People ex rel. Department of Human Rights v. Oakridge Healthcare Center, LLC

2020 IL 124753

IN THE

SUPREME COURT

OF

THE STATE OF ILLINOIS

(Docket No. 124753)

THE PEOPLE OF THE STATE OF ILLINOIS ex rel. THE DEPARTMENT

OF HUMAN RIGHTS, Appellee, v. OAKRIDGE HEALTHCARE

CENTER, LLC, Appellant.

Opinion filed September 24, 2020.

JUSTICE KILBRIDE delivered the judgment of the court, with opinion.

Chief Justice Anne M. Burke and Justices Garman, Karmeier, Theis, and

Michael J. Burke concurred in the judgment and opinion.

Justice Neville took no part in the decision.

OPINION

¶1 In April 2014, a judgment was entered against Oakridge Nursing &

Rehabilitation Center, LLC (Oakridge Rehab), for its discriminatory conduct

against a former employee, in violation of the Illinois Human Rights Act (Act) (775

ILCS 5/1-101 et seq. (West 2010)). Oakridge Rehab had already gone out of

business, however, having transferred the assets and operation of its nursing home

facility to Oakridge Healthcare Center, LLC (Oakridge Healthcare), on January 1,

2012. Unable to enforce the judgment against Oakridge Rehab, the State instituted

proceedings to enforce the Oakridge Rehab judgment against Oakridge Healthcare.

Oakridge Healthcare successfully moved for summary judgment, alleging it could

not be held liable for the judgment under Illinois’s common-law rule. On appeal, a

majority of the appellate court reversed and agreed to adopt the federal successor

liability doctrine. We reverse that judgment and decline to adopt the federal

successor liability doctrine in cases arising under the Act.

¶2 I. BACKGROUND

¶3 In February 2011, Jane Holloway filed a charge pursuant to the Act with the

Illinois Department of Human Rights (Department), alleging age and disability

discrimination that violated the Act at the long-term care facility where she was

previously employed by Oakridge Rehab; Oakridge Rehab received notice of the

charge that spring. On January 1, 2012, Oakridge Rehab; its landlord, Oakridge

Nursing and Rehab Properties, LLC (Oakridge Properties); and a newly formed

entity, Oakridge Healthcare, entered into a termination agreement ending the lease

between Oakridge Rehab and Oakridge Properties and making Oakridge

Healthcare the new lessee. On the same date, Oakridge Rehab transferred

substantially all its corporate assets to Oakridge Healthcare pursuant to an

“Operations Transfer Agreement” that also declared Oakridge Healthcare was not

a successor or successor-in-interest to the transferor and that Oakridge Healthcare

was neither liable for the transferor’s obligations nor subject to any judgment for

its liabilities. Oakridge Rehab then immediately ceased operations, and Oakridge

Healthcare took over the nursing home under a new name. After concluding its

investigation into Holloway’s allegations, the Department filed a civil rights

complaint on her behalf with the Illinois Human Rights Commission (Commission)

in September 2012. The complaint sought relief against only Oakridge Rehab and

included no claim asserting personal liability.

¶4 On September 17, 2013, an administrative law judge issued a recommendation

that Holloway be awarded $30,880 in back pay, plus prejudgment interest. The

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Commission adopted the recommended order in April 2014 and granted a motion

seeking to enforce the order against Oakridge Rehab, the sole respondent, a few

months later. Oakridge Rehab, however, was involuntarily dissolved in November

2014. When Oakridge Rehab failed to satisfy Holloway’s judgment, the State of

Illinois filed a complaint in the circuit court of Cook County against both Oakridge

Rehab and Oakridge Healthcare, its purported successor, to enforce compliance,

but again no personal liability claim was made.

¶5 Oakridge Healthcare filed a motion for summary judgment, arguing that it could

not be held liable for Oakridge Rehab’s liabilities as a matter of law under the

common-law doctrine of corporate successor nonliability when no exception to that

general rule applied. After the State asserted its inability to respond in the absence

of any discovery, discovery commenced.

¶6 The State deposed Helen Lacek, who was a member of Oakridge Rehab as well

as its manager prior to the transfer of its operations to Oakridge Healthcare. Helen

testified that Oakridge Rehab began experiencing dire financial trouble when the

State of Illinois stopped making payments on invoices. Oakridge Rehab’s financial

problems quickly escalated until it was no longer able to pay its rent. In June 2011,

Oakridge Rehab provided the required six-month notice to its landlord, Oakridge

Properties, stating its intent to terminate the lease due to its financial difficulties.

While several people visited Oakridge Rehab prior to its transfer to Oakridge

Healthcare, none of them expressed any interest in taking over the facility

operations.

¶7 The State also deposed Oakridge Properties manager Elisha Atkin (Eli), who

founded Oakridge Healthcare in November or December 2011. Eli is a 50%

member of Oakridge Healthcare, with the other 50% member being his sister-in-

law. Eli is also involved as a member or manager in a number of other long-term

care facilities or properties, along with several of his immediate and extended

family members. One of those facilities is McAllister Properties, LLC, whose

members are Eli’s wife, his brother, Helen Lacek, and Ability Insurance; Eli

manages that business. Helen and Eli were also two of the members of McAllister

Nursing and Rehab Center, LLC (McAllister Rehab), another long-term care

facility. Helen serves as the administrator of McAllister Rehab and has also been a

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nursing consultant at some of the other facilities connected to Eli, but she has not

provided those services at Oakridge Healthcare.

