Cox v. Evans
| Decision Date | 01 May 2020 |
| Docket Number | Case No. 18-cv-1105-JES-JEH |
| Citation | 457 F.Supp.3d 634 |
| Parties | A. Clay COX, not individually but AS TRUSTEE FOR the ESTATE OF CENTRAL ILLINOIS ENERGY COOPERATIVE, Plaintiff, v. Michael E. EVANS, Nancy A. Schell, and Froehling, Weber, Evans & Schell, LLP, Defendants. |
| Court | U.S. District Court — Central District of Illinois |
Alan L. Fulkerson, Stephen Alan Fulkerson, Riordan Fulkerson Hupert & Coleman, Chicago, IL, for Plaintiff.
Daniel F. Konicek, Konicek & Dillon PC, Geneva, IL, Kirk W. Laudeman, Sorling Northrup, Springfield, IL, for Defendants.
This matter is now before the Court on Plaintiff's Motion (Doc. 56) to Bar the Testimony of Defendants' Expert Walker R. Filbert and Memorandum (Doc. 57) in Support, to which Defendants have filed a Response (Doc. 60). For the reasons set forth below, Plaintiff's Motion (Doc. 56) is GRANTED in part and DENIED in part.
The facts of this case are largely recounted in the Court's Order (Doc. 30) on the parties' Motions for Summary Judgment, which the Court reproduces here together with the additional facts recited in Plaintiff's Motion (Doc. 56) to Bar the Testimony of Defendants' Expert Walker R. Filbert, Memorandum (Doc. 57) in Support, and Defendants' Response (Doc. 60).
In October 2001, a group of farmers organized Central Illinois Energy Cooperative ("the Coop") to construct and operate an ethanol facility in Canton, Illinois. The facility would consist of an ethanol plant and a grain handling facility component, which would provide grain to the ethanol plant for the production of ethanol and other byproducts.
Michael E. Evans ("Evans"), an attorney and a member of Froehling, Weber, Evans & Schell, LLP ("the Firm"), prepared the Coop's Articles of Incorporation and signed them as an incorporator. Evans and his wife, Suzanne Ginger ("Ginger"), were shareholders of the Coop, and until early 2008, Evans served as the Coop's attorney and registered agent.
To gather investors for the ethanol facility, Evans, at the direction of the Coop's board, created two Delaware limited liability companies, Central Illinois Energy, LLC ("Opco") and Central Illinois Holding Company, LLC ("Holdco"). Holdco consisted of Opco, HWS, Cargill, Fuel For Farmers, LLC, and Whitebox CIE Pledgors, Inc. ("Whitebox"). Mike Smith ("Smith") was the general manager for both Opco and the Coop and a member of the Coop's board.
In March 2005, the Coop contracted with Nostaw, a general contractor, to construct the grain handling facility for $5.4 million. To finance construction, the Coop borrowed $2 million from Whitebox, as evidenced by a note requiring payment in full on May 17, 2007.
The construction project began experiencing financial difficulties when the Coop was unable to pay invoices from Nostaw and the final installment of the Whitebox loan in May 2007. As a result, Nostaw threatened to file a lien and stop construction. The Coop needed to secure additional financing through other investors to continue construction.
Green Lion Bio-Fuels, L.L.C. ("Green Lion"), a company that Evans' wife formed in June 2006, was a potential source of financing. Ginger filed Articles of Formation for Green Lion with the Delaware Secretary of State, and on August 25, 2006, Evans filed an Application for Admission to Transact Business in Illinois on its behalf. (Bankruptcy Case No. 11-080231 , Doc. 161, ¶45).
In early 2007, Ginger attended Coop board meetings and advised the board members that Green Lion wanted to develop ethanol projects in the area and was interested in financing construction of the ethanol facility. The board members were told that "Green Lion was a small group of investors with money in a bank in Minneapolis ..." and that the company was interested in providing $140 million to fund the ethanol plant and grain handling facility. (Doc. 6-1, pp. 6-7).
In April 2007, Evans and his law partner, Nancy Schell ("Schell"), met with the Coop's board and advised the members that Opco and Green Lion were engaged in confidential business discussions related to Green Lion providing financing for Opco. Evans also advised the board that the Firm provided legal representation to the Coop, Opco, Holdco, Fuel From Farmers, LLC (a minority member of Holdco also managed by Ginger), and Green Lion.
Evans informed the board that members of the Firm's staff and/or their family members had equity interests in the Coop, Fuel From Farmers, LLC, and Green Lion, but he did not disclose the exact percentages of their interests. (Doc. 6-1, p. 8, ¶ 31; Doc. 17, p. 2, ¶ 31). At the time, the membership interests in Green Lion were held by Ginger (Evans' wife) (95.93419%), Amber Smudge Corp. (1.18652%), Fuel From Farmers, LLC (1.09951%), and Ken Pflederer (1.77978%).
