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Kagan v. Waldheim Cemetery Co.

Court of Appeals of Illinois, First District, Sixth Division

April 8, 2016

LINDA S. KAGAN, on Behalf of Herself and All Persons Similarly Situated, and ELLIOT SAMUELS, Trustee of the Abe Samuels Trust and Executor of the Estate of Diane Samuels and on Behalf of Himself and All Persons Similarly Situated, Plaintiffs-Appellants,
v.
WALDHEIM CEMETERY COMPANY, ROSEMONT PARK, INC., and DAVID GALE, Defendants (Zion Gardens, Inc., Defendant-Appellant; Bank of America, N.A., Successor to LaSalle Bank, N.A., Defendant-Appellee. ZION GARDENS, INC., Plaintiff-Appellant,
v.
BANK OF AMERICA, N.A., Successor to LaSalle Bank, N.A., Defendant-Appellee

         Appeal from the Circuit Court of Cook County. Nos. 11 CH 22722 & 11 CH 23177 Cons. Honorable Rodolfo Garcia, Judge Presiding. Appeal from the Circuit Court of Cook County. No. 11 CH 33936. Honorable Rodolfo Garcia, Judge Presiding.

         For Appellant: Matthew T. Hurst, Matthew T. Heffner, Susman, Heffner & Hurst, Chicago, IL; Daniel A. Edelman, Cathleen M. Combs, James O. Laturner, Tiffany Hardy, Edelman, Combs, Laturner & Goodwin, LLC, Chicago, IL.

         For Zion Gardens, Inc., Appellant: Jack Joseph, Esq., Sarah J. Isaacson, Esq. of Counsel, Chicago, IL.

         For Appellee: David A. Baker, Jared R. Cloud, Sam P. Myler, McDermott, Will & Emery LLP, Chicago, IL.

         Hoffman and Delort, Justices concurred in the judgment and opinion.

          OPINION

         HALL, JUSTICE.

          [¶1] The plaintiffs, Linda S. Kagan and Elliot Samuels (the plaintiffs), appeal from an order of the circuit court of Cook County dismissing their second amended consolidated complaint against the defendants, Bank of America (the Bank), Waldheim Cemetery Company (Waldheim), Zion Gardens, Inc. (Zion), Rosemont Park, Inc. (Rosemont), and David Gale. Zion filed separate appeals from the order dismissing the second amended consolidated complaint and from the dismissal of its separate amended complaint against the Bank.

          [¶2] On appeal, the plaintiffs contend that: (1) they stated a claim for breach of common law fiduciary duty against the Bank; (2) a private right of action exists under the Cemetery Care Act giving them standing to sue the Bank; (3) the circuit court abused its discretion when it denied them leave to amend their second amended consolidated complaint; and (4) they adequately pleaded a claim for violation of section 2Z of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/2Z (West 2012)).

          [¶3] In its separate appeal from the dismissal of the second amended consolidated complaint, Zion seeks reversal of the dismissal order insofar as it rested on a finding (1) that the beneficiaries of a cemetery care trust lacked standing to sue an independent trustee they alleged was responsible for their injury or (2) a finding that the lien provision of the Cemetery Care Act (760 ILCS 100/1 et seq. (West 2012)) was relevant to the issue of standing, or could exonerate the Bank.

          [¶4] In its appeal from the dismissal of its amended complaint against the Bank, Zion contends that Zion had standing to seek redress against the Bank for the benefit of the grave owners and the general public as well as itself.

          [¶5] On the parties' motion, we consolidated the three appeals for review. For reasons that follow, we affirm in part and reverse in part the orders of the circuit court.

         [¶6] BACKGROUND

          [¶7] The litigation in these cases centered on provisions of the Cemetery Care Act (Care Act) (760 ILCS 100/1 et seq. (West 2012)).[1] The Care Act was enacted to remedy the evils relating to possible frauds or mismanagement in the handling of care funds and in the advertising and sales of services to which the funds for care were to be devoted. Union Cemetery Ass'n of the City of Lincoln, Illinois v. Cooper, 414 Ill. 23, 34, 110 N.E.2d 239 (1953).

          [¶8] A cemetery licensed under the Care Act must establish a care fund into which deposits of the funds collected from the purchasers of cemetery property and services are placed and must hold the funds in trust. First of America Bank, Rockford, N.A. v. Netsch, 166 Ill.2d 165, 179, 651 N.E.2d 1105, 209 Ill.Dec. 657 (1995); 760 ILCS 100/4 (West 2012). The cemetery authority may act as trustee of up to $500,000 in care funds, but it must retain an independent trustee for any amount over $500,000. " The net income only from the investment of [special] care funds shall be allocated and used for the purposes specified in the transaction by which the principal was established in the proportion that each contribution bears to the entire sum invested." 760 ILCS 100/3 (West 2012).