¶8 Eli stated that negotiations about Oakridge Healthcare becoming the new lessee

of the nursing home facility began in November 2011. Its new lease started on

January 1, 2012, when the lease between Oakridge Properties and Oakridge Rehab

ended. Oakridge Rehab did not notify Oakridge Healthcare of any pending claims

filed by past or present employees prior to the transfer of the nursing home

operation. In addition, Oakridge Healthcare did not look at any of Oakridge

Rehab’s liabilities prior to the transfer because it was not assuming any of them

under the terms of the transfer agreement.

¶9 In its response to Oakridge Healthcare’s motion for summary judgment, the

State contended that the court should apply the federal doctrine of successor

liability instead of the Illinois general nonliability rule in this case. The State argued

that the federal doctrine should be applicable because this case involved

employment discrimination and “Illinois courts look to standards applied to federal

claims brought under federal employment discrimination laws in analyzing” cases

alleging violations of the Act. 2019 IL App (1st) 170806, ¶ 20. Before it entered

summary judgment in favor of Oakridge Healthcare, the trial court made several

findings, concluding that (1) Oakridge Healthcare was not a successor in liability

to Oakridge Rehab, (2) the State did not show that Oakridge Healthcare was a mere

continuation of Oakridge Rehab, and (3) Illinois’s long reliance on the common-

law successor nonliability rule precluded adoption of the federal successor liability

doctrine.

¶ 10 The State appealed, and the appellate court reversed, remanding the cause for

further proceedings. A majority of the court found that “the State presented

sufficient evidence for a reasonable trier of fact to find that the asset transfer was

for the fraudulent purpose of escaping Holloway’s judgment.” 2019 IL App (1st)

170806, ¶ 42. The majority cited evidence that Holloway’s discrimination charge

was filed before the transfer and Oakridge Rehab transferred nearly all the

corporation’s assets to Oakridge Healthcare without an appraisal or payment,

leaving it unable to pay Holloway’s subsequent judgment. 2019 IL App (1st)

170806, ¶¶ 35-38. The appellate majority also held it could apply the federal

successor liability doctrine to cases involving violations of the Act because this

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court “has not specifically addressed a successor corporation’s liability for

employment discrimination.” 2019 IL App (1st) 170806, ¶ 51. Applying the version

of the federal successor liability test from Equal Employment Opportunity Comm’n

v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086 (6th Cir. 1974), later

articulated in Musikiwamba v. ESSI, Inc., 760 F.2d 740, 750-53 (7th Cir. 1985), the

appellate majority found a number of relevant factors were met here. First,

Oakridge Rehab and Helen Lacek knew about Holloway’s claim before the assets

transfer. Second, Oakridge was “unable to provide Holloway relief” due to its

serious financial troubles. Third, Oakridge Healthcare continued to operate the

facility as a nursing home after the asset transfer by “using the same workforce and

at the same location,” showing a continuity of business. For those reasons, the

appellate court concluded that “Holloway’s judgment may be imposed on Oakridge

Healthcare as Oakridge [Rehab’s] successor” under the federal doctrine. 2019 IL

App (1st) 170806, ¶ 58.

¶ 11 Dissenting from the majority’s reasoning, Justice Mason asserted that its

reliance on the fraudulent transfer exception was improper because the record

showed the State abandoned that claim when it made the “strategic decision” to

“unequivocal[ly] disavow[ ]” any trial argument on it. 2019 IL App (1st) 170806,

¶ 74 (Mason, J., dissenting). Even if the merits of the argument were considered,

the majority’s conclusion was unsupported because the State offered “no evidence”

that Oakridge Rehab’s pretransfer financial problems were “contrived.” In the

dissent’s view, Oakridge Rehab’s “only viable choice was to conduct a ‘fire sale’

of its assets, which it did” due to serious financial distress. The dissent found “no

‘badge of fraud’ in this scenario.” 2019 IL App (1st) 170806, ¶ 85.

¶ 12 In addition, the dissent explained that the majority’s application of the federal

successor liability doctrine in cases addressing Act violations conflicts with long-

standing Illinois precedent, including this court’s decision in Vernon v. Schuster,

179 Ill. 2d 338, 344-45 (1997). There, the dissent noted, we recognized only four

exceptions to the common-law rule of successor nonliability, contrary to the federal

doctrine. 2019 IL App (1st) 170806, ¶¶ 68, 80. As evidence of the majority’s

overreach, the dissent cited a heading in the majority opinion that read “ ‘Illinois

Courts Shall Recognize Successor Liability for Violation of the Illinois Rights

Act.’ ” 2019 IL App (1st) 170806, ¶ 80 (quoting 2019 IL App (1st) 170806, ¶ 49

(majority opinion)). According to the dissent, “the majority modifie[d] Vernon by

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creating a new exception to be applied in employment discrimination cases,” an act

that “is beyond [the appellate court’s] power as an intermediate court of review.”

2019 IL App (1st) 170806, ¶ 80.

¶ 13 Oakridge Healthcare filed a petition for leave to appeal in this court. We

allowed its petition pursuant to Illinois Supreme Court Rule 315 (eff. July 1, 2018).

¶ 14 II. ANALYSIS

¶ 15 We are asked to decide two issues in this appeal: (1) whether we should adopt

the federal corporate successor liability doctrine in cases involving discriminatory

conduct that violates the Act (775 ILCS 5/1-101 et seq. (West 2010)) and

(2) whether the trial court properly granted Oakridge Healthcare’s motion for

summary judgment. We review both issues de novo. Blount v. Stroud, 232 Ill. 2d

302, 308 (2009) (stating that questions of law are reviewed de novo); Seymour v.

Collins, 2015 IL 118432, ¶ 42 (stating that rulings on motions for summary

judgment are reviewed de novo).

