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Beale v. Edgemark Financial Corp.

June 30, 1998


The opinion of the court was delivered by: Justice Gordon



William B. Blanchard, petitioner, appeals from the denial of his petition for sanctions, fees and costs against EdgeMark Financial Corporation (EdgeMark), the respondent, for failure to comply with a discovery order. The trial court denied Blanchard's petition for sanctions and in its order specifically declined to make any findings regarding one of Blanchard's allegations that EdgeMark violated Rule 4.2 of the Illinois Code of Professional Conduct (134 Ill. 2d R. 4.2), stating that it had no jurisdiction or authority to investigate or decide that claim. Petitioner Joseph S. Beale is not party to this appeal having executed a settlement agreement and release of all of his claims against EdgeMark prior to the filing of the motion for sanctions. Beale was never dismissed as a party to this action. For the reasons discussed below, we affirm.


The discovery order upon which the instant appeal is premised was rendered pursuant to Beale's action against EdgeMark seeking pre-suit discovery under Supreme Court Rule 224 (134 Ill. 2d R. 224). Beale, a former shareholder of EdgeMark and the sole Rule 224 petitioner, sought, inter alia, the discovery of information EdgeMark provided to the National Association of Securities Dealers, Inc. (NASD) pursuant to a NASD letter dated December 14, 1993. Beale alleged that the NASD letter listed 36 individuals or married couples and asked EdgeMark to identify whether any of those individuals had relationships with any EdgeMark officer, director or representative which would make them privy to information regarding the acquisition of Edgemark common stock by Old Kent Financial Corporation. On June 4, 1994, the trial court granted Beale's petition and ordered EdgeMark to turn over its response to that NASD inquiry. EdgeMark refused and appealed from that order. This court affirmed the trial court on March 29, 1996 (Beale v. EdgeMark Financial Corp., 279 Ill. App. 3d 242, 664 N.E.2d 302 (1996)); and the Illinois Supreme Court denied leave to appeal on October 2, 1996 (Beale v. EdgeMark Financial Corp., 168 Ill. 2d 582, 671 N.E.2d 726 (1996)).

On October 7, 1996, before the appellate mandate was issued, Beale's counsel, Reuben L. Hedlund, requested by letter that EdgeMark comply with the trial court's June 4, 1994 discovery order. EdgeMark did not produce the requested material; and on November 7, 1996, Beale, through Attorney Hedlund, filed a motion for immediate enforcement. On November 18, 1996, at the hearing on that motion, EdgeMark produced a copy of a settlement agreement and release executed by Beale on June 12, 1996 in which Beale released all of his claims against EdgeMark. The trial court ordered that EdgeMark file a written response to Beale's motion. On December 9, 1996, EdgeMark filed its memorandum in opposition to Beale's motion for immediate enforcement. In that memorandum, EdgeMark alleged that Beale and Old Kent State Bank, EdgeMark's corporate successor, executed a settlement agreement and general release on June 12, 1996. EdgeMark alleged that negotiations for that settlement and release were initiated by Paul Carroll, Beale's attorney in an action in which Beale was being sued by Merchandise National Bank, a wholly-owned subsidiary of EdgeMark, for default on a loan. EdgeMark argued that Beale could not seek enforcement of the June 4, 1994 discovery order because in the settlement agreement Beale expressly released "all 'rights, claims, or causes of action which were or which could have been the subject of' [Beale's] petition in this litigation."

