Mikrut v. First Bank of Oak Park

• Court: Illinois Supreme Court
• Writing for the Court: McBride
• Citation: Mikrut v. First Bank of Oak Park, 832 N.E.2d 376, 359 Ill. App. 3d 37 (Ill. 2005)
• Decision Date: 30 June 2005
• Docket Number: No. 1-03-3394.,1-03-3394.
• Parties: Michaline MIKRUT and Theresa M. Mudjer, as Co-Executors of the Estate of Theodore Kasprzycki, Deceased, Plaintiffs-Appellants, v. FIRST BANK OF OAK PARK, Defendant-Appellee.

832 N.E.2d 376

Michaline MIKRUT and Theresa M. Mudjer, as Co-Executors of the Estate of Theodore Kasprzycki, Deceased, Plaintiffs-Appellants, v. FIRST BANK OF OAK PARK, Defendant-Appellee.

No. 1-03-3394.

Appellate Court of Illinois, First District, First Division.

June 30, 2005.

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David E. Neumeister, Thomas C. Kaufman and Karen M. Vivian of Querry & Harrow, Ltd., for Plaintiffs.

Matthew S. Klepper and Hugh S. Balsam of Lord, Bissell & Brook LLP, for Defendant.

Justice McBRIDE delivered the opinion of the court:

Plaintiffs-appellants, Michaline Mikrut and Theresa Mudjer, in their capacity as co-executors of the estate of their deceased brother, Theodore Kasprzycki, sued the defendant-appellee, First Bank of Oak Park (First Bank). The action sought to recover estate funds that were converted by plaintiffs' attorney, Anthony Capetta. Capetta, in his capacity as plaintiffs' fiduciary, received three checks which represented the proceeds of Kasprzycki's estate. Plaintiffs claimed that Capetta, without plaintiffs' authority, improperly endorsed these checks, deposited them into his client trust account (escrow account) with First Bank, and converted those funds for his own use. Count I of plaintiffs' amended complaint alleged conversion under section 3-420 of the Uniform Commercial Code (UCC) (810 ILCS 5/3-420 (West 2000)). Count II alleged a "claim of interest" under sections 3-306 and 3-307 of the UCC (810 ILCS 5/3-306, 3-307 (West 2000)). First Bank moved for summary judgment on each count arguing, among other things, that under the Fiduciary Obligations Act (760 ILCS 65/7 (West 2000)), First Bank was relieved of liability because it did not act in bad faith or with knowledge that Capetta breached his fiduciary duties to plaintiffs. First Bank's summary judgment motion was ultimately granted by the trial court. Plaintiffs then filed a motion to reconsider which the trial court denied. Plaintiffs appeal from the orders entered by the trial court.

Plaintiffs alleged in their amended complaint that Anthony Capetta was an attorney and was representing plaintiffs as co-executors of their deceased brother's estate in 1996. The estate was the subject of a probate action filed in the circuit court of Cook County. Capetta continued to represent plaintiffs until he died on January 27, 1997. Prior to his death, Capetta maintained a client trust account, which the parties refer to as an "escrow account," with First Bank. Plaintiffs alleged that Capetta, as agent for plaintiffs, "had delivered to him" three checks representing the proceeds of the sale of certain estate assets. These assets consisted primarily of the decedent's real estate and common stock in a variety of corporations.

Theresa Mudjer explained in her deposition that Capetta "suggested" the checks at issue be put into his safe after the estate closing. According to Mudjer, the rationale for leaving the checks in Capetta's safe was that they could not be cashed until after probate, a period of six months. Mudjer and her sister agreed that the checks could be kept in Capetta's safe.

The first of these three checks was drawn on American National Bank, as check number 3105812 dated June 16, 1996, and was made payable to "Theresa M. Mudjer & Michaline Mikrut Independent Executors of the Theodore Michael Kaspyrzycki Estate" in the amount of $93,224.42. The second check was drawn on Citibank, as check number 013147084, dated July 10, 1996, and was made payable to "Mrs Therese M Kudjer, Mrs Michaline Mikrut Co-Execs, Est Theodore Michael Kasprzycki C/O A.B. Capetta" in the amount of $486, 678.63. The third check was drawn on Harris Trust and Savings Bank, as check number 013147084, dated July 26, 1996, and was made payable to "Michaline Mikrut & Theresa M Mudjer Ind Co-Ex C/O Anthony B Capetta Atty at Law" in the amount of $129, 373.22.

While the endorsements on the reverse side of the first and third checks in the record before us are illegible, the endorsement on the back side of the second check states: "Pay To The Order of Anthony B. Capetta Escrow Acct," with the apparent signatures of "Mrs. Theresa M. Mudjer" and "Mrs Michalene Mikrut" as "Co-Execs Est. Theodore Michael Kasprzycki."

