Toland v. Davis

No. 3--97--0373
_________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 1998


JIM and ELLEN TOLAND, ) Appeal from the Circuit Court
) for the 18th Judicial Circuit
Plaintiffs, ) DuPage County, Illinois
)
and )
)
LEHRER, FLAHERTY & CANAVAN P.C., )
)
Appellant, )
)
v. )
)
SUZANN DAVIS, a/k/a HARPER, ) No. 95--L--97
individually and d/b/a )
CONSERV, INC., and KEITH TILDEN, )
individually and d/b/a TILDEN )
ROOFING, )
)
Defendants, )
)
and )
)
TAMKO ROOFING PRODUCTS, INC., )
) Honorable
Defendant-Appellee, ) C. Stanley Austin
) Judge, Presiding
___________________________________________________________________

MODIFIED UPON DENIAL OF PETITION FOR REHEARING
JUSTICE LYTTON delivered the opinion of the court:
___________________________________________________________________

After filing a complaint that alleged defendants provided
defective roofing supplies and repair services, plaintiffs agreed
to dismiss their claims against defendant Tamko Roofing Products,
Inc. and settled their claims with the remaining defendants.
Pursuant to Supreme Court Rule 137 (134 Ill. 2d R. 137), Tamko
filed a motion for sanctions against plaintiffs' counsel, Lehrer,
Flaherty & Canavan P.C. (LF&C). The trial judge awarded sanctions
in the amount of $5000. LF&C appeals. We reverse.
Supreme Court Rule 137 permits a court to impose sanctions
against a party or attorney who improperly files a pleading with
the court. 134 Ill. 2d R. 137. Rule 137 states:
"The signature of an attorney or party constitutes a
certificate by him that he has read the pleading, motion
or other paper; that to the best of his knowledge,
information, and belief formed after reasonable inquiry
it is well grounded in fact and is warranted by existing
law or a good-faith argument for the extension,
modification, or reversal of existing law, and that it is
not interposed for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase
in the cost of litigation. * * * If a pleading, motion,
or other paper is signed in violation of this rule, the
court, upon motion or upon its own initiative, may impose
upon the person who signed it, a represented party, or
both, an appropriate sanction, which may include an order
to pay to the other party or parties the amount of
reasonable expenses incurred because of the filing of the
pleading, motion or other paper, including a reasonable
attorney fee." 134 Ill. 2d R. 137.
The determination of whether to impose sanctions generally
rests within the sound discretion of the trial court, whose
decision is entitled to great weight and will not be disturbed on
review absent an abuse of discretion. In re Estate of Wernick, 127 Ill. 2d 61, 77-78, 535 N.E.2d 876, 883 (1989); Bennett &
Kahnweiler, Inc. v. American National Bank and Trust Co., 256 Ill.
App. 3d 1002, 1007, 628 N.E.2d 426, 430 (1993). In this case, the
judge who imposed sanctions neither presided over any aspect of the
case while Tamko was a defendant, nor conducted an evidentiary
hearing on the motion for sanctions; thus, no deference need be
given to the trial court. When a trial judge bases his decision
solely on the same "cold" record that is before the court of
review, it is difficult to see why any deference should be afforded
to that decision. See North Shore Sign Co. v. Signature Design
Group, Inc., 237 Ill. App. 3d 782, 790, 604 N.E.2d 1157, 1163
(1992) ("the predicate to such deference is that the circuit court
make explicit factual findings upon which a court of review may
make an informed and reasoned decision"). Nevertheless, we find
that the imposition of sanctions was erroneous under the abuse of
discretion standard.
The pertinent chronology in this case can be summarized as
follows. On May 4, 1995, LF&C filed a complaint on behalf of
plaintiffs alleging breach of contract, negligence, common law
fraud, breach of express warranty, breach of implied warranty, and
violations of the Illinois Consumer Fraud and Deceptive Practices
Act (815 ILCS 505/1 et. seq. (West 1994). The case was assigned to
Judge Robert Lucas.
Defendant Tamko filed a motion to dismiss pursuant to section
2--615 of the Illinois Code of Civil Procedure (735 ILCS 5/2--615
(West 1994)). Tamko then agreed to an order that continued its
motion and granted plaintiff leave to file an amended complaint.
On September 19, the parties appeared in court, plaintiffs were
granted additional time to file their amended complaint, and
Tamko's motion to dismiss was "stricken by agreement."
On October 19, plaintiffs filed their amended complaint,
alleging breach of written warranty, breach of implied warranty,
negligence, common law fraud, and violations of the Illinois
Consumer Fraud and Deceptive Practices Act (815 ILCS 505/1 et. seq.
(West 1994). Defendant Tamko was not included in the negligence
count. Tamko filed its answer to amended complaint. In addition
to denying many of plaintiffs' allegations, Tamko raised three
affirmative defenses: (1) plaintiff's suit was not timely under the
terms of Tamko's written limited warranty, (2) Tamko's warranty
excluded recovery for consequential and incidental damages, and (3)
plaintiffs failed to give reasonable notice pursuant to section 2--
607 of the Uniform Commercial Code (810 ILCS 5/2--607 (West 1994)).
