2021 IL App (1st) 182200-U

THIRD DIVISION June 30, 2021

Nos. 1-18-2200 and 1-18-2201, Consolidated

NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1). ______________________________________________________________________________

IN THE APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT ______________________________________________________________________________

SANDY TSAI, STEALTH PROPERTIES, LLC, ) Appeal from the JOHN DONGAS, CASTLE REALTY ) Circuit Court of INVESTMENTS, LLC, and BLUE ISLAND GD ) Cook County. INVESTMENTS, ) ) ) Plaintiffs-Appellees/Cross-Appellants, ) ) v. ) No. 12 CH 28187 ) JERRY KARLIK, KEITH GILES, JORDAN KARLIK, ) and KARGIL BLUE ISLAND LLC, ) Honorable ) Anna H. Demacopoulos, Defendants-Appellants/Cross-Appellees. ) Judge Presiding. ______________________________________________________________________________

PRESIDING JUSTICE HOWSE delivered the judgment of the court. Justices McBride and Burke concurred in the judgment.

ORDER

¶1 Held: We affirm the trial court’s judgment ordering disgorgement of the defendants’ interest in the company. The trial court did not err in refusing to award punitive damages, but certain awards of compensatory damages are reversed and remanded for recalculation. ¶2 The parties were investors in a business known as 15th Street Blue Island, LLC (15BI).

The business was formed in 2006 for the purpose of developing condominiums on a vacant

parking lot located in Chicago. Before the project broke ground, the global economy crashed and the plan to develop condominiums was no longer feasible. The parties modified their plan to

1-18-2200 & 1-18-2201, Cons. develop rental residences, which was considered a more feasible plan under the economic conditions. However, that project never broke ground.

¶3 Jerry Karlik and Keith Giles are the principals of Kargil Blue Island, LLC (KBI). KBI was the manager of 15BI. This case arose when plaintiffs accused Karlik and Giles of self- dealing and misfeasance in their roles as manager of 15BI.

¶4 After a bench trial, the court entered judgment against defendants on plaintiffs’ claims, dissociated defendant KBI as a member and the manager of 15BI, and ordered the forfeiture of KBI’s interest in 15BI. The court awarded plaintiffs compensatory damages but denied their

request for punitive damages. Defendants appeal the disgorgement of KBI’s interest in 15BI and certain damages, and plaintiffs cross-appeal from the trial court’s denial of punitive damages.

These appeals were consolidated.

¶5 For the following reasons, we affirm the trial court’s judgment disassociating KBI from

15BI and forfeiting its interest in the business. We affirm the trial court’s denial of punitive damages, but we reverse certain awards of compensatory damages and remand for recalculation of appropriate amounts.

¶6 BACKGROUND

¶7 Defendants Karlik and Giles also jointly own Frank & Giles, LLC (F&G), and Kargil

Development Partners (KDP). Karlik, Giles, and Spiros Picoulas, an F&G realtor, formed 15BI

for the purpose of developing a vacant parking lot (15BI Property) located at 15th Street and Blue Island Avenue in Chicago. The 15BI operating agreement allows the manager to enter into service agreements with entities affiliated with KBI.

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¶8 The parties proceeded to a bench trial in November 2017. They presented testimony, stipulations, and financial exhibits. Briefly stated, the evidence adduced at trial showed the following.

¶9 Plaintiffs Sandy Tsai, Stealth Properties, LLC, John Dongas, Castle Realty Investments, LLC, and Blue Island GD Investments are Class A members of 15BI. They contributed a total of $3.7 million in exchange for a 47% interest in 15BI.

¶ 10 By contrast, defendant KBI was the sole Class B member of 15BI. KBI made no capital contribution but held the remaining 53% interest as the manager of 15BI. Section 5.1.1 of 15BI’s

operating agreement gave the manager (KBI) “full, exclusive and complete discretion, power, and authority *** to *** operate the business and affairs of the Company for the purposes herein stated, and to make all decisions affecting such business and affairs.” Although Section 5.3.2 stated the manager is not entitled to compensation for services performed for 15BI, Karlik claimed that KBI was compensated with a 53.75% ownership interest in 15BI for serving as

15BI’s manager.

