EDWARD SHROCK and BABY SUPERMALL, LLC v. MARTHA MEIER n/k/a MARTHA MAGGIORE, GRUND & LEAVITT P.C., DAVID I. GRUND, MICHAEL KOENIGSBERGER, ROSENFELD HAFRON SHAPIRO & FARMER, HOWARD A. ROSENFELD, NORMAN L. HAFRON, KATHRYN D. FARMER, EDWIN H. SHAPIRO, LAW OFFICES OF JEAN CONDE, P.C., and JEAN CONDE
No. 1-23-0069
APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT
December 20, 2024
2024 IL App (1st) 230069
FIFTH DIVISION
2016 L 11407
Honorable John J. Curry, Jr., Judge, presiding.
JUSTICE MITCHELL delivered the judgment of the court, with opinion.
Presiding Justice Mikva and Justice Oden Johnson concurred in the judgment and opinion.
OPINION
¶ 1 Plaintiffs Edward Shrock and Baby Supermall, LLC, appeal the circuit court‘s orders dismissing certain of their claims, striking their demand for a jury trial, denying leave to amend, and entering a directed verdict in favor of defendants. Plaintiffs raise three issues on appeal: (1) whether the circuit court erred in granting a directed verdict against plaintiffs on the count of aiding
¶ 2 I. BACKGROUND
¶ 3 Plaintiff Baby Supermall, LLC, is a manager-managed limited liability company formed in October 2003. Robert Meier was the majority shareholder and manager; he owned 87.5% of the company. Plaintiff Edward Shrock owned the other 12.5% of Baby Supermall. The company‘s operating agreement required profits to be distributed between the two owners proportionate to their ownership interests. However, according to Shrock, at some point Meier wanted to buy out Shrock‘s share of the company, but Shrock was unwilling to sell. In response to this refusal, Meier began a campaign to force Shrock out.
¶ 4 First, Meier increased his own salary and reduced Shrock‘s. Meier also refused to allow Shrock to participate in any corporate decision-making and withheld information about Baby Supermall‘s operations. Then, Meier created a series of what he referred to as “profit-sharing” agreements. These agreements were between Meier, acting in his capacity as Baby Supermall‘s manager, and Meier, acting in his individual capacity. They provided that Baby Supermall “would pay Meier a higher percentage of its profits in exchange for Meier‘s agreement to defer his salary and guarantee BSM‘s debts and expenses.” Additionally, Baby Supermall hired Meier‘s second wife, Sylvia Suby, and her son, and paid them 20% and 10% of the company‘s profits, respectively.
¶ 5 In 2009, after repeated demands for his share of Baby Supermall‘s profits went unanswered, Shrock sued Meier for breach of fiduciary duty. Five years later, a “jury found that Meier willfully and wantonly violated his fiduciary duties to Shrock ***.” Shrock v. Ungaretti & Harris, Ltd., 2019 IL App (1st) 181698, ¶ 27. Shrock was awarded $11,164,500 in compensatory and punitive damages. Id. ¶ 32. As a result, Meier filed for bankruptcy.
¶ 6 Defendant Martha Maggiore (formerly known as Meier) was married to Meier for over 25 years when, in 2005, she and Meier began divorce proceedings. More than four years later, the two entered into a settlement agreement which, among other terms, required Meier to pay Maggiore support payments equal to $33,333 a month for ten years. Meier‘s ownership interest in Baby Supermall, however, remained his alone.
¶ 7 On November 18, 2016, plaintiffs filed suit against defendants Maggiore and her attorneys. Plaintiffs have since filed three amended complaints. The last complaint asserted claims for fraud, constructive fraud, aiding and abetting breach of fiduciary duty, intentional interference with contract, conversion, and unjust enrichment. The circuit court dismissed the constructive fraud and conversion claims with prejudice and the fraud, intentional interference with contract, and unjust enrichment claims without prejudice. The court allowed the claim for aiding and abetting breach of fiduciary duty to go forward.
