Independent Trust Corp. v. Hurwick, 1-01-3851, 1-01-4045.
| Decision Date | 28 July 2004 |
| Docket Number | No. 1-01-3851, 1-01-4045.,1-01-3851, 1-01-4045. |
| Citation | 286 Ill.Dec. 669,814 N.E.2d 895,351 Ill. App.3d 941 |
| Parties | INDEPENDENT TRUST CORPORATION, Plaintiff-Appellee, v. Alan L. HURWICK, Defendant (Laurence W. Capriotti, Jack L. Hargrove, ITI Enterprises, Inc. and Wholesale Real Estate Services, Inc. (formerly known as Intercounty Title Company of Illinois), Defendants-Appellants). |
| Court | United States Appellate Court of Illinois |
Daniel C. Meenan, Jr., Feiwell and Meenan, Chicago, for Jack L. Hargrove, ITI Enterprises, Inc. and Wholesale Real Estate Services, Inc.
Theodore T. Poulos, Terence H. Campbell, Cotsirilos, Tighe & Streicker, Ltd., Chicago, for Lawrence W. Capriotti.
James H.M. Sprayregen, Jonathan C. Bunge, J. Chad Mitchell, Kirkland & Ellis, Chicago, for Appellee.
The plaintiff, Independent Trust Corp. (Intrust), brought suit against the defendants, Laurence W. Capriotti, Jack L. Hargrove, Alan L. Hurwick, ITI Enterprises, Inc. (ITI), and Wholesale Real Estate Services, Inc.1, alleging breach of contract, fraud, breach of fiduciary duty, and conversion. The complaint also sought an accounting. The circuit court granted Intrust's motions for summary judgment, and judgments in the amount of $68,096,551.78 ($68.1 million) were entered against each of the defendants. The defendants, with the exception of Mr. Hurwick, appeal from the judgment of the circuit court.2
Messrs. Hargrove and Capriotti and the corporate defendants raise the following issues on appeal: whether the circuit court erred when it denied the defendants' motions for a more particular statement of facts and bills of particulars and whether the circuit court erred when it granted the motions for summary judgment. Mr. Capriotti raises an additional issue: whether the circuit court erred when it denied Mr. Capriotti's motion to dismiss counts II, III and IV of the complaint.
Intrust was an Illinois corporate fiduciary organized under the Corporate Fiduciary Act (205 ILCS 620/1-1 et seq. (West 1998)) and was regulated by the Illinois Commissioner of Banks and Real Estate (the OBRE).3 In re Possession & Control of the Commissioner of Banks & Real Estate of Independent Trust Corp., 327 Ill.App.3d 441, 449, 261 Ill.Dec. 775, 764 N.E.2d 66 (2001) (Banks & Real Estate Corp.). Intrust served as the custodian for various investment trust assets that its customers placed in its custody. Banks & Real Estate Corp., 327 Ill.App.3d at 449-50, 261 Ill.Dec. 775, 764 N.E.2d 66.
On April 14, 2000, after Intrust failed to comply with its directions, the OBRE seized control of Intrust, appointed PriceWaterhouse Coopers, LLP (PWC), as receiver and commenced an action for dissolution and liquidation of Intrust. Banks & Real Estate, 327 Ill.App.3d at 451, 261 Ill.Dec. 775, 764 N.E.2d 66.
The complaint in this case, filed on June 1, 2000, stems from the discovery of a $68.1 million cash shortage from trust funds deposited for investment with Intrust. See Banks & Real Estate Corp., 327 Ill.App.3d at 449, 261 Ill.Dec. 775, 764 N.E.2d 66.
The following facts are taken from the complaint, depositions, affidavits, and exhibits in the record.
Intercounty Title Company (Intercounty) was owned by ITI Enterprises, Inc. Mr. Capriotti was president of both ITI and Intercounty and was a director of Intrust. Mr. Hargrove was a director of Intercounty and chairman of Intrust's board of directors. Mr. Hargrove owned Intrust through Intrust's parent company, Madison Avenue Investments, Inc. Mr. Hurwick was the chief financial officer (CFO) of ITI and Intercounty.
As of 1992, Intrust's board of directors had five members. At the end of 1994, Intrust's board of directors consisted of Messrs. Hargrove, Capriotti, and Gary Bertacchi, president of Intrust.
In 1990, Mr. Capriotti instructed Gary Irwin, then president of Intrust, to set up an escrow agreement whereby Intrust could deposit trust-holder funds into an escrow account managed and controlled by Intercounty. Mr. Irwin had previously worked at Intercounty for Messrs. Capriotti and Hargrove. His salary at Intrust was paid by Intercounty. In 1992, Mr. Irwin returned to work at Intercounty at the direction of Mr. Hargrove. Under the escrow agreement with Intercounty, Intrust agreed to deposit funds with Intercounty. In turn, Intercounty pledged that it would hold the funds in an interest-bearing account (the escrow account) at LaSalle National Bank (LaSalle Bank), unless and until it was specifically authorized by Intrust to remove the funds. Other than the above provision, Intrust had no control over the escrow account. Only Intercounty could remove funds from the escrow account. On December 4, 1990, Intrust deposited funds in the escrow account in the amount of $16,582,098.78 with Intercounty.