¶ 11 In 2006, KDP entered a purchase agreement to acquire the 15BI Property for $3.72

million. Pursuant to that agreement, KDP deposited an initial earnest money payment of $100,000 from 15BI accounts into an escrow account. The purchase agreement also specified that F&G would receive a commission from the seller at closing.

¶ 12 In June 2007, Karlik signed a purchase agreement on behalf of 15BI to acquire property

known as the Testa Parcel, which was located immediately south of the 15BI Property and owned by Testa Produce, for $6,250,000. The stated reason for purchasing the Testa Parcel was to expand 15BI’s development of apartment rentals. This purchase agreement also required a

$100,000 deposit of earnest money that was sourced from 15BI funds. In an unusual move for 182202

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the purchaser of real estate, Karlik negotiated an increase in the purchase price by $250,000 and provided for payment of a commission to F&G. He testified the commission was “for making the introduction.”

¶ 13 KBI eventually abandoned its efforts to purchase the Testa Parcel in 2010 and as a result

15BI lost approximately 70% of its earnest money.

¶ 14 Meanwhile, in November 2007, 15BI closed on the purchase of the 15BI Property. Due to the subsequent recession, the original mixed-use development plan was no longer viable. 15BI explored alternatives and opted to develop rental apartments. This required design and zoning changes.

¶ 15 The planning, design, and zoning work was performed by KDP and F&G. Karlik’s son

Jordan handled the day-to-day operations while other F&G employees assisted with administrative matters. When F&G ceased operations, KBI, as the manager of 15BI, hired Jordan on an hourly basis to continue performing the work he had been doing as an employee of F&G.

Additionally, the architectural firm Fitzgerald & Associates entered a standard engagement

agreement to provide updated plans that included the Testa Parcel for a flat fee. Meanwhile, Karlik and Giles negotiated with the bank to purchase the note on the 15BI Property at a reduced price.

¶ 16 In 2008, Karlik and Giles sold a portion of KBI, which managed and owned a percentage of 15BI, to new investors, Gangas and Housakos, for approximately $750,000. Karlik testified that the law firm of Branson & Kahn invoiced 15BI and 15BI paid for its work on that sale.

Defendants stipulated that work “should not have been billed through Blue Island.”

¶ 17 Trial Court’s Judgment

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¶ 18 After trial, the court issued a memorandum opinion and judgment on September 14, 2018, finding in favor of plaintiffs and against defendants 1 Jerry Karlik, Keith Giles, KBI, and Jordan Karlik. The court noted KBI owed fiduciary duties to plaintiffs under 15BI’s operating agreement and the Limited Liability Company Act (LLC Act).

¶ 19 Duty of Loyalty

¶ 20 The court found that defendants breached their duty of loyalty in pursuing the Testa deal, making payments to “affiliate entities,” and selling a portion of KBI to new investors.

¶ 21 Testa Deal

¶ 22 According to the court, “From its inception until its failure, the Testa deal was beyond

Defendants’ authority as described in the Operating Agreement and was not in the best interests of 15BI.” The operating agreement stated the purpose of 15BI was to develop the 15BI Property for mixed use and the cover page of each plaintiff’s subscription package referred to a condominium development project. The operating agreement referenced only the 15BI Property and there is no mention of the Testa Parcel.

¶ 23 Moreover, the court noted that defendants’ own expert testified the Testa deal presented competition with the 15BI project, especially because lenders usually require a single purpose entity. Giles admitted he was uncertain which entity would ultimately take title of the Testa

Parcel. On the other hand, Karlik insisted the plan from the start was that 15BI would have an interest in the Testa Parcel. However, the court noted the illusory nature of Karlik’s certainty became clear when he testified that 15BI would have “an option to buy this piece of property.”

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¶ 24 Despite uncertainty in 15BI’s interest, defendants used 15BI’s funds to pay $100,000 in earnest money for the purchase of the Testa Parcel and did not notify plaintiffs of the deal until months later. Meanwhile, defendants negotiated an increase in the purchase price by $250,000 for the payment of commission to F&G. When the deal was cancelled, $30,761 of the earnest money was refunded. But the refund was not returned to 15BI and instead transferred to KDP.