¶ 16 A. Applicability of the Common-Law Nonliability Rule

¶ 17 Because the resolution of whether we should adopt the federal corporate

successor liability doctrine in cases where the underlying conduct violates the Act

directs the rest of our analysis, we address it first. In John Wiley & Sons, Inc. v.

Livingston, 376 U.S. 543 (1964), the United States Supreme Court invoked federal

Labor Management Relations Act (Labor Act) (29 U.S.C. § 185 (1958)) principles

to support its application of the corporate successor liability doctrine. The Court

held that the successor company in a corporate merger could be bound by the

arbitration provisions in its predecessor’s collective bargaining agreement because

it was enforceable under the Labor Act. John Wiley, 376 U.S. at 550.

¶ 18 Use of the successor liability doctrine in federal labor law cases was further

developed in Golden State Bottling Co. v. National Labor Relations Board, 414

U.S. 168 (1973). There, the Court agreed with the National Labor Relations Board

that a corporate successor that bought and continued another business, without

substantial change and with notice of its predecessor’s National Labor Relations

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Act violations, was required to follow the terms of labor board orders entered to

remedy those violations. Golden State, 414 U.S. at 171-72. The Court explained

that the additional liability risk taken on by the successor corporation could be fairly

accommodated during negotiations on the business’s purchase price or by the

insertion of an indemnity clause into the sales agreement that protected the buyer.

Golden State, 414 U.S. at 185.

¶ 19 Federal appellate courts subsequently expanded the federal successor liability

doctrine to employment discrimination cases filed under Title VII. In MacMillan

Bloedel Containers, Inc., 503 F.2d at 1090, the Sixth Circuit held the Supreme

Court’s rationale applied equally to cases involving unfair employment practices

and that successor liability should be determined on a case-by-case basis. To aid in

the inquiry, the Sixth Circuit identified nine factors: (1) whether the successor

company had notice of the alleged violation; (2) the predecessor’s ability to provide

relief; (3) whether the two businesses had a “substantial continuity” of operations;

(4) whether the new company uses the same facility; (5) whether it “uses the same

or substantially the same work force”; (6) whether it “uses the same or substantially

the same supervisory personnel”; (7) whether the jobs are the same and continue

“under substantially the same working conditions”; (8) whether it uses the same

equipment, machinery, and production methods; and (9) whether it produces the

same product. MacMillan Bloedel Containers, Inc., 503 F.2d at 1094. The Seventh

Circuit, in turn, narrowed the analysis down to just five factors: whether (1) the

transferee had notice of the legal challenge; (2) the transferor could have given the

requested relief before the sale or dissolution; (3) the transferor could have given

the requested relief after the sale or dissolution; (4) the transferee can give the

requested relief; and (5) a continuity of operations and work force existed between

the transferor and the transferee. Equal Employment Opportunity Comm’n v.

Northern Star Hospitality, Inc., 777 F.3d 898, 902 (7th Cir. 2015) (citing Teed v.

Thomas & Betts Power Solutions, L.L.C., 711 F.3d 763, 765-66 (7th Cir. 2013)).

¶ 20 Eschewing the federal doctrine, however, Illinois, along with the majority of

American jurisdictions, has long applied the common-law rule that a corporate

successor is not subject to any debts or obligations incurred by the entity that

previously operated the business. That principle is known as the “rule of successor

corporate nonliability.” Vernon, 179 Ill. 2d at 344-45. It was “ ‘developed as a

response to the need to protect bonafide purchasers from unassumed liability’

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(Tucker v. Paxson Machine Co., 645 F.2d 620, 623 (8th Cir. 1981)) and was

‘designed to maximize the fluidity of corporate assets’ (Upholsterers’ International

Union Pension Fund v. Artistic Furniture, 920 F.2d 1323, 1325 (7th Cir. 1990)).”

Vernon, 179 Ill. 2d at 345. Recognizing that the rule’s application may preclude a

plaintiff from receiving court-ordered relief if the original business is dissolved or

lacks sufficient assets, this court adopted four exceptions: (1) the parties had an

express or implied agreement that the transferee would assume the transferor’s

liabilities, (2) the transaction amounts to a merger or consolidation or a de facto

merger of the transferor and the transferee, (3) the transferee is a mere continuation

or reincarnation of the transferor, or (4) the transaction was entered into for the

fraudulent purpose of avoiding liability for the transferor’s obligations. Most

American courts have also recognized the same four exceptions. Vernon, 179 Ill.

2d at 345.

¶ 21 Nonetheless, the State asserts that those exceptions are inadequate to serve the

important interests underlying the Act’s antidiscrimination provisions. It suggests,

instead, that we adopt the federal successor liability doctrine in cases arising out of

the Act because it permits the relevant interests to be balanced on a case-by-case

basis. Individualized balancing, however, necessarily undercuts the concern

underlying the creation of our current common-law nonliability rule: imposing

successor liability harms bona fide corporate buyers by creating undue uncertainty.

In the more than two decades since we decided Vernon, bona fide corporate buyers

in Illinois have undoubtedly come to rely on that rule. Any shift away from our

long-standing rule must be supported by special justification sufficient to excuse

the harm that will necessarily flow to the many successor businesses that have relied

on it. See Coleman v. East Joliet Fire Protection District, 2016 IL 117952, ¶ 53

(quoting our explanation in People v. Sharpe, 216 Ill. 2d 481, 520 (2005), that “ ‘we

have consistently held that any departure from stare decisis must be specially

justified’ ” (quoting Vitro v. Mihelcic, 209 Ill. 2d 76, 82 (2004))). We may not

depart from stare decisis simply because we could possibly reach a different

conclusion now if we were to decide the matter anew. To be consistent with the

principle of stare decisis, overturning the common-law rule we adopted in Vernon

requires a clear showing of good cause or some other compelling rationale. See

Coleman, 2016 IL 117952, ¶ 53 (citing Sharpe, 216 Ill. 2d at 520).

