Zang v. Alliance Fin. Servs. of Ill., Ltd.

• Decision Date: 21 June 2012
• Docket Number: No. 08 C 3370.,08 C 3370.
• Court: U.S. District Court — Northern District of Illinois
• Parties: John ZANG, Plaintiff v. ALLIANCE FINANCIAL SERVICES OF ILLINOIS, LTD. and Todd Stern, estate of Burton Stern, Defendants.

875 F.Supp.2d 865

John ZANG, Plaintiff
v.
ALLIANCE FINANCIAL SERVICES OF ILLINOIS, LTD. and Todd Stern, estate of Burton Stern, Defendants.

No. 08 C 3370.

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

June 21, 2012.

[875 F.Supp.2d 868]

William P. Foley, Karl W. Roth, Roth Law Group LLC, Chicago, IL, for Plaintiff.

Richard S. Jalovec, Richard S. Jalovec & Associates, Ltd., Chicago, IL, Daniel G. Austin, The Austin Law Group, Ltd., for Defendants.

MEMORANDUM OPINION AND ORDER
MICHAEL T. MASON, United States Magistrate Judge.

Before the Court are defendants' motion for summary judgment [148, re-filed at 181] and plaintiff's motion for partial summary

[875 F.Supp.2d 869]

judgment [154, re-filed at 180].¹ The parties have extensively briefed the motions and the Court heard oral argument on February 10, 2012, after which additional materials were submitted [182, 183, 187, 188].² For the reasons set forth below, defendants' motion for summary judgment is granted and plaintiff's motion for partial summary judgment is denied.

I. BackgroundA. Factual Background³1. The Parties

Plaintiff John Zang (“Zang”) is a resident of Michigan. (Pl.'s LR 56.1 Statement of Facts (“SOF”) [156] ¶ 1.) Defendant Burton Stern (“Stern”), deceased, was a resident of Illinois and the former president and sole owner of defendant Alliance Financial Services of Illinois, Ltd. (“Alliance”). ( Id. ¶ 4; Defs.' LR 56.1 SOF [150] ¶ 3.) As explained in more detail below, Stern's son and executor of his estate, Todd Stern, has since been substituted in this matter pursuant to Fed.R.Civ.P. 25. ( See 3/25/10 Order [94].) Alliance, now dissolved, was a closely held corporation with a principal place of business in Chicago, Illinois. (Pl.'s SOF ¶¶ 2, 6.) According to defendants, the Estate of Burton Stern is now the sole owner of the assets of Alliance.⁴ (Defs.' SOF ¶ 12.)

2. Zang's Relationship with Defendants

In the Spring of 2007, Zang began exploring opportunities to acquire his own manufacturing business. (Pl.'s SOF at Ex. 3–Zang Aff. ¶ 4.) On or about June 19, 2007, Zang telephoned Stern in response to an advertisement Stern placed on the

[875 F.Supp.2d 870]

website “BizBuySell.com.” ⁵ (Pl.'s SOF ¶ 14.) The advertisement states: “Alliance Financial Services, Ltd. Listings of Profitable Manufacturing and Distribution Companies for acquisition with NO principal payments. We provide the Accounting and Business Plan.” (Pl.'s SOF at Ex. 2.) In a section marked “Financing,” the advertisement states that “Alliance will provide Buyer with Investment Bankers.” ( Id.) The following geographic locations are noted in the advertisement: “Greater Midwest, South WE, Illinois.” ( Id.)

At some point in June 2007, Zang traveled to Stern's office in Chicago for a meeting. (Pl.'s SOF ¶ 16.) According to Zang's Statement of Facts, as a result of that meeting, he and Alliance entered into a written “Consulting Agreement” (the “Agreement”), whereby Alliance agreed to act “in its capacity as a Consultant and accountant, and not as a partner, joint venturer, broker, or in any other capacity” to “use its best efforts to locate a company to be purchased.” ( Id.; Pl.'s SOF at Ex. 4.) The Agreement also included language that the contracting “Company” acknowledges that “Alliance is not licensed in any professional capacity.” ( Id.) Appendix 3 to the Agreement states that Zang would provide a one-time retainer of $5,000 for the services to be performed under the Agreement. ( Id.) Appendix 3 also indicates that a 3% consulting fee shall be payable “at the closing and funding of each candidate transaction.” ( Id.) “Upon the first closing under the Agreement the retainer will be refunded by deduction from the consulting fee due at closing and funding.” ( Id.) The version of the purported Agreement in the record before us is dated June 16, 2007 and includes only Stern's signature. ( Id.)

Zang claims he tendered the agreed upon $5,000 retainer fee to Stern. (Pl.'s SOF ¶ 18.) To support this claim, Zang has submitted a cancelled check for $5,000, dated June 25, 2007 and made out to Alliance Financial Services. (Pl.'s SOF at Ex. 5.) “B. Stern” is listed on the memo line. ( Id.) The check appears to have been deposited in New Century Bank account number 1017789. ( Id.) Also on June 25, 2007, Zang contends that he sent Stern a list of seventeen companies that he was interested in evaluating as potential businesses to purchase. (Zang Aff. ¶ 12 and Ex. C.) The June 25, 2007 letter listing those businesses indicates that Stern and Zang previously had telephone conversations, but were not meeting in person at Stern's office until June 30. (Zang Aff. at Ex. C.)

