Illinois Appellate Court Affirms Dismissal of Citations Proceeding, Finding Judgment Satisfied

The Illinois Appellate Court has affirmed the decisions of two Cook County judges related to the suit filed by SFG Capital LLC. The suit was filed against Patrick W. Kane in 2010; it was alleged that Kane defaulted on a loan. Following a consent agreement, the trial court entered a $783,000 judgment against Kane payable to SFG. In an attempt to satisfy the judgment, SFG initiated a citation to discover assets proceedings to identify available assets that Kane might have owned.

In 2012, William Platt, an estranged business partner of Kane, signed a promissory note for $1.2 million payable to Kane. The trial court ordered all rights, title and interest in the Platt note to be transferred to SFG on April 14, 2016, with instructions that SFG “may take such further action as necessary to enforce payment on the . . . note.”

Access Realty Group, the plaintiff in this case, acquired the SFG judgment by way of an assignment on April 14, 2017, and became the successor in interest to SFG. Platt is the sole shareholder of Access, as well as its president, secretary and registered agent.
Based on that, Kane moved to dismiss the citation proceeding, arguing that the merger document extinguished the judgment debt because Platt’s interest in the proceeds of the SFG judgment were merged with his obligation as the payor of the Platt note which had been assigned to satisfy the SFG judgment.

The trial court agreed with that proposition and dismissed the citation proceedings finding that the SFG judgment had been satisfied.

Access, in a separate lawsuit, filed suit against Kane, First Midwest Bank and others for violations of the Uniform Fraudulent Transfer Act related to the SFG judgment. However, with the judgment satisfied, the defendants in that new case moved to dismiss the suit for lack of standing. The trial court in that case agreed citing collateral estoppel.

Access appealed both cases which were consolidated. Access on appeal argued that the merger doctrine was inapplicable as Platt was the borrower and Access, a corporate entity separate from Platt, was the creditor of the judgment. The appellate court disagreed emphasizing that the merger doctrine looked not at the pro forma entities, but at “whether the qualities of debtor and creditor have become united in the same individual.”

The appellate court opinion took note of Platt’s sole ownership and control of Access and the uncontested assertions that he “uses it as an instrumentality to conduct his personal business.”

In addition, Kane was ordered to turn over the Platt note to SFG with instructions that the judgment creditor has the right to enforce payment on the Platt note prior to Access choosing to become SFG’s successor in interest.

There was a dissenting opinion in the appellate court stating that Access was a separate entity from Platt and concluded that the majority had engaged in a form of veil-piercing without a substantial showing of identity between Platt and Access.

The dissenting opinion suggested that if the majority’s view were adopted, “[s]hareholder loans could never exist between a sole shareholder and its corporation because the merger doctrine would automatically extinguish them at the moment of inception.”

In any event, the appellate court’s majority found that the merger doctrine was appropriate and applicable in this case and thus affirmed the trial court’s two decisions.

Access Realty Group, Inc. v. Patrick W. Kane, 2019 IL App (1st) 180173 (Sept. 13, 2019).

Kreisman Law Offices has been handling commercial litigation, business disputes, breach of contract lawsuits and probate litigation for individuals, families and businesses for more than 40 years, in and around Chicago, Cook County and its surrounding areas including, New Lenox, Lemont, Lansing, Kenilworth, Glenview, Northfield, Winnetka, Waukegan, Zion, North Chicago, Mundelein, River Forest, Oak Lawn, Oak Forest, Chicago (Fuller Park, Bronzeville, Douglas, Kenwood, Hyde Park, Woodlawn, Little Italy, West Town, Wicker Park, Belmont Cragin, Mount Clare, Ravenswood, Jefferson Park), Park Ridge, Niles, Itasca, Schaumburg, Hoffman Estates and Rolling Meadows, Ill.

Robert D. Kreisman has been an active member of the Illinois and Missouri bars since 1976.