2016 IL App (1st) 152685
Ill. App. Ct.2016Background
- Plaintiffs (two physicians and their medical practices, collectively “Affiliated”) allege long‑running employee embezzlement: billing employees created sham entities, deposited insurer checks made payable to Affiliated into sham accounts at Devon and TCF, and diverted funds.
- Insurers (Aetna, UnitedHealthcare, Blue Cross/Blue Shield) issued checks payable to Affiliated for patient services; many checks were deposited into the sham accounts and ultimately cashed.
- Affiliated sued the embezzlers, the two banks, and the insurers, alleging liability under UCC § 3‑414 (drawer’s obligation).
- The trial court granted 2‑615 motions and dismissed all claims against the insurers with prejudice, concluding the insurers’ obligations were discharged when banks accepted and paid the drafts.
- Affiliated appealed, arguing the insurers’ obligations were suspended or remained because the checks were not properly paid to the legitimate payee and sought recovery under related UCC provisions (3‑309, 3‑310).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurers’ obligations under UCC § 3‑414 were discharged when banks accepted/presented the checks | Affiliated: “Acceptance” requires endorsement/payment to the person entitled to enforce the instrument; because checks were stolen/deposited to sham payees, insurer obligations were not discharged | Insurers: Drawee banks accepted and paid the drafts; under § 3‑414(c) acceptance discharges the drawer regardless of who obtained acceptance | Court: Acceptance by the banks occurred; § 3‑414(c) discharged insurers’ obligation; dismissal affirmed |
| Whether dishonor or suspension (UCC §§ 3‑502, 3‑310) preserves insurer liability because checks were unpaid to the proper payee | Affiliated: The checks were effectively dishonored/unpaid to the rightful payee, so obligations were suspended and insurers remain liable or plaintiff may proceed under § 3‑309 | Insurers: Drafts were accepted and paid by drawee banks (no dishonor); § 3‑310’s suspension rules do not apply because checks were paid; no dishonor occurred | Court: No dishonor occurred; checks were paid, so § 3‑310 does not preserve liability; insurers discharged |
| Whether plaintiff can recover under § 3‑309 (enforce instrument when not in possession) because instruments were “destroyed” or otherwise unavailable | Affiliated: Instruments were effectively destroyed/negated by negotiation and thus plaintiff may enforce under § 3‑309 | Insurers: Cashing of checks means instruments were not destroyed; § 3‑309’s third element (cannot reasonably obtain possession) not satisfied | Court: Cashed checks are not “destroyed” for § 3‑309; Affiliated cannot plead the required elements and cannot recover under § 3‑309 |
Key Cases Cited
- Chandler v. Illinois Central R.R. Co., 207 Ill. 2d 331 (Illinois 2003) (standard for ruling on a section 2‑615 motion)
- Kolegas v. Heftel Broadcasting Corp., 154 Ill. 2d 1 (Illinois 1992) (pleading rules: accept well‑pleaded facts and reasonable inferences on motion to dismiss)
- Urbaitis v. Commonwealth Edison Co., 143 Ill. 2d 458 (Illinois 1991) (question on sufficiency of pleadings under section 2‑615)
- K. Miller Constr. Co. v. McGinnis, 238 Ill. 2d 284 (Illinois 2010) (limits on what courts may consider on a section 2‑615 motion)
- Weiss v. Waterhouse Sec., Inc., 208 Ill. 2d 439 (Illinois 2004) (Illinois is a fact‑pleading jurisdiction; plaintiff need not plead evidence)