¶ 8 Rather than seeking to replead any of the dismissed counts, plaintiffs elected to pursue the surviving claim. The case went through discovery and was set for trial. Plaintiffs demanded a jury trial, but the circuit court granted defendants’ motion to strike the jury demand. After the close of
¶ 9 II. ANALYSIS
¶ 10 A. Threshold Matters
¶ 11 Plaintiffs seek review of the circuit court‘s April 15, 2019, order dismissing various counts of their complaint “without prejudice;” however, there is a jurisdictional bar that prevents this court‘s review of those portions of the order. The jurisdiction of the appellate court is limited by the Illinois Supreme Court‘s rules. Lewis v. NL Industries, 2013 IL App (1st) 122080, ¶ 5. The rules provide that this court may only hear appeals from final judgments or certain interlocutory appeals. See
¶ 12 A dismissal without prejudice is not a final or otherwise appealable order. DeLuna v. Treister, 185 Ill. 2d 565, 570 (1999). And a dismissal without prejudice as to some counts in the complaint is not a “step in the procedural progression” leading to the disposition of the remaining counts. See Village of Lisle v. Village of Woodridge, 192 Ill. App. 3d 568, 573 (1989) (holding that the dismissal of five counts of the plaintiff‘s complaint “was not a step in the procedural progression leading to the summary-judgment order as to the other six counts“). Therefore, this court does not have jurisdiction to review the portions of the circuit court‘s April 15, 2019 order
¶ 13 Plaintiffs also purport to have appealed the circuit court‘s February 13, 2018, order dismissing all counts against defendants Jean Conde and the Law Offices of Jean Conde, P.C. However, plaintiffs made no mention of the Conde defendants in their opening brief aside from listing them in the case caption. They did not explain the Conde defendants’ relationship to this case, and they did not argue that the circuit court erred in dismissing these defendants from the case. It is only in reply, after being alerted by the Conde defendants’ brief to their apparent oversight, that plaintiffs finally offer some argument, but this untimely challenge is insufficient to avoid forfeiture. It is the obligation of the appellants to include in their briefing “[a]rgument, which shall contain the contentions of the appellant and the reasons therefor, with citation of the authorities and the pages of the record relied on.”
¶ 14 B. Dismissal Order
¶ 15 The circuit court dismissed portions of plaintiffs’ complaint with prejudice pursuant to
¶ 16 1. Constructive Fraud
¶ 17 Plaintiffs argue that the circuit court erred in dismissing their constructive fraud claim because they were not required to plead the existence of a fiduciary duty or, alternatively, because defendants owed them a fiduciary duty. When a party breaches “a legal or equitable duty arising out of a fiduciary relationship, a presumption of fraud arises.” Vermeil v. Jefferson Trust and Savings Bank of Peoria, 176 Ill. App. 3d 556, 564 (1988). “This type of fraud is called ‘constructive fraud.’ ” Id. To prove constructive fraud, a party must demonstrate “(1) a fiduciary relationship; (2) a breach of the duties that are imposed as a matter of law because of that relationship; and (3) damages.” Kovac v. Barron, 2014 IL App (2d) 121100, ¶ 64 (citing Lawlor v. North American Corporation of Illinois, 2012 IL 112530, ¶ 69). Significantly, “[c]onstructive fraud can arise only if there is a confidential or fiduciary relationship between the parties.” (Emphasis added.) Prodromos v. Everen Securities, Inc., 341 Ill. App. 3d 718, 726 (2003). Thus, plaintiffs were required to plead a fiduciary relationship and the failure to do so is fatal to their constructive fraud claim.
