Koppel v. Michael

• Decision Date: 29 June 2007
• Docket Number: No. 1-06-2165.,1-06-2165.
• Citation: 871 N.E.2d 888
• Parties: Stephen P. KOPPEL and Joel P. Koppel, Plaintiffs-Appellees, v. Robert MICHAEL and Citizens Bank and Trust Company of Chicago, Defendants-Appellants (Nicholas Tanglis, Defendant).
• Court: United States Appellate Court of Illinois

871 N.E.2d 888

Stephen P. KOPPEL and Joel P. Koppel, Plaintiffs-Appellees, v. Robert MICHAEL and Citizens Bank and Trust Company of Chicago, Defendants-Appellants (Nicholas Tanglis, Defendant).

No. 1-06-2165.

Appellate Court of Illinois, First District, First Division.

June 29, 2007.

Staes & Seallan, Chicago, for Plaintiffs.

Law Offices of Mark D. Belongia, Chicago (Mark D. Belongia and Nathaniel R. Sinn, of counsel), for Defendants.

Presiding Justice McBRIDE delivered the opinion of the court:

Defendants Robert Michael and Citizens Bank and Trust Company of Chicago (Citizens) appeal the trial court's default judgment order in favor of plaintiffs Stephen P. Koppel and Joel P. Koppel as a sanction for discovery noncompliance. The trial court awarded plaintiffs a total judgment of $407,370.62, including attorney fees.

On appeal, defendants argue that the trial court erred in (1) entering a default judgment order as a discovery sanction, (2) awarding damages without conducting an evidentiary hearing, (3) awarding attorney fees and costs without an evidentiary hearing, and (4) denying defendants' emergency motion to vacate the default judgment order.

On June 27, 2003, plaintiffs filed a four-count complaint against defendants Michael, Citizens and Nicholas Tanglis. The complaint alleged the following facts pertinent to this appeal. Tanglis was the president and a shareholder of Citizens while Michael was the chairman of the board of the directors of Citizens and a shareholder.

In or around May 1998, Michael and Tanglis approached plaintiffs for an investment in Citizens, which Michael and Tanglis were in the process of forming. Plaintiffs indicated their interest in the investment. In the summer of 1998, Michael and Tanglis told plaintiffs that even though Citizens was not open, they had prospective borrowers. They asked plaintiffs to advance the money requested by the prospective borrowers to prevent the customers from going to another bank. Plaintiffs agreed to loan the funds, even though Citizens was not expected to open for another four to six months. Plaintiffs loaned Michael and Tanglis a total of $180,000. The complaint alleged that the parties agreed that plaintiffs would be repaid by Michael and Tanglis, with interest at the rate of 10%, plus one point.

Citizens did not open until February 2000. In the spring of 2000, plaintiffs requested repayment. Michael and Tanglis informed plaintiffs that although the original borrowers had repaid the loans, they had loaned the proceeds to other customers of Citizens and were unable to repay plaintiffs. Plaintiffs continued to request repayment over the next 2 1/2 years, but were unsuccessful.

Plaintiffs' complaint alleged breach of contract against Tanglis (count I), Michael (count II), and Citizens (count III). Count IV raised an additional breach of contract claim against Michael based on the following additional facts. In November 1998, plaintiffs made a loan of $150,000 to Michael, with an interest rate of 6%. In May 1999, Michael agreed to assume the additional indebtedness to plaintiffs of $350,000, which represented the principal amount of a loan made to Michael's brother. The parties agreed that the combined loans of $500,000 would bear interest at an annual rate of 3%. In November 2001, Michael repaid the principal amount of the loan, but failed to pay any interest. Michael has continued to refuse paying the interest.

Tanglis did not appear in the case and a default judgment was entered against him. He is not involved in the appeal.

On October 21, 2003, plaintiffs served defendants with their first request for production of documents. On October 24, 2003, defendants filed a motion to dismiss plaintiffs' complaint. The motion was set for hearing on March 18, 2004. On December 8, 2003, plaintiffs filed a motion to compel discovery because defendants did not respond to plaintiffs' discovery request. On December 17, 2003, defendants filed a motion to quash subpoenas and stay discovery. The trial court continued plaintiffs' motion to compel and defendants' motion to quash subpoenas and stay discovery until March 18, 2004. On March 11, 2004, defendants filed a motion to substitute counsel and to continue the March 18, 2004, hearing on the pending motions. The trial court set the hearing for May 21, 2004, but ordered that "written fact discovery shall proceed." The hearing was subsequently continued until August 24, 2004.

