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Walter S. Cronin and Ronald L. anderson v. Kottke Associates

July 23, 2012

WALTER S. CRONIN AND RONALD L. ANDERSON,
PLAINTIFFS-APPELLANTS,
v.
KOTTKE ASSOCIATES, LLC, AN ILLINOIS LIMITED LIABILITY COMPANY, AND JOSEPH VANDEPUTTE,
DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. No. 06 CH 12756 Honorable Rita M. Novak, Judge Presiding.

The opinion of the court was delivered by: Justice Rochford

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

Presiding Justice Hoffman and Justice Karnezis concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiffs appeal from the dismissal of their suit with prejudice, pursuant to Illinois Supreme Court Rule 219(c)(v) (Ill. S. Ct. R. 219(c)(v) (eff. July 1, 2002)), as a sanction for their failure to comply with a scheduling order regarding final trial preparation procedures as set forth in a standing order of the trial court. For the reasons that follow, we reverse.

¶ 2 I. BACKGROUND

¶ 3 In the 1990s, plaintiffs Walter S. Cronin and Ronald L. Anderson, commodity brokers, became associated with defendant Kottke Associates, LLC (Kottke), a commodity trading firm founded by Neal Kottke. In a two-count complaint, filed on December 11, 2006, plaintiffs claimed they formed a partnership with defendant Kottke and defendant Joseph Vandeputte, a commodities analyst, for the purpose of investing in agricultural commodities. According to the complaint, plaintiffs together were to receive one-third of the partnership's profits. Plaintiffs asserted that defendants wrongfully reduced their interest in the profits and caused a dissolution of the partnership. Plaintiffs claimed defendants breached their fiduciary and loyalty duties and "unjustly enriched" themselves. Plaintiffs sought recovery of lost fees of $2,536,000, plus interest, for the period ending May 2006, and an accounting for monies owed plaintiffs after June 1, 2006. The complaint included a jury demand. In their answers, defendants denied that they had formed a partnership with plaintiffs.

¶ 4 Plaintiffs were represented by John J. McHugh III, an Ohio lawyer admitted pro hac vice, and local attorney, Christopher Berghoff of Berghoff & Berghoff, Ltd. Defendants were represented by the law firm of Vanasco, Genelly & Miller.

¶ 5 The parties engaged in extensive written and oral discovery. While defendants did not bring a discovery compliance motion against plaintiffs, nor was a sanction order entered against plaintiffs for any type of discovery violation, defendants later claimed there were some missteps during discovery which supported their request for the sanction of dismissal with prejudice. For example, and without factual proof in the record, defendants maintained plaintiffs had produced documents during discovery in a manner which violated procedural rules. Further, while plaintiffs initially provided defendants with unexecuted responses to requests to admit within an agreed time period, they were later granted leave to serve signed responses. Additionally, plaintiffs complied with expert discovery after having been granted extensions of time to do so. Finally, defendants moved to quash subpoenas for documents which plaintiffs issued and served upon 25 individuals or entities, including current or former Kottke customers. While the trial court granted the motion, it also allowed plaintiffs leave to reissue subpoenas with certain limitations.

¶ 6 The parties filed cross-motions for summary judgment. Each motion was separately and fully briefed. The parties presented a significant amount of written material as to the cross-motions, which spans six of the nine volumes contained in the original record on appeal. This material includes depositions, pleadings, answers to written discovery, and other exhibits. Plaintiffs argued that there was no dispute that they had formed a partnership or joint venture with defendants and sought a judgment for lost profits in the amount of $2,599,258, plus interest, for defendants' claimed breaches of fiduciary duties and a "full and complete accounting." Defendants argued that the undisputed facts established a partnership had not been formed and, even if there had been a partnership, the partnership had ended and plaintiffs were owed no additional compensation. The trial court, after a hearing, denied the motions.