¶ 18 Illinois law recognizes two types of fiduciary relationships—fiduciary relationships as a matter of law and fiduciary relationships as a matter of fact. Khan v. BDO Seidman, LLP, 408 Ill. App. 3d 564, 591-92 (2011). A fiduciary relationship as a matter of law arises “from the existence
¶ 19 Illinois law does not recognize a method of imputing a fiduciary duty onto a third party. Instead, there are various causes of action that plaintiffs can bring against nonfiduciaries for their involvement in the unlawful acts of fiduciaries. An aggrieved party may recover where a third party induces a breach of fiduciary duty (see Village of Wheeling v. Stavros, 89 Ill. App. 3d 450, 454 (1980)), where a third party aids and abets the breach of a fiduciary duty (see Praither v. Northbrook Bank & Trust Co., 2021 IL App (1st) 201192, ¶ 48), or where a third party conspires with a fiduciary to breach a fiduciary duty. See Lewis v. Lead Industries Ass‘n, 2020 IL 124107, ¶ 20.
¶ 20 Additionally, to the extent that Shrock argues that a constructive trust creates a fiduciary duty in defendants, that argument is equally unavailing. In equity, a person who commits fraud or a fiduciary who breaches a fiduciary duty and thereby unlawfully obtains the property of another holds that property in a constructive trust for the wronged party. Suttles v. Vogel, 126 Ill. 2d 186, 193 (1988). If a third party takes possession of the property with knowledge that the property was wrongfully obtained, then the third party takes possession subject to the constructive trust. v. Conners” cite=“101 Ill. App. 3d 121” pinpoint=“128” court=“Ill. App. Ct.” date=“1981“>Conway v. Conners, 101 Ill. App. 3d 121, 128 (1981). A constructive trust arises “by operation of law” and exists only “when a court declares the party in possession of wrongfully acquired property as the constructive trustee of that property.” Suttles, 126 Ill. 2d at 193. Because the constructive trust does not exist unless and until the court creates it, a constructive trust does not retroactively create a fiduciary duty where there was not one such that the initial transferal of the property becomes a breach of that duty. Accordingly, because Maggiore did not owe Shrock a fiduciary duty and because Meier‘s fiduciary duty cannot extend to Maggiore through either common law or equitable principles, Shrock cannot state a claim for constructive fraud.
¶ 21 2. Conversion
¶ 22 Plaintiffs next argue that the circuit court erred in dismissing their claim for conversion because they can maintain a claim for conversion even if they did not own the converted property. While Plaintiffs may accurately state the law, they nevertheless failed to state a claim. Conversion occurs when a plaintiff is wrongfully deprived of “an identifiable object of property.” In re Thebus, 108 Ill. 2d 255, 260 (1985). To recover for conversion, a plaintiff must prove “(1) that he or she has a right to the property; (2) that he or she has an absolute and unconditional right to the immediate possession of the property; (3) that he or she made a demand for possession; and (4) that the defendant wrongfully and without authorization assumed control, dominion, or ownership over the property.” Kovac, 2014 IL App (2d) 121100, ¶ 97. Importantly, “[e]very person is liable in trover who personally or by agent commits an act of conversion, or who participates by instigating, aiding, or assisting another, or who benefits by its proceeds in whole or in part.” (Internal quotation marks omitted.) Wright v. Wilson, 179 Ill. App. 630, 636 (1913); see Niemeyer v. Williams, 2008 WL 906051, at *16 (C.D. Ill. Mar. 31, 2008) (same). This rule holds true even
¶ 23 Plaintiffs cannot recover lost money in an action for conversion unless the money is “capable of being described as a specific chattel.” In re Thebus, 108 Ill. 2d at 260. Further, “an action for the conversion of funds may not be maintained to satisfy a mere obligation to pay money.” Id. Therefore, plaintiffs must be able to show “that the money claimed, or its equivalent, at all times belonged to the plaintiff and that the defendant converted it to his own use.” Id. at 261. While “it is not necessary for purposes of identification that money should be specifically earmarked” (id. at 260), there must be some allegation that the money is otherwise identifiable. See 3Com Corp. v. Electronics Recovery Specialists, Inc., 104 F. Supp. 2d 932, 940 (N.D. Ill. 2000).