          [¶9] In 2000, when the care funds exceeded $500,000, David Gail, vice-president of Rosemont, entered into a trust agreement with LaSalle Bank. Rosemont was named the settlor of the trust, and LaSalle was named the trustee of the trust into which the care funds were deposited. Subsequently, the Bank became the trustee when it acquired LaSalle Bank. Pertinent parts of the trust agreement provided as follows:

" 3. This trust is established by Rosemont, as Settlor, which owns and operates Rosemont Cemetery (hereinafter the " Cemetery" ), for the purpose of managing funds received and to be invested to provide income for future care services to be provided by Cemetery in accordance with the Care Act and the terms hereof shall be construed accordingly.
* * *
5.2 All moneys transmitted by Settlor under this Trust Agreement shall be held in trust by Trustee as to principal and shall be invested in the manner required by the Cemetery Care Act.
* * *
5.4 Settlor covenants and agrees to use the income received from this Trust Fund for the care, landscaping and maintenance service provided for in the Cemetery Care Act to the extent of the income received.
* * *
6.10 Trustee shall be entitled to rely absolutely upon the truth of the recitals of fact contained in deposit memorandums and documents required to be presented to it under the terms of this Trust Agreement, and upon accounting information furnished by Settlor and shall be fully protected and absolved from all liability in so doing; and Trustee shall not in any way be responsible or liable of the proper application of any amounts so paid by it or upon the direction of Settlor pursuant to any such documentation.
7.1 In administering this trust, Trustee shall have the express powers enumerated herein, together with all the powers conferred by law upon trustees in the Cemetery Care Act and to the extent not covered then powers conferred by law upon trustees generally in Illinois Statutes. In addition to, and not in limitation of the powers vested and to be vested in it by law or enumerated in this Trust Agreement, Trustee shall have the power to take any action with respect to the Trust Assets as is appropriate in carrying out the purposes of this Trust Agreement. Trustee may exercise these powers at any time and from time to time in any valid manner without a court order."

          [¶10] In 2005, plaintiff Kagan paid $1,300 to Rosemont for perpetual care of a gravesite. In 1990 and 2006, respectively, plaintiff Samuels paid $41,493.78 and $4,291, to Rosemont for perpetual care of multiple gravesites.

          [¶11] Beginning in 2005, Rosemont began to transfer funds from the trust account in such amounts that by 2009, the principal of the trust was completely depleted, and the cemetery was in a severe state of neglect. Under the Care Act, Rosemont was required to submit an annual accounting of all care funds to the Illinois Comptroller (the Comptroller). 760 ILCS 100/12 (West 2012). Rosemont failed to file reports in 2005 through 2008 but requested and received a filing extension for each of those years. In 2009, the Comptroller served Rosemont with a notice of audit and an opportunity to respond. Rosemont submitted documentation to the Comptroller confirming that it had withdrawn and spent nearly the entire principal of the trust to operate the cemeteries under its control.[2]

          [¶12] In 2011, Rosemont entered into an agreement with Waldheim whereby, for the sum of $10, Waldheim would purchase and operate Rosemont's cemeteries. Waldheim created a subsidiary, Zion, to operate the Rosemont cemeteries. As a condition of obtaining a license to operate the cemeteries, Zion agreed to replenish the depleted trust principal. Subsequently, Zion sent a letter to the holders of perpetual-care contracts informing them that those contracts were no longer valid.

         [¶13] CIRCUIT COURT PROCEEDINGS

         [¶14] The Kagan and Samuels Complaints

          [¶15] In June 2011, plaintiff Kagan and plaintiff Samuels filed separate class action complaints against the defendants. Both complaints sought redress for themselves and others who purchased extended-care services from Rosemont. On August 23, 2011, following the circuit court's consolidation of the Kagan and Samuels complaints, an amended consolidated complaint was filed against the Bank, Zion[3] and the other named defendants alleging conversion, common law breach of fiduciary duty, violations of the Illinois Cemetery Oversight Act and the Care Act and violation of the Consumer Fraud Act. They also sought an accounting.

          [¶16] The Bank filed a combined motion to dismiss the amended consolidated complaint pursuant to section 2-619.1 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619.1 (West 2012)), the Bank moved to dismiss the amended consolidated complaint. The circuit court granted the Bank's motion to dismiss in part finding that under section 2-615 of the Code (735 ILCS 5/2-615 (West 2012)), the plaintiffs failed to state causes of action for conversion and common law breach of fiduciary duty. The plaintiffs were granted leave to replead the dismissed conversion and common law breach of fiduciary duty counts.

          [¶17] The plaintiffs filed their second amended consolidated complaint, repleading the conversion and common law breach of fiduciary duty claims solely to preserve them for appeal. While the circuit court had not dismissed the consumer fraud count, the plaintiffs added the term " knowingly" to their claim of consumer fraud. Pursuant to section 2-615 of the Code (735 ILCS 5/2-615 (West 2012)), the Bank moved to dismiss the second amended consolidated complaint. On April 10, 2013, the circuit court granted the Bank's motion and dismissed the second amended consolidated complaint with prejudice.

         [¶18] Zion's Complaint Against the Bank

          [¶19] In September 2011, Zion filed a separate lawsuit against the Bank alleging multiple causes of action including, inter alia, illegal withholding of funds, breach of the trust agreement, and violation of the Care Act. Pursuant to section 2-619.1 of the Code, the Bank moved to dismiss Zion's complaint. The court dismissed the counts alleging illegal withholding of funds, breach of the trust agreement and violation of the Care Act under section 2-615, and Zion was granted leave to amend those counts.

          [¶20] Zion filed an amended complaint. Count I alleged an equitable cause of action against the Bank based on the violations of the trust agreement, the Care Act, the Trusts and Trustees Act (760 ILCS 5/1 et seq. (West 2012)), breaches of common law duties owed by a trustee, fraud and collusion with Rosemont and sought a finding of malice and an award of punitive damages. Count II sought a declaratory judgment that (1) Zion had standing to maintain its action on behalf of itself, the care fund trust, the owners of the lots and gravesites and on behalf of the general public and (2) the Bank was a fiduciary of the beneficiaries of the trust, which included Rosemont, the owners of the lots and grave ...


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