Fogt v. 1-800-Pack-Rat, LLC

• Court: Appellate Court of Illinois
• Writing for the Court: JUSTICE HALL delivered the judgment of the court with opinion.
• Citation: Fogt v. 1-800-Pack-Rat, LLC, 2017 IL App (1st) 150383, 74 N.E.3d 186 (Ill. App. 2017)
• Decision Date: 10 March 2017
• Docket Number: No. 1-15-0383,1-15-0383
• Parties: Isaac FOGT and Lisa Fogt, Plaintiffs-Appellants, v. 1-800-PACK-RAT, LLC, a Delaware Limited Liability Company, WM Pack-Rat of Illinois, LLC, a Delaware Limited Liability Company, WM Pack-Rat, LLC, a Delaware Limited Liability Company, WM Storage, Inc., a Delaware Corporation, and Waste Management, Inc., a Delaware Corporation, Defendants-Appellees. (WM Storage II, Inc., a Delaware Corporation, Defendant).

2017 IL App (1st) 150383

74 N.E.3d 186

Isaac FOGT and Lisa Fogt, Plaintiffs-Appellants,

v.1-800-PACK-RAT, LLC, a Delaware Limited Liability Company, WM Pack-Rat of Illinois, LLC, a Delaware Limited Liability Company, WM Pack-Rat, LLC, a Delaware Limited Liability Company, WM Storage, Inc., a Delaware Corporation, and Waste Management, Inc., a Delaware Corporation, Defendants-Appellees.

(WM Storage II, Inc., a Delaware Corporation, Defendant).

No. 1-15-0383

Appellate Court of Illinois, First District, FIFTH DIVISION.

March 10, 2017

James W. Fessler, Donald E. Renner III, and Jacob H. Karac, of Klein, Thorpe & Jenkins, Ltd., of Chicago, for appellants.

Matthew J. Gehringer and Bates McIntyre Larson, of Perkins Coie LLP, of Chicago, for appellees.

OPINION

JUSTICE HALL delivered the judgment of the court with opinion.

¶ 1 The plaintiffs, Isaac (Isaac) and Lisa (Lisa) Fogt, appeal from an order of the circuit court of Cook County granting summary judgments to the defendants—1-800-Pack-Rat, LLC, WM Pack-RAT of Illinois, LLC, WM Pack-Rat, LLC, Waste Management, Inc., and WM Storage, Inc. (collectively, the defendants)—and denying the plaintiffs' motions for summary judgment.¹ On appeal, the plaintiffs contend that they established as a matter of law that (1) the defendants violated the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/2 (West 2008) ); (2) Waste Management, Inc. was liable for the acts of WM Pack-Rat of Illinois, LLC; (3) the plaintiffs were entitled to an award of punitive damages on their conversion claim or, in the alternative, it was an issue for the trier of fact; and (4) WM Pack-Rat, LLC was liable for the acts of WM Pack-RAT of Illinois, LLC.

¶ 2 BACKGROUND

¶ 3 The facts set forth herein are taken from the pleadings, the depositions, exhibits, and other pertinent documents contained in the record on appeal.

¶ 4 I. The Corporate Defendants

¶ 5 The defendants are five business entities. The plaintiffs raise issues as to the liability of certain corporate defendants for the actions of other corporate defendants. Therefore, it is necessary to identify each one and set forth their relationships during the relevant time period.

¶ 6 A. 1-800-Pack-Rat, LLC

¶ 7 1-800-Pack-Rat, LLC (Pack-Rat) is a Delaware limited liability company, based in North Carolina. Pack-Rat operates a self-storage facility and moving company. Pack-Rat facilities were owned and operated by Pack-Rat directly or by third-party developers or third-party franchisees.

¶ 8 B. WM Storage Facility

¶ 9 On June 1, 2007, WM Storage Facility, Inc. (WMS) was incorporated in Delaware. WMS is based in Houston, Texas, and has its own officers and employees and a single director. All WMS stock was owned by Waste Management Holdings, Inc., which is not a defendant in this case.

¶ 10 C. WM Pack-Rat, LLC

¶ 11 WM Pack-Rat, LLC (WM Pack-Rat) was formed by WMS and Pack-Rat pursuant to the June 1, 2007, Definitive Agreement and the Limited Liability Operating Agreement of WM Pack-Rat (Operating Agreement). WMS and Pack-Rat owned all the ownership units of WM Pack-Rat.

¶ 12 D. WM Pack-Rat of Illinois, LLC

¶ 13 WM Pack-Rat of Illinois, LLC (WM IL) was formed by WM Pack-Rat to operate its Illinois facilities. WM Pack-Rat owned all of the ownership units of WM IL. WM IL had a single management member, and between 2007 and 2009, it had its own employees. Pursuant to the June 1, 2009, Asset Contribution Agreement, WM Pack-Rat contributed to WM IL the assets of its facilities in Glendale Heights and Gurnee, Illinois, and WM IL assumed the liabilities related to those facilities and assets. By the December 31, 2009, Asset Contribution Agreement, WM Pack-Rat and its subsidiaries, including WM IL, transferred these facilities, liabilities, and assets back to Pack-Rat and ceased to operate any Pack-Rat facilities in Illinois.

¶ 14 E. Waste Management, Inc.

