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Peo., Baylor v. Multi-state Inter-ins. Exch.

JUNE 13, 1973.

THE PEOPLE EX REL. JAMES BAYLOR, DIRECTOR OF THE DEPARTMENT OF INSURANCE, PETITIONER-APPELLANT, CROSS-APPELLEE,

v.

MULTI-STATE INTER-INSURANCE EXCHANGE, RESPONDENT-APPELLEE, CROSS-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. FRANCIS T. DELANEY, Judge, presiding.

MR. JUSTICE DIERINGER DELIVERED THE OPINION OF THE COURT:

Rehearing denied July 18, 1973.

This is an appeal from a judgment of the Circuit Court of Cook County by the Director of Insurance as Liquidator of Multi-State Inter-Insurance Exchange, and a cross-appeal by Leonard Groupe, the collector of assessments from the policyholders of Multi-State Inter-Insurance Exchange.

The issues on appeal are whether the chancellor erred in awarding an additional $200,194 in quantum meruit fees to Groupe, a lawyer, because the repeal of section 207 of the Insurance Code on August 7, 1969, rendered further performance impossible under the July 19, 1967, employment agreement, and whether the additional award was improper because Groupe had been discharged under a new contract of August 19, 1969, which had been substituted for the July 19, 1967, agreement; whether the chancellor erred in finding that Groupe was discharged "for reasons that would not deny him the right to compensation"; whether the chancellor erred in awarding fees which were not fixed by the Liquidator; whether the chancellor erred by failing to weigh all of the evidence adduced; whether the chancellor abused his discretion by not reducing the amount of fees already paid by $50,000; and whether the chancellor erred by awarding fees in quantum meruit of $41,545 on 1187 cases in which judgments were obtained before August 7, 1969, without crediting the estate with $34,018.27 previously paid, and in awarding fees in quantum meruit of $44,205 on 1263 cases where settlement contracts were obtained without crediting the estate with $35,759.72 previously paid on those same cases pursuant to the contingent fee contract.

On cross-appeal the issues are whether the chancellor's award of $12,509.97 to the Director of Insurance was contrary to the manifest weight of the evidence and inconsistent with the findings contained in the degree, and whether the court erred by failing to enter an order assessing reasonable expenses and attorney's fees against the Liquidator for making statements which he knew to be untrue pursuant to section 41 of the Civil Practice Act.

On September 11, 1964, the Circuit Court of Cook County entered an order dissolving Multi-State Inter-Insurance Exchange and instructing the Director of Insurance to take possession of all its property and business affairs for the purpose of liquidating it for the benefit of the creditors and the policyholders in accordance with article XIII of the Illinois Insurance Code. (Ill. Rev. Stat., ch. 73, § 799 et seq.) Multi-State Inter-Insurance Exchange was an insurance reciprocal, which meant its policies provided that policyholders could be assessed an amount equal to their original premium; and prior to August 7, 1969, section 207 of the Illinois Insurance Code authorized the Liquidator to levy such assessments.

In 1967, Leonard Groupe, a licensed Illinois attorney, was employed by the Director of Insurance on a contingent fee basis to collect assessments from the policyholders of Multi-State pursuant to a letter of agreement dated July 19, 1967. This agreement provided that Groupe receive 25% of the amount collected without a suit, 33 1/3% of the amount collected by a suit, and 50% of the amount collected where the policyholder did not reside at the address shown on the company's records. In addition, he was to pay all expenses other than court costs incurred for filing and processing the claims. There were approximately 35,000 claims for collection. From September 5, 1967, until his termination in January of 1970, Groupe testified he collected a total amount of $1,062,927.45 and was paid $379,908.30 as fees pursuant to the letter of agreement.

On August 7, 1969, section 207 of the Insurance Code (Ill. Rev. Stat., ch. 73 § 819) was repealed by the Illinois General Assembly, and on August 19, 1969, Albert Verb, Special Deputy in charge of the Bureau of Liquidation, advised Groupe the Liquidator's instructions were to cease collections of assessments on insurance policies in view of the repeal of section 207. He specifically instructed Groupe he was to make no more collections against Multi-State policyholders unless there was a valid judgment entered before August 7, 1969. Groupe protested these instructions, but in a letter to Verb, dated August 21, 1969, he agreed to comply with the directives.

Groupe testified at the time of receiving the directive there were approximately 151 files in the office of the Chief Justice of the municipal division of the Circuit Court of Cook County awaiting entry of judgment. He said he went to the offices of the Chief Justice, informed him of the instructions, and presented some law with regard to whether the estate was entitled to have these judgments entered nunc pro tunc as of the date of default. The Chief Justice concluded it was proper to enter the judgments. After Verb advised Groupe the Liquidator considered these collections to be in violation of his instructions, Groupe refunded the collections and his fees.

Mr. Verb testified around December 18, 1969, he contacted Groupe and told him a Tribune reporter had been in to see him with a long list of Multi-State assessments where the people had paid money to Groupe without judgments entered against them. Verb said he retained the auditing firm of Peat, Marwick, Mitchell & Co., Certified Public Accountants, to perform an audit. Groupe reviewed his records and furnished to the Bureau a list of approximately 682 collections on which fictitious judgment dates were shown and on which there were no judgments entered prior to August 7, 1969. On the basis of these reports the Bureau made refunds to policyholders of $45,278.70 and found that $16,400.72 was due the Bureau for Groupe's fees of which Groupe repaid all but $6,037.97.

When asked how these matters occurred, Groupe stated one of his employees, Daniel Locke, was responsible. Locke testifid he was told by Edward Kennedy, Groupe's office manager, if a return date was prior to August 7, 1969, he should assume this was a judgment date and record it as such. He testified further he had gone to the Chicago Tribune because he believed the collections to be improper and was afraid because he had a criminal record, he would be blamed for it: "I wanted the opinion of an unbiased party, namely, the Chicago Tribune."

Groupe testified he had never instructed Locke to submit false judgment dates to the Bureau of Liquidations and did not discover what Locke had been doing until after he had resigned in December of 1969. Kennedy testified Locke told him he was afraid he would lose his job if collections were only made on judgments entered before August 7, 1969. Groupe and Kennedy testified Locke was asked to come back to work for a period of time in December to help straighten out the matter.

Verb stated that in December when the story first broke about the improper collections, the Bureau of Liquidations was swamped with calls, and Verb sent Groupe a bill of $2,000 for office expenses and a bill for $4,472 charged by the auditors. On January 26, 1970, Verb wrote a letter to Groupe terminating his employment "In view of the experience of the past thirty days."

The Director of Insurance sought a judgment against Leonard Groupe for the following items: the sum of $6,037.87 for fees retained by Groupe for the collection of assessments from 682 policyholders which were refunded when it was ascertained that fictitious judgment dates had been entered; the sum of $4,472 charged by Peat, Marwick, Mitchell & Co. in auditing the records of Groupe for the Liquidator to determine the number of assessments which were collected by Groupe in violation of his instruction; and the sum of $2,000 as office expenses incurred in making the refunds to 682 policyholders. The Liquidator later amended his petition seeking an order requiring Groupe to refund ...


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