Agan v. Cole

March 17, 1998
No. 2--97--0199
_________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT
_________________________________________________________________

CHARLES E. AGAN, ) Appeal from the Circuit Court
) of Du Page County.
Plaintiff-Appellant, )
) No. 91--L--0298
v. )
)
DANIEL E. COLE, ROY E. SMITH )
III, and ROBERT W. BONESS, )
)
Defendants-Appellees )
)
(Matthew R. Shemluck, )
Charles A. Prahin, Raymond P. )
Berzins, Nancy M. Anderson, and ) Honorable
Pioneer Engineers & Consultants, ) Michael R. Galasso,
Inc., Defendants). ) Judge, Presiding.
_________________________________________________________________

JUSTICE DOYLE delivered the opinion of the court:
Plaintiff, Charles E. Agan, appeals from the dismissal of
three of the four counts in his amended petition for a rule to show
cause. The three counts were directed against defendants, Daniel
E. Cole (Cole), Roy E. Smith (Smith), and Robert W. Boness
(Boness), and another individual who is not a party to this appeal.
The other defendants in the underlying case also are not parties to
this appeal. The central issue in the appeal is whether the trial
court erred when it ruled that plaintiff was barred from bringing
the three counts in his amended petition for a rule to show cause
because he was required to raise the same issues against defendants
as a compulsory counterclaim in a prior bankruptcy proceeding but
did not do so.
This action began on February 13, 1991, when plaintiff filed
a complaint against Pioneer Engineers & Consultants, Inc. (the
corporation), and certain officers, directors, and shareholders of
the corporation (collectively, the corporate defendants).
Plaintiff s complaint alleged that the corporate defendants
breached a shareholders agreement when they failed to purchase
stock that plaintiff owned in the corporation following the
termination of plaintiff s employment with the corporation.
Defendants were shareholders of the corporation and were among the
corporate defendants.
On September 27, 1991, the circuit court entered a summary
judgment in favor of plaintiff and against the corporation. The
judgment was for the amount of $77,000 plus prejudgment interest.
No judgment was entered against the individual corporate
defendants.
On December 23, 1991, the corporation filed a voluntary
bankruptcy petition in the United States Bankruptcy Court for the
Northern District of Illinois. This was one day before the circuit
court granted plaintiff s motion for a turnover order that would
have allowed plaintiff access to corporate funds in a bank account
pursuant to a garnishment. Plaintiff subsequently filed a proof of
claim in the bankruptcy case. The proof of claim was based on the
September 27, 1991, judgment. Defendants were not parties in the
bankruptcy case.
In February 1993, plaintiff filed a motion in the bankruptcy
court to dismiss the bankruptcy petition. Plaintiff sought
dismissal on the ground that the bankruptcy petition had not been
filed by a duly authorized or constituted board of directors of the
corporation. The motion alleged that Boness, who signed the
bankruptcy petition, had illegally ousted the corporation s
previous board of directors during an improperly called
shareholders meeting.
The parties in the bankruptcy case subsequently entered a
stipulation agreement to dismiss the bankruptcy case and to
authorize the disbursement of the corporation s funds that were
being held by the bankruptcy trustee. The stipulation provided
that plaintiff would receive the balance of the funds after other
disbursements were made. Under the terms of the stipulation,
plaintiff was to receive at least $83,465.94. The stipulation
stated that the funds could be disbursed because all matters have
been fully settled, compromised and adjudicated.
On May 24, 1993, the bankruptcy court entered an agreed order.
Under the agreed order, the bankruptcy case was to be dismissed
subject to disbursement terms that were substantially the same as
the disbursement terms specified in the stipulation agreement.
Plaintiff subsequently received funds from the bankruptcy
trustee totaling more than $84,000. On July 1, 1993, the clerk of
the bankruptcy court issued a notice of dismissal advising the
debtors, creditors, and other parties in interest that an order had
been entered dismissing the bankruptcy case.
