Thursday, December 9, 2021

FYI: Ill App Ct (1st Dist) Holds Claims Against Bank and Bank Officer for Fraud, Breach of Fiduciary Duty Were Time Barred

The Illinois Court of Appeals, First District, recently affirmed a trial court's ruling dismissing claims for fraud, breach of fiduciary duty, conversion, tortious interference as untimely and further affirmed the dismissal of claims for respondeat superior liability, prejudgment interest and attorney's fees on the basis that the substantive claims were untimely.


A copy of the opinion is available at:  Link to Opinion


The appeal arises out of a November 2016 lawsuit filed by an individual ("Minority Owner") and an LLC ("Retailer"), against a bank ("Bank") and a vice president of the Bank ("Bank VP") for allegedly aiding the Majority Owner of Retailer in misappropriating millions of dollars from Retailer.


Minority Owner had instituted a prior lawsuit against Majority Owner in 2009, alleging essentially the same facts as alleged in this underlying 2016 lawsuit. In 2010, the trial court granted Minority Owner's motion to enjoin Majority Owner and his family against taking payments from Retailer under the "profit-sharing" plans that Majority had created.


In 2011, Minority Owner filed another motion for injunction prohibiting Majority Owner from using Retailer's funds to pay for his personal expenses. In Majority Owner's response, filed in March 2011, he acknowledged the payments alleged had occurred, but contended that they occurred prior to the 2010 inunction and were proper under the "profit-sharing" agreements.


Majority Owner further asserted that he spoke with Bank and it was determined that the best way to finance his purchase of a personal residence was for Majority Owner to borrow the purchase funds from Retailer and repay the loan at a higher interest rate than Retailer paid on its line of credit with Bank.


After a jury trial, an amount for compensatory and punitive damages was awarded to Minority Owner.


In 2018, the trial court entered a partial satisfaction and release of judgment, drafted by Minority Owner's attorney, stating that while the judgment had only been partially satisfied, employee released Majority Owner of the judgment entered on February 9, 2016.


Approximately 16 months prior to the release, Minority Owner and Retailer filed the underlying lawsuit against Bank and Bank VP, alleging that Bank and Bank VP allowed Majority Owner to use Retailer as his "personal piggy bank" resulting in Retailer's insolvency and sale of the majority of its assets to pay creditors.


Bank and Bank VP moved to dismiss alleging (1) that the claims were barred by the five-year statute of limitations, (2) Minority Owner and Retailer had failed to state claims for intentional interference and respondeat superior liability, and (3) the request for prejudgment interest and attorneys' fees was not supported by Illinois law.


The trial court denied the motion to the extent that it asserted that the claims were untimely but dismissed the claim for intentional interference with contract.


Bank and Bank VP then filed a motion for judgment on the pleadings arguing that Minority Owner and Retailer's claims for fraud and breach of fiduciary duty were barred by the five-year statute of limitations and that the release barred the claims because both the 2009 case and the underlying 2016 case sought to recover the same damages.


The trial court granted the defendants' motion finding that Minority Owner and Retailer were seeking to recover for the same loss at issue in the 2009 lawsuit. The trial court relied on Cherney v. Soldinger, 299 Ill. App. 3d 1066 (1998) in finding that Plaintiff's release of Majority Owner was "absolute and unconditional" and "released the judgment in its entirety," including "any other parties which might be responsible for the injury."


Minority Owner and Retailer appealed the order and filed a motion to reconsider the judgment arguing that the intent of the parties controlled whether Minority Owner had release Bank and Bank VP and Minority Owner had not contemplated releasing any other parties not named in the settlement agreement. The motion to reconsider was denied.


Minority Owner and Retailer appealed the denial, and that appeal was consolidated with the appeal of the order granting judgment on the pleadings.


On appeal, Plaintiff contended that the trial court erred in granting judgment on the pleadings, in denying their motion to reconsider judgment on the pleadings, and in dismissing their claims for conversion, tortious interference with contract, and respondeat superior liability. 


The Appellate Court addressed each issue in turn.


As to the granting of judgment on the pleadings, the Appellate Court agreed that the applicable statute of limitations for the claims at issue was five years. Relying on the discovery rule, the Appellate Court found that Minority Owner must have known of the alleged wrong doing as early as February 9, 2009 when employee initiated his lawsuit against Majority Owner.