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¶ 22 While not disputing those standards, the State contends that Oakridge

Healthcare provides no persuasive reason not to adopt the federal successor liability

doctrine. That contention, however, ignores the undeniable fact that this court

expressly adopted the common-law nonliability rule, not the federal rule, in Vernon.

In response, the State relies on its claim that Vernon does not control the instant

case because it did not involve workplace discrimination. The State maintains that

the federal doctrine is better suited for use in cases involving Act violations because

it arose out of labor law, a context that is more similar to the employment

discrimination claim underlying this litigation.

¶ 23 Although it is true that the Court’s decision in John Wiley, 376 U.S. 543, held

the corporate successor liability doctrine could bind the successor company in the

corporate merger to the arbitration provisions, that decision had two critical

considerations missing from the instant appeal. First, the Court in John Wiley

explicitly recognized that the predecessor and successor companies had entered into

a corporate merger. Here, the State does not attempt to claim that Oakridge

Healthcare and Oakridge Rehab merged operations such that both continued to exist

as a single, newly established legal entity. In fact, the State’s argument relies

extensively on Oakridge Rehab’s continuing existence as a separate entity after

Oakridge Healthcare took over the nursing home business. Indeed, it was Oakridge

Rehab’s independent inability to pay the judgment entered against it due to its

financial failure and ultimate dissolution that led to the State filing the instant action

against its successor, Oakridge Healthcare. Here, the predecessor and successor

corporations have absolutely no continuing relationship, while in John Wiley the

two corporations merged to become a single entity. The vastly more attenuated

relationship between Oakridge Rehab and Oakridge Healthcare does not, by itself,

justify the application of the federal rule used in John Wiley. Indeed, if Oakridge

Rehab and Oakridge Healthcare had entered into a corporate merger, the successor

entity would, in fact, have been subject to liability under the second exception to

our common-law rule of general successor nonliability stated in Vernon. The

second Vernon exception allows for the imposition of liability “where the

transaction amounts to a consolidation or merger of the purchaser or seller

corporation.” Vernon, 179 Ill. 2d at 345. The availability of that exception provides

a sufficient basis to reject the State’s suggestion that this court apply the rule from

John Wiley since that exception is inapplicable under the facts of this case.

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¶ 24 We note, however, that another rationale also exists for rejecting the State’s

assertion that the federal rule is better suited to cases involving Act violations than

the Vernon rule. In John Wiley, the Supreme Court relied heavily on the distinctive

considerations underlying the federal Labor Act’s handling of collective bargaining

agreements—considerations that are wholly inapplicable here. As John Wiley

explained, the Court’s decision was based on the “impressive [national labor]

policy considerations favoring arbitration” (John Wiley, 376 U.S. at 550), a subject

that is irrelevant here. Even more critically, the Court expressly recognized the

unique policies at stake in collective bargaining agreements that significantly

differentiate them from ordinary contracts.

“The objectives of national labor policy, reflected in established principles of

federal law, require that the rightful prerogative of owners independently to

rearrange their businesses and even eliminate themselves as employers be

balanced by some protection to the employees from a sudden change in the

employment relationship. ***

*** While the principles of law governing ordinary contracts would not

bind to a contract an unconsenting successor to a contracting party, a collective

bargaining agreement is not an ordinary contract. ‘. . . [I]t is a generalized code

to govern a myriad of cases which the draftsmen cannot wholly anticipate. . . .

The collective agreement covers the whole employment relationship. It calls

into being a new common law—the common law of a particular industry or of

a particular plant.’ Warrior & Gulf, [363 U.S.] at 578-579 ***.” (Emphases

added.) John Wiley, 376 U.S. at 549-50.

¶ 25 None of those same distinctive considerations are at issue here, however, further

undermining the State’s claim that the federal doctrine is better suited to resolve the

instant case than is Vernon. We are not persuaded that the State’s argument

provides a sufficiently clear showing of good cause or other compelling rationale

to merit overturning our adoption of the successor corporate nonliability doctrine

as it was adopted in Vernon.

¶ 26 To bolster its argument that this court should reject our common-law doctrine

and adopt the federal one, the State contends that, if Illinois fails to adopt the federal

successor liability doctrine, the outcome in factually similar cases could depend on

whether the case was filed in state or federal court. For example, a case involving

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an Act violation filed in Illinois could result in the corporate defendant being

absolved of any liability while a factually similar case alleging a federal violation

that was filed in federal court could produce a substantial judgment for the

complainant. The State asserts that the difference in outcomes based on whether the

court applied the Illinois common-law rule or the federal doctrine is not consistent

with state and federal courts possessing overlapping jurisdiction over employment

discrimination claims.

¶ 27 The potential for differences in outcomes between similar federal and state

employment discrimination cases falls far short of providing a compelling reason

to abandon the Vernon standard for the federal doctrine. The two systems have

many distinctive features that can affect the outcome of a case aside from the use

of differing standards for imposing liability on a corporate successor. As we have

discussed, the federal doctrine is deeply rooted in the unique underpinnings of

federal labor law and collective bargaining policies, while our common-law

doctrine has far broader base considerations. We, along with the vast majority of

other states, have weighed the relevant factors and determined that the four

exceptions to the successor nonliability rule are sufficient to provide a safety valve

for unjust uses of the rule in appropriate cases. Vernon, 179 Ill. 2d at 345. The mere

possibility that a particular employment discrimination case could have a different

outcome if brought in federal court is not sufficiently compelling to overturn our

decades-old common-law rule.

