Old Orchard Urban L.P. v. Harry Rosen, Inc.

• Decision Date: 11 March 2009
• Docket Number: No. 1-08-0815.,1-08-0815.
• Citation: 904 N.E.2d 1050
• Parties: OLD ORCHARD URBAN LIMITED PARTNERSHIP, as Beneficiary of Trust Agreement Dated June 1, 1993, known as Trust No. 116914-09, with American National Bank and Trust Company of Chicago as Trustee, Plaintiff-Appellant, v. HARRY ROSEN, INC., an Ontario Corporation, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

904 N.E.2d 1050

OLD ORCHARD URBAN LIMITED PARTNERSHIP, as Beneficiary of Trust Agreement Dated June 1, 1993, known as Trust No. 116914-09, with American National Bank and Trust Company of Chicago as Trustee, Plaintiff-Appellant, v. HARRY ROSEN, INC., an Ontario Corporation, Defendant-Appellee.

No. 1-08-0815.

Appellate Court of Illinois, First District, Third Division.

March 11, 2009.

David J. Fischer, Jonathan W. Young, David P. Vallas, Christine E. Skoczylas, Wildman, Harrold, Allen & Dixon, Chicago, IL, for Plaintiff-Appellant.

Stephen C. Schulte, Linda T. Coberly, Keith R.C. Pozulp, Winston & Strawn LLP, Chicago, IL, for Defendant-Appellee.

Justice THEIS delivered the opinion of the court:

Plaintiff Old Orchard Urban Limited Partnership (Old Orchard) appeals from the order of the circuit court granting the motion to dismiss of defendant Harry Rosen, Inc., pursuant to sections 2-301 and 2-619 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-301, 2-619 (West 2006)). Specifically, the circuit court found that it lacked personal jurisdiction over Harry Rosen, a Canadian corporation, where Harry Rosen was not a party to a lease and guaranty executed by two of its subsidiaries in Illinois and where Harry Rosen was not an alter ego of its subsidiaries. On appeal, Old Orchard contends that: (1) the circuit court erred in granting Harry Rosen's motion to dismiss because Harry Rosen and its domestic subsidiaries were alter egos of one another; and (2) the circuit court abused its discretion in denying Old Orchard's request for documents pursuant to Supreme Court Rule 201(1) (210 Ill.2d R. 201(1)) on the grounds that it was overbroad. For the following reasons, we affirm.

Old Orchard's complaint alleged the following relevant facts.¹ Old Orchard is a limited partnership and the beneficial owner of a large shopping mall in Skokie, Illinois. Harry Rosen is a Canadian corporation headquartered in Toronto, which operates 16 high-end menswear stores across Canada under the name "Harry Rosen." In the late 1980s, Harry Rosen created a wholly owned subsidiary, Harry Rosen USA (HRUSA), a Delaware corporation, which opened a Harry Rosen store in the United States. Although Harry Rosen later decided to close its American store, it continued to transact its business in the United States through HRUSA.

In the late 1990s, Harry Rosen decided to operate Hugo Boss clothing boutiques in the American market. For this venture, Harry Rosen created another corporate entity, Specialty Stores, Inc., also a Delaware corporation. Specialty Stores was a wholly owned subsidiary of HRUSA and also the parent holding company for nine wholly owned subsidiary-affiliated companies, each of which would own and operate a Hugo Boss boutique (collectively, the SSI subsidiaries). SSI Old Orchard, Inc. (SSIOO), which owned and operated the Hugo Boss boutique at Old Orchard mall, was one of these SSI subsidiaries.

Each of the SSI subsidiaries entered into licensing agreements with Hugo Boss Licensing, Inc. The license agreements, one of which Old Orchard attached to its complaint, provided the following. The license granted each SSI subsidiary the right to operate a Hugo Boss store, a license to use the Hugo Boss "system" of selling Hugo Boss merchandise and a license to use the Hugo Boss mark. The agreements required the SSI subsidiaries to operate their stores in compliance with Hugo Boss's standards and the procedures of the Hugo Boss "system." The agreement also required the SSI subsidiaries to design and decorate their stores in accordance with Hugo Boss's specifications. Hugo Boss agreed to provide ongoing training of SSI subsidiary employees and to suggest pricing, marketing, and display techniques for the merchandise. The SSI subsidiaries would modify their stores and sales techniques if Hugo Boss directed such changes. In exchange for these rights, the SSI subsidiaries paid a monthly contribution toward Hugo Boss advertising. Harry Rosen guaranteed each of the SSI subsidiaries' performances of the license agreement. Harry Rosen also guaranteed each of the SSI subsidiaries' accounts payable to Hugo Boss Licensing, Inc.