¶ 15 Waste Management, Inc. (WMI) is a Delaware corporation. WMI owns 100% of Waste Management Holdings, Inc., which in turn owns 100% of WMS.

¶ 16 II. Joint Venture

¶ 17 In his deposition, Andrew Friedman, vice-president and general counsel for Pack-Rat, testified that Pack-Rat was looking to expand its presence in other markets and was signing contracts with large area developers. Attorney Friedman explained that he was not involved in the initial execution of the WM Pack-Rat, LLC operations agreement, and he could not speak for WMI as to their intentions in negotiating with Pack-Rat. But he reasoned that, like any successful company, WMI wished to make use of its property.

¶ 18 On June 1, 2007, WMS was incorporated in Delaware, and WM Pack-Rat was formed as a limited liability company. On that same date, WMS and Pack-Rat entered into the Definitive Agreement. According to the Definitive Agreement, WMI was a party to the Definitive Agreement, "solely for purposes of Section 6.2." Section 6.2 provided in pertinent part as follows:

"WMI Guaranty. Subject to Section 11.11 of the Developer Operating Agreement and as a material inducement to Pack Rat Parent entering into this Agreement with WMS, WMI * * * does hereby guarantee the due and timely performance or discharge of all of WMS's obligations (including non-competition and financing provisions in Sections 3.1 and 5.1 respectively) under this Agreement."

¶ 19 Under the terms of the Definitive Agreement, WMI, WMS, or an affiliate agreed to provide financing or arrange financing for the purchase of equipment for the Pack-Rat locations. The Definitive Agreement provided that (1) WMS, WMI and affiliates had the right to participate in Pack-Rat's exercise of its buy-back option of any entity operating as a Pack-Rat franchisee, licensee, or joint venture; (2) where WMS or its affiliates were interested in developing territories already under contract by other developers, Pack-Rat would use its best efforts to facilitate the transfer of the right to develop those territories to WMS or its affiliate; (3) WMS and its affiliates would be permitted to develop new products to be offered at select Pack-Rat locations; (4) WMS was permitted to appoint a representative to serve as an observer at all Pack-Rat board of directors' meetings; (5) WMS and its affiliates were given the right of first offer in the event Pack-Rat's board of directors decided to sell Pack-Rat's assets or other equity interests; and (6) upon the opening of 20 Pack-Rat locations, the Pack-Rat board of directors was required to name to the board one voting member designated by WMS.

¶ 20 On June 8, 2007, WMS and Pack-Rat entered into the Operating Agreement setting forth their rights, duties, powers, and obligations as members of WM Pack-Rat. According to the June 1, 2009, contribution amendment to the Operating Agreement and the Definitive Agreement, WMS, WM Pack-Rat, and Pack-Rat entered into the Operating Agreement and the Definitive Agreement "to facilitate the opening of multiple [Pack-Rat] Locations and otherwise develop a business relationship with respect to the ongoing development and expansion of the business of [Pack-Rat]." The amendments to the Operating and Definitive Agreements were "to reflect the intent of the parties and to enable them to achieve their respective business objectives."

¶ 21 III. Lien Claim and Sale Procedures

¶ 22 In his deposition, Nathan Olson testified that he was originally hired by Pack-Rat and trained as a truck driver. In August of 2006, he was promoted to manager of Pack-Rat's Glendale Heights facility. Mr. Olson's managerial training was both on the job and through instruction by individuals from the corporate office, either in Illinois or North Carolina. In April 2009, the Glendale Heights facility was closed, and storage units were relocated to Bolingbrook or Gurnee, Illinois. On June 1, 2009, Mr. Olson became an employee of WM IL and the manager of both locations.²

¶ 23 With respect to the lien and sale procedures at the Glendale Heights facility, Mr. Olson utilized the Step-by-Step Procedure. He had been orally instructed on this procedure by Kevin Barbour, his manager who was based in North Carolina. After a customer's rental payments became 90 days past due, a notice of lien and sale date would be sent to the customer by certified mail. Between the mailing date and the date of the sale, attempts to reach the customer would continue, and notices would be placed in the local newspaper. Mr. Olson would contact Mr. Barbour and review the customer's file and the notice and sale documentation with him before proceeding with the sale. This review was not "official."

¶ 24 Mr. Olson explained that the notice of lien and sale was a form created by the SiteLink Reminder software (SiteLink), which he used when employed by Pack-Rat. While the form would already contain most of the necessary customer information, Mr. Olson would insert information such as the sale date, the facility name, and the dollar amounts.

¶ 25 In his deposition, Kevin Barbour testified that from 2006 to 2010, he was in operations support for Pack-Rat, part of which involved training individuals on various parts of SiteLink. The Step-by-Step Procedure for selling a delinquent customer's property was created by a staff attorney for Pack-Rat and was programmed into SiteLink. While the procedures for each state would be the same, the timeline for each state would be different. According to Mr. Barbour, at the time Pack-Rat was responsible for the facilities, each state's timeline was programmed into SiteLink. Mr. Barbour did not recall reviewing delinquent customers' files with a facility manager prior to a sale of their property.

¶ 26 In his deposition, Andrew Friedman, vice-president of and general counsel for Pack-Rat, testified that he did not consider ensuring that information programmed into SiteLink complied with the laws of the various states in which Pack-Rat operated. He had never been contacted by Pack-Rat's operations department to review the program to determine if it was in...