Kagan v. Waldheim Cemetery Co.
2016 IL App (1st) 131274
| Ill. App. Ct. | 2017Background
- Rosemont operated cemeteries and, as required by the Cemetery Care Act (Care Act), deposited buyer payments into a trust for perpetual-care funds; when the fund exceeded $500,000 an independent bank trustee (LaSalle, later Bank of America) was required and appointed.
- From about 2005 Rosemont withdrew principal from the trust such that by 2009 the principal was depleted and gravesites were neglected; Rosemont admitted substantial withdrawals to the Illinois Comptroller.
- In 2011 Waldheim purchased Rosemont’s cemeteries; Zion was created to operate them and agreed to replenish the depleted trust principal as a licensing condition; Zion notified perpetual-care contract holders that their contracts were no longer valid.
- Kagan and Samuels (plaintiffs) filed class complaints alleging conversion, breach of fiduciary duty (common law and statutory), Consumer Fraud Act violations (including section 2Z), and other claims against Bank of America (the Bank), Zion, Waldheim, Rosemont and David Gale.
- The trial court dismissed (2-615) plaintiffs’ amended pleadings; plaintiffs repleaded and the court again dismissed the second amended consolidated complaint with prejudice. Zion filed a separate suit against the Bank which was also dismissed. Appeals were consolidated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs pleaded common-law breach of fiduciary duty against the Bank | Bank was trustee and thus owed fiduciary duties to purchasers/beneficiaries (plaintiffs) and breached by permitting principal depletion | The trust was established for Rosemont as settlor to enable it to provide care; plaintiffs were not beneficiaries under the trust agreement and alleged only legal conclusions | Dismissed — plaintiffs failed to allege facts showing Bank owed them a trust-based fiduciary duty or damages (dismissal with prejudice affirmed) |
| Whether the Care Act implies a private right of action for purchasers/beneficiaries | Plaintiffs and Zion are within the class protected by the Care Act and should be allowed to sue for mismanagement that depleted the fund | The Care Act vests licensing, oversight, audits, sanctions, and remedial mechanisms (Comptroller authority, license revocation, criminal penalties, lien/replenishment provisions) in the administrative scheme; private damages suits are inconsistent and unnecessary | No implied private right of action — plaintiffs and Zion lack standing under the Care Act (dismissed) |
| Whether plaintiffs could amend pleadings to add facts supporting a private right of action | Plaintiffs sought leave to amend based on Comptroller email and other info to support an implied private remedy | Bank argued dismissal proper on pleadings; trial court did not rule on oral amendment request before plaintiffs appealed | Plaintiffs forfeited/abandoned motion to amend by failing to obtain a ruling; issue procedurally defaulted |
| Whether plaintiffs stated a Consumer Fraud Act (815 ILCS 505/2Z) claim against the Bank for a "knowing" violation of the Care Act | A showing of Bank knowledge of the Care Act and awareness that principal withdrawals occurred suffices to allege a "knowing" violation without proving specific intent | Bank argued "knowingly" requires intentional misconduct (intent to disregard law) and plaintiffs failed to plead such intent | Reversed as to this claim — plaintiffs adequately pleaded a section 2Z claim (the court found allegations and reasonable inferences sufficient to show a knowing violation at pleading stage) |
Key Cases Cited
- Union Cemetery Ass’n v. Cooper, 414 Ill. 23 (1953) (describing Care Act’s purpose to prevent fraud and mismanagement in care funds)
- First of America Bank, Rockford, N.A. v. Netsch, 166 Ill. 2d 165 (1995) (requirements re: care funds and trustee duties under the Care Act)
- Metzger v. DaRosa, 209 Ill. 2d 30 (2004) (four-factor test for implying a private right of action)
- Fisher v. Lexington Health Care, 188 Ill. 2d 455 (1999) (factors for implied private cause of action)
- Corgan v. Muehling, 143 Ill. 2d 296 (1991) (implying a private right where statutory remedies were inadequate)
- Sawyer Realty Group, Inc. v. Jarvis Corp., 89 Ill. 2d 379 (1982) (private right of action analysis; context of recovery funds)
- Compton v. Country Mutual Insurance Co., 382 Ill. App. 3d 323 (2008) (standard of review and rules for 2-615 motions)
- Herlehy v. Marie V. Bistersky Trust, 407 Ill. App. 3d 878 (2010) (elements of breach of fiduciary duty by trustee)
- Grot v. First Bank of Schaumburg, 292 Ill. App. 3d 88 (1997) (trustee breach liability and beneficiary relief)
- Kunkel v. P.K. Dependable Construction, LLC, 387 Ill. App. 3d 1153 (2009) (discussion of requirements to plead a knowing statutory violation under section 2Z)
- Rekosh v. Parks, 316 Ill. App. 3d 58 (2000) (administrative sanctions can render implying private cause unnecessary)