¶ 28 The State next asserts that several states with antidiscrimination statutes similar

to the Illinois Act have also adopted the federal formulation. See In re MTA

Trading, Inc., 922 N.Y.S.2d 488, 491-92 (App. Div. 2011); Stevens v. McLouth

Steel Products Corp., 446 N.W.2d 95, 100 (Mich. 1989); First Judicial District

Department of Correctional Services v. Iowa Civil Rights Comm’n, 315 N.W.2d

83, 89-92 (Iowa 1982); Superior Care Facilities v. Workers’ Compensation

Appeals Board, 32 Cal. Rptr. 2d 918, 924-25 & n.1 (Ct. App. 1994). While

acknowledging that Illinois courts are not bound by decisions of other courts, the

State argues that the reasoning in foreign decisions can be persuasive. It contends

that, at most, adoption of the federal successor liability doctrine in cases arising out

of the Act requires potential buyers to conduct due diligence before purchasing

another company’s assets, a task already ordinarily undertaken by prudent

businesspersons.

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¶ 29 By choosing to apply the federal standard, the few states that have adopted the

federal doctrine have weighed the policy considerations underlying the competing

interests of purchasing corporations and victims of employment discrimination and

decided on a balance that is at odds with the majority of American jurisdictions

continuing to adhere to the common-law rule. See Vernon, 179 Ill. 2d at 345

(explaining the extensive case law basis for the common-law rule and its

application in American courts). In Vernon, 179 Ill. 2d at 345, this court expressly

adopted the majority approach, acknowledging the value of the need to make

marginal and failing companies marketable and prevent them from closing their

doors forever. While conducting due diligence before purchasing corporate assets

is certainly a commonplace and well-advised procedure, it cannot always provide

a solid basis to assess the value of the predecessor corporation’s future liability

accurately when the underlying Act litigation is in its early stages, years before the

entry of a final judgment award, as in this case. In those instances and many others,

application of the federal rule would severely undercut Vernon’s concerns about

promoting the salability of marginal businesses to avoid the loss of jobs, community

resources, and revenues that result when a business is shuttered.

¶ 30 Nonetheless, recognizing the possible inequities that may result from the

common-law rule’s application in certain cases, most jurisdictions, including this

one, have adopted four limited exceptions to the general rule of nonliability for

corporate successors. In its decision, however, the appellate majority created a fifth

exception that applies solely to cases involving employment discrimination claims

brought under the Act. The addition of that exception constitutes a significant

modification of this court’s decision in Vernon, 179 Ill. 2d at 345, where we

expressly limited, and listed, four exceptions. As this court has repeatedly

admonished, our appellate court may not overrule or change our holdings.

“ ‘ “Where the Supreme Court has declared the law on any point, it alone can

overrule and modify its previous opinion, and the lower judicial tribunals are bound

by such decision and it is the duty of such lower tribunals to follow such decision

in similar cases.” ’ ” (Emphasis in original.) Blumenthal v. Brewer, 2016 IL

118781, ¶ 28 (quoting Price v. Philip Morris, Inc., 2015 IL 117687, ¶ 38, quoting

Agricultural Transportation Ass’n v. Carpentier, 2 Ill. 2d 19, 27 (1953)).

¶ 31 Acknowledging that fundamental point, as it must, the State is left to argue that

the appellate court’s addition of a fifth exception did not actually modify our

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opinion in Vernon because Vernon did not rise out of an Act violation and the

federal doctrine better suits that context. Essentially, the State asserts that the

application of the common-law rule remained an open question after Vernon was

decided because it did not specifically address the rule to be applied in cases

addressing violations of the Act. Our discussion in Vernon, however, was quite

broad. It was not limited to the narrow context of warranty and contract liability

incurred by successive sole proprietorships, the relevant facts in that decision. As

we have already noted, important underlying considerations distinguish the

application of the federal liability doctrine, deeply rooted in federal labor law, and

our common-law nonliability rule, stemming from broader policy considerations.

¶ 32 Indeed, a review of Illinois case law shows that the common-law nonliability

rule has been applied in the context of a wide variety of legal claims, not just those

involving labor law issues. In Vernon, 179 Ill. 2d at 343, the underlying action

involved allegations of breach of warranty and contract, and our appellate court has

applied the common-law rule broadly in many other types of underlying actions.

See, e.g., A.L. Dougherty Real Estate Management Co. v. Su Chin Tsai, 2017 IL

App (1st) 161949 (involving the breach of a commercial lease); Groves of Palatine

Condominium Ass’n v. Walsh Construction Co., 2017 IL App (1st) 161036

(involving defects in the construction of condominium buildings); Advocate

Financial Group, LLC v. 5434 North Winthrop, LLC, 2015 IL App (2d) 150144

(involving payment for financial services); Villaverde v. IP Acquisition VIII, LLC,

2015 IL App (1st) 143187 (involving nonpayment of wages); Diguilio v. Goss

International Corp., 389 Ill. App. 3d 1052 (2009) (involving a product liability

claim). Although the State contends that the appellate court did not modify the rule

in Vernon because the scope of its application remained an open question, the

breadth of the rule’s prior application seriously undermines that contention. We

hold that the appellate majority erred by altering this court’s enunciation of that rule

by adding a fifth exception.

¶ 33 Finally, we note that it is within the legislature’s power to abrogate the

common-law rule we adopted in Vernon or otherwise alter its standards through

appropriately targeted legislation if it determined those changes to the rule and its

exceptions necessary in a specific context, such as employment discrimination

cases. To date, our legislature has not chosen to do so. We stand by Vernon’s

adoption of the common-law rule of successor corporate nonliability and its four

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exceptions because the State has failed to show good cause or other compelling

reason to reject its application in cases involving Act violations.

