A recent Illinois Fourth District case provides a quick summary of the factors a court considers when determining prevailing party attorneys’ fees under the Illinois Consumer Fraud Act (CFA) and spotlights the “mere continuation” exception to the rule governing corporate successor liability.
In Clayton v. Planet Travel Holdings, 2013 IL App (4th) 120717, the plaintiffs sued a travel agency, a successor agency and the principal of both agencies for consumer fraud and breach of contract based on a botched vacation package.
Plaintiff sought to recover the $11,000-plus deposit plaintiffs made when the travel agency failed to timely book a group trip. After a bench trial, the court awarded the plaintiffs just under $6,000 in compensatory damages and attorneys’ fees and costs of over $30,000. All three defendants – the predecessor and successor agencies and the corporate principal appealed.
Attorneys’ Fees Factors
The Appellate Court affirmed the trial court’s damage and fee awards noting that the CFA allows the winning party to recover its reasonable attorneys’ fees. 815 ILCS 505/10a(c); Clayton, ¶ 24.
The factors a court considers when determining what is a reasonable fee are: (1) the skill and standing of the attorney; (2) nature of the case; (3) novelty or difficulty of the issues and work involved; (4) importance of the matter; (5) degree of responsibility required; (6) the usual and customary charges for comparable services; (7) benefit accruing to the client; and (8) whether the was a reasonable connection between the fees charged and amount involved in the litigation. ( ¶ 25)
A trial court is able to use its own knowledge, experience and case familiarity in examining the fee question and its award is reviewed under an abuse of discretion standard. (¶ 25). The Appellate Court found that the plaintiffs properly documented their fees and costs and claimed fees of over $30,000 was reasonable for over four years of work. Id., ¶ 30.
Mere Continuation Exception
The Fourth District also affirmed the trial court’s money judgment against the agencies’ principal. He operated the predecessor agency for several years, sold its assets to himself for $1, later dissolved it and then formed a “new” agency with an almost identical name.
However, in the 13-month interim period between the dissolution of the first company and formation of the second one, The principal continued to operate the travel agency business as a sole proprietorship. (¶¶ 36, 41)
The “mere continuation” rule is an exception to the general rule that a successor corporation is not liable for the transferor’s debts. The exception applies where “the purchasing corporation is merely a continuation or reincarnation of the selling corporation” or where the new corporation maintains the same or similar management and ownership, but “merely wears different clothes”. ¶ 40. In any mere continuation calculus, the key element is identity of ownership.
Held: Corporate officer is personally liable for the judgment under the mere continuation rule.
Reason: After the dispute with plaintiffs had already crystallized, the corporate principal engineered the sale of the predecessor agency to himself for a dollar and continued to operate the business as a sole proprietorship. (¶ 41).
Some 13 months later, the principal formed the similarly named successor agency. During that time span, the principal operated the sole proprietorship from the same address and used the same checking accounts as the prior corporation. He also filed tax returns on behalf of both Agencies entities and generally operated the travel business without interruption. Id.
Based on these factors, the Court found that all three same-sounding travel businesses shared a common ownership. ¶ 41. The Court held that the principal couldn’t escape personal liability for the corporate debts because he continued the travel business as a sole proprietorship after the former agency dissolved. ( ¶ 42)
Conclusion: Clayton is instructive on the factors an Illinois court considers when passing on an attorney fee petition and in discussing the mere continuation rule for corporate successor liability. The case’s main lesson is that if a corporate agent dissolves a corporation and later forms a separate company – but continues to run the business as a “dba” or sole proprietorship in the interim – that agent can be personally responsible for any obligations arising before the new corporation is formed.