10-Dix Bldg. Corp. v. McDannel

• Decision Date: 28 June 1985
• Docket Number: No. 83-1314,84-775,83-1314
• Citation: 134 Ill.App.3d 664,89 Ill.Dec. 469,480 N.E.2d 1212
• Parties: , 89 Ill.Dec. 469 10-DIX BUILDING CORPORATION, Farina Insurance Agency Corp., Summerwood Enterprises, Inc., and Gene Farina, Plaintiffs-Appellees, v. Margaret McDANNEL and Leonard McDannel, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 1212

480 N.E.2d 1212

134 Ill.App.3d 664, 89 Ill.Dec. 469

10-DIX BUILDING CORPORATION, Farina Insurance Agency Corp., Summerwood Enterprises, Inc., and Gene Farina, Plaintiffs-Appellees, v. Margaret McDANNEL and Leonard McDannel, Defendants-Appellants.

No. 83-1314, 84-775.

Appellate Court of Illinois,

First District, First Division.

June 28, 1985.

Paddy Harris McNamara, Chicago (Jane Field Derbyshire, Riverside, of counsel), for defendants-appellants.

Boodell, Sears, Giambalvo & Crowley, Robert N. Caffarelli, William M. McErlean, Angelika Kuehn, Chicago, for plaintiffs-appellees.

BUCKLEY, Justice:

In these two consolidated appeals, defendants Margaret and Leonard McDannel seek reversal of orders finding them in contempt of court and entering sanctions of default and attorney fees against them. The sanctions were imposed as a result of defendants' refusal to comply with court orders compelling discovery. The court ordered Margaret to pay plaintiffs $40,195 in compensatory damages, $60,000 in punitive damages, and required her to forfeit four years and three months' salary she received from two of the three corporate plaintiffs. The court, however, dismissed the claim against Leonard, finding there was insufficient evidence of damages as to him. Plaintiffs cross-appeal the dismissal. For the following reasons, we affirm in part, and reverse and remand in part.

The three corporate plaintiffs are businesses owned and operated by Gene R. Farina (Farina), the individual plaintiff in this case. Plaintiff 10-Dix Building Corporation (10-Dix) owns and manages an office building in Chicago Heights; plaintiff Farina Insurance Agency Corp. (Farina Insurance) is an insurance agency; and plaintiff Summerwood Enterprises, Inc. (Summerwood) is a hotel in Lake Placid, New York.

As of May 1983, defendants Margaret and Leonard McDannel had been married for approximately 15 years. From 1975 through March 1980, Margaret was employed by 10-Dix and Farina Insurance as bookkeeper and general office administrator for the three corporate plaintiffs. Leonard, although a school teacher by profession, was employed by 10-Dix as a janitor and "handyman" during that same period.

On December 2, 1980, plaintiffs filed a 42-paragraph complaint in chancery alleging that defendants embezzled from plaintiffs in excess of $100,000 during the course of their employment. Plaintiffs alleged that defendants, acting in conspiracy, misappropriated funds by using Margaret's check cashing authority and "position of trust" to fraudulently pay the defendants' household and other personal bills, to acquire three pieces of real estate and to build up a cash fund. The complaint contained two counts, the first in equity and the second at law. Count I prayed for an accounting, disgorgement, injunctive relief, compensatory and punitive damages and attorney fees and costs. Count II sought compensatory and punitive damages and legal fees and costs. Later that month, plaintiffs filed their first request for the production of documents.

Both defendants initially filed motions to strike the complaint which were denied by the court. Thereafter, on August 14, 1981, defendants filed answers to the complaint, which were signed by their attorney. Margaret's answer admitted the jurisdictional allegations and employment relationship, totally denied the allegations in 22 paragraphs and answered another three paragraphs by asserting insufficient knowledge. The answer admitted the allegations in one paragraph that defendants' daughter, Jill McDannel, received funds in excess of what she was entitled to. Finally, Margaret stated in response to the allegations in the remaining paragraphs that any alleged overpayments were acquiesced in by Gene Farina. For example, paragraph 27 alleged:

"On at least 11 occasions, Margaret McDannel drew checks on the bank account of Farina Insurance to the order of 'cash,' or to the order of another payee, delivering these checks to such payees in exchange for cash which she retained for her personal use and the use of Leonard McDannel."

Margaret answered as follows:

"The defendant admits that she drew some checks made to the order of cash on the account of Farina Insurance, but denies that she retained any money that was not due her, and any money that she did retain was so retained with the full knowledge of and at the direction of Gene R. Farina."

