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Pamela Henry v. Harvey Jack Waller

June 29, 2012

PAMELA HENRY,
PLAINTIFF,
v.
HARVEY JACK WALLER, INDIVIDUALLY AND D/B/A HARVEY WALLER, HARVEY WALLER, LTD., FIRSCH AND WALLER, AND HARVEY WALLER AND ASSOCIATES; AND HARVEY WALLER, LTD., DEFENDANTS-APPELLEES BANK OF AMERICA,
DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Cook County 07 L 11515 Honorable Daniel J. Lynch, Judge Presiding.

The opinion of the court was delivered by: Justice Palmer

JUSTICE PALMER delivered the judgment of the court, with opinion.

Justice Garcia specially concurred, with opinion.

Justice Lampkin dissented, with opinion.

OPINION

¶ 1 This appeal involves an indemnification agreement in an "Interest on Lawyers Trust Account" (IOLTA). Specifically, at all relevant times, defendant Harvey Waller, an attorney, held an IOLTA account at Bank of America and its predecessor in interest, LaSalle Talman FSB (collectively, Bank of America or the bank). One of the resolutions governing this account contained an indemnification agreement requiring Waller to indemnify the bank for attorney fees and costs that it incurred under certain circumstances. After prevailing in the underlying litigation involving the negotiation of checks with allegedly forged signatures, Bank of America filed a petition seeking attorney fees and costs from Waller that it allegedly incurred while defending the underlying litigation. Bank of America sought fees and expenses pursuant to the indemnification agreement and under certain provisions of the Illinois Uniform Commercial Code (UCC) (810 ILCS 5/1-101 et seq. (West 2006)). Following a bench trial, the circuit court found that Waller was not obligated to indemnify the bank and entered judgment in his favor. Bank of America appeals, contending that the circuit court erred as a matter of law in denying its petition for attorney fees under the indemnification agreement and in finding that the bank was not owed attorney fees under the UCC. The bank also challenges the circuit court's denial of a motion in limine that it filed prior to trial seeking to bar the testimony of an expert witness. For the reasons that follow, we reverse and remand to the circuit court.

¶ 2 BACKGROUND

¶ 3 The relevant facts of this case are not in dispute. In 1993, plaintiff Pamela Henry received a $500,000 judgment against her husband in a marriage dissolution proceeding. Henry engaged defendant Jeffrey Olson of the collection agency Olson, Olson & Olson Ltd., to recover that judgment. In October 1998, Henry signed a limited power-of-attorney agreement in connection with her engagement of the Olson firm.

¶ 4 The Olson firm then hired defendant Waller to assist in collecting the judgment. The Olson firm and Waller negotiated a $450,000 settlement of the divorce judgment. The parties stipulated at trial that Henry orally agreed to a settlement in that amount. In December 1998, Waller received the settlement in two cashier's checks payable to "Pamela A. Henry and Harvey Waller" in the amounts of $150,000 and $300,000. Waller did not send the checks to Henry for her endorsement before depositing them into his IOLTA account at LaSalle Bank. It is undisputed that at some point prior to Waller endorsing and depositing the checks, they were endorsed with the signature "Pamela Henry." There was no evidence presented at trial as to how the signatures in Henry's name appeared on the back of each check. Henry testified in an evidence deposition that she "never touched" the checks and the parties stipulated at trial that Henry's endorsements were "not authentic."

¶ 5 Waller endorsed and deposited each check into his IOLTA account at the bank. The parties stipulated at trial that the bank accepted in good faith the checks deposited in Waller's IOLTA account. Waller then caused the bank to issue two cashiers checks payable to the Olson firm for the entire amount of the settlement proceeds and Olson thereafter paid Waller $75,000. Henry did not receive any of the settlement money from Olson, who allegedly stole the money and disappeared. Olson has never been found. In 1999, Henry sued Olson and his firm but was unable to serve the complaint and summons on them.

¶ 6 In 2000, Henry amended her complaint to sue the bank and Waller, asserting that the endorsement signatures in her name on the back of the cashier's checks were forgeries. In her legal malpractice, breach of contract and fraudulent transfer claims against Waller, Henry alleged that Waller failed to procure her signature on the settlement checks, failed to pay the settlement proceeds to her and failed to communicate with her regarding the settlement. Henry also sued the bank under section 3-420 of the UCC (810 ILCS 5/3-420 (West 2006)), alleging that the endorsements in her name on the settlement checks were unauthorized and that the bank was liable for conversion because it accepted the checks for deposit over unauthorized signatures.

¶ 7 Bank of America, as successor in interest to LaSalle Bank, ultimately moved for summary judgment. The motion included affidavits from two expert witnesses, who opined that the bank had exercised ordinary care and had no liability under the comparative negligence scheme of the UCC. The circuit court granted the bank's motion, finding under section 3-405(b) of the UCC (810 ILCS 5/3-405(b) (West 2006)) that Henry had not presented any evidence that the bank failed to exercise ordinary care in its handling of the checks, and that the bank's acceptance of the checks did not cause any harm to Henry. Henry and Waller ultimately reached a settlement agreement with respect to the professional negligence dispute.

¶ 8 Bank of America then filed a petition for attorney fees and expenses against Waller, seeking to collect $225,000 in attorney fees and expenses it incurred during the 11 years of litigation in the Henry matter. The bank sought fees on two alternative grounds. First, the bank claimed that Waller contractually agreed to indemnify it pursuant to the terms of his account agreement. Second, the bank sought fees and expenses under the transfer warranty provisions of the UCC. See 810 ILCS 5/4-207(a), 3-416(a) (West 2006).

¶ 9 A bench trial was held on the petition. Prior to trial, the bank filed a motion in limine, seeking to bar the testimony of Waller's expert witness, Robert Markoff, a collection lawyer. The trial court denied that motion. Markoff testified that Waller would have had the authority as Henry's attorney to endorse her signature on the checks and deposit them. The bank presented the testimony of David Mulvihill, the bank's in-house attorney who oversaw the litigation. Mulvihill testified about the account resolutions and that the bank incurred attorney fees and expenses as a result of actions it took under specific account resolutions. The bank also presented Henry's evidence deposition, the relevant testimony from which we set out above.

¶ 10 The trial court denied the bank's petition for attorney fees and costs, ruling that Waller's negotiation of the checks through his account neither triggered the indemnification provisions of his account agreement nor breached the UCC transfer warranties. With respect to Bank of America's contractual claim for indemnification, the court stated that the negotiation of the checks through the bank by Waller was "uneventful" and therefore "was not a triggering event for the contractual indemnification obligations of this contract." Instead, the court stated, the cause of action was triggered by a "subsequent conversion" by Olson. The court reasoned that the bank was not entitled to indemnification because "[t]he conversion here followed the otherwise proper settlement negotiations and the negotiable instrument acts herein through [the bank]. *** This case sounds in criminal theft and in conversion, not in breach of warrant[y] or certainly not in breach of the [UCC]." Bank of America appeals.

¶ 11 ANALYSIS

¶ 12 Bank of America first contends that the trial court erred as a matter of law in construing the terms of the account agreement and holding that the bank was not entitled to be indemnified for its attorney fees and expenses. The bank claims that it incurred those fees and expenses in connection with actions it took under two resolutions governing Waller's account and that it is therefore entitled to indemnification.

¶ 13 Bank of America's contention raises an issue of contract interpretation. The interpretation of a contract presents a question of law, which we review de novo. Gallagher v. Lenart, 226 Ill. 2d 208, 219 (2007); see also Erlenbush v. Largent, 353 Ill. App. 3d 949, 952 (2004) (the appellate court ...


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