McGinley Partners, LLC v. Royalty Props., LLC

Decision Date31 March 2021
Docket Numbers. 1-20-0390,1-20-0391 (cons.)
Parties MCGINLEY PARTNERS, LLC, an Illinois Limited Liability Company, Plaintiff-Appellee, v. ROYALTY PROPERTIES, LLC, a Florida Limited Liability Company; Richard Kirk Cannon, an Individual; and Meryl Squires Cannon, an Individual, Defendants-Appellants (Merix Pharmaceutical Corporation, Third-Party Respondent-Appellant).
CourtUnited States Appellate Court of Illinois

William J. Quinlan, Lisa H. Quinlan, David E. Hutchinson, Alex Walsdorf, and Jack McLeod, of Quinlan Law Firm, LLC, of Chicago, and Richard Kirk Cannon, of Law Offices of Cannon & Associates, of Barrington, for appellants.

Katherine Saldanha Olson and Joseph S. Messer, of Messer Strickler, Ltd., of Chicago, for appellee.

PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion.

¶ 1 In February 2017, plaintiff McGinley Partners, LLC, obtained an $8.3 million judgment against defendants Royalty Properties, LLC (Royalty Properties), Richard Kirk Cannon, and Meryl Squires Cannon (collectively, the Cannons), arising from a $1.5 million loan and mortgage executed by Royalty Properties and guaranteed by the Cannons. The instant consolidated appeals arise from several orders entered by the trial court in supplementary proceedings related to that judgment, in which plaintiffs served defendants with citations to discover assets and also served Merix Pharmaceutical Corporation (Merix), a corporation founded by Squires Cannon, with a third-party citation to discover assets. Plaintiff subsequently claimed that Merix violated the third-party citation when it made certain payments on Squires Cannon's behalf. The trial court granted plaintiff's motions for judgment against Merix and entered judgments for $297,846.53 and $1,103,876.25, respectively. The court also set aside as fraudulent certain transfers of intellectual property made by Merix to another corporation founded by Squires Cannon, Meritus Corporation (Meritus). Defendants and Merix appeal, claiming that the trial court made several errors in its consideration of plaintiff's motions. For the reasons set forth below, we affirm the court's judgment but modify the amount of the judgment to correct a mathematical error.

¶ 2 BACKGROUND

¶ 3 The underlying loan that gave rise to the supplementary proceedings at issue here has been the subject of extensive litigation, resulting in a number of appeals before this court, most recently in McGinley Partners, LLC v. Royalty Properties, LLC , 2020 IL App (1st) 190546, 440 Ill.Dec. 232, 151 N.E.3d 704. We relate here only the details necessary to understand the context for the instant litigation, drawing our facts from our prior decisions.

¶ 4 The Cannons owned 43 horses, which resided on a farm in Barrington Hills owned by Horizon Farms, Inc. (Horizon Farms). In 2006, Horizon Farms solicited bids in an effort to sell the farm, and the Cannons submitted a bid of $19.35 million for the property, which was accepted. The Cannons made an earnest money deposit of nearly $2 million and financed the rest of the purchase price, primarily by obtaining a loan of $14.5 million from Amcore Bank in exchange for a mortgage on the property and the personal guaranties of the Cannons. In order to obtain this financing, Amcore Bank required the Cannons to form a limited liability company to sign for the loan as the mortgagee. Accordingly, the Cannons created Royalty Properties. In addition, Horizon Farms, the seller, loaned $1.5 million to Royalty Properties, evidenced by a promissory note and secured by a second mortgage on the property, as well as the personal guaranties of the Cannons. Horizon Farms subsequently assigned its interest in the note and guaranty to the William J. McGinley Marital Trust (trust) upon the dissolution and liquidation of Horizon Farms. The trust later assigned all of its right, title, and interest in the note and guaranty to plaintiff. It is this loan that gave rise to the supplementary proceedings at issue in the case at bar.

¶ 5 On May 15, 2014, plaintiff filed a complaint against defendants to enforce the note and guaranty executed by them with respect to the Horizon Farms loan when they defaulted.1 The court granted summary judgment in favor of plaintiff and entered judgment in the amount of $8,320,669.43 on February 2, 2017, a decision we affirmed on appeal in McGinley Partners, LLC v. Royalty Properties, LLC , 2018 IL App (1st) 171317, 427 Ill.Dec. 270, 117 N.E.3d 1207. Defendants subsequently filed two petitions to vacate the judgment pursuant to section 2-1401 of the Code of Civil Procedure (Code) ( 735 ILCS 5/2-1401 (West 2016) ), both of which were denied; we affirmed the denial of the section 2-1401 petitions in McGinley Partners, LLC v. Royalty Properties, LLC , 2018 IL App (1st) 172976, 431 Ill.Dec. 671, 128 N.E.3d 341, and in McGinley Partners , 2020 IL App (1st) 190546, 440 Ill.Dec. 232, 151 N.E.3d 704.

