In re Liquidation of Medcare HMO, Inc.

THIRD DIVISION
December 31, 1997

No. 1-95-2578

IN THE MATTER OF THE LIQUIDATION )
OF MEDCARE HMO, INC. )
)
JAMES SCHACHT, Acting Director )
of Insurance of the State of ) Appeal from the Circuit
Illinois, as Liquidator of MedCare ) Court of Cook County.
HMO, Inc., )
)
Plaintiff-Appellant, )
) Honorable Edwin Berman,
v. ) Judge Presiding.
)
KATTEN MUCHIN & ZAVIS, )
)
Defendant-Appellee. )

JUSTICE GORDON DELIVERED THE OPINION OF THE COURT:

James Schacht, Acting Director of Insurance for the State of
Illinois (the Director),[fn1] as liquidator of the estate of
MedCare HMO, Inc. (Medcare), an Illinois-licensed health
maintenance organization (HMO), brought this action to recover
attorney's fees paid to the law firm of Katten Muchin & Zavis
(Katten Muchin). The Director argued that the fees were
recoverable as a voidable preference under section 204 of the
Illinois Insurance Code (215 ILCS 5/204 (West 1992) (the
Insurance Code) and as a fraudulent conveyance under the Uniform
Fraudulent Transfer Act (740 ILCS 160/1 et seq. (West 1992). On
December 22, 1994, the trial court granted Katten Muchin's
section 2-615 motion to dismiss the fraudulent conveyance count
(735 ILCS 5/2-615 (West 1994)) and, on June 21, 1995, granted
summary judgment on the voidable preference count. The Director
filed its notice of appeal from both rulings on July 21, 1995.
I. Appellate Jurisdiction
Before reaching the merits of the instant appeal, we must
first address Katten Muchin's argument that this court lacks
jurisdiction to hear the Director's appeal from the section 2-615
dismissal of its fraudulent conveyance count. Katten Muchin
contends that the December 22, 1994 order dismissing that count
was a final and appealable order on that date and should have
been appealed under Supreme Court Rule 304(b)(2) (155 Ill. 2d R.
304(b)(2)) within 30 days of its entry.
Generally, where multiple claims or multiple parties are
involved in an action, an appeal from a final judgment as to one
or more but fewer than all of the parties or claims may be taken
only if the trial court has made an express written finding that
there is no just reason for delaying either enforcement or
appeal. 155 Ill. 2d R. 304(a). However, under certain
circumstances specified in Supreme Court Rule 304(b) appeals from
final judgments that do not dispose of entire proceedings can be
taken notwithstanding the absence of an express written finding
of appealability by the trial court. One exception is a judgment
or order entered in the administration of a liquidation which
finally determines a right or status of a party. 155 Ill. 2d R.
304(b)(2). Orders within the scope of Supreme Court Rule 304(b)
must be appealed within 30 days of their entry. See McCaffrey v.
Nauman, 204 Ill. App. 3d 761, 562 N.E.2d 628 (1990) (stating that
interlocutory appeal pursuant to Supreme Court Rule 304(b)(2) is
mandatory); Estate of Kime, 95 Ill. App. 3d 262, 419 N.E.2d 1246
(1981).
Katten Muchin argues that the order of December 22, 1994
dismissing the Director's fraudulent conveyance count was an
order entered in the administration of a liquidation which
finally determined a right. We disagree. A mandatory appeal
under Rule 304(b) can occur only when the judgment or order
finally determines a right or status. In re Estate of Devey, 239
Ill. App. 3d 630, 607 N.E.2d 685 (1993). The ultimate right, not
the theory upon which that right is premised must be determined.
Here, the Director sought recovery of the attorney's fees paid to
Katten Muchin on two alternative theories, fraudulent conveyance
and voidable preference. Although the fraudulent conveyance
theory had been adjudicated, Katten Muchin's right to retain the
fees could not have been finally determined until the Director's
alternative claim of voidable preference was adjudicated.