On September 4, 1981, two of the plaintiffs' attorneys met with defendants' attorney pursuant to a suggestion by the court that the parties attempt to settle this matter. At that meeting, one of the plaintiffs' attorneys, Robert Cafferelli, made what defense counsel understood to be a threat of criminal prosecution if the matter was not settled to the satisfaction of plaintiffs. Defendants' attorney then gave notice that, as a result of the statements made by Cafferelli at the conference, Margaret would avail herself of the right to assert the fifth amendment privilege against self-incrimination. On September 15, 1981, plaintiffs deposed Margaret. At her deposition, after stating her name and address, Margaret invoked the fifth amendment privilege as to all subsequent questions.

The following month, Leonard's deposition was taken during which he was questioned extensively as to his finances. He produced documents at the time of his deposition and in November 1981. He refused, however, to produce documents over which Margaret had possession and control.

On November 20, 1981, plaintiffs filed a motion to compel discovery. Plaintiffs claimed that Margaret waived any fifth amendment privilege by answering the complaint and that her assertion of the privilege was overly broad. Attached to plaintiffs' motion was the affidavit of attorney Cafferelli, in which he admitted demanding from Margaret at the September conference full disclosure of the "amounts she had taken from the plaintiffs" and the disclosure as to how she would pay the money. Cafferelli further acknowledged that when defendants' attorney refused to accede to this demand he responded, "[W]ith an attitude like that, Margaret McDannel was headed right to jail." Cafferelli admitted he made reference to the State's Attorney and indicated that, in determining whether to prosecute, the State's Attorney might consider whether or not restitution was made. Finally, the affidavit indicates that one year prior to the September 4, 1981, conference, an assistant State's Attorney had interviewed Margaret in the presence of the affiant, Gene Farina, and Margaret's former attorney. No mention is made in the affidavit as to what transpired at the interview or its purpose.

On February 28, 1983, the court granted plaintiffs' motion to compel, ruling that Margaret had waived her testimonial privilege to the extent she had made substantive statements of fact in her answer, and ordered her to answer deposition questions with respect to these substantive statements. The court also ordered Margaret and Leonard to produce the documents requested. The court ruled that Margaret could not assert a privilege with respect to the documents.

On March 7, 1983, Margaret was indicted. Defendants requested reconsideration of the court's ruling on the motion to compel in light of the indictment. On April 6, 1983, the court reaffirmed its prior ruling and ordered Margaret to answer deposition questions concerning the facts underlying her answer to the complaint.

On May 3, 1983, Margaret appeared for her second deposition and again asserted the fifth amendment privilege. She additionally refused to produce any documents, claiming the fifth amendment. Leonard also did not produce more documents.

On May 5, 1983, plaintiffs filed a motion for sanctions for defendants' failure to comply with discovery orders. The court thereafter issued a rule to show cause against Margaret and Leonard for their failure to comply with the discovery ordered by the court. On May 18, 1983, after hearing arguments but no testimony, the court found Margaret in contempt and ordered Leonard to appear for a hearing on the question of whether he had control over the documents sought, and reserved ruling on the question of sanctions. On May 20, 1983, following a hearing on the control issue, the court entered an order finding Leonard in contempt, striking the answers of both defendants and entering a judgment of default on count I as to Margaret and Leonard. On May 25, 1983, the court entered another order requiring defendants to pay plaintiffs $7,644 for attorney fees and costs they incurred as a result of defendants' failure to comply with discovery. Defendants appealed the court's orders under Docket No. 83-1314.

On June 23, 1983, the court began a prove-up on the default judgments. Defendants attempted to show at the prove-up that Margaret was in fact authorized by Farina to sign the checks in question as part of an irregular scheme of compensation Farina instituted for tax purposes. Following the prove-up, the court ordered Margaret to pay plaintiffs $40,195 in compensatory and $60,000 in punitive damages, and ordered her to forfeit her salary for four years and three months. The court, however, dismissed count I as to Leonard for insufficient proof of damages. The court stated that its judgment was final and appealable as to count I and transferred the cause for reassignment to the law division for further proceedings as to count II. Margaret filed an appeal from the entire judgment, and plaintiffs cross-appealed the court's ruling in favor of Leonard under Docket No. 84-775.

I.

We first review the propriety of the trial court's order holding Margaret in contempt for failure to comply with court orders requiring her to answer deposition questions and produce documents. The court held that Margaret, by answering plaintiffs' complaint, waived her right to assert the fifth amendment privilege against self-incrimination in response to discovery. Without citing authority, ...