¶ 34 B. Application of the “Fraudulent Purpose” Exception

¶ 35 Having decided not to adopt the federal successor corporate liability rule in Act

cases, we next examine whether the “fraudulent purpose” exception to our

common-law rule of nonliability applies under the facts of this case. Oakridge

Healthcare argues that the appellate majority erred by concluding that the

“fraudulent purpose” exception applied to its acquisition of Oakridge Rehab’s long-

term care facility. The fraudulent purpose exception exists “where the transaction

is for the fraudulent purpose of escaping liability for the seller’s obligations.”

Vernon, 179 Ill. 2d at 345. Initially, Oakridge Healthcare claims that the State

forfeited this argument by failing to raise it in the trial court, to oppose Oakridge

Healthcare’s summary judgment motion for summary judgment, or as a theory of

recovery in its complaint.

¶ 36 Before the appellate court, the State claimed that court could affirm or reverse

on any ground appearing in the record. That claim reflects a misunderstanding of

the applicable standard. A reviewing court may only affirm on any basis in the

record; it may not reverse on any grounds found in the record. See Tri-G, Inc. v.

Burke, Bosselman & Weaver, 222 Ill. 2d 218, 258 (2006). Nonetheless, in this

instance we will overlook any forfeiture of the fraudulent purpose exception and

address the merits of the State’s claim because the appellate majority relied on it to

reverse the summary judgment finding entered in favor of Oakridge Healthcare.

Forfeiture is an admonition to the parties, not a limitation on a reviewing court’s

jurisdiction. We may ignore forfeiture “in the interests of achieving a just result and

maintaining a sound and uniform body of precedent.” Jackson v. Board of Election

Commissioners of the City of Chicago, 2012 IL 111928, ¶ 33.

¶ 37 In Illinois, sections 5 and 6 of the Uniform Fraudulent Transfer Act (Fraud Act)

(740 ILCS 160/5, 6 (West 2018)) recognize two types of fraud: fraud in fact and

fraud in law (Bank of America v. WS Management, Inc., 2015 IL App (1st) 132551,

¶ 87). As both parties acknowledge, fraud in fact requires proof that the “debtor”

(here, Oakridge Rehab) had an “actual intent to hinder, delay, or defraud any

creditor of the debtor” (here, Holloway/the State). 740 ILCS 160/5(a)(1) (West

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2018). Without proof of the debtor’s “actual intent to hinder, delay, or defraud any”

of its creditors, fraud in fact cannot be established. 740 ILCS 160/5(a)(1) (West

2018). To create an inference of the requisite intent, the State must seek to prove

the factors listed in section 5(b) of the Fraud Act (740 ILCS 160/5(b) (West 2018)).

Premier Property Management, Inc. v. Chavez, 191 Ill. 2d 101, 110 (2000) (noting

that section 5(b) “lists 11 factors that may be considered in determining the debtor’s

actual intent in making the transfer”). Those factors have sometimes been deemed

“badges of fraud.” Bank of America, 2015 IL App (1st) 132551, ¶ 88. Courts are

not constrained by that list, however, and need not consider every factor. In

addition, they may consider other factors not enumerated in section 5(b). The

presence of one or more factors, however, is not conclusive evidence of fraud. Bank

of America, 2015 IL App (1st) 132551, ¶¶ 88-89. The factors expressly set out in

section 5(b) are whether:

“(1) the transfer or obligation was to an insider;

(2) the debtor retained possession or control of the property transferred after

the transfer;

(3) the transfer or obligation was disclosed or concealed;

(4) before the transfer was made or obligation was incurred, the debtor had

been sued or threatened with suit;

(5) the transfer was of substantially all the debtor’s assets;

(6) the debtor absconded;

(7) the debtor removed or concealed assets;

(8) the value of the consideration received by the debtor was reasonably

equivalent to the value of the asset transferred or the amount of the obligation

incurred;

(9) the debtor was insolvent or became insolvent shortly after the transfer

was made or the obligation was incurred;

(10) the transfer occurred shortly before or shortly after a substantial debt

was incurred; and

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(11) the debtor transferred the essential assets of the business to a lienor

who transferred the assets to an insider of the debtor.” 740 ILCS 160/5(b) (West

2018).

See Bank of America, 2015 IL App (1st) 132551, ¶ 88.

¶ 38 Before this court, the State asserts that “a reasonable fact finder would

determine that the transfer met several ‘badges’ of fraud.” Consistent with the

appellate majority’s analysis, the State argues that the evidence sufficiently

established the fourth, fifth, eighth, and ninth factors to preclude the entry of

summary judgment for Oakridge Healthcare. Because the State does not present

any argument addressing the other statutory indicia of fraud, we will address only

those four factors.

¶ 39 The fourth factor considers whether, “before the transfer was made or

obligation was incurred, the debtor had been sued or threatened with suit.” 740

ILCS 160/5(b)(4) (West 2018). Holloway filed her discrimination charge against

Oakridge Rehab in February 2011, and Oakridge Rehab was notified of that charge

in the spring of that year. On January 1, 2012, Oakridge Rehab transferred virtually

all business assets to Oakridge Healthcare. Undoubtedly, Oakridge Rehab was

aware of Holloway’s charge at the time of the transfer. That does not mean,

however, that the fourth factor was even arguably established. The filing of a charge

with the Department does not inexorably lead to the filing of a lawsuit. Indeed, no

complaint was filed in this case until September 2012, at least eight months after

the transfer, when the Department concluded its investigation. It cannot

legitimately be said that Oakridge Rehab was “threatened with suit” at the time that

the transfer occurred. The Department’s investigation was underway, and at that

point neither party could reasonably foresee the outcome of that investigation. We

conclude the evidence does not support the presence of the fourth factor.

