Cahnman v. Timber Court LLC
| Docket Number | 1-20-0338 |
| Decision Date | 31 March 2021 |
| Citation | 2021 IL App (1st) 200338,196 N.E.3d 151,458 Ill.Dec. 37 |
| Parties | Raymond CAHNMAN, Plaintiff-Appellee, v. TIMBER COURT LLC; David Zazove; and Barron Development, LLC, Defendants (David Zazove, Defendant-Appellant). |
| Court | United States Appellate Court of Illinois |
Bruce A. Slivnick, of Deerfield, for appellant.
Karen L. Levine, Edward W. Feldman, and Alexandra K. Block, of Miller Shakman Levine & Feldman LLP, of Chicago, for appellee.
Bruce A. Slivnick, of Deerfield, for appellant.
Karen L. Levine, Edward W. Feldman, and Alexandra K. Block, of Miller Shakman Levine & Feldman LLP, of Chicago, for appellee.
¶ 1 Plaintiff, Raymond Cahnman, and defendant, David Zazove, were long-time business partners who had invested in multiple businesses together until plaintiff discovered that defendant had allegedly been engaged in self-dealing and other breaches of his fiduciary duty. Plaintiff filed a complaint against defendant, alleging numerous causes of action, and the parties engaged in extensive litigation, ultimately culminating in a seven-day bench trial with a 136-page opinion by the trial court, in which the court found in plaintiff's favor on all but one count. The trial court entered a total judgment in favor of plaintiff and against defendant in the amount of $7,719,877.34, which included $2,664,651.10 as punitive damages. After the trial court's judgment, defendant sought to amend his pleadings to add affirmative defenses based on the statute of limitations and laches , which the trial court denied. Defendant now appeals, claiming that the trial court abused its discretion in denying him leave to amend his pleadings. Defendant further claims that the trial court's judgment was against the manifest weight of the evidence because it was internally inconsistent and that the trial court erred in awarding plaintiff punitive damages. For the reasons that follow, we affirm.
¶ 3 As noted, the instant litigation was extensive, culminating in a seven-day bench trial with a 136-page opinion by the trial court.1 On appeal, neither party challenges the trial court's factual findings; the only challenge related to the court's findings is a claim that the findings themselves were internally inconsistent. Accordingly, our discussion of the relevant facts comes from the trial court's opinion, unless noted otherwise.
¶ 5 Plaintiff and defendant have known each other since 1979, when defendant was assigned to work with plaintiff at the Chicago Board of Trade, and plaintiff became defendant's mentor. In the mid- to late-1980s, defendant approached plaintiff about investing in real estate projects. Plaintiff was a trader and had no background in real estate, but defendant proposed that plaintiff would provide the funds for the various entities and developments, while defendant would contribute his time and effort to develop and supervise the projects in exchange for equity. This arrangement provided defendant with an incentive to make the projects succeed, as he would receive half of the profits without investing any of his personal funds. The projects were designed to be short term, and defendant was not to receive any salary or fees. Since the 1980s, at defendant's request, plaintiff has invested in at least 10 different projects that defendant, or an entity controlled by defendant, was involved in developing.
¶ 6 Additionally, defendant managed or owned a number of entities in which plaintiff owned an interest. Specifically, both plaintiff and defendant were shareholders, members, or partners of Timber Court LLC (Timber Court), Lincoln Avenue LP (Lincoln), Water Street Development Corporation (Water Street), Tandem Realty Corporation (Tandem), CZ Investors LP (CZ), and Jackson Center LLC (Jackson). Timber Court, Lincoln, and Water Street were all involved in developing certain parcels of real estate: (1) Timber Court developed a two-building, 72-unit residential condominium complex in Arlington Heights, owned and leased 48 of the units, and owned an adjacent parcel of land; (2) Lincoln developed and owned a four-story commercial building and parking lot in Chicago; and (3) Water Street developed a two-building, 85-unit residential condominium complex in Milwaukee, Wisconsin, and owned and leased five of the units and their associated boat slips and parking spots. Tandem provided real estate management services; when defendant obtained a broker's license, he used it at Tandem, and Tandem served as property manager for Lincoln, Timber Court, and Water Street at various times. Jackson owned a commercial building in Chicago and operated a business center with an executive suites office facility.