On August 25, 1993, plaintiff filed a petition for rule to
show cause in the circuit court. On August 5, 1994, plaintiff
filed an amended petition for a rule to show cause (the amended
petition). The amended petition contained four counts. Count IV
was directed only against an attorney who had represented the
corporate defendants. Count IV was litigated separately, and the
circuit court entered an order finding the attorney in contempt.
In a separate appeal, this court affirmed the trial court order
that found the attorney in contempt. Agan v. Cole, No. 2-95-0591
(1996) (unpublished order under Supreme Court Rule 23).
Counts I, II, and III of the amended petition were directed
against Cole, Smith, Boness, and the attorney who was the subject
of count IV. However, the attorney has not directly participated
in the proceedings regarding counts I, II, and III, and only Cole,
Smith, and Boness moved to dismiss counts I, II, and III.
In the amended petition, plaintiff alleged that defendants
violated certain circuit court orders. In counts I, II, and III
of the amended petition, plaintiff set out conduct that defendants
allegedly engaged in that, in plaintiff s view, violated the
orders. The alleged conduct included the following: (1) holding an
unlawful shareholders meeting where Boness was elected president
and sole director of the corporation, allowing Boness to wrongfully
file the bankruptcy petition; (2) closing corporate bank accounts
and transferring the funds in the accounts, thereby preventing
garnishment of the funds by plaintiff; and (3) selling corporate
assets for a price that was far less than the fair market value of
the assets on the date of the sale, thereby impeding plaintiff s
efforts to collect on his judgment.
In the amended petition, plaintiff sought a contempt order
against defendants based on defendants alleged violations of the
circuit court orders. Plaintiff also sought $79,543.83 in attorney
fees and expenses that he claimed he had incurred as a result of
defendants wrongful acts. Plaintiff also sought unquantified
additional attorney fees and costs that he allegedly incurred in
presenting the rule to show cause.
On January 29, 1997, the circuit court entered an order
dismissing counts I, II, and III of the amended petition. The
order explained the court s ruling as follows:
THIS COURT FINDS that Rule 13 of the Federal Rules of
Civil Procedure applies in this case as to the issues pled in
the Rule to Show Cause.
THIS COURT FURTHER FINDS that the issue of attorney s
fees was raised in the Plaintiff s Motion to Dismiss the
Bankruptcy Action but, at the time the Stipulation was
executed in settlement of the Bankruptcy matter, these
Defendants did not receive any notification of Plaintiff s
intentions to pursue additional fees, and no reservation of
right to pursue those attorney s fees was contained in said
Stipulation and/or Order of Dismissal which dismissed the
Bankruptcy matter. The Stipulation and Order of Dismissal
resolved all matters in controversy.
Plaintiff s timely notice of appeal followed.
While the appeal was pending, defendants filed a motion in
this court seeking to strike plaintiff s appellate brief, dismiss
the appeal, and sanction plaintiff by assessing the costs of the
appeal against him. The motion was taken with the case.
We initially address defendants motion. Defendants base
their motion on alleged violations by plaintiff of Supreme Court
Rule 341 (Official Reports Advance Sheet No. 13 (June 18, 1997) R.
341 (eff. July 1, 1997)). We have carefully reviewed defendants
motion and find that it is without merit. Accordingly, defendants
motion is denied.
We now turn to the merits of the appeal. Defendants moved to
dismiss counts I, II, and III of the amended petition pursuant to
section 2--619 of the Code of Civil Procedure (735 ILCS 5/2--619
(West 1996)). A motion to dismiss under section 2--619 admits all
well-pled allegations and reasonable inferences to be drawn from
the facts. In re Chicago Flood Litigation, 176 Ill. 2d 179, 184
(1997). The standard of review of a trial court s order regarding
a motion to dismiss pursuant to section 2--619 is de novo. Hutson
v. Hartke, 292 Ill. App. 3d 411, 413 (1997).