In reaching this conclusion we are persuaded by the decision
of In re Estate of Devey, 239 Ill. App. 3d 630, 607 N.E.2d 685
(1993), which applied Supreme Court Rule 304(b)(1), a rule
analogous to Supreme Court Rule 304(b)(2). Supreme Court Rule
304(b)(1) provides for the mandatory appeal from a judgment or
order entered in the administration of an estate which finally
determines a right or status of a party. In Devey, the
administrator of an estate filed a petition for citation to
recover the decedent's property obtained by the operator of a
long-term care facility arguing that the decedent's contract with
the operator violated the Life Care Facilities Act (Ill. Rev.
Stat. 1987, ch. 111 1/2, par. 4160-1 et seq.). The court, on the
administrator's motion for summary judgment, declared the
decedent's contract with the operator void; and the operator
sought to appeal that finding. The appellate court dismissed the
appeal for lack of jurisdiction finding that the trial court's
order lacked finality under Supreme Court Rule 304(a) and
304(b).[fn2] With respect to Supreme Court Rule 304(b), the
court found that the summary judgment order did not finally
determine the rights of either the operator or the estate to
possession of the decedent's assets.
In Devey, while the court found the contract between the
decedent and the operator void, such that the operator was not
entitled to retain the assets it received thereunder, the court
nevertheless found the operator's appeal premature because the
rights of the parties to those assets had not been determined.
Here, as in Devey, the rights of the parties to the monies paid
to Katten Muchin were not finally determined when the trial court
dismissed the Director's fraudulent conveyance count. The
Director's right to recover the payment on the related but
alternative theory of voidable preference had yet to be
determined. Thus, the Director could not take an appeal on
December 22, 1994 pursuant to Supreme Court Rule 304(b) when his
fraudulent conveyance count was dismissed. The Director's appeal
on July 21, 1995, after the trial court granted summary judgment
on the voidable preference count conferred jurisdiction on this
court to review both the December 22, 1994 order and the June 21,
1995 order regarding the attorney's fees paid to Katten Muchin.
II. Merits of Appeal
A. Background Facts
The facts are not in dispute. MedCare was an Illinois
licensed health maintenance organization which filed for
bankruptcy on June 3, 1992. On March 3, 1993, prior to that
filing, the Illinois Director of Insurance issued a Notice of
Impairment to MedCare stating that MedCare was insolvent and
giving MedCare 30 days to correct the impairment. On April 7,
1992, the Director issued an Amended Notice of Impairment
indicating that the impairment had worsened, and, pursuant to
MedCare's request, gave MedCare 60 days to correct the
impairment. Through the month of May, MedCare did not correct
its impairment, and a complaint for liquidation of MedCare was
prepared by the Director. On June 3, 1992, before that complaint
could be filed by the Director, MedCare filed a bankruptcy
petition which, in accordance with the automatic stay provisions
of the Bankruptcy Code (see 11 U.S.C. 362(a) (1992)), prevented
the Director's filing of the state-court complaint seeking
liquidation.
The facts further show that on June 8, 1992, the Director
filed a motion to intervene in the bankruptcy action and moved to
dismiss the bankruptcy petition for lack of subject matter
jurisdiction. The bankruptcy judge permitted the Director's
intervention but on July 28, 1992 denied the Director's motion to
dismiss. Also on that date, the court denied the Director's
motion to stay proceedings pending appeal. On December 8, 1992,
the United States District Court reversed the bankruptcy court
finding that the bankruptcy court lacked subject matter
jurisdiction. The Court of Appeals for the Seventh Circuit
affirmed the district court on June 30, 1993, finding that
MedCare, a health maintenance organization, was the substantial
equivalent of a domestic insurance company and, as such, was
ineligible to be a Chapter 11 debtor. In re Estate of MedCare
HMO, 998 F.2d 436 (7th Cir. 1993).
On December 22, 1992, after the federal district court made
its subject matter jurisdiction ruling, the Director filed a
Complaint for Conservation of the Estate of MedCare in the state
court. The Director was subsequently appointed liquidator of
MedCare on January 3, 1993. Pursuant to its powers as
liquidator, the Director instituted the instant action against
Katten Muchin seeking the return of attorney's fees paid to
Katten Muchin pursuant to orders entered by the bankruptcy court.
Those fees related to Katten Muchen's representation of the
MedCare Committee of Unsecured Creditors, a committee of the
bankruptcy estate of Medcare. See 11 U.S.C. 1102 (1993)
(mandating the appointment of unsecured creditors' committees).
