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Short v. Pye

Court of Appeals of Illinois, Second District

July 31, 2018

CHARLES F. SHORT III, Individually and on Behalf of Sidewinder Holdings, Ltd., Plaintiff-Appellant and Cross-Appellee,
IAN J. PYE; GEORGE D. BEST; MERIDIAN VENTURES, INC.; 4SAMEDAY SOLUTIONS GP LLC; and 4SAMEDAY SOLUTIONS, LTD., Defendants-Appellees and Cross-Appellants Ted A. Donner; Brad S. Grayson; Strauss & Malk, LLP; Siprut P.C.; and Joseph J. Siprut, Cross-Appellees.

          Appeal from the Circuit Court of Lake County. No. 10-CH-7073 Honorable Luis A. Berrones, Judge, Presiding.

          JUSTICE JORGENSEN delivered the judgment of the court, with opinion. Justices Hutchinson and Burke concurred in the judgment and opinion.



         ¶ 1 Defendants, Ian J. Pye; George D. Best; Meridian Ventures, Inc.; 4Sameday Solutions GP, LLC; and 4Sameday Solutions, Ltd., appeal the trial court's rulings (1) denying them sanctions against plaintiff, Charles F. Short III; (2) determining that defendants' sanctions motions against plaintiff's attorneys, Ted A. Donner; Brad S. Grayson; Strauss & Malk, LLP; Siprut P.C.; and Joseph J. Siprut, were untimely; and (3) denying defendants' motion in limine on the issue of whether plaintiff waived, in a motion to reconsider, his attorney-client privilege. We affirm.

         ¶ 2 I. BACKGROUND

         ¶ 3 Plaintiff, through three sets of attorneys ((1) Donner; (2) Siprut and Siprut P.C. (collectively, Siprut); and (3) Grayson and Strauss & Malk, LLP (collectively Grayson/Strauss & Malk)) filed a total of five (unverified) complaints against defendants alleging, in sum, that defendants induced him into selling his interest in a company, Sidewinder Holdings, Ltd., for insufficient consideration and for less than it was worth. The complaints were either withdrawn or dismissed without prejudice, until October 4, 2013, when the court dismissed with prejudice the fourth amended complaint. No postjudgment motions were filed.

         ¶ 4 A. Rule 137 Motions

         ¶ 5 On October 21 and October 23, 2013, pursuant to Illinois Supreme Court Rule 137 (eff. July 1, 2013), defendants moved for sanctions against only plaintiff, individually. Plaintiff opposed the motion, arguing, in part, that there was a good-faith factual and legal basis for filing the pleadings.

         ¶ 6 On February 14, 2014, the trial court granted the sanctions motion against plaintiff, finding that plaintiff had alleged facts in latter pleadings that contradicted facts alleged in previous pleadings, ignored in latter complaints facts that had earlier negated his causes of action, and stated causes of action for which he lacked standing. The court ordered defendants to submit fee petitions to determine the amount of the sanctions award.

         ¶ 7 On March 17, 2014, however, plaintiff moved for reconsideration, arguing in part that defendants had not sustained their burden of demonstrating that sanctions should be levied against him personally, given that Rule 137 provides that sanctions may be assessed against an attorney, the client, or both, and that matters of strategy and decisions regarding which claims to pursue are generally within the purview of counsel, not the client. Plaintiff asserted that the allegedly sanctionable conduct implicated his attorneys, not himself individually, as his attorneys were responsible for the pleadings.

         ¶ 8 On May 30, 2014, the court granted plaintiff's motion in part, determining that an evidentiary hearing was necessary to determine whether plaintiff was personally culpable for sanctionable conduct. Defendants asserted that plaintiff had forfeited the issue of proof of culpability; alternatively, they moved for discovery about communications between plaintiff and his attorneys regarding the preparation of the pleadings. The court found that plaintiff had not forfeited the issue of proof of culpability, and it set a hearing to consider defendants' motion for discovery, to which plaintiff objected based on the attorney-client privilege. On January 9, 2015, the court entered an order denying defendants' motion; however, no hearing transcript is contained in the record on appeal.

         ¶ 9 On January 30, 2015, purportedly at defendants' request, the court permitted defendants to file an "amended petition for sanctions," naming plaintiff's attorneys as respondents. Accordingly, on February 10, 2015, more than one year after the entry of the final judgment, defendants filed an "amended" motion for Rule 137 sanctions, naming plaintiff's attorneys as respondents. The attorneys moved to strike the motion, arguing that it was untimely because it was not filed within 30 days after the final judgment.

         ¶ 10 On June 11, 2015, after briefing and oral argument, the court agreed with the attorneys and struck defendants' sanctions motion. The court rejected defendants' argument that, because the court had not yet finally ruled on the original sanctions motion against plaintiff, it continued to have jurisdiction over the "amended" motion. The court noted that the issue was not jurisdictional; rather, like a statute of limitations, Rule 137 requires a sanctions motion to be filed within 30 days after a final judgment or a ruling on a timely postjudgment motion. The court explained that everyone agreed that the timely sanctions motion against plaintiff was not a postjudgment motion and, further, that section 2-616(d) of the Code of Civil Procedure (Code) (735 ILCS 5/2-616(d) (West 2014)), permitting amendments to relate back to earlier filings, concerns only pleadings (and defendants could not, in any event, satisfy those requirements). In contrast, the court found, there is no provision in the Code or the Illinois Supreme Court Rules for amending a motion. The court noted that defendants' original, timely sanctions motion was strategically filed against only plaintiff, "for whatever reason," and that defendants had chosen to "pursue the party as opposed to the attorneys or the attorneys and the party." Thus, defendants' "amended" motion was really a new motion for sanctions against new parties, filed outside of Rule 137's time restriction. The court further noted that there were no allegations of fraud or concealment of the attorneys' identities or the alleged misconduct. Defendants raised the concern that, if the court found that plaintiff was not culpable for the alleged sanctionable conduct, then there was no recourse. The court reiterated that defendants initially chose to pursue sanctions against only plaintiff, noting, "You made a strategic decision within 30 days of my final judgment. *** Sometimes there's no remedy for a wrong. I think you're out of luck."[1]