¶ 24 Shrock‘s claim fails at this threshold inquiry. He did not—and indeed cannot—allege how much of the money that Meier used to pay the divorce settlement, if any, belonged to him; instead, he alleges only that he was entitled to 12.5% of Baby Supermall‘s profits. Thus, Shrock did not have legal claim to all of the money used to pay the divorce settlement; Meier was entitled to the other 87.5% of Baby Supermall‘s profits. Although the amount of money owed Meier owed to Shrock may be identifiable, that money “had no characteristics distinguishing it from the rest of the operating funds of” Baby Supermall. Kovac, 2014 IL App (2d) 121100, ¶ 100. Once Meier comingled the funds that were lawfully his with the money unlawfully obtained and used those
¶ 25 However, Shrock also brought a derivative lawsuit on behalf of Baby Supermall. Baby Supermall‘s lawsuit does not suffer the same deficiency as Shrock‘s. The complaint alleges that “Martha received at least $2.8 million, all of which was paid directly from Meier‘s ‘profit sharing’ schemes either directly to Martha from BSM‘s bank account, or from BSM after passing through Meier‘s bank account and in violation of the Operating Agreement, LLC Act, injunction, and/or Meier‘s fiduciary obligations to BSM and Shrock.” The allegation that all of the money belonged to Baby Supermall is sufficient at the motion to dismiss stage to show that the money was specific and identifiable property. See Steines v. Menrisky, 2017 WL 2243097, at *5 (N.D. Ill. May 23, 2017) (“[B]ecause the funds in question would have come directly from Simplesoft‘s corporate treasury, Simplesoft did have an allegedly absolute and unconditional right to them.” (Emphasis in original.)).
¶ 26 Nevertheless, the derivative lawsuit fails because plaintiffs did not allege that anyone ever made a pre-lawsuit demand for Maggiore to return the money. While Shrock repeatedly demanded that Meier pay him the 12.5% profits that he was owed, Shrock did not allege that he, or anyone else representing him or Baby Supermall, ever demanded that Maggiore return the money to him or Baby Supermall. Illinois appellate courts have repeatedly held that a pre-lawsuit demand for the allegedly converted property is necessary to sustain a claim. See Rybak v. Dressler, 178 Ill. App. 3d 569, 588 (1988) (affirming the dismissal of a conversion claim where “defendants utterly failed to plead or prove an essential element of such a cause: a demand for possession of the funds allegedly converted by Rybak); 655” pinpoint=“664-65” court=“Ill. App. Ct.” date=“1985“>A.T. Kearney, Inc., v. INCA International, Inc., 132 Ill. App. 3d 655, 664-65 (1985) (“[A]n action for conversion under these circumstances must include a demand for possession or it cannot be said that there has been a deprivation.“); Hoffman v. Allstate Insurance Co., 85 Ill. App. 3d 631, 633-34 (1980) (same).
¶ 27 There is an exception to this requirement where ”the defendant has sold or otherwise disposed of the property in question and thus no longer has possession thereof.” (Emphasis added). A.T. Kearney, Inc., 132 Ill. App. 3d at 664 (citing Monroe County Water Cooperative v. City of Waterloo, 107 Ill. App. 3d 477, 481 (1982)). However, the complaint contains no allegations regarding whether Maggiore did anything with the funds that she received. Therefore, Shrock‘s derivative lawsuit fails because Baby Supermall did not demand that Maggiore return the unlawfully obtained money.
¶ 28 C. Directed Verdict Order
¶ 29 At the close of plaintiffs’ evidence, the circuit court granted defendants’ motion for a directed verdict on the claim of aiding and abetting a breach of fiduciary duty.