That Committee had selected Katten Muchin as its counsel; and the
bankruptcy court had approved that appointment in a retention
order entered on June 24, 1992.
According to the Director's amended complaint filed in the
instant action, Katten Muchen received $250,000 between June 24,
1992 and September 14, 1992. As will be more fully discussed
below, the Director sought recovery of those fees based upon
theories of fraudulent conveyance and voidable preference. The
fraudulent conveyance count was dismissed for failure to state a
cause of action pursuant to section 2-615; and the voidable
preference count was dismissed pursuant to the grant of summary
judgment in Katten Muchin's favor.
B. Fraudulent Conveyance Count
A section 2-615 motion to dismiss is used to attack the
legal sufficiency of a complaint. E.g., Reuben H. Donnelley
Corp. v. Brauer, 275 Ill. App. 3d 300, 655 N.E.2d 1162 (1995). A
cause of action should not be dismissed on the pleadings unless
it clearly appears that no set of facts can be proved under the
pleadings which will entitle the plaintiff to recover. E.g.,
Zadrozny v. City Colleges of Chicago, 220 Ill. App. 3d 290, 581 N.E.2d 44 (1991). When ruling on a motion to dismiss, all well-
pleaded facts in the complaint and all reasonable inferences
arising therefrom are admitted as true and are interpreted in a
light most favorable to the plaintiff. E.g., Jenkins v.
Leininger, 277 Ill. App. 3d 313, 659 N.E.2d 1366 (1995).
Appellate review of a dismissal pursuant to section 2-615 is de
novo. E.g., Lawson v. City of Chicago, 278 Ill. App. 3d 628, 662 N.E.2d 1377 (1996). Here, the Director's fraudulent conveyance
count was dismissed because it did not allege sufficient facts to
support a cause of action under either sections 5 or 6 of the
Uniform Fraudulent Transfer Act (the Fraudulent Transfer Act)
(740 ILCS 160/5, 6 (West 1992)).
Section 5 of the Fraudulent Transfer Act provides in
pertinent part:
"(a) A transfer made or obligation incurred by a
debtor is fraudulent as to a creditor, whether the
creditor's claim arose before or after the transfer was
made or the obligation was incurred, if the debtor made
the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or
defraud any creditor of the debtor." 740 ILCS
160/5 (West 1992).
Section 6 of the Fraudulent Transfer Act provides in pertinent
part:
"(a) A transfer made or obligation incurred by a
debtor is fraudulent as to a creditor whose claim arose
before the transfer was made or the obligation was
incurred if the debtor made the transfer or incurred
the obligation without receiving a reasonably
equivalent value in exchange for the transfer or
obligation and the debtor was insolvent at that time or
the debtor became insolvent as a result of the transfer
or obligation." 740 ILCS 160/6 (West 1992).
A creditor who establishes a fraudulent transfer under either of
these provisions can bring an action to void the transfer to the
extent necessary to satisfy his claim. 740 ILCS 160/8(a) (West
1994).
In support of his fraudulent conveyance count, the Director
alleged the background facts discussed above. The Director also
alleged that Katten Muchin was aware that MedCare was a licensed
HMO subject to the Illinois Insurance Code provisions governing
insolvent HMO's; that Medcare had been notified by the Department
of Insurance, before filing its bankruptcy petition, that the
Department would file a complaint for liquidation or conservation
of assets; and that, had the bankruptcy petition not been filed,
he would have filed a complaint for conservation of MedCare on or
about June 3, 1992. The Director alleged that Katten Muchin,
through its representation of the unsecured creditor's committee
during the bankruptcy proceedings, "attempted to thwart the
Department's efforts to regulate, rehabilitate or liquidate
MedCare" and frustrated the distribution priorities established
in section 205 of the Insurance Code (215 ILCS 5/205 (West 1992)
that would have favored MedCare's enrollees and other creditors.
The Director further alleged that MedCare was insolvent at the
time it paid Katten Muchin's legal fees and that Katten Muchin
knew of that insolvency at the time of the transfer of monies to
it. According to the Director, the compensation paid to Katten
Muchin enabled Katten Muchin to obtain a greater percentage of
its debt than other creditors in the same class.