         ¶ 11 B. Hearing: Sanctions as to Plaintiff

         ¶ 12 On February 1, 2016, the court held an evidentiary hearing to determine to what extent plaintiff was responsible for the filings subject to sanctions. Plaintiff was the only witness called by the parties (but the hearing transcript exceeds 200 pages). The evidence adduced showed that, for preparation of the complaints, plaintiff had provided his attorneys with a lengthy (40-page) factual memorandum as well as numerous (approximately 100) supporting documents. In addition, his attorneys performed independent investigations. Plaintiff agreed that he communicated with his attorneys throughout the course of their representation, regarding both facts and strategy, as evidenced by the attorneys' billing records. He agreed that he ran a few "Google" searches on defendants' companies and provided results from those searches to his attorneys to ascertain if any of the information was relevant. However, plaintiff's testimony can be fairly summarized as asserting that he provided his attorneys with facts but did not develop legal theories or draft any pleadings. Plaintiff repeated that he hired the attorneys for their expertise and deferred to their advice.

         ¶ 13 C. Ruling

         ¶ 14 On April 29, 2016, the court denied defendants' motion for Rule 137 sanctions against plaintiff. In sum, the court found that the sanctionable conduct concerned legal matters and case strategy and that clients may be sanctioned for such conduct only when they have taken a "very active role" in the case. Here, the court found that defendants failed to meet their burden and that the uncontroverted evidence showed that plaintiff did not play a "very active role" in filing the complaints.

         ¶ 15 In its written ruling, the court enumerated 37 specific factual findings from the hearing. Those findings include: (1) plaintiff lived in Australia when Donner drafted the initial and amended complaints; (2) plaintiff supplied Donner with facts, in a 40-page memorandum with attached supporting documents, used to draft the complaints, but plaintiff did not draft or help draft the complaints; (3) plaintiff had never personally met Donner; (4) plaintiff had some discussions with Donner before each complaint was filed, and he was provided with a draft of the complaint to review the day before it was filed; (5) plaintiff had never personally met Joseph Siprut, his second attorney; (6) plaintiff provided Siprut with the same memorandum that he had provided Donner; (7) plaintiff received drafts of the third amended complaint and had some discussions with Siprut about it before it was filed, but he relied on Siprut to develop a litigation strategy for it; (8) Siprut did not explain to plaintiff why the third amended complaint was dismissed, and plaintiff was not aware of the reason for its dismissal until his most recent attorney explained it; (9) Siprut and Grayson discussed the case, and Grayson agreed to substitute in as plaintiff's third counsel and to prepare a fourth amended complaint; (10) plaintiff had not personally met Grayson; (11) plaintiff agreed that a fourth amended complaint should be filed, and he and Grayson had several conversations regarding case strategy; (12) the discussions between plaintiff and Grayson "involved Grayson explaining and telling [plaintiff] what was going to be in the fourth amended complaint," which was the product of Grayson's legal research and the materials provided to Grayson by Siprut; (13) plaintiff did not understand what it meant to file certain allegations "on information and belief," but Grayson told him that it was acceptable to make such allegations, without definitive information to support those claims, as it meant simply that "we believe this to be true and it needs to be proven in deposition"; and (14) plaintiff did not draft any of the filed complaints, nor did he sign or verify any of them.

         ¶ 16 Based on the foregoing, the court found that plaintiff provided his attorneys with extensive facts on the case, as he believed them to exist, but left it up to his attorneys to determine what claims, if any, could be filed. The attorneys, the court noted, clearly conducted their own factual and legal investigations to determine if the complaints could be filed, and plaintiff relied upon their advice. Further, the court noted that plaintiff's testimony that he let his attorneys draft the complaints and that he did not assist in drafting them was "bolstered by the fact that certain allegations were made 'on information and belief' a term which is likely unknown or foreign to non-lawyers but which, in the Court's experience, is frequently employed by attorneys in an attempt to bolster a claim which is short on facts." The court further found that the evidence presented did not prove that plaintiff had any role in including the allegations that the court specifically found sanctionable; rather, the evidence showed that the attorneys determined which allegations and causes of action should be included or excluded from the original and subsequent complaints and that plaintiff deferred to their advice, analysis, and recommendations.

         ¶ 17 Further, the court rejected defendants' argument that it should find plaintiff not credible and, accordingly, culpable for the improper filings. To the contrary, the court specifically found plaintiff's testimony "consistent and credible." Moreover: "Even if [plaintiff's] testimony was not credible, the defendants still fail to meet their burden of proof[, ] since the Court has no basis to impose liability for the sanctions on [plaintiff] based on [plaintiff's] failure to prepare or the claimed lack of credibility when no other evidence was ...

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