Bank of Am. v. WS Mgmt., Inc.

• Decision Date: 18 May 2015
• Docket Number: No. 1–13–2551.,1–13–2551.
• Citation: 33 N.E.3d 696
• Parties: BANK OF AMERICA, Plaintiff–Appellant and Cross–Appellee, v. WS MANAGEMENT, INC., William Spatz, Wendy Spatz, Spatz Centers, Inc., and Anderson Associates, L.P., Defendants–Appellees and Cross–Appellants.
• Court: United States Appellate Court of Illinois

33 N.E.3d 696

BANK OF AMERICA, Plaintiff–Appellant and Cross–Appellee

v.WS MANAGEMENT, INC., William Spatz, Wendy Spatz, Spatz Centers, Inc., and Anderson Associates, L.P., Defendants–Appellees and Cross–Appellants.

No. 1–13–2551.

Appellate Court of Illinois, First District, First Division.

May 18, 2015.

David T.B. Audley, Michael T. Benz, Bryan E. Jacobson, and Mark A. Silverman, all of Chapman & Cutler LLP, of Chicago, for appellant.

Alisa M. Levin, of Levin Law, Ltd., of Chicago, for appellees.

OPINION

Justice CONNORS delivered the judgment of the court, with opinion.

¶ 1 Plaintiff, Bank of America, appeals from orders of the circuit court that declined to find that spouses William Spatz (William) and Wendy Spatz (Wendy) were alter egos of Spatz Centers, Inc. (SCI), and WS Management, Inc. (WSM). Defendants, William, Wendy, SCI, WSM, and Anderson Associates, L.P. (Anderson), cross-appeal, contending: (1) the trial court should have found that certain facts and issues were precluded by collateral estoppel; (2) the trial court erred in finding that defendants violated the Uniform Fraudulent Transfer Act (Fraudulent Transfer Act) (740 ILCS 160/1 et seq. (West 2006)); and (3) the trial court improperly awarded attorney fees to plaintiff. We affirm the court's judgment on the collateral estoppel, Fraudulent Transfer Act, and alter ego claims, and vacate and remand on the issue of plaintiff's attorney fees.

¶ 2 As preliminary background, this case concerns plaintiff's efforts to collect a judgment that was entered against SCI in Kansas in December 2005. At various times, William or Wendy had been a shareholder or otherwise involved in SCI, which was incorporated in 1989 in Illinois and had been the general partner or manager for a group of limited partnerships, which in turn owned various shopping centers around the country. SCI's business of managing the shopping center properties generated fees for SCI. In 1997, one of the limited partnerships for which SCI was the general partner, Wichita Associates, L.P. (WALP), which did business in Kansas, executed a note with an entity of which plaintiff is the successor. WALP eventually defaulted on its obligations under the mortgage and other loan documents, and at the end of the resulting foreclosure proceedings in Kansas, plaintiff received a judgment in December 2005 against WALP and SCI jointly and severally for $1,490,708.32, which included attorney fees, costs, and expenses. WSM was incorporated in Illinois on December 12, 2005, and soon after began managing certain properties that SCI had previously managed. Anderson allegedly began managing certain properties in 2007. Meanwhile, plaintiff registered the Kansas judgment in Illinois in January 2006. Plaintiff subsequently filed a separate action alleging various claims relating to William's and Wendy's supposed efforts to avoid paying the Kansas judgment.

¶ 3 I. BACKGROUND

¶ 4 A. Kansas Foreclosure Proceedings

¶ 5 We first provide a summary of William and SCI's involvement in the Kansas foreclosure proceedings. WALP's note with the bank listed WALP as the maker and was signed by SCI as WALP's general partner, with Wendy signing as SCI's vice president. The note also indicated that if it became necessary to employ counsel to collect or enforce the debt or protect or foreclose the security for the debt, “Maker also shall pay on demand all costs of collection incurred by [the bank], including attorneys' fees and costs reasonably incurred for the services of counsel whether or not suit be brought.” On November 30, 2004, William signed an affidavit in support of a stipulated application for an appointment of a receiver for the property. SCI was added as a defendant in the foreclosure case on February 22, 2005, when the bank filed a first amended petition for declaratory judgment and other relief. A certificate of service indicated that a copy of the first amended petition was sent to William. On May 6, 2005, SCI filed an answer to the first amended petition. On June 28, 2005, a journal entry of judgment was entered against WALP. Subsequently, the property was sold to the bank for $1.2 million, which was applied to the judgment.

¶ 6 On October 28, 2005, the bank filed a motion for partial summary judgment against SCI. In part, the bank sought payment of the unpaid principal balance on the note, which was approximately $1.4 million. The bank asserted that SCI as the general partner of WALP was jointly and severally liable for WALP's obligations. The bank also stated that WALP had failed to maintain its status as a separate, single-purpose entity, and as a result, WALP's debt obligation became fully recourse according to the language of the mortgage.