Defendants also used 15BI funds to pay the law firm Bronson & Kahn $19,038.04 in legal fees associated with the deal. Similarly, they paid the architectural firm Fitzgerald and Associates

$94,055.76 in design fees “for designing both the proposed building for the 15BI property and the Testa parcel.” However, the court rejected the architect’s testimony that those fees would not

have differed much if the Testa Parcel were excluded because “the building proposed for the Testa parcel has a much larger footprint than the one proposed for the 15BI [Property].” The court found defendants’ misconduct evidenced a disregard for their duty to act with good faith in managing 15BI.

¶ 25 Payments to Affiliated Entities

¶ 26 The trial court found defendants made various improper payments to their affiliated entities, KDP and F&G, and directly to Jordan Karlik. The court noted the parties only disputed the propriety of certain stipulated amounts in their exhibits.

¶ 27 As to KDP, between May 9, 2007 and January 12, 2011, 15BI paid KDP approximately

$30,200. (Stipulation 13.) Between September 12, 2007 and February 13, 2009, $180,000 was

transferred from 15BI’s money market account to KDP. (Stipulation 17.) On November 7, 2007, $100,000 was transferred from 15BI to an escrow account for the purchase of the Testa Parcel;

30% of that amount was refunded when the deal was terminated in March 2010. (Stipulation 21.)

The $30,761 refund from the Testa deal was deposited into an account owned by KDP.

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(Stipulation 22.) The court stated plaintiffs’ exhibit B-9 showed Karlik instructed 15BI’s

accountant to treat the $150,000 due from KDP as a “generic account receivable without the [KDP] name.” The court also stated plaintiffs’ exhibit G-25 showed purported overhead payments for 2008 and 2009 of $120,000 due from KDP and $105,000 due from F&G were reclassified as “capitalized soft costs.”

¶ 28 As to F&G, between September 4, 2007 and March 12, 2012, 15BI paid F&G

$164,301.63. (Stipulation 14.) Between August 14, 2008 and November 1, 2009, $105,000 was

transferred from 15BI’s money market account to F&G. (Stipulation 18.) On September 24, 2007, $120,000 was transferred from 15BI to F&G as a broker’s commission before the closing on the 15BI Property. (Stipulation 26.) Another $120,000 of 15BI funds was transferred to F&G for the same reason on November 8, 2007. (Stipulation 27.) However, the court stated pursuant to the purchase agreement, it was the seller’s obligation to pay commission, not 15BI’s.

¶ 29 Meanwhile, 15BI made payments to Jordan for $676.29 in claimed expenses between

February 2007 and June 2012, and for $3,997.75 between July 2011 and 2012. (Stipulations 15 and 16.)

¶ 30 Although the parties stipulated to those amounts in 15BI funds paid or transferred to defendants’ affiliates, the court noted their documentation was cryptic at best. The court stated it was clear, however, from a review of F&G and KDP’s ledgers that whenever affiliate accounts

were near zero, a transfer would be made from 15BI and classified as a “chargeback” or “overhead.” The court noted the overhead payments to KDP were preceded by emails about low account balances.

¶ 31 From April 2008 to February 2009, $120,000 was transferred to KDP. Moreover, defendants paid Kahr Real Estate Services $15,000 to train F&G employees in Excel for 182206

1-18-2200 & 1-18-2201, Cons. purposes unrelated to 15BI. They also pocketed the interest on the down payments in the escrow account. The court found these transfers were a breach of defendants’ duty of loyalty.

¶ 32 Relatedly, the trial court found defendants’ careless and deceitful accounting practices violated their fiduciary obligations under 15BI’s operating agreement and the law. The court

stated the operating agreement requires the manager to maintain accurate financial records, which did not occur. Although no exhibits were produced for the years 2008 to 2011, the court

noted the testimony of Giles that in 2009, 15BI spent $75,000 for “overhead” and $58,731 for “payroll and admin,” when there was no marketing agent, real estate agent, or construction company. According to the 2009 F&G General Ledger, 15BI was the only entity that paid into

F&G for overhead yet the accounts payable showed no expenditures for 15BI. This pattern

continued through 2012 for a total of $269,301.63. The court also stated certain charges for administrative costs and marketing seemed “inexplicable” in 2010, when “Jordan was the only employee and there [was] no real estate agent to pay given that there was no building to market.”

