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In re Marriage of Larocque

Court of Appeals of Illinois, Second District

May 31, 2018

In re MARRIAGE OF JANET LAROCQUE, Petitioner and Counterrespondent-Appellant, and JOHN LAROCQUE, Respondent and Counterpetitioner-Appellee (Howard Rosenfeld, Appellant).

          Appeal from the Circuit Court of Du Page County. No. 14-D-956 Honorable Neal W. Cerne, Judge, Presiding.

          JUSTICE ZENOFF delivered the judgment of the court, with opinion. Justices Burke and Schostok concurred in the judgment and opinion.



         ¶ 1 Following a trial in the circuit court of Du Page County, the court entered a judgment dissolving the marriage of John and Janet LaRocque. As part of that order, the court sanctioned one of Janet's attorneys, Howard Rosenfeld, in the form of a $50, 000 judgment against him and in favor of John. Janet appeals, challenging the court's factual findings as well as numerous rulings both prior to and during trial. Rosenfeld separately appeals the sanctions entered against him. For the reasons that follow, we affirm.

         ¶ 2 I. BACKGROUND

         ¶ 3 John and Janet married in 1985. During the marriage, John amassed substantial wealth for the family through his efforts as a trader and investor. Janet was a stay-at-home mother to the parties' four children, the eldest of whom has since passed away. The remaining children are all emancipated. In May 2014, Janet filed a petition for dissolution of the marriage. John filed a counterpetition the following month. Janet subsequently dismissed her petition, and the case proceeded on John's counterpetition.

         ¶ 4 John and Janet had a large marital estate, ultimately valued by the trial court at more than $21 million. However, the parties disputed whether the assets held in certain irrevocable trusts were also part of their marital estate. The court granted John's motion for summary judgment with respect to those trusts, ruling that the assets therein were not part of the marital estate. The matter subsequently proceeded to trial on the issues of maintenance, distribution of property, and the date the marriage began its irretrievable breakdown. We will summarize these proceedings more fully below.

         ¶ 5 A. John's Motion for Summary Judgment

         ¶ 6 In the mid-2000s, John retained counsel for the purpose of creating a comprehensive family estate plan. Over the ensuing years, he and Janet established and funded numerous irrevocable trusts. Although Janet signed documents relating to the trusts, she denied knowing any of the details of the estate plan or being involved in the planning process. It is undisputed that the parties' children and further descendants will ultimately reap substantial tax benefits from this estate plan. The problem from Janet's perspective, however, was that John's estate-planning techniques substantially reduced the size of their marital estate for purposes of these divorce proceedings. Janet thus accused John of "divorce planning."

         ¶ 7 Prior to trial, John filed a motion for summary judgment pertaining to the trusts. He argued that all of the property that was contributed to the trusts over the years was transferred by him and/or Janet irrevocably and with donative intent. Relying primarily on In re Marriage of Romano, 2012 IL App (2d) 091339, and Johnson v. La Grange State Bank, 73 Ill.2d 342 (1978), John claimed that the trusts and their assets were outside of the marital estate and could not be divided in these divorce proceedings. He supported his motion with six affidavits, which are detailed below. Those affidavits, in turn, incorporated by reference more than 300 exhibits comprising thousands of pages.

         ¶ 8 Michael Hartz, a partner at the law firm of Katten Muchin Rosenman, LLP (Katten Muchin), submitted an affidavit in which he averred the following. In December 2004, he was retained to represent John and Janet with regard to their estate planning. Although he was the "principal attorney for the LaRocque estate planning, " his associate, Jonathan Graber, drafted documents and dealt with the clients. Over time, Graber assumed primary responsibility for the matter. According to Hartz, "[i]n addition to creating a plan to meet the LaRocque's [sic] objective of providing an orderly disposition of property upon death, a significant emphasis of the estate planning was to minimize federal and state estate taxes." Hartz attached to his affidavit an engagement letter wherein he agreed to represent John and his family. That letter was directed to, and signed by, John, not Janet.

