Cherney v. Soldinger

• Decision Date: 09 October 1998
• Docket Number: No. 1-97-3616,1-97-3616
• Citation: 702 N.E.2d 231,299 Ill.App.3d 1066
• Parties: , 234 Ill.Dec. 65 Jerry CHERNEY and Robert Gainsberg, Plaintiffs-Appellees, v. Larry SOLDINGER, Defendant-Appellant (Larry Soldinger, Defendant/Third-Party Plaintiff, v. Legal Financial Associates, Inc. and Eagle Insurance Agency, Inc., Third-Party Defendants).
• Court: United States Appellate Court of Illinois

Page 231

702 N.E.2d 231

299 Ill.App.3d 1066, 234 Ill.Dec. 65

Jerry CHERNEY and Robert Gainsberg, Plaintiffs-Appellees, v. Larry SOLDINGER, Defendant-Appellant (Larry Soldinger Defendant/Third-Party Plaintiff, v. Legal Financial Associates, Inc. and Eagle Insurance Agency, Inc. Third-Party Defendants).

No. 1-97-3616.

Appellate Court of Illinois First District, Fifth Division.

Oct. 9, 1998.

Stanley J. Parzen, Edward H. Williams and James C. Schroeder of Mayer, Brown & Platt, Chicago, for Defendant-Appellant.

David R. Herzog, Layfer, Cohen & Handelsman, Ltd., Chicago, for Plaintiffs-Appellees.

Justice HOURIHANE delivered the opinion of the court:

This matter comes before the court as an interlocutory appeal pursuant to Supreme Court Rule 308. 155 Ill.2d R. 308. We are asked to determine whether the unqualified release of one of two parties who caused a monetary loss to plaintiffs precludes a claim by plaintiffs against the other party for breach of fiduciary duty, considering the provisions of the Joint Tortfeasor Contribution Act (Act) (740 ILCS 100/2 (West 1996)), and the relevant common law. Because we answer in the affirmative, we reverse that part of the circuit court's order denying defendant's motion for summary judgment as to count I of plaintiffs' first amended complaint.

BACKGROUND

Count I of the first amended complaint alleges that plaintiffs Jerry Cherney (Jerry) and Robert Gainsberg (Gainsberg) are the shareholders, officers and directors of Eagle Insurance Agency, Inc. (Eagle) and Legal Financial Associates, Inc. (LFA). Until September 1993, Burton Cherney (Burton), Jerry's brother, was also an officer and director of the corporations. Defendant Larry Soldinger performed accounting services for the corporations.

In 1985, plaintiffs discovered that Burton had obtained $63,000 in excess advance payments from the corporations. Burton executed a promissory note in that amount, payable to Eagle, as evidence of his indebtedness. At this time, plaintiffs instructed defendant to make sure that Burton's advance account never exceeded plaintiffs' advance accounts by such large amounts, and that defendant advise plaintiffs if they needed to draw additional compensation so as to equalize all parties' compensation for a particular year.

Plaintiffs claimed that defendant, in violation of these instructions and in breach of his fiduciary duties to the corporations and its shareholders, failed to advise plaintiffs that Burton was receiving excess salary and compensation and that the $63,000 note Burton executed had been reduced to $23,000 through the payment of excess monies. Plaintiffs further claimed that defendant had prepared the corporate books and records to disguise these transactions.

Plaintiffs alleged other theories of recovery in counts II, III, and IV, on which summary judgment was granted in favor of defendant. The trial court's ruling on these counts is not a part of this appeal.

Prior to the instant litigation, Burton had filed a complaint in the chancery court against Jerry and Gainsberg, seeking declaratory relief, specific performance, and an accounting. Burton alleged that the parties were equal shareholders of Eagle and LFA and that, contrary to certain shareholder agreements, in October 1992, Jerry and Gainsberg removed him as an officer and employee of the corporations.

Jerry and Gainsberg filed a counterclaim against Burton for breach of fiduciary duty. They alleged that, without their prior consent, Burton borrowed $63,000 from Eagle's funds, executed a promissory note to repay the loan, and reduced the principal balance on the note to $23,000 solely through accounting adjustments and not by directly paying any funds to Eagle. They further alleged that Burton drew salary and advances far exceeding his share and contrary to the best interests of the corporation.

Jerry, Gainsberg and Burton settled their dispute and executed a "Mutual Release". The release states that, subject to certain exceptions not relevant here "[E]ach of Eagle * * *, [LFA] * * *, Jerry * * * and * * * Gainsberg * * * hereby releases and forever discharges Burton * * * from any and all causes of action, contracts, agreements, debts and promises, whether known or unknown, which any of Eagle, LFA, Jerry, [or Gainsberg] * * * now has or ever had, or may have in the future, by reason of any matter, event, cause or thing occurring prior to the date of this Mutual Release. The release * * * includes, without limitation, a release and discharge of Burton from any and all liabilities and obligations (a) to Eagle or LFA for any advances, borrowings, loans or other sums due to Eagle or LFA, (b) to any party as a result of any matter, event cause or cause of action alleged in or which could have been alleged in the Counterclaims in the action entitled Burton Cherney v. Jerry Cherney, et al., No. 93 CH 964, pending in the Circuit Court of Cook County, Illinois * * *, and (c) under or pursuant to any employment, shareholders or other agreement relating to Eagle or LFA."

