Steel Co. v. Morgan Marshall Industries, Inc.

• Decision Date: 06 March 1996
• Docket Number: No. 1-92-3494,1-92-3494
• Parties: , 214 Ill.Dec. 1029, 29 UCC Rep.Serv.2d 649 The STEEL COMPANY et al., Plaintiffs-Appellants, v. MORGAN MARSHALL INDUSTRIES, INC., Defendant-Appellee (Phillip Rosenband et al., Defendants).
• Court: United States Appellate Court of Illinois

Page 595

662 N.E.2d 595

278 Ill.App.3d 241, 214 Ill.Dec. 1029,

29 UCC Rep.Serv.2d 649

The STEEL COMPANY et al., Plaintiffs-Appellants, v. MORGAN MARSHALL INDUSTRIES, INC., Defendant-Appellee (Phillip Rosenband et al., Defendants).

No. 1-92-3494.

Appellate Court of Illinois First District, Third Division.

March 6, 1996.

[278 Ill.App.3d 243] [214 Ill.Dec. 1030] Appeal from the Circuit Court of Cook County, Honorable Thomas O'Brien, Judge Presiding.

Stuart Smith, Lance T. Jones, Chicago, of counsel, for appellants.

Michael E. Pildes, Chicago, of counsel, for appellees.

Justice TULLY delivered the opinion of the court:

This consolidated action was brought in the circuit court of Cook County by plaintiffs-creditors For the reasons which follow, we reverse and remand with directions.

[214 Ill.Dec. 1031] the Steel Company and Northern Industries, Inc. (hereinafter "Northern"), against defendants Morgan Marshall Industries, Inc. (hereinafter "Morgan Marshall"), Phillip Rosenband (hereinafter "Phillip") and Par Steel Products and Services, Inc. (hereinafter "Par Steel"), to recover monies owed to them by Par Steel for goods sold and delivered to it in the years 1987 and 1988. Defendants moved for summary judgment based on the grounds that Morgan Marshall was not a successor corporation to Par Steel and was therefore not liable for Par Steel's debt. In addition, there was no transfer of assets between Morgan Marshall and Par Steel which violated the Uniform Fraudulent Transfer Act (Ill.Rev.Stat.1991, [278 Ill.App.3d 244] ch. 59, par. 101 et seq. (now 740 ILCS 160/1 et seq. (West 1994))). The circuit court granted defendant's motion. It is from this order that plaintiffs now appeal to this court pursuant to Supreme Court Rule 304(a). (134 Ill.2d R. 304(a)). Phillip and Par Steel are not parties to this appeal.

FACTUAL BACKGROUND

Par Steel was an Illinois corporation involved in fabricating steel products. It ceased operations on May 14, 1990, and was involuntarily dissolved by the Illinois secretary of state on December 25, 1990. Morgan Marshall is an Illinois corporation in the business of fabricating steel products. It had originally been incorporated as East Coast Cellular Phone & Sales, Inc., on November 22, 1989. Phillip was the chief executive officer, president and sole shareholder of Par Steel and was also the chief executive officer, treasurer and director of Morgan Marshall.

Plaintiffs sold steel to Par Steel in 1987 and 1988. Northern had made an additional delivery in 1989. Par Steel did not pay the entire amount due. Morgan Marshall did not exist at the time when deliveries were made to Par Steel. The attorneys of Uni-Fin Corporation (hereinafter Uni-Fin), an asset-based lender with which Par Steel had entered into secure loan transactions with in 1986 and 1987, served Par Steel with a notice of default on April 17, 1990. On April 24, 1990, Phillip voluntarily sent a letter to Uni-Fin, advising it that Par Steel was in default and that Uni-Fin had a right to foreclose and sell the collateral. Uni-Fin had perfected its security interests in Par Steel's assets by filing U.C.C. financing statements with the secretary of state. On April 26, 1990, Par Steel was served with a notice of public sale pursuant to section 9-504 of the Uniform Commercial Code (hereinafter section 9-504) (Ill.Rev.Stat.1991, ch. 26, par. 9-504 (now 810 ILCS 5/9-504 (West 1994))). The notice of public sale was published only in the Chicago Daily Law Bulletin. Michael Pildes, acting as Morgan Marshall's attorney, wrote to Uni-Fin's attorney, wherein he requested that the notice should only be published in the Chicago Daily Law Bulletin, otherwise, if published in the Chicago Tribune, "[it] could trigger events having a severely negative impact on Par Steel and Uni-Fin. Since both the Chicago Tribune and the Chicago Daily Law Bulletin are secular newspapers of general circulation, publication in either is commercially reasonable." As a result, the notice of public sale was only published in the Chicago Daily Law Bulletin, a legal periodical.

