Fifth District affirms Stobbs in breach of fiduciary case

Justices in the Fifth District Appellate Court of Illinois have affirmed Madison County Associate Judge Stephen Stobbs’ decision to deny a jury trial and award the plaintiff more than $420,000 in a breach of fiduciary duty lawsuit.

Justice Stephen Spomer delivered the judgment of the court. Justices Bruce Stewart and James Wexssten concurred.

According to the Supreme Court Rule 23 decision filed Nov. 28, Stobbs did not err when he ruled that defendant Abstracts & Titles Inc. failed to abide by escrow instructions and was not entitled to a jury trial in a breach of fiduciary duty complaint. The justices also upheld the circuit court’s calculation to determine damages, saying it “was not against the manifest weight of the evidence and was not an abuse of discretion.”

Home Federal Savings & Loan Association filed a 20-count amended complaint on Jan. 28, 2009, accusing defendant Abstracts & Titles of breach of contract for its failure to disburse proceeds of loans made by Home Federal to Prime Development Inc (PDI), in order to construct homes on 10 lots in Madison County.

The plaintiff added count XXI to its complaint on Nov. 10, 2010, claiming breach of fiduciary duty for the defendants’ failure to abide by escrow instructions.

Home Federal then voluntarily dismissed counts I through XX in May 2011, leaving only count XXI for breach of fiduciary duty. It also filed a motion to dismiss the defendant’s jury demand, arguing that a breach of fiduciary duty “is purely equitable, and as such, Abstracts & Titles was not entitled to a jury trial.” The circuit court granted the motion to strike on March 20, 2012.

By August 2012, a bench trial was held regarding the breach of fiduciary duty claim. In an October 2012 order, the defendant was required to “verify the completion of work related to each of PDI’s periodic pay requests, by obtaining signed contractor affidavits, and inspecting the work, before disbursing Home Federal’s loan proceeds to PDI. Abstracts & Titles was also required to retain 10 percent of the amount requested to be released following the conclusion of the project.

However, the defendant did not fulfill the obligations ordered in the judgment.

“Abstracts & Titles did not retain the required 10 percent from each pay request and disbursed funds to PDI even though it knew that the amount of loan proceeds remaining after disbursement would be insufficient to complete the projects,” Spomer wrote.

Abstracts & Titles argued that it was not liable because it “tacitly modified” or amended the escrow agreements, but Stobbs disagreed, saying the evidence was not credible.

“The circuit court found that because Abstracts & Titles failed in its responsibility to Home Federal to ensure that the homes were completed to the extent represented by PDI in their periodic pay requests and affidavits, Abstracts & Titles was liable to Home Federal for any resulting damages caused by its breach,” Spomer wrote.

The court also found that the defendant did not guarantee the sale or price of the homes, thus it rejected the plaintiff’s damages calculation. It found that the proper calculation was to “determine the amount the defendant overpaid PDI compared to the status of the construction of the homes.”

Using this calculation, the circuit court awarded Home Federal $423,812.30.

On Nov. 5, 2012, Abstracts & Titles filed a motion for relief from judgment and a notice of appeal. Leave for appeal was granted in December 2012 before a ruling was entered on the motion. Home Federal filed its cross-appeal on Jan. 8, 2013.

Spomer wrote that Abstracts & Titles argued that because the breach of fiduciary duty claims were actually breach of contract claims, it was entitled to a jury trial. However, Spomer found that Illinois law on the subject is unclear.

“Based on our reading of the foregoing Illinois Supreme Court precedent, it is unclear whether a breach of fiduciary duty claim, seeking money damages based on the failure of an escrowee to follow the escrow contract, is an equitable claim to which the right to a jury trial does not attach,” Spomer wrote.

Ultimately, the justices chose to affirm the circuit court’s order granting Home Federal’s motion to strike.

Spomer wrote that the appellate court also agreed with the circuit court regarding its “finding that Abstracts & Titles’ breach of fiduciary duty to act only according to the terms of the escrow instructions was a proximate cause of Home Federal’s damages,” which the defendant appealed.

The defendants claimed finding of proximate cause was “against the manifest weight of the evidence because the actual proximate cause of Home Federal’s loss was that the loan amounts were insufficient to complete the homes from the start.”

However, the circuit court found that regardless of the housing market and escrow agreement, the defense still failed to produce contractor affidavits and inspect the work as required. Therefore, the homes were not completed as agreed.

Focusing on Home Federal’s cross-appeal, Spomer wrote that the circuit court did not err in its method of calculating damages.

“Here, the circuit court took great care to fashion a money damages calculation that held Abstracts & Titles responsible for the losses occasioned by its acts, without holding them to the standard of a guarantor of the ultimate sale price of the homes or the status of the housing market,” Spomer wrote.

Lastly, the justices found no abuse in discretion when the circuit court chose not to address Home Federal’s request for prejudgment interest.

Because Home Federal failed to request prejudgment interest, Spomer held that “a reasonable person in the circuit court’s position could find that Home Federal had abandoned its request for prejudgment interest based on its written closing argument and proposed findings.”