Court of Appeals of Illinois, First District, Third Division
231 W. SCOTT, LLC; DAVID E. RANSBURG; and MARK RANSBURG, Plaintiffs-Appellees,
LAKESIDE BANK; JLL CONSTRUCTION SERVICES, INC.; JERRY L. LEWIS; LIEGGI LAW OFFICES, LLC; CRYSTAL CAISON; MAYER JEFFERS GILLESPIE; and GREATER ILLINOIS TITLE COMPANY, Defendants Greater Illinois Title Company, Defendant-Appellant.
from the Circuit Court of Cook County. No. 11 L 6136 The
Honorable Thomas J. Lipscomb, Judge Presiding.
JUSTICE PUCINSKI delivered the judgment of the court, with
opinion. Presiding Justice Fitzgerald Smith and Justice Lavin
concurred in the judgment and opinion.
1 Following a bench trial in Cook County circuit court, the
trial court entered judgment against defendant Greater
Illinois Title Company (GIT) and in favor of plaintiff 231 W.
Scott, LLC (LLC), concluding that GIT had breached its
fiduciary duty as construction escrowee to the LLC. According
to the trial court, given the number of problems in the
construction process, GIT owed a duty to the LLC to, at a
minimum, inquire into the problems and, if warranted,
investigate further, including conducting an "informal
viewing" of the construction project. On appeal, GIT
argues (1) that the trial court erred in concluding that
GIT's fiduciary responsibilities to the LLC included the
duty to investigate construction problems before disbursing
payments and (2) even if GIT did breach its fiduciary duties
to the LLC, that breach was not the proximate cause of the
LLC's damages. For the reasons that follow, we reverse
the judgment against GIT.
3 On March 24, 2015, the plaintiffs, David E. Ransburg
(David), Mark Ransburg (Mark), and the LLC filed their second
amended complaint against the defendants, Lakeside Bank
(Lakeside), JLL Construction Services, Inc. (JLL), Jerry L.
Lewis, Lieggi Law Offices, LLC (Lieggi Law), Crystal Caison,
Mayer Jeffers Gillespie (MJG), and GIT. In the Complaint, the
plaintiffs brought a number of claims against the various
defendants, all of which arose out of the attempted, but
failed, renovation of a three-flat home at 231 W. Scott
4 Although the Complaint raised numerous claims against each
of the defendants, only two were leveled against GIT. In
Count XX of the Complaint, the plaintiffs alleged that GIT
breached the escrow agreement between the LLC, GIT, and
Lakeside by disbursing funds to JLL without a sworn statement
from the plaintiffs. In Count XXIII of the Complaint, the
plaintiffs alleged that GIT breached its fiduciary duty to
the LLC by failing to conduct independent inspections of the
renovation work (to insure its completion and quality) prior
to disbursing escrow funds.
5 Ultimately, the plaintiffs proceeded to trial on three
claims against JLL (breach of contract, common-law fraud, and
violation of the Illinois Consumer Fraud Act), one claim
against MJG (breach of contract), and the LLC's claim of
breach of fiduciary duty against GIT. The breach of contract
and common-law fraud claims against JLL, along with the
breach of contract claim against MJG, were heard by a jury.
The claims for violation of the Illinois Consumer Fraud Act
against JLL and breach of fiduciary duty against GIT were
heard in a bench trial.
6 Because all of the claims that went to trial were tried
together, the trial record is voluminous, and not all of the
evidence presented at trial was relevant to the
breach-of-fiduciary-duty claim against GIT. Accordingly, in
an effort to conserve resources, we recount only that
evidence that has some bearing on the resolution of the
LLC's claim for breach of fiduciary duty.
7 At trial, the evidence tended to establish the following.
The home at issue had been in David and Mark's family
since the 1920s. In 2006, brothers David and Mark decided to
renovate the building and together formed the LLC for that
purpose. All of the defendants played a role in the attempted
renovation. Lakeside was the lender who extended the
construction loan to the LLC, while Lewis and his company,
JLL, served as the general contractor retained to perform the
renovation work. Caison, who was an attorney with Lieggi Law,
acted as counsel for the plaintiffs during the renovation
process. MJG was the architectural firm retained by Lakeside
to inspect the project as it progressed. Finally, GIT was the
escrow agent, charged with disbursing the loan proceeds to
JLL and Lewis as work progressed.
