Kleinwort Benson North America, Inc. v. Quantum Financial Services, Inc.

• Decision Date: 20 February 1998
• Docket Number: No. 82444,82444
• Citation: 181 Ill.2d 214,229 Ill.Dec. 496,692 N.E.2d 269
• Court: Illinois Supreme Court
• Parties: , 229 Ill.Dec. 496 KLEINWORT BENSON NORTH AMERICA, INC., Appellant, v. QUANTUM FINANCIAL SERVICES, INC., Appellee.

Page 269

692 N.E.2d 269

181 Ill.2d 214, 229 Ill.Dec. 496

KLEINWORT BENSON NORTH AMERICA, INC., Appellant, v. QUANTUM FINANCIAL SERVICES, INC., Appellee.

No. 82444.

Supreme Court of Illinois.

Feb. 20, 1998.

[229 Ill.Dec. 497] [181 Ill.2d 216] J. Andrew Langan, Kirkland & Ellis, Chicago, for Kleinwort Benson North America, Inc.

Anton R. Valukas, Jenner & Block, Chicago, for Quantum Financial Services, Inc.

Justice NICKELS delivered the opinion of the court:

The issue presented here is whether punitive damages can be recovered by assignees after a common law fraud claim brought by a corporation has been assigned by the corporation to its former shareholders. The corporation in this case is Quantum Financial Services, Inc. (Quantum). As part of a declaratory judgment action filed in the circuit court of Cook County, Quantum filed several counterclaims, including a fraud claim, against Kleinwort Benson North America, Inc., Kleinwort Benson Ltd., and Marcus Hutchins (collectively, Kleinwort). Quantum later assigned these counterclaims to the former shareholders of Quantum. The appellate court held that the former shareholders, as assignees, could seek punitive damages on the assigned fraud claim. 285 Ill.App.3d 201, 220 Ill.Dec. 457, 673 N.E.2d 369. This court allowed Kleinwort's petition for leave to appeal (166 Ill.2d R. 315). We affirm the appellate court.

BACKGROUND

For the limited purpose of this appeal, the underlying allegations of the common law fraud claim are not disputed. At this stage of the proceeding, Kleinwort accepts the allegations as true. In order to provide a more complete understanding of the litigation, we provide a summary of the factual background of the case. We address only those facts necessary to resolve the issue raised by the parties.

Quantum is a futures commissions merchant. In 1991, Quantum became interested in purchasing Virginia Trading Corporation (VTC), a brokerage firm. At the time, VTC was owned by Kleinwort. On May 31, 1991, Quantum offered to purchase 100% of the stock of VTC for roughly $6 million in cash and commissions. Kleinwort accepted. The parties executed a stock purchase agreement on June 30, 1991, wherein Quantum agreed to purchase all of the stock of VTC. The closing date was set for July 31.

Before the closing, two of VTC's salesmen left VTC, taking some of their accounts with them. According to Quantum, these departures drastically reduced the value of VTC. Quantum allegedly learned of the departure of one of these salesmen after the closing. By this time, Quantum had already paid nearly $6 million to Kleinwort in connection with the purchase. The departures form the crux of the litigation in the circuit court.

On August 14, 1992, Kleinwort filed a complaint against Quantum. For the purpose of this appeal, the pertinent allegations of the complaint sought a declaratory judgment to establish that Kleinwort had not breached the stock purchase agreement or made a material misrepresentation regarding the departures of the two VTC salesmen. In response, on October 26, 1992, Quantum filed an answer and counterclaims. The pertinent counterclaim was a claim alleging common law fraud and seeking both compensatory and punitive damages.

On January 14, 1994, while the action was pending in the circuit court, all of Quantum's outstanding stock was sold by its two shareholders, Leslie Rosenthal and J. Robert Collins. At the time of this stock sale, Quantum's rights in this litigation were assigned by written agreement to former shareholders Rosenthal and Collins, individually. Quantum agreed to cooperate fully with the assignees in the prosecution and defense of the litigation. Thus, after the assignment, former shareholders Rosenthal and Collins, as assignees of Quantum, became the real parties in interest in the litigation.

In 1995, Kleinwort filed a motion for summary judgment. The circuit court granted summary judgment in favor of Kleinwort on all of Quantum's pending counterclaims, including the fraud counterclaim. This ruling disposed of all pending counterclaims assigned by Quantum to Rosenthal and Collins. The remainder of the action was dismissed as moot. Quantum appealed.

The appellate court reversed the circuit court's order of summary judgment in favor of Kleinwort and remanded the matter to the circuit court for further proceedings on all of the counterclaims. The appellate court also allowed Quantum's assignees to seek punitive damages on the common law fraud counterclaim. The court briefly stated that assignees of fraud claims have been allowed to seek punitive damages. 285 Ill.App.3d at 213, 220 Ill.Dec. 457, 673 N.E.2d 369. The only issue appealed to this court is whether the assignees can recover punitive damages on the common law fraud counterclaim.

