Judson Atkinson v. Latini-Hohberger Dhimantec

• Decision Date: 06 March 2007
• Docket Number: No. 05 C 2203.,05 C 2203.
• Citation: 476 F.Supp.2d 913
• Parties: JUDSON ATKINSON CANDIES, INC., Plaintiff, v. LATINI-HOHBERGER DHIMANTEC, et. al., Defendant.
• Court: U.S. District Court — Northern District of Illinois

476 F.Supp.2d 913

JUDSON ATKINSON CANDIES, INC., Plaintiff, v. LATINI-HOHBERGER DHIMANTEC, et. al., Defendant.

No. 05 C 2203.

United States District Court, N.D. Illinois, Eastern Division.

March 6, 2007.

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William K. Carter, C. Zan Turcotte, Isgitt & Associates, P.C., Houston, TX Anthony S. Divincenzo, Divincenzo, Schoenfield, Swartzman, Chicago, IL, Sheldon M. Lustig, Lustig & Associates, Skokie, IL, for Plaintiff.

Richard C. McSwain, Curry, McSwain & Associates, Michael J. O'Connor, Law Offices of Michael J. O'Connor, San Antonio, TX, Donald B. Garvey, Garvey & Associates, LTD, Oak Brook Terrace, IL, John Steven Delnero, John Edward Susoreny, William Francis Dolan, Bell Boyd & Lloyd LLC, Robert MacDonald Moye, U.S. Securities & Exchange Commission, Donna B. Wallace, Joseph Albert Baldi, Joseph A. Baldi & Associates, PC, Christina M. Berish, Glen T. Keysor, Fagel & Haber, William K. Carter, Gary Eugene Green, Clark Hill, PLC, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

Judson Atkinson Candies, Inc. ("Judson") filed suit in the United States District Court for the Western District of Texas against L Liquidation Company f/k/a LMC International ("LMC") for damages incurred upon the failure of a candy-making machine that LMC sold to Judson. (R. 221, Pl.'s Mot. for Choice of Law at 1; R. 116, Pl.'s Corrected First Am. Compl. 8.) On January 20, 2004, after a trial at which LMC did not appear, the court entered final judgment against LMC for breach of contract in the amount of $2,772,033 for actual and additional damages; prejudgment interest on Judson's actual damages in the amount of $55,369.35; and postjudgment interest on the total sum of $2,827,402.35 from January 20, 2004, until the judgment is paid in full. (R. 116, Pl.'s Second Am. Compl. 9.) Judson never collected its judgment and filed a new lawsuit to collect its original judgment. (R. 116-1, Pl.'s Corrected First Am. Compl. 9.; R. 68-4, Docket.) The court sua sponte transferred this case to the Northern District of Illinois on forum non conveniens grounds, pursuant to 28 U.S.C. § 1404(a)(2). (R. 214, Pl.'s Facts 9.)

In this suit, Judson alleges that LMC fraudulently transferred its assets to the named defendants for the purpose of avoiding the judgment debt in violation of Texas's Uniform Fraudulent Transfer Act ("UFTA"). Judson named the following defendants as parties to this suit: LMC; Carroll International Corporation ("CIC"), the parent company of LMC; CIC's President and LMC's Chairman and CEO, Barry Carroll ("Carroll"); Latini-Hohberger Dhimantec, Inc. f/k/a Dhiman Industries ("Dhimantec"); Roger Hohberger ("Hohberger"), Vice President of Dhimantec and former Vice President of Sales for LMC; and James Elsen ("Elsen"), Vice President and CEO of CIC and secretary-treasurer of LMC, (collectively "Defendants").¹ Judson seeks to pierce LMC's corporate veil based on an alter ego theory in order to hold CIC and the individual defendants liable for LMC's judgment. Judson alleges that Carroll, Elsen, and Hohberger misused the corporate form by transferring LMC's assets to third parties in order to avoid paying Judson the judgment. Judson further alleges that Dhimantec is the alter ego of LMC and should be held liable for LMC's judgment.

Currently before the Court are Carroll's motion to strike exhibits filed with Judson's motion for summary judgment (R. 235-1); CIC and Elsen's motion to strike Judson's facts (R. 249-1); Defendants' motion for sanctions and to strike (R. 252-1); Judson's motion for choice of law (R. 221-1); Judson, Elsen and LMC, Carroll, Hohberger and Dhimantec, and CIC's cross-motions for summary judgment (R. 199-1; R. 203-1; R. 207-1; R. 212-1; R. 219-1); CIC's motion to strike and compel the return of a privileged document (R. 270-1); Carroll's motion to bar evidence (R. 193); Judson's motion to redesignate restricted documents as public documents (R. 273-1); and Judson's motion to designate public documents as restricted documents (R. 276-1). The Court will address the motions to strike first and then will resolve the parties' substantive motions.

RELEVANT FACTS²

In November 1980, L Machine Company Inc. was incorporated in the state of Illinois. (R. 224, Pl.'s Resp. to Carroll's Facts 4.) On November 25, 1996, L Machine Company changed its name to LMC International, Inc. (Id. 5.) Throughout LMC's existence, the outstanding shares of LMC's stock were wholly owned by CIC. (R. 239, Carroll's Resp. to Pl.'s Facts 13.) The outstanding shares of CIC's stock are owned by Carroll, and the Wallace E. and Lelia H. Carroll 1958 Trust of which Carroll is the sole beneficiary. (Id.) Carroll is the President and Chairman of CIC, which operated from his house for over the past year. (Id. 14.) By 2001, Carroll was also serving as the CEO and Chairman of LMC, but prior to this time, Dave Kiel ("Kiel") held this position. (R. 214, Pl.'s Facts, Ex. 2, Kiel Letter; Id., Ex. 12, Loan Docs.) Peter Loveland ("Loveland") was President of LMC. (R. 224, Pl.'s Resp. to Carroll's Facts 19.) From 1991 until 2005, Elsen was the Vice President and Chief Operations Officer of CIC and the Secretary-Treasurer of LMC. (R. 239, Carroll's Resp. to Pl.'s Facts 15.) Elsen has never owned stock in CIC, LMC, Dhimantec, or any Carroll entities nor is he a beneficiary of any of the named trusts. (R. 228, Pl.'s Resp. to Elsen's Facts 13-14.)

