Arnstein & Lehr partner secures landmark ruling allowing teamsters local to be sued for corporate successor liability

Arnstein & Lehr attorney Richard K. Hellerman

Richard K. Hellerman

Chicago Partner Richard K. Hellerman recently convinced a court, for the first time in Illinois history, to apply corporate successor liability principles to a voluntary unincorporated association by sustaining a successor liability claim for breach of contract against a labor union.

On January 14 Cook County Circuit Court Judge Lee Preston ruled that a property owner who had leased a building to now-dissolved Teamsters Local Union No. 726 may sue newly-formed Teamsters Local No. 700, whose members included all of those of Local 726, for Local 726’s breach of contract.

In May 2008, the plaintiff, 1550 MP Road, LLC, entered into a 15-year lease with Local 726 for a building that Local 726 had said would be its long-term home.  The lease provided that Local 726 would purchase the building at the end of the fifth year and that if Local 726 did not purchase the building, the rent for the remainder of the lease term would increase and the landlord could sell the property to a third party.   After the building was renovated to Local 726’s specifications, it moved into the property in January 2009 and paid rent for one year.  At the end of 2009, 1550 was advised Local 726 had been ”dissolved” internally by the International Brotherhood of Teamsters and that a new Local, No. 700, had been created and was occupying the building.  Local 700 claimed it was not subject to the lease entered into by Local 726 and offered only to make monthly rental payments on a month-to-month basis.  1550 rejected Local 700’s offer on behalf of their client. Local 700 did not pay any rent after February 2010, occupying the premises for free until it vacated the premises as of April 30, 2010.  The building remains unoccupied today.

Hellerman sued Local 700 on behalf of 1550, asserting that Local 700 was the legal successor of Local 726 under well-established “corporate successor liability” principles and that Local 700 was therefore liable for Local 726’s breach of the lease.  They pointed to the fact that all of Local 700’s members continued to work under Local 726’s collective bargaining agreements with (among other entities) the City and the CTA, further demonstrating that Local 700 was merely Local 726 with a different name.  Local 700 moved to dismiss the complaint, arguing that the corporate successor liability doctrine was limited only to corporations and that the union, a voluntary unincorporated association, could not be sued.  Judge Preston disagreed and, recognizing that this was a case of first impression in Illinois, held that even though the union was not a corporation, it could still be sued in a commercial dispute as a “corporate” successor

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