C.O.A.L., Inc. v. Dana Hotel, LLC

• Citation: 2017 IL App (1st) 161048,82 N.E.3d 1262
• Decision Date: 04 August 2017
• Docket Number: No. 1-16-1048.,1-16-1048.
• Parties: C.O.A.L., INC., Plaintiff-Appellant, v. DANA HOTEL, LLC, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

2017 IL App (1st) 161048

82 N.E.3d 1262

C.O.A.L., INC., Plaintiff-Appellant,

v.DANA HOTEL, LLC, Defendant-Appellee.

No. 1-16-1048.

Appellate Court of Illinois, First District, Fifth Division.

August 4, 2017

Lema A. Khorshid and John M. Kraft, of Fuksa Khorshid, LLC, of Chicago, for appellant.

Richard F. Linden, of Chicago, for appellee.

OPINION

PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion.

¶ 1 The instant appeal arises from the trial court's section 2-615 dismissal of the complaint filed by plaintiff C.O.A.L., Inc., regarding the termination of the restaurant manager-owner relationship between plaintiff and defendant Dana Hotel, LLC. The trial court dismissed count I of plaintiff's complaint because it found that the agreement relied on by plaintiff had been superseded by a later agreement and dismissed count III because it found that plaintiff's claims that defendant had breached its fiduciary duty had been released. Plaintiff appeals the dismissal of both counts and, for the reasons that follow, we reverse.

¶ 2 BACKGROUND

¶ 3 I. Complaint and Exhibits

¶ 4 A. Complaint

¶ 5 Plaintiff filed a complaint against defendant on June 21, 2013; the complaint was amended twice, and it is the dismissal of the second amended complaint that is at issue on appeal.

¶ 6 The complaint alleges that plaintiff is an Illinois corporation engaged in the restaurant management business, and defendant is an Illinois limited liability company that operates the Dana Hotel Chicago, a hotel located in Chicago. Together, plaintiff and defendant are the two members of Argent Restaurant, LLC, an Illinois limited liability company formed to operate the Argent restaurant at the hotel.

¶ 7 On October 19, 2011, plaintiff and defendant entered into a restaurant management agreement (management agreement), a written contract for restaurant management services for the restaurant. This management agreement was a five-year contract, with an effective date of May 1, 2012, and a three-year optional renewal period. Under the terms of the management agreement, plaintiff was to provide restaurant management services for the restaurant in exchange for (1) a $100,000 annual management fee, payable in monthly increments from the first date the restaurant was open and operating; (2) repayment of plaintiff's $154,000 capital investment, to be paid from the restaurant's profits; and (3) 50% of adjusted net operating income from the restaurant, over and above the amounts needed to repay the parties' invested capital in the project and the funding of an operating reserve fund. Plaintiff's duties in managing the restaurant included (1) the hiring and management of employees, including a chef and general manager; (2) overseeing and ensuring the operation of an orderly, high-quality restaurant in accordance with industry standards; (3) provision of an annual projected budget for the restaurant and operation within the approved budget; (4) provision to defendant of marketing concepts for the restaurant and performance of public relations duties; (5) recordkeeping of revenues and expenses; (6) creation of the restaurant's menu; (7) compliance with all laws pertaining to the operation of the restaurant; and (8) timely submission of invoices for goods and services contracted by plaintiff in connection with the management and operation of the restaurant, to be paid by defendant. The complaint alleges that plaintiff complied with its duties under the management agreement.

¶ 8 Shortly after entering into the management agreement, the parties agreed to form Argent Restaurant, LLC (LLC), which was formed on April 4, 2012, with plaintiff and defendant as equal members. The parties agreed that plaintiff's duties to the LLC would mirror its duties as described in the management agreement, while defendant would handle the general accounting for the restaurant and provide plaintiff with weekly profit and loss statements based on the records gathered in defendant's point-of-sale (POS) systems.¹ The parties also agreed that defendant would establish a bank account or accounts in the name of the LLC so that its accounts could be maintained separately from those of the hotel.

