A man awarded more than $100,000 in unpaid wages cannot force the creditors of his defunct ex-employer to cover the liability, according to an opinion issued Aug. 12 by a state appellate panel.

The appellate ruling upheld the judgment of a Cook County Circuit Court judge. Justice Michael B. Hyman delivered the opinion of the First District Appellate Court, with justices Terrence J. Lavin and Mary Anne Mason concurring.

In 2013, Marcial Villaverde was awarded $166,000 in unpaid wages from his former employer, S1 Audio LLC. While the litigation was pending, creditors of S1 foreclosed on its heavy debts. S1’s only real asset – intellectual property rights to the design of a pair of headphones – was sold at a foreclosure sale, preventing Villaverde from collecting on his judgment.

About 10 weeks before judgment was entered in the wage litigation, Villaverde filed this suit against S1 founder Christopher Gantz, IP Acquisition VIII, LLC, Barbara M. Spain 2004 Revocable Trust, and Patrick Spain in an attempt to ensure he collected any wages awarded to him. By this time, Patrick Spain and the Spain Trust had foreclosed on the company’s debts. According to court documents, between 2007 and 2010, Spain and the trust had loaned S1 Audio $267,277. Nearly half that amount was loaned in 2009 in exchange for a security interest in the company’s intellectual property.

Spain is the managing partner of IP Acquisition, which bought the intellectual property rights to the headphones at the foreclosure sale for the amount of S1’s debt. According to court documents, IP Acquisition exists to sell or license the property, but unlike S1 is not involved in development or marketing of the product. IP hired Gantz as an independent sales representative who attempted to license the property with investors.

In his suit against Spain and IP Acqusition, Villaverde claimed that IP Acquisition is a successor to S1 Audio and is liable for its debts. He also claimed civil conspiracy and violation of the Illinois Uniform Fraudulent Transfer Act, claiming the timing of the foreclosure sale and the continued heavy involvement of Spain and Gantz, along with other factors, indicate that the creation of IP Acquisition and the transfer of assets was simply a way to avoid paying him.

The circuit court granted a summary judgment in favor of the defendants in the case, which Villaverde appealed. In his appeal, Villaverde claimed IP Acquistion conducted the foreclosure sale only to avoid paying his judgment, and said evidence exists to support his claim of civil conspiracy and to show IP is a successor to S1 Audio. The defendants in the case cross-appealed, saying the trial court should have granted their motion for sanctions against a complaint containing false statements and claims without merit.

The appellate court upheld the trial court’s ruling in its entirety, granting summary judgment against Villaverde, but declining to sanction him.

In denying Villaverde’s position, the court observed that before, during and after the foreclosure, Spain had attempted to settle Villaverde’s litigation against S1 Audio. The justices outlined several scenarios in which Villaverde could have been paid from any proceeds from licensing or selling the intellectual property, after S1’s debts to Spain were settled. If a sale or licensing agreement was not executed in a set time frame, Villaverde would have been free to pursue his litigation. The court also noted that there was nothing fraudulent in the foreclosure on the debt or the transfer of assets, and under the law, IP Acquisition does not constitute a successor to S1 Audio and is not liable for S1 Audio’s debts.

In denying IP’s motion for sanctions, however, the trial court said that while Villaverde’s arguments were “unconvincing,” he should not be punished for misapplying the law without the intent of harassment. The appellate court agreed and upheld the denial of sanctions.

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