Western States Insurance Co. v. Louis Olivero & Assoicates

No. 3--96--0170
_________________________________________________________________

IN THE APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 1996

WESTERN STATES INSURANCE ) Appeal from the Circuit Court
COMPANY, ) for the 13th Judicial Circuit
) La Salle County, Illinois
Plaintiff-Appellant, )
)
v. ) No. 95 SC 1417
)
LOUIS E. OLIVERO & ASSOCIATES )
and DAVID W. OLIVERO, ) Honorable
) William R. Banich
Defendants-Appellees. ) Judge, Presiding
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MODIFIED UPON DENIAL OF REHEARING
PRESIDING JUSTICE BRESLIN delivered the opinion of the court:
_________________________________________________________________

The plaintiff, Western States Insurance Company (Western
States), filed the instant case against the defendants, Louis E.
Olivero & Associates and David Olivero, alleging that they
wrongfully refused to satisfy Western States' claim for subrogation
out of the proceeds of a settlement in a personal injury case. The
trial court granted the defendants' motion for summary judgment.
We hold that Western States was entitled to receive the amount of
its subrogation claim from the proceeds of the settlement and that
the defendants' failure to honor the subrogation claim amounted to
a conversion of Western States' property. Accordingly, we reverse
the court's order and grant summary judgment in favor of Western
States.
Western States provided automobile insurance to Gaylon and
Judy Irvin. After an automobile accident involving the Irvins and
Sharon Gualandi, the Irvins retained the defendants to recover
damages from Gualandi. The Irvins settled their claims for a total
of $20,000. Under Western States' insurance policy with the
Irvins, Western States had a subrogation interest in the suit
because it had paid for medical treatment received by the Irvins.
Before the settlement checks were issued, the Irvins executed
a release which provided that they would satisfy all liens and
claims against the settlement, including Western States' claim for
medical payments. The settlement checks were made payable to,
among others, the Irvins, Louis E. Olivero & Associates, and
Western States. The defendants sent these checks to Western States
for its endorsement. The letter which accompanied the checks
provided that the defendants agreed to reimburse Western States in
the amount of $2,005.20, and that a check would be forwarded as
soon as the settlement checks cleared. Western States endorsed the
checks and returned them to the defendants' office with a demand
for payment of $2,005.20.
The defendants cashed the settlement checks and deposited the
proceeds into a trust account. The checks cleared the bank on May
4, 1995, but the defendants never paid Western States its share of
the proceeds. Then, on May 28, 1995, the Irvins informed David
Olivero of their intent to file a bankruptcy petition. On June 1,
the Irvins' bankruptcy attorney contacted Olivero and advised him
not to disburse any of the settlement proceeds because the proceeds
were property of the bankruptcy estate. Nevertheless, on the
following day, the defendants disposed of the settlement proceeds
by retaining $9,022.99 in attorney fees and costs and disbursing
the remaining $10,977.01 to the Irvins. The Irvins did not file
their bankruptcy petition until June 20.
In its complaint, Western States alleged, among other things,
that the defendants had converted Western States' funds. Both
parties filed motions for summary judgment. In granting summary
judgment for the defendants, the trial court found that the
conversion claim failed because the Irvins maintained control of
the settlement proceeds. This appeal followed.
We will confine our discussion in this opinion to whether the
trial court erred by granting summary judgment for the defendants
on Western States' conversion claim and by denying Western States'
motion for summary judgment.
When parties file cross motions for summary judgment, they
agree that only a question of law is involved and invite the court
to decide the issues based on the record. Andrews v. Cramer, 256
Ill. App. 3d 766, 769, 629 N.E.2d 133, 135 (1993). On appeal from
the entry of summary judgment, the standard of review is de novo.
Andrews, 256 Ill. App. 3d at 769, 629 N.E.2d at 135.
To prevail on a conversion claim, a plaintiff must establish
that (1) it has a right to the property; (2) it has an absolute and
unconditional right to the immediate possession of the property;
(3) it made a demand for possession and (4) the defendant
wrongfully and without authorization assumed control, dominion, or
ownership over its property. Springfield Rare Coin Galleries, Inc.
v. Mileham, 250 Ill. App. 3d 922, 620 N.E.2d 479 (1993). Retention
of property after a valid demand for its return constitutes
conversion. Harry W. Kuhn, Inc. v. State Farm Mutual Automobile
Insurance Co., 201 Ill. App. 3d 395, 559 N.E.2d 45 (1990).
In the instant case, the Irvins executed a release which
provided that they would satisfy Western States' claim and the
