Flynn v. Maschmeyer

2020 IL App (1st) 190784

156 N.E.3d 540

441 Ill.Dec. 205

Darren FLYNN, Tomasz Bartosiewicz, and Chicago Roof Deck and Garden, LLC, Plaintiffs-Appellants and Cross-Appellees,

v.Michael MASCHMEYER, Anne Maschmeyer, and Bank of America, N.A., Defendants-Appellees

(Michael Maschmeyer, Defendant-Appellee and Cross-Appellant).

No. 1-19-0784

Appellate Court of Illinois, First District, Fourth Division.

June 25, 2020

Alan J. Mandel, of Alan J. Mandel, Ltd., of Skokie, for appellants.

Marty Schwartz and Tyler Manic, of Schain, Banks, Kenny & Schwartz, Ltd., of Chicago, for appellees Anne Maschmeyer and Michael Maschmeyer.

Geoffrey A. Belzer, of Wilson Elser Moskowitz Edelman & Dicker LLP, of Chicago, other appellee.

PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion.

¶ 1 The instant appeal arises from litigation involving defendant Michael Maschmeyer's conduct as a member of plaintiff Chicago Roof Deck and Garden, LLC (CRDG). Maschmeyer¹ owned a 42.5% interest in CRDG, with plaintiffs Darren Flynn and Tomasz Bartosiewicz owning the remainder of the membership interests. After a bench trial, the trial court found that Maschmeyer breached his fiduciary duty as a member of CRDG by usurping business opportunities that should have first been offered to CRDG. The trial court entered judgment in favor of CRDG and against Maschmeyer as follows: (1) $1,768,927 in compensatory damages, (2) $236,350 in prejudgment interest, and (3) $651,104 in punitive damages. The total judgment in favor of CRDG and against Maschmeyer was $2,656,381.

¶ 2 However, the trial court also found that CRDG was required to compensate Maschmeyer for the fair value of his membership interest upon his disassociation from CRDG, which the court found occurred June 16, 2014. The trial court determined that the fair value of this membership interest was $2,867,376 and entered judgment in favor of Maschmeyer and against CRDG in that amount. After setting off the amount of the judgment against Maschmeyer, the trial court's judgments resulted in a net judgment in favor of Maschmeyer and against CRDG in the amount of $210,995.

¶ 3 Both plaintiffs and Maschmeyer appeal, but neither party appeals (1) the finding that Maschmeyer breached his fiduciary duty to CRDG, (2) the imposition of punitive damages,² or (3) the addition of prejudgment interest to the judgment against Maschmeyer. In their appeal, plaintiffs challenge (1) the grant of judgment in Maschmeyer's favor or, alternatively, the amount of that judgment; (2) the amount of the judgment in CRDG's favor; (3) the dismissal of plaintiffs' other counts, including counts against defendants Anne Maschmeyer and Bank of America, N.A. (Bank of America); and (4) the denial of plaintiffs' motions for leave to amend their complaint. In his cross-appeal, Maschmeyer challenges the trial court's denial of his requests for interest and attorney fees. For the reasons set forth below, we affirm the trial court's judgment in part, but reverse and remand for the limited purpose of awarding Maschmeyer interest on the judgment in his favor.

¶ 4 BACKGROUND

¶ 5 As noted, while the instant matter was resolved by a bench trial, many of the facts are not disputed by either party. Accordingly, we recite those facts as found by the trial court in its judgment order and draw from the record where necessary to resolve the issues on appeal.

¶ 6 I. Prelitigation Conduct

¶ 7 Flynn and Maschmeyer were high-school friends and long-time business partners, having partnered in several landscaping and real estate development businesses in St. Louis and Chicago prior to forming CRDG. In February 2009, they formed CRDG as an Illinois member-managed limited liability company, with each as a 50% member. CRDG was engaged in the business of outdoor living design and construction services, as well as landscaping services. However, it subcontracted all construction work. Thomas Wood Craft, a construction firm owned by Bartosiewicz, was CRDG's captive subcontractor, building CRDG's showroom and subcontracting with CRDG to build a substantial percentage of CRDG's clients' projects.

¶ 8 Under CRGD's 2009 and 2013 operating agreements, Flynn was the chief executive manager of CRDG, with primary responsibility for managing the operations of CRDG, including responsibility for financial matters. Maschmeyer served as CRDG's sales agent and designer and was responsible for most of the design work; the trial court found that Maschmeyer generated a substantial portion of CRDG's business. On March 25, 2013, Flynn and Maschmeyer admitted Bartosiewicz as a member and manager of CRDG, granting him a 15% membership interest as consideration for cancellation of certain of CRDG's accounts payable to Thomas Wood Craft. As a result, Flynn's and Maschmeyer's interests in CRDG were diluted to 42.5% each.