To state a legally sufficient cause of action for fraudulent
transfer in law, under section 6 of the Fraudulent Transfer Act,
the plaintiff must allege: (1) a transfer made for inadequate
consideration; (2) an existing or contemplated indebtedness owed
by the transferor; and (3) the transferor's failure to retain
sufficient property to repay his indebtedness. Regan v.
Ivanelli, 246 Ill. App. 3d 798, 617 N.E.2d 808 (1993); see Falcon
v. Thomas, 258 Ill. App. 3d 900, 629 N.E.2d 789 (1994). Fraud
need not be alleged because it is presumed; and intent is
immaterial. People ex rel. Hartigan v. Gaby's Apparel, Ltd., 133
Ill. App. 3d 343, 478 N.E.2d 1043 (1985); Anderson v. Ferris, 128
Ill. App. 3d 149, 470 N.E.2d 518 (1984). The Director argues
that he sufficiently alleged these elements by stating,
respectively, (1) that MedCare transferred monies to Katten
Muchin "without receiving reasonably equivalent value;" (2) that
creditors, namely MedCare's enrollees, existed at the time of the
transfers; and (3) that MedCare was insolvent at the time of the
transfers and Katten Muchin knew this.
Here, while the Director's amended complaint alleges that
MedCare transferred monies to Katten Muchin "without receiving
reasonably equivalent value," such an assertion is conclusory and
not supported in fact. As set forth in the Director's complaint,
the payment to Katten Muchin was made pursuant to the order of
the bankruptcy court and for services actually rendered by Katten
Muchin to the unsecured creditor's committee of the MedCare
bankruptcy estate. The Director would argue, however, that the
payment was made without the receipt of equivalent value because
the bankruptcy court order requiring the payment was void due to
the court's lack of subject matter jurisdiction. We disagree.
Absent allegations that the bankruptcy court knew from the outset
that it had no jurisdiction and that it colluded with Katten
Muchin with respect to entry of orders for attorneys fees, there
can be no question of either overt intent or presumptive intent
to cause a fraudulent transfer. At the time the order was
entered, the bankruptcy court's jurisdiction may have been
questionable but there had been no definitive determination. The
court entered its order under the belief, albeit erroneous, that
it had jurisdiction. Moreover, there can be no question that
Katten Muchin performed services on behalf of the unsecured
creditors' committee under color of authority of the bankruptcy
court. The transfer of monies was with the imprimatur of the
court, albeit erroneous, and was based upon services actually
performed. While Katten Muchin's efforts on behalf of the
committee may have been fruitless once jurisdiction in the
bankruptcy court was found lacking, the Director did not allege
that at the time Katten Muchin performed legal services those
services were unnecessary. Thus, since a legal detriment was
suffered by Katten Muchin (see, e.g., Estate of Besinger v.
Village of Carpentersville, 258 Ill. App. 3d 218, 630 N.E.2d 178
(1994)), valuable consideration was received by the creditor's
committee of MedCare's estate. As a result, MedCare received the
equivalent value for its payment and the transfer was not
fraudulent.
The Director also contends that his complaint sufficiently
alleged a cause of action under section 5 of the Fraudulent
Transfer Act for fraud in fact. The Director concedes that a
fraud in fact claim requires allegations of specific intent to
"disturb, delay, hinder or defraud." 740 ILCS 160/5 (West 1992).
He argues, however, that the trial court incorrectly dismissed
his claim because the complaint did not allege an intent to
defraud. The Director contends that his amended complaint
satisfied the intent requirement, even though it did not allege
intent to defraud because it alleged an intent to hinder and
delay payment to MedCare's enrollees who would have been given
priority over other unsecured creditors, such as Katten Muchin,
under the Illinois liquidation scheme.[fn3]
In fraud in fact cases, since actual consideration has been
given for the transfer, a specific intent to defraud must be
alleged and proved. Anderson v. Ferris, 128 Ill. App. 3d 149,
470 N.E.2d 518 (1984). Here the Director has alleged an intent
to hinder and delay payment to one class of unsecured creditors
in favor or another class of unsecured creditors. In effect, the
Director has alleged a preference. Under Illinois law, however,
the mere preference of one or more creditors over others does not
constitute a fraudulent transfer. Crawford County State Bank v.
