APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
535 N.E.2d 59, 179 Ill. App. 3d 876, 128 Ill. Dec. 845 1989.IL.237
Appeal from the Circuit Court of Lake County; the Hon. Stephen E. Walter, Judge, presiding.
JUSTICE DUNN delivered the opinion of the court. McLAREN and WOODWARD, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE DUNN
The Illinois Attorney General instituted an action on behalf of the People of the State of Illinois against Great America Homes of Illinois, Inc. , Ameriwest Mortgage Corporation (Ameriwest), Thomas McManus, and two other defendants alleging violations of the Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1987, ch. 121 1/2, par. 261 et seq.) and the Uniform Deceptive Trade Practices Act (Ill. Rev. Stat. 1987, ch. 121 1/2, par. 311 et seq.). The trial court appointed a receiver to administer defendants' assets and entered a preliminary injunction against defendants. The defendants named above later executed a consent decree in which they agreed to entry of judgment in favor of plaintiff. The trial court denied the motion of defendants GAH, Ameriwest, and McManus for payment of their attorney fees from the receivership assets. On appeal, defendants contend that the trial court's order denied them due process of law and that the trial court erroneously focused on defendants' lack of good faith in dealing with their customers rather than considering whether defendants acted in good faith in presenting their defense to the action. We affirm.
Plaintiff's complaint alleged, inter alia, as follows. Thomas McManus was the president of GAH and Ameriwest. GAH engaged in the business of developing and selling real estate. Ameriwest engaged in the business of making and negotiating home mortgage loans. Commencing on or about April 1, 1987, GAH solicited and offered for sale certain real estate in subdivisions known as Evergreen and Casidas in Warren Township. At the same time, Ameriwest solicited and accepted applications for mortgages for residences to be built in these subdivisions. McManus and the two corporate defendants falsely represented to consumers that they held title to certain lots in the above subdivisions, had the financial resources to construct single-family residences on the lots, and intended to build such residences. They also falsely represented that earnest money paid by consumers would be kept in a segregated escrow account and applied as a down payment toward the purchase of a home.
In the consent decree, defendants admitted that if a hearing were held regarding the issuance of a permanent injunction, the evidence would be the same as that presented at the prior hearing for a preliminary injunction. Defendants consented to the entry of judgment against them in the amount of $631,424.99 and to the issuance of a permanent injunction restraining them from engaging in certain activities.
On the same day that the consent decree was entered, defendants' attorneys presented a petition to the trial court requesting that $48,282.75 in attorney fees be paid to them from the funds held by the court-appointed receiver. The trial Judge denied the petition on the basis that the defense of the instant action was not undertaken in good faith by the corporate defendants. In making this finding, the trial Judge relied upon the consent decree and the stipulation of the parties contained therein; the testimony presented at the hearing on plaintiff's request for a preliminary injunction, and appointment of a receiver; and a criminal conviction against defendant McManus, of which the court took judicial notice. Defendants filed a timely notice of appeal from the denial of the petition for payment of attorney fees.
"It is well established that as a general rule where an application has been made for the appointment of a receiver for a corporation, attorney fees and expenses, if incurred in good faith, may become a valid claim against the receiver, such claim being addressed to the sound discretion of the trial court." (Schacht, 114 Ill. App. 3d at 338, 448 N.E.2d at 953.)
Our supreme court has cited the above language with approval. (See W.E. Erickson Construction, Inc. v. Congress-Kenilworth Corp. (1986), 115 Ill. 2d 119, 131, 503 N.E.2d 233, 239.) Much earlier, our supreme court stated that in cases of this nature, representatives of a corporation whose existence is attacked should be afforded reasonable means of defending the corporation if the circumstances justify resistance, but that receivership assets should not be wasted on needless and vexatious litigation in light of the trial court's duty to preserve those assets to as great an extent as possible. Assets Realization Co. v. Defrees, Brace & Ritter (1907), 225 Ill. 508, 513, 80 N.E. 263, 265.
Defendants do not challenge the general rule set forth in Schacht. Instead, they assert that the trial court misapplied the rule by focusing on defendants' lack of good faith in their dealings with consumers rather than the question of whether the corporations presented their defense in good faith and that they were denied due process as a result of this misapplication of the general rule. Apparently, the defense presented is that defendants did own some of the land in question and did undertake some home construction, indicating that they did not intend to defraud their customers.
It is clear from the record that the trial Judge believed that defendants' attorneys had acted in good faith. In cases of this nature, however, the right of the attorneys to recover their fees from the receivership assets is dependent upon the good faith of the corporate directors or officers employing them. (Schacht, 114 Ill. App. 3d at 343, 448 N.E.2d at 956.) The trial Judge's belief that the attorneys had acted in good faith is therefore not inconsistent with his denial of their motion for payment of fees from the receivership assets.
While issuing his ruling, the trial Judge stated that he had heard nearly three weeks of testimony at the hearing on plaintiff's application for a preliminary injunction and the ...