Jane Holloway, was employed at a facility called Oakridge
Convalescent Home. She filed a charge of discrimination under the Illinois
Human Rights Act against Oakridge Nursing & Rehab Center, LLC, -- her
employer and the managing company of Convalescent. Oakridge later transferred nearly
all of its assets for no consideration to Oakridge Healthcare Center, LLC.
Oakridge Healthcare became the new manager of Convalescent.
Holloway obtained an administrative judgment of $30,880.
When Oakridge Center failed to satisfy the judgment, the State of Illinois
filed a complaint against Oakridge Healthcare, as the successor of Oakridge
Center, to enforce compliance with the judgment. Oakridge Healthcare filed a
motion for summary judgment, which the circuit court granted. The State appealed
and argued that it had presented sufficient evidence to create a material issue
of fact that Oakridge Center transferred its assets for the fraudulent purpose
of escaping Holloway’s judgment. Further, the State urged the appeals court to
look to federal common law, where successor liability has long been recognized in
employment discrimination cases.
In turn, Oakridge Healthcare argued that the State never
raised the fraudulent transfer argument at any stage of the proceedings in the
trial court, and therefore forfeited the argument. Oakridge Healthcare also argued
that the asset transfer was not done with intent to defraud Holloway because at
the time of the transfer (1) no one had given any thought whatsoever to
Holloway’s pro se administrative
charge, (2) there was no existing indebtedness to Holloway, and (3) when the
asset transfer was made in 2012 no one could anticipate that Holloway would
receive an award in 2014.
The appeals court majority disagreed. Here, the State
alleged in count II of its complaint that (i) when Oakridge Healthcare began
operating Convalescent it was aware of complainant’s charge of discrimination
and (ii) based on certain facts, Oakridge Healthcare was a successor of
Oakridge Center, and was therefore responsible for its liabilities. These facts
were sufficient to set forth a cause of action for fraudulent transfer and
Oakridge Healthcare specifically addressed the fraudulent transfer exception in
the trial court. Thus, this argument was not raised for the first time on
appeal and the State did not forfeit the argument.
In Vernon v. Schuster,
179 Ill. 2d 338 (1997), the Illinois Supreme Court held that a corporation that
purchases the assets of another corporation is not liable for the debts or
liabilities of the transferor corporation. The rule of successor corporate
non-liability is intended to protect bona
fide purchasers from unassumed liability, and was created to improve the
fluidity of corporate assets. Nevertheless, there are four exceptions to the
rule of successor corporate non-liability: (1) where there is an express or
implied agreement of assumption, (2) where the transaction amounts to a
consolidation or merger of the purchaser or seller corporation, (3) where the
purchaser is merely a continuation of the seller, or (4) where the transaction
is for the fraudulent purpose of escaping liability for the seller’s
Here, there was evidence the transfer may have been made for
the purpose of escaping Oakridge Center’s obligation to Holloway.
Illinois recognizes two categories of fraudulent transfers: “fraud
in law” and “fraud in fact.” Under the theory of fraud in fact, a party must
prove that the transfer was made with actual intent to hinder, delay, or
defraud the creditors. A creditor can prove fraud in fact based on the
existence of certain “badges of fraud” set forth in the Uniform Fraudulent
Transfer Act (UFTA). The factors are:
(1) the transfer
or obligation was to an insider;
(2) the debtor
retained possession or control of the property transferred after the transfer;
(3) the transfer
or obligation was disclosed or concealed;
(4) before the
transfer was made or obligation was incurred, the debtor had been sued or
threatened with suit;
(5) the transfer
was of substantially all the debtor’s assets;
(6) the debtor
(7) the debtor
removed or concealed assets;
(8) the value of
the consideration received by the debtor was reasonably equivalent to the value
of the asset transferred or the amount of the obligation incurred;
(9) the debtor
was insolvent or became insolvent shortly after the transfer was made or the
obligation was incurred;
(10) the transfer
occurred shortly before or shortly after a substantial debt was incurred; and
(11) the debtor
transferred the essential assets of the business to a lienor who transferred
the assets to an insider of the debtor.” 740 ILCS 160/5(b).
A court need not consider all 11 factors. However, when the
factors are present in sufficient numbers, they may give rise to an inference
Here, Holloway filed her charge of discrimination on
February 7, 2011, and an employee named Helen became aware of the charge “in
spring 2011.” Holloway’s filing of her charge of discrimination put Oakridge
Center on notice of a threatened lawsuit and the real possibility of judgment
against Oakridge Center. Thus, Oakridge Center had the obligation not to
dissipate its assets.