Hohberger began working for LMC in 1996. (R. 243, Pl.'s Resp. to Hohberger/Dhimantec's Facts 4.) Prior to that time, Hohberger and his father operated a candy machinery manufacturing company known as Hohberger Manufacturing, Inc. (Id. 1.) The company manufactured a line of machinery which produced hard candies and other confectionery products. (Id.) In October 1996, LMC acquired the assets of Hohberger Manufacturing, Inc. (Id. 3-4.) After the 1996 acquisition, Hohberger worked as an employee of LMC, but he never acquired any shares of LMC or became a director. (Id. 4-5.) From 2001 until 2003, Hohberger held the position of Vice President of Sales of LMC. (Id. 6.)

LMC engaged in various corporate functions including: filing yearly reports with the Illinois Secretary of State, (R. 224, Pl.'s Resp. to Carroll's Facts 9); issuing stock certificates to CIC, (id. 11); and obtaining financing from third parties, (id. 12). LMC also conducted annual meetings and executed unanimous consents for certain corporate activities. (Id. 10.) LMC also incurred mortgages on its real property through MB Financial. (R. 239, Carroll's Resp. to Pl.'s Facts 17.) The proceeds of these loans were deposited into the CIC Sweep Account.³ (Id. 17; R. 214, Pl.'s Facts, Ex. A, Elsen Dep. at 198; R. 246, CIC and Elsen's Resp. to Pl.'s Facts 17, 20.) On at least three occasions, LMC sought CIC's approval for LMC's expenditures. (R. 214, Pl.'s Facts, Ex. 1, 4-5.) LMC had employees separate from CIC. (R. 224, Pl.'s Resp. to Carroll's Facts 13.)

CIC conducted no annual meetings and was characterized by Elsen as a holding company. (R. 239, Carroll's Resp. to Pl.'s Facts 22.) CIC issued stock certificates to its shareholders. (R. 224, Pl.'s Resp. to Carroll's Facts 24.) CIC also filed yearly reports with the Delaware Secretary of State. (Id. 22.) At all relevant times, CIC did not generate any revenues of its own, but derived its revenues through its subsidiaries and from contributions from its shareholders. (Id., Ex. 1, Elsen Dep. at 346.) CIC made 401k contributions for LMC employees and paid for their group insurance. (R. 246, CIC and Elsen's Resp. to Pl.'s Facts 21.) After 2003, CIC and LMC operated from the same address, but prior to this time, CIC and LMC operated from separate addresses. (R. 232, Pl.'s Resp. to CIC's Facts 27.) In the fall of 2002, LMC executed a promissory note in favor of CIC in the principle amount of $11,199,788.22. (R. 232, Pl.'s Resp. to CIC's Facts, Ex. 9, Promissory Note; R.R. 224, Pl.'s Resp. to Carroll's Facts 33.) CIC claims that over the course of 12 years, it infused approximately $11 million dollars into LMC to pay various expenses, but Judson disputes the existence of this loan. (Id. 31.)

Also during the fall of 2002, CIC began seeking prospective purchasers for LMC. (R. 239, Carroll's Resp. to Pl.'s Facts 25.) (R. 243, Pl.'s Resp. to Hohberger/Dhimantec's Facts 7.) The decision was made after an independent company, BBK, Ltd., performed a viability analysis study and recommended the sale of LMC. (R. 232, Pl.'s Resp. To CIC's Facts 37.) Once CIC made the decision to sell LMC's assets, Carroll marketed LMC's real property and improvements for sale under his brokerage company, CIC realty. (R. 239, Carroll's Resp. to Pl.'s Facts 27.) King Street LLC purchased LMC's property.⁴ (Id. 27; R. 243, Pl.'s Resp. to Hohberger/Dhimantec's Facts 14.) The majority of the proceeds were used to pay off LMC's mortgage and line of credit with MB Financial. (R. 239, Carroll's Resp. to Pl.'s Facts 27; Id., Ex. 4, Elsen Dep. at 104; R. 214, Pl.'s Facts, Ex. 17.) In July 2003, LMC sold its Coating and Panning Products Group to Bosch for $300,000. (R. 224, Pl.'s Resp. to Carroll's Facts, Ex. 18, Bosch Sales Agreement.)

Seeking to market LMC's remaining assets, Elsen and Loveland attended a trade show for candy machinery in Germany, where they met Arminder Dhiman ("Dhiman"), owner of Dhiman Industries. (R. 243, Pl.'s Resp. To Hohberger/Dhimantec's Facts 7-9.) From early 2003 through the fall of 2003, CIC conducted negotiations with Dhiman for the sale of LMC's remaining assets. (R. 239, Carroll's Resp. to Pl.'s Facts 32.) Prior to these negotiations, LMC and Dhiman had some business dealings. (R. 232, Pl.'s Resp. To CIC's Facts 42.) LMC entered into a distribution agreement with Dhiman, in which LMC agreed to distribute Dhiman Industries' equipment in the United States, Mexico and Canada. (Id.; R. 246, CIC and Elsen's Resp. to...