Doss, 174 Ill. App. 3d 574, 528 N.E.2d 436 (1988) (applying
section 4 of "An Act to revise the law in relation to frauds and
perjuries" (Ill. Rev. Stat. 1983, ch. 59, par. 4)). A debtor may
prefer one creditor to another provided such preference is made
in good faith with the intent to pay or secure the payment of a
just indebtedness against him. Thompson v. Williams, 6 Ill. 2d 208, 127 N.E.2d 457 (1955). Indicia of fraud or lack of good
faith are: the insolvency of the debtor; consideration for the
conveyance; status of the judgment of the creditor who was not
preferred; whether all the assets of the debtor are reduced to
cash; and whether the asset conveyed is the only remaining
unencumbered asset of the debtor. Doss, 174 Ill. App. 3d 574,
528 N.E.2d 436.
In Crawford County State Bank v. Doss, 174 Ill. App. 3d 574,
528 N.E.2d 436 (1988), the court considered whether preferences
in favor of certain creditors, two banks, were made in bad faith
and with intent to defraud a judgment creditor whose judgment was
imminent at the time of the conveyances to the banks. The facts
alleged on summary judgment motion showed that the conveyances of
stock to the banks were made for consideration of equal value;
the debtor was insolvent; the judgment creditor's judgment was
imminent; and the debtor retained other assets, although the
transactions greatly depreciated the debtor's assets. The court
found, however, that no fraud arose, stating:
"'The transfer is not subject to attack by reason of
knowledge on the part of the transferee that he is
preferred to other creditors, nor does the transferee
lack good faith because he knew his debtor's purpose to
prefer or because he actively sought the preference.
Neither can the transfer be attacked on the ground that
the creditor knew that the transferor was insolvent,
that the collection of the claims of other creditors
would be hindered or defeated, or that the debtor
intended to defeat the collection of their claims.
Knowledge on the part of the creditor receiving the
preference that the debtor has acted with fraudulent
intention is immaterial if the creditor has done
nothing except to receive payment of his claim.'"
Doss, 174 Ill. App. 3d at 581, 528 N.E.2d at 440-41
quoting 37 Am. Jur. 2d Fraudulent Conveyances 90, at
772-73 (1968).
Accordingly, the court concluded that no fraud arose because of
knowledge by the banks that the debtor was insolvent, intended to
prefer them, intended to hinder other creditors, or attempted to
defraud other creditors.[fn4]
Here, as in Doss, the Director alleged that the payment of
attorney's fees to Katten Muchin was made with an intent to
hinder and delay payment to MedCare's other creditors, its
enrollees. He alleged that Katten Muchin knew MedCare was
insolvent at the time the transfer was made, and that "by
accepting the transfers from MedCare, [Katten Muchin] actively
participated *** in a scheme" to hinder and delay repayment of
the claims of MedCare's enrollees. These allegations do not
sufficiently allege fraudulent intent; they allege preference.
The assertions that Katten Muchin knew of MedCare's insolvency,
knew that it was being preferred over other creditors, and knew
that its payment would hinder MedCare's payments to its enrollees
do not establish fraudulent intent. Doss, 174 Ill. App. 3d 574,
528 N.E.2d 436. Nor does the Director's reference to "scheme"
rise to the level of collusive conduct that could establish bad
faith and fraudulent intent under certain circumstances. See
Wilkey v. Wax, 82 Ill. App. 2d 67, 225 N.E.2d 813 (1967) (finding
husband and wife had colluded to defraud judgment creditor by
entering into property settlement agreement). The Director has
not alleged that Katten Muchin conspired with MedCare. Instead,
based upon the allegations in the Director's complaint, it is
clear that Katten Muchin was not retained by MedCare; that Katten
Muchin did not file MedCare's bankruptcy petition; that Katten
Muchin was retained after MedCare filed its bankruptcy petition;
that Katten Muchin was retained to represent a committee of
unsecured creditors in accordance with bankruptcy court rules and
procedures; and that Katten Muchin represented the interests of
that committee, albeit arguing in favor of the bankruptcy court's
subject matter jurisdiction and against the interests of
MedCare's enrollees; and that Katten Muchin was entitled to
payment for its services despite its failure to obtain a
favorable ruling on jurisdiction. These allegations do not
establish a scheme by MedCare and Katten Muchin to delay, hinder
or defraud MedCare's enrollees. They establish a good faith
preference of one creditor over another. Thus, the Director's
amended complaint fails to alleged sufficient facts of fraud in
fact to bring it within section 5 of the Fraudulent Transfer Act.