¶ 7 A September 21, 2010, order set the case for a settlement conference to be held on October 29, 2010. This order did not refer to a standing order. However, the parties agree that the trial court had a standing order which, as set forth in that order, "establish[ed] general pretrial and trial rules and procedures intended to aid attorneys and litigants." The provisions of the standing order relating to settlement conferences required parties to serve a memorandum "[n]o later than three days before the initial pretrial settlement conference" that was to include:

"(1) a statement of the case; (2) an outline of the causes of action, defenses and counterclaims; (3) a statement of the legal and factual issues presented; (4) the relief sought, including damages, and the basis therefor; and (5) the status of settlement negotiations." The standing order also required that counsel verify whether a jury demand had been made as to any claim.

¶ 8 On the day the settlement conference was scheduled, October 29, 2010, plaintiffs filed an agreed motion to continue the conference because Mr. McHugh was involved in a mediation in Ohio on the date set. The court reset the settlement conference for December 17, 2010.

¶ 9 Plaintiffs presented a four-page memorandum on the day of the rescheduled settlement conference. However, there is nothing in the record to show that defendants objected, or that the settlement conference was impeded in any way because of the untimeliness of the memorandum.

¶ 10 In their memorandum, plaintiffs stated that: "Most of the material facts are not disputed. The seminal legal question is the definition or description of the legal relationship between the parties." Plaintiffs generally outlined their position as to the existence of a partnership or joint venture with defendants, but explained that: "The legal contentions advanced by the parties have been extensively briefed [on the cross-motions for summary judgment], and are not further recited here." Plaintiffs contended they were entitled to damages in lost compensation of $2,599,258 and, under the "principles of unjust enrichment," an additional recovery of $3 million based on monies earned by defendants on the wrongfully withheld funds. Plaintiffs' memorandum was silent as to whether they continued in their jury demand. Defendants submitted a pretrial settlement memorandum, which included 10 pages of detailed discussion relating to the nature of the case, issues, and relief sought.

¶ 11 After the suit was not resolved at the December 17, 2010, settlement conference, the trial court set the case for trial--for the first time--in an order entered the same day. That order stated:

"Trial is scheduled for May 16-23, 2011 at 1:30 p.m.; Final pre-trial conference on May 9 at 1:30 p.m.; Documents and demonstrative evidence will be exchanged by May 2;

Evidentiary objections due on May 9; Pre-trial memoranda due on May 6; Motions in limine due at final Pre-trial."

¶ 12 Although this order did not refer to the standing order, the standing order contained procedures applicable to a final pretrial conference and trial, including the following provisions:

"A final pretrial conference will be scheduled at the same time a date is set for trial. Once set trial dates are firm and will not be rescheduled absent compelling circumstances. ***

At the time the Court sets the date for the final pretrial conference, it will also order the preparation of a final pretrial memorandum by each party. The purposes of [these] memoranda [are] to limit the issues to be decided at trial, to ensure that essential trial preparation is done in a timely fashion, and to eliminate unnecessary delays during the course of a trial." (Emphasis in original.)

The standing order warned: "Failure to comply with the Court's orders regarding final pretrial memoranda may result in the imposition of sanctions pursuant to Supreme Court Rule 218 and/or 219."

¶ 13 According to the standing order, the final pretrial memorandum (trial memorandum) was to be served on each party and on the court five days before the final pretrial conference (trial conference). The court's scheduling order, however, provided that the trial memorandum in this case should be filed by May 6, only three days before the May 9 trial conference. The standing order stated that the trial memorandum was to include, inter alia, the estimated length of trial, short statement of the case, fact stipulations, an affidavit of compliance with Illinois Supreme Court Rule 237 (Ill. S. Ct. R. 237 (eff. July 1, 2005)), certifications regarding jury demands, lists of witnesses who will or may be called to testify, and numbered exhibits with any agreement regarding admissibility. The standing order also required that all counsel should confer concerning objections to exhibits prior to the final pretrial conference, with copies of exhibits to be served on the court five "court days" before trial, i.e., May 9. However, the scheduling order required the exhibit exchange by May 2.

¶ 14 Defendants sought to comply with the court's trial preparation requirements by sending a letter to Mr. McHugh, dated April 15, 2011, proposing 84 stipulations of fact. Additionally, by letter dated April 21, 2011, and again addressed to Mr. McHugh, defendants requested the originals of two e-mails pursuant to Rule 237. It appears Mr. McHugh did not respond to these letters.

