Retiring judge puts action into old class actions

Steve Korris Jan. 6, 2011, 4:14am


Former Madison County Circuit Judge Daniel Stack put the action back into class actions on his way out, certifying three in a single day for three teams of lawyers.

On Nov. 29, he appointed LakinChapman of Wood River as class counsel on a claim that St. Paul Fire and Marine Insurance and Met Life Auto and Home improperly reduced payments on medical bills.

He appointed Lucco, Brown, Threlkeld and Dawson of Edwardsville and Motley Rice of Mount Pleasant, S.C., as class counsel on a claim that bankers, lawyers and auditors failed to protect investors in nursing homes.

He appointed Carey and Danis of Clayton, Mo., and Klamann Law Firm of Kansas City as class counsel on a claim that Sanford Brown Colleges misled students about the value of its courses.

Stack bequeathed the actions to his successor, Circuit Judge William Mudge, who recuse himself in the nursing home suit.

The nursing home suit started in 2001, with no connection at all to Madison County.

Buyers of bonds for seven nursing homes in Michigan, Indiana and Wisconsin filed it after developer Reynolds Banks of Chicago defaulted.

The bond buyers sought damages from Banks and businesses he controlled.

They sought further damages from Wells Fargo Bank as successor to a bank that acted as indenture trustee in six bond issues.

They sued Fifth Third Bank as successor to the trustee in the seventh bond issue.

They sued bond counsel Gilmore and Bell, and they sued auditor Blue and Company.

Against all defendants they alleged Illinois Securities Act violations, conspiracy, fraudulent misrepresentation, fraudulent concealment, and negligence or recklessness.

Banks and his businesses declared bankruptcy, escaping the litigation.

Investors moved for class certification, and defendants moved for summary judgment.

Stack held a two day hearing on the motions in 2008, plus a third day in 2009.

On his final Monday at the courthouse, he ruled on both motions and conceded they had remained under advisement for too long.

He granted summary judgment to Wells Fargo, Fifth Third, Gilmore and Bell, and Blue and Company on all counts but negligence or recklessness.

Stack ruled that the Illinois Securities Act didn't apply because defendants played no role in marketing, offering or selling the bonds.

He wrote that plaintiffs didn't provide sufficient evidence of conspiracy.

On fraudulent misrepresentation, he wrote that "aider and abettor liability without sufficient evidence on causation has been abolished."

"Plaintiffs conceded in their deposition testimony that they did not read the bond prospectus before purchasing the bonds," Stack wrote.

He wrote that defendants made no representations directly to plaintiffs.

On fraudulent concealment, he wrote that the banks were under no duty to disclose information unless it was expressly stated in the indenture agreement.

"The indenture agreement does not state that Wells Fargo and Fifth Third owe a duty to investigate or report to plaintiffs," he wrote.

"Plaintiffs testified in their depositions that they were not aware of Wells Fargo and Fifth Third's involvement in the bond offering."

He found no fiduciary or confidential relationship between plaintiffs and Gilmore and Bell or Blue and Company.

He denied summary judgment on negligence or recklessness, finding that "at least some of the bond offerings might not have been permitted had these defendants properly performed all of their duties under the indentured trustee contract."

Then, in a separate order, he certified Al Kellerman, Lillard Hedden and Frank Crabtree to represent hundreds of bond buyers in a class action.

"This was a classic Ponzi scheme, whereby each new series of bonds was used to make payments on the previous series, until all the bonds finally defaulted," Stack wrote.

He wrote that more than $40 million was dissipated and untraceable.

He wrote that "the only rational way to proceed is to concentrate the class claims in a single action, rather than have numerous separate trials on the same issue based on the same evidence."

In the suit against St. Paul and Met Life, Stack certified local chiropractor Lawrence Shipley as class representative alleging breach of contract on hundreds of thousands of payments in 15 states dating back to 1993.

Shipley contends that insurers must pay the billed amount in the absence of evidence of fraud or bad faith.

"If the contract were construed as plaintiff proposes, that would not only resolve a central issue, but would also establish a right of recovery for the class," Stack wrote.

"However, resolution of these issues is a merits issue which the court should not prejudge at the class certification stage.

"Ultimately, plaintiffs proffer that the issue of damages should be susceptible to a formulaic resolution based on actual billed charges, or to expert damage calculation based on a statistical analysis.

"In the unlikely event that these solutions prove unmanageable, the court would also have the power to resolve the liability issues and consider a claims process, or even decertification of the class to permit class members to pursue their individual damage claims in small claims court."

The class includes insured persons and medical providers in Alabama, Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Louisiana, Missouri, North Carolina, Ohio, South Carolina, Tennessee and Wisconsin.

Stack excluded from the class persons who settled claims through similar litigation in King County, Wash.

In the suit against Sanford Brown Colleges, he certified Jenna Lilley and Jessica Lilley to represent more than 2,000 students in the medical assistant program at Collinsville.

Their lawyer, John Carey, said at a hearing that the school gave his clients "a worthless piece of paper."

Stack found common questions of fact and law under the Illinois Private Business and Vocational Schools Act, but dismissed fraud claims.

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Wells Fargo
402 Montgomery Street
San Francisco, CA 94104

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