¶ 33 Selling a Portion of KBI to New Investors

¶ 34 The trial court also found defendants breached their duty of loyalty by selling a portion of KBI to new investors, Thomas Gangas and Peter Housakos. The court reasoned that defendants’ failure to promptly notify plaintiffs about the addition of Gangas and Housakos to KBI placed

15BI at risk of loan default. The court cited Karlik’s testimony about being advised by attorneys to update the ownership information with the lender or be in default. The court noted that defendants used 15BI funds to pay Bronson & Kahn $19,038.04 in attorney fees to document these transactions.

¶ 35 Duty of Care

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¶ 36 The trial court also found that defendants breached their duty of care by hiring Jordan as

project manager of 15BI. Jordan testified he provided market research and financial modeling, helped with zoning matters, worked with the architect, and acted as a liaison with the City and lender. However, Jordan had no prior experience in commercial and residential real estate development. His father Jerry hired him two years after he graduated college to run the daily operations of 15BI’s development project, which never progressed beyond zoning during his

employment from 2006 – 2011. The court considered the hiring of Jordan as another example of defendants’ failure to act in the best interests of 15BI and negotiate at arms-length with affiliates.

¶ 37 Moreover, it bears noting the court found Jordan not liable to plaintiffs for the other defendants’ wrongful acts. He owed no fiduciary duties to plaintiffs as an employee of F&G or KDP.

¶ 38 The court awarded plaintiffs the following in compensatory damages:

1. $460,180.12 for payments to KDP, 2. $389,301.63 for payments to F&G, 3. $4,674.04 for payments to Jordan, and 4. $138,086.08 for payments related to the Testa deal.

¶ 39 The court also found that expulsion of KBI was warranted in this case, commenting on

defendants’ numerous breaches of their fiduciary duties and 15BI’s operating agreement. “In short, the list of Defendants’ wrongful acts is shockingly long and more than warrants expulsion from 15BI pursuant to 805 ILCS 180/35-45(6).” Thus, the court dissociated KBI as a member and the manager of 15BI pursuant to section 35-45(6) of the LLC Act (805 ILCS 180/35-45(6)

(West 2018)). The court disgorged KBI “of its compensation of the 53.75% ownership interest in 182208

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15BI for its breach of fiduciary duties.” The court ordered defendants to pay statutory prejudgment interest on the compensatory damages.

¶ 40 ANALYSIS

¶ 41 Defendants contend the trial court erred in disgorging KBI’s interest in 15BI pursuant to the LLC Act, and certain aspects of the award of compensatory damages and prejudgment interest are erroneous because the court miscalculated the amount of the judgment, applied an incorrect legal standard to breach of fiduciary duty cases, or misconstrued the operating

agreement. They dispute the following aspects of the compensatory damages award: $150,000 in earnest money paid to KDP for the 15BI Property; expenses for work on the Testa Parcel; and expense and payroll reimbursements to KDP, F&G, and Jordan.

¶ 42 As a preliminary matter, this court took two motions with this case: plaintiffs’ motion to

strike a specific assertion of fact with no record citation in defendants’ opening brief and plaintiffs’ motion to strike the statement of facts in defendants’ reply brief and response to cross- appeal. Defendants responded to the second motion, arguing its reply brief and response to cross- appeal directly respond to plaintiffs’ arguments, which were premised upon inaccurate assertions in their statement of facts. We deny both motions to strike but will disregard any information that is not based in the record on appeal. See, e.g., Tekansky v. Pearson, 263 Ill. App. 3d 759, 763

(1994) (denying motion to strike but disregarding any improper information in all the briefs).

