Nw. Mem'l Hosp. v. Sharif

Decision Date02 December 2014
Docket NumberNo. 1–13–3008.,1–13–3008.
Citation22 N.E.3d 1217
PartiesNORTHWESTERN MEMORIAL HOSPITAL, Plaintiff–Appellee, v. Farouk Adam SHARIF, Defendant–Appellant (Tierney Sharif, Defendant).
CourtUnited States Appellate Court of Illinois

Voelker Litigation Group, Chicago (Daniel J. Voelker, of counsel), for appellant.

Holland & Knight LLP, Chicago (Christopher W. Carmichael and Darren H. Goodson, of counsel), for appellee.

OPINION

Presiding Justice SIMON

and Justice LIU concurred in the judgment and opinion.

¶ 1 Defendant, Farouk Adam Sharif, appeals the judgment of the circuit court of Cook County finding he violated the Uniform Fraudulent Transfer Act (Act) (740 ILCS 160/1 et seq.

(West 2008)) for fraudulently conveying to himself assets of his company to avoid payment to the plaintiff creditor. Appellant argues: (1) that the trial court erred by failing to consider all 11 factors of fraud listed in the Act; and (2) the trial court's judgment was against the manifest weight of the evidence. For the following reasons, we affirm the judgment of the trial court.

¶ 2 BACKGROUND

¶ 3 In 2003, Randolph Equities, LLC, a real estate investment firm, rented office space at 211 East Ontario Street, in Chicago, Illinois. Defendant, Farouk Adam Sharif,1 was the founder, president, chief executive officer (CEO), chief operating officer (COO) and managing member of Randolph Equities until it was involuntarily dissolved in April 2010. Codefendant, Tierney Sharif, is the ex-wife of Adam. Plaintiff Northwestern Memorial Hospital acquired ownership of the real estate and the lease in 2008. In September 2008, Randolph Equities had no money and stopped paying rent owed to Northwestern.

¶ 4 When Randolph Equities abandoned the premises and the lease in October 2009, plaintiff sent Adam a certified letter informing him that Randolph Equities was in default and that $173,952.21 was owed. In November 2009, plaintiff sent Adam, his attorneys, and Randolph Equities' in-house counsel certified letters informing them of the default and past-due amounts. In December 2009, plaintiff filed a lawsuit, separate from this litigation, for the unpaid rent (rent litigation). In June 2010, plaintiff obtained a judgment against Randolph Equities in the amount of $270,333.61. During postjudgment collection proceedings plaintiff learned that Randolph Equities had no assets; however, it was a named plaintiff in a recently settled 2005 lawsuit against Carbon Capital, Inc., and BlackRock, Inc. (BlackRock litigation).

¶ 5 Randolph Equities and the Sharifs brought the BlackRock litigation for breach of contract related to a failed Florida real estate transaction. Randolph Equities was the only contract purchaser of the real estate involved in the underlying litigation. In February 2010, while the rent litigation was pending, Randolph Equities and the Sharifs settled the BlackRock litigation for $3.3 million. Adam executed the settlement on behalf of Randolph Equities in his capacity as CEO. Although Randolph Equities was the only contract purchaser, none of the BlackRock settlement proceeds were received by Randolph Equities. The BlackRock settlement was disbursed in three parts: $975,000 to the BlackRock litigation attorneys in settlement of their fees and $2,015,000 to a Chicago law firm. The Chicago law firm then distributed $1,351,000 to Adam and $974,000 to Tierney. Tierney never held any position with, or had any personal interest in, Randolph Equities. According to the BlackRock settlement agreement, Tierney's share was in part payment of Adam's obligations under their marital settlement agreement and in part payment of her share of the BlackRock settlement.

¶ 6 The remaining $310,000 was distributed to Jacob Meister, a former in-house counsel for Randolph Equities, pursuant to a separate settlement agreement between Randolph Equities, the Sharifs and Meister, to release Meister's lien against the settlement and to establish a $50,000 escrow to satisfy certain specified Randolph Equities creditors, mostly law firms. This agreement also included a confidentiality provision instructing Meister on how to respond to any creditor inquiries regarding the BlackRock settlement and prohibiting Meister from disclosing the existence of the creditor escrow account.

¶ 7 Upon learning of the BlackRock settlement, plaintiff filed the instant suit alleging that Randolph Equities was entitled to part or all of the BlackRock settlement because the Sharifs fraudulently transferred the settlement funds to themselves instead of Randolph Equities in contravention of the Act. Plaintiff's complaint alleged two causes of action: imposition of a constructive trust over the fraudulent transfer of the BlackRock settlement funds and unjust enrichment.