Prior to the date of the public sale, on May 10, 1990, Morgan Marshall wrote to Uni-Fin in regard to borrowing $3.2 million, to be secured by "accounts receivable" and "machinery." Incredibly, Morgan Marshall had not been in business as of May 10, 1990, and the proposed collateral would have been accounts receivable and machinery that belonged to Par Steel. The "equipment rider" enclosed with this letter to Uni-Fin refers to Par Steel's machinery. The loan was guaranteed by Phillip, who had also guaranteed Uni-Fin's loan to Par Steel. Uni-Fin agreed that it would sell the assets to Morgan Marshall if it was the successful bidder at the sale, as well as finance Morgan Marshall's purchase of the assets. In addition, Uni-Fin made a U.C.C. filing claiming a blanket lien on the assets of Morgan Marshall, before the public sale took place.

The section 9-504 public sale took place on May 14, 1990. Uni-Fin successfully bid $3.25 million, which constituted all of Par Subsequent to the public sale, Uni-Fin sold the assets to Morgan Marshall for the sum of $3.2 million. Uni-Fin executed two bills of sale on May 14, 1990, and executed the loan and security agreements with Morgan Marshall on May 15, 1990. The loan was guaranteed by Phillip. Morgan Marshall borrowed the entire amount from Uni-Fin and used the assets of Par Steel as collateral. Phillip, on behalf of Morgan Marshall, authorized and directed Uni-Fin to pay the money from the initial loan proceeds to Uni-Fin rather than to Morgan Marshall and to apply those funds to the Par Steel debt. Uni-Fin then disbursed the funds to itself against Par Steel's indebtedness as authorized by Morgan Marshall. In effect, Morgan Marshall purchased the assets directly from Par Steel and was borrowing the money from Uni-Fin to do so.

[214 Ill.Dec. 1032] Steel's assets. No other buyers were present. The actual fair market value of these assets was unknown. As a result of the loss of its assets, Par Steel ceased business operations.

Par Steel's sole shareholder was Phillip, who was not a shareholder of Morgan Marshall. On September 18, 1990, 1000 shares of stock was issued by Morgan Marshall. Phillip's wife, Sandra Rosenband (hereinafter Sandra), became an 80% shareholder and Keith Morgan became a 20% shareholder. Phillip did not own any stock at Morgan Marshall, but Sandra did own stock, without having paid any consideration for her shares. Keith Morgan received a $50,000 note and guaranteed a $250,000 loan from a bank to Morgan Marshall.

Jose DeLaRosa, the bank auditor, stated in his audit that the assets of Par Steel were transferred to Morgan Marshall. The December 1990 audit of Morgan Marshall by DeLaRosa contains the statement that the net loss figure for Morgan Marshall for the period May 14, 1990, through November 30, 1990, included Par Steel's expenses of $289,000 being shouldered by Morgan Marshall. DeLaRosa testified that he had audited Par Steel on two occasions and Morgan Marshall on three occasions. Audits took place at the same locations and he dealt with the same people.

Morgan Marshall filed a motion for summary judgment, which the circuit court granted. It is from this judgment that plaintiffs now appeal to this court.

ISSUES PRESENTED FOR REVIEW

On appeal, plaintiffs argue that the trial court improperly granted defendant's motion for summary judgment. Specifically, plaintiffs contend that a genuine issue of material fact exists as to whether Morgan Marshall is a successor to Par Steel, and that the granting of the summary judgment acted as a sanction against plaintiffs for not taking certain depositions that the court believed should have been taken.

OPINION

As a preliminary matter, we note that plaintiffs' brief contains merely photocopies of two statutes as an appendix. Supreme Court Rule 342(a) provides, in pertinent part, that:

"(a) Appendix to the Brief. The appellant's brief shall include, as an appendix, a copy of the judgment appealed from, any opinion, memorandum, or findings of fact filed or entered by the trial judge, the notice of appeal, and a complete table of contents, with page references, of the record on appeal." 134 Ill.2d R. 342(a).

Thus, plaintiffs' brief is in clear violation of Rule 342(a), as none of the required documents are contained in the appendix. (134 Ill.2d 342(a).) "Failure to provide a court of review with a brief in compliance with the rules needlessly complicates and extends the appeal process by burdening the court with satellite issues not relevant to the substantive ones on appeal." (People v. Kraft (1995), 277 Ill.App. 221, 224, 213 Ill.Dec. 857, 660 N.E.2d 114.) With regard to violations of Rule 342(a) this court has held that:

"Compliance with Rule 342(a) is not a matter of little or no import. The purpose of the rule is to require parties to proceedings before this court to present argument in a clear and orderly fashion so that the court may properly ascertain and dispose of the issues involved. A reviewing court has inherent authority to dismiss an appeal for noncompliance where an appellant's brief fails to comply with its rules." (People v. Webb (1994), 267 Ill.App.3d 954, 956, 205 Ill.Dec. 6, 642 N.E.2d 871.)

However, as the issues before us are straightforward and the brief is in all other respects adequate, we do not believe that so harsh a sanction as dismissal is warranted in this instance. Accordingly, we shall proceed with what we have been given.

"The purpose of the summary judgment procedure is to permit the court to determine if there is any genuine issue of fact, but not to allow the court to decide factual issues." (Kobus v. Formfit Co. (1966), 35 Ill.2d 533, 538, 221 N.E.2d 633.) The underlying policy is to facilitate litigation as the procedure's "benefits inure not only to the litigants, in the saving of time and expenses, but to the community in avoiding...