Glass v. Pitler

• Decision Date: 03 November 1995
• Docket Number: No. 1-93-3828,1-93-3828
• Citation: Glass v. Pitler, 657 N.E.2d 1075, 276 Ill.App.3d 344, 212 Ill.Dec. 730 (Ill. App. 1995)
• Parties: , 212 Ill.Dec. 730 William L. GLASS and Carol L. Glass, Plaintiffs-Appellants, v. Barry PITLER and Philip Mandell d/b/a Pitler & Mandell, Defendants-Appellees.
• Court: Appellate Court of Illinois

Page 1075

657 N.E.2d 1075

276 Ill.App.3d 344, 212 Ill.Dec. 730

William L. GLASS and Carol L. Glass, Plaintiffs-Appellants, v.Barry PITLER and Philip Mandell d/b/a Pitler & MandellDefendants-Appellees.

No. 1-93-3828.

Appellate Court of Illinois First District, Fifth Division.

Nov. 3, 1995.

Dan Walker, Jr., Cesario & Walker, Hinsdale, for Plaintiff-Appellants.

John J. O'Malley, William G. Skalitzky, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, for Defendants-Appellees.

Justice GORDONdelivered the opinion of the court:

Plaintiffs appeal from the trial court's order granting summary judgment to defendants.Plaintiffs' amended four-count complaint for legal malpractice sought damages based on theories of negligence (count I), wilful and wanton conduct (count II), intentional misconduct (count III), and breach of contract (count IV).

Plaintiffs, William L. Glass and Carol L. Glass, ¹ instituted the instant legal malpractice action against the defendants, Barry Pitler and Philip Mandell, who practiced law under the firm name of Pitler and Mandell.Plaintiffs alleged that they sought legal advice from Pitler and Mandell on the issue of whether their pension funds, held in an ERISA-qualified ² defined benefit pension plan and trust, would be subject to claims of personal or corporate creditors of plaintiffs' proposed business venture, W.G. James, Inc.(WGJ, Inc.).Plaintiffs further alleged that, on or about August 1, 1984, and on at least five separate occasions thereafter, the defendants gave "assurances and guarantees" that the pension plan would not be subject to creditors of the new business venture.Plaintiffs stated that, in reliance on defendants' representations, plaintiffs incorporated the new venture under the name of W.G. James, Inc. on August 14, 1984 and incurred personal liability as guarantors for WGJ, Inc.

In his deposition, Glass stated that in 1988plaintiffs were sued by Fidelity and Guaranty Co. of Maryland (Fidelity) on personal guaranties they signed on behalf of WGJ, Inc. and by LaSalle Bank Northbrook (LaSalle Bank) to collect on an outstanding loan to WGJ, Inc. which had been secured in part by an assignment of beneficial interest on plaintiffs' home.According to Glass, the plaintiffs owed over $3.4 million to Fidelity and approximately $1.1 million to LaSalle Bank.The Glasses' major assets were their home, valued at $700,000, and their pension fund valued at $1 million in 1989.(With respect to the pension plan, Glass was the sole shareholder and officer of Construction Specialties, Inc., the settlor of the pension plan; Glass was the trustee of the pension plan; and both Glasses were the beneficiaries of the plan.The Plaintiffs contended that the provisions of the pension plan allowed Glass to access all or part of the pension funds by terminating his employment, terminating the plan, withdrawing his voluntary contributions or receiving a loan.)Glass stated that in 1988he consulted a bankruptcy attorney and was advised that filing for bankruptcy relief would subject the pension fund assets to the corporate creditors' claims.

Glass also testified in his deposition that, on June 16, 1989, one week before plaintiffs' home was to be sold at a Uniform Commercial Code sale pursuant to the assignment of beneficial interest held by LaSalle Bank, LaSalle Bank's $1.1 million claim was settled for $759,318.03 plus interest.Glass stated that he was forced to deplete his pension funds to pay the LaSalle Bank settlement of $770,000 plus taxes and Internal Revenue Service penalties.He further stated that on April 26, 1990 Fidelity obtained a judgment in excess of $3 million against the plaintiffs and that this claim was settled on October 31, 1990 for $300,000.The proceeds to pay that settlement amount and associated fees were obtained by mortgaging his home for $400,000.

The plaintiffs contend that but for defendants' representations in 1984 that plaintiffs' pension funds would not be subject to creditors' claims, plaintiffs would not have undertaken the risks involved in the operation of WGJ, Inc.The plaintiffs further contend that, as a result of the incorrect legal advice they received from the defendants, they were forced to deplete those pension funds in 1989 because their pension funds would not have been protected in bankruptcy proceedings.

