MAMACITA, INC. v. COLBORNE ACQUISITION COMPANY, LLC d/b/a COLBORNE FOODBOTICS, LLC et al
Filing
58
MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 7/27/2011:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MIRIAM R. STEIN, Not
Individually, but Solely in
Her Capacity as Trustee of the
Estate of Cold 2005, Inc.,
Case No. 10 C 6861
Plaintiff,
v.
Hon. Harry D. Leinenweber
COLBORNE ACQUISITION CO.,
LLC., RICHARD HOPKINS III,
LINDA HOPKINS, RICHARD HOPKINS
IV, LYSA HOPKINS and HOPKINS
PROPERTY, LLC.,
Defendants.
MEMORANDUM OPINION AND ORDER
Individual
Defendants,
Richard
Hoskins,
III,
Richard
Hoskins IV, and Lysa Hoskins (the “Three Hoskins”), bring this
Motion to Dismiss Count II of the First Amended Complaint.
This
count seeks to pierce a corporate veil in an effort to collect a
judgment that was entered in New Jersey state court against the
family owned Colborne Corporation (“Colborne”), which is currently
registered in Illinois.
Colborne is now in bankruptcy so the
Amended Complaint is now brought by the Bankruptcy Trustee, Miriam
R. Stein.
The Amended Count II seeks to correct a deficiency in
the original Complaint (brought by the judgment creditor Mamacita)
in which the original Count II was dismissed without prejudice.
The Court’s Memorandum Opinion and Order dated March 11, 2011
dismissed the original Count II for lack of specificity as required
by Rule 9 (b) of the Federal Rules of Civil Procedure.
The facts
as alleged in the Complaint were extensively discussed in the
earlier court ruling and will not be repeated here except as
necessary to explain the court’s current ruling.
In addition to
dismissing Count II, the Court in the previous ruling declined to
dismiss Count I, seeking to establish successor liability on the
part of Colborne Acquisition Co., LLC (“CAC”), Counts III and IV,
alleging violations by CAC of the Illinois Uniform Fraudulent
Transfer
Act,
and
Count
V,
alleging
Fraud
in
Fact
against
Hoskins III, Linda Hoskins and Hoskins Property, LLC.
The theory of Count II is that Hoskins III, IV and Lysa
recruited business associates to form a new entity called Colborne
Acquisition Co., LLC (“CAC”), to acquire all of the assets of the
judgment debtor Colborne, now in bankruptcy, to avoid paying the
Mamacita’s judgment.
In dismissing the original Count II, the
court held that Mamacita had failed to satisfy the heightened
pleading requirements of FED . R. CIV . P. 9(b), which applies to
efforts to pierce the corporate veil.
Wachovia Sec., LLC v.
Neuhauser, 04 C 3082, 2004 WL 2526390, at *11 (N.D. Ill. Nov. 5,
2004).
must
The familiar requirement of Rule 9(b) is that a complaint
explain
the
fraudulent scheme.
Cir. 1990).
“who,
what,
when,
where
and
how”
of
the
Dileo v. Ernst & Young, 901 F.2d 624, 626 (7th
There are certain exceptions to this requirement, for
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example, where individualized information of each defendant’s role
is uniquely within the defendants’ knowledge and where, in the case
of a bankruptcy, the necessary information is second hand and the
records of the bankrupt corporation are in disarray.
Byron, 405 BR. 277, 284 (Bankr. N.D. Ill. 2009).
Trustee
must
still
provide
sufficient
Seidel v.
However, the
information
defendants an understanding of the claims against them.
to
give
Seidel v.
Byron, No. 05 C 6698, 2008 WL 4411541, at *2 (N.D. Ill. 2008).
The original deficiency in Count II was that Mamacita lumped
all of the Hoskins family together even though, for example, Linda,
Richard III’s wife, was not even a shareholder of Colborne.
amended Count II now deletes Linda as a defendant.
The
The Three
Hoskins, however, claim that the amended Count II essentially makes
the same error by substituting “Richard III, Richard IV, and Lysa”
for “Hoskins family.”
than that.
However, the Amended Complaint does more
Starting in Paragraph 37 it alleges that the Three
Hoskins shareholders of Colborne recruited business associates to
form CAC with the intent to obtain all of Colborne’s assets to
avoid paying Mamacita’s judgment. The mechanism to accomplish this
was to use a “collusive UCC sale” to acquire all of Colborne’s
assets through CAC and to continue Colborne’s business operations
through a judgment-free CAC which they would own.
Although not a
model of clarity, the scheme alleged in Amended Count II involved
Lake
Forest
Bank,
Colborne’s
lender,
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declaring
a
default
by
Colborne due to the unpaid outstanding Mamacita judgment and
conducting a sham UCC sale of all of Colborne’s assets to CAC.
The
Three Hoskins, using the CAC, and their other personal assets,
borrowed the amount owed to Lake Forest Bank by Colborne to
purchase all of the assets of Colborne at the UCC sale on May 19,
2009 for $1,300,000.00.
time
of
the
$7,500,000.
sale
was
The value of the assets of Colborne at the
estimated
by
Lake
Forest
Bank
to
be
Lake Forest Bank then recorded a Financing Statement
asserting an interest in all of CAC’s assets and Colborne was left
with no assets.
As
evidence
of
merging
the
separate
personalities
of
Corporation and shareholder, the amended Count II alleges in
Paragraph 61 that the Three Hoskins used Colborne’s assets to pay
for their personal credit cards, which had been used for personal
expenses such as purchasing season tickets to professional football
games and for family travel expenses.
Paragraph 62 alleges that
the Three Hoskins took assets out of Colborne for use by other
corporations they controlled without any consideration.
The same
paragraph alleges that Richard III executed a lease, without any
consideration, doubling the rent charged to Colborne by Hoskins
Property, LLC, another family-owned corporation, of which he was
manager.
All of these actions were alleged to have been carried
out with the intent to make Colborne judgment-proof. These actions
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were alleged to have been carried out during the period commencing
January 1, 2005 and May 19, 2009.
In order to pierce the corporate veil a party must show:
such
a
unity
of
interest
and
ownership
that
the
(1)
separate
personalities of the corporation and individual no longer exist;
and (2) that circumstances exist such that adherence to the fiction
of a separate corporate entity would sanction a fraud or promote
injustice or inequitable consequences.
Fontana v. TLD Builders,
Inc., 840 N.E. 2d 767, 781-82 (Ill. App. Ct., 2005).
Three Hoskins were each shareholders of Colborne.
Here the
Each is alleged
to have participated in the sham UCC Sale and Assets Purchase.
Each is alleged to have used the corporate assets for his own
purposes.
Each is alleged to have had the intent to make Colborne
judgment-proof, a fraudulent or at least unjust consequence. While
Paragraph 61 does not include specific dates of payments, the
allegations regarding the collusive UCC sale does.
In the Court’s
judgment Count II is sufficiently specific to satisfy Rule 9(b) and
put the Hoskins on notice of what there must defend against.
Accordingly the Motion to Dismiss Count II of the Amended
Complaint is denied.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE: 7/27/2011
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