The central issue before us is whether the trial court erred
when it found that Rule 13 of the Federal Rules of Civil Procedure
(Fed. R. Civ. P. 13) applied to plaintiff in the bankruptcy case to
require him to raise in the bankruptcy case the issues that he
later raised against defendants in counts I, II, and III of the
amended petition in the circuit court. The part of Rule 13 that is
in question is the part that governs compulsory counterclaims,
i.e., Rule 13(a). It is undisputed that if Rule 13(a) requires a
party to state a claim as a compulsory counterclaim in a federal
action and the party does not do that, then the party is precluded
from bringing the claim in a subsequent action in an Illinois
court. See, e.g., Quantum Chemical Corp. v. Hartford Steam Boiler
Inspection & Insurance Co., 246 Ill. App. 3d 557, 561 (1993).
Rule 13(a) provides, in relevant part, as follows:
(a) Compulsory Counterclaims. A pleading shall state as
a counterclaim any claim which at the time of serving the
pleading the pleader has against any opposing party, if it
arises out of the transaction or occurrence that is the
subject matter of the opposing party s claim and does not
require for its adjudication the presence of third parties of
whom the court cannot acquire jurisdiction. Fed. R. Civ. P.
13(a).
Plaintiff initially contends that the circuit court erred when
it found that Rule 13(a) applied to him in the bankruptcy case
because Rule 13(a) requires a party to state a counterclaim only
when an opposing party has first asserted a claim against the
party. Plaintiff argues that no one asserted a claim against him
in the bankruptcy case and therefore Rule 13(a) did not apply to
require him to state a counterclaim. We agree.
By its express language, Rule 13(a) requires that a party
state a counterclaim if [the counterclaim] arises out of the
transaction or occurrence that is the subject matter of the
opposing party s claim. Fed. R. Civ. P. 13(a). Thus, Rule 13(a)
makes a counterclaim compulsory only when it is asserted against an
opposing party. Answering Service, Inc. v Egan., 728 Fed.2d
1500, 1503 (D.C. Cir. 1984). Under Rule 13(a), an opposing party
is one who first asserts a claim against the prospective counter-
claimant, because the very concept of a counterclaim presupposes
the existence of a claim against the party filing the counterclaim.
First National Bank in Dodge City v. Johnson County National Bank
& Trust Co., 331 Fed.2d 325, 328 (10th Cir. 1964).
In this case, plaintiff is correct that there was no assertion
of a claim against him in the bankruptcy case. Under the above
principles, Rule 13(a) therefore did not apply to plaintiff to
require him to state a counterclaim in the bankruptcy case.
The case of Quantum Chemical Corp. v. Hartford Steam Boiler
Inspection & Insurance Co., 246 Ill. App. 3d 557 (1993), is
instructive here. In that case, Quantum Chemical Corporation
(Quantum) was a defendant in a federal case, and, while the federal
case was pending, Quantum filed a complaint in an Illinois circuit
court against the federal plaintiff (HSB) and others (the property
insurers) who were not parties in the federal case. Quantum
Chemical, 246 Ill. App. 3d at 559. The circuit court dismissed
Quantum s complaint pursuant to section 2--619(a)(3) of the Code of
Civil Procedure (Ill. Rev. Stat. 1991, ch. 110, par. 2--619
(a)(3)), which allowed dismissal when there is another action
pending between the same parties for the same cause.
The circuit court in Quantum Chemical determined that the
federal and state cases involved the same cause because the two
actions arose out of the same transaction or occurrence. Quantum
Chemical, 246 Ill. App. 3d at 560. The circuit court also reasoned
that the federal case involved the same parties as the state case
even though the property insurers were not parties in the federal
case because Quantum was required by Rule 13(a) to bring any claims
it had against HSB as compulsory counterclaims and because Quantum
could most likely bring its claims against the property insurers
in the federal case by invoking federal supplemental jurisdiction.