         ¶ 9 Graber, a former employee of Katten Muchin and a current partner at Drinker Biddle & Reath LLP (Drinker Biddle), also submitted an affidavit. He averred that, in 2005, he began preparing estate-planning documents for John and Janet under Hartz's supervision. A significant emphasis of this plan, Graber explained, was to minimize estate taxation while providing an orderly disposition of property upon death. He asserted that, because of the tax planning that had been implemented, the majority of the property currently owned by the various trusts should not be subject to estate taxation upon the death of John or Janet. The ultimate beneficiaries of the tax planning are the parties' children and their further descendants. Graber identified the myriad trusts that John and Janet established, and he explained the estate-planning advantages that those trusts provided. Graber also asserted in his affidavit that John engaged in loan transactions with many of the trusts. According to Graber, those transactions were authorized by the provisions of the trust documents. Furthermore, Graber attested that most of the trusts contained provisions designed to ensure that they would be taxed as "grantor trusts." Among those provisions were the power of the trustees to lend money to the grantor without adequate security and the power of the grantor to substitute property of equivalent value. According to Graber, "[t]his is beneficial from an overall family tax perspective, since property owned by John or Janet, which would ultimately be subject to estate taxes, is being used to pay the income tax obligations of trusts that will not be subject to estate taxes."

         ¶ 10 John also attached his own affidavit in support of his motion for summary judgment. He averred as follows. In December 2004, he retained Katten Muchin to prepare an estate plan for himself and Janet. The purposes of the estate plan were to provide for an orderly disposition of property upon his and Janet's deaths and to minimize estate taxation in the process of transferring wealth to their children. Pursuant to that plan, between 2005 and 2012, he and/or Janet established dozens of trusts, many of which were grantor retained annuity trusts (GRATs). During that same time period, he and/or Janet gifted and sold assets to the trusts. In doing so, he intended to irrevocably divest himself of ownership of those assets. To the best of his knowledge, he, as grantor, acted consistently with the terms of the trust agreements. He undertook loan transactions with "virtually all of the trusts" by borrowing principal pursuant to a series of revolving loan agreements and promissory notes. He also made loans to the trusts and sold assets to them, the latter event being an exercise of his right as grantor to substitute assets of equivalent value. The gift-tax returns that he and Janet filed from 2005 to 2012 reflected the assets that they transferred to the trusts. John identified in his affidavit the various trusts that were established. He also indicated when and how each trust was funded and, in the case of the GRATs, provided the date that each trust either had terminated or was expected to mature. He further documented his numerous loan transactions, some of which occurred almost immediately after the initial funding of the trusts.

         ¶ 11 Michael LaRocque, John's brother, submitted an affidavit in support of John's motion for summary judgment. He averred the following. He served as either the trustee or the trust protector of numerous trusts established by John and Janet. He understood that the purposes of the trusts were to provide an orderly distribution of property upon John's and Janet's deaths and to transfer wealth to their children while minimizing estate taxation. Michael consulted with Graber on an ongoing basis regarding the trust transactions to ensure adherence to the purposes of the trusts.

         ¶ 12 Daniel Asher signed an affidavit, averring as follows. He had known John since 1980, and they had been friends and business partners for more than 20 years. Asher was the trustee and investment advisor of some of the trusts at issue. In those capacities, he executed numerous documents, including purchase agreements, promissory notes, assignments, and loan agreements between John and the trusts. To the best of Asher's knowledge, all such loan and purchase transactions were in accordance with both his own fiduciary duties and the express provisions of the trust agreements.

         ¶ 13 The final affidavit that John submitted in support of his motion for summary judgment was from Fred Goldman. Goldman indicated that he was the chief financial officer of Equitec Group LLC, which was a holding company that supported the trading activities of John, Asher, and their respective trusts. Goldman was "highly familiar with the structure and mechanics" of the irrevocable trusts at issue. Because of that familiarity, John asked him to prepare a summary for each trust, setting forth the initial funding and the subsequent loan transactions involving John. Over the course of approximately 20 pages in his affidavit, Goldman summarized the history of transactions for each trust. The summaries reflected that John borrowed extensively from the trusts, but that he repaid the loans with interest. Certain loans were outstanding as of the date Goldman executed the affidavit.

         ¶ 14 Janet filed an 80-page memorandum opposing John's motion for summary judgment. She insisted that it was not until discovery in this action that she learned of "the extent of the trust work John had engaged in during the course of the marriage." She also discovered that she would be excluded as a beneficiary of some of the trusts in the event of a divorce from John. Janet emphasized that Graber acknowledged in his deposition that he never communicated with her about the trusts. She said that her only involvement with the trusts was to blindly sign documents based on John's "misrepresentations." She claimed that, since 2005, she had been "the unwilling and unsuspecting victim of an ongoing scheme at the hands of John."