¶ 43 Disgorgement of KBI’s Interest in 15BI

¶ 44 First, defendants contend the trial court committed reversible error when it disgorged

KBI’s compensation of a 53.75% interest in 15BI. Defendants argue the LLC Act does not provide for disgorgement as a remedy for dissociation but rather expressly preserves a dissociated member’s equity interest. The trial court disassociated KBI as a member pursuant to - 10 -

1-18-2200 & 1-18-2201, Cons. section 35-45(6) of the LLC Act (805 ILCS 180/35-45(6) (West 2018)). Section 35-45(6) reads as follows:

“A member is dissociated from a limited liability company upon the occurrence of any of the following events:

***

(6) On application by the company or another member, the member's expulsion by judicial determination because the member:

(A) engaged in wrongful conduct that adversely and materially affected the company's business;

(B) willfully or persistently committed a material breach of the operating agreement or of a duty owed to the company or the other members under

Section 15-3; or (C) engaged in conduct relating to the company's business that makes it not reasonably practicable to carry on the business with the member.” 805

ILCS 180/35-45(6) (West 2018).

¶ 45 Defendants argue that “[u]nder the applicable version of the [Act,] the effect of KBI’s disassociation from 15BI should have been a mandatory buy-back of KBI’s membership interests pursuant to the mandates of Sections 35-55(a) and 35-60, not disgorgement.” Defendants rely on the version of section 35-55 “that was in effect at the time the Operating Agreement was entered.” At that time, section 35-55 required the distributional interest of a dissociated member to be purchased and reads as follows:

“(a) Upon a member's dissociation the company must cause the dissociated member's distributional interest to be purchased under Section 35-60. - 11 -

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(b) Upon a member's dissociation from a limited liability company:

(1) the member's right to participate in the management and conduct of the company's business terminates, except as otherwise provided in Section 35-4, and the member ceases to be a member and is treated the same as a transferee of a member;

(2) the member's fiduciary duties terminate, except as provided in subdivision (3) of this subsection (b); and (3) the member's duty of loyalty under subdivisions (1) and (2) of subsection (b) of Section 15-3 and duty of care under subsection (c) of Section 15-3 continue only with regard to matters arising and events occurring before the member's dissociation, unless the member participates in winding up the company's business pursuant to Section 35-

4.” (Emphasis added.) 805 ILCS 180/35-55 (West 2016).

¶ 46 However, the legislature amended section 35-55 in 2017 so that when the trial court

entered its judgment in this case on September 14, 2018, the requirement to purchase the distributional interest of a disassociated member had been repealed:

“(a) Upon a member's dissociation from a limited liability company:

(1) the member's right to participate in the management and conduct of the company's business terminates, except as otherwise provided in Section 35-4, and the member ceases to be a member and is treated the same as a transferee of a member;

(2) the member's fiduciary duties terminate, except as provided in subdivision (3) of this subsection (a); - 12 -

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(3) the member's duty of loyalty under subdivisions (1) and (2) of subsection (b) of Section 15-3 and duty of care under subsection (c) of Section 15-3 continue only with regard to matters arising and events occurring before the member's dissociation, unless the member participates in winding up the company's business pursuant to Section 35-

4; and (4) subject to Section 30-25 and Article 37, any distributional

interest owned by the person immediately before dissociation in the person's capacity as a member is owned by the person solely as a transferee.

(b) A person's dissociation as a member of a limited liability company does not of itself discharge the person from any debt, obligation, or other liability to the company or the other members which the person incurred while a member.” 805 ILCS 180/35-55 (West 2018).

¶ 47 The issue we must resolve is which version of the statute applies: the repealed version in effect when the business was formed, which requires the purchase of a disassociated member’s interest, or the statute in effect at the time of judgment, which does not require the company to buy back the interest? For the following reasons, we conclude the new version of the statute controls here.

¶ 48 Defendants’ initial contention is twofold. First, defendants argue “the 2017 amendment

was not made retroactive, so the prior version in effect when the parties formed 15BI and executed the Operating Agreement controls their rights.” Second, defendants argue “the trial court’s disgorgement injunction is barred even under the amended LLC Act” because under the - 13 -

1-18-2200 & 1-18-2201, Cons. amended statute the disassociated member “is treated the same as a transferee of a member” (805

ILCS 180/35-55(a)(1) (West 2018)), which defendants argue, “retains all distribution rights held by the transferred equity position” (805 ILCS 180/30-10(e) (West 2018)). Defendants claim

under the amended statute, KBI “should have retained its equity distribution rights in 15BI and simply been treated as a transferee.”