C. Voidable Preference
The Director next contends that the trial court erred in
granting summary judgment on his voidable preference count. In
that count, the Director alleged that between June 24 and
September 14, 1992, MedCare transferred $250,000 to Katten Muchin
thereby enabling Katten Muchin to receive a greater percentage of
its debt than other creditors. The Director alleged that Katten
Muchin knew MedCare was insolvent and had reasonable grounds to
believe that the transfer was a preference voidable under section
204 of the Insurance Code (215 ILCS 5/204 (West 1992)).
In its motion for summary judgment, Katten Muchin stated
that the payments it received for its bankruptcy representation
occurred on June 26, July 2 and August 4, 1992. Katten Muchin
argued that these payments were not voidable preferences within
section 204 of the Insurance Code because they occurred more than
four months prior to December 22, 1992, the date the Director of
Insurance filed his state-court complaint for conservation of
MedCare's estate.
At the time of the alleged payments to Katten Muchin,
section 204 of the Insurance Code provided in pertinent part:
"(2) any transfer of, *** any property of any
company made or created within four months prior to the
filing of a complaint under this article, which gives
to any creditor or policyholder or enables him to
obtain a greater percentage of his debt than any other
creditor or policyholder in the same class, which is
accepted by a creditor or policyholder having
reasonable cause to believe that such a preference will
occur, shall be voidable ***
(3) *** every person receiving any property of,
or cash surrender from, such company or benefit
thereof, as a result of a transaction voidable under
subsection (2) shall be jointly and severally liable
therefor and shall be bound to account to the Director
as rehabilitator, liquidator, or conservator, as the
case may be." Ill. Rev. Stat. 1991, ch. 73, par. 816.
It is undisputed that the payments to Katten Muchin which
the Director seeks to recover as voidable preferences were made
more than four months before the Director filed his conservation
action. The Director first argues on appeal that section 204's
four-month preference period was tolled by section 13-216 of the
Code of Civil Procedure (Ill. Rev. Stat. 1991, ch. 110, par. 13-
216 now at 735 ILCS 5/13-216 (West 1996)). That provision
states:
"When the commencement of an action is stayed by
injunction, order of a court, or statutory prohibition,
the time of the continuance of the injunction or
prohibition is not part of the time limited for
commencement of the action."
The Director argues that the Bankruptcy Code's automatic stay of
any proceedings against MedCare, which became effective when
MedCare filed its bankruptcy petition (see 11 U.S.C. 362(a)
(1993)), was the type of stay referred to in section 13-216 of
the Code of Civil Procedure. We disagree.
As can be gleaned from its language, section 13-216 extends
the time within which an action shall be commenced by tolling the
running of the applicable statute of limitations during the time
period that the stay is in effect. In the instant case, the
Director does not rely on section 13-216 to extend the time
within which he could have filed his action against Katten
Muchin. The statute of limitations for that action, as provided
in the Insurance Code, is two years after entry of the order for
liquidation or rehabilitation. See 215 ILCS 5/194(b) (West
1992). Instead, the Director relies on section 13-216 to expand
the statutory time period for voidable preferences and cites two
cases to support such an expansion. Both of those cases involved
the time within which to commence lawsuits when stays were
pending.
In the first case cited by the Director, In re Pettibone
Corp., 110 B.R. 848 (Bankr. N.D. Ill. 1990), an automatic stay
went into effect upon the debtor's filing of a bankruptcy
petition. One personal injury action had been filed in the
Illinois state court against the debtor before the bankruptcy
petition had been filed. After the stay was lifted, the debtor
moved to dismiss the personal injury action as being time barred
because the two-year statute of limitations period had expired.
The issue before the court was whether the personal injury
plaintiff had lost his right to refile his action against the
debtor after the stay had been lifted by the bankruptcy court.
The court applied the tolling provision of section 13-216 of the
Illinois Code of Civil Procedure and found that the personal
injury plaintiff had approximately seventeen months remaining
after the stay was lifted to refile his personal injury action.
