Articles Posted in Corporations

The Illinois Appellate Court affirmed the ruling of the trial judge dismissing a breach of fiduciary duty claim regarding a troubled condominium development. The west-side Chicago development was managed by Two South Leavitt, LLC, whose duties were directed by an individual, John R. Joyce. Mr. Joyce was an attorney employed by the defendant Stahl Cowen Crowley Addis, LLC. Mr. Joyce later moved on to two other law firms.

Before the start of the construction of the condominium development, Two South Leavitt and Joyce, with another business partner, were looking for investors. The solicitation they offered guaranteed a 12 percent annual return. Several investors contributed a total of $757,000 to Leavitt. On top of that, bank financing was secured.

Joyce was acting as legal counsel for Leavitt and negotiated a construction contract with a construction firm. Joyce, also acting as Leavitt’s manager, approved the construction contract. Construction began in 2004, but delays in costs overruns caused the building to remain unfinished. A lawsuit was filed shortly thereafter.

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In business, when we deal with a company’s employee we assume that the employee is acting on behalf of his company. This assumption underlies the basis of most business agreements. However, in the commercial lawsuit of J.F. Brewing v. PaulMark Land Acquisition, the defendant company denied that it was responsible for honoring an agreement its former CEO made with the plaintiff. The Illinois Appellate Court disagreed, instead holding that a company is bound by the actions of its members. Joseph Ferrel and J.F. Brewing, Inc. v. PaulMark Land Acquisition Company, LLC, 2012 IL App. (1st) 102582-U.

The defendant, PaulMark Land Acquisition Company, LLC, was formed in 2004 in an effort to establish a brewpub. However, by 2007 the LLC had exhausted all of its working capital and then turned to its members to make loans to the company. It was at this time that the plaintiff, Joseph Ferrel, wanted to become a member of PaulMark. After talks with the company’s CEO, it was decided that Ferrel would loan the company $11,000. Ferrel then formed his own corporate entity, J.F. Brewing, Inc., in order to make the loan to PaulMark. His initial check was accepted by the the PaulMark’s CEO, as was a second loan of $3,000.

However, at the time of his loans, Ferrel was not yet a member of PaulMark. Before becoming a member, Ferrel had requested changes to the operating agreement. These changes were being negotiated at the time of both of Ferrel’s payments to PaulMark. However, when it became apparent to Ferrel that those changes would likely not be made, he notified the CEO that he was no longer interested in becoming a member of PaulMark. Ferrel issued a promissory note for both of his check and requested that they be repaid. However, before the CEO could sign the promissory notes he was fired; PaulMark never repaid the notes or acknowledged their existence. Consequently, Ferrel filed the current commercial litigation lawsuit against PaulMark.

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