A local Teamsters union must still pay about $2 million to the landlord of its previous headquarters, after an appellate court found its lease agreement was valid even though the local president didn’t follow proper protocol in executing the agreement.

1550 MP Road LLC filed suit after it said Teamsters Local Union No. 700 had breached a lease and purchase agreement for a property built by the company for the union’s headquarters. The lease agreement was entered into by Thomas Clair, secretary-treasurer and principal officer of Teamsters Local 726. About a year later, the International Brotherhood of Teamsters voted to dissolve Local 726 and another chapter, Local 714, and merge them into Local 700.

About six months before Local 726 was dissolved, it was placed in the care of a trustee who tried to renegotiate the lease and purchase agreement, according to court records. Teamster records indicate officials at the International believed Local 726 was being financially mismanaged, and particularly thought the lease agreement was a drain the union couldn’t afford. The new chapter, Local 700, continued trying to renegotiate the contract before moving out of the building about four months after its charter.

The landlord filed a breach of contract suit against Local 700, claiming it was liable for Local 726’s contract under corporate successor liability. The suit also charged individual Teamster officials with tortious interference.

After a bench trial, the circuit court found Local 700 was liable for the breach of contract under successor liability and under the Fraudulent Transfer Act, and found one official liable for tortious interference. The court awarded nearly $2 million in damages and more than $320,000 in court costs.

In its appeal, the union claimed the original contract was void because it was improperly executed. According to Local 726’s bylaws, the contract should have been signed by two officials and voted upon by the union membership, but while Local 726 officials were aware of the agreement, Clair executed it on his own. In a posttrial motion, the union also claimed the agreement did not comply with the Property of Unincorporated Associations Act. While acknowledging the agreement did not comply with either the union’s bylaws or the statute, the court said that did not automatically render the contract void.

The union also said the contract was unenforceable because Clair did not have the actual or apparent authority to enter into it on his own. The court, however, found the plaintiff had reason to believe Clair was acting with apparent authority in his position as the local’s principal, particularly as other members of the union’s executive leadership had visited the site and participated in talks about the plans for the building. And since the union moved into the building and paid rent on it, the court said, Clair was clearly not acting against the local’s wishes.

The union fought the circuit court’s finding of successor liability, arguing the required “continuity of ownership” provision is not met because unions don’t have owners in the same way that businesses do. The appellate court affirmed the finding, though it rejected the circuit court’s finding that Local 726 fraudulently transferred assets to Local 700. The union had deliberately structured the new chapter to be a consolidation of the former chapters, and Local 700 had absorbed all of 726’s members, operations, functions and assets – as well as its liabilities.

“Allowing an unincorporated labor association to avoid its obligations under an enforceable contract through the International’s dissolution and simultaneous transfer of the local’s entire operation to a newly-chartered local operating under the same International umbrella would eviscerate the integrity and purpose of contracting, would provide unincorporated associations an escape valve unknown to established contract law, and would serve no legitimate commercial purpose,” the court wrote.

The appellate court also threw out the circuit court’s finding of tortious interference against Local 700 boss John Coli, who instigated the union’s move out of the leased building.

“Each action had a legitimate business purpose and was in furtherance of Coli’s fiduciary duty as an International trustee, member of [Joint Council 25 of the International Brotherhood of Teamsters] and as trustee of Local 700,” the court wrote.

Justice Daniel J. Pierce delivered the opinion of the court. Justices Sheldon A. Harris and John B. Simon concurred.

According to Cook County court records, Local 700 was represented by the firm of Jacobs Burns Orlove & Hernandez, of Chicago, while the plaintiffs were represented by attorney Richard K. Hellerman, of Chicago.

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Illinois First District Appellate Court Jacobs Burns Orlove & Hernandez Richard K. Hellerman

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