Evans presented the board with a Waiver of Conflict of Interest, and the board members voted to authorize its chairman to execute the Waiver. Although Ginger held 95.93419% of the membership interests in Green Lion, the Waiver stated Ginger held a "minority" interest. ("Suzanne Ginger is one of the founders of Green Lion Bio-Fuels, and holds a minority equity financial interest therein."). (Doc. 6-6, p. 4).
On May 10, 2007, seven days before the Whitebox loan payment was due, Green Lion offered to lend the Coop $5 million to complete construction. Green Lion's chief operating/financial officer, Richard Kemple, informed Smith that Green Lion would have to purchase the grain handling facility to obtain a conventional construction loan.
The Coop and Green Lion agreed that the Coop would continue to manage the construction and Green Lion would provide the financing and take ownership of the grain handling facility pursuant to a Purchase Agreement. (Docs. 8-18, 8-19). Under a Buy Back Agreement, the Coop would have the right to repurchase the grain handling facility upon the occurrence of certain events. (Docs. 8-20, 8-21). Evans drafted the agreements and sent them to Schell, Kemple, and Smith to review.
At the end of May 2007, Evans met with Kenneth Eathington, an attorney at Husch Blackwell, to discuss Eathington's participation in the transaction on behalf of the Coop. Eathington was asked to review and comment on the Purchase and Buy Back Agreements Evans drafted.
On June 4, 2007, Evans and Schell met with the Coop board, and the board adopted a resolution authorizing the Coop to sell the grain handling facility to Green Lion for $7.75 million pursuant to the terms of the Purchase Agreement. Eathington did not attend the meeting.
On June 5, 2007, a day after the board authorized the sale of the facility, Eathington provided Schell with comments on the draft Purchase and Buy Back Agreements. Between June 5 and June 12, 2007, Schell circulated various revisions to the Agreements. (Bankruptcy Case No. 11-08023, Doc. 161, ¶¶105-106, 112, 116 and 122).
On June 12, 2007, the Coop sold almost all of its assets, including the unfinished grain handling facility to Green Lion for $7.75 million, subject to a repurchase obligation. Green Lion agreed to assume the Coop's liability to Nostaw ($976,295.67 and $258,777.83) and another contractor ($251,722.29) to offset the purchase price. Under the Purchase Agreement, the Coop remained responsible for the construction and completion of the grain handling facility, while Green Lion, through its lender, Ridgestone Bank, was responsible for construction pay requests.
On December 13, 2007, the Coop ceased work on the ethanol plant and grain handling facility and filed for Chapter 11 bankruptcy. On May 1, 2009, an involuntary Chapter 11 petition was filed against the Coop. On July 16, 2009, the bankruptcy case was converted to a liquidation proceeding under Chapter 7 of the United States Bankruptcy Code, and Richard Barber was appointed Trustee. On February 2, 2012, Plaintiff, A. Clay Cox ("Cox"), was appointed successor Trustee for the Coop.
On April 4, 2011, Cox brought an adversary proceeding against Evans, Schell, and the Firm ("Defendants"). In Counts I, II, and III of Plaintiff's First Amended Complaint (Doc. 8-2), Cox alleges Defendants committed legal malpractice by failing to (i) obtain the full purchase price of the grain handling facility; (ii) advise the Coop not to pay certain closing costs for Green Lion; and (iii) advise the Coop not to accept membership shares in Green Lion as part of the consideration for the transaction. In Count IV, Cox alleges Evans engaged in self-dealing and breached his fiduciary duty to the Coop as a result of the Coop's conveyance of its grain handling facility to Green Lion. (Doc. 8-2, pp. 33-40). Count IV is pleaded in the alternative to Counts I, II, and III. (Doc. 8-2, p. 33).
Originally, the case was assigned to United States Bankruptcy Court Judge Thomas J. Perkins, who continues to administer the bankruptcy case. On March 13, 2018, Plaintiff filed a Motion to Withdraw Reference. (Doc. 1). On March 28, 2018, the District Court granted Plaintiff's Motion and the referral to the Bankruptcy Court was withdrawn pursuant to 28 U.S.C. § 157(d).
On June 8, 2018, Plaintiff filed a Motion for Partial Summary Judgment seeking summary judgment only on Count IV. (Doc. 6). On June 12, 2018, Defendants filed a Motion for Summary Judgment seeking judgment in their favor on all counts of Plaintiff's First Amended Complaint. (Doc. 10).
The issues presented in the motions for summary judgment were: (1) whether Defendants committed legal malpractice, and (2) whether Evans breached his fiduciary duty to the Coop. Doc. 30, at 7. In an action for legal malpractice under Illinois law, the plaintiff must first establish an attorney-client relationship existed between the parties. Cleveland v. Rotman , 297 F.3d 569, 572 (7th Cir. 2002). Pla...
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