Despite this obligation on January 1, 2012, , Oakridge
Center transferred to Oakridge Healthcare all of its (i) property, (ii)
contracts, (iii) licenses, (iv) patient records, (v) patient trust funds, and
(vi) supplies. Helen stated in her deposition that Oakridge Center transferred
beds, the license, three days' worth of perishable foods, seven days of frozen
food, stock meds, medical supplies, and a couple reams of paper. The fifth “badge
of fraud” was met because the transfer was of substantially all of Oakridge
In addition, because Oakridge Center never had the transferred
assets appraised and never received any payment from Oakridge Healthcare, Oakridge
Center did not receive reasonably equivalent consideration for the value of the
transferred assets. Therefore the eighth
badge of fraud was met.
Finally, with respect to the ninth badge of fraud, the court
found that Helen stated in her deposition that in June 2011, Oakridge Center
began to experience financial trouble and was no longer able to pay its rent to
Oakridge Properties, which resulted in the company’s termination of its lease
with Oakridge Properties. Thus there was evidence that Oakridge Center was
insolvent or became insolvent shortly after the transfer was made or the
obligation was incurred.
Based on these findings, there was adequate evidence to
support an inference of fraud.
A “fraud in law” transfer is also found in sections of the UFTA.
Fraud in law occurs where the transfer is made for no or inadequate
consideration, and the fraud is presumed. Because the appeals court found that
Oakridge Center did not receive reasonably equivalent value in exchange for the
transferred assets, it held that the transfer was made for no (or inadequate)
consideration. Therefore, the transfer was made for the fraudulent purpose of
avoiding Holloway’s judgment.
Because Oakridge Center became aware of Holloway’s charge, and
transferred to Oakridge Healthcare substantially all of its assets for no
consideration, (thereby possibly leaving Oakridge Center insolvent), the court
held that the State presented sufficient evidence for a reasonable trier of
fact to find that the asset transfer was for the fraudulent purpose of escaping
The exceptions to the rule of corporate successor non-liability
focus on transactions involving corporations and the transfer of their assets.
The exceptions do not consider employees such as Holloway, who have no control
over these transactions and are left without a remedy when corporations
transfer their assets. Therefore, the appeals court found that its holding did
not depart from Illinois law, but was one of first impression.
Federal cases have set forth a standard for determining
successor liability in cases involving employment discrimination. For example,
the Sixth Circuit imposed liability on successor employers in Equal Employment Opportunity Comm’n v.
MacMillan Bloedel Containers, Inc., 503 F.2d 1086 (6th Cir. 1974).
Liability of successor employers is not automatic and must
be determined on a case-by-case basis with the primary goal of providing the
discriminate with full relief. The MacMillan court identified nine factors
a court may consider in imposing liability on a successor corporation: (1)
whether the successor company had notice of the charge, (2) whether the
predecessor was able to provide relief, (3) whether there has been a
substantial continuity of business operations, (4) whether the new employer
uses the same plant or facility, (5) whether it uses the same or substantially
the same work force, (6) whether it uses the same or substantially the same
supervisory personnel, (7) whether the same jobs exist under substantially the
same working conditions, (8) whether it uses the same machinery, equipment and
methods of production, and (9) whether it produces the same product.
Here, Oakridge Center’s transfer of assets to Oakridge
Healthcare tracking the MacMillan
factors. First, as noted, Oakridge Center had notice of Holloway’s
discrimination charge because Holloway filed it on February 7, 2011, and Helen
became aware of the charge in spring 2011, prior to the transfer on January 1,
2012. As for the second factor, Oakridge Center did not have the ability to
provide Holloway relief because it admittedly began to experience financial
trouble in June 2011 and was unable to pay its rent. This established that it was insolvent or
became insolvent shortly after the transfer was made, thus was unable to
provide Holloway relief. Finally, the third factor, which subsumes the
remaining factors into the continuity of operations factor, was also met
because Oakridge Healthcare continued to operate Convalescent as a nursing
home, using the same workforce and at the same location. All of Convalescent’s
operations remained the same. Therefore, the transfer met the MacMillan factors, and Holloway’s
judgment could be imposed on Oakridge Healthcare as Oakridge Center’s successor.
The appeals court held that Illinois courts, (including the
circuit court in this case), should rely on the federal doctrine of successor
corporate liability where the underlying claim stems from a charge of
employment discrimination in violation of the Illinois Human Rights Act. The
case was reversed and remanded.
People Ex Rel. Department
of Human Rights v. Oakridge Nursing & Rehab Center, 2019 IL App (1st)
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