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City of Chicago v. Concordia Evangelical Lutheran Church

Court of Appeals of Illinois, First District, Fourth Division

December 8, 2016

THE CITY OF CHICAGO, a Municipal Corporation, Plaintiff,
CONCORDIA EVANGELICAL LUTHERAN CHURCH, Defendant-Appellee CR Realty Advisors, Receiver-Appellant.

         Appeal from the Circuit Court of Cook County, No. 13-M-1403327; the Hon. Joseph M. Sconza, Judge, presiding.

          Brown Udell Pomerantz, Ltd., of Chicago (Shorge Sato, of counsel), for appellant.

          Burke, Warren, MacKay & Serritella, P.C., of Chicago (James C. Geoly and Mark O. Stern, of counsel), for appellee.

          Panel JUSTICE BURKE delivered the judgment of the court, with opinion. Presiding Justice Ellis and Justice McBride concurred in the judgment and opinion.


          BURKE, JUSTICE

         ¶ 1 Receiver CR Realty Advisors, LLC (CR Realty), appeals several of the trial court's orders, arguing that (1) the trial court erred by reviewing its "hard costs" under an ex post facto "reasonableness" standard and by holding an evidentiary hearing as to its accounting, (2) the court erred by denying CR Realty's motion in limine, (3) the evidence did not support the court's reduction to CR Realty's accounting, and (4) the court erred by summarily denying CR Realty's motion for approval of final accounting.

         ¶ 2 For the following reasons, we affirm in part, reverse in part, and remand with directions.

         ¶ 3 I. BACKGROUND

         ¶ 4 A. The Procedural History of This Case

         ¶ 5 On November 18, 2013, the City of Chicago (City) filed a complaint for equitable and other relief against defendant, Concordia Evangelical Lutheran Church (Concordia). The City alleged, inter alia, that the steeple of a church owned by Concordia was in imminent danger of collapse and needed to be removed because it was leaning toward Belmont Avenue. The City also filed an emergency petition for the appointment of a limited receiver pursuant to section 11-31-2 of the Illinois Municipal Code (Code) (65 ILCS 5/11-31-2 (West 2012)).

         ¶ 6 A hearing on the City's emergency receiver petition commenced that day. Inspector Jose Aparicio testified the steeple of the church was "swaying" and that the steeple and mansard roof were water damaged, were imminently dangerous and hazardous to the public, and had to be removed immediately. The City requested that the trial court grant the emergency receiver petition and appoint CR Realty as limited receiver. The City further requested that CR Realty be authorized to employ Green Demolition (Green) as its demolition contractor.

         ¶ 7 The trial court granted the emergency receiver petition and appointed CR Realty as limited receiver, with directions to (1) immediately remove the steeple and mansard roof, (2) remove and store three church bells inside the garage, and (3) place a rubberized flat roof over the open area left by removal of the steeple and mansard roof. The court ordered CR Realty to have Green submit an itemized cost sheet of all time, labor, and materials used to perform the work. The court's order authorized CR Realty to retain counsel, employ agents to assist in the performance of its receivership duties, and issue receiver's certificates for the costs and expenses of the receivership.

         ¶ 8 The work at the church was performed between November 18 and November 21, 2013. On December 18, CR Realty filed a motion for approval of accounting for the period of time between November 18 and December 18. CR Realty divided its costs into two categories: (1) "hard costs, " or its out-of-pocket expenditures to third-party vendors (excluding legal) for which it was seeking reimbursement, and (2) "soft costs, " or those costs CR Realty incurred in performing the work. It requested the issuance of one receiver's certificate for its "hard costs, " in the amount of $111, 312.17, and one for its "soft costs, " in the amount of $20, 697.50, which reflected its professional fees and legal expenses.

         ¶ 9 CR Realty attached to its motion, inter alia, a cost sheet from Green detailing Green's time, labor, and equipment charges. It also attached its own timesheet and invoices from two other entities that performed work on the project, Contractor's Access and Imperial Crane Services, Inc. (Imperial). In addition, CR Realty attached an expense register in which it summarized its own fees and costs, its payments to Contractor's Access and Green, and its third-party markup fee. It listed the following expenses: $3375 for Contractor's Access; $102, 556.59 for Green; $5300.58 for its third-party markup; and $19, 197.50 for its own fees.

         ¶ 10 In a December 18, 2013, agreed order, the trial court allowed Concordia 35 days to respond to CR Realty's accounting.