In the complaint, Old Orchard alleged that Harry Rosen exercised "complete dominion and control" over the corporate governance, cash management, financing, and day-to-day operations of HRUSA, Specialty Stores, and the SSI subsidiaries. Specifically, all of these corporate entities maintained their corporate headquarters and principal place of business at the same location in Toronto, and the officers and boards of directors of these corporations consisted of the same individuals. The books, tax returns, and financial statements of Specialty Stores and the SSI subsidiaries were also consolidated. Harry Rosen controlled the flow of funds in and out of the SSI subsidiaries' bank accounts via a bank account maintained by HRUSA. If there were ever insufficient funds in an SSI subsidiary's bank account, HRUSA would transfer money to the account to enable the SSI subsidiary to satisfy its obligations.

Harry Rosen borrowed money from the Royal Bank of Canada to provide the initial funding for the SSI subsidiaries. Harry Rosen pledged certain of its own assets as collateral for the loan. After the SSI subsidiaries began transacting business, Harry Rosen transferred assets out of the SSI subsidiaries to satisfy this loan.

In 1999, SSIOO and Old Orchard entered into a lease agreement for retail space at Old Orchard Mall in which to open the SSIOO Hugo Boss boutique. Specialty Stores unconditionally guaranteed SSIOO's payment of its obligations under the lease.

In late 2001, Harry Rosen decided to end operations of the SSI subsidiaries. To resolve the SSI subsidiaries' obligations to Hugo Boss, Harry Rosen, which had guaranteed these obligations under the licensing agreements, sold the majority of the SSI subsidiaries' assets to Hugo Boss and agreed to pay the remainder over a certain period of time.

After SSIOO ceased operation of its boutique, Old Orchard sued Specialty Stores in United States District Court to enforce Specialty Stores' guaranty of SSIOO's lease and collect unpaid rent and other charges. Specialty Stores dissolved roughly a year after Old Orchard filed the suit but continued to defend the litigation for several months thereafter. At that point, Specialty Stores' counsel withdrew, and no new counsel ever appeared. Ultimately, on September 23, 2004, the federal district court entered a default judgment against Specialty Stores for $2,706,437.48. However, because Specialty Stores had no assets at that time, it was unable to satisfy the judgment.

Thus, Old Orchard articulated two counts in its complaint against Harry Rosen in the present action. In count I, Old Orchard sought a declaratory judgment that HRUSA, Specialty Stores, and SSIOO were alter egos of Harry Rosen to the extent that the outstanding obligations of HRUSA, Specialty Stores, and SSIOO are also the obligations of Harry Rosen. In count II, Old Orchard requested that the $2,706,437.48 default judgment entered in federal court against Specialty Stores be enforced against Harry Rosen.

In response, Harry Rosen filed a special appearance and a motion to dismiss Old Orchard's complaint for lack of personal jurisdiction pursuant to sections 2-301 and 2-619(a) of the Code. In its motion to dismiss, Harry Rosen contended that it was not subject to personal jurisdiction in Illinois because it was a wholly separate business entity from HRUSA, Specialty Stores, and SSIOO, which did not conduct or transact business in the United States. Harry Rosen further explained that unlike the American Hugo Boss boutiques, its Canadian menswear stores operated a different kind of retail business, which sold multiple brands of high-end menswear, including Armani, Zegna, Canali, Dolce & Gabbana, Versace, Prada, Etro, and, also, Hugo Boss, in addition to others. Harry Rosen also employed different individuals and offered them different benefits. Each entity also observed corporate formalities and retained separate identities. Harry Rosen attached numerous items to its motion to substantiate these facts, including an affidavit from its secretary and chief financial officer, Conrad Frejlich, certificates of incorporation for all of the entities, bank account statements for the entities, lists of employees, benefits information, and financial statements and tax returns for the entities.² In particular, the financial statement for SSIOO shows that the corporation had hundreds of thousands of dollars worth of inventory and fixed assets while in operation. SSIOO's and Specialty Stores' financial statements also reflected the financing and increases in financing that these subsidiaries owed their parent. Conrad Frejlich also explained that although Harry Rosen had obtained the initial funding for the SSI subsidiaries by way of a loan from the Royal Bank of Canada, the SSI subsidiaries were guarantors of that loan and the assets of the SSI subsidiaries served as collateral.

With respect to the lease agreement between SSIOO and Old Orchard, Harry Rosen explained that in late 1998, the vice president of Old Orchard met in Chicago with the chairman of Specialty Stores to discuss the possibility of opening a Hugo Boss boutique at Old Orchard mall. During lease negotiations, Old Orchard requested that Harry Rosen guaranty SSIOO's lease. However, Harry Rosen would not agree to be guarantor. Thereafter, Old Orchard's vice president requested financial information regarding Specialty Stores. On June 18, 1999, Conrad Frejlich, the chief financial officer and secretary of Specialty Stores, sent the vice president a letter, printed on Specialty Stores' letterhead, confirming that Specialty Stores would have a net worth of not less than $500,000 U.S. prior to the date of SSIOO's possession of the premises at the mall. Frejlich also enclosed a copy of Specialty Stores' financial...