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Williams Montgomery & John Ltd. v. Broaddus

Court of Appeals of Illinois, First District, Sixth Division

October 27, 2017

BRET BROADDUS, Defendant-Appellant Bradley Associates, LLC, Citation Respondent-Appellee; Stanley, LLC, Citation Respondent-Appellant; Bert Zaczek, Sanctioned Attorney-Appellant.

         Appeal from the Circuit Court of Cook County, No. 10 L 7059 Honorable Alexander P. White, Judge Presiding.

          JUSTICE DELORT delivered the judgment of the court, with opinion. Presiding Justice Hoffman and Justice Connors concurred in the judgment.



         ¶ 1 This appeal arises from a third-party citation to discover assets that the judgment creditor, plaintiff Williams Montgomery & John Limited (WMJ), served on citation respondent, Bradley Associates, LLC (Bradley), to collect a debt owed by defendant Bret Broaddus. The citation proceedings also resulted in an award of sanctions in favor of WMJ and Bradley and against Broaddus; Stanley, LLC (Stanley); and Broaddus's attorney, Bert Zaczek. Broaddus, Stanley, and Zaczek now appeal from the trial court's orders: (1) directing Bradley to turn over certain of its assets to WMJ, (2) granting WMJ's motion for sanctions, and (3) granting Bradley's motion for sanctions. We affirm in part, vacate and remand in part, and dismiss in part.

         ¶ 2 BACKGROUND

         ¶ 3 The allegations in the sanctions motions before this court stem from an unrelated lawsuit prosecuted in federal court between Broaddus and Kevin Shields. We summarize the background of that lawsuit to provide necessary context to our disposition of the sanctions motions.

         ¶ 4 The Shields Litigation

         ¶ 5 In May 2008, Broaddus sued Shields (the Shields Litigation), alleging breach of fiduciary duty regarding the sale of Broaddus's interest in Will Partners, LLC. Shields removed the case to federal court. Shields's response included a counterclaim for indemnification, including attorney fees, based upon the fee-shifting provisions in the Will Partners, LLC, operating agreement. In June 2010, the federal district court granted Shields's motion for summary judgment as to Broaddus's claim, and in September 2010, the court also granted Shields's motion for summary judgment as to his counterclaim for indemnification.

         ¶ 6 In October 2010, Broaddus established the BNR Revocable Trust (the Revocable Trust), a self-settled spendthrift trust, granting Broaddus the right to: retain all trust income, distribute the trust assets as he wished, and revoke the trust. On December 9, 2010, Stanley was formed, with the Revocable Trust holding a 99% interest and Broaddus's daughter holding the remaining 1%. One week later, the federal district court entered judgment in favor of Shields and against Broaddus for $798, 619.16 plus postjudgment interest.

         ¶ 7 Shields then issued citations to discover assets on Bradley and two financial institutions: Wintrust Wealth Management Company (Wintrust) and Lake Forest Bank & Trust Company (Lake Forest). Bradley responded that it held approximately $650, 000 in cash assets for Broaddus. Both financial institutions responded that they had accounts either directly in Stanley's name or "FBO [for the benefit of]" Stanley. Shields also served citations on Stanley, the Revocable Trust, and Broaddus, but none of the three responded.

         ¶ 8 Shields then filed a motion for turnover, asking the federal district court to direct Stanley, the Revocable Trust, Broaddus, and the two financial institutions to transfer certain assets to Shields to satisfy the judgment. Broaddus responded, arguing in part that, since the funds were in the name of Stanley and not Broaddus, Shields could not recover them.

         ¶ 9 The district court rejected this argument. It first determined that, upon examining the various factors under section 5 of the Uniform Fraudulent Transfer Act (Act) (740 ILCS 160/5 (West 2010)), it was "clear that Broaddus fraudulently transferred his assets to the Revocable Trust." Specifically, the court found that Broaddus's transfer of the assets to the Revocable Trust was a transfer to an insider because Broaddus was the settlor and had complete control over (and received all of) the income and assets of the trust, including those assets he transferred into the trust. In addition, the court found that Broaddus knew that the court would soon impose a large outstanding money judgment against him when he transferred his assets to Stanley.

         ¶ 10 The district court further concluded that Broaddus created the Revocable Trust and transferred assets to it to hide his assets from Shields, the judgment creditor. It based this conclusion upon a series of e-mail messages that Broaddus had sent to Wintrust, demanding that Wintrust change the title of the accounts so that they were neither in Broaddus's name nor associated with Broaddus's taxpayer identification number. The court also found that Broaddus received no consideration for his transfer of funds to the Revocable Trust.

         ¶ 11 The court then found that, since Broaddus owned 99% of Stanley through the Revocable Trust, Shields could reach the assets of Stanley. In addition, the court noted that Broaddus formed Stanley in December 2010, which was "well after" the court had granted Shields's summary judgment motion and ordered Broaddus to pay Shields's attorney fees. The court concluded that "the overwhelming evidence" was that Broaddus formed Stanley "in a vain attempt to hide his assets from Shields" after the entry of summary judgment. Finally, the court commented on Broaddus's "history of dishonesty and disregard for" the court's prior rulings. See Broaddus v. Shields, No. 08 C 4420, 2012 WL 28694, at *10 (N.D. Ill. Jan. 5, 2012).

         ¶ 12 WMJ's Proceedings Against Broaddus

         ¶ 13 On October 20, 2010, WMJ filed a complaint against Broaddus seeking unpaid legal fees. On July 21, 2011, WMJ obtained a judgment in the amount of $129, 538.39 against Broaddus. WMJ began supplementary proceedings by filing a third-party citation to discover assets, which was directed to Bradley, among others.

         ¶ 14 On May 29, 2012, WMJ filed a motion for turnover, asking the trial court to order Bradley, a real estate investment company, to immediately transfer certain cash assets to WMJ. Attached to WMJ's motion was an affidavit from Sherwin Jarol, a limited partner of Bradley Associates, LP (the LP). Jarol first noted that, in addition to being one of the LP's limited partners, he was also the sole member of the LP's general partner. Jarol further explained that, although Bradley was an "affiliate" of the LP, he referred to these entities collectively as "Bradley Associates."[1] Jarol then stated that, pursuant to ...

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