Quantum Chemical, 246 Ill. App. 3d at 560-61.
Quantum appealed the dismissal. On appeal, the Illinois
Appellate Court determined that the dismissal of Quantum s claims
against HSB was appropriate because Rule 13(a) required Quantum to
raise any claims it had against HSB in the federal case as
compulsory counterclaims. Quantum Chemical, 246 Ill. App. 3d at
561. However, the appellate court found that the circuit court
abused its discretion when it dismissed Quantum s claims against
the property insurers because (1) the property insurers were not
parties to the Federal action; (2) Quantum s claims against them
are not compulsory in the Federal courts; and (3) the Federal
court s jurisdiction over those claims is discretionary. 246 Ill.
App. 3d at 562.
In this case, the relationship of defendants to plaintiff is
analogous to the relationship of the property insurers to Quantum
in Quantum Chemical. For the same reasons that Quantum was not
required to raise its claims against the property insurers in the
federal case in Quantum Chemical, plaintiff was not required to
raise the issues in question here against defendants in the
bankruptcy case. In addition, as in Quantum Chemical, plaintiff s
failure to raise the issues against defendants in the bankruptcy
case did not preclude him from later raising the same issues
against defendants in the circuit court.
For these reasons, the circuit court erred when it found that
Rule 13(a) required plaintiff to raise the issues in the bankruptcy
case that he subsequently raised against defendants in counts I,
II, and III of the amended petition in the circuit court. The
circuit court therefore also erred when it ruled that plaintiff s
failure to raise the issues in question in the bankruptcy court
barred him from raising them in the circuit court. Our
determination that Rule 13(a) did not apply to plaintiff because no
opposing party had first asserted a claim against him is
dispositive of this case. Consequently, we need not address
plaintiff s other contentions of error.
We will briefly address a matter that defendants raised on
appeal. Although defendants were not parties in the bankruptcy
case, they nonetheless contend that plaintiff had an obligation,
regardless of whether Rule 13(a) applied, to reserve his right
during the bankruptcy proceedings to raise later the issues against
defendants that he raised in the amended complaint. Defendants
assert that this obligation arose as a result of the stipulation
agreement to dismiss the bankruptcy case.
Defendants focus on the language in the stipulation agreement
that all matters have been fully settled, compromised and
adjudicated. Defendants argue that by entering into the
stipulation agreement with the corporation and the related agreed
order to dismiss the bankruptcy case plaintiff either resolved all
the issues he later raised against defendants or waived them by
failing to reserve his right to raise them later.
Defendants argument is unavailing. Defendants do not cite
any authority in support of their position. Defendants do not rely
on any theory in support of their position, except, perhaps, a
vague theory of general issue preclusion. Defendants fail to point
to anything in the stipulation agreement or the agreed order which
even hints at, let alone resolves, the issues in question. Our
review of the stipulation agreement and the agreed order failed to
reveal any mention of defendants or the issues in question in
either document.
In addition, defendants ignore the affidavit of plaintiff s
attorney in the bankruptcy case, James S. Barber. In his
affidavit, Barber states that plaintiff placed a restrictive
endorsement on the payment he received pursuant to the distribution
of the corporation s funds in the bankruptcy case. Barber also
states that plaintiff never agreed to a release of any claim he
might have against defendants.
On this record, we conclude that defendants have failed to
show that either the stipulation agreement or the agreed order or
both required plaintiff to reserve his right during the bankruptcy
case to raise later the issues in question against defendants who
were not parties to the bankruptcy proceedings. Accordingly, any
failure by plaintiff to reserve such a right in the bankruptcy case
did not preclude him from raising the issues in question against
defendants in the amended petition.
Based on the foregoing, the judgment of the circuit court of
Du Page County is reversed, and this cause is remanded for
proceedings in accordance with this decision.
Reversed and remanded.
INGLIS and BOWMAN, JJ., concur.