¶ 49 Plaintiffs respond the transaction that determines which version of the statute applies is the disassociation itself and not the execution of the operating agreement because the former is

when the right to have an interest purchased as a “disassociated member” accrues. In this case, because the order disassociating KBI occurred after the legislature amended the statute, the pre- amended version does not apply. In response to defendants’ argument that it must be treated as a transferee of a member, plaintiffs argue that under section 15-5(b)(4) of the LLC Act (805 ILCS

180/15-5(b)(4) (West 2018)), the operating agreement controls the rights of transferees and under the operating agreement, not only are transfers prohibited but any purported transferees are not entitled to receive distributions from the company.

¶ 50 “We review the issue of retroactive application of a statute under a de novo standard of review.” Bank of New York Mellon as Trustee for Certificate Holders of CWALT, Inc., Alternative Loan Trust 2005-47cb, Mortgage Pass-Through Certificates, Series 2005-47CB v. Sperekas, 2020 IL App (1st) 191168, ¶ 16. The “interpretation and applicability” of a statute is a question of law this court reviews de novo. Lewis v. Lead Industries Association, 2020 IL

124107, ¶ 36.

¶ 51 In determining whether an amended statute may be applied retroactively, we follow the two-step approach established by the Supreme Court in Landgraf v. USI Film Products, 511 U.S.

244 (1994). First, if the legislature expressly prescribes the statute’s temporal reach, we will give - 14 -

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effect to that expression of legislative intent. Thomas v. Weatherguard Construction Co., Inc., 2015 IL App (1st) 142785, ¶ 64. Second, if there is no express statement about the statute’s temporal reach, we must determine whether the new statute would have retroactive effect; absent a retroactive impact, the amended statute will apply retroactively. Id.

¶ 52 Illinois courts need not go beyond the first step of the Landgraf approach considering section 4 of the Statute on Statutes. Perry v. Department of Financial and Professional

Regulation, 2018 IL 122349, ¶ 41. If the temporal reach is not clearly indicated in the text of the new law, then the legislature’s intent in that regard is provided by default in section 4. Id. Section

4 “contemplates the existence of proceedings after the new or amended statute is effective to which the new procedure could apply.” (Internal quotation marks omitted.) Id. ¶ 43 (quoting

People v. Hunter, 2017 IL 121306, ¶ 31). Section 4 “represents a clear legislative directive as to the temporal reach of statutory amendments and repeals: those that are procedural in nature may be applied retroactively, while those that are substantive may not.” (Internal quotation marks omitted.) Thomas, 2015 IL App (1st) 142785, ¶ 65 (quoting Caveney v. Bower, 207 Ill. 2d 82, 92

(2003); and citing 5 ILCS 70/4 (West 2000)). A procedural change in law prescribes a mechanism for enforcing rights or involves pleading, evidence, and practice. Deicke Center-

Marklund Children’s Home v. Illinois Health Facilities Planning Board, 389 Ill. App. 3d 300, 303 (2009). By contrast, a substantive change establishes, creates, or defines rights. Id. at 304.

¶ 53 However, the general savings clause of section 4 does not apply to repeals of special statutory remedies, as in the case here. See Atkins v. Deer & Co., 177 Ill. 2d 222, 236 (1997)

(Miller, J., specially concurring) (section 4 of the Statute on Statutes does not apply to legislation that repeals special statutory remedies); accord Shelton v. City of Chicago, 42 Ill. 2d 468, 473

(1969). Rather, “the unconditional repeal of a remedial statute without a saving clause stops all - 15 -

1-18-2200 & 1-18-2201, Cons. pending actions where the repeal finds them.” Id. at 226-27. Additionally, where the act does not expressly indicate whether it should be applied prospectively or retroactively, it is presumed to apply retroactively. Id. at 232 (citing Randall v. Wal-Mart Stores, Inc., 284 Ill. App. 3d 970, 973

(1996)). “In the absence of a general savings clause or a savings clause within the repealing act, the effect of the repeal of a statute ‘is to destroy the effectiveness of the repealed act in futuro

and to divest the right to proceed under the statute, which, except as to proceedings past and closed, is considered as if it had never existed.’ ” (Internal quotation marks omitted.) U.S. Bank, N.A. v. Coe, 2017 IL App (1st) 161910, ¶ 9 (quoting Isenstein v. Rosewell, 106 Ill. 2d 301, 310

(1985)). Under these circumstances, if final relief under the repealed statute has not been granted, it may not be after the repeal. Id. (citing Shelton, 42 Ill. 2d at 473-74). The appellate court must dispose of the case based on the law in effect at the time of its decision. Id. (citing

Vance v. Rankin, 194 Ill. 625, 627-28 (1902)).