         ¶ 15 Janet also argued in her memorandum opposing summary judgment that the majority of the assets in the trusts had been transferred while the marriage was undergoing an irretrievable breakdown: i.e., after 2010. Janet conceded that "the trusts, on their face, make it appear as though John has made irrevocable gifts to the third-party entit[ies]." Nevertheless, she argued, Romano and Johnson did not support John's legal position, as the transfers at issue were "illusory and/or colorable" and without "the requisite donative intent." Some of the factors that Janet cited in support of her contention that John had not relinquished control over the assets in the trusts were that he borrowed funds from the trusts, he named a close friend and his brother as trustees, and "[a]ll transactions with the trusts [were] with people related to John in some form." Janet repeatedly complained that she was missing information with respect to the trusts and that she required additional discovery.

         ¶ 16 Janet submitted a long list of materials as exhibits to her memorandum opposing summary judgment. Two of those exhibits were affidavits. One was from her accounting expert, Tom Levato. Levato identified scores of purported deficiencies in John's production of documents during discovery. Janet also submitted her own affidavit, in which she averred as follows. She never consulted with or was advised by any attorney from Katten Muchin or Drinker Biddle. She knew that John had established a qualified personal residence trust, but she was not aware that either she or John had established or funded any other trusts. During these divorce proceedings, she learned that her signature appeared on a number of trust documents. Although her signature appeared to be genuine, she never signed those documents knowing the nature of what she was signing. To that end, during the marriage, John would frequently ask her to sign documents without telling her what she was signing. Instead, he "would simply state that the documents were 'just business' or 'nothing to worry about' or 'for the children' or 'for tax purposes.' " She was never asked to sign any document that she knew related to a trust.

         ¶ 17 According to Janet's affidavit, she and John began experiencing marital difficulties in late 2010. Prior to filing the dissolution action, she never knew that she was either the trustee or the beneficiary of any trust. Nor did Asher or Michael LaRocque ever contact her regarding the trusts. In June 2015, she requested trust documents from Asher and Michael, but she did not receive those documents. Prior to petitioning for divorce, she was not aware of any transactions with or gifts of property to the trusts. She was also unaware that John funded the trusts with marital assets and that he borrowed extensively from the trusts. Although she was designated as a trustee of certain trusts, she never approved any loans for John, and she did not know that he could borrow from any trust.

         ¶ 18 Following a lengthy hearing at which the court entertained argument from the parties' attorneys, the court granted John's motion for summary judgment. The court determined that the trusts at issue were "separate legal entities, " in the sense that "neither party has a property interest in those trusts, " and that "neither the trusts nor their assets [were] includable in the parties' marital estate or in either party's nonmarital estate." In the course of explaining its ruling, the court emphasized that the trusts were not illusory in form, given that they were all created by written agreements. Janet's failure to read documents before signing them was no defense. The court likewise determined that the trusts were not illusory in substance, because lending is a common and proper purpose of such trusts and John repaid his loans. There was also no indication that the trusts had lost money or that the trustees had breached their fiduciary duties. The court stressed that its ruling did not preclude Janet from subsequently arguing at trial that, by creating these trusts, John nevertheless committed dissipation or fraud against Janet.

         ¶ 19 B. Proceedings Following Summary Judgment and Prior to Trial

         ¶ 20 This litigation, which was rather contentious from the outset, became even more so during the course of briefing and arguing John's motion for summary judgment. John ultimately filed a motion for sanctions against Janet and her counsel-the law firm of Rosenfeld, Hafron, Shapiro & Farmer-pursuant to Illinois Supreme Court Rule 137 (eff. Jan. 1, 2018) and section 508(b) of the Illinois Marriage and Dissolution of Marriage Act (Act) (750 ILCS 5/508(b) (West 2016)). According to John, in the course of opposing his motion for summary judgment, Janet and her counsel "pursued a no-holds-barred litigation strategy characterized by misrepresentations of the law and the facts, baseless and frivolous claims and motions, and irresponsible accusations of wrongdoing against John and others." The court did not rule on this motion until after trial.

         ¶ 21 Meanwhile, the court intervened in a number of heated discovery disputes between the parties. One of the primary areas of disagreement was whether Janet had received all of the documents she requested from John. The court addressed these matters at a lengthy hearing on February 10, 2016. Janet's lead attorney, Rosenfeld, informed the court that, instead of personally reviewing the documents that John was producing in discovery, his office was submitting those documents to an accounting firm for review. According to Rosenfeld, the accountants informed him that they did not have certain documents, even though John's counsel insisted that he produced them. At a subsequent hearing on February 22, 2016, Shaska Dice, an attorney who worked with Rosenfeld, acknowledged that some of the documents that Rosenfeld had claimed were missing had simply not been inventoried by Janet's accountant. John subsequently filed a second motion for sanctions against Janet and her counsel pursuant to Rule 137 and section 508(b) of the Act for their conduct related to discovery. The court did not rule on that motion until after trial.

