Illinois Appellate Court Reverses Summary Judgment Against Nursing Home Due to Fraudulent Transfer of Assets

Jane Holloway was an employee of Oakridge Convalescent Home on Feb. 7, 2011. She filed a charge of discrimination in violation of the Illinois Human Rights Act (775 ILCS 5/1-101 et seq.) against Oakridge Nursing & Rehab Center LLC (“Oakridge Center”) who was the employer and the managing company of Oakridge Convalescent Home.

Oakridge Center received notice of the charge in the spring of 2011 and transferred substantially all of its assets for no consideration to Oakridge Healthcare Center, LLC (“Oakridge Healthcare”). Oakridge Healthcare became the new manager of Oakridge Convalescent Home. Holloway subsequently obtained an administrative judgment of $30,880.  When Oakridge Center chose not to satisfy the judgment, the State of Illinois filed a complaint against Oakridge Healthcare, as the successor of Oakridge Center to enforce compliance with Holloway’s judgment.

Oakridge Healthcare filed a motion for summary judgment; the circuit court granted it. The State of Illinois appealed and argued that it presented sufficient evidence to create material issue of fact that Oakridge Center transferred its assets for the fraudulent purpose of escaping Holloway’s judgment.

Furthermore, the State urged the appellate court to look to the federal common law, where successor liability is recognized as the default rule in employment discrimination cases. The State maintained that recognition of successor liability in employment discrimination cases aided victims who enforce judgments against employees involved in discriminatory practices who might otherwise try to escape liability.

The Illinois Appellate Court, in reversing the trial court’s grant of summary judgment, found that the State presented sufficient evidence as to whether the instant asset transfer was for fraudulent purposes so as to qualify for fraudulent transfer exception to the general rule of successor corporate non-liability.

The appeals panel further noted that Illinois courts must rely on the federal doctrine of successor corporate liability and successor liability actions involving claims of employment discrimination.

There was a dissent filed in this appellate court case in which the justice argued that the State had waived the issue regarding the transfer qualifying as an exception to the rule of successor corporate non-liability, and that the federal standard of corporate successor liability should not apply in employment discrimination of services.

The appellate court agreed that the State had presented enough evidence for a reasonable jury to find that the asset transfer was for the fraudulent purpose of escaping Holloway’s judgment. The appellate court reversed and remanded the case for further disposition.

Oakridge Healthcare also argued, and the dissent agreed, that the State never raised the fraudulent transfer argument at any stage of the proceedings in the trial court, only raising it for the first time on appeal. Accordingly, the dissenting justice said that the State forfeited the argument. The appeals panel majority disagreed.

Therefore, because the appeals panel found that these facts were sufficient to set forth a cause of action pursuant to the fraudulent transfer exception to the general rule of successor corporate non-liability, and that Oakridge Healthcare specifically addressed the fraudulent transfer exception, the appellate court held that this argument is not raised for the first time on appeal and the state did not forfeit the argument.

In the appellate decision, it was stated that Illinois recognizes two categories of fraudulent transfers:  “Fraud in law” and “fraud in fact.” Bank of America v. WS Management, Inc., 2015 IL App (1st) 132551, ¶ 87.  Under fraud in fact, a party must prove that the transfer was made with actual intent to hinder, delay, or defraud the creditors.  Northwestern Memorial Hospital v. Sharif, 2014 IL App (1st) 133008, ¶ 22.  A creditor can prove fraud in fact based on the existence of certain factors “’Badges of fraud’” set forth in Section 5(b) of the Uniform Fraudulent Transfer Act (UFTA) (740 ILCS 160/5(a)(1), (b)). There are eleven factors that are considerations, although the court need not consider all eleven factors. When the factors are present in sufficient numbers, it may give rise to an inference or presumption of fraud. Bank of America, 2015 IL App (1st) 132551, ¶ 89; Sharif, 2014 IL App (1st) 133008, ¶ 23.

In this case, Holloway filed a charge of discrimination on Feb. 7, 2011, and Helen Lacek, the managing member of Oakridge Center, became aware of the charge “in Spring 2011.” On Jan. 1, 2012, Oakridge Center transferred its assets to Oakridge Healthcare. Holloway’s filing of the charge of discrimination put Oakridge Center on notice of a threatened lawsuit and the real possibility of judgment against Oakridge Center. Thus, Oakridge Center had the obligation not to dissipate its assets. It did so anyway.

The appellate court added that, based on the facts presented, there was evidence to support an inference or presumption of fraud.

At last, and in conclusion, the appellate court found that the forfeiture rules are an admonition on parties and not a limitation upon the court and that it can override considerations of forfeiture to achieve a just result. Therefore, in the interest of achieving a just result in an employment discrimination case, the appellate court addressed the State’s argument. The findings were that the State presented evidence that (i) Holloway filed a charge of discrimination, (ii) after Oakridge Center became aware of the charge, Oakridge Center transferred substantially all of its assets to Oakridge Healthcare, (iii) Oakridge Center transferred its assets for no consideration, (iv) Oakridge Center transferred its assets without informing Holloway, and (v) the transfer resulted in the possible insolvency of Oakridge Center. The court stated that, given these facts in evidence, it was sufficient to create a material issue of fact that the asset transfer was for the fraudulent purpose of escaping Holloway’s judgment and thus the summary judgment was improperly granted.

People ex rel. Department of Human Rights v. Oakridge Nursing & Rehab Center, 2019 IL App (1st) 170806.

Kreisman Law Offices has been handling nursing home abuse and negligence cases, business transaction lawsuits, commercial litigation, Illinois jury trials and breach of contract cases for individuals, families and loved ones for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Arlington Heights, Orland Park, Palatine, Worth, Frankfort, Naperville, New Lenox, Long Grove, Libertyville, Elgin, Joliet, Bolingbrook, Romeoville, Mokena, Mundelein, Mt. Prospect, Prospect Heights, Hoffman Estates, Chicago (Logan Square, Wicker Park, Rogers Park, North Lawndale, Austin, Belmont Cragin, East Side, South Shore, Chinatown, Greek Town, Little Italy), Elmhurst, Highwood, Olympia Fields, Oak Park, Oak Lawn, Oak Forest and Palos Hills, Ill.

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

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