Plaintiffs argued that the running should have started when he learned of Bank and Bank VP's involvement but the Appellate Court rejected this argument, holding that the identity of the party who caused the injury is not a prerequisite to the running of the statute of limitations. Guarantee Trust Life Ins. Co. v. Kribbs, 2016 IL App (1st) 160672, ¶ 30.


Minority Owner and Retailer next argued that even if the five-year statute of limitations applied the statute was tolled for numerous reasons, all of which the Appellate Court rejected.


First, Minority Owner and Retailer argued fraudulent concealment tolled the statute of limitations. However, the Appellate Court held that this section applies only to the concealment of causes of action and not to concealment of the identity of the tortfeasors. Levine v. EBI, LLC, 2013 IL App (1st) 121049, ¶ 21. As Minority Owner and Retailer alleged only that the identities of Bank and Bank VP were hidden, this section did not apply.


Minority Owner and Retailer next argued that the statute of limitations was tolled by equitable estoppel which was also quickly rejected by the Appellate Court, which found that Bank and Bank VP had done nothing to prevent Minority Owner and Retailer from filing suit against them in 2011 when filings in the earlier lawsuit made clear Bank and Bank VP were involved.


Plaintiffs next asserted the continuing violation rule meant that the statute of limitations ran from the last continuing tort. The Appellate Court found that this rule did not apply as each distinct transaction by Bank was a distinct instance of misconduct.  The Court relied on prior rulings in holding that "the continuing violation rule does not apply to a series of discrete acts, each of which is independently actionable, even if those acts form an overall pattern of wrongdoing." Kidney Cancer Ass'n v. North Shore Bank and Trust Co., 373 Ill. App. 3d 396, 398 (2007).


Finally, Minority Owner and Retailer argued the statute was tolled by the adverse domination doctrine which tolls the statute of limitations for claims by a corporation against its officers during the time the corporation is controlled by those officers. Lease Resolution Corp. v. Larney, 308 Ill. App. 3d 80, 86 (1999). The presumption created by the doctrine that a corporation does not "know" of its own injuries when it is controlled by an officer causing those injuries may be rebutted by evidence that someone else knew of the wrongdoing and had motivation and ability to bring suit. Id. at 90.


The Appellate Court found Minority Owner had knowledge of Retailer's claims against Bank and Bank VP as early as 2009 and no later than March 2011, and had motivation to bring suit against them at that time and that Minority Owner had the ability to bring suit on behalf of Retailer at the relevant time relying on Section 40-1 of the Illinois Limited Liability Company Act, which governed Retailer.


The Illinois Limited Liability Company Act provides that "[n]o action shall be brought by a member *** in the right of a limited liability company to recover a judgment in its favor unless members or managers with authority to do so have refused to bring the action or unless an effort to cause those members or managers to bring the action is not likely to succeed." 805 ILCS 180/40-1 (West 2008).


The Appellate Court found it clear that Majority Owner, had he been asked, would not have initiated a suit on behalf of Retailer alleging that Bank and Bank VP helped Majority Owner expropriate millions form Retailer's bank accounts and thus, Minority Owner was entitled to bring suit on behalf of Retailer at that time.


Next, the Appellate Court reviewed the challenge of the trial court's dismissal of the claims for conversion, intentional interference with contract, respondeat superior liability and the requests for attorney's fees and prejudgment interest.


As to the claims for conversion and tortious interference, the Appellate Court found that the claims were barred by the applicable five-year statute of limitations for the same reasons that the fraud claims were barred.


The Appellate Court further found no basis to reverse the dismissal of the claims brought under the doctrine of respondeat superior and the requests for prejudgment interest and attorneys' fees as the substantive claims were untimely and thus, Minority Owner and Retailer could not obtain any money judgment to which prejudgment interest could apply and could not be successful litigants, and therefore, could not be entitled to attorney's fees.


Having found Minority Owner and Retailer's claims were barred by the statute of limitations, the Appellate Court did not address the grant of judgment on the pleadings regarding the release of judgment.


The Appellate Court thus affirmed the judgment of the trial court.




Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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