¶ 9 The complaint alleges that plaintiff made repeated demands for the account information for the LLC's account and was repeatedly denied access to that information by defendant and further alleges that defendant never established a separate account for the LLC or the restaurant and instead commingled funds derived from the restaurant with the hotel's accounts. The complaint alleges that the POS system for the restaurant was part of the same system that defendant used in its other hotel operations, so all data from the restaurant POS went directly to defendant, who was supposed to process the information and provide it in weekly profit and loss statements to plaintiff so that plaintiff could comply with its duties to create an accurate restaurant budget and keep records of the restaurant's revenues and expenses.

¶ 10 The complaint alleges that plaintiff began noticing mistakes on each of the weekly profit and loss statements provided by defendant and repeatedly pointed out these mistakes to defendant. Defendant consistently ignored the mistakes and eventually began certifying the restaurant's records for purposes of business accounting without seeking or obtaining plaintiff's approval. Plaintiff was also denied access to the restaurant's books and records and accounting information.

¶ 11 According to the complaint, the "mistake-laden" profit and loss statements that were produced between April and December 2012 showed that the restaurant was suffering consistent losses. When plaintiff made demands for its management fee, defendant informed plaintiff that it could not pay the management fee while the restaurant continued to lose money. The complaint alleges that the refusal to pay the management fee constituted a breach of the management agreement, which did not condition payment of the management fee on the restaurant's profits or losses.

¶ 12 The complaint alleges that in December 2012, the parties began discussing the possibility of a negotiated buyout by defendant of plaintiff's interest in the LLC, as well as a negotiated termination of the management agreement. "After much negotiation, Plaintiff and Defendant agreed in principle to a so-called ‘Separation Agreement’ * * * by which Defendant would take sole ownership of [the LLC], and Plaintiff would cease to be the Restaurant's Manager under the [management agreement], in exchange for payment of certain amounts to Plaintiff." The complaint alleges that plaintiff's principals executed a copy of the separation agreement on March 25, 2013, "on the understanding that certain conditions in the [separation agreement] would be met by the Defendant before it became effective," including (1) defendant's provision of profit and loss documentation and other records sufficient to verify and agree upon the total capital invested by the parties in the restaurant (the necessary records); (2) plaintiff's provision of its total capital figure to be used in calculating the total purchase price under the separation agreement, which would be based in significant part on the records provided by defendant; (3) negotiation for settlement of all outstanding invoices by plaintiff, to be paid by defendant; and (4) transfer of all operations from plaintiff to defendant by April 30, 2013. The formula for establishing what plaintiff would be paid for a buyout of its interest in the LLC and the cessation of restaurant operations was outlined in the separation agreement and relied on accounting records to be provided by defendant, which plaintiff had not yet received at the time of execution of the separation agreement.

¶ 13 The complaint alleges that, prior to April 2, 2013, and during the pendency of the separation agreement negotiations, Sean Mulroney, on behalf of plaintiff, met with Gene Kornota, on behalf of defendant, to discuss the separation agreement negotiations. During this meeting, they discussed the terms of the separation agreement, and Mulroney indicated that without the necessary documents, the parties would be unable to fix a price or carry out the terms of the separation agreement. Kornota could not provide a timeline for when the necessary records would be provided "and ultimately ended the conversation with a statement that no matter what happened, he and his partners would ‘never pay [Plaintiff] a dime.’ "

¶ 14 The complaint alleges that on March 27, 2013, plaintiff sent defendant an e-mail renewing its request for access to the LLC's books and records. According to the separation agreement, the parties were to agree on a "Total Capital Invested" figure by March 28, 2013, which was to be calculated after defendant's provision of the necessary records, but plaintiff was unable to verify or agree to the figure by that date because it had not been provided any of the necessary records.

¶ 15 The complaint alleges that on April 2, 2013, defendant notified plaintiff that it was being locked out of operations as the restaurant's manager and advised plaintiff and the restaurant's staff members that they were no longer allowed to come onto the premises of the hotel or to perform duties under the management agreement. Since that day, plaintiff has been unable to enter the hotel's premises or to perform its duties under the management agreement. On the same day as it locked plaintiff out, defendant provided plaintiff with an executed version of the separation agreement, signed by its principals, "claiming that the signed [separation agreement] provided a valid and enforceable basis for terminating Plaintiff's rights under the [management agreement]."

¶ 16 The complaint contains three counts. Count I is for breach of the management agreement and alleges that, at all times, the management agreement was a binding and enforceable contract, requiring plaintiff to...