¶ 9 Neither Flynn nor Maschmeyer received a salary. Under CRDG's operating agreements, Flynn had the exclusive authority to make distributions to its members. Between January 1, 2009, and June 20, 2014, Flynn caused CRDG to distribute $976,754 to Maschmeyer. Flynn estimated that he received approximately $775,000 in distributions during the same period.

¶ 10 Between 2009 and 2014, while he was a member of CRDG, Maschmeyer deposited checks made payable to CRDG and/or himself for roof deck and other related jobs in the aggregate sum of $1,768,927 into his personal bank account. In June 2014, Flynn and Bartosiewicz confronted Maschmeyer and demanded that he repay CRDG $850,000. On June 26, 2014, Flynn and Bartosiewicz sent Maschmeyer a letter with a subject of "Capital Contribution Demand," which was admitted into evidence as an exhibit and which provided, in relevant part:

"Pursuant to the Limited Liability Operating Agreement of Chicago Roof Deck & Garden, on March 25, 2013, this letter is to notify you that Eight Hundred and Fifty Thousand Dollars ($850,000) is required by you. This amount covers the operating deficit caused by your misappropriation of funds.

You have 5 business days to comply with this capital request demand. Non compliance voids any current or past owed distribution. If [sic ] after thirty days of non compliance, you will be removed as a member and forfeit any and all rights."

Maschmeyer did not pay this or any other amount to CRDG. Instead, on July 11, 2014, Maschmeyer and Anne Maschmeyer, his wife, formed Urban Rooftops, LLC, an outdoor living design and construction services firm that competes with CRDG.

¶ 11 Plaintiffs filed the instant lawsuit on July 17, 2014, to, inter alia , disassociate Maschmeyer from CRDG pursuant to section 35-45 of the Limited Liability Company Act (Act) ( 805 ILCS 180/35-45 (West 2012) ), which we discuss further momentarily. However, on July 28, 2014, plaintiffs notified Maschmeyer that he was removed as a member and manager of CRDG and that current or past distributions owed to him were "void." Flynn and Bartosiewicz reallocated Maschmeyer's interest to themselves, making their membership interests 63.75% and 36.25%, respectively.

¶ 12 II. Complaint

¶ 13 As noted, plaintiffs initially filed suit on July 17, 2014; the complaint was amended on March 27, 2015, and it was the amended complaint that was the subject of the bench trial. Flynn and Bartosiewicz filed suit both individually and derivatively on behalf of CRDG, and the amended complaint set forth six counts. Count I was brought by all plaintiffs against Maschmeyer, and was for breach of fiduciary duty. Count I alleged that Maschmeyer had used CRDG's assets for projects that benefitted him personally and that he had deposited a number of checks issued to CRDG into his personal bank account. Count I alleged that Flynn and Bartosiewicz were personally damaged because they "have lost the fair value and ongoing income from their interest in Chicago Roof Deck, among other damages." Count I further alleged that CRDG was damaged because it "has been fleeced of extensive assets and value." Count I requested compensatory damages, punitive damages, attorney fees, the return of any distributions received by Maschmeyer from 2009 through 2014, and the imposition of a constructive trust on real property owned by Maschmeyer, which plaintiffs alleged was purchased using the funds belonging to CRDG.

¶ 14 Count II was a derivative claim on behalf of CRDG against Maschmeyer and Anne Maschmeyer, and was for conversion of corporate assets. Count II alleged that Maschmeyer accepted checks payable to CRDG and altered them to add his name as additional payee and then deposited them into his personal bank accounts at Bank of America and Chase Bank. As to Anne Maschmeyer, count II alleged that the Chase Bank account was a joint account, and that she knew or should have known that the deposits made into that account rightfully belonged to CRDG. Count II alleged that the funds deposited into the bank accounts were used for personal expenses, including the purchase of real property. Count II requested similar relief as count I, namely, compensatory damages, punitive damages, attorney fees, and imposition of a constructive trust.

¶ 15 Count III was a derivative claim on behalf of CRDG against Maschmeyer, and was for fraud. Count III was based on the same conduct set forth in the prior counts, and sought compensatory damages, punitive damages, and attorney fees. Count IV was a derivative claim on behalf of CRDG against Maschmeyer, and was for an accounting. Count IV sought a "full accounting of all assets, revenues, expenses, and other finances and management of Chicago Roof Deck, including all monies, expense reimbursements and other payments to Michael Maschmeyer," the imposition of a constructive trust on any assets wrongfully taken from CRDG, and attorney fees.

¶ 16 Count V was a claim for disassociation pursuant to section 35-45 of the Act and alleged that Maschmeyer had engaged in wrongful conduct that had adversely and materially affected CRDG's business and that it was not reasonably...