People ex rel. Madigan v. Maxwell Manor

• Decision Date: 31 December 2013
• Docket Number: No. 1-11-3132,1-11-3132
• Citation: 2013 IL App (1st) 113132
• Parties: THE PEOPLE ex rel. LISA MADIGAN, Attorney General of Illinois, Plaintiff-Appellee, v. MAXWELL MANOR, an Illinois Not-for-Profit Corporation, JOEANN McCLANDON, CEOLA M. BANKS, and ANNIE GARRETT-WILLIAMS, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

2013 IL App (1st) 113132

THE PEOPLE ex rel. LISA MADIGAN,Attorney General of Illinois, Plaintiff-Appellee, v. MAXWELL MANOR,an Illinois Not-for-Profit Corporation, JOEANN McCLANDON,CEOLA M. BANKS, and ANNIE GARRETT-WILLIAMS, Defendants-Appellants.

No. 1-11-3132

APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT THIRD DIVISION

DECEMBER 31, 2013

NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the

Circuit Court of

Cook County.

No. 02 CH 16474

The Honorable

Kathleen M. Pantle,

Judge Presiding.

JUSTICE PUCINSKI delivered the judgment of the court.

Presiding Justice Hyman and Justice Mason concurred in the judgment.

ORDER

¶ 1 HELD: The court affirmed the circuit court's grant of summary judgment in favor of the Attorney General and against a charitable nursing home and its officers and directors in an action for violations of the Illinois Charitable Trust Act for failing to maintain registration (760 ILCS 55/6 (West 1996)), failing to file annual reports and failing to file an accounting for sale of the nursing home (760 ILCS 55/7 (West 1996)), and breach of fiduciary duties (760 ILCS 55/15 (West 1996)), where it was undisputed that theorganization and its officers and directors did not file annual reports, did not maintain registration, and did not report the sale. The court also affirmed a grant of partial summary judgment in the amount of $2,000,000 and a subsequent full grant of summary judgment against the former director for breach of fiduciary duty under section 15 of the Act (760 ILCS 55/15 (West 1996)), misuse of charitable assets intentionally and in breach of fiduciary duty with malice under section 16 (760 ILCS 55/16 (West 1996)), and intentional breach of fiduciary duty in intentionally disbursing charitable funds to be used for one's personal benefit with malice and without lawful authority under section 17 (760 ILCS 55/17 (West 1996)) for her misappropriation of the nursing home's assets because she failed to present any genuine issue of material fact where her affidavit stating that the money taken was for repayment of loans she made to the organization was self-serving and conclusory. The court held that the circuit court properly denied the defendants' motion to reconsider the summary judgment based on allegedly new evidence in the form of an affidavit from other officers of the nursing home and loan documents where there was no showing that the evidence was unavailable at the time of the original motion for summary judgment hearing. The court also affirmed summary judgment on the claim for an accounting where there was no genuine issue of material fact regarding the need for an accounting, despite the fact that the circuit court's summary judgment order did not order an accounting and instead ordered the collection and distribution of any remaining assets to other bona fide charities pursuant to cy pres. The Attorney General could pursue its right to an accounting if it chose to. The court vacated summary judgment on the common-law claim for removal of trustees because the Attorney General had already sought and obtained removal of trustees pursuant to the Act.

¶ 2 BACKGROUND

¶ 3 This case was brought by the People of the State of Illinois ex rel. Lisa Madigan, Attorney General of Illinois (Attorney General), against the defendant nursing home and its officers and directors in a four-count second amended complaint for an accounting and various violations of the Illinois Charitable Trust Act (760 ILCS 55/1 et seq. (West 1996)). The case is on appeal from a grant of summary judgment in favor of the Attorney General against the defendant nursing home, Maxwell Manor, and its defendant owner and officers, JoeAnn McClandon, Ceola M. Banks, and Annie Garrett-Williams, for failure to file annual reports and maintain registration, as well as for breach of fiduciary duty and misappropriation of charitable assets byMcClandon.

¶ 4 In analyzing the summary judgment in this case, we clarify the claims that were alleged in each count. Count I of the second amended complaint alleges five claims against defendants Maxwell Manor and JoeAnn McClandon. For the sake of clarity we will denote each claim numerically. Count I alleged the following violations of the Illinois Charitable Trust Act: (1) section 6, requiring trustees to register with the Attorney General (760 ILCS 55/6 (West 1998)); and (2) section 7, requiring filing annual financial reports with the Attorney General (760 ILCS 55/7 (West 1998)). Count I alleged that defendants Maxwell Manor and McClandon failed to file any reports after 1997, specifically for the years 1998, 1999, 2000, 2001, and 2002.

