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Cherney v. Soldinger

October 09, 1998

JERRY CHERNEY AND ROBERT GAINSBERG, PLAINTIFFS-APPELLEES,
v.
LARRY SOLDINGER, DEFENDANT-APPELLANT. LARRY SOLDINGER, DEFENDANT/THIRD-PARTY PLAINTIFF,
v.
LEGAL FINANCIAL ASSOCIATES, INC. AND EAGLE INSURANCE AGENCY, INC., THIRD-PARTY DEFENDANTS.



Appeal from the Circuit Court of Cook County., No. 94 L 13446; The Honorable Richard Neville, Judge, Presiding.

The opinion of the court was delivered by: Justice Hourihane

JUSTICE HOURIHANE delivered the opinion of the court:

This matter comes before the court as an interlocutory appeal pursuant to Supreme Court Rule 308. 155 Ill. 2d R. 308. We are asked to determine whether the unqualified release of one of two parties who caused a monetary loss to plaintiffs precludes a claim by plaintiffs against the other party for breach of fiduciary duty, considering the provisions of the Joint Tortfeasor Contribution Act (Act) (740 ILCS 100/2 (West 1996), and the relevant common law. Because we answer in the affirmative, we reverse that part of the circuit court's order denying defendant's motion for summary judgment as to count I of plaintiffs' first amended complaint.

BACKGROUND

Count I of the first amended complaint alleges that plaintiffs Jerry Cherney (Jerry) and Robert Gainsberg (Gainsberg) are the shareholders, officers and directors of Eagle Insurance Agency, Inc. (Eagle) and Legal Financial Associates, Inc. (LFA). Until September 1993, Burton Cherney (Burton), Jerry's brother, was also an officer and director of the corporations. Defendant Larry Soldinger performed accounting services for the corporations.

In 1985, plaintiffs discovered that Burton had obtained $63,000 in excess advance payments from the corporations. Burton executed a promissory note in that amount, payable to Eagle, as evidence of his indebtedness. At this time, plaintiffs instructed defendant to make sure that Burton's advance account never exceeded plaintiffs' advance accounts by such large amounts, and that defendant advise plaintiffs if they needed to draw additional compensation so as to equalize all parties' compensation for a particular year.

Plaintiffs claimed that defendant, in violation of these instructions and in breach of his fiduciary duties to the corporations and its shareholders, failed to advise plaintiffs that Burton was receiving excess salary and compensation and that the $63,000 note Burton executed had been reduced to $23,000 through the payment of excess monies. Plaintiffs further claimed that defendant had prepared the corporate books and records to disguise these transactions.

Plaintiffs alleged other theories of recovery in counts II, III, and IV, on which summary judgment was granted in favor of defendant. The trial court's ruling on these counts is not a part of this appeal.

Prior to the instant litigation, Burton had filed a complaint in the chancery court against Jerry and Gainsberg, seeking declaratory relief, specific performance, and an accounting. Burton alleged that the parties were equal shareholders of Eagle and LFA and that, contrary to certain shareholder agreements, in October 1992, Jerry and Gainsberg removed him as an officer and employee of the corporations.

Jerry and Gainsberg filed a counterclaim against Burton for breach of fiduciary duty. They alleged that, without their prior consent, Burton borrowed $63,000 from Eagle's funds, executed a promissory note to repay the loan, and reduced the principal balance on the note to $23,000 solely through accounting adjustments and not by directly paying any funds to Eagle. They further alleged that Burton drew salary and advances far exceeding his share and contrary to the best interests of the corporation.

Jerry, Gainsberg and Burton settled their dispute and executed a "Mutual Release". The release states that, subject to certain exceptions not relevant here:

"[E]ach of Eagle ***, [LFA] ***, Jerry *** and *** Gainsberg *** hereby releases and forever discharges Burton *** from any and all causes of action, contracts, agreements, debts and promises, whether known or unknown, which any of Eagle, LFA, Jerry, [or Gainsberg] *** now has or ever had, or may have in the future, by reason of any matter, event, cause or thing occurring prior to the date of this Mutual Release. The release *** includes, without limitation, a release and discharge of Burton from any and all liabilities and obligations (a) to Eagle or LFA for any advances, borrowings, loans or other sums due to Eagle or LFA, (b) to any party as a result of any matter, event cause or cause of action alleged in or which could have been alleged in the Counterclaims in the action entitled Burton Cherney v. Jerry Cherney, et al., No. 93 CH 964, pending in the Circuit Court of Cook County, Illinois ***, and (c) under or pursuant to any employment, shareholders or other agreement relating to Eagle or LFA."

Defendant Soldinger moved for summary judgment in the instant litigation, arguing that plaintiffs' unqualified release of Burton in the prior suit, with respect to the same loss that is the subject of the present litigation, also released him. Defendant asserted that this result follows from application of the common law rule that the release of one joint tortfeasor releases all others. Porter v. Ford Motor Co., 96 Ill. 2d 190, 195, 449 N.E.2d 827 (1983). According to defendant, although the Act changed this common law rule by making the release of one joint tortfeasor ineffective against any other unless its terms provide otherwise (740 ILCS 100/2 (West 1996)), the Act does not apply to claims for breach of fiduciary duty (People ex rel. Hartigan v. Community Hospital, 189 Ill. App. 3d 206, 213, 545 N.E.2d 226 (1989)) and does not govern the release executed by plaintiffs' and Burton. Thus, defendant reasoned that the common law rule must be applied. Under this rule, the defendant argued, the release of a fiduciary duty claim against one person also releases such claims against others, at least where there is one indivisible injury. See McCormick v. McCormick, 180 Ill. App. 3d 184, 536 N.E.2d 419 (1988).

Plaintiffs argued that the common law rule, which provides that the unqualified release of one joint tortfeasor releases all others, was abolished with adoption of the Act. To the extent the common law rule has survived, plaintiffs maintained that it is not applicable here because a breach of fiduciary duty is not a tort, and because there is not a single indivisible injury. Plaintiffs urged application of a "modern approach", permitting the release only of those persons ...


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