Lewis, Yockey & Brown, Inc. v. Fetzer

2022 IL App (4th) 210599

FILED

NO. 4-21-0599 June 9, 2022

Carla Bender

IN THE APPELLATE COURT 4th District Appellate

Court, IL

OF ILLINOIS

FOURTH DISTRICT

LEWIS, YOCKEY & BROWN, INC., ) Appeal from the

Plaintiff-Appellant, ) Circuit Court of

v. ) McLean County

MARK FETZER, KENNETH VERKLER, R. ) No. 16L47

MICHAEL HUNDMAN, and LAURENCE F. )

HUNDMAN, ) Honorable

) Rebecca S. Foley,

Defendants-Appellees.

) Judge Presiding.

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

Presiding Justice Knecht and Justice Turner concurred in the judgment and

opinion.

OPINION

¶1 The plaintiff, Lewis, Yockey & Brown, Inc. (Lewis), sought to pierce the veil of an

Illinois limited liability company, Hundman Management, LLC. In other words, Lewis sought to

hold the members of the limited liability company—the defendants, Kenneth Verkler, R. Michael

Hundman, and Laurence F. Hundman—personally liable for a money judgment that Lewis had

won against the company. (Whereas owners of a corporation are called “shareholders,” owners of

a limited liability company are called “members” (see 805 ILCS 180/1-5, 35-10 (West 2020)).)

The circuit court of McLean County kept the veil intact, granting motions for summary judgment

in the defendants’ favor. Lewis appeals. In our de novo review (see Arris Group, Inc. v.

CyberPower Systems (USA), Inc., 2021 IL App (1st) 191850, ¶ 30), we affirm the summary

judgments because the record appears to lack evidence that the statutory conditions for holding the

members liable have been met (see 805 ILCS 180/10-10(d) (West 2020)). Thus, the circuit court

was correct that, under the material undisputed facts, the defendants were entitled to judgment as

a matter of law. See Arris, 2021 IL App (1st) 191850, ¶ 30.

¶2 I. BACKGROUND

¶3 Hundman Management, LLC, was established in 2003 as a member-managed

limited liability company. (There are two kinds of limited liability company: a “manager-managed

company,” in which the members serve as passive investors, delegating management responsibility

to a manager, and a “member-managed company,” which is defined as “a limited liability company

other than a manager-managed company.” 805 ILCS 180/1-5 (West 2020).)

¶4 On October 20, 2004, the members of Hundman Management, LLC, amended the

company’s operating agreement so as to authorize the chairman of the company, Laurence F.

Hundman, to sign notes, eliminating a requirement that notes also be signed by the secretary of the

company.

¶5 On August 1, 2009, on behalf of Hundman Management, LLC, Laurence F.

Hundman issued a note to Lewis in the amount of $283,711.45—“in return for a loan,” according

to the note. It appears to be undisputed, though, that Lewis never lent Hundman Management,

LLC, any funds. Instead, Lewis had provided civil engineering services to other limited liability

companies managed by Hundman Management, Inc. For a time, Laurence F. Hundman made

payments on the note. Then he stopped making payments, and the note went into default. In a case

separate from this one, Lewis sued on the note and on October 23, 2013, won a judgment against

Hundman Management, LLC, in the amount of $218,925.73.

¶6 In 2016, Lewis brought the present action. In addition to suing Laurence R.

Hundman for fraud, Lewis sought to hold the other members liable for the judgment on the note—

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Lewis requested the circuit court to pierce the veil of Hundman Management, LLC. The second

amended complaint named Mark Fetzer, Verkler, R. Michael Hundman, and Laurence F.

Hundman as defendants but sought no relief from Fetzer.

¶7 On November 30, 2017, by the circuit court’s ruling on a motion for dismissal,

Fetzer was eliminated as a defendant, and only three counts of the second amended complaint

remained: counts I, V, and VIII. Count I was a piercing-of-the-veil count directed against Verkler,

R. Michael Hundman, and Laurence F. Hundman. Count V was a count of fraud directed against

Laurence F. Hundman. Count VIII was a count of constructive fraud directed against him.

¶8 On March 8, 2021, the circuit court granted a motion for summary judgment by

Verkler on count I, concluding that, contrary to Lewis’s claim, Hundman Management, LLC, had

been adequately capitalized.

¶9 On June 30, 2021, the circuit court granted a motion for summary judgment by R.

Michael Hundman on count I.

¶ 10 On September 16, 2021, the circuit court granted a motion for summary judgment

by Laurence F. Hundman on counts I, V, and VIII.

¶ 11 On October 15, 2021, Lewis filed an appeal from the three summary judgments.

¶ 12 II. ANALYSIS

¶ 13 On appeal, Lewis makes no argument on counts V and VIII of the second amended

complaint. Therefore, Lewis has forfeited its challenge to the summary judgment in Laurence F.

Hundman’s favor on those counts. See Ill. S. Ct. R. 341(h)(7) (eff. Oct. 1, 2020) (providing that

“[p]oints not argued [in the appellant’s brief] are forfeited”). The only question left in this appeal

is whether the circuit court should have pierced the veil of Hundman Management, LLC.

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¶ 14 Our research reveals only one reported decision in which the reviewing court

affirmed a judgment that pierced the veil of a limited liability company. In Benzakry v. Patel, 2017

IL App (3d) 160162, the circuit court pierced the veil of KAP Family Investments, LLC (KAP),

holding that the sole member of KAP, Kalpita Patel (see id. ¶ 67), was “personally responsible for

the debts of KAP” (id. ¶ 21). Kalpita Patel appealed. Id. ¶ 1. The appellate court held that, for three

reasons, this piercing of the veil was not against the manifest weight of the evidence. Id. ¶ 69.