However, in the interest of justice and judicial economy, the
court sua sponte annulled the stay pursuant to sections 105 and
363(d) of the Bankruptcy Code to avoid the necessity of refiling
the plaintiff's action.
The second case cited by the Director also dealt with the
issue of whether an action had been timely commenced. In that
case, which is nonpublishable (see Vitaich v.City of Chicago,
1995 WL 493468 (N.D. Ill. August 16, 1995)), the court relied
upon section 13-216 to extend the time within which the
plaintiffs could amend their action to add certain defendants.
The court held that the trial court's stay of proceedings
prevented the plaintiff from acquiring enough information about
the additional defendants to satisfy the requirement of Rule 11
of the Federal Rules of Civil Procedure (Fed. R. Civ. P. 11) that
the information in pleadings be certified as being well-grounded
in fact. As a result, the statute of limitations was tolled as
to those defendants. See also Doe v. Bobbitt, 698 F. Supp. 1415
(N.D. Ill. 1988), rev'd on other grounds, 881 F.2d 510 (7th Cir.
1989) (statute of limitations tolled as to one defendant during
stay of discovery where stay prevented plaintiffs' acquisition of
information about that defendant).
Both of the cases cited by the Director applied section 12-
615 to toll a statute of limitations. Here, unlike in the two
cases cited by the Director, there is no issue concerning the
tolling of the applicable statute of limitations. The Director's
lawsuit against Katten Muchin was timely commenced within the
applicable statute of limitations. As section 12-615 concerns
the commencement of lawsuits and has been applied only in that
context, it is not applicable here.
The Director would argue, however, that the four-month
preference period is a statute of limitations that was subject to
tolling during the bankruptcy automatic stay. In support of this
argument, the Director cites Fredman Brothers Furniture Co. v.
Department of Revenue, 109 Ill. 2d 202, 486 N.E.2d 893 (1985).
That case discussed the 35-day statutory time limit for filing an
administrative review action (see Ill. Rev. Stat. 1983, ch. 110,
par. 3-103 now at 735 ILCS 5/3-103 (West 1996)). The issue
before the court was whether the 35-day time period was a statute
of limitations that could be waived or whether it was
jurisdictional and not subject to waiver. According to the
court, if the time limit was a condition of the liability itself
and not of the remedy alone, it was jurisdictional. If the time
limit fixed only the time within which the remedy for a
particular wrong could be sought, it was a statute of
limitations. Fredman Brothers, 109 Ill. 2d at 209, 486 N.E.2d at
895. The court found that the 35-day time limit in the
Administrative Review Act was jurisdictional because it was an
inherent element of the right to seek administrative review. See
also Huett v. Illinois Central Gulf R.R., 268 Ill. App. 3d 494,
644 N.E.2d 474 (1994) (distinguishing statute of limitations from
a time limit as a condition of liability). Cf. Telegraph Savings
& Loan Ass'n v. Schilling, 105 Ill. 2d 166, 473 N.E.2d 921 (1984)
(stating that 10-day period to file action against commissioner
of savings and loan associations (Ill. Rev. Stat. 1979, ch. 32,
par. 852) was a statute of limitations that was tolled when the
action was removed to federal court).
The statutory time provisions reviewed in Fredman Brothers
and in Schilling are distinguishable from the time period at
issue here in that they govern the time within which an action
had to be commenced whether for jurisdictional or statute of
limitations reasons. Here, however, the statute in question does
not govern the time within which an action should have been
commenced nor does it fix the time within which the remedy for
the wrong could be sought. Rather, the statute simply provides
that transfers made within four months of the filing of the
Director's complaint are deemed voidable in that they give an
unfair advantage to a certain class of creditors or
policyholders.
The liberality that courts have shown with respect to
extending the statute of limitations period during the period of
a stay would not by any means be correspondingly applicable to
the four-month period for voidable preferences which serves a
wholly different purpose. As can be gleaned from the case law,
statute of limitations are not favored because they curtail one's
right to seek redress in the courts for a wrong. See, e.g.,
Yette v. Casey's General Stores, 263 Ill. App. 3d 422, 635 N.E.2d 1091 (1994). The impact of statute of limitations has been
curtailed by tolling provisions, discovery rules, procedural
rules requiring pleading of statute of limitations as affirmative
defenses, and waiver. No such policy would appear to exist with
respect to voidable preferences.
