Charles Austin, Ltd. v. A-1 Food Servs., Inc.

• Decision Date: 10 December 2014
• Docket Number: No. 1–13–2384.,1–13–2384.
• Citation: 23 N.E.3d 534
• Parties: CHARLES AUSTIN, LTD., an Illinois Corporation, Plaintiff–Appellee, v. A–1 FOOD SERVICES, INC., an Illinois Corporation, Jian Bin Zheng, Hua Lin, and Forever Green Food Group, Inc., Defendants–Appellants.
• Court: United States Appellate Court of Illinois

23 N.E.3d 534

CHARLES AUSTIN, LTD., an Illinois Corporation, Plaintiff–Appellee

v.A–1 FOOD SERVICES, INC., an Illinois Corporation, Jian Bin Zheng, Hua Lin, and Forever Green Food Group, Inc., Defendants–Appellants.

No. 1–13–2384.

Appellate Court of Illinois, First District, Third Division.

Dec. 10, 2014.

Anthony J. Peraica, Timothy Sprague, and Jennifer M. Hill, all of Anthony J. Peraica & Associates, Ltd., of Chicago, for Appellants.

Dean J. Lurie and John A. Ziegler, both of Stone Pogrund & Korey, LLC, of Chicago, for Appellee.

OPINION

Justice HYMAN

delivered the judgment of the court, with opinion.

¶ 1 In the midst of litigation over a debt owed it plaintiff, Charles Austin Limited, defendant A–1 Food Services, Inc., sold all of its assets to Forever Green Food Group, Inc. Once Charles Austin learned of the transaction, it added Forever Green as a defendant to the ongoing lawsuit. Forever Green, however, did not appear or otherwise respond, and Charles Austin then secured entry of a default judgment against Forever Green in the amount of $186,688.72. Forever Green sought to vacate the judgment three months later, only after its bank account was frozen in a third-party citation proceeding.

¶ 2 Thereafter, Forever Green filed for relief from the judgment under section 2–1401 of the Illinois Code of Civil Procedure

(735 ILCS 5/2–1401 (West 2012) ), attacking the service on the grounds that its registered agent did not recollect receiving a copy of the summons or complaint from the Cook County sheriff. Forever Green further argued it (i) had a meritorious defense to the underlying lawsuit because, generally, a successor corporation is not liable for the debts of the transferor corporation, (ii) was diligent in defending itself in the original lawsuit, and (iii) was diligent in filing the section 2–1401 petition. The trial court denied Forever Green's section 2–1401 petition, rejecting all of its arguments and determining that its affidavits were untruthful to the point of appearing “almost embarrassing.”

¶ 3 We agree with the trial court that service on Forever Green was proper and that Forever Green failed to establish the elements necessary under section 2–1401

. Accordingly, we affirm.

¶ 4 BACKGROUND

¶ 5 Plaintiff, Charles Austin Limited, an Illinois corporation, distributes food and food-related products. On August 26, 2005, Charles Austin entered into a business loan agreement with A–1 Food Services, Inc. Charles Austin agreed to provide A–1 Food with a credit line. Defendants Jian Bin Zheng and Hua Lin guaranteed the loan. The business loan agreement continued without incident until late 2011 when A–1 Food failed to pay invoices to Charles Austin. By the end of 2011, A–1 Food owed Charles Austin nearly $185,000.

¶ 6 In January 2012, Charles Austin filed a breach of contract complaint against A–1 Food, Zheng, and Lin. Although served, none of them appeared or responded to the complaint. After Charles Austin filed a written motion for default, the three defendants moved to vacate the defaults, which the trial court granted. At about this time, A–1 Food agreed to sell all of its assets to Forever Green. Philip Chow, an Illinois attorney and Forever Green's then-registered agent, acted as attorney for Forever Green in the transaction. On May 7, 2012, Zheng, the president of A–1 Food, certified that A–1 had no creditors at the time of sale.

¶ 7 On May 10, 2012, A–1 Food, Zheng, and Lin answered the complaint. About three months later, Charles Austin issued a subpoena to Forever Green seeking documents pertaining to the sale of assets. Forever Green responded through an attorney from Indiana. During this time, Zheng and Lin filed for bankruptcy.

¶ 8 In October 2012, Charles Austin filed an amended complaint, naming Forever Green a defendant under a successor liability theory. Charles Austin alleged that Forever Green assumed A–1 Food's liabilities under contract for the sale of assets and that the sale was a fraudulent transaction made to avoid A–1 Food's liabilities to Charles Austin. On October 29, 2012, the Cook County sheriff served Forever Green with a copy of the amended complaint and summons. The sheriff's affidavit of service stated that the sheriff served Chow as registered agent. Forever Green never appeared or responded to the amended complaint.

¶ 9 On January 10, 2013, Charles Austin orally moved for default and prove-up of damages against Forever Green. The trial court entered and continued the motion until February 22, 2013. On February 15, 2013, Charles Austin mailed to Chow a copy of the January 10 order, a notice of the motion for default judgment, and a copy of the written motion. Although the exact date is disputed, between January 10 and February 15, 2013, Forever Green changed its registered agent from Chow to Ke Y. Wang. On February 22, 2013, the trial court entered a default judgment against Forever Green.