Another defendant, Suzann Davis, filed a combined motion to dismiss
(735 ILCS 5/2--619.1 (West 1994)) and motion for summary judgment
(735 ILCS 5/2--1005 (West 1994)). Pursuant to section 2--619 (735
ILCS 5/2--619 (West 1994), defendant Keith Tilden filed a motion to
dismiss counts I and II.
Plaintiffs then filed a motion to strike Tamko's affirmative
defenses, claiming that the limitations within the warranty were
proscribed by federal law. On April 1, the motion to strike
Tamko's affirmative defenses was denied; plaintiffs were granted
leave to file answers to the affirmative defenses. Tilden's
section 2--619 motion was granted in part and denied in part;
Davis' combined motion was granted; and plaintiffs were granted
leave to file a second amended complaint.
On May 1, plaintiffs filed their second amended complaint,
alleging breach of written warranty, breach of implied warranty,
negligence, common law fraud, and violations of the Illinois
Consumer Fraud and Deceptive Practices Act (815 ILCS 505/1 et seq.
(West 1994)). Tamko was named as a defendant only in the two
warranty counts.
Two days later, citing "irreconcilable differences" with
plaintiffs, LF&C filed motion to withdraw as counsel, which was
granted. On May 28, Attorney William F. Haley was granted leave to
appear as counsel for plaintiff. Tamko was granted leave to file
an answer to second amended complaint. Also, pursuant to Supreme
Court Rule 219 (134 Ill. 2d R. 219), Tamko filed a motion to
dismiss the case for plaintiffs' failure to adequately respond to
defense interrogatories. A hearing was set for a June 25 hearing
on Tamko's motion to dismiss. At the hearing, plaintiff stipulated
to the dismissal of Tamko as defendant, with prejudice, and agreed
to pay Tamko's costs in the amount of $98. In December, pursuant
to a settlement agreement, plaintiffs and remaining defendants
stipulated to a settlement and dismissal of case.
Three weeks later, Tamko filed a motion for sanctions against
LF&C. In January, 1997, for the first time, Judge C. Stanley
Austin presided over case, and a hearing on the motion for
sanctions was continued. At the subsequent hearing, Judge Austin
imposed sanctions against LF&C in the amount of $5000. The judge
found (a) LF&C filed the initial complaint "based upon the lack of
what I would consider an appropriate investigation," and (b) "two
complaints were dismissed, and ultimately a third one was filed,
still leaving this defendant in without any additional discovery
being done."
The imposition of sanctions is not to be based on a subjective
after-the-fact analysis or hindsight. Washington v. Allstate
Insurance Co., 175 Ill. App. 3d 574, 580, 529 N.E.2d 1086, 1090
(1988). Rather, the proper standard for evaluating a party's
conduct under Rule 137 is one of reasonableness under the
circumstances existing at the time of the filing. Bennett &
Kahnweiler, 256 Ill. App. 3d at 1007, 628 N.E.2d at 430. Applying
this standard, we conclude that the trial judge abused his
discretion in imposing sanctions for filing the initial and amended
complaints.
Initially, we note that the judge erred in finding that
plaintiffs' first two complaints were dismissed. Plaintiffs'
initial complaint was not dismissed. To the contrary, Tamko's
initial pleading (a section 2--615 motion to dismiss) was stricken.
After plaintiffs filed their amended complaint, Tamko filed an
answer. Judge Lucas then granted the motions filed by defendants
Tilden and Davis, and plaintiffs were granted leave to file a
second amended complaint. Again Tamko filed an answer. The
implication that LF&C persisted, despite repeated rulings in favor
of Tamko, is simply not correct.
The record shows that LF&C conducted a reasonable inquiry
prior to filing the initial complaint and thereafter properly
pursued plaintiffs' claims against Tamko. Prior to filing the
initial complaint, plaintiffs received a letter from Tamko, wherein
the company denied liability but confirmed that its shingles were
covered by a limited warranty. Additionally, plaintiffs' claims
against Tamko were based in part on the representations of co-
defendants Davis and Tilden. In the complaint, plaintiffs alleged
that (a) Suzann Davis represented that she would act as general
contractor and provide a "Tamko approved roofing contractor" to
repair plaintiffs' roof, (b) Davis represented that Tamko's
shingles came with a 25-year warranty, and (c) Davis and Keith
Tilden held themselves out to be "authorized to properly apply
Tamko roofing products." While Tamko steadfastly denied that it
approved or authorized Davis and Tilden, at no time did it refute
that these representations were made.
