Sirazi v. Panda Express, Inc. et al

Filing 234

MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 1/13/2012. (mk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

SEMIR D. SIRAZI and PE CHICAGO, LLC,
Plaintiffs,
vs.
PANDA EXPRESS, INC., PANDA
RESTAURANT GROUP, INC., CITADEL
PANDA EXPRESS, INC., ANDREW
CHERNG, and PEGGY CHERNG,
Defendants.

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Case No. 08 C 2345

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Plaintiffs Semir Sirazi and PE Chicago, LLC have moved the Court to reconsider
its December 13, 2011 decision denying their motion for summary judgment and
granting in part defendants’ motion for summary judgment [docket no. 228]. Sirazi v.
Panda Express, Inc., No. 08 C 2345, 2011 WL 6182424 (N.D. Ill. Dec. 13, 2011). The
present decision assumes familiarity with the December 13 decision. For the reasons
stated below, the Court denies plaintiffs’ motion.
Discussion
Plaintiffs argue that the Court’s previous decision makes both a manifest error of
fact and manifest errors of law.
A.

Claimed factual error
One of Sirazi’s claims against Panda Express is that Panda Express fraudulently

concealed from him the fact that it was buying PE Chicago’s stake in the Rezko-Citadel

partnership. Panda Express moved for summary judgment, arguing that Sirazi could
not show that Panda Express had a duty to disclose the sale of PE Chicago’s interest to
him as the claim requires. See Neptuno Treuhand-Und Verwaltungsgesellschaft MBH
v. Arbor, 295 Ill. App. 3d 567, 573, 692 N.E.2d 812, 817 (1998). One of Sirazi’s
arguments in response was that Panda Express had a duty to disclose the sale to him
because he was an owner of PE Chicago.
The Court declined to enter summary judgment for Panda Express on this claim
because Sirazi provided enough evidence for a reasonable jury to find that he was an
owner of Rezko Concessions, Inc. (Concessions) and Rezko Enterprises, LLC
(Enterprises) and that PE Chicago was an alter ego of both companies, such that Sirazi
was effectively an owner of PE Chicago. From this conclusion, a reasonable jury could
find that Panda Express had a duty to tell him that it was buying PE Chicago’s interest
in Rezko-Citadel. Sirazi provided evidence that he was an owner of Concessions and
Enterprises because he had received ownership interests in the companies through the
terms of a guarantee that he provided to Antoin Rezko and a stock pledge made to him
by a business association of Rezko.
Although the Court’s previous decision denied summary judgment on Sirazi’s
fraudulent concealment claim as a whole, the Court stated that a reasonable jury could
not use other evidence that Sirazi had provided to conclude that he was an owner of
Concessions and Enterprises. Sirazi, 2011 WL 6182424, at *9. Sirazi’s other evidence
consisted of warrants that he could exercise to obtain an ownership interest in the
companies. The warrant agreements specifically provided, however, that until Sirazi
exercised the warrants, he did not have the rights of an owner of either company. Mot.
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to Reconsider, Ex. 1 ¶ 6; Compl., Ex. 3 ¶ 5. Sirazi provided no evidence that he had
exercised the warrants at the time that PE Chicago sold its interest to Panda Express.
Sirazi also seemed to argue that he would have exercised the warrants before
the sale if he had been given notice of the sale, which was defined as a liquidity event
under the warrant agreements. In its previous decision, the Court stated that the
warrant agreements did not require the companies to give notice to Sirazi if a liquidity
event occurred. Sirazi, 2011 WL 6182424, at *8. Plaintiffs claim that this statement
was a manifest error of fact by the Court.
The warrant agreements did not expressly require that Enterprises and
Concessions give notice of a liquidity event to Sirazi. Each agreement contained a
provision requiring that the companies redeem Sirazi’s warrants for a large amount of
cash if a liquidity event, as defined in the agreements, occurred. Mot. to Reconsider,
Ex. 1 ¶ 5; Compl., Ex. 3 ¶ 4. Neither of these clauses provided that the companies were
to give notice to Sirazi of a liquidity event. Plaintiffs make two arguments that notice
was nonetheless required.
First, plaintiffs note that the redemption provision of the warrants required the
companies to give Sirazi notice when the warrants were redeemed. Mot. to Reconsider,
Ex. 1 ¶ 2; Compl., Ex. 3 ¶ 2. Nothing in these provisions, however, required the
companies to give Sirazi notice of a liquidity event. Concessions and Enterprises never
redeemed the warrants and thus never gave notice to Sirazi. As set out in the warrant
agreement, his remedy for the companies’ failure to redeem the warrants was to
“pursue all remedies available to him at law or in equity or exercise the Warrants.” Mot.
to Reconsider, Ex. 1 ¶ 5.
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Second, plaintiffs state that Sirazi was entitled to exercise the warrants in return
for ownership stakes in the companies forty-five days after the occurrence of a liquidity
event. Mot. to Reconsider, Ex. 1 ¶ 4; Compl., Ex. 3 ¶ 3. They argue that Sirazi could
know when the forty-fifth day after a liquidity event only if Concessions and Enterprises
provided him with notice of the event. The warrant agreements also provide, however,
that Sirazi could exercise the warrants at any time between August 30, 2003, and
August 31, 2006. Id. The liquidity event in question, the sale of PE Chicago’s interest
in the Rezko-Citadel partnership to Panda Express, occurred on June 1, 2006. At the
time, Sirazi could exercise his warrants without restriction. There was thus no need for
him to be told of a trigger enabling him to exercise his warrants.
In sum, the Court’s decision did not make a manifest error of fact when it stated
that the warrant agreements did not require Enterprises and Concessions to give Sirazi
notice of a liquidity event.
B.

