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Lakeshore Centre Holdings, LLC v. LHC Loan, LLC

Court of Appeals of Illinois, First District, First Division

June 28, 2019

LAKESHORE CENTRE HOLDINGS, LLC, Plaintiff-Appellee/Cross-Appellant,
v.
LHC LOAN, LLC; PETER GOLDMAN; JOHN READING WILSON; JONATHAN BROSS; and LHC INVESTMENT, LLC, Defendants-Appellants/Cross-Appellees.

          Appeal from the Circuit Court of Cook County No. 12 L 10029 The Honorable James E. Snyder, Judge Presiding.

          JUSTICE PIERCE delivered the judgment of the court, with opinion. Justice Griffin concurred in the judgment and opinion. Presiding Justice Mikva dissented, with opinion.

          OPINION

          PIERCE JUSTICE

         ¶ 1 Defendants LHC Loan, LLC (Loan), Peter Goldman, John Reading Wilson, Jonathan Bross, and LHC Investment, LLC (Investment) and plaintiff Lakeshore Centre Holdings, LLC (Lakeshore) appeal from the circuit court's judgment granting in part and denying in part defendants' motion for sanctions filed pursuant to Illinois Supreme Court Rule 137 (eff. July 1, 2013). For the reasons that follow, we find that defendants' motion for sanctions-which was filed nearly five months after the circuit court's final judgment on Lakeshore's claims, and while those claims were before this court on appeal-was untimely, and therefore the circuit court lacked jurisdiction to grant any of the relief requested in the motion. We therefore vacate the circuit court's judgment on defendants' Rule 137 sanctions motion and dismiss this appeal.

         ¶ 2 I. BACKGROUND

         ¶ 3 We set forth only those facts necessary to understand our disposition. Lakeshore, facing financial difficulties related to a health club it owned, sold its 34% ownership interest in LHC Operating, LLC (Operating) to Loan in exchange for an option to repurchase the 34% ownership interest on or before two specified dates for amounts specified in the parties' agreement (repurchase option). Lakeshore attempted to exercise the repurchase option, but was unsuccessful. Lakeshore filed its initial complaint in September 2012. Lakeshore's complaint related solely to the sale of its 34% interest in Operating and the alleged failure of Loan to perform under the repurchase option. Over the course of four years, and through four iterations of its complaint, Lakeshore pursued claims against defendants for fraudulent inducement, fraudulent misrepresentation, breach of contract, and tortious interference with a contract. During the course of the litigation, Loan filed a counterclaim against Lakeshore for breach of contract based on Lakeshore's alleged failure to enter into good faith negotiations concerning Loan's potential purchase of a different health club owned by Lakeshore. None of the other defendants were named as counterplaintiffs in Loan's counterclaim. Loan's counterclaim against Lakeshore was not related to or dependant on the claims advanced by Lakeshore in its underlying amended complaints.

         ¶ 4 On July 12, 2016, the circuit court entered summary judgment in favor of defendants on the breach of contract claims in Lakeshore's second amended complaint and dismissed Lakeshore's remaining claims, but granted Lakeshore leave to amend its fraud claims. Lakeshore filed a third amended complaint that contained amended fraud claims. The third amended complaint also asserted breach of contract and tortious interference claims that were nearly identical to the claims that were disposed of in the July 12, 2016, order. On November 30, 2016, the circuit court dismissed Lakeshore's third amended complaint in its entirety with prejudice and made a finding pursuant to Illinois Supreme Court Rule 304(a) (eff. Mar. 8, 2016).[1] The November 30, 2016, order also made final the circuit court's July 12, 2016, order entering summary judgment in favor of defendants on Lakeshore's breach of contract claims. Lakeshore filed a timely notice of appeal on December 28, 2016. We affirmed the circuit court's judgment in all respects, with one justice dissenting in part. Lakeshore Centre Holdings, LLC v. LHC Loan, LLC, 2017 IL App (1st) 163402-U (Lakeshore I), petition for leave to appeal denied, No. 123814 (Sept. 26, 2018).

         ¶ 5 On May 25, 2017, while Lakeshore I was pending in this court, defendants filed a motion in the circuit court for sanctions against Lakeshore pursuant to Illinois Supreme Court Rule 137 (eff. July 1, 2013). [2] Defendants asserted that, based on the deposition testimony of Lakeshore's owner Walter Kaiser, all of Lakeshore's claims falsely alleged that Goldman, Wilson, and Bross made misrepresentations about the nature of the transaction and whether Lakeshore's ownership interest would be returned intact upon exercise of the repurchase option. Defendants also argued that Lakeshore's fraud claims, which were in the nature of promissory fraud claims, were legally deficient, and that Lakeshore's breach of contract claims were "baseless" and contained false factual allegations. In short, the Rule 137 sanctions motion related solely to the underlying sale and repurchase option of the 34% interest in Operating, and nothing in the sanctions motion related to the underlying transaction that was the subject of Loan's counterclaim.

         ¶ 6 After briefing and an evidentiary hearing, the circuit court entered a written order that granted defendants' Rule 137 sanctions motion in part and denied it in part. The circuit court awarded defendants $825 in attorney fees. The circuit court denied defendants' subsequent motion to vacate and reconsider the sanctions award and denied defendants leave to file an amended fee petition. Defendants filed a timely notice of appeal, and Lakeshore filed a timely notice of cross-appeal.[3]

         ¶ 7 After the parties briefed this appeal and cross-appeal of the sanctions judgment, we ordered supplemental briefing on the issue of whether the circuit court had subject-matter jurisdiction to grant the relief requested in defendants' Rule 137 sanctions motion, which was based solely on the allegations in Lakeshore's complaint, where the Rule 137 sanctions motion was filed more than 30 days after the circuit court entered a final and appealable judgment pursuant to Rule 304(a) on all of the claims in Lakeshore's complaint.

         ¶ 8 II. ANALYSIS

         ¶ 9 We have an independent duty to consider the circuit court's subject-matter jurisdiction, even if the issue is not raised by the parties. J&J Ventures Gaming, LLC v. Wild, Inc., 2015 IL App (5th) 140092, ¶ 33, aff'd, 2016 IL 119870. Whether the circuit court had subject-matter jurisdiction is a question of law reviewed de novo. J&J Ventures Gaming, LLC v. Wild, Inc., 2016 IL 119870, ¶ 25. Furthermore, our jurisdictional analysis is guided by our interpretation of Rule 137, which is also a question of law that we review de novo. Kaull v. Kaull, 2014 IL App (2d) 130175, ¶ 28. "Because Rule 137 is penal in nature, it will be strictly construed." Dowd & Dowd, Ltd. v. Gleason, 181 Ill.2d 460, 487 (1998).

         ¶ 10 Rule 137 provides, in relevant part,

"(b) Procedure for Alleging Violations of This Rule. All proceedings under this rule shall be brought within the civil action in which the pleading, motion or other document referred to has been filed, and no violation or alleged violation of this rule shall give rise to a separate civil suit, but shall be considered a claim within the same civil action. Motions brought pursuant to this rule must be filed within30 days of the entry of final judgment, or if a timely post-judgment motion is filed, ...

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