Kagan v. Waldheim Cemetery Company, 2016 IL App (1st) 131274

Background

Rosemont operated cemeteries and, as required by the Illinois Cemetery Care Act (Care Act), placed perpetual-care funds into a trust; when funds exceeded $500,000 an independent bank trustee was required. LaSalle (later acquired by Bank of America) became trustee under a trust agreement with Rosemont as settlor.
From about 2005 Rosemont withdrew trust principal until the trust was depleted; cemetery maintenance deteriorated. The Illinois Comptroller audited and Rosemont admitted spending nearly all principal.
Rosemont sold its cemeteries to Waldheim, which created Zion to operate them; Zion agreed to replenish the trust principal as a condition of licensing and informed perpetual-care purchasers their contracts were no longer valid.
Plaintiffs Kagan and Samuels (care-contract purchasers) sued Bank of America, Rosemont, Zion, Waldheim and an individual, alleging conversion, breach of fiduciary duty, violations of the Care Act and Consumer Fraud Act; Zion separately sued the Bank. The trial court dismissed plaintiffs’ second amended consolidated complaint and Zion’s amended complaint with prejudice.
On appeal the Illinois Appellate Court (1st Dist.) affirmed most dismissals but reversed dismissal of plaintiffs’ Consumer Fraud Act claim under section 2Z (knowingly violating a statute), remanding that count for further proceedings; it held no private right of action exists under the Care Act and that plaintiffs failed to plead a common-law trustee fiduciary duty by the Bank.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether plaintiffs stated a common-law breach of fiduciary duty against the Bank	Bank was trustee of care funds and thus owed fiduciary duties directly to purchasers/beneficiaries (plaintiffs)	Trust documents and allegations show funds were held for Rosemont to provide care; plaintiffs were not named beneficiaries of the trust	Dismissed: plaintiffs failed to allege facts showing Bank owed fiduciary duty to them under common law
Whether the Care Act implies a private right of action for purchasers to sue trustees or cemetery authorities	Care Act protects lot owners; plaintiffs are in the protected class and suffered the mismanagement the Act targets, so a private remedy should be implied	The Act vests enforcement, licensing, audits, sanctions and replenishment remedies with the Comptroller; statutory scheme is comprehensive so implying private damages actions would be inconsistent	No private right of action implied under the Care Act; standing to sue under the Act denied
Whether plaintiffs should have been allowed further leave to amend to plead a private right of action	Plaintiffs sought to add factual support (e.g., Comptroller e-mail) and requested leave at hearing	Bank opposed; trial court did not rule on oral request before dismissal	Issue forfeited/abandoned on appeal because plaintiffs did not obtain a ruling or re-urge the motion before appealing
Whether plaintiffs stated a claim under Consumer Fraud Act §2Z for a "knowing" violation of the Care Act by the Bank	Plaintiffs alleged Bank knew of withdrawals of principal, had notice from trust statements, and failed to certify filings—these facts support a knowing violation under §2Z	Bank argued "knowingly" requires intentional or bad-faith disregard of law and plaintiffs failed to plead such intent	Reversed as to this count: pleaded facts (knowledge that principal was being withdrawn, trustee duties under trust agreement) suffice at pleading stage to state a §2Z Consumer Fraud Act claim; remanded for further proceedings

Key Cases Cited

Union Cemetery Ass'n of the City of Lincoln v. Cooper, 414 Ill. 23 (1953) (describing Care Act purpose to remedy fraud/mismanagement of care funds)
First of America Bank, Rockford, N.A. v. Netsch, 166 Ill. 2d 165 (1995) (trust and Care Act duties regarding cemetery care funds)
Metzger v. DaRosa, 209 Ill. 2d 30 (2004) (four-factor test for implying a private right of action)
Corgan v. Muehling, 143 Ill. 2d 296 (1991) (when a private right of action may be implied to effectuate a statute's protective purpose)
Sawyer Realty Grp., Inc. v. Jarvis Corp., 89 Ill. 2d 379 (1982) (analysis of implied private remedies where statutory recovery funds exist)
Herlehy v. Marie V. Bistersky Trust, 407 Ill. App. 3d 878 (2010) (elements of a trustee’s common-law fiduciary duty)
Grot v. First Bank of Schaumburg, 292 Ill. App. 3d 88 (1997) (trustee liability for breach and restoration of beneficiaries’ position)
Kunkel v. P.K. Dependable Construction, LLC, 387 Ill. App. 3d 1153 (2009) (section 2Z requires pleading of a knowing statutory violation; evidentiary context)
Wendorf v. Landers, 755 F. Supp. 2d 972 (N.D. Ill. 2010) (federal district court treating §2Z as requiring intentional or knowing violation)
Compton v. Country Mut. Ins. Co., 382 Ill. App. 3d 323 (2008) (standards for 2-615 dismissal review)