Submitted: August 9, 2013
David M. Powlen and Kevin G. Collins, of Barnes & Thornburg LLP, Wilmington, Delaware; Of Counsel:
Vincent P. Schmeltz, of Barnes & Thornburg LLP, Chicago, Illinois, Attorneys for the Plaintiff.
Michael Joyce and Amy Evans, of Cross & Simon, LLC, Attorneys for the Defendants.
GLASSCOCK, Vice Chancellor
This matter involves the allegation that two of the individual Defendants— guarantors of a loan made by the Plaintiff bank, and in anticipation of the inevitable default on that loan—created Delaware entities, as part of a scheme to fraudulently transfer their assets beyond the reach of the bank, and that they effectuated those transfers with the help of the third individual Defendant, who they enlisted as a fiduciary of the entities and facilitator of the fraudulent transfers. The Defendants have moved to dismiss the Complaint, alleging lack of personal jurisdiction. I find that the facts alleged are sufficient to extend jurisdiction over the individual Defendants and two Illinois trusts alleged to have knowingly received assets fraudulently passed through the Delaware entities.
A. The Loan
The following facts are taken from the Verified Complaint (the "Complaint"). On July 31, 2009, Plaintiff NorthSide Community Bank ("NorthSide") loaned $1, 400, 000 to 1550 MP Road, LLC ("MP Road") secured by real estate located at 1550 S. Mount Prospect Road, Des Plaines, Illinois (the "MP Property"), and personally guaranteed by Defendants Matthew Friedman and Heather Friedman, a married couple. At that time, MP Road leased the MP Property to Teamster's Local Union 726 ("Local 726"), and used those rent payments to pay principal and interest payments on the NorthSide loan. In August 2009, however, Local 726 liquidated and ceased paying rent payments to MP Road; as a result, MP Road was unable to make loan payments to NorthSide. On July 31, 2010, MP Road failed to make a monthly payment on the NorthSide loan, and NorthSide accelerated the loan.B. Transfers to Archie Properties, LLC Series A through F
When the Friedmans learned that Local 726 would soon be liquidating—and therefore would not fulfill its obligations under the lease—the Friedmans transferred their assets into several corporate entities with the intent of shielding those assets from NorthSide. The Complaint alleges three transfers that do not involve Delaware entities: a $75, 000 transfer into a Bright Start College Fund for the Friedmans' minor daughter; a $75, 000 transfer into a Bright Start College Fund for the Friedmans' minor son; and a $100, 000 transfer into a Nationwide Life and Annuity Insurance Company account in Heather Friedman's name.
From November 2009 through March 2010, the Friedmans transferred their remaining assets into Archie Properties, LLC ("Properties"), a Delaware LLC with membership interests divided in Series A through F. Specifically, the Friedmans made the following transfers:
-910 South Crescent Land Trust, which held the Friedmans' Illinois residence, into Series A;
- The Friedmans' personal property, which was held in Archie Ventures LLP, into Series B;
-Approximately $372, 282 in cash into Series D;
-Matthew Friedman's membership interest in 6 Deer Run Lane, LLC into Series E; and
The Friedmans' time share property in Utah into Series F.
The Friedmans retained a 100% membership interest in Series A. With respect to Series B, D, E, and F, the Friedmans transferred 99% of the membership interest into a Delaware limited partnership, Archie Ventures LP ("Ventures LP"), with the Friedmans retaining a 1% membership interest. The Friedmans appointed Archie Manager, Inc. ("Manager")—a Delaware corporation—manager of Properties.The Friedmans held all 300 voting shares of stock in Manager. The Friedmans appointed yet another Delaware corporation, Archie GP, Inc. ("Archie GP"), general manager of Ventures LP; the Friedmans held all 300 shares of voting stock in Archie GP as well. The Friedmans then transferred their 100% partnership interest in Ventures LP to the Archie Tenancy by the Entirety Trust (the "Archie
Trust"), a trust formed in Illinois. The Friedmans gave their two minor children an approximately 42.6% interest in the Archie Trust by creating two additional Illinois trusts, the Minor A Trust Dated November 6, 2009 and the Minor B Trust Dated November 6, 2009 (collectively, the "Minors' Trusts").  The various interests created by the Friedmans after guaranteeing the 1550 MP Road loan are represented graphically in Figure I. All the Delaware entities were created in November 2009, after the Friedmans became guarantors of the MP Road loan on July 31, 2009.C. The Illinois Action and the Corporate Turnover
NorthSide obtained a judgment of $1, 367, 029 against the Friedmans on September 7, 2010 in Illinois state court. On September 9, 2011, the Illinois court ordered the Friedmans to turn over their interests in the Archie Trust, Archie GP and Manager to NorthSide. On January 23, 2012, the Friedmans executed assignments of their Manager and Archie GP stock certificates, representing 300 shares in each corporation. NorthSide then attempted to vote its interests to replace the directors in those entities, thereby gaining control of Properties Series A through F. In response, the Friedmans informed NorthSide that a family friend—and the sole director of both corporations as of October 20, 2010—Gregg Strellis, owned 600 shares of non-voting stock in each of Manager and Archie GP; and that those ...