¶ 30 Aiding and abetting the breach of a fiduciary duty has three elements. To survive at the first step, plaintiffs must provide some evidence that “(1) [Meier] performed a wrongful act causing injury, (2) [defendants were] aware of [their] role in [the] misconduct at the time [they] provided assistance to him, and (3) [defendants] knowingly and substantially assisted [Meier] in the violation.” Praither, 2021 IL App (1st) 201192, ¶ 48. Plaintiffs failed to do so here. Notably, plaintiffs do not even cite the elements of aiding and abetting let alone point to any evidence relevant to those elements in their argument for reversing the circuit court‘s entry of a directed verdict. It is the role of the parties, not the court, ” ‘to frame the issues for decision.’ ” People v. Givens, 237 Ill. 2d 311, 323 (2010) (quoting Greenlaw v. United States, 554 U.S. 237, 243 (2008)). Accordingly, we will not “search the record for unargued and unbriefed reasons to reverse a trial court judgment.” Saldana v. Wirtz Cartage Co., 74 Ill. 2d 379, 386 (1978). Plaintiffs’ failure to raise any facts in support of their argument presumably means there are no such supporting facts to be found.
¶ 31 What‘s more, plaintiffs failed to provide a trial transcript on appeal, without which this court cannot determine what evidence was presented below. Thus, even if plaintiffs’ failure to adequately frame the issues on appeal could be excused, there is no way for this court to independently determine whether the trial court erred. The burden to provide a complete record rests with plaintiffs, and “[a]ny doubts which may arise from the incompleteness of the record will
¶ 32 D. Jury Demand
¶ 33 Plaintiffs further argue that the circuit court erred in striking their demand for a jury trial because aiding and abetting is an intentional tort that is independent of the underlying breach of fiduciary duty claim. The Illinois Constitution provides the right to a jury trial “in all cases where such right existed at common law at the time the constitution was adopted.” (Internal quotation marks omitted.) Martin v. Heinhold Commodities, Inc., 163 Ill. 2d 33, 72-73 (1994). “There was then and there is now no constitutional right of trial by jury in equity.” Lazarus v. Village of Northbrook, 31 Ill. 2d 146, 148 (1964). The parties agree that resolving whether plaintiffs were entitled to a jury trial turns on whether aiding and abetting the breach of a fiduciary duty is a legal claim or an equitable claim.1 This is a legal question that we review de novo. Prodromos v. Everen Securities, Inc., 389 Ill. App. 3d 157, 174 (2009) (citing Bank One, N.A. v. Borse, 351 Ill. App. 3d 482, 487-88 (2004)).
¶ 34 A breach of a fiduciary duty claim traditionally sounds in equity. See Kinzer ex rel. City of Chicago v. City of Chicago, 128 Ill. 2d 437, 445 (1989); see also Bank One, 351 Ill. App 3d at 488 (collecting cases). Although, as in the case of Shrock‘s suit against Meier, Illinois courts have
permitted the recovery of damages, “this modern trend was not the law at the time that the Illinois
¶ 35 Logically, it follows that a suit for aiding and abetting the breach of a fiduciary duty must also be equitable in nature. “[C]laims for civil conspiracy and aiding and abetting are not independent torts, i.e., they both require underlying conduct that is tortious.” Chadha v. North Park Elementary School Association, 2018 IL App (1st) 171958, ¶ 58. Thus, because the existence of a claim for aiding and abetting is dependent on the existence of an underlying unlawful act, an aiding and abetting claim‘s characterization as a legal or equitable claim is also dependent on the character of the underlying act. It would be anomalous to recognize a plaintiff‘s right to a jury when he sues a person for assisting a fiduciary in breaching a duty to the plaintiff but to deny the plaintiff the same right when he sues the fiduciary. The better rule is to say that the nature of the underlying action and the nature of the aiding and abetting claim are the same. That is, “[i]f the underlying action is equitable in nature, a claim of aiding and abetting that underlying cause of action must also be equitable.” Damage Recovery Systems, Inc. v. Tucker, 2005 WL 388597, *2 (Dist. Del. Feb. 2, 2005). Here, because Meier‘s breach of a fiduciary duty was equitable in nature, plaintiffs’ claim that defendants aided and abetted that breach is also equitable.