         ¶ 22 C. Trial

         ¶ 23 Janet served John with a notice of intent to claim dissipation. John admitted to dissipation of approximately $209, 000 in connection with certain of his expenditures after the dissolution action was filed. That was apparently only a fraction of the amount that Janet claimed John had dissipated.

         ¶ 24 The matter proceeded to trial in two phases. In the first phase, the court heard evidence regarding the date that the marriage began its irretrievable breakdown. The second phase focused on issues relating to support obligations and the distribution of property.

         ¶ 25 The trial was originally scheduled for six dates in June 2016. On each of those dates, three attorneys appeared in court on Janet's behalf: Rosenfeld, Dice, and Andrew Harger. On the fourth day of trial, the court noted that it would need to set more dates, as it was evident that the trial would not conclude within the allotted time. When the court mentioned scheduling additional dates, Rosenfeld informed the court that Dice was expecting a baby the next month. Despite Rosenfeld's protests that he "absolutely cannot proceed without" Dice, the court scheduled additional trial dates in July. Janet subsequently filed an emergency motion to continue the trial based on Dice's unavailability. The court denied that motion. For the remainder of the trial, Rosenfeld and Harger appeared each day except for the final day, when only Rosenfeld appeared.

         ¶ 26 1. Phase One of Trial

         ¶ 27 The trial record is voluminous. Recounting all of the evidence presented would be neither practical nor necessary for the resolution of this appeal. It will suffice to say that John and Janet were the only witnesses during the first phase of the trial and that they presented wildly different accounts of when their marriage started to break down. Generally, the evidence showed that the parties' eldest son suffered a very serious deterioration in health in late 2010 and passed away in June 2014. Janet believed that the dynamic of the marriage began to change in the wake of the son's change in health. Although the evidence showed that John and Janet sporadically consulted with or attempted to contact divorce attorneys during 2012 (or, in Janet's case, perhaps as early as 2011), neither of them actually retained counsel until the fall of 2013. Even after retaining counsel, John and Janet did not immediately petition for divorce. Instead, their attorneys exchanged letters while John and Janet both continued to live in the marital residence until the spring of 2014. The evidence showed that John and Janet took a trip to Mexico together during late January or early February 2014. Shortly after returning, they participated in mediation sessions, which proved unsuccessful. Janet petitioned for dissolution of the marriage in May 2014.

         ¶ 28 Janet testified that the marriage began to deteriorate in 2011 as she became the primary caretaker for their ailing son while John rejected her requests to work and travel less. Beginning in 2011, Janet explained, she and John generally stopped going on dates together, and their social life consisted primarily of attending events with their family. She testified that in August 2013 John told the family that he intended to move out of the marital residence. According to Janet, she discovered in December 2013 that someone who she believed was John's paramour was contacting him. Janet related that the purpose of the trip to Mexico in early 2014 was to discuss divorce. She claimed that the reasons she did not pursue divorce until 2014 were that it would have been too much for the family to handle in light of the issues with their eldest son and that John had control over the family's finances. Through her attorney's examination of John, Janet attempted to establish that, after consulting with divorce lawyers in 2012, John engaged in a series of financial transactions that removed money from the marital estate.

         ¶ 29 John, on the other hand, testified that the marriage did not begin its irretrievable breakdown until March or April 2014. He maintained that he at all times worked with Janet to care for their ailing son, and he denied ever abandoning Janet. He recalled that he and Janet communicated and socialized with each other normally through 2013. Over Janet's objections, John introduced into evidence printouts of the parties' text messages from late 2010 to December 2012. (John said that he was unable to obtain their text messages after December 2012.) Although John admitted that both he and Janet contacted divorce attorneys in 2012, he testified that things returned to normal after they discussed the matter and agreed they did not want a divorce. John insisted that he did not divest himself of assets after speaking with a divorce attorney. He denied engaging in divorce planning, and he said that his various financial transactions were part of an ongoing estate plan. He also denied being in a dating relationship with a paramour in December 2013. Moreover, John testified, even after he and Janet retained divorce attorneys in the fall of 2013, they shared a bedroom until March 2014. John claimed that the purpose of the trip to Mexico in 2014 was to have a good time, not to discuss divorce. According to John, their relationship was "good" when they returned from Mexico in early February, and things did not get volatile between them until a month later.

