Lange v. Misch

598 N.E.2d 412, 232 Ill. App. 3d 1077, 174 Ill. Dec. 215
CourtAppellate Court of Illinois
DecidedAugust 13, 1992
Docket4-91-0803
StatusPublished
Cited by19 cases

This text of 598 N.E.2d 412 (Lange v. Misch) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Lange v. Misch, 598 N.E.2d 412, 232 Ill. App. 3d 1077, 174 Ill. Dec. 215 (Ill. Ct. App. 1992).

Opinion

JUSTICE STEIGMANN

delivered the opinion of the court:

Plaintiff, Wallace F. Lange, through his guardian, sued several defendants for various claims, including a contract action based on several notes issued to Lange by the defendants. Three of the defendants, Paul M. Misch, United States Capital Corporation of Delaware (USCC-Delaware), and United States Capital Corporation of Arkansas (USCC-Arkansas), failed to answer Lange’s complaint. A default judgment was entered against the defendants for $249,545.39. USCC-Delaware and Misch filed a motion to vacate the default judgment, which the trial court granted. The default judgment against USCC-Arkansas remained in effect. At a supplemental hearing on a citation to discover assets of USCC-Arkansas (at which Misch did not appear), the trial court pierced the corporate veil of that entity and entered a judgment against Misch. Misch thereafter filed a motion to vacate that judgment, which the trial court denied. Misch appeals, arguing that the trial court erred in piercing the corporate veil and entering a judgment against him personally. We reverse and remand for further proceedings.

I. Facts

This lawsuit arose out of transactions between Misch and Lange beginning in 1985. In June 1989, Lange filed this action against several defendants, including Misch individually, USCC-Delaware, and USCC-Arkansas, alleging claims on certain promissory notes. In March 1990, the complaint was dismissed with leave to amend on the ground that Lange, who had been declared an incompetent, could not maintain the action in his own right. In August 1990, Lange, through his guardian, filed a first-amended complaint.

According to the first-amended complaint, Misch, an attorney licensed to practice law in Illinois, operated law offices in McLean and Cook Counties in Illinois, on an individual basis and through USCC-Delaware. At all times during Lange’s relationship with Misch, Lange suffered from Alzheimer’s disease, which affected his capacity to make rational business decisions. Misch allegedly was aware of Lange’s condition during their entire business relationship.

According to count II of the first-amended complaint, Misch controlled and dominated USCC-Delaware and USCC-Arkansas. He allegedly (1) failed to keep proper corporate records and to maintain the separate legal and financial integrity of the corporation, and (2) commingled corporate funds with his own. Misch purportedly made and delivered to Lange three promissory notes for $160,000, all having since come due. No portion of these notes has ever been paid.

Count III of the first-amended complaint alleged the following. Misch and “Misch and Associates” handled various legal matters for Lange and an attorney-client relationship developed between Misch and Lange. In 1985, Misch represented to Lange that good investments were available to Lange and that he should loan money to certain entities which would eventually repay their debt obligations. Based on Misch’s representations that these entities were viable and good investments, Lange loaned various sums of money to the entities and also provided them collateral to secure loans ob-tamed from other investors. As the entities failed to make their loan payments, Lange’s collateral was sold. No part of his loans was ever repaid. At all times, these entities were owned, operated, and controlled by Misch, and he used them to defraud Lange and other investors through misrepresentations. Lange lost more than $400,000 by investing in these fictional legal entities.

In October 1990, the trial court ordered “United States Capital” to plead on or before October 31, 1990. On December 21, 1990, the court heard Lange’s motion for default judgment, ordered Misch and USCC-Delaware to plead on or before December 31, 1990, and continued the motion for default judgment to January 2, 1991. The defendants failed to appear, and the court entered default judgment on January 4, 1991, against USCC-Delaware, USCC-Arkansas, and Misch for failing to answer Lange’s complaint. The default judgment found defendants jointly and severally liable for $249,545.39 on count II of Lange’s first-amended complaint regarding specific promissory notes.

On January 17, 1991, the trial court entered an order finding that there was no just reason to delay an enforcement or appeal of the default judgments. At the same time, the court issued citations to discover assets (such as tax returns and bank records) against Misch and USCC-Delaware, both as judgment debtors and as third-party respondents on the judgment against USCC-Arkansas, directing them to appear and produce documents.

On February 27, 1991, the parties appeared through their counsel, but Misch did not produce the documents called for in the citations to discover assets. On motions of Misch and USCC-Delaware, the trial court vacated the default judgments against them. No one appeared for USCC-Arkansas and the default judgment against it remained in effect. (On April 3, 1991, Lange filed a second-amended complaint upon which further proceedings were held. This second-amended complaint, however, is not a part of this appeal.)

On June 27, 1991, pursuing the judgment entered against USCC-Arkansas, Lange filed a petition for rule to show cause, alleging that (1) Misch had failed to appear in court on February 27, 1991, pursuant to the January 21, 1991, citation to discover assets, and (2) failed to produce documents called for by those citations. The trial court that day ordered the rule, returnable August 23, 1991, directing Misch to produce certain documents called for by the citations by August 1, 1991, and to appear before the court on August 23, 1991, to show cause why he should not be adjudged guilty of and punished for contempt of court.

Neither Misch nor his counsel appeared at the August 23, 1991, hearing, nor did they produce the documents called for in the citation. At the hearing, plaintiff filed a motion (1) stating that judgment against USCC-Arkansas should be enforced against Misch personally due to his failure to verify the existence of USCC-Arkansas, and (2) asserting that USCC-Arkansas is the alter ego' of Misch. However, plaintiff did not serve this motion upon Misch or his counsel. The court proceeded to hear the motion and Lange presented his case. The trial court found that “there is no evidence that such a corporation [USCC-Arkansas] has ever been formed or that such a corporation is presently existing under the laws of the State of Arkansas and that said corporation is a sham and constitutes nothing more than the defendant, Paul M. Misch, doing business under a purported corporate name.” Accordingly, the court “pierced the corporate veil” and entered judgment against Misch for $265,651.61, plus attorney fees of $1,133.50. The court also held Misch in civil contempt of court at the supplementary hearing and sentenced him in absentia to six months’ incarceration in the McLean County jail with leave to purge himself of the contempt by producing the documents described in the citations and paying Lange’s attorney fees.

The trial court issued a bench warrant for Misch, and on September 24, 1991, he was arrested on that warrant in Philadelphia, Pennsylvania.

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Bluebook (online)
598 N.E.2d 412, 232 Ill. App. 3d 1077, 174 Ill. Dec. 215, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lange-v-misch-illappct-1992.