was the sole shareholder of TLD. When asked if she wrote a $1,000 check to TLD for the 1,000 shares of TLD stock, the following exchange ensued:

"[THERESA]: I did check that with my lawyer and he did say that a thousand dollars was for a thousand shares.

[PLAINTIFFS' COUNSEL]: Did you write a check to TLD Enterprises for a thousand dollars?

[THERESA]: From what I understand, a thousand dollars went in the company to start it.

[PLAINTIFFS' COUNSEL]: That's not my question.

[THERESA]: Well, the money was taken from our personal account.

[PLAINTIFFS' COUNSEL]: The question is, did you write a check to TLD Enterprises —

[THERESA]: Well, I am going to say yes.

[PLAINTIFFS' COUNSEL]: Okay. Fine. Do you have the check?

[THERESA]: I have moved three or four times. I really don't — I didn't realize I had to save all of these personal checks from my personal account, so I am going to say no.

[PLAINTIFFS' COUNSEL]: Well, when is it that you remembered that you wrote a check to TLD Enterprises?

[THERESA]: Actually, I talked to my lawyer after the deposition, Bob Borla, because I did not — I remember signing papers, but it wasn't as though I remembered how it came about.

[PLAINTIFFS' COUNSEL]: Well, during your deposition, you didn't remember whether you wrote a check for a thousand dollars; and you said you would have to check your checkbook and find out. Did you check your checkbook?

[THERESA]: I told you, I don't have any — do not have any of the return[ed] checks.

[PLAINTIFFS' COUNSEL]: So the only knowledge you have about paying for the stock of the company is what your lawyer told you?

[THERESA]: Yes.

[PLAINTIFFS' COUNSEL]: And who is that lawyer?

[THERESA]: Robert Borla. He said we did it in the office."

Theresa also testified that she signed the annual corporate minutes of TLD as sole shareholder and director, but she said that DiCosola handled all the financial matters related to TLD. Theresa said that she and DiCosola loaned money to TLD in the past, including 13 loans in 1999. She did not know how the money was transferred into the company because she did not handle the financial end of the operation. Theresa testified that she did not know that TLD owed her $572,000 as of December 31, 2002, but she testified that the $572,000 loaned to TLD came from her and DiCosola's personal account. At the time of her deposition, Theresa did not know that TLD was a "sub-chapter S corporation," what a K-1 form was, or whether she ever received a paycheck from TLD. Theresa said that she has never received a dividend from TLD and did not know if TLD had profits or losses in the years 1998, 1999, 2000, 2001, and 2002. However, Theresa did sign TLD's income tax returns for those years. Theresa admitted that TLD reported $1,818, 213 in assets as of January 1, 2002, and zero assets as of December 31, 2002. Theresa did not know where the assets went.

Theresa testified further that she, DiCosola, and their lawyer decided who the officers of TLD would be. It was a running joke in her family that she owned the company, that "mom was the boss." Theresa said that she and DiCosola decided together what properties to purchase to build speculative (spec) homes on, and that she relied on her husband to determine the sale prices. Theresa acknowledged that resolutions of the board of directors of TLD, of which she is the only director, showed that TLD sold seven properties for prices totaling $3,234,000 between October 29, 2001, and February 4, 2002, but that she did not participate in deciding the selling prices of those properties and did not know the amounts TLD received for the properties. Theresa denied paying her and DiCosola's personal bills through TLD, and then the following...