Attached to EdgeMark's memorandum to the enforcement motion was a copy of the Settlement Agreement and General Releases and a copy of the affidavit of Daniel R. Gravelyn, counsel for Old Kent State Bank, the successor to EdgeMark and Merchandise National Bank of Chicago. The original of that affidavit had been submitted in a pending federal class action lawsuit originally filed by Beale, as class representative, against EdgeMark alleging securities fraud in violation of federal securities laws. *fn1 In his affidavit, Gravelyn recounted the details of the settlement negotiations between Carroll and himself which he stated were initiated by Carroll. He also stated that it was his belief that Hedlund, Beale's counsel in the Rule 224 state action and the federal class action, was aware of the pendency of the settlement negotiations. In that regard Gravelyn averred:

"12. At the time I was negotiating the settlement agreement with Attorney Carroll, I believed that Attorney Hedlund was aware of the pendency of the settlement negotiations. ***[D]uring my negotiations with Attorney Carroll, Attorney Carroll told me that, in view of Beale's impending settlement, Attorney Hedlund wished for me to call him to discuss the settlement of the other claims in the class action lawsuit. *** Attorney Carroll subsequently called me with a message from Attorney Hedlund that, in view of Beale's impending settlement, Hedlund's settlement demands would be 'drastically reduced.' Unfortunately, by the time I received this message, Attorney Hedlund was preparing to depart for Italy and there was, in my judgment, insufficient time to conclude settlement discussions with him before he left. ***(I did call Attorney Hedlund on the day I understood he had returned and, at that time, he made no objection to the Beale settlement, no charges of ethical violations and no request for any concessions). Third, Attorney Carroll showed on a transmittal letter to me of June 11, 1996 that a copy of the proposed settlement agreement had been sent to Attorney Hedlund. Fourth, Attorney Carroll indicated to me during settlement Discussions that he was communicating with Attorney Hedlund's office.


14. Unless Attorney Carroll deceived me, Attorney Hedlund was aware of the pendency of the settlement negotiations, did not object to them, and elected not to participate in them.

On December 23, 1996, Blanchard moved the court to add him as a petitioner in the Rule 224 action. In that motion, Blanchard referred to the language in Beale's settlement agreement which allowed for the substitution of Beale in his Rule 224 pre-suit discovery action pending in the state court. The motion quoted the relevant language which provided that Old Kent/EdgeMark "agree[] to allow counsel for Beale in the State Court Litigation to seek a substitute plaintiff for Beale. OKB [Old Kent Bank] reserves the right to challenge the substitution." Also on December 23, 1996, Beale, through Attorney Hedlund, filed a reply to EdgeMark's memorandum. That reply argued that the enforceability of the June 4, 1994 order was not impaired by the settlement agreement because that agreement had not been properly filed with the court. The reply also argued that the June 4, 1994 order should be enforced because Blanchard, if added as an additional petitioner, would have standing to seek enforcement. Finally, the reply argued that the settlement agreement should not be given effect since it was obtained in violation of the Rules of Professional Conduct. *fn2 Hearing on these pleadings was set for March 19, 1997.

At the hearing on March 19, 1997, the attorneys of record for EdgeMark in the Rule 224 proceedings did not appear. Hedlund advised the court that on March 18, 1997 he had received from EdgeMark the document that was the subject of the June 4, 1994 discovery order. He argued, however, that the matter was not moot because he also had pending a motion to add an additional plaintiff. The trial court noted that there would have been "some problem" in entering judgment on the enforcement motion with Beale as the named plaintiff. The court stated,

"I would think that you needed to substitute that plaintiff as you are allowed to do under the contract. *** And that it then should go ahead and be ordered that the defendant give you those documents which you have requested."

At this point in the hearing, an attorney from the law firm representing EdgeMark appeared. That attorney argued that the matter was moot because the documents had been turned over. The court thereupon questioned Hedlund as to whether he had received the documents; and when Hedlund stated that he had, the court questioned the need for an order concerning the documents. Discussion ensued on that issue as well as the pendency of the motion to add an additional plaintiff. EdgeMark's counsel sought a continuance on the latter motion. Finding that counsel for EdgeMark was remiss in failing to notify the court that it had turned over the documents, the court stated:

"I'm going to allow you to go ahead and put an order that this is to be turned over. And not only that, I'm going to allow you an order that the matter of the ...

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