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'Shell Game' Gets Away From Commercial Lease Guarantor
In the real estate business, as in many others, the question of just who is contractually responsible when things go wrong is a recurring one, particularly when a closely-held corporation or other business entity is involved. If rent goes unpaid, is the business' proprietor on the hook, or the corporation of which he is the sole owner? Or when a guarantor fails to come through after a lessee defaults, can he and his business entities be treated as one in the same, so that satisfaction can be had through attachment of the company's assets? A scenario similar to these played out in case recently decided by the Appellate Court of Illinois, First District, Second Division: Golfwood Square LLC v. O'Malley, 2018 IL App (1st) 172220-U (8/11/2018). In Golfwood, the court had to decide just how much responsibility a business entity could be made to shoulder that was not directly involved in a dispute between a commercial lessor and the guarantor of its lessee's contractual responsibilities.
The Individual and His Business Entities
In 2009, defendants Michael K. O'Malley and Robert Stejskal signed on as guarantors of a commercial lease between landlord Golfwood and an entity indirectly owned by the two defendants, known as MAC Enterprises LLC. When MAC defaulted on the lease and O'Malley and Stejskal reneged on their promise to pay, Golfwood sued the two individuals for breach of contract. The parties came to a settlement, and the court in May of 2012 entered a judgment for plaintiff/landlord Golfwood in the amount of $915,000. The payment to Golfwood, however, was not forthcoming.
Golfwood then moved for the court's assistance in collecting the judgment from O'Malley (Stejskal was not involved in this action) through O'Malley's other business interests. Specifically, O'Malley owns 90% and Stejskal owns the remaining 10% of an entity known as Sheffield Street Group, LLC (SSG). SSG does not “do” anything, having no employees and no business to conduct. SSG's only purpose is to be the sole member of another entity, 3 Squared LLC.
3 Squared's only assets were a condominium and the rents the condominium generated. As O'Malley is a 90% owner and managing member of SSG, and SSG owns 3 Squared, O'Malley was in control of 3 Squared and its assets (the condominium and its rental income).
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