¶ 8 Adam was served with four requests to produce documents, which generated two motions to compel discovery. Plaintiff sought production of the BlackRock settlement information, any related accounting records and any documentation relating to funds Adam provided to Randolph Equities. Ultimately, Adam produced three documents: the BlackRock attorney fees settlement agreement, the marital settlement agreement and the Meister settlement agreement. Adam claimed that he did not have any documentation regarding funds he provided to Randolph Equities claiming that any such documentation was in the possession of his Chicago based accountant and were available upon plaintiff's request. Those documents were never produced.

¶ 9 A bench trial was held on May 9, 2013. Plaintiff and Tierney filed a joint stipulation of facts that established that Tierney was never an officer or director of Randolph Equities; she was a named plaintiff in and was paid from the BlackRock settlement; and she did not personally invest funds in the failed BlackRock real estate transaction. Various trial exhibits included the instant complaint, the Northwestern lease, letters of default sent on October 9 and November 4, 2009, the BlackRock litigation complaint, the BlackRock litigation settlement, a bank statement from the Chicago-based law firm that received the previously mentioned BlackRock proceeds, the settlement agreements with the BlackRock attorneys and Meister, and the $270,333. 61 judgment order in favor of Northwestern.

¶ 10 Adam, called as an adverse witness, was the only witness. Adam testified that Randolph Equities vacated the East Ontario Street offices in September 2008. He informed plaintiff at that time, but [t]hey wouldn't even accept the keys.” He was served with the rent litigation complaint in March or April 2010, after the BlackRock settlement in February 2010.

¶ 11 Adam stated that when he authorized the BlackRock settlement disbursements in March 2010, he was not aware of the rent litigation. Adam testified that over the course of a decade, he gave Randolph Equities approximately $10 million for its operating expenses. Adam amassed these funds while working as the managing director of GMAC Commercial Mortgage, where, for several years, he earned a “seven figure” income. Adam maintained that these funds were loans to Randolph Equities and Randolph Equities was indebted to him for these monies. These loans were the only source of funds for the corporation. When Adam ran out of money, Randolph Equities became insolvent. His portion of the BlackRock settlement was partial repayment for those loans. He believed that Randolph Equities was free to choose which creditors to pay, so he paid himself first. Adam did not produce any documentation to support his testimony that the $10 million was a loan. He maintained that his financial records were available for plaintiff's inspection at his accountant's office in Chicago.

¶ 12 Adam signed the BlackRock settlement in his capacity as CEO of Randolph Equities. Randolph Equities was “the named purchaser” for the Florida real estate and the borrower for the loans at issue in the BlackRock litigation.

¶ 13 After considering all the evidence, the trial court entered judgment in plaintiff's favor on its claim for imposition of a constructive trust over the BlackRock settlement funds and found the count for unjust enrichment moot. The trial court observed that an intent to defraud can be proven by circumstantial evidence and generally referenced nine factors listed in the Act that may be considered. 740 ILCS 160/5(b)

(West 2008). The court found that seven of the nine factors were satisfied such that a presumption of fraud was established. The trial court found that it did not believe Adam's testimony that he “loaned” Randolph Equities $10 million or that he was a preferred creditor especially where there was no “corroborating document, evidence of any sort, a note, anything, or even a letter memorializing” the loans. The trial court found that Adam's testimony did not rebut the presumption of fraud. Specifically, the trial court stated:

“There's been clear and convincing evidence presented here and it has not been rebutted that * * * Randolph was methodically and intentionally and carefully put on the sidelines here by making sure that the name of the entity didn't appear on any check * * * and only appeared when necessary to sign releases and release the flow of money to the other people * * * that the presumption of fraud here has not been overcome just by the general claim that these were loan[s].”

Adam timely filed this appeal. Defendant Tierney did not appeal.

¶ 14 ANALYSIS

¶ 15 Adam argues that the trial court did not properly apply the Act in this case and that the trial court's judgment was not based on the evidence. Defendant argues that interpretation of the Act is at issue, which requires a de novo review. We disagree. The resolution of this appeal requires an evaluation of the evidence as it is applied to the Act. This factual determination calls for review under the manifest weight of the evidence standard. In re Application of the Kane County Collector, 297 Ill.App.3d 745, 748, 232 Ill.Dec. 255, 697 N.E.2d 1185 (1998...

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