¶ 40 Moving to the fifth factor, we examine whether “the transfer was of

substantially all the debtor’s assets.” 740 ILCS 160/5(b)(5) (West 2018). Oakridge

Healthcare acknowledges that the record contains sufficient evidence to show it

received “substantially all” assets owned by Oakridge Rehab, with the latter

keeping only its accounts receivable, consisting largely of moneys still owed to it

by the State. While a single factor may, on occasion and under the appropriate

circumstances, be sufficient to create an inference of fraud in fact, those

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circumstances are not present here. See Brandon v. Anesthesia & Pain Management

Associates, Ltd., 419 F.3d 594, 600 (7th Cir. 2005). It is, in fact, difficult to imagine

when the mere transfer of substantially all corporate assets, standing alone, would

be sufficient to justify an inference of fraud in fact. Many, if not most, corporate

transfers presumably include the transfer of substantially all corporate assets since

they typically constitute a significant portion of the business’s value and are critical

to its operations. Here, Oakridge transferred assets, other than real property, that

were needed to care for the facility’s residents. Transferring those assets allowed

for the continuous care of the residents and is not, by itself, a sufficient justification

to infer fraud in fact.

¶ 41 In considering evidence of the eighth factor, we examine whether “the value of

the consideration received by the debtor was reasonably equivalent to the value of

the asset transferred or the amount of the obligation incurred.” 740 ILCS

160/5(b)(8) (West 2018). Of all the factors it cites, the State focuses most heavily

on this one. In a related argument, it contends that the parties’ failure to obtain an

appraisal of the asserts prior to the transfer adds support to its position.

¶ 42 The State points to evidence that, after Holloway filed her charge, Oakridge

Rehab transferred nearly all business assets to Oakridge Healthcare without any

negotiations or consideration in a transaction that was not made at arm’s length. As

additional support for the inference of fraud, the State notes that Helen Lacek and

Eli Atkin, along with his other family members, were close business associates for

decades, that Oakridge Healthcare was founded specifically to acquire Oakridge

Rehab’s assets, and that the assets’ value was unknown because they had not been

appraised. In addition, Helen and Eli continued to have a close business relationship

after the transfer, with Helen serving as a consultant for three companies affiliated

with Eli and both Helen and Eli sharing connections to two other companies. The

State maintains that, based on these facts, a reasonable fact finder could find that

Helen used the transfer to avoid any potential liability to Holloway.

¶ 43 Although Helen and Eli were admittedly well acquainted with each other after

years of working in the same industry, that does not create a reasonable inference

that the asset transfer was not an arm’s-length transaction. In industries with fewer

players in a particular region, such as the residential care industry, it is not

surprising that Helen and Eli would both have connections to some of the same

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business entities. Taken alone, those business connections do not create any

nefarious inferences.

¶ 44 Under the unique facts of this case, the lack of any monetary exchange when

the assets were transferred also does not imply the transaction was structured to

avoid liability. Oakridge Rehab was in serious financial distress due to the State’s

ongoing failure to make its Medicaid payments. Oakridge Rehab chose to continue

operations as long as possible, likely in the hope that those payments would be

made before it had to close its doors. To continue caring for its residents, Oakridge

chose to use its limited funds to pay staff instead of rent, but it recognized that

situation could not continue indefinitely. Despite evidence that a few other

businesses inquired about the possibility of buying Oakridge Rehab, those inquiries

did not lead to purchase offers. Oakridge Healthcare was the only entity that

expressed any serious interest in the facility. While no monetary consideration was

exchanged in the transfer, Oakridge Rehab obtained a distinct benefit: it was no

longer liable for the operation’s escalating expenses and retained its accounts

receivable, including the Medicaid sums due from the State. Those future payments

could then be used to pay back rent and early lease termination penalties totaling

more than $454,000, along with any other unpaid bills. In other words, the transfer

allowed Oakridge Rehab to stop the bleeding that was rapidly draining the

company’s financial lifeblood.

¶ 45 And, while an asset appraisal may have been warranted under normal business

circumstances, we cannot say that the lack of an appraisal creates a reasonable

inference of an intent to defraud creditors in light of the serious financial stress and

limited sale opportunities for Oakridge Rehab. The assets that were transferred to

Oakridge Healthcare consisted of the license needed to operate the facility, beds,

three days’ worth of perishable food, a week’s worth of frozen food, stock

medicines, medical supplies, and some paper. Because Oakridge Rehab did not own

the physical building used for its operations, the building was not an asset that could

have been transferred, with possession of it reverting to Oakridge Properties when

the lease was terminated. We conclude that, under these circumstances, the absence

of an asset appraisal and outright monetary payment was insufficient to establish

the eighth indicator of fraudulent intent.

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¶ 46 Finally, the ninth factor requires this court to review whether “the debtor was

insolvent or became insolvent shortly after the transfer was made or the obligation

was incurred.” 740 ILCS 160/5(b)(9) (West 2018). The transfer occurred on

January 1, 2012. Although the appellate court and the State focused on Oakridge

Rehab’s financial problems prior to the transfer, their supporting evidence is

minimal. The appellate majority relied solely on Helen Lacek’s deposition

statement that Oakridge Rehab began having financial troubles in June 2011 and

that those troubles escalated until it could not pay its rent, requiring the early

termination of its lease. The State’s brief offers even less support, perfunctorily

asserting only that Oakridge Rehab “was insolvent before the asset transfer was

made (badge 9).”