In the performance of its regulatory function, the OBRE noted that Intercounty commingled the Intrust funds with its other funds. In its February 28, 1994, report, the OBRE pointed out that the commingling created a breach of fiduciary duty and directed Intrust to insure that its deposits with Intercounty were segregated in a separate account. However, the OBRE's May 2, 1995, report noted that the funds were still being commingled and that Intrust was not receiving statements directly from LaSalle Bank, relying instead on spreadsheets supplied by Intercounty. The OBRE recommended that Intrust establish a separate trust account containing only cash which is the property of the various trusts. At the July 25, 1995, Intrust board of directors meeting, Mr. Capriotti stated that he would contact Intercounty and make sure Intrust's funds were segregated from other funds.
On January 1, 1996, the OBRE again directed the segregation of Intrust's funds being held by Intercounty, and again, Mr. Capriotti agreed to have the funds placed in a separate LaSalle Bank account prior to the next OBRE examination. Despite Mr. Capriotti's statement to the board of directors at the May 20, 1996, meeting that he was going to have the funds segregated, Intrust's funds remained commingled with Intercounty's funds. Mr. Capriotti failed to respond to Mr. Bertacchi's repeated requests to place the funds in a segregated account.
On January 21, 1997, Mr. Bertacchi sent a memorandum to George Stimac, with copies to Messrs. Capriotti and Hurwick, authorizing and directing him to deposit $54 million in Intrust escrow funds into the new segregated escrow account (segregated account) opened at LaSalle Bank. Despite another memorandum to Mr. Capriotti, Intrust's funds were still not transferred to the segregated account.
At the March 28, 1997, Intrust board meeting, Mr. Capriotti advised that the segregation process would be completed by the end of the second quarter of 1997. On May 21, 1997, Mr. Bertacchi advised Mr. Hargrove of the difficulties he was having with Mr. Capriotti over the transfer of Intrust's funds to the segregated account.
At the June 6, 1997, board meeting, Mr. Capriotti advised that he was finalizing the segregation process and that it would be completed by the end of the second quarter. On or before June 27, 1997, Mr. Bertacchi spoke with Mr. Capriotti, who told him he would send Mr. Bertacchi a copy of a bank statement for the segregated account. On June 27, 1997, Mr. Bertacchi received a LaSalle Bank statement showing a balance of $54,894,943 in the segregated account, which corresponded with the amount that Intercounty should have had in Intrust's account, based upon the Intrust's history of deposits and withdrawals. The LaSalle Bank statement was faxed, using an ITI fax cover sheet, and was sent by "Larry/Susan."
On August 20, 1998, Mr. Bertacchi sent a memorandum to Mr. Hargrove, explaining that, despite the fax from "Larry and Susan," Intrust's funds had never been transferred to the segregated account, and asked for his assistance.
On August 31, 1998, the OBRE issued another report in which it noted that Intrust did not hold signatory authority over the segregated account and did not receive bank statements from LaSalle Bank. The OBRE further noted the close relationship between the Intercounty and Intrust which, arguably, created a situation where the corporate fiduciary was benefitting from the trust funds, a violation of trust principles. Intrust responded that its board had considered the comments and that Mr. Capriotti was taking steps to resolve the situation prior to the next audit.
Also, on or about August 31, 1998, Mr. Bertacchi received, either by fax or messenger, another LaSalle Bank statement from Intercounty, showing a balance of $54,840,466.02 in the segregated account. In a September 15, 1998, letter to Mr. Bertacchi on ITI letterhead, Mr. Hurwick stated that Intercounty was holding $54,832,735.26 as of August 31, 1998.
At the December 10, 1998, Intrust board of director's meeting, the OBRE's report was discussed. In Intrust's written response to the OBRE's August 31, 1998, report, Mr. Bertacchi advised the OBRE that Mr. Capriotti had indicated that he would take the necessary steps to satisfy the OBRE as to the segregated account situation.
In an April 6, 1999, memorandum to Mr. Capriotti, Mr. Bertacchi advised that Intrust had lost a large investment advisor because Intrust could not produce a nonqualified audit report and that he had not made any progress with Mr. Hurwick toward securing Intrust's control of the segregated account.
On April 21, 1999, Mr. Capriotti called Mr. Bertacchi and proposed that Intrust deposit $3.5 million into the segregated account. According to the tape of the conversation with Mr. Capriotti, the transfer was necessary because Messrs. Hargrove and Capriotti needed the funds in connection with a business project, but the funds would be returned to Intrust by April 30, 1999.
At the April 23, 1999, board of directors meeting, Mr. Capriotti indicated that he would like to see...
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