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G.M. Sign, Inc., Individually and As the Representative of A Certified Class v. Michael Schane

March 1, 2013

G.M. SIGN, INC., INDIVIDUALLY AND AS THE REPRESENTATIVE OF A CERTIFIED CLASS,
PLAINTIFF-APPELLEE,
v.
MICHAEL SCHANE,
DEFENDANT



Appeal from the Circuit Court of Lake County. Honorable (State Farm Fire and Casualty Company, ) Mitchell L. Hoffman, Nonparty In Interest-Appellant). ) Judge, Presiding.

The opinion of the court was delivered by: Presiding Justice Burke

2013 IL App (2d) 120434

No. 2-12-0434

PRESIDING JUSTICE BURKE delivered the judgment of the court, with opinion. Justices McLaren and Hudson concurred in the judgment and opinion.

OPINION

¶ 1 The underlying lawsuit in this appeal is a class action that plaintiff, G.M. Sign, Inc., individually and as the representative of a certified class, brought against defendant, Michael Schane, asserting claims under the federal Telephone Consumer Protection Act (TCPA) (47 U.S.C. § 227 et seq. (2000)), common-law conversion, and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (Fraud Act) (815 ILCS 505/1 et seq. (West 2010)). Schane's insurer, State Farm Fire & Casualty Company, disclaimed any insurance coverage obligation. On December 16, 2010, the circuit court of Lake County entered its final approval of a settlement agreement and a judgment against Schane for $4.9 million, to be collected solely from State Farm. On February 24, 2011, G.M. Sign filed a separate declaratory judgment action against State Farm (coverage action) (case No. 11-MR-315). On November 29, 2011, the trial court in the coverage action found that State Farm had a duty to defend and indemnify the judgment entered against Schane in the class action suit, provided that the settlement was reasonable. Thereafter, on December 30, 2011, State Farm filed a petition to vacate or modify the class action judgment, under section 2-1401 of the Code of Civil Procedure (Code) (735 ILCS 5/2-1401 (West 2010)). The trial court dismissed the petition, finding a lack of due diligence based on State Farm's decision not to accept the defense tender.

¶ 2 State Farm appeals that decision, contending that State Farm was diligent in the original action and in bringing the petition and that the trial court applied an incorrect standard to assess whether State Farm was diligent. State Farm further contends that the petition raised a meritorious defense. G.M. Sign questions whether State Farm had standing to file the section 2-1401 petition and thus whether this court has jurisdiction to address this appeal. We find that State Farm had standing to bring the section 2-1401 petition and that State Farm was diligent in the original action and in bringing the petition. Accordingly, we reverse the judgment of the trial court and remand the cause for an evidentiary hearing as to whether the petition raised a meritorious defense.

¶ 3 FACTS

¶ 4 G.M. Sign filed a three-count class action complaint on August 12, 2010. The complaint was directed against Academy Engraving Company and Schane. It alleged that Schane, an officer and director of Academy Engraving, sent mass, unsolicited, facsimile advertisements to G.M. Sign and at least 39 other recipients on September 6, 2007, without permission. The complaint alleged violations of the TCPA, common-law conversion, and violations of the Fraud Act. A motion for class certification accompanied the complaint. Academy Engraving was later dismissed as a defendant.

¶ 5 Schane promptly tendered the complaint to State Farm for insurance coverage. By letter dated September 10, 2010, State Farm disclaimed any coverage obligation to Schane in connection with this action. Schane filed an appearance and answer to the complaint on September 30, 2010.

¶ 6 G.M. Sign filed a motion for preliminary approval of a settlement agreement on October 5, 2010. The motion attached several exhibits, including the settlement agreement, which was signed by Schane on October 1, 2010. Under the terms of the agreement, Schane agreed to entry of a judgment against him in the amount of $4.9 million to be collected solely from his insurer. The settlement was preliminarily approved on October 7, 2010. A fairness hearing was set for December 16, 2010.

¶ 7 G.M. Sign filed affidavits showing notice to the class. G.M. Sign filed a motion for leave to file a corrected motion for preliminary approval of the settlement on November 12, 2010. The motion was intended to correct the original motion's reference to a stipulated judgment in the amount of $3.9 million instead of $4.9 million. G.M. Sign also filed a motion for leave to file an amended class action complaint on November 12, 2010, the purpose of which was to "plead into possible insurance coverage available under Schane's insurance policies."

¶ 8 The proposed amended class action complaint asserted largely the same preliminary allegations as the original complaint. Count I, the TCPA count, remained the same. The common-law conversion and Fraud Act counts were changed. Count II, the conversion count, no longer incorporated all of the original allegations and instead selectively incorporated only those allegations that made no express reference to the TCPA. Count III, the Fraud Act count, also incorporated only those allegations that made no reference to the TCPA. The amended class action complaint was based on the same faxes allegedly sent by Schane on September 6, 2007. The motions were presented and granted on November 18, 2010, with no objection. On December 16, 2010, following a hearing held to determine whether the settlement should be approved as fair, reasonable, and adequate, the trial court entered its final approval of the settlement. The order included a judgment against Schane for $4.9 million, to be satisfied by State Farm.

¶ 9 Thereafter, on February 8, 2011, G.M. Sign filed a citation to discover assets, directed to State Farm. There is no indication in the record that State Farm was served with the citation. On February 24, 2011, G.M. Sign filed the coverage action against State Farm, seeking a declaration that insurance coverage existed for the claims asserted against Schane in the amended class action suit. State Farm asserted that no coverage existed for the TCPA claims and averred that the settlement was not reasonable.

¶ 10 By order dated November 29, 2011, the trial court in the coverage action granted, in part, G.M. Sign's motion for judgment on the pleadings, finding that State Farm had the duty to defend and indemnify Schane in the class action suit. The trial court reserved the question of the reasonableness of the settlement, to be addressed in further proceedings.

¶ 11 On December 29, 2011, State Farm filed a section 2-1401 petition to vacate or modify the trial court's December 16, 2010, judgment, alleging that G.M. Sign was inadequate as the class representative, the notice provided to the class was inadequate, and the settlement terms were unfair to the absent class members. State Farm explained that it was not a party to the original action because it denied Schane's defense tender, based on a TCPA exclusion in Schane's business policy, a fact communicated to both Schane and counsel for G.M. Sign. State Farm further explained that it was diligent in pursuing relief under section 2-1401 because it was bringing the petition within one month of receiving and reviewing discovery responses that uncovered the facts supporting the petition. State Farm argued that, although a nonparty, it had standing to file the petition under the holding in Hurlbert v. Brewer, 386 Ill. App. 3d 1096, 1103-04 (2008).

¶ 12 As to the substantive argument, State Farm maintained that G.M. Sign was an inadequate class representative because it was not a member of the class certified by the trial court. G.M. Sign alleged in both the original and amended complaints that it received an unsolicited fax on September 6, 2007. However, the period certified by the trial court, as proposed by G.M. Sign, began on September 7, 2007. State Farm also questioned whether G.M. Sign's TCPA claims were time barred.

ΒΆ 13 As to notice, State Farm questioned the efficacy of sending notice to fax numbers in October 2010 without verifying that the current owners of those numbers also owned them from September 2007 through June 18, 2008. State Farm observed that it was possible to identify all putative class members and send direct mail notice to them. State Farm also questioned the accuracy of the notice, to the extent that it permitted recovery in excess of the statutory maximum, and ...


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