¶ 10 Charles Austin began third-party citation proceedings to collect on the judgment and gave notice of the citation to Chow on May 9, 2013. Forever Green thereafter appeared and moved to vacate the default judgment under section 2–1401

. 735 ILCS 5/2–1401 (West 2012). In its motion, Forever Green argued: (1) justice and equity required vacating the default judgment, it had a meritorious defense, and met the diligence requirements; (2) Charles Austin gave notice of the default motion to Chow and not its registered agent, Wang, or its Indiana counsel; and (3) lack of personal jurisdiction. In support, Forever Green attached affidavits of Chow and Wang. Chow claimed “not [to] recall ever receiving a copy of the Amended Complaint” and if he had, he “would have notified Forever Green, or its counsel, and ensured that it timely appeared and filed a responsive pleading.” Wang claimed that he replaced Chow as registered agent “on or about February 15, 2013,” was never served with a copy of the amended complaint, and had no knowledge of Charles Austin's motion for default until Forever Green's bank notified him that its account had been frozen.

¶ 11 The trial court denied Forever Green's motion to vacate the default judgment, concluding that service on Forever Green was proper. In doing so, the trial court rejected Forever Green's diligence arguments as well as its contention that it only became aware of the lawsuit from the citation proceedings. Finally, as to the two affidavits, the trial court noted that they “were almost embarrassing to be presented to the Court. These people are putting a spin on things that's not appropriate * * * you have to remember that you have a responsibility to tell your client * * * you have to be truthful with the Court, and this was not truthful.”

¶ 12 ANALYSIS

¶ 13 On appeal, Forever Green asserts: (i) lack of personal jurisdiction; and (ii) error by the trial court in denying the motion to vacate the default judgment. 735 ILCS 5/2–1401 (West 2012)

.

¶ 14 Personal Jurisdiction

¶ 15 Without valid jurisdiction, a court cannot proceed or act over a case or its parties. BAC Home Loans Servicing, LP v. Mitchell, 2014 IL 116311, ¶ 17, 379 Ill.Dec. 85, 6 N.E.3d 162

. An appellate court reviews issues of personal jurisdiction de novo. Id.

¶ 16 A party can serve a private corporation by leaving a copy of the summons and complaint with the registered agent or any officer or agent of the corporation found anywhere in the State. 735 ILCS 5/2–204 (West 2012)

. An affidavit of service constitutes prima facie evidence of proper service. Paul v. Ware, 258 Ill.App.3d 614, 617, 196 Ill.Dec. 790, 630 N.E.2d 955 (1994). Courts entertain every reasonable presumption in favor of the return of service. MB Financial Bank, N.A. v. Ted & Paul, LLC, 2013 IL App (1st) 122077, ¶ 24, 371 Ill.Dec. 576, 990 N.E.2d 764. To attack a default judgment for lack of personal jurisdiction, the challenging party must produce evidence impeaching the return of service by clear and convincing evidence. Paul, 258 Ill.App.3d at 617, 196 Ill.Dec. 790, 630 N.E.2d 955. An uncorroborated affidavit merely saying that the defendant had not been personally served is not enough to refute the return of service. Id. ¶ 17 Forever Green claims its registered agent never received the complaint and summons from Charles Austin. In his affidavit, Forever Green's then-registered agent, Chow, attempts to rebut the Cook County sheriff's return by claiming he did “not recall ever receiving a copy of the Amended Complaint,” and if he had been served, he would have “notified Forever Green, or its counsel, and ensured that it timely appeared and filed a responsive pleading.”

¶ 18 Chow's affidavit is woefully deficient. Neither decision on which Forever Green relies, Ellman v. De Ruiter, 412 Ill. 285, 106 N.E.2d 350 (1952)

, and Schnable v. Tuma, 351 Ill.App. 486, 115 N.E.2d 574 (1953), warrants a contrary result. In Ellman, the supreme court vacated a default judgment on the basis of the court's equitable powers to prevent an injustice—the plaintiff's attorney's representations misled the defendant on status, which caused the defendant to refrain from filing a timely motion to vacate. Ellman, 412 Ill. at 293–94, 106 N.E.2d 350. In Schnable, a case largely confined to its facts, the defendant established no proper service of process through clear and convincing evidence. Schnable, 351 Ill.App. at 488–89, 491, 115 N.E.2d 574.

¶ 19 Forever Green's circumstances differ significantly from the facts in these cases. Unlike in Ellman, nothing in the record suggests that Charles Austin intended to or actually misled Forever Green or otherwise kept Forever Green in ignorance about the case's status. As the Ellman court explained, the plaintiff has no duty to notify the defendant of the default judgment unless the question arose. Ellman, 412 Ill. at 293, 106 N.E.2d 350

. Forever Green contacted Charles Austin only after the beginning of third-party citation proceedings, nearly three months after the trial court's February 22, 2013, entry of default judgment....