In re Harnack
| Decision Date | 21 November 2014 |
| Docket Number | No. 1–12–1424.,1–12–1424. |
| Citation | 22 N.E.3d 409 |
| Parties | In re MARRIAGE OF Pamela HARNACK, Petitioner–Appellee, and Steve FANADY, Respondent–Appellant (Jerome Israelov, CBOE Holdings, Inc., and Computershare Shareowner Services LLC, Plaintiffs; Steve Fanady, Alpha Industries LLC, Pamela Harnack, Jerome Israelov, Michelle Marme, Fanmare and Grund & Leavitt, P.C., Defendants). |
| Court | United States Appellate Court of Illinois |
Schmidt & Barbrow, P.C., of Wheaton (Janella L. Barbrow and Jeffrey M. Jacobson, of counsel), for appellant.
Allan W. Masters, Ltd. (Allan W. Masters, of counsel), and Hunt & Associates, P.C. (Keith L. Hunt, of counsel), both of Chicago, for appellee.
delivered the judgment of the court, with opinion.
¶ 1 Petitioner Pamela Harnack filed a petition for dissolution of her marriage to respondent Steve Fanady. Fanady stopped participating in the proceedings and was found to be in default by the court. While the dissolution action was pending, Jerome Israelov filed an action in chancery court against Fanady and Alpha Industries LLC (Alpha), a firm owned by Fanady. Israelov claimed that he and Fanady, through Alpha, had entered into a partnership agreement to purchase a membership (seat) on the Chicago Board of Options Exchange (CBOE) through a partnership named ISRFAN. The seat had subsequently been exchanged for 80,000 shares of CBOE Holdings, Inc., stock, Fanady/Alpha had withdrawn its 50% interest in the partnership (40,000 shares) and Israelov sought distribution by Alpha of his 50% interest in the seat (40,000 shares). The court consolidated Israelov's action with the dissolution action.
¶ 2 The court entered a default judgment dissolving the marriage and apportioning the parties' assets. Finding all shares of CBOE Holdings, Inc., stock held by Fanady, Alpha or any of Fanady's other enterprises were marital property, the court awarded Harnack 140,000 shares of the 280,000 total shares owned by Fanady as her marital portion. Recognizing that Israelov's claim to 40,000 shares remained pending, the court ordered CBOE Holdings, Inc. (CBOE Holdings), and Computershare Shareowner Services LLC (Computershare), the entities holding the shares, to transfer 120,000 shares to Harnack and to transfer 40,000 shares into escrow pending the outcome of the Israelov action. CBOE Holdings and Computershare filed an interpleader action informing the court that they could not comply with the judgment for dissolution of marriage because Fanady had already withdrawn 120,000 shares and only 120,000 shares remained in the accounts. They requested a judicial determination of who owned the remaining 120,000 shares.1
¶ 3 Eight months after entry of the judgment of dissolution, Fanady moved to set aside the judgment pursuant to sections 2–1301(e)
and 2–1401(a) of the Illinois Code of Civil Procedure Code (735 ILCS 5/2–1301(e), 2–1401(a) (West 2012)). The court denied both the section 2–1301(e) motion and section 2–1401(a) petition. Fanady appeals, arguing (1) the court erred in finding section 2–1301(e) did not apply; and (2) the court erred in denying his section 2–1401(a) petition. In a motion taken with the case, he also argues that portions of Harnack's brief on appeal should be stricken. We deny Fanady's motion to strike Harnack's brief and affirm the trial court's order denying the section 21301 motion and section 2–1401 petition to set aside the judgment for dissolution of marriage. However, we remand with directions.
¶ 5 Harnack and Fanady married in October 2003. The parties had no children together. In March 2008, Harnack filed for dissolution of marriage. Fanady initially participated in the dissolution proceedings and was represented by various counsel. At some point in 2010, Grund & Leavitt, P.C. (Grund & Leavitt), one of the law firms that had represented Fanady in the dissolution action, filed a petition against him for unpaid legal fees. On September 17, 2010, the court granted Fanady's latest counsel leave to withdraw and allowed Fanady 21 days in which to retain new counsel or file a pro se appearance. Fanady did neither. On November 1, 2010, on Harnack's motion, the court found Fanady in default “based on his failure to file an appearance” within 21 days and set the case for a hearing. In December 2010, Grund & Leavitt obtained a default judgment against Fanady for its attorney fees.