8 Under the construction loan escrow agreement (Escrow
Agreement) signed by the LLC (by David), Lakeside, GIT, and
JLL, before GIT would disburse any funds, the LLC was to
"give or cause others to give GIT" the following
documents: a current sworn owner's statement, a current
sworn general contractor's statement, enough funds to
cover the amount of the current disbursement request, a
written statement approving the current disbursement, a
report by an inspector or architect certifying that the
reported work had been completed and materials were in place,
and any necessary waivers or releases of liens or affidavits.
In addition, after the initial disbursement, Lakeside was to
provide GIT with any loan funds that were to be used to pay
the current request.
9 The Escrow Agreement also provided: "GIT-Escrowee and
GIT has the right to verify all information contained in any
STATEMENTS provided to them. If GIT-Escrowee or GIT discovers
any inaccuracies in these statements, GIT-Escrowee may stop
disbursing until the inaccuracies are corrected." In
addition, the Escrow Agreement contained the following
"GIT-Escrowee does not at any time insure: A. That there
will be enough funds available to completed [sic]
the project; B. That the project will be completed; or C. If
the project is completed that it will be completed according
to plans and specifications approved by OWNER and LENDER.
GIT-Escrowee does not assume any liability for loss caused by
errors in certifications provided by others as to work in
10 Needless to say, the renovation of the home at 231 W.
Scott Street did not go as planned. Although intended to be
an eight-month project starting in June 2006, the project was
never completed after JLL failed to return to the job. Not
only was the project not completed, but the plaintiffs also
presented evidence that much of the work that was performed,
was performed incorrectly, some of which then led to flooding
and water damage. In 2009, Lakeside filed foreclosure
proceedings against the property. As a result of the failed
renovation, the plaintiffs claimed that they suffered
extensive financial damages.
11 With respect to the breach-of-fiduciary-duty claim against
GIT, the plaintiffs presented the expert testimony of Stephen
A. James (James), a licensed general contractor, construction
engineer, and construction consultant. According to James, at
the time of the renovation project, when a construction loan
escrowee knew or should have known of potential or actual
inaccuracies in a contractor's statement, it was the
industry custom and practice for the escrowee to verify the
contractor's statements, including by way of on-site
inspections of the contractor's work. In this particular
case, it was James's opinion that there existed five
"red flags" to put GIT on such notice: (1)
GIT's files for the 10 pay requests made on the project
did not contain the inspecting architect's approval for 5
of the requests, (2) GIT's files did not contain the
owner's approval on 2 of the requests, (3) GIT was aware
that the plaintiffs did not have their own inspecting
architect, (4) there were gaps of four to six months between
some of the disbursements, and (5) GIT's files indicated
that multiple pay requests were not approved and had to be
resubmitted, suggesting there had been errors in the
contractor's original requests. Based on these factors,
James opined that GIT should have stopped disbursing loan
funds until it verified the accuracy of the contractor's
statement, including through on-site inspections of the
property to ascertain that the claimed work had been
completed in a workmanlike manner.
12 James testified on cross-examination, however, that he
reviewed the files of Lakeside and MJG and both of those
entities possessed all 10 signed approvals from the
inspecting architect. James did not, at any time, compare the
work and materials claimed in each draw request to the work
and materials approved by David. Finally, James acknowledged
that neither David nor Mark informed him of possible delays
in the construction process, namely, that the basement had to
be dug out by hand, that the construction loan had to be
renewed on multiple occasions, and that there were
outstanding tax liabilities on the property that had to be
resolved before disbursement.
13 David testified that during the course of the renovation,
he was presented with only eight pay requests, all of which
he signed. David signed off on each of those requests because
he believed that the statements constituted representations
by JLL that the listed work had been completed and because he
believed MJG was hired for his protection and had inspected
JLL's work upon every pay request. If he had known that
the listed work was not complete or that MJG had not
inspected the work, he would not have signed the pay
requests. David acknowledged that he ...