¶ 54 When the legislature amended section 35-55 and removed the buy-back provision in 2017, it also repealed section 35-60, which according to defendants, “provides the procedure pursuant to which the membership interest buy-back must happen.” (Emphasis added.) KBI’s entitlement to a buy-back of its distributional interest in 15BI is a statutory creation and not “an expectation that is so far perfected that it cannot be taken away by legislation.” Coe, 2017 IL

App (1st) 161910, ¶ 18. The trial court issued its judgment dissociating KBI as a member of 15BI in September 2018, well after the effective date of amended section 35-55 and the repeal of section 35-60, namely July 1, 2017. KBI’s dissociation in September 2018 triggered the effects of a member’s dissociation prescribed in the amended version of 35-55, which no longer include the buy-back provision. Public Act 99-637, which amended section 35-55 and repealed section

35-60, does not indicate whether the changes should apply prospectively or retroactively; thus, - 16 -

1-18-2200 & 1-18-2201, Cons. there is a rebuttable presumption the changes apply retroactively. See Pub. Act 99-637 (eff. July

1, 2017) (amending 805 ILCS 180/35-55; repealing 805 ILCS 180/35-60); Atkins, 177 Ill. 2d at

232. Moreover, final relief under the repealed statute may not be granted after the repeal in July

2017. See Coe, 2017 IL App (1st) 161910, ¶ 9.

¶ 55 We conclude the pre-amended version of section 35-55 and repealed section 35-60 (805

ILCS 180/35-55, 35-60 (West 2016)) do not control this case; the trial court applied the version

of the LLC Act in effect at the time of judgment. Therefore, the statute in effect at the time of judgment did not require the purchase of the dissociated defendant’s distributional interest. In so concluding, it bears noting that Illinois courts no longer use a vested rights analysis to determine temporal reach. Perry, 2018 IL 122349, ¶ 64 (citing Commonwealth Edison Co. v. Will County

Collector, 196 Ill. 2d 27, 39 (2001)).

¶ 56 Next, we turn to defendants’ argument “the trial court’s disgorgement injunction is barred even under the amended LLC Act” because under the amended statute the disassociated member

“is treated the same as a transferee of a member” (805 ILCS 180/35-55(a)(1) (West 2018)). The question then becomes whether 15BI’s operating agreement prohibits the transfer of distributional interests resulting from a member’s involuntary dissociation. If the operating agreement prohibits such transfers, defendants may still not be entitled to a buy-back of KBI’s distributional interest under the current version of section 35-55(a)(4), which provides that any distributional interest owned by a member is solely owned as a transferee after dissociation. See

805 ILCS 180/35-55(a)(4) (West 2018).

¶ 57 Plaintiffs direct this court to section 6.1 of the operating agreement, which provides that a transferee has no distributional rights and reads as follows:

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“6.1.1. Prohibition on Transfers. No Person may Transfer all or any portion of or any interest or rights in the Person’s Membership Rights or Interest

owned by the Member, and no Interest Holder may Transfer all, or any portion of, or any interest or rights in, any Interest. *** The Transfer of any Membership

Rights or Interests in violation of the prohibition contained in this Section 6.1 shall be deemed invalid, null and void, and of no force or effect. Any Person to whom Membership Rights are attempted to be transferred in violation of this

Section shall not be entitled to *** receive distributions from the Company, or have any other rights in or with respect to the Membership Rights.”

¶ 58 Section 15-5 of the LLC Act states that “[t]o the extent the operating agreement does not otherwise provide, this Act governs relations among the members, managers, and company.