¶ 6 On June 16, 2017, plaintiff issued citations to discover assets to each of the Cannons, and on October 2, 2017, plaintiff issued a third-party citation to discover assets to Merix. Each of the citations contained a restraining provision; the citation issued to Merix provided:

"YOU ARE PROHIBITED from making or allowing any transfer or other disposition of, or interfering with, any property not exempt from execution or garnishment belonging to Defendant or to which s/he may be entitled or which may thereafter be acquired by or become due to him or her, and from paying over or otherwise disposing of any moneys not so exempt which are due or to become due to Defendant, up to double the amount of the balance due, until further order of court or termination of the proceeding, whichever occurs first."

¶ 7 On August 31, 2018, plaintiff filed a motion for entry of judgment against Merix. Plaintiff claimed it had issued the citation to Merix to determine whether Merix had paid any money to Squires Cannon, Merix's president and chief executive officer. In response to the citation, Dori Squires Hough, Squires Cannon's daughter and executive vice president of Merix, denied that Merix had paid any money to Squires Cannon. However, on July 30, 2018, during her citation examination, Squires Hough testified that, at the instruction of Squires Cannon, Merix paid a number of Squires Cannon's credit card bills on a monthly basis and had done so for the past few years. These payments were entered into Merix's accounting system as loans, but Squires Hough could not recall any payments made by Squires Cannon toward any of the loans. She further testified that Squires Cannon charged personal expenses on company credit cards, which Merix also paid, and that Merix made monthly payments on the vehicle driven by Squires Cannon.

¶ 8 Squires Hough also testified that Squires Cannon had previously received a salary from Merix, but that Squires Cannon decided to no longer receive a salary at some point; Squires Cannon also had previously received substantial royalties from Merix related to a patent she owned. Squires Hough additionally testified that Merix paid the bills of Royalty Farms, LLC (Royalty Farms), an entity owned in part by Squires Cannon, at a rate of approximately $5000 per week, which were classified as loans; however, Squires Hough had never been provided with any loan documents and could not recall the amounts of any payments made by Royalty Farms.

¶ 9 Plaintiff claimed that the citation against Merix prohibited Merix from making any payments to Squires Cannon and that Merix had violated the citation. Accordingly, plaintiff requested the entry of judgment against Merix. Attached to the motion were the transcript from Squires Hough's citation examination, as well as Squires Hough's answer to the citation, in which she denied that Merix paid any money to Squires Cannon.

¶ 10 On January 23, 2019, plaintiff filed several motions related to the citation proceedings. First, plaintiff filed a motion to set aside certain allegedly fraudulent transfers. Plaintiff claimed that Merix maintained an exclusive license to manufacture and distribute Releev, a cold sore treatment invented by Squires Cannon, pursuant to a 1999 licensing agreement between Merix and Squires Cannon. Under this licensing agreement, Squires Cannon had received substantial royalties, with the royalties at one time being valued at $6 million. However, notwithstanding the fact that Squires Cannon was in substantial debt at the time, on July 1, 2011, she sold her 85% ownership interest in Merix, as well as her numerous patents and trademarks, to Meritus, a corporation in Dominica, for $10. Plaintiff claimed that the patent and trademark assignments were characterized as nunc pro tunc , were not notarized, and were not registered with the trademark office until July 10, 2015, despite purportedly being executed on July 1, 2011. Plaintiff further claimed that the patent and trademark assignments made clear that Squires Cannon was to continue to receive royalties from the patents and trademarks through July 2015. Similarly, the assignment of Merix shares were not notarized and provided that Meritus's ownership in the shares would not vest until royalties under the licensing agreement had been paid to Squires Cannon through July 2015.

¶ 11 Plaintiff claimed that Squires Cannon took the position that the assignments were made as part of a global expansion effort in order to expand Releev's distribution networks. Squires Cannon claimed that European companies did not desire to do business with American companies, so she was advised to create an offshore company instead, which led to the creation of Meritus. Plaintiff noted that Squires Cannon was the only person who contributed assets to Meritus but that she claimed not to have any ownership interest in Meritus or even know who owned Meritus. Plaintiff contended that Squires Cannon was the owner of...

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