         ¶ 11 The parties dispute whether Concordia ever filed objections to the accounting. Concordia's motion for reduction of damages appears in the appendix to CR Realty's brief; however, it is not file-stamped, and Concordia has not provided a record citation for the motion. In a footnote in a later filing in the trial court, CR Realty stated it could not be certain when Concordia filed its objections, if at all, because the copy of the motion for reduction of damages tendered to CR Realty contained no file stamp and was not accompanied by a notice of filing, notice of motion, or certificate of service. Based on this, it appears Concordia may have provided CR Realty and the court with copies of the motion for reduction of damages without actually filing the document in court.

         ¶ 12 In the motion for reduction of damages, Concordia stated it had contracted with independent consultant J. Bradley Sargent, who reported that CR Realty's charges were undocumented and unsubstantiated, egregiously excessive, and inconsistent. The motion evidently included as an attachment Sargent's report detailing the various charges that he challenged.[1] Sargent disputed a total of $54, 674. Specifically, he objected to all of the Contractor's Access charge; $34, 489 of the Green charge; $5301 of CR Realty's third-party markup; and $11, 510 of CR Realty's own fees.

         ¶ 13 In September 2014, the trial court entered an agreed order allowing CR Realty to reply to Concordia's amended objections to the accounting. In October 2014, CR Realty filed its reply, arguing its motion for approval of accounting should be granted in full.

         ¶ 14 At a hearing on November 3, 2014, the trial court granted CR Realty leave to supplement its accounting based on Sargent's objections. The court continued the matter for an evidentiary hearing.

         ¶ 15 On November 19, 2014, CR Realty filed its supplement, attaching thereto, inter alia, affidavits from CR Realty principal Josh Nadolna and CR Realty employee Phillip Curtis Bettiker, as well as a purported bid from Imperial to Green. These documents are discussed in greater detail later in this opinion.

         ¶ 16 On November 20, CR Realty filed a motion in limine to strike and bar Sargent's testimony and to disqualify him as an expert witness. CR Realty argued, inter alia, that Sargent's testimony was not based on any generally accepted methodology, it improperly invaded the judicial fact-finding function of the court, and Sargent's opinion testimony was fundamentally unreliable and, in many respects, wrong or unfounded.

         ¶ 17 B. The Motion in Limine Hearing

         ¶ 18 A hearing commenced in December 2014. Sargent testified that he was a certified forensic accountant, specializing in financial investigations and in providing expert testimony. He reviewed CR Realty's billing file but not the supplemental accounting that CR Realty filed. He described the methodology he employed in this case as the "generally accepted accounting principles that talk about being professionally skeptical of evidence that's presented to you." He also adhered to Statement of Auditing Standard No. 106, which he testified "very clearly identifies sufficiency of evidence for accounting." The "actual work" that Sargent did was "simple math for the most part, simple math and reviewing documents in detail."

         ¶ 19 Following Sargent's testimony, the trial court denied CR Realty's motion in limine and qualified Sargent as an expert, stating it believed Sargent could be of assistance.

         ¶ 20 C. The Evidentiary Hearing on CR Realty's Accounting

         ¶ 21 Thereafter, an evidentiary hearing on the reasonableness of CR Realty's fees commenced. In the interest of brevity, we provide a brief overview of the evidence presented but only set forth in detail the evidence pertinent to the issues before us.

         ¶ 22 1. Evidence Regarding the Work Completed at Concordia

         ¶ 23 CR Realty principal Josh Nadolna testified that he arrived at Concordia prior to the emergency receiver hearing, after receiving a call from corporation counsel for the City. Nadolna went into the steeple and discussed ideas regarding its removal with a city engineer and an engineer appointed for Concordia. Nadolna billed time for this meeting and for the emergency receiver hearing. He testified that in appointing CR Realty as receiver, the trial court did not require CR Realty to engage in a feasibility report or competitively bid for the project. He further testified that no cap was placed on the amount CR Realty could spend to perform the work, no restrictions were placed on the means by which CR Realty was to perform the work, and no form of accounting was required, other than the submission of Green's itemized cost sheet.

         ¶ 24 Michael James Brough, the operating manager/owner of Green, testified that he did not provide a written estimate to CR Realty before the project because "[i]t would be impossible to bid a job that there is so many unforeseens on [sic]." Brough also testified that CR Realty did not provide him with a spending cap or budget. According to Brough, seven Green laborers, including himself, worked at Concordia on November 18. The laborers performed "shoring" or "bracing" on the steeple.

         ¶ 25 Nadolna recalled three Contractor's Access laborers also being on-site on November 18 to shore the exterior of the steeple. The invoice for Contractor's Access shows that it charged CR Realty for "PORT TO PORT CHURCH STEEPLE EMERGENCY JOB." The invoice indicated a three-man crew worked from 3:30 to 11 p.m. but did not contain any other details regarding the work that was performed. The trial court ...

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