¶ 5 Count I also alleged: (3) that defendants Maxwell Manor and McClandon breached their fiduciary duties under section 15 of the Act (760 ILCS 55/15(a) (West 1998)). Count I alleged that defendant Maxwell Manor breached its fiduciary duty as a holder and trustee of charitable assets. Count I alleged that defendant McClandon breached her fiduciary duties as Maxwell Manor's president and executive director, and thus as a trustee and fiduciary of Maxwell Manor. As a remedy for this violation, count I sought the removal of defendants Maxwell Manor and McClandon as trustees pursuant to section 16(b) of the Illinois Charitable Trust Act.

¶ 6 Count I also alleged: (4) a claim against defendant McClandon under section 16 of the Act (760 ILCS 55/16 (West 1998)).

¶ 7 Count I further alleged: (5) a claim against McClandon under section 17 of the Act (760 ILCS 55/17 (West 1998)).

¶ 8 Count I sought various relief against defendants McClandon and Maxwell Manor forthese claims, including directing Maxwell Manor and McClandon to make a strict accounting; imposition of a constructive trust over Maxwell Manor's assets; surcharging McClandon and Maxwell Manor for all Maxwell Manor assets that were used for other than charitable purposes; temporarily restraining and permanently enjoining Maxwell Manor and McClandon from soliciting, receiving or holding assets for any charitable entity; removing McClandon from any fiduciary position with Maxwell Manor; appointing a receiver for Maxwell Manor; dissolving and liquidating Maxwell Manor and directing the transfer of its assets to another charitable organization pursuant to the doctrines of equitable deviation and/or cy pres; and a judgment against McClandon of at least $13 million and for the costs of investigating and prosecuting the action.

¶ 9 Count I alleged that defendants Maxwell Manor and McClandon have a duty to account for the $1,104,670 of charitable assets shown on Maxwell Manor's 1997 financial report, the sale of Maxwell Manor for more than $12 million in proceeds, and the $1,367,022.40 of escrowed funds sought by and released to Maxwell Manor and BMJ Enterprises (BMJ). Count I alleged that the precise amount of assets held in Maxwell Manor and use of those assets (at least $13 million) were presently unknown, and without a full and complete accounting of all assets, receipts, costs, expenses and disbursements to date by the defendants, the Attorney General "cannot determine the full extent of any waste or misuse of charitable assets, self-dealing, and breach of fiduciary duty that has occurred."

¶ 10 Count I also specifically sought punitive damages against McClandon pursuant to section 17 of the Act (760 ILCS 55/17 (West 1998)) and alleged: "In the event that [McClandon] isfound and adjudged, after an accounting, to have knowingly and intentionally caused the disbursement of more than $1,000.00 of MAXWELL MANOR's assets without right for her own personal use or benefit within a 3-year period, imposing civil punitive damages in an amount equal to the amount so disbursed as well as a civil penalty fine of not less than $50,000.00 for each such disbursement against [McClandon] pursuant to Sections 16(a) and 17 of the Charitable Trust Act (760 ILCS 55/16(a) [(West 1998)] and 760 ILCS 55/17 [(West 1998)])."

¶ 11 Count II was for "Unfitness of Charitable Trustees - Wilful Failure to Comply With Statutory Requirements," against Maxwell Manor and McClandon and repeated the allegations of count I. Count II was also based on violations of sections 7 of the Charitable Trust Act for the failure to file the statutorily required annual financial reports and asked for the same relief. Count II additionally alleged that, because defendants Maxwell Manor and McClandon filed a registration statement and annual financial reports for several years ending with 1997, their failure to file annual reports for subsequent years "cannot be excused by ignorance of the law but appears to be willful." Count II sought a finding that defendants Maxwell Manor and McClandon "have wilfully [sic] violated the Charitable Trust Act," citing generally to the Act, "760 ILCS 55/1 et seq. (1999)." Count II also sought a finding that defendants Maxwell Manor and McClandon breached their fiduciary duties (claim (3) from count I). Count II repeated the prayer for punitive damages in count I against McClandon "[i]n the event that [McClandon] is found and adjudged, after an accounting, to have knowingly and intentionally caused the disbursement of more than $1,000.00 of MAXWELL MANOR's assets without right for her own personal use or benefit within a 3-year period, imposing civil punitive damages in an amountequal to the amount so disbursed as well as a civil penalty fine of not less than $50,000.00 for each such disbursement against [McClandon] pursuant to Sections 16(a) and 17 of the Charitable Trust Act (760 ILCS 55/16(a) and 55/17 (West 1998))" (claims (4) and (5) from count I). Count II sought the same relief as count I: a judgment directing Maxwell Manor and McClandon to make a strict accounting; imposition of a constructive trust over Maxwell Manor's assets; surcharging McClandon and Maxwell Manor for all Maxwell Manor assets that were used...