¶ 47 We are not persuaded that the evidence sufficiently establishes Oakridge

Rehab’s insolvency at or shortly after the time of the transfer. Certainly, it was

undergoing serious financial distress that would likely not have been resolved until

the State resumed making the payments it rightfully owed. At the time of the

transfer, however, Oakridge Rehab was still paying its staff and otherwise

maintaining its operations, albeit at the expense of paying its rent. Nonetheless, the

business’s financial condition would undoubtedly have brightened considerably if

the State had resumed the timely payment of its obligations, a condition that did not

occur prior to the transfer.

¶ 48 Assuming arguendo that Oakridge Rehab was insolvent at the time of the

transfer, we cannot say that the presence of only two indicators of potential fraud,

numbers five (a transfer of substantially all assets) and nine (insolvency at the time

of the transfer), is sufficient to preclude the entry of summary judgment under the

facts of this case. See 740 ILCS 160/5(b)(5), (9) (West 2018) (listing the factors

relevant here). Even if all 11 factors are present, they may be insufficient to create

an inference or presumption of fraud in fact. A.G. Cullen Construction, Inc. v.

Burnham Partners, LLC, 2015 IL App (1st) 122538, ¶ 29. One of the touchstones

of the Fraud Act is whether the transfer was made with “actual intent to hinder,

delay, or defraud” a creditor, a requirement expressly stated in section 5(a)(1). 740

ILCS 160/5(a)(1) (West 2006). If the circumstances surrounding a transfer do not

establish it was made with the actual intent to avoid a creditor, the evidence is

insufficient to prove the fraud. Bank of America, 2015 IL App (1st) 132551, ¶ 79.

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¶ 49 Here, the State has shown only that Oakridge transferred substantially all

corporate assets at a time when it was at least arguably insolvent. That, without

more, is legally insufficient to show it had an actual intent to avoid its creditors at

the time the transfer occurred. As Oakridge Healthcare notes, Oakridge Rehab had

serious financial problems stemming from the State’s failure to make its requisite

payments for the care of the facility’s residents. Without enough money coming in

to pay all its ongoing bills, Oakridge Rehab opted to pay its staff and forgo its rental

payments. As the State grew further and further behind in its payments, Oakridge

Rehab’s financial position became more dire until it was forced to terminate its

lease. If it had not transferred virtually all remaining assets to Oakridge Healthcare

at that point, it would have had to close, forcing the elderly and disabled residents

in its care to find other accommodations or risk becoming homeless. Those

circumstances do not support the conclusion that Oakridge Rehab was motivated to

transfer its assets by an intent to evade its financial obligations to Holloway.

¶ 50 That conclusion is further bolstered by the fact that, at the time of the transfer

on January 1, 2012, the Department had not even completed its investigation of

Holloway’s allegations. Its investigation was not finished until shortly before it

filed its complaint against Oakridge Rehab in September 2012, almost eight months

after the transfer took place. Even after that filing, the outcome of the proceeding

was not assured. At the time of the asset transfer, it was pure speculation that the

Department would decide to pursue Holloway’s claim before the Illinois Human

Rights Commission. Thus, it would have required even greater prescience to

conclude at the time of the transfer in January 2012 that the administrative law

judge hearing the claim would recommend an award of $30,880 in back pay, plus

prejudgment interest, and that the Commission would formally adopt the award in

April 2014, more than two years after Oakridge Rehab transferred the assets. In

light of those circumstances, the State has not created a question of material fact

about whether Oakridge Rehab had the actual intent to evade or otherwise defraud

either Holloway or the State at the time of the transfer, the necessary prerequisites

for fraud in fact.

¶ 51 The State next argues that the transfer constituted fraud in law. The test for

fraud in law is closely related to the requirements needed to establish the eighth

factor in the State’s fraud-in-fact claim. The eighth factor looks at whether “the

value of the consideration received by the debtor was reasonably equivalent to the

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value of the asset transferred or the amount of the obligation incurred.” 740 ILCS

160/5(b)(8) (West 2018). Similarly, under the fraud-in-law standard, if the

“ ‘transfer is made for no or inadequate consideration, *** the fraud is presumed.’ ”

Bank of America, 2015 IL App (1st) 132551, ¶ 87 (quoting Northwestern Memorial

Hospital v. Sharif, 2014 IL App (1st) 133008, ¶ 18). The latter test is drawn from

section 5(a)(2) of the Fraud Act (740 ILCS 160/5(a)(2) (West 2018)). Both tests

evaluate the sufficiency of the consideration underlying the transfer. Because we

previously determined that the requirements of the eighth factor of the fraud-in-fact

analysis were not sufficiently met here to create a question of material fact, we need

not examine the State’s fraud-in-law claim further. We conclude that the trial court

properly entered summary judgment for Oakridge Healthcare, and the appellate

court erred by reversing that judgment.

¶ 52 III. CONCLUSION

¶ 53 For the reasons stated, we decline to adopt the federal successor liability

doctrine in cases when a judgment has been entered for a violation of the Illinois

Human Rights Act and, instead, adhere to this state’s long-standing common-law

rule of corporate successor nonliability, subject to only the four exceptions we

recognized in Vernon, 179 Ill. 2d at 344-45. The Illinois Human Rights

Commission’s judgment in favor of Jane Holloway was entered solely against

Oakridge Rehab, and the pleadings did not request relief from any other individual

or entity. After analyzing the facts of this case under our common-law corporate

successor nonliability rule, we conclude that Oakridge Healthcare did not incur any

liability for fulfilling the judgment entered against Oakridge Rehab. Therefore, we

reverse the appellate court judgment and affirm the trial court’s entry of summary

judgment for Oakridge Healthcare.

¶ 54 Appellate court judgment reversed.

¶ 55 Circuit court judgment affirmed.

¶ 56 JUSTICE NEVILLE took no part in the consideration or decision of this case.

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