CFC Investment, L.L.C. v. McLean

SUPREME COURT CASES

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State: Illinois

Court: 1st District Appellate

Docket No: 1-08-0161 Rel

Case Date: 12/22/2008

Preview:FIRST DIVISION December 22, 2008

No. 1-08-0161 CFC INVESTMENT, L.L.C., Plaintiff-Appellant, v. DANIEL E. MCLEAN, individually and doing business as MCL COMPANIES, Defendant-Appellee. ) ) ) ) ) ) ) ) ) ) Appeal from the Circuit Court of Cook County. No. 04 L 24 Honorable Daniel J. Kelley, Judge Presiding.

JUSTICE WOLFSON delivered the opinion of the court: CFC Investment sued Daniel McLean for breach of a contract to purchase CFC's interest in a real estate venture. that he never offered to buy CFC's interest. contract. McLean answered

That is, there was no

The trial court entered judgment on the jury's verdict in On appeal, CFC contends the trial court erred by

favor of McLean.

(1) allowing parol evidence, (2) disallowing an admission McLean made at his deposition, (3) disallowing evidence of mismanagement, (4) refusing a proposed instruction on agency, (5) answering the jury's question, and (6) denying CFC's motion for a new trial or a judgment notwithstanding the verdict. FACTS Some factual detail is required for an analysis of the jury's verdict. In 1997 Peer Pedersen and Daniel McLean formed River East, LLC, to build residential and commercial buildings on land north of the We affirm.

1-08-0161 Chicago River near Lake Michigan in Chicago. A separate

corporation, River East, Inc., with Daniel McLean as its president, managed River East, LLC. Those corporations set up a number of We

subsidiaries to develop separate parcels of the large tract.

will refer to the various River East entities collectively as River East. River East paid various fees for management, development, marketing, leasing, and construction on the land to corporations McLean owned. Craig Duchossois and his father, Richard Duchossois,

formed CFC Investments in 1997 to invest $10 million in River East. McLean, Peer Pedersen, Howard Warren, John Melk, and several others also invested in River East. Pedersen and McLean convened a meeting of the investors on March 14, 2001. Pedersen and McLean assured the investors the

development was proceeding well, with new investors seeking to participate. Craig offered to sell CFC's interest. Pedersen tried

to persuade Craig that he should keep his investment in River East. But, according to Craig's notes from the meeting, Pedersen said he, Melk, and McLean, along with others, would be willing to buy out CFC's shares. Craig wrote to Pedersen in April 2001, asking him to "consider this letter as [CFC's] request to initiate steps that would let us look at such a transaction." At the rate of return Pedersen and

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1-08-0161 McLean said they expected, CFC's shares should have had a value of $25 million. Craig repeated his request to sell CFC's interest in Craig added,

River East in a letter to Pedersen sent in June 2001.

"I understand *** that Dan [McLean] expressed an interest in joining with a group to acquire [CFC's] interest." McLean, on July 31, 2001, wrote to Craig: "Your ownership interest of 12.3% equates to a current value of $14,897,317 ***. I recognize your desire to sell your interest in the River East development and I will work toward this goal. However, it is unlikely that an investor would pay the $25.2 million value requested in your letter. *** *** I can pursue a buyout of your interest."

Craig telephoned McLean, and that call initiated further discussions about an appropriate price for CFC's interest in River East. They

arrived at a price, and McLean confirmed that valuation in writing. On August 30, 2001, McLean wrote to Craig: "I am willing to arrange for the purchase of your interest in the River East LLC for a price of $16,700,000. If this is acceptable to you please sign below. I will

then commence to secure the capital for a closing date of November 30, 2001. Sincerely,

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1-08-0161 /s/ Dan McLean." On September 21, 2001, Robert Fealy and David Filkin, acting on behalf of CFC Investments, met with McLean's representative, Kevin Augustyn, to discuss the details of the proposed transaction. Following the meeting Craig wrote, in a letter dated September 26, 2001: "On behalf of CFC Investments, we accept your offer to acquire all of our interest in the River East project for $16,700,000. *** We also understand that, as part of this transaction, you will assist with having us removed as guarantors of the JP Morgan loan ***. *** [W]e expect to close this transaction before November 15." On September 28, 2001, McLean responded: "I am happy to know you would like to accept our acquisition offer. *** *** [W]e are hoping to close this transaction as quickly as possible. However, as both Peer Pedersen and I stated

originally, we require 90 days from the date of your acceptance of our offer. This would give us up to January 1, 2002 if you

acknowledge this letter by October 1, 2001. *** Of course we understand your interest in being released as guarantor of the JP Morgan loan. We expect to do this with the

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1-08-0161 repayment of your $5,000,000 pro-rata share of this loan, out of the proceeds you receive. Assuming these two points are acceptable, please acknowledge by signing this letter below and returning it to me *** to effectuate this transaction." Craig sent back a copy of the letter with his signature, along with a separate letter in which he said CFC agreed to the 90-day period "with the understanding that your group will do everything reasonable to accelerate closure." Craig heard no word of progress over the following months. March 29, 2002, he wrote to McLean, demanding performance of McLean's "contractual commitments." McLean did not respond. CFC On

hired an accounting firm to investigate the finances of River East. On April 2, 2003, all of the investors in River East sold their interests to Mitsui Sumitomo Insurance Company for a total of $17 million. CFC received a little over $2.5 million for its share.