In early July of 2007, Zang contacted business broker Pat Nolan of Nolan & Associates, Ltd., to inquire about purchasing Frontline Manufacturing, Inc. (Pl.'s SOF ¶ 20.) On August 3, 2007, Zang and Stern participated in a conference call with Nolan regarding that purchase. (Pl.'s SOF ¶ 21.) At some point during that call, Stern told Nolan that he had a bank that would finance 100% of the purchase price using life insurance policies as part of the collateral. ( Id.)

Zang further claims that, at Stern's request, he provided Stern with two additional payments of $14,500 and $18,000 on July 19, 2007 and August 16, 2007, respectively. (Pl.'s SOF ¶¶ 19, 22.) The cancelled checks purporting to represent those payments are attached to plaintiff's statement of facts as Exhibits 6 and 9. The July 19 check is made out to Burton Stern and appears to have been deposited in the

[875 F.Supp.2d 871]

same New Century Bank account that the $5,000 payment was deposited. (Pl.'s SOF at Ex. 6.) The memo line appears to read “Frontline Mfg.” ( Id.) The back of the check reads “Non Refundable Check Only at Closing” and appears to be signed by Burton Stern. ( Id.) The August 16 check is made out to Mid America Company and the memo line reads “Pine Tech Factory.” (Pl.'s SOF at Ex. 9.) That check appears to have been deposited in a different New Century Bank account, and the back reads “Non–Refund Fee To Purchase Blue [illegible] Lumber Co.” ⁶ ( Id.) Zang's understanding was that, upon closing of a business purchase, these payments would be deducted from the 3% commission set forth in the agreement.⁷ (Zang Aff. ¶ 14.)

On December 26, 2007, Stern and Nolan had a phone conversation in which the two discussed the financing plan for Zang's prospective purchase of Frontline. (Pl.'s SOF ¶ 23.) During that call, Stern told Nolan that he had approximately $32,000 of Zang's money. ( Id.) At his deposition, Nolan testified that although he did not recall if Stern told him what the money was provided for, Nolan presumed it was for the Frontline deal. (Pl.'s SOF at Ex. 8–Nolan Dep. at 122.) Nolan also repeatedly testified that he had no knowledge of any specific agreement or arrangement between Zang and Stern. ( Id. at 53–55, 77, 111.)

On March 26, 2008, Nolan and his son Patrick went to Chicago for a meeting with Stern at which they again discussed the Frontline purchase. (Pl.'s SOF ¶ 24.) Larry Selig of the Secure Group also attended that meeting and, along with Stern, provided a document detailing how life insurance policies would be used to collateralize 100% of the financing of Zang's loan to acquire Frontline. (Pl.'s SOF ¶ 25.) Nolan further testified at his deposition that following that meeting, he determined that the financing plan was not practical for the deal. (Nolan Dep. at 108.) Ultimately, the Frontline deal did not close.

Zang contends that between June 2007 and April 2008, Stern continued to provide him with business listings for businesses located throughout the Midwest, including Illinois. (Pl.'s SOF ¶¶ 28, 29.) Zang also contends that he continued to submit other businesses to Stern for evaluation. (Zang Aff. ¶ 16.) But, according to Zang, despite the fact that no closing on any business ever took place, Stern refused to return the $37,500 Zang had provided to him, and said that the funds would be applied to Stern's commission once Zang finally purchased a business. (Zang Aff. ¶ 18.) Defendants contest these facts, again citing the Dead Man's Act.

3. The Illinois Secretary of State Consent Order of Prohibition

Attached to plaintiff's LR 56.1 SOF, as well as his June 5, 2012 second amended complaint [63], is a “Consent Order of Prohibition” (“Consent Order”) entered by the Illinois Secretary of State Securities Department against Alliance and Stern on March 10, 2009.⁸ (Pl.'s SOF at Ex. 1.) The

[875 F.Supp.2d 872]

Consent Order makes clear that it was the result of a “Stipulation to Enter Consent Order of Prohibition” (“Stipulation”) executed by Alliance and Stern on February 23, 2009. ( Id.)

According to the language of the Consent Order, “by means of the Stipulation,” Alliance and Stern “acknowledged, while neither admitting nor denying the truth thereof, that the following allegations [among others] contained in the Notice of Hearing shall be adopted as the Secretary of State's Findings of Fact:” ⁹

...

3. That from on or about April 2006 Respondents [Alliance and Stern] individually and by and through their Officers, Directors, Employees, Affiliates, Successors, Agents and Assigns ... offered and held themselves out as providing business for sale and services to potential business buyers for a fee to at least one Illinois Resident.

4. That the Respondents' activities described at paragraph 3 are the activities of engaging in the business of acting as a Business Broker as that term is defined pursuant to Section 10–5.10 of the Illinois Business Brokers Act of 1995 [815 ILCS 307/10–1 et seq.] (the “Act”).

5. That Section 10–85(b)(1) of the Act provides, inter alia, that it is prohibited under the Act for a business broker to either directly or indirectly engage in the business of acting as a business broker without registration under the Act unless exempt under the Act.

6. That at all times relevant hereto, the Respondents were not...