¶ 7 In response, SCI and WALP acknowledged that because of a failure to file an annual report in July 1999, WALP had forfeited its good-standing status in Kansas. However, WALP and SCI asserted that WALP had applied for and expected to be granted reinstatement of its good-standing status in Kansas, and upon reinstatement, should be treated as if its good-standing status had never lapsed.

¶ 8 On December 1, 2005, the Kansas court issued its ruling, stating that WALP had failed to maintain its status as a separate, single-purpose entity pursuant to the terms of the loan documents and that SCI and WALP failed to preserve WALP's existence. The court further stated that “[i]ssues concerning WALP's recent attempts to obtain reinstatement of its authorization to conduct business in Kansas * * * are immaterial.” The court also found that as WALP's general partner, SCI was jointly and severally liable for all of WALP's debts, obligations, and judgments. Accordingly, a judgment was entered against SCI and WALP jointly and severally for $1,490,708.32, which included $32,057.50 in attorney fees and expenses and $1,325.86 in costs. The ruling indicated that the judgment amount would also include “other expenses accrued and accruing, including reasonable attorneys' fees, insurance premiums, taxes, and assessments” pursuant to the terms of the note and that the judgment would accrue interest at the rate of $322.78 per day. The court also stated that plaintiffs had incurred and would continue to incur substantial costs in attempting to collect from WALP, including the cost of instituting the Kansas suit and “reasonable attorneys' fees related to [plaintiff's] collection efforts.” A final order was entered on December 30, 2005. SCI and WALP subsequently appealed the judgment, but upon their motion, the appeal was dismissed on March 1, 2006.

¶ 9 B. Motion for Turnover Against Wendy

¶ 10 Plaintiff registered the Kansas judgment in Illinois in January 2006 under case number 06 M1 600238, and citation proceedings involving SCI, William, and Wendy began. On September 18, 2008, plaintiff filed a motion for a turnover order against Wendy on September 18, 2008, seeking to order Wendy to pay plaintiff approximately $1.4 million that Wendy or an entity known as Spatz Associates purportedly owed to SCI. The motion for turnover was also filed under case number 06 M1 600238.

¶ 11 Referenced in the turnover proceedings was a “Spatz Centers Inc [.] Purchase/Sale Agreement” (purchase and sale agreement) that was undated and signed by William and Wendy. According to the purchase and sale agreement, Wendy owned SCI and William “is and always has been the President and a member of the Board of Directors.” The purchase and sale agreement also indicated that Wendy wanted to own SCI's 1% general partnership interest in a number of limited partnerships. Further, as of January 1, 2005, Wendy, William, and SCI agreed that: (1) Wendy agreed to transfer her interests to William “as of the date of this Agreement,” SCI agreed to transfer all of its interest in the general partnership interests to Wendy, and SCI would remain the general partner of the limited partnerships; (2) Wendy agreed to forgive any debt that SCI owed her and agreed to “reasonably lend, or cause to be lent to SCI, reasonable sums of money now and in the future to insure the operations of the various properties owned by Wendy,” and (3) no later than March 31, 2005, William would pay or cause to be paid $310,667.60 to Wendy for her stock in SCI.

¶ 12 Following an evidentiary hearing that was held on March 20, 2009, and April 9, 2009, before Judge Alexander White in case number 06 M1 600238, the court issued an order on October 14, 2009, denying the motion for turnover. In its order, the court stated that “[t]he only relevant inquiry * * * is whether Wendy is holding assets of SCI or WALP or is otherwise obligated to pay SCI or WALP for some debt.” Another key question was how a certain account in SCI's general ledger, known as the “SA Distribution account,” was to be interpreted. The court stated that the SA Distribution account could be an asset account that noted obligations Wendy owed to SCI, or a clearing account containing “essentially worthless entries” that served to correct otherwise erroneous entries made in the general ledger. Ultimately, the court found that the SA Distribution account was a clearing account.

¶ 13 Apparently, the dispute involved various account adjustments and reclassifications that took place in 2005. One such reclassification was for $310,667.60. The court referenced the purchase and sale agreement, wherein William was required to pay Wendy $310,667.60 for her SCI stock, and stated that plaintiff's exhibits showed that SCI made a payment or deposit to the Spatz family account in that amount in March 2005, which was payment for the purchase price of the stock. The court further stated that the payment of the purchase price had been misclassified in SCI's March general ledger, and the SA Distribution account had been used as a clearing account to properly reclassify the payment.

¶ 14 Among other items, the court addressed two entities known as the Bell Street property and an E–Trade account, both of which had been the subjects of...