ANALYSIS

In the instant appeal, the primary facts are not in dispute and the parties raise a question of law. Accordingly, our review is de novo. See Lucas v. Lakin, 175 Ill.2d 166, 171, 221 Ill.Dec. 834, 676 N.E.2d 637 (1997); Jacobson v. Department of Public Aid, 171 Ill.2d 314, 323, 216 Ill.Dec. 96, 664 N.E.2d 1024 (1996).

Kleinwort does not contest the assignment of the underlying common law fraud claim and the assignees' right to recover compensatory damages if the allegations should be proven. Kleinwort only contests the right of the assignees of the underlying fraud claim to recover punitive damages following such an assignment. Kleinwort argues that the assignees may not seek punitive damages after an assignment for two reasons. First, Kleinwort argues that, in order to determine if an action is assignable, this court must determine if an action would have survived the death of the claimant such that it could be pursued by the claimant's estate. Kleinwort argues that punitive damages do not survive the death of a claimant and therefore they are not assignable. Second, Kleinwort argues that, even assuming that punitive damages survive, the assignment of punitive damages should not be allowed

[229 Ill.Dec. 499] because to do so would violate public policy.

I. Survivability

At common law, many actions were neither assignable nor survived the death of a claimant. Eventually, however, the law in this area changed and provided that certain actions would survive the death of a claimant and pass to the claimant's estate. Annotation, Assignability of Claim in Tort for Damage to Personal Property, 57 A.L.R.2d 603, 605 (1958). In turn, the personal representatives of a decedent were essentially perceived as assignees of the decedent's property. North Chicago Street R.R. Co. v. Ackley, 171 Ill. 100, 105, 49 N.E. 222 (1897); 57 A.L.R.2d at 605. Thus, historically, survivability and assignability were treated similarly because, in both instances, a claim was being transferred from one entity to another. Based on this historical development, in determining assignability, this court has considered whether the action would survive the death of the owner. See Wilcox v. Bierd, 330 Ill. 571, 585, 162 N.E. 170 (1928), overruled on other grounds, McDaniel v. Bullard, 34 Ill.2d 487, 216 N.E.2d 140 (1966); Olson v. Scully, 296 Ill. 418, 422, 129 N.E. 841 (1921); Selden v. Illinois Trust & Savings Bank, 239 Ill. 67, 78, 87 N.E. 860 (1909); Ackley, 171 Ill. at 105, 49 N.E. 222.

Kleinwort argues that punitive damages would not have survived the death of the claimant. Kleinwort relies on the Survival Act, which was codified at section 27-6 of the Probate Act of 1975 at the time this action was filed (755 ILCS 5/27-6 (West 1994)). The Survival Act provided:

"In addition to the actions which survive by the common law, the following also survive: actions of replevin, actions to recover damages for an injury to the person (except slander and libel), actions to recover damages for an injury to real or personal property or for the detention or conversion of personal property, actions against officers for misfeasance, malfeasance, nonfeasance of themselves or their deputies, actions for fraud or deceit, and actions provided in Section 6-21 of 'An Act relating to alcoholic liquors.' " (Emphasis added.) 755 ILCS 5/27-6 (West 1994).

Under the Survival Act, most causes of action, including fraud actions, survive the death of a person. The estate may bring such actions on the decedent's behalf.

Although the Act does not address punitive damages explicitly, this court has held, in three cases involving personal injury claims, that punitive damages do not generally survive under the Survival Act. See Ballweg v. City of Springfield, 114 Ill.2d 107, 102 Ill.Dec. 360, 499 N.E.2d 1373 (1986); Froud v. Celotex Corp., 98 Ill.2d 324, 74 Ill.Dec. 629, 456 N.E.2d 131 (1983); Mattyasovszky v. West Towns Bus Co., 61 Ill.2d 31, 330 N.E.2d 509 (1975). In Mattyasovszky, 61 Ill.2d at 33-34, 330 N.E.2d 509, this court stated that recovery under the Survival Act has historically been limited to compensatory damages and that the language of the Survival Act and decisions construing it have emphasized the compensatory nature of the damages available. But see National Bank of Bloomington v. Norfolk & Western Ry. Co., 73 Ill.2d 160, 23 Ill.Dec. 48, 383 N.E.2d 919 (1978) (punitive damages could be recovered under Survival Act because the underlying action was predicated on an act, the Public Utilities Act, that specifically authorized the recovery of punitive damages). This court further stated that any expansion of the Survival Act to allow the survival of punitive damages is the responsibility of the legislature and not the courts. Ballweg, 114 Ill.2d at 117-18, 102 Ill.Dec. 360, 499 N.E.2d 1373; Froud, 98 Ill.2d at 335, 74 Ill.Dec. 629, 456 N.E.2d 131.

In response, Quantum and the assignees (hereinafter, the assignees) raise two arguments. First, they argue that the cases involving the Survival Act all involved personal injury claims and the holdings of those cases should be limited to personal injury claims. The assignees do not...