¶ 15 First, “KAP had inadequate capitalization.” Id. ¶ 66. The appellate court believed

that “[i]t [was] inequitable for shareholders to establish and maintain a corporation that carrie[d]

on business without sufficient assets available to meet its debt.” Id.

¶ 16 Second, “Kalpita was the sole member of KAP, but her testimony indicate[d] that

she was not involved with the activities of KAP.” Id. ¶ 67. One of the factors that courts took into

account in deciding “whether to pierce the corporate veil” was the “nonfunctioning” of officers

who supposedly were in charge of the corporation. Id. ¶ 65.

¶ 17 Third, “the record show[ed] [that] Kalpita [had] commingled funds.” Id. ¶ 68.

“[D]iversion of assets from the corporation by or to a shareholder” was yet another factor that

courts considered “in determining whether to pierce the corporate veil.” Id. ¶ 65.

¶ 18 Because of those three factors, the Benzakry court reasoned, “the jury’s verdict,

piercing KAP’s corporate veil and holding Kalpita liable for KAP’s damages, was not against the

manifest weight of the evidence.” (Emphasis added.) Id. ¶ 69.

¶ 19 We would respectfully suggest that this holding in Benzakry is problematic because

the limited liability company in that case, KAP, had no “corporate veil.” See id. The appellate

court in Benzakry seemed to regard a limited liability company as a type of corporation or as

interchangeable with a corporation. A limited liability company, however, is different from a

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corporation. An Illinois corporation is formed under the Business Corporation Act of 1983 (805

ILCS 5/1.01 et seq. (West 2020)), whereas an Illinois limited liability company is formed under

the Limited Liability Company Act (805 ILCS 180/1-1 et seq. (West 2020)). As one might surmise

by comparing the lengths of those two statutes, a limited liability company is a less onerous

business model. The very point of a limited liability company is that it will have greater

“ ‘informality of organization and operation’ ” than a corporation. Sandra D. Mertens, Can You

Pierce the Veil of an Illinois LLC? 103 Ill. B.J. 46, 47 (Jul. 2015) (quoting Revised Uniform

Limited Liability Company Act § 304 cmt. (Unif. Law Comm’n 2006)). Consequently, in the view

of the Uniform Law Commission, “ ‘the failure of a limited liability company to observe any

particular formalities’ ” should not make members or managers of the company liable as failure to

observe corporate formalities could make shareholders of a closely held corporation liable. Id.

(quoting Revised Uniform Limited Liability Company Act § 304(b) (Unif. Law Comm’n 2006)).

¶ 20 Despite this difference in formality between a limited liability company and a

corporation, the Illinois General Assembly, in 1994, passed an amendment making managers and

members of a limited liability company personally liable for the company’s debts “to the extent

that a shareholder of an Illinois business corporation is liable in analogous circumstances under

Illinois law.” 805 ILCS 180/10-10 (West 1994). If section 10-10 of the Limited Liability Company

Act (805 ILCS 180/10-10 (West 2020)) still read that way, Benzakry would be on firmer legal

footing. In 1998, however, the General Assembly revised section 10-10, eliminating the

analogous-liability language. Section 10-10(a) and (d) now reads as follows:

“(a) Except as otherwise provided in subsection (d) of this Section, the

debts, obligations, and liabilities of a limited liability company, whether arising in

contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the

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company. A member or manager is not personally liable for a debt, obligation, or

liability of the company solely by reason of being or acting as a member or

manager.

***

(d) All or specified members of a limited liability company are liable in

their capacity as members for all or specified debts, obligations, or liabilities of the

company if:

(1) a provision to that effect is contained in the articles of

organization; and

(2) a member so liable has consented in writing to the adoption of

the provision or to be bound by the provision.” 805 ILCS 180/10-10(a), (d)

(West 2020).

¶ 21 We lack authority to impose any exception upon that statute. See Taylor v. Pekin

Insurance Co., 231 Ill. 2d 390, 395 (2008); Harshman v. DePhillips, 218 Ill. 2d 482, 501 (2006);

Village of Chatham v. County of Sangamon, 216 Ill. 2d 402, 429 (2005). We “will not read

exceptions, conditions, or limitations into a statute which the legislature did not express if the

statutory language is clear and unambiguous.” Harshman, 218 Ill. 2d at 501. The language of

section 10-10(a) and (d) of the Limited Liability Company Act is clear and unambiguous. Except

as section 10-10(d) (805 ILCS 180/10-10(d) (West 2020)) provides, the debts of a limited liability

company are solely the debts of the company instead of the debts of the company’s managers and

members. Id. § 10-10(a). Under section 10-10(d), the company’s debt is the debt of a member only

if both of the following conditions are met: (1) the operating agreement provides that the member

is personally liable for the company debt and (2) the member has consented in writing to the

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adoption of that provision or has agreed to be bound by it. Id. § 10-10(d). The record in this case

appears to lack evidence that the operating agreement of Hundman Management, LLC, provided

for the personal liability of members for the company’s debts, let alone that the defendants agreed

in writing to the adoption of such a provision or to be bound by it. We decline to effectively amend

section 10-10 (id. § 10-10) by imposing upon it an undercapitalization exception or any other

exception that the legislature did not express.

¶ 22 Admittedly, in granting the motions for summary judgment on count I of the second

amended complaint, the circuit court did not rely on section 10-10. Even so, “[t]he appellate court

reviews the judgment of the circuit court and not the reasons given for that judgment.” Arris, 2021

IL App (1st) 191850, ¶ 30.

¶ 23 III. CONCLUSION

¶ 24 Because the conditions in section 10-10(d) of the Limited Liability Company Act

(805 ILCS 180/10-10(d) (West 2020)) are unfulfilled, we affirm the circuit court’s judgment.

¶ 25 Affirmed.

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