On January 2, 2004, CFC sued McLean for breach of contract. The court denied the parties' cross-motions for summary judgment. The court held that a trier of fact must decide whether the parties had reached a binding contract. At a deposition, McLean testified that when he said he was "willing to arrange" for the purchase of CFC's interest, he meant that he would try to find a group of investors to purchase the

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1-08-0161 shares. himself. He did not intend to offer to buy all of CFC's shares CFC's attorney asked:

"Can arrange mean I am willing to arrange to get money so I can purchase your shares? I mean, that's one possible interpretation of that language, isn't it?" McLean answered, "I am sure it could be, somebody could interpret it that way." CFC sought to introduce the statement in its case-in-chief as an admission. The court granted McLean's motion in limine to bar

use of that response in CFC's case-in-chief, but the court added, "As far as what you may do on cross-examination that may be another issue." McLean also moved to bar use of information derived from the 2002 investigation into the finances of River East. According to

CFC's written offer of proof, it would show that McLean changed the plan to the detriment of other investors, he used corporate funds for personal expenses, he improperly accelerated payment of exorbitant fees to corporations he owned, he overvalued certain assets, he defaulted on some loans, and he artificially manipulated reported profits. CFC contended that the evidence helped establish

that "CFC reasonably believed McLean himself offered to purchase CFC's interest because McLean wanted to keep his gross mismanagement

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1-08-0161 of the River East Project under wraps." The circuit court allowed CFC to present any evidence of mismanagement that surfaced before January 2, 2002, the date of the alleged breach, but it granted the motion to preclude any evidence of mismanagement that did not come to light until after that date. CFC moved to exclude parol evidence at trial. the motion. The court denied

The court noted for the record CFC's standing objection

to all evidence admitted or disallowed due to rulings adverse to CFC on motions in limine. Craig testified River East never sent him any of the promised annual audited financial reports. When River East again in 2001

failed to provide the statements Craig requested, he "had run out of patience, and [he] was convinced that [McLean] was not forthright." McLean had arranged for River East to pay above market fees to the corporations McLean owned. Because of his reservations about

McLean, Craig sought to sell CFC's shares. According to Craig's testimony, he believed McLean himself intended to purchase CFC's shares in River East. McLean had not

identified any other investors intending to buy parts of CFC's interest. Craig had no doubt that by the letter of August 30, 2001, Craig

McLean offered to buy CFC's shares for $16.7 million.

understood the letter to mean McLean was willing to arrange financing for his own purchase of the shares.

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1-08-0161 McLean testified that in his correspondence from July through September 2001, he sought to establish a price CFC would accept for its shares so that he could approach potential investors with a specific proposal. He never said he would buy CFC's shares. McLean

said Pedersen and Melk had expressed interest in buying some of CFC's shares. Melk and Pedersen contradicted that part of McLean's testimony. Melk swore he never discussed with McLean the possibility of joining a group to purchase CFC's interest. no such conversations with McLean. Pedersen also testified he had In fact he specifically told

McLean he and Warren did not wish to participate in any further acquisition offer. Fealy and Augustyn testified about their meeting on September 21, 2001. Fealy and Augustyn agreed on the $16.7 million price, and

they agreed Pedersen would complete the legal work for the transaction. According to Fealy, no one at the meeting mentioned

any group of buyers, but Fealy admitted that Augustyn mentioned Pedersen and Warren as investors who might participate in purchasing CFC's shares. Augustyn testified he and Fealy agreed Pedersen would contact the other investors in River East to see if they had any interest in increasing their stakes in the venture by buying out CFC. If those

investors showed no interest, according to Augustyn, then McLean and

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1-08-0161 CFC would look to outside investors. CFC asked the court to instruct the jury: "An agent who signs his name to a contract but does not disclose the principal he is representing (which can be a person or a group) is personally liable for the obligations set forth in the contract that he has signed." The circuit court refused the instruction. The court submitted a

verdict form asking jurors: "Did CFC prove there was an offer by McLean to buy CFC's interest in River East, LLC for $16.7 million?" During deliberations, the jurors sent the judge the following question: "[W]hen you say did CFC prove there was an offer by McLean, does McLean have to mean McLean as an individual?" Over CFC's objection, the court answered, "Yes." the jury returned a verdict in favor of McLean. DECISION I. Parol evidence CFC contends the court erred when it denied the motion to bar parol evidence. McLean answers that CFC waived this and all other We find CFC preserved the issues Shortly thereafter

objections to rulings at trial.

with its argument on the motions in limine and by making a standing objection at the outset of trial. See People v. Jefferson, 227 Ill.

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1-08-0161 App. 3d 491, 505, 592 N.E.2d 134 (1992). Insofar as CFC may have

technically forfeited review of some issues, we choose to exercise our discretion to address them on the merits. See Sinclair v. We

Berlin, 325 Ill. App. 3d 458, 468-69, 758 N.E.2d 442 (2001).

review the court's decision concerning the admissibility of evidence for abuse of discretion. Chapman v. Hubbard Woods Motors, Inc., 351

Ill. App. 3d 99, 105, 812 N.E.2d 389 (2004). Illinois courts have adopted Corbin's statement of the parol evidence rule: " 'When two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing.' " Kelrick v. Koplin, 73 Ill. App.

2d 63, 68, 219 N.E.2d 758 (1966), quoting 3 Corbin on Contracts

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