Except as provided in subsection (b), (c), (d), and (e) of this Section, an operating agreement

may modify any provision or provisions of this Act governing relations among the members, managers, and company.” (Emphasis added.) 805 ILCS 180/15-5(a) (West 2018). Subsection

(b)(4) of section 15-5 of the LLC Act states the “operating agreement may not *** restrict the rights of a person, other than a *** transferee of a member’s distributional interest, under this

Act.” (Emphasis added.) 805 ILCS 180/15-5(b)(4) (West 2018).

¶ 59 In their reply to plaintiffs’ argument above, defendants claim the operating agreement is

silent about the rights retained by dissociated members “and in no way purports to override the equity distribution rights given those members by the” LLC Act. Defendants argue section 6.1 of the operating agreement applies to attempts to “voluntarily transfer a membership interest” while the LLC Act “protects the equity rights of a member who is involuntarily dissociated.”

(Emphasis added.) Defendants argue the LLC Act does not convert a dissociated member to a - 18 -

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transferee, or to the “unsuccessful ‘attempted transferees[]’ addressed in § 6.1 of the Agreement.” That is, defendants argue, despite section 15-5(b)(4) stating the rights of a transferee may be restricted by an operating agreement, “a dissociated member like KBI is not a transferee—it is an involuntarily removed full member.” (Emphasis added). Moreover, section

6.1 of the operating agreement “does not contemplate actual transferees” because it “precludes

them all together.” The parties’ arguments raise a question as to the construction of section 6 of the operating agreement, an issue that was not addressed in the trial court’s judgment. The interpretation of a contract is a question of law subject to de novo review. Ritacca Laser Center v. Brydges, 2018 IL App (2d) 160989, ¶ 15.

¶ 60 The primary objective when construing a contract is to give effect to the intention of the parties. Thompson v. Gordon, 241 Ill. 2d 428, 441 (2011). A court will consult the contractual language for the parties’ intent and where the words are clear, a court will give those words their plain meaning. Id. However, where the language is susceptible to more than one meaning, it is

ambiguous and the court can then consider extrinsic evidence of the parties’ intent. Id. The parties’ disagreement on the meaning of a contract term does not, alone, render that term

ambiguous. Id. at 443. Thus, a reviewing court will not try to find ambiguity where none exist, and disagreements about contractual interpretation must be reasonable. Midway Park Saver v. Sarco Putty Co., 2012 IL App (1st) 110849, ¶ 13.

¶ 61 We find the operating agreement clearly and unambiguously reflects the parties’ intent to prohibit defendants’ treatment as a transferee following the dissociation of KBI from 15BI.

Defendants do not argue it is impermissible for the operating agreement to contain such a provision; defendants effectively only argue that it does not because the applicable provision does not contain the word “involuntarily.” - 19 -

1-18-2200 & 1-18-2201, Cons.

¶ 62 “We presume that each contractual provision was inserted deliberately and for a purpose consistent with the parties' intent, and if possible we must interpret a contract in a manner that gives effect to all of the contract's provisions.” Kasper v. McGill Management Inc., 2019 IL App

(1st) 181204, ¶ 39. “In determining the parties' intent, a court must read the contract as a whole and must attempt to give effect to, and harmonize, every part of the contract.” Sloan

Biotechnology Laboratories, LLC v. Advanced Biomedical Inc., 2018 IL App (3d) 170020, ¶ 31.

However, defendants essentially ask this court to focus on an isolated portion of the operating agreement—section 6.1.1—and “add new terms or conditions to which the parties do not appear to have assented, [or] write into the contract something which the parties have omitted,” specifically adding the word “voluntarily,” that “easily could have been included in the contract but [was] not.” See Gallagher v. Lenart, 367 Ill. App. 3d 293, 301-02 (2006). We decline.

¶ 63 First, we find section 6.3 of the operating agreement instructive. That provision reads as follows:

“6.3 Involuntary Withdrawal. Immediately upon the occurrence of an

Involuntary Withdrawal, the successor of the Withdrawn Member shall thereupon become an Interest Holder but shall not become a Member. If the Company is continued as provided in Section 7.1.3, the successor Interest Holder shall have all the rights of an Interest Holder2 but neither the predecessor nor the successor