A brief discussion of the treatment of ERISA-qualified pension plans under bankruptcy law during the period of 1984 to 1989³ is relevant to the case at bar.Prior to 1992, when the United States Supreme Court in Patterson v. Shumate(1992), 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 held that ERISA-qualified pension plans were excluded from the debtor's bankruptcy estate under section 541(c)(2) of the United States Bankruptcy Code(11 U.S.C.A. § 541(c)(2)), there was a split of authority on that issue.In 1983, the bankruptcy court in the Northern District of Illinois held in In re Di Piazza(Bankr.N.D.Ill.1983), 29 B.R. 916 that an ERISA-qualified pension or profit sharing plan which contained anti-alienation clauses but which permitted the debtor to reach the corpus at any time did not constitute a type of spendthrift trust under Illinois law which the Bankruptcy Code excepted from inclusion in the debtor's estate.(For a pension plan to qualify as a traditional spendthrift trust under Illinois law, the debtor must show that he cannot alienate his interest in the trust res and that he does not possess exclusive and effective control over termination and distribution.(In re Dagnall(Bankr.C.D.Ill.1987), 78 B.R. 531, 534.))In reaching that decision, the Di Piazza court relied upon In re Graham(Bankr.N.D.Iowa1982), 24 B.R. 305 which held that where the debtor was trustee of the pension plan and sole shareholder, director and officer of the corporation creating the plan, the pension plan was not a spendthrift trust and thus was includable in the debtor's bankruptcy estate.In re Graham was affirmed by the Court of Appeals for Eighth Circuit.(In re Graham(8th Cir.1984), 726 F.2d 1268.)Holdings in accord with Di Piazza and Graham also were reached by the Fifth, Ninth and Eleventh Circuits for the United States Courts of Appeals, by the United States Bankruptcy Court for the Central District of Illinois, and by numerous other bankruptcy courts.(In re Daniel(9th Cir.1985), 771 F.2d 1352;In re Lichstrahl(11th Cir.1985), 750 F.2d 1488;In re Graham(8th Cir.1984), 726 F.2d 1268;In re Goff(5th Cir.1983), 706 F.2d 574; In re Dagnall;In re Sundeen(Bankr.C.D.Ill.1986), 62 B.R. 619.See In re Dagnall for list of cases holding that traditional spendthrift trusts are protected under section 541(c)(2) of the Bankruptcy Code.)At the times relevant to the instant appeal, the issue had not been reached by the United States Court of Appeals for the Seventh Circuit.SeeEmployee Benefits Committee v. Tabor(S.D.Ind.1991), 127 B.R. 194, 197.

Defendants in the case at bar characterize the above cases, cited by the plaintiffs in their response to defendants' motion for summary judgment and on appeal, as cases premised on the legislative history interpretation of section 541(c)(2) of the Bankruptcy Code.They argue that under another "school of thought," which they characterize as the plain meaning approach, adopted by other courts including, ultimately, the United States Supreme Court in Patterson v. Shumate, a debtor's interest in an ERISA-qualified plan or trust could be excluded from his bankruptcy estate, regardless of whether it qualified as a spendthrift trust, if the plan or trust contained alienation restrictions enforceable against general creditors.(SeeIn re Ralstin(Bankr.D.Kan.1986), 61 B.R. 502;Warren v. G.M. Scott & Sons(Bankr.S.D.Ohio1983), 34 B.R. 543.)⁴The defendants argue that, under this interpretation, the plaintiffs' pension plan would have been excluded from their estate had they sought bankruptcy relief in 1989.

At the hearing on their motion for summary judgment, the defendants initially argued that they were not bankruptcy attorneys, that the plaintiffs did not seek bankruptcy advice from them, and that the advice they did give the plaintiffs, namely, that the plaintiffs' pension funds could not be attached or garnished by creditors, was correct.The defendants argued, alternatively, that even under bankruptcy law, under the plain meaning approach, the plaintiffs' pension funds would have been protected from their creditors' claims.As a third argument, defendants contended that the plaintiffs, by voluntarily settling their creditors' claims, could not establish that the loss of their pension funds was proximately caused by the defendants' alleged negligent actions.It is this third argument that became the basis of the summary adjudication by the trial court, and it is the issues raised by this latter argument that will be addressed in this appeal.

A motion for summary judgment may be granted when "the pleadings, depositions and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."(735 ILCS 5/2-1005(West 1992);Torres v. City of Chicago(1994), 261 Ill.App.3d 499, 197 Ill.Dec. 985, 632 N.E.2d 54;Bartholomew v. Crockett(1985), 131 Ill.App.3d 456, 86 Ill.Dec. 656, 475 N.E.2d 1035.)In ruling on a motion for summary judgment, the trial court must construe the pleadings, depositions and affidavits in the light most favorable to the nonmoving party.(E.g., First State Insurance Co. v. Montgomery Ward & Co.(1994), 267 Ill.App.3d 851, 204 Ill.Dec. 814, 642 N.E.2d 715;Stephen v. Swiatkowski(1994), 263 Ill.App.3d 694, 200 Ill.Dec. 658, 635 N.E.2d 997.)If fair-minded persons could draw different inferences from the undisputed facts, the issues should be submitted to a jury to determine what inference seems most reasonable.(E.g., Outboard Marine Corp....