¶ 36 Moreover, while Illinois courts have recognized claims civil aiding and abetting for many years, no Illinois appellate court recognized aiding and abetting the breach of a fiduciary duty as a cause of action until 2003 (Thornwood, Inc. v. Jenner & Block, 344 Ill. App. 3d 15, 28-29 (2003)), well after the “time the constitution was adopted.” Heinhold Commodities, 163 Ill. 2d at 73-74. Thornwood provides strong evidence that there was no such claim, let alone the right to a jury trial
¶ 37 E. Leave to Amend
¶ 38 Finally, plaintiffs argue that they should have been given a fourth opportunity to amend their complaint because leave to amend should be liberally allowed and defendants would not have been prejudiced by any amendment to the pleadings. Circuit courts are given broad discretion in determining whether to allow plaintiffs an opportunity to amend their pleadings; thus, “this court will not find that denial of a motion to amend is prejudicial error unless there has been a manifest abuse of such discretion.” Loyola Academy v. S&S Roof Maintenance, 146 Ill. 2d 263, 273-74 (1992). Nevertheless, the circuit court must exercise its discretion consistent with the principle that leave to amend pleadings prior to a final judgment should be liberally allowed. See Romito v. City of Chicago, 2019 IL App (1st) 181152, ¶ 27. “[J]udicial discretion must be exercised within the bounds of the law [citation], and any question regarding the proper exercise thereof is always subject to our review [citation].” People v. Brockman, 143 Ill. 2d 351, 363 (1991). Accordingly, to determine whether the circuit court abused its discretion in ruling on a motion seeking leave to amend we consider four factors: “(1) whether the proposed amendment would cure the defective pleading; (2) whether other parties would sustain prejudice or surprise by virtue of the proposed amendment; (3) whether the proposed amendment is timely; and (4) whether previous opportunities to amend the pleading could be identified.” Loyola Academy, 146 Ill. 2d at 273.
¶ 39 Defendants argue that the lack of a record of the circuit court‘s ruling requires this court to affirm, as it prevents this court from reviewing the circuit court‘s reasoning. However, defendants misapprehend our role in reviewing the circuit court‘s denial of leave to amend. The Illinois
¶ 40 Regardless, the Loyola factors are not met here, and they do not otherwise weigh heavily enough in favor of granting leave to amend to conclude that the circuit court abused its discretion in denying leave to amend. Reframing the claims in the complaint as civil conspiracies and adding additional claims prejudices defendants by requiring them to provide different, additional evidence to refute those claims. See Cook ex rel. Cook v. AAA Life Insurance Co., 2014 IL App (1st) 123700, ¶ 43. For instance, Robert Meier passed away in 2021. His testimony was not relevant to the fraud claim but would have been very relevant to a conspiracy to commit fraud claim. Had plaintiffs sought to amend their complaint in 2019, when their claims were dismissed, rather than 2022, defendants would have had the opportunity to depose Meier prior to his death. Thus, the proposed
¶ 41 III. CONCLUSION
¶ 42 The judgment of the circuit court of Cook County is affirmed.
¶ 43 Affirmed.
Decision Under Review: Appeal from the Circuit Court of Cook County, No. 16 L 11407; the Hon. John J. Curry, Jr., Judge, presiding.
Attorney for Appellants: John S. Xydakis, of Law Office of John S. Xydakis, of Chicago, for appellants.
Attorneys for Appellees: Blair Zanzig & John F. Hiltz, of Hiltz Zanzig & Heiligman LLC, of Chicago, for appellee Martha Meier; Rebecca M. Rothmann & John Cerney, of Wilson Elser Moskowitz Edelman & Dicker LLP, of Chicago, for appellees Law Offices of Jean Conde & Jean Conde.