CHICAGO — A state appeals court has affirmed a trial court’s dismissal of a third amended complaint filed by the former operators of one of Chicago's biggest and most prestigious health clubs, and ordered them to pay more than $33,000 in sanctions in the case they brought against the businessman who now owns the club and who they accused of allegedly using inside knowledge to work around an agreement and buy the club when it fell into foreclosure.
On August 8, the Illinois First District Appellate Court sided against Lakeshore Athletic Club Illinois Center LLC and Two Eleven North Stetson LLC (211 North), a real estate company, in their dispute with Peter Goldman. According to court documents, Goldman had signed a confidentiality agreement while negotiating with the companies amid their financial struggles. But the companies alleged Goldman violated their agreement by sharing sensitive information with Strategic Hotels & Resorts LLC, which then bought the property in a foreclosure sale and resold it at the same price to Goldman, who then reopened the athletic club.
“The objective facts known to [the] plaintiffs before they filed this lawsuit preclude a finding that they held any reasonable belief that Goldman’s conduct was the cause of 211 North’s loss of property or [Lakeshore’s] loss of business," Justice Mary Anne Mason said in decision. "And the law applicable to [the] plaintiffs’ claims should have dissuaded any reasonable attorney from pursuing them.”
Justices Michael B. Hyman and P. Scott Neville concurred.
The Kaiser family owned a controlling interest in both 211 North and Lakeshore, the property’s only tenant. 211 North took out a $21 million mortgage with CIBC Inc. in May 2007. Foreclosure proceedings started in May 2010 after 211 North defaulted on the loan. A foreclosure complaint was filed seeking to end 211 North’s ownership and Lakeshore’s leaseholder interest in the property.
In May 2010, Goldman began negotiations to buy a share in Lakeshore. Prior to disclosing financial information, Goldman signed an agreement forbidding him to contact 211 North’s lenders and maintain “absolute confidentiality” concerning Lakeshore’s financial affairs.
In March 2011, Lakeshore rejected Goldman’s offer to buy an 80 percent share of the company for $5 million. Lakeshore then stopped paying rent the following September and was ordered by a circuit court to pay $1.3 million in unpaid rent two months later.
Strategic, which owns the Fairmont Hotel next door to 211 North, bought the note and mortgage on the property in January 2012 for $10.5 million. It obtained a judgment of foreclosure against 211 North in November 2012 and then sold the property to Goldman in October 2013 for the same amount it paid to acquire the property.
Lakeshore then filed a complaint, alleging Goldman interfered in the contractual relationship between Lakeshore and its lenders and breached confidentiality by “[using] Strategic as a ‘strawman’ to purchase the property and circumvent the prohibition against contacting 211 North’s lenders.”
Lakeshore sought $10.5 million for each offense, then amended its complaint in April 2014 to charge Strategic with the same offenses.
A trial court dismissed the case, noting that while Lakeshore could possibly make a claim for lost business, it could not sue for damages because it did not own the property. The plaintiffs amended their complaint in November 2014, but this was also dismissed by the trial court, which noted that “at no time did either [plaintiff] attempt to pay their debts” and expressed puzzlement at “the source of the plaintiffs’ apparent belief that had it not been for Goldman, the foreclosure would have been averted.”
The plaintiffs responded with a third amended complaint in April 2015, but the trial court dismissed this with prejudice the following June, finding that “the pleading contained not a single fact to support the necessary element of proximate cause as to any of the claims asserted.”
The court also placed sanctions on the filing of further amendments and awarded Goldman $33,318 in fees and costs. The plaintiffs appealed, but the appeals court upheld the dismissal, sanctions and monetary award originally ordered by the trial court.
The appellate court decision was filed under Supreme Court Rule 23, which limits its use as precedent.
According to Cook County court records, LakeShore was represented in the action by attorneys with the Voelker Litigation Group, of Chicago.
Goldman and Strategic had been defended by the firm of Fox Rothschild LLP, of Chicago, and Perkins Coie, of Chicago.