Defendant Soldinger moved for summary judgment in the instant litigation, arguing that plaintiffs' unqualified release of Burton in the prior suit, with respect to the same loss that is the subject of the present litigation, also released him. Defendant asserted that this result follows from application of the common law rule that the release of one joint tortfeasor releases all others. Porter v. Ford Motor Co., 96 Ill.2d 190, 195, 70 Ill.Dec. 480, 449 N.E.2d 827 (1983). According to defendant, although the Act changed this common law rule by making the release of one joint tortfeasor ineffective against any other unless its terms provide otherwise (740 ILCS 100/2 (West 1996)), the Act does not apply to claims for breach of fiduciary duty (People ex rel. Hartigan v. Community Hospital, 189 Ill.App.3d 206, 213, 136 Ill.Dec. 702, 545 N.E.2d 226 (1989)) and does not govern the release executed by plaintiffs' and Burton. Thus, defendant reasoned that the common law rule must be applied. Under this rule, the defendant argued, the release of a fiduciary duty claim against one person also releases such claims against others, at least where there is one indivisible injury. See McCormick v. McCormick, 180 Ill.App.3d 184, 129 Ill.Dec. 579, 536 N.E.2d 419 (1988).

Plaintiffs argued that the common law rule, which provides that the unqualified release of one joint tortfeasor releases all others, was abolished with adoption of the Act. To the extent the common law rule has survived, plaintiffs maintained that it is not applicable here because a breach of fiduciary duty is not a tort, and because there is not a single indivisible injury. Plaintiffs urged application of a "modern approach", permitting the release only of those persons specifically identified in the release. See Alsup v. Firestone Tire & Rubber Co., 101 Ill.2d 196, 77 Ill.Dec. 738, 461 N.E.2d 361 (1984).

The circuit court denied defendant's motion for summary judgment as to plaintiffs' claim for breach of fiduciary duty. The court ruled that such a breach is not a tort for purposes of the Act, and that the release of Burton did not act as a release of defendant. The circuit court also denied defendant's motion for reconsideration, but certified the following question for review (155 Ill.2d R. 308):

"When plaintiffs have released one of two persons who caused an injury to the plaintiffs without any reservation of rights against the second person who also caused injury to the plaintiffs, does the unqualified release of the first person preclude a claim against the second person for an alleged breach of fiduciary duty because, inter alia, breach of fiduciary duty is not a 'tort' under the * * * Act * * * and, therefore, an unqualified release of one potentially liable person constitutes a release of the second such person under Section 2(c) of the * * * Act and the common law."

ANALYSIS

At common law, the unconditional release of one of two or more joint tortfeasors released the other tortfeasors, even though the latter were not a party to the release or specifically identified in the release, unless a contrary intent appeared from the face of the instrument. Porter, 96 Ill.2d at 195, 70 Ill.Dec. 480, 449 N.E.2d 827; McCormick, 180 Ill.App.3d at 204, 129 Ill.Dec 579, 536 N.E.2d 419; Schrempf v. New England Mutual Life Insurance Co., 103 Ill.App.3d 408, 412, 59 Ill.Dec. 117, 431 N.E.2d 402 (1982); Tidwell v. Smith, 27 Ill.App.2d 63, 72, 169 N.E.2d 157 (1960). The law presumed that where a general release, without restriction or reservation, was given by the injured party to one of several joint wrongdoers, it was given in full satisfaction for the injury. Manthei v. Heimerdinger, 332 Ill.App. 335, 347-48, 75 N.E.2d 132 (1947).

The common law rule applied not only to those who were technically joint tortfeasors, but to wrongdoers whose conduct produced the same single injury. Tidwell, 27 Ill.App.2d at 72, 169 N.E.2d 157; Chapin v. C. & E.I.R.R. Co., 18 Ill.App. 47, 50 (1885). The rule was also applied outside of the tort area to co-obligors on a contract. Clark v. Mallory, 185 Ill. 227, 56 N.E. 1099 (1900); Parmelee v. Lawrence, 44 Ill. 405 (1867).

The common law rule was intended to prevent multiple recoveries for a single claim. Diamond Headache Clinic, Ltd. v. Loeber Motors, Inc., 172 Ill.App.3d 364, 369, 122 Ill.Dec. 340, 526 N.E.2d 599 (1988). As this court explained:

" 'It is an ancient doctrine that a release to one joint trespasser, or a satisfaction from him, discharges the whole. The same doctrine applies to all joint torts, and to torts for which the injured party has an election to sue one or more parties severally.... If it were not so, a party having a claim against several persons on account of a single tort might sue one and settle the suit, receiving damages; he might then sue another and settle in the same way, and repeat the proceeding as to all but one, and then...