Plaintiffs alleged that Capetta was not authorized to endorse any of these checks and First Bank was never advised that Capetta was authorized to endorse these checks. Mudjer also testified in her deposition that she did not talk to Capetta about the idea of cashing the checks. She said she understood that her endorsement would be required to negotiate the checks at issue. Michaline Mikrut testified that she understood there was no way to negotiate the checks without her endorsement and her sister's endorsement.

Plaintiffs further alleged that without their authorization Capetta improperly forged plaintiffs' endorsements on the three checks and deposited them into his escrow account at First Bank. Capetta then allegedly spent the plaintiffs' funds for his personal benefit. Plaintiffs did not know of Capetta's fraud, specifically that he deposited these checks into the escrow account without the plaintiffs' authorization, until after Capetta died. They also discovered that Capetta had misappropriated funds from many of his clients by making payments from the escrow account for his personal use.

Prior to Capetta's death and plaintiffs' discovery of the forged endorsements, Capetta provided a "Final Account" for the estate on November 29, 1996. He sent this document to Joseph Mikrut, the son of Michaline Mikrut, who was assisting the plaintiffs in preparing the estate's tax forms. The Final Account included the combined value of the three checks on which Capetta allegedly forged his endorsements.

The record shows that Capetta had been a customer at First Bank for many years. Capetta maintained three personal accounts with First Bank in addition to the escrow account. On December 9, 1985, Capetta and his wife obtained a mortgage, secured by their real property, in the amount of $310,000. In connection with the mortgage loan, Capetta and his wife executed a "Pledge to Secure Guaranty and Other Liabilities" with First Bank. That document stated the following in pertinent part:

"Upon non-payment when due of any of the Obligations, or upon any failure of the undersigned or any of them, to perform under this Agreement,

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(3) any indebtedness owing from the Bank to the Undersigned and any deposits of the Undersigned in the possession or control of the Bank for any purpose may at any time without notice be applied on any or all of the Obligations."

This mortgage loan was modified several times. The final modification occurred in 1996, and the Capettas' adjusted net worth was calculated at $1.16 million.

Capetta provided legal services for three principals at First Bank prior to his death. Specifically, Capetta wrote a will for the in-laws of Frank Prucha, a vice president at First Bank and set up a trust for the disabled aunt of Prucha's wife. Capetta also assisted Thomas Dwyer, another First Bank vice president, in purchasing a home in 1992, Capetta drafted a will for Dwyer and his wife, he helped Dwyer's sister-in-law purchase a condominium, and he prepared income tax returns in 1994 for an in-law of Dwyer. In addition, Capetta assisted Mike Kelly, First Bank's president, with the purchase of three real estate properties.

As indicated above, plaintiffs sued First Bank shortly after Capetta died. Count I of plaintiffs' amended complaint alleged a conversion claim against First Bank for the forged checks under section 3-420 of the UCC. Count II alleged a "claim of interest" in the checks under sections 3-306 and 3-307 of the UCC. First Bank moved for summary judgment on both counts. With regard to count I, First Bank argued that section 7 of the Fiduciary Obligations Act (760 ILCS 65/7 (West 2000)), discussed below, provided it with a complete defense to any liability based on the malfeasance of Capetta because the bank acted in good faith and without actual knowledge of Capetta's breach of his fiduciary duties to plaintiffs. It further asserted that because Joseph Mikrut, who was plaintiffs' agent, knew that the checks had been negotiated before Capetta's death, plaintiffs had ratified the deposit of the checks into Capetta's escrow account. As to count II, First Bank argued plaintiffs failed to provide any evidence showing that First Bank had "notice of a breach of fiduciary duty" as required under section 3-307 of the UCC set forth below.

The trial court, in an order dated December 13, 2002, stated the following, in relevant part:

"1. Defendant's Motion for Summary Judgment is granted and judgment is entered against Plaintiffs as to their entire Complaint, except to the extent that Plaintiffs can show payments, involving all or part of the funds represented by Plaintiffs' checks delivered to Capetta, falling within the circumstances described in the second sentence of 760 ILCS 65/7 or the circumstances described in 810 ILCS 5/3-307(b)(4). If Plaintiffs contend that such payments were made, Plaintiffs shall identify such payments in a writing filed with the Court and served on Defendant's counsel no later than December 31, 2002.

2. With respect to Defendant's Motion for Summary Judgment argument based on ratification, the court declines to enter summary judgment on this ground because it finds there is a triable issue of fact."

On December 31, 2002, plaintiffs asked the trial court to reconsider the summary judgment order entered in favor of First Bank. With regard to count I, plaintiffs argued that section 3-420 of the UCC superceded section 7 of the Fiduciary Obligations Act. Plaintiffs also argued, in the alternative, that section 9 of the Fiduciary Obligations Act should apply instead of section 7 and that the section 9 defense to liability was not available to First Bank under these facts. Concerning...