On June 24, 2004, defendants filed a motion to stay discovery until the motion to dismiss was decided. The trial court continued the motion to stay discovery until August 24, 2004, to be heard in connection with the motion to dismiss. On August 24, 2004, the trial court denied defendants' motion to dismiss and lifted the stay on discovery.

On October 12, 2004, plaintiffs filed a verified amended complaint. The amended complaint contained the same four counts as the original complaint and added one count. Counts I, II, and III remained the same and the original count IV was changed to count V. Count IV raised a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2004)) against all defendants.

On December 16, 2004, plaintiffs filed a motion for discovery sanctions because defendants had failed to respond to plaintiffs' request for production of documents as well as answer plaintiffs' first set of interrogatories. On January 5, 2005, the trial court gave defendants "until February 2, 2005[,] to answer plaintiffs' first set of interrogatories and produce the documents (without objection) requested by plaintiffs' first request for production of documents." The court also allowed defendants' new attorney to file an appearance on behalf of defendants.

On February 7, 2005, the trial court ordered defendants to pay plaintiffs' attorney fees in connection with that day's appearance as a sanction for "having failed to appear through counsel and having failed to provide the discovery ordered by the Court on January 5, 2005." The court also noted that "defendants are hereby advised that the nature of the sanctions imposed will become more severe as their non-compliance persists."

On March 8, 2005, plaintiffs filed a "renewed motion for default judgment for defendants' continuing refusal to comply with this court's discovery orders." On March 10, 2005, the trial court ordered defendants to pay $500 in connection with the February 7, 2005, order and ordered defendants to pay the fees incurred by plaintiffs in preparing their renewed motion for default judgment and their court appearance on March 10, 2005. Again, the court noted that "sanctions will continue to increase with defendants' continuing non-compliance with the court's orders."

On April 15, 2005, the trial court set the case for status on May 16, 2005, regarding defendants' compliance with outstanding discovery. The order also reminded defendants that sanctions will increase until compliance.

On May 16, 2005, the trial court ordered defendants to pay $2,800 in response to the March 10, 2005, order as well as the previously imposed $500 sanction within 14 days. The court also held that "by virtue of defendants' continuing non-compliance with discovery, defendants are barred from calling any witnesses at trial." The court noted that this bar would be vacated if there was compliance.

On July 11, 2005, the trial court entered default judgment in favor of plaintiffs and against defendants as a sanction for "defendants' continuing noncompliance with this court's discovery orders." The court stated that the default judgment would be vacated if there was "full compliance with the court's prior orders by July 22, 2005[,] at 9:30 a.m."

On July 22, 2005, defendants' attorney appeared in court with a box of documents to comply with prior discovery orders. The trial court continued the case until August 2, 2005, to allow plaintiffs to review the documents to verify compliance. On July 28, 2005, plaintiffs filed their motion in "opposition to vacating default judgment based upon defendants' continuing refusal to comply with discovery orders." Plaintiffs asserted that defendants failed to fully comply with discovery requests because defendants entered objections to several document requests, even though the trial court had previously ordered production without objection. The trial court continued the matter until September 23, 2005.

On September 23, 2005, when defendants' attorney did not appear, the trial court entered an order continuing the matter until September 30, 2005, and ordering defendants' attorney to "provide an affidavit stating the nature of his illness."

On February 22, 2006, the trial court held a hearing on defendants' motion to vacate the default judgment entered on July 11, 2005. Neither defendants nor their attorney appeared at the hearing. The trial court entered a written order denying defendants' motion to vacate the default judgment and awarded damages to plaintiffs. The court awarded $315,340 on counts II, III, and IV against both defendants, jointly and severally, $45,300 on count V against Michael, and $46,730.62 in attorney fees and costs.

On March 22, 2006, represented by new counsel, defendants filed an emergency motion to vacate the February 22, 2006, default judgment order. In their motion, defendants contended that they were unaware of the discovery noncompliance, monetary sanctions, and default judgment and that their former attorney failed to keep them properly informed about the case. The motion characterized the case as "an ongoing battle between plaintiffs' counsel and counsel previously representing defendants." In an affidavit, Michael stated that he was not informed of the default judgment until the last week of February 2006. He also said that at no time prior to the last week in February "was [he] ever given to understand that either [he] or the Bank was either tardy or non-compliant...