¶ 6 In February 2011, Harnack moved for a temporary restraining order (TRO) and preliminary injunction seeking to bar Fanady or any of his agents or enterprises from transferring any assets, especially any CBOE Holdings shares. She asserted Fanady had held 280,000 shares of CBOE Holdings stock, he had transferred 80,000 of the shares to a broker for sale as of January 4, 2011, and there remained only 80,000 unrestricted shares that could be sold immediately and 120,000 shares restricted until June 2011, or a total of 200,000 shares. She sought to prevent him from transferring any more shares.
¶ 7 As shown by the record, Harnack's information regarding the number of shares held by Fanady was outdated. Fanady acquired four CBOE seats during the marriage. In November 2009, while the dissolution proceeding was pending and without Harnack's knowledge, Fanady sold one seat for $2.775 million and transferred the funds to a bank account in Switzerland. On June 14, 2010, CBOE Holdings went public and exchanged each CBOE seat for 80,000 shares of CBOE Holdings stock, all restricted. On that date, Fanady held only three of his original four seats: two seats in an account under the name of Alpha and one seat in an account under the name of Fanmare, a partnership he had entered into with Michelle Marme. On June 14, 2010, after the three seats were exchanged for shares, Fanady held a total of 240,000 shares as follows:
If he had not already sold the fourth seat, he would have received a total of 320,000 shares.
¶ 8 The A–1 shares became unrestricted and freely transferable on December 15, 2010. As Harnack asserted in her motion for a TRO and injunctive relief, Fanady transferred 80,000 shares, the unrestricted A–1 shares, out of the Alpha account on January 4, 2011. Harnack was unaware that, on February 8, 2011, the day before she filed her request for TRO, Fanady had also transferred the 40,000 unrestricted A–1 shares from the Fanmare account. As a result, by the time Harnack filed her motion, all that remained of the original 240,000 shares was 80,000 shares of restricted A–2 stock in the Alpha account and 40,000 shares of restricted A–2 stock in the Fanmare account, for a total of 120,000 shares.
¶ 9 In late February 2011, Israelov filed an action in chancery court against Fanady and Alpha alleging breach of contract, breach of fiduciary duty and conversion under a partnership agreement he had with Fanady through Alpha, an entity Fanady purported to manage but the existence of which Israelov was later unable to confirm. Israelov alleged that on January 26, 2010, he and Fanady, “purportedly through Alpha,” entered into a partnership agreement establishing the ISRFAN partnership in order to jointly purchase a seat on the CBOE. Israelov paid $1,312,5000 to CBOE Holdings on January 27, 2010, for his 50% interest in the partnership's seat. Fanady prepared the application to purchase the seat. The application lists ISRFAN as the “organization” purchasing the seat and Fanady, Pantheon, LLC, one of Fanady's enterprises, and a trust as owners of the seat. Fanady did not list Israelov as an owner. On June 14, 2010, when CBOE Holdings converted to a public company, it issued 80,000 shares of its common stock in exchange for the seat. The shares were subject to a “lock up,” preventing the owners from trading them for a six-month period. Under the terms of the ISRFAN agreement, within five days of the shares being released, Alpha/Fanady was to deliver the released shares to the partnership in order that each partner could receive his 50% portion, or 20,000 shares. On December 15, 2010, 40,000 of the 80,000 shares were released from lock-up. Israelov claimed that Fanady/Alpha took possession of the 40,000 released shares but, despite numerous requests by him, refused to distribute to Israelov the 20,000 shares he was due from the initial distribution. The remaining ISRFAN 40,000 shares held in the Alpha account were scheduled to be released for transfer in June 2011. Concerned that Fanady/Alpha would also take these shares, Israelov sought enforcement of his partnership agreement with Alpha/Fanady and to enjoin Fanady and/or Alpha from appropriating the remaining shares scheduled to be released on June 13, 2011.
¶ 10 In May 2011, on Harnack's motion, the court consolidated Israelov's chancery action with the dissolution case pending in the domestic relations division. It granted the motions for TRO and subsequently, on motions by Harnack, Israelov and Grund & Leavitt, issued TROs, preliminary injunctions and ultimately permanent injunctions barring Fanady, his agents, enterprises or anyone acting on his behalf from transferring any assets, including any shares or related dividends held in the name of Fanady or any of his enterprises.
¶ 11 In June 2011, Israelov and ISRFAN entered into a settlement agreement with Alpha pursuant to which Alpha agreed that it had received its pro rata 40,000 shares (half of the total 80,000 shares exchanged for the ISRFAN seat). Alpha agreed that 40,000 shares remained due and owing to Israelov and that it would place 40,000 shares in an account in the name of ISRFAN when the A–2 shares became unrestricted on June 13, 2011. Once the transfer was made, Israelov was to dismiss his suit. Fanady allegedly having resigned as manager of Alpha in March 2011, Alpha's new manager executed the agreement on behalf...
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