¶ 15 During this period before trial, defendants also supplemented their discovery responses, producing an additional 419 documents on March 28, 2011, and 39 documents on April 1, 2011. Plaintiffs, in reviewing this supplemental discovery, believed additional documents, in particular e-mails, had still not been produced. Plaintiffs also concluded that this new discovery production included e-mails which defendants had previously asserted did not exist. Counsel for both sides exchanged letters, from April 1 through April 11, in an attempt to resolve the dispute. In his letters to defense counsel, Mr. McHugh said he was prepared to pursue a forensic review of defendants' computers and seek a hearing before the trial judge, but he believed the trial judge "would expect us to address the matter ourselves, in good faith, and in consideration of our professional and our clients' legal responsibilities." He also expressed a wish to promptly reach an agreement with defense counsel so this issue did not "jeopardize our trial date" or "consume most of our discussion" at the trial conference. In his April 8 letter, Mr. McHugh stated:

"Like you, and perhaps your clients, we are anxious to try this matter to its proper conclusion. We do not, however, concede to anything less than a level playing field. We were told there were no documents. That is no longer true. Vandeputte testified that he never discussed a a, a, a sharing arrangement with Neal Kottke. His recent production belies that statement as well."

Mr. McHugh stated he would ask the trial court for a hearing date as to the dispute. In the last letter exchanged by counsel as to this issue, dated April 11, defense counsel stated he did not want to "create a war of letters." Defense counsel further stated that if Mr. McHugh wished to file a motion regarding these discovery issues, "I cannot stop you from doing so. We will strenuously oppose any [such] motion."

¶ 16 On May 2, 2011, the date set for the parties to exchange exhibits, defense counsel served a list of 254 proposed trial exhibits on plaintiffs. On that date, Mr. McHugh sent defense counsel an e-mail containing a list of 11 categories or groups of exhibits, that plaintiffs intended to offer at trial. Plaintiffs' exhibit groups, for the most part, covered documents that had been previously produced through discovery or were exhibits used at depositions or in briefing the motions for summary judgment. Plaintiffs' exhibits did include a damages calculation spreadsheet that had not been previously produced, but was prepared by plaintiff Cronin and was intended to be used as a demonstrative exhibit at trial. Additionally, Mr. McHugh notified defendants that plaintiffs continued to believe that additional relevant documents needed to be produced, and he reserved the right to supplement the exhibit list should plaintiffs be successful on an anticipated motion to compel relating to defendants' supplemental document productions.

¶ 17 In the e-mail, plaintiffs' counsel stated that he did not foresee any objection as to the authenticity of defendants' proposed 254 trial exhibits. Mr. McHugh suggested that because many of plaintiffs' trial exhibits were duplicative of defendants' exhibits, the parties should agree to a procedure that would expedite the use of exhibits at trial. Counsel further suggested, "[f]or ease of exhibit management, it may make the most sense to have one or more books of trial exhibits, since the case is initially to be tried to the court." Mr. McHugh ended the e-mail by stating that he intended to send defense counsel a list of stipulated exhibits "within the next two days" and that he intended "to arrange the documents chronologically in logically sequenced categories." He indicated that he "[l]ooked forward to discussing" the matters set forth in his e-mail with defense counsel.

¶ 18 In a May 3, 2011, letter, defendants' counsel objected to plaintiffs' failure to exchange exhibits as required by the order of December 17, 2010, and asserted that plaintiffs' "broad identification of categories of documents [made] it virtually impossible to review and determine whether there are any evidentiary objections." Nonetheless, defense counsel set forth objections to some of the categories of exhibits while also indicating that there were no objections as to other categories. In the letter, defense counsel did not respond to plaintiffs' counsel's suggestions as to the coordination of trial exhibits.

¶ 19 On May 6, 2011, plaintiffs filed a motion to compel discovery, just as they had forewarned in their April letters and May 2 e-mail to defendants. That motion included a request for a forensic examination of Kottke's computers based upon defendants' supplemental production of documents. On May 9, 2011, at the time set for the trial conference, the trial court struck defendants' motion to compel as "untimely and in violation of the orders of this court."*fn1 In opposing the motion to compel, defendants had apparently raised the fact that the trial judge who had first presided over ...


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