         ¶ 30 The court found that February 1, 2014, was the date that the marriage began its irretrievable breakdown. The court noted that, although Janet claimed to have known in 2011 that divorce was inevitable, there was no evidence that she attempted to talk to John about attending counseling or saving the marriage. The court found that surprising, given that the parties had been married 25 years, had raised four children together, and had "invested a lot into this marriage." The court stated that it had to look to the objective evidence to determine when the marriage broke down. According to the court, the parties' text-message communications were "obviously crucial to that." The court cited multiple examples of text messages that demonstrated "positive communication" that was typical of a married couple. The court observed that, even in the one instance where the text messages reflected some sort of disagreement between the parties, the exchange was neither confrontational nor derogatory. The court identified other objective indications that the marriage was not irretrievably breaking down between 2011 and 2013, such as the parties' sharing a bedroom and socializing with friends. Although John and Janet contacted divorce attorneys at certain points, the court found that this "really doesn't mean anything, " because they did not file for divorce.

         ¶ 31 The court found that "things started to change" in fall 2013 when the parties actually retained divorce attorneys. To that end, the court credited Janet's testimony that in August 2013 the parties discussed ending the marriage. However, the court did not know whether John and Janet were "really trying to get a divorce" at that point or were instead still trying to save the marriage, given that they continued to reside together in the marital residence and did not immediately petition for divorce. Additionally, given that Janet believed that John had a paramour as of December 2013, the court failed to understand why John and Janet went to Mexico together in January 2014. In the court's opinion, it was "really, really hard to say that the marriage [was] irretrievably broken" if Janet went on a trip with John despite believing that he had a paramour. The court discredited Janet's testimony that the purpose of the trip was to discuss divorce. The court instead deduced that this was "a last ditch effort" to save the marriage before starting mediation, which ultimately proved unsuccessful.

         ¶ 32 Addressing Janet's divorce-planning theory, the court agreed, as a general principle, that if John were "scheming for this divorce" and "actually doing divorce planning to minimize his estate, " that would be a clear indication that the parties were not working together during the time periods at issue. Although Janet introduced evidence of a number of John's financial transactions during and after 2012, the court found that this evidence was presented in a vacuum. Specifically, there was no indication that these transactions were unusual for John. To the contrary, the court found that John had funded trusts for a long period of time. There was nothing causing the court to think that John was purposefully diminishing his estate.

         ¶ 33 2. Phase Two of Trial

         ¶ 34 Having established February 1, 2014, as the date the marriage began its irretrievable breakdown, the matter proceeded to the second phase of trial, regarding support obligations and division of property. Some of the matters addressed during this portion of the trial-such as disputes relating to the valuation of assets, Janet's reasonable monthly expenses, and certain of John's recent expenditures-are not directly relevant to this appeal. However, one of Janet's contentions during the second phase of trial was that John depleted the marital estate over the course of many years by transferring large sums of money to the irrevocable trusts. Janet maintained that this argument was distinct from her claim of dissipation, and she proposed that the court could consider John's actions as a factor in her favor when dividing the marital estate. See 750 ILCS 5/503(d)(1) (West 2016) (directing the trial court to consider "each party's contribution to the acquisition, preservation, or increase or decrease in value of the marital or non-marital property" (emphasis added)). Over John's objections, the court allowed Janet to advance her depletion theory. Janet's counsel also questioned John at length about the substantial amounts of money he borrowed from, and paid back to, the irrevocable trusts. John asserted that he generally used the money he borrowed to service other existing debt, to pay bills, or to invest. According to John, since the 1980s, he had often taken out loans as part of his employment as a trader and investor.

         ¶ 35 D. Judgment for Dissolution of Marriage

         ¶ 36 On November 1, 2016, the court entered a judgment for dissolution of marriage. The court rejected Janet's argument that the trusts were part of a divorce-planning scheme designed to harm the marital estate. Instead, the court found, in addition to offering tax benefits to the parties' children, the trusts provided John with capital for investing while protecting the marital estate from the effects of bad investments. The court determined that, contrary to Janet's claim that John used the trusts as his personal "piggy bank, " John always repaid the loans with interest. The court found no case law supporting that estate planning for the benefit of the parties' children was tantamount to diminishing the marital estate.

         ¶ 37 The court determined that the net value of the marital estate was $21, 129, 655. The court divided the estate equally between John and Janet. In explaining its reasons for doing so, the court once again rejected Janet's argument that John depleted the marital estate from 2005 through 2013 by funding irrevocable trusts. The court deemed Janet's argument "extremely unpersuasive, both legally and factually, " given that she signed joint gift-tax returns, she failed to provide evidence of what portion of their estate was contributed to the trusts, she failed to ...

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