Claimed Legal Error
Plaintiffs argue that the Court made a manifest error of law in its application of

Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995). In Scholes, the Seventh Circuit held
that a receiver appointed for three corporations, which had been involved in a Ponzi
scheme, had standing to attempt to recover fraudulent conveyances that the
corporations had made. Id. at 753–55. The court acknowledged that the makers of
fraudulent conveyances generally cannot seek to undo the transactions. It concluded,
however, that this rule did not apply in that case because the former owner of the
corporations who caused them to make the transactions had been ousted and could no
longer benefit from recovering the fraudulently transferred property. Id. at 754. Any
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money that the receiver recovered would go to the investors in the corporations who
had been defrauded. Id. at 753–55.
In its decision in the present case, this Court acknowledged that Scholes might
allow PE Chicago to bring a fraudulent transfer claim based on its sale of its partnership
interest. Sirazi, 2011 WL 6182424, at *15. PE Chicago had formerly been controlled by
Rezko, who allegedly transferred PE Chicago’s property for less than it was worth, and
now that Sirazi controlled PE Chicago, it might be able to recover that property and use
it to pay its investors and creditors. Id.
Plaintiffs argue, however, that Scholes applies far more broadly. They argue that
the logic of Scholes also requires that the Court deny summary judgment on PE
Chicago’s fraudulent concealment claim, its fraudulent transfer claims, its breach of
contract claim relating to the price Panda Express paid for PE Chicago’s interest in
Rezko-Citadel, its breach of fiduciary duty claim related to the sale of its partnership
interest, and defendant PRG’s counterclaim for payment of a promissory note.
Plaintiffs’ argument on the fraud claim is the same argument they made in their
earlier briefs. It argues that the logic of Scholes suggests that PE Chicago did not really
know what it was doing when Rezko controlled it, and thus the sale of PE Chicago’s
interest in Rezko-Citadel was, legally speaking, concealed from PE Chicago until Sirazi
obtained control of PE Chicago. Scholes, however, does not stretch that far, and
plaintiffs cite no Illinois or Seventh Circuit case reading it that way. The case does not
support the contention that an LLC is deemed to have no knowledge of transactions it
agreed to under former (conflicted) management until after new management takes
over. PE Chicago notes that Rezko’s alleged bad acts were particularly bad, causing
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PE Chicago to sell its property and keeping the money for himself. But this does not
change the fact that the sale was not concealed from PE Chicago. Rather, it was
concealed only from Sirazi, who later became PE Chicago’s manager.
PE Chicago also argues based on Scholes that the Court erred in finding that the
statute of limitations barred its fraudulent transfer claim. The previous decision,
however, noted that even if, under Scholes, PE Chicago’s limitations period had not
begun to run until Sirazi obtained control of the company, the claim was still timebarred. Id. at *16.
PE Chicago also argues that the Court should have declined to enter summary
judgment in favor of defendants on portions of PE Chicago’s breach of contract claim,
portions of its breach of fiduciary duty claim, and PRG’s claim for payment of a
promissory note. In each case, PE Chicago argues, it was controlled by Rezko at the
relevant time, and thus under the logic of Scholes it could not have been acting in its
own interest. The Court declines to address these arguments, because in their
summary judgment briefs plaintiffs never argued that Scholes affected the resolution of
those claims. See Bloch v. Frischholz, 587 F.3d 771, 784 n.9 (7th Cir. 2009) (a party
forfeits arguments if they are not raised until a motion to reconsider after summary
judgment).
Finally, PE Chicago also argues that the Court should have denied summary
judgment on PRG’s promissory note claim because four of the arguments that PE
Chicago made in opposition to summary judgment create a defense of either unclean
hands or the availability of a set-off. PE Chicago has forfeited this argument because it
did not develop it until its motion to reconsider. But to the extent that PE Chicago
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prevails on its remaining claim, it may be entitled to a set-off of the amount it recovers
on that claim against the amount that it owes PRG on the promissory note. PE Chicago
also asserts that its argument that Panda Express assumed the debt the promissory
note represented, and its defense of laches, require that the Court deny summary
judgment on PRG’s claim. The Court’s previous decision rejected these two arguments.
PE Chicago does not present any reason that the decision was incorrect.
Conclusion
For the reasons stated above, the Court denies plaintiffs’ motion to reconsider
[docket no. 231]. The motion hearing date of January 17, 2012 is vacated.

________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: January 13, 2011

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