¶ 7 Defendant was also the sole owner of Tandem Investments, LLC (Tandem Investments), Water Street Investment Corporation (Water Street Investment), and Lakeview Executive Suites, LLC (LES). However, plaintiff was not aware that defendant owned Tandem Investments, Water Street Investment, or LES until 2012.
¶ 8 Defendant drafted the operating agreements for the entities he managed and was responsible for their finances. Defendant, who had worked as a certified public accountant at one point, also kept accounting records for the entities he managed. Beginning in 1998 or 2000, defendant used QuickBooks to keep the records of the entities, and he provided plaintiff with the QuickBooks records in 2012 and 2013. Defendant could not recall providing the records to plaintiff before 2012, and he had not told plaintiff that he kept track of the entities’ transactions in QuickBooks before that point. Defendant did not prepare any formal reports for plaintiff for the entities defendant managed, but plaintiff did not ask him to do so. Plaintiff also did not ask defendant for financial records on any of their joint real estate development projects.
¶ 9 In each of the projects developed by defendant, both parties assumed a risk—plaintiff risked his money, and defendant risked his time and labor. While defendant's early projects were not successful, plaintiff kept investing with defendant "because he knew [defendant] was working hard, and he thought that [defendant] was just having bad luck and that the next project would work out for him with the incentive deals they had in place." At trial, plaintiff's expert calculated that plaintiff contributed at least $18.5 million to the entities managed by defendant, most of which was recorded by defendant as loans. Plaintiff's expert further calculated that defendant received "benefits" from these entities totaling at least $3.4 million during the time period in which defendant maintained the QuickBooks records.
¶ 10 In 2012, plaintiff began looking into defendant's management of the entities and related properties and hired Edward Reagan, president of Safe Harbor Realty (Safe Harbor), a property management company, to investigate. Reagan "discovered that [defendant] had mismanaged the entities and properties and benefitted from a number of transactions of which [plaintiff] had not been aware or authorized." For instance, Reagan discovered that a number of the entities managed by defendant had been dissolved by the Secretary of State for failure to pay the required fees, that defendant had failed to pay real estate taxes or payroll taxes, and that there were significant deferred maintenance issues at several properties. Reagan also learned that defendant had leased the fourth floor of Lincoln to his solely owned entity, LES, which then collected rents from the fourth-floor tenants for his own personal use. He further discovered large unauthorized payments to defendant and to defendant's solely owned entities, as well as unauthorized loans among the various entities managed by defendant.
¶ 11 After Reagan's investigation, defendant turned over control of Timber Court, Lincoln, and Water Street to plaintiff at the end of 2012 and resigned his position at Tandem in August 2013. After defendant turned over control, Safe Harbor, Reagan's company, became the property manager of Timber Court, Lincoln, and Water Street. In 2013, Reagan retained an attorney to draft a separation agreement on behalf of plaintiff and the entities previously managed by defendant, on the understanding that plaintiff was turning over ownership and control of all of the entities other than Jackson. However, the parties could not reach an agreement over the terms of the separation agreement, and defendant filed suit against plaintiff in August 2013. Defendant also retook control over Timber Court on November 11, 2013, with the support of Timber Court's other two members, Barron Development LLC (Barron Development) and Howard Blair. Barron Development's affiliated property management company became the property manager, with defendant serving as a "consultant."
¶ 13 On November 22, 2013, plaintiff filed suit against Timber Court and its members—defendant, Barron Development, and Howard Blair—in case No. 2013-CH-26214. This case is the one at issue on appeal. Two other cases were later consolidated with case No. 2013-CH-26214, which we discuss only briefly to explain the procedural posture of the case before us.
¶ 14 First, on September 18, 2014, Timber Court, which was controlled by defendant at the time, filed suit in case No. 2014-L-9779 against plaintiff, plaintiff's wife, and Safe Harbor. This case was consolidated with case No. 2013-CH-26214, and the trial court later granted summary judgment to plaintiff in case No. 2014-L-9779, which resulted in plaintiff gaining control of Timber Court and the dissociation of defendant and Barron Development.2 Additionally, plaintiff also requested the consolidation of a third case that had previously been filed against Lincoln, case No. 2013-L-11973, which was granted on December 30, 2014; in the order currently at issue on...
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