Nonetheless, Judge Austin found that "there was not a whole
lot of investigation" as to the terms of Tamko's warranty. Yet, in
their initial complaint, plaintiffs alleged that "warrantor and
dealer have refused to supply the warranty." In its responsive
pleading, Tamko did not deny this assertion. Instead, Tamko
attached a copy of the limited warranty to its motion, and argued
that the terms of the warranty precluded liability in this case.
Thereafter, plaintiffs' amended complaints were modified to address
Tamko's purported liability under the terms of the warranty.
Finally, we note that no determination was ever made on the
merits of plaintiffs' claims against Tamko. At the time that Tamko
was dismissed as a party, the case was before the court on a motion
to dismiss for violations of discovery rules. Plaintiffs agreed to
the dismissal and agreed to pay Tamko's costs. In its motion for
sanctions, Tamko attempted to turn this into a tacit admission as
to the merits of the case:
"* * * plaintiffs' new attorney, having had a chance to
review the various materials forwarded to him by his
predecessors, almost immediately agreed to voluntarily
dismiss Tamko, with prejudice, in view of the complete
lack of any evidence or other information indicating
wrongdoing on its part * * *."
Yet, as Judge Austin noted, Tamko provided no affidavit or evidence
supporting this claim. "They were simply voluntarily dismissed
out."
This is not a case that warrants sanctions. The purpose of
sanctions is to discourage baseless actions and frivolous motions,
rather than fee shifting in favor of prevailing parties. See
Gaiardo v. Ethyl Corp. 835 F.2d 479, 483 (3d Cir. 1987). Although
English courts routinely award attorney fees to successful
litigants, (Fleischmann v. Maier Brewing Co., 386 U.S. 714, 717, 18 L. Ed. 2d 475, 478, 87 S. Ct. 475, ___ (1967)), this is not the
American practice. More than two centuries ago the United States
Supreme Court rejected application of the English rule in the
United States. The rule in this country is that attorney fees are
not ordinarily recoverable in the absence of such a provision in a
statute or enforceable contract. See Arcambel v. Wiseman, 3 U.S.
(Dallas) 306, 1 L. Ed. 613 (1796).
The American rule is based on sound policy principles.
Litigation is inherently uncertain, and it would be unjust to
punish litigants for exercising their right to file or defend a law
suit. The poor would be discouraged from vindicating their rights,
not based on the merits of their cases, but for fear of being
penalized with their opponents' attorney fees. Moreover, the time,
expense and difficulty of litigating fees would pose substantial
burdens for judicial administration. Fleischmann, 386 U.S. at 718,
18 L. Ed. at 478, 87 S.Ct. at ___. Thus, when confronted with a
request to fashion a far-reaching exception to the American rule,
the Supreme Court declined on the basis that it would be
inappropriate for the judiciary, without legislative guidance, to
reallocate the burdens of litigation. Alyeska Pipeline Service Co.
v. Wilderness Society, 421 U.S. 240, 247, 44 L. Ed. 2d. 141, 147,
95 S. Ct. 1612, ___ (1975).
Illinois Supreme Court Rule 137 did not introduce the English
rule into American law. Under the English rule, "a fee award is
not a sanction" (S & H Riggers and Erectors, Inc. v OSHRC, 672 F.2d 426, 429 (1982)), while Rule 137 expressly speaks of "a
sanction" (134 Ill. 2d R. 137). See also Lewy v. Koeckritz
International, Inc., 211 Ill. App. 3d 330, 334, 570 N.E.2d 361, 365
(1991) (Rule 137 is "almost identical" to Rule 11 of the Federal
Rules of Civil Procedure, (Fed. R. Civ. P. 11), and Illinois courts
may seek guidance from judicial interpretation of Rule 11), and
Anshutz Petroleum Marketing Corp. v. E. W. Saybolt & Co., 112 F.R.D. 355, 357 (1986) (Rule 11 was not intended to have same
effect as the English rule).
The purpose of Rule 137 is to prevent the filing of frivolous
or false lawsuits without legal or factual foundation, not to
penalize litigants and their attorneys simply because they were
zealous but unsuccessful. See Elledge v. Reichert, 250 Ill. App.
3d 1055, 1059, 620 N.E.2d 543, 547 (1993). Since the rule is penal
in nature, its terms must be strictly construed. In re Marriage of
Adler, 208 Ill. App. 3d 469, 475, 648 N.E.2d 953, 957 (1995).
Rule 137 specifically provides that every complaint must be
(a) based on knowledge, information, or belief formed after
reasonable inquiry, (b) well grounded in fact and warranted by
existing law or a good-faith argument for the extension,
modification, or reversal of existing law, and (c) not interposed
for any improper purpose. The record shows that plaintiffs'
counsel satisfied these criteria.
Nonpublishable material under Supreme Court Rul 23 omitted.
CONCLUSION
The judgment of the circuit court of DuPage County is
reversed.
Reversed.
BRESLIN, J., concurs.
SLATER, J., concurs with the opinion and the denial of
petition for rehearing, but finds the explanation for the denial of
rehearing unnecessary.