Irvins' insurance policy gave Western States the right to recover
its medical payments from the personal injury settlement.
Moreover, Western States was a named payee on the settlement checks
and the defendants promised to pay Western States its share of the
settlement amount as soon as the checks cleared the bank. Under
these facts, Western States established that it had a right to its
share of the proceeds and an absolute and unconditional right to
the immediate possession of those proceeds after the checks cleared
the bank. Western States made a demand for its share of the
proceeds, but the defendants failed to comply with this demand
after the checks had cleared. Because it is clear from the
undisputed facts that the defendants were authorized to hold
Western States' share of the proceeds only until the checks
cleared, the defendants' retention of the proceeds constituted a
conversion.
The defendants excuse their actions, however, based upon the
rule of professional conduct requiring attorneys to hold all
property subject to a dispute (see 134 Ill. 2d R. 1.15(a) and (c)).
They also argue that they could only dispose of the Irvins' funds
if directed to do so by them.
Before the settlement checks cleared, the defendants and the
Irvins had recognized their obligation to honor Western States'
subrogation claim. Therefore, the fact that Western States was
entitled to receive $2,005.20 from the proceeds of the settlement
checks was not subject to any dispute. In addition, under the
Illinois Rules of Professional Conduct, the defendants had an
affirmative duty to disburse Western States' share of the
settlement proceeds. See 134 Ill. 2d R. 1.15(b). Accordingly, we
reject the defendants' argument that the rules of professional
conduct limited their duty to return Western States' share of the
settlement proceeds.
The defendants also argue that Western States forfeited its
right to pursue the subrogation claim by failing to attend a
creditors meeting with the Irvins' bankruptcy trustee. They
maintain that the amount owed to Western States was a debt which
was discharged by the bankruptcy court. We disagree.
The filing of a bankruptcy petition creates an estate
comprised of all property in which the debtor has a legal or
equitable interest. See 11 U.S.C. 541(a) (1994). An insurer with
a valid subrogation claim has an equitable right to a portion of
the debtor's recovery from a third party tortfeasor and the amount
of the recovery that represents the costs expended by the insurer
does not become part of the debtor's bankruptcy estate. In re
Squyres, 172 B.R. 592, 595 (1994). Since both the Irvins and the
defendants had previously recognized their obligation to honor
Western States' subrogation claim and Western States was a named
payee on the settlement checks, the Irvins had no right or interest
in Western States' share of the settlement proceeds. Thus, Western
States' share of the proceeds did not become part of the Irvins'
bankruptcy estate and Western States was not obligated to attend
the creditors meeting. In addition, Western States' subrogation
claim was not a debt of the Irvins that could be discharged by the
bankruptcy court. See In re Squyres, 172 B.R. 592, 595 (1994).
Moreover, as discussed above, the defendants' failure to
return Western States' share of the settlement proceeds after the
checks cleared amounted to a conversion of Western States' funds.
This conversion occurred before the bankruptcy petition was filed
and before the creditors meeting took place. The defendants have
cited no authority to support the proposition that their liability
to Western States was affected by Western States' failure to attend
the creditors meeting or the discharge of the Irvins' debts by the
bankruptcy court. Thus, even if while we recognize that Western
States subsequently forfeited its right to recover the amount of
its subrogation claim from the Irvins, (see Taylor v. Freeland &
Kronz, 503 U.S. 638, 112 S. Ct. 1644 (1992)), it did not forfeit
its right to assert a conversion claim against the defendants.
While we recognize that the defendants could have mistakenly
believed that they were required to turn over Western States' share
of the settlement proceeds to the Irvins, this mistake does not
relieve the defendants of their liability to Western States.
Attorneys are well-advised to proceed cautiously whenever a client
files a bankruptcy petition. However, an attorney is liable to a
third party if he wrongfully releases that party's funds to his
client. Accordingly, we hold that the defendants' liability to
Western States was not vitiated by Western States' failure to
attend the creditors meeting or by the discharge of the Irvins'
debts by the bankruptcy court.
Because we reverse the trial court's judgment and grant
summary judgment in favor of Western States, we need not address
the additional grounds for reversal raised by Western States.
For the foregoing reasons, the judgment of the circuit court
of La Salle County is reversed, and summary judgment is entered in
favor of Western States.
Reversed.
HOLDRIDGE, P.J., and McCUSKEY, J., concur.