Opinion
No. 98 C 2453
February 17, 2000
MEMORANDUM OPINION AND ORDER
Lincoln National Life Insurance Company ("Lincoln") filed this action against Nicklau, Inc., d/b/a/ "Pasteur," Dan Nyugen, and Tuan Nyugen, (collectively, "Defendants"). In its complaint, Lincoln alleges successor liability (Count I) and fraudulent transfer (Counts II and III) against Pasteur, and breach of fiduciary duty (Counts IV and V) against the individual defendants. Currently before this court are two motions for summary judgment: Defendants' Second Amended Motion for Summary Judgment on all counts of Lincoln's complaint, and Lincoln's Motion for Summary Judgment on Count I, Successor Liability. Each motion will be discussed in turn.
Although Lincoln labels Count I of its Complaint as "Successor Liability," it should be noted that the common law theory of successor liability is not a free-standing cause of action, but rather a means by which to collect the outstanding state court judgment against Pasteur's alleged predecessors. See Davila v. Magna Holding Co., No. 97 C 1909, 1998 WL 578032 (N.D. Ill. Sep. 3, 1998).
I. Factual Background
This case comes before this Court under diversity jurisdiction. From 1989 to 1995, Dan and Tuan Nguyen operated a restaurant located at 4759 N. Sheridan Road in Chicago ("Pasteur-Sheridan") and incorporated in Illinois as Pasteur-Restaurant, Inc. In July 1992, they opened a second restaurant at 45 E. Chicago Avenue in Chicago ("Pasteur-Chicago"). That restaurant was incorporated in Illinois as Pasteur Café, Inc. In 1995, a fire destroyed Pasteur-Sheridan. In February 1996, Lincoln, an Indiana corporation that owned the property on which Pasteur-Chicago was located, filed a Forcible Entry and Detainer action against Pasteur-Sheridan in state court. Lincoln sought to recover rent damages and to repossess the space occupied by Pasteur-Chicago. Subsequently, Pasteur-Chicago was also named a co-defendant in that suit. On January 31, 1997, the state court granted Lincoln's motion for summary judgment on the Forcible Entry and Detainer action. Pasteur-Sheridan was ordered to pay Lincoln $89,926.36 in rent damages and $20,000 in attorney's fees. During the pendency of the summary judgment motion, Kim Nguyen, wife of Dan Nguyen, incorporated another restaurant in Illinois as Nicklau, Inc. This restaurant, named Pasteur like the previously identified restaurants, is located at 5525 N. Broadway in Chicago ("Pasteur-Broadway").
II. Summary Judgment Standard
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Cox v. Acme Health Serv., Inc., 55 F.3d 1304, 1308 (7th Cir. 1995). A genuine issue of material fact exists for trial when, in viewing the record and all reasonable inferences drawn from it in a light most favorable to the non-movant, a reasonable jury could return a verdict for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986); Eiland v. Trinity Hosp., 150 F.3d 747, 750 (7th Cir. 1998).
The movant bears the burden of establishing that there exists no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986); Hedberg v. Indiana Bell Tel. Co., 47 F.3d 928, 931 (7th Cir. 1995). If the movant meets this burden, the non-movant must set forth specific facts that demonstrate the existence of a genuine issue for trial. Rule 56(e); Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. Rule 56(c) mandates the entry of summary judgment against a party "who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and in which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. at 2552-53. A scintilla of evidence in support of the non-movant's position is not sufficient to oppose successfully a summary judgment motion; "there must be evidence on which the jury could reasonably find for the [non-movant]."Anderson, 477 U.S. at 250, 106 S.Ct. at 2511.
III. Analysis
A. Defendants' Second Amended Motion for Summary Judgment
In their Amended Statement of Material Facts, Defendants tender fifteen one-sentence statements to the Court in order to establish that no genuine issues of material fact exist in this case. Half of the statements are conclusions of law. The remainder are wholly insufficient to entitle Defendants to summary judgment. Defendants' motion is denied.
B. Lincoln's Motion for Summary Judgment on Count I (Successor Liability)
Under Illinois law, when a corporation sells its assets to another corporation, the successor corporation is not held liable for the seller's debts and liabilities. Vernon v. Schuster, 179 Ill.2d 338, 344-45, 688 N.E.2d 1172, 1175 (Ill. 1997). The traditional rule of successor nonliability seeks to protect bonafide purchasers from unassumed liability. Id., 179 Ill.2d at 345, 688 N.E.2d at 1175. On the other hand, the law has carved out four exceptions to the general rule in order to protect the rights of corporate creditors. The rule of successor corporate nonliability does not apply: (1) where there is an express or implied agreement of assumption; (2) where the transaction amounts to a consolidation or merger of the purchaser or seller corporation; (3) where the purchaser is merely a continuation of the seller; or (4) where the transaction is for the fraudulent purpose of escaping liability for the seller's obligation. Id.
Relying on the third exception, Lincoln argues that Pasteur-Broadway is a mere continuation of Pasteur-Sheridan and Pasteur-Chicago ("old Pasteurs"). Thus, Lincoln maintains, Pasteur-Broadway is liable for the state court judgment against Pasteur-Sheridan. Because there are no disputed facts in the instant case, this Court need only determine whether the facts presented entitle Lincoln to summary judgment as a matter of law.
Defendants dispute seven nonmaterial facts included in the 243 statements of fact furnished by Lincoln.
The Court agrees with Lincoln that an identity of ownership exists between Pasteur-Broadway and the old Pasteurs so as to satisfy the test for the continuity exception. See Vernon, 179 Ill.2d at 346-47, 688 N.E.2d at 1176 (test is whether there is a continuation of the corporate entity of the seller). See also Kennedy v. Four Boys Labor Serv., Inc., 279 Ill. App.3d 361, 368, 664 N.E.2d 1088, 1092 (Ill.App.Ct. 1996) (finding continuation exception applicable in similar fact scenario);Steel Co. v. Morgan Marshall Indus., 278 Ill. App.3d 241, 248-49, 662 N.E.2d 587, 600 (Ill.App.Ct. 1996). Nevertheless, summary judgment is inappropriate in this case. Before the theory of successor liability can apply, a conveyance must occur. Put differently, a sale of assets from corporation to another, or some sort of corporate reorganization is a necessary prerequisite to successor liability. Thus, the theory of successor liability and the exceptions thereto are construed using the terms "purchaser" and "seller." See, e.g., Vernon, 179 Ill.2d at 346-47, 688 N.E.2d at 1176; 279 Ill. App.3d at 368, ¶¶ 4 N.E.2d at 1092; 278 Ill. App.3d at 248, 662 N.E.2d at 599. Lincoln, however, has not set forth any statements of fact that establish that any such conveyance occurred. Without this requisite material showing, the Court is unable to grant summary judgment.See Amann v. Sylvania Aero Enter., No. 87 C 10699, 1989 WL 152951, at *4 (N.D. Ill. Nov. 20, 1989) (noting that plaintiff could not prove the continuity exception without an exchange of assets between defendant and alleged predecessor corporation).
IV. Conclusion
For the foregoing reasons, Plaintiffs and Defendants' Motions for Summary Judgment are DENIED.