The legislature has chosen a four-month window within which
to question the dealings of a financially troubled insurance
company with respect to its treatment of its creditors and
policyholders. The legislature apparently believed that during
the four-month period prior to the Director's filing of a
complaint against the insurance company, which would have been
preceded by notices of impairment, the insurance company would
have had knowledge of its weakened financial condition and
impending insolvency and could have begun to favor certain
creditors or policyholders over others within the same class. As
stated above, this four-month period does not fix the time to
seek a remedy for a wrong; it establishes the wrong. Thus, since
under the facts here presented, the preference occurred outside
the four-month period, the Director could not establish his
voidable preference claim and summary judgment was properly
granted.[fn5]
For the foregoing reasons, the judgment of the Circuit Court
of Cook County is affirmed.
Affirmed.
COUSINS, P.J. and CAHILL, J., concur.
[fn1]After the complaint was filed, on July 15, 1995, Mark
Boozell succeeded as Director of Insurance.
[fn2]Although the order granting summary judgment contained
an express finding of appealability, the court found that it did
not have jurisdiction under Supreme Court Rule 304(a) because the
rights of the parties to the assets transferred under the
contract remained a material controverted issue. While not
explained by the court, it would appear that the facility
operator could be entitled to retain a portion of the decedent's
assets on some other basis or theory of entitlement. If that
were so, we would disagree with the court's rejection of
jurisdiction on the basis of Supreme Court Rule 304(a) since that
rule permits appeals from orders disposing of separate branches
or theories of recovery when the requisite language is given by
the trial court. See, e.g., Cunningham v. Brown, 22 Ill. 2d 23,
174 N.E.2d 153 (1961); Rice v. Burnley, 230 Ill. App. 3d 987, 596 N.E.2d 105 (1992). We fully agree, however, with the court's
rejection of jurisdiction under Supreme Court Rule 304(b) in that
the ultimate status or rights of the parties to the decedent's
assets had not yet been determined.
[fn3]Under the Illinois Insurance Code, claims by
policyholders and insureds, as well as claims of the various
insurance guaranty funds and associations, receive priority over
claims of general creditors. 215 ILCS 5/205(1) (West 1992).
[fn4]While not here relevant, the court in Crawford County
State Bank v. Doss, 174 Ill. App. 3d 574, 528 N.E.2d 436 (1988),
reversed the summary judgments in favor of the defendant banks on
the fraudulent conveyance counts and remanded the case for
further proceedings to determine whether the initial conveyances
of the stock to the debtor's wife (who later conveyed the stock
to the banks) were themselves fraudulent, in that they were
gratuitous, so as to taint the subsequent conveyances to the
banks.
[fn5]In view of our holding that the statutory four-month
time period for voiding preferences is not a statute of
limitations, we need not discuss the Director's argument that
Katten Muchin should be estopped from asserting the statute of
limitations to bar the Director's action. Even if we were to
reach the Director's estoppel argument, we would find an absence
of conduct by Katten Muchin that caused the Director's
forbearance in filing the instant lawsuit. See Senior Housing,
Inc. v. Nakawatase, Rutkowski, Wyns & Yi, Inc., 192 Ill. App. 3d
766, 549 N.E.2d 604 (1989). As discussed earlier, Katten Muchin
did not represent MedCare, did not advise MedCare to file its
bankruptcy petition, and did not file MedCare's bankruptcy
petition which effectuated the automatic stay and prevented the
Director from filing his complaint for liquidation and
conservation. Katten Muchin became counsel to a creditor's
committee formed pursuant to bankruptcy court proceedings after
MedCare filed its bankruptcy petition. Katten Muchin did nothing
by words or conduct to induce the Director's forbearance from
filing suit. In Senior Housing, the defendant acted in a
conciliatory manner and initially took responsibility for repair
work sought by the plaintiff thereby causing the plaintiff to
forbear from filing suit. Here, the Director could not rely on
Katten Muchin's actions as a reason for forbearing from filing
its preference action. Katten Muchin was never aligned with the
Director and, as the Director admits, opposed the Director's
motion to dismiss the bankruptcy proceedings for lack of subject
matter jurisdiction. Thus, there is nothing in the record which
would connect the Director's forbearance with any conduct by
Katten Muchin.