Koppel v. Michael

First Division
June 29, 2007

No. 1-06-2165

STEPHEN P. KOPPEL and JOEL P. KOPPEL, ) Appeal from the Circuit Court
) of Cook County
Plaintiffs-Appellees, )
)
v. )
)
ROBERT MICHAEL and CITIZENS BANK AND )
TRUST COMPANY OF CHICAGO, ) 03 L 7743
)
Defendants-Appellants )
)
(Nicholas Tanglis, ) Honorable
) Allen S. Goldberg,
Defendant). ) Judge Presiding

PRESIDING JUSTICE McBRIDE delivered the opinion of the court:

Defendants Robert Michael and Citizens Bank and Trust Company of Chicago (Citizens)

appeal the trial court’s default judgment order in favor of plaintiffs Stephen P. Koppel and Joel P.

Koppel as a sanction for discovery noncompliance. The trial court awarded plaintiffs a total

judgment of $407,370.62, including attorney fees.

On appeal, defendants argue that the trial court erred in (1) entering a default judgment

order as a discovery sanction, (2) awarding damages without conducting an evidentiary hearing,

(3) awarding attorney fees and costs without an evidentiary hearing, and (4) denying defendants’

emergency motion to vacate the default judgment order.

On June 27, 2003, plaintiffs filed a four-count complaint against defendants Michael,

Citizens and Nicholas Tanglis. The complaint alleged the following facts pertinent to this appeal .

Tanglis was the president and a shareholder of Citizens while Michael was the chairman of the
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board of the directors of Citizens and a shareholder.

In or around May 1998, Michael and Tanglis approached plaintiffs for an investment in

Citizens, which Michael and Tanglis were in the process of forming. Plaintiffs indicated their

interest in the investment. In the summer of 1998, Michael and Tanglis told plaintiffs that even

though Citizens was not open, they had prospective borrowers. They asked plaintiffs to advance

the money requested by the prospective borrowers to prevent the customers from going to

another bank. Plaintiffs agreed to loan the funds, even though Citizens was not expected to open

for another four to six months. Plaintiffs loaned Michael and Tanglis a total of $180,000. The

complaint alleged that the parties agreed that plaintiffs would be repaid by Michael and Tanglis,

with interest at the rate of 10%, plus one point.

Citizens did not open until February 2000. In the spring of 2000, plaintiffs requested

repayment. Michael and Tanglis informed plaintiffs that although the original borrowers had

repaid the loans, they had loaned the proceeds to other customers of Citizens and were unable to

repay plaintiffs. Plaintiffs continued to request repayment over the next 2 1/2 years, but were

unsuccessful.

Plaintiffs’ complaint alleged breach of contract against Tanglis (count I), Michael (count

II), and Citizens (count III). Count IV raised an additional breach of contract claim against

Michael based on the following additional facts. In November 1998, plaintiffs made a loan of

$150,000 to Michael, with an interest rate of 6%. In May 1999, Michael agreed to assume the

additional indebtedness to plaintiffs of $350,000, which represented the principal amount of a loan

made to Michael’s brother. The parties agreed that the combined loans of $500,000 would bear

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interest at an annual rate of 3%. In November 2001, Michael repaid the principal amount of the

loan, but failed to pay any interest. Michael has continued to refuse paying the interest.

Tanglis did not appear in the case and a default judgment was entered against him. He is

not involved in the appeal.

On October 21, 2003, plaintiffs served defendants with their first request for production of

documents. On October 24, 2003, defendants filed a motion to dismiss plaintiffs’ complaint. The

motion was set for hearing on March 18, 2004. On December 8, 2003, plaintiffs filed a motion to

compel discovery because defendants did not respond to plaintiffs’ discovery request. On

December 17, 2003, defendants filed a motion to quash subpoenas and stay discovery. The trial

court continued plaintiffs’ motion to compel and defendants’ motion to quash subpoenas and stay

discovery until March 18, 2004. On March 11, 2004, defendants filed a motion to substitute

counsel and to continue the March 18, 2004, hearing on the pending motions. The trial court set

the hearing for May 21, 2004, but ordered that “written fact discovery shall proceed.” The

hearing was subsequently continued until August 24, 2004.

On June 24, 2004, defendants filed a motion to stay discovery until the motion to dismiss

was decided. The trial court continued the motion to stay discovery until August 24, 2004, to be

heard in connection with the motion to dismiss. On August 24, 2004, the trial court denied

defendants’ motion to dismiss and lifted the stay on discovery.

On October 12, 2004, plaintiffs filed a verified amended complaint. The amended

complaint contained the same four counts as the original complaint and added one count. Counts

I, II, and III remained the same and the original count IV was changed to count V. Count IV

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raised a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS

505/1 et seq. (West 2004)) against all defendants.

On December 16, 2004, plaintiffs filed a motion for discovery sanctions because

defendants had failed to respond to plaintiffs’ request for production of documents as well as

answer plaintiffs’ first set of interrogatories. On January 5, 2005, the trial court gave defendants

“until February 2, 2005[,] to answer plaintiffs’ first set of interrogatories and produce the

documents (without objection) requested by plaintiffs’ first request for production of documents.”

The court also allowed defendants’ new attorney to file an appearance on behalf of defendants.

On February 7, 2005, the trial court ordered defendants to pay plaintiffs’ attorney fees in

connection with that day’s appearance as a sanction for “having failed to appear through counsel

and having failed to provide the discovery ordered by the Court on January 5, 2005.” The court

also noted that “defendants are hereby advised that the nature of the sanctions imposed will

become more severe as their non-compliance persists.”

On March 8, 2005, plaintiffs filed a “renewed motion for default judgment for defendants’

continuing refusal to comply with this court’s discovery orders.” On March 10, 2005, the trial

court ordered defendants to pay $500 in connection with the February 7, 2005, order and ordered

defendants to pay the fees incurred by plaintiffs in preparing their renewed motion for default

judgment and their court appearance on March 10, 2005. Again, the court noted that “sanctions

will continue to increase with defendants’ continuing non-compliance with the court’s orders.”

On April 15, 2005, the trial court set the case for status on May 16, 2005, regarding

defendants’ compliance with outstanding discovery. The order also reminded defendants that

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sanctions will increase until compliance.

On May 16, 2005, the trial court ordered defendants to pay $2,800 in response to the

March 10, 2005, order as well as the previously imposed $500 sanction within 14 days. The court

also held that “by virtue of defendants’ continuing non-compliance with discovery, defendants are

barred from calling any witnesses at trial.” The court noted that this bar would be vacated if there

was compliance.

On July 11, 2005, the trial court entered default judgment in favor of plaintiffs and against

defendants as a sanction for “defendants’ continuing noncompliance with this court’s discovery

orders.” The court stated that the default judgment would be vacated if there was “full

compliance with the court’s prior orders by July 22, 2005[,] at 9:30 a.m.”

On July 22, 2005, defendants’ attorney appeared in court with a box of documents to

comply with prior discovery orders. The trial court continued the case until August 2, 2005, to

allow plaintiffs to review the documents to verify compliance. On July 28, 2005, plaintiffs filed

their motion in “opposition to vacating default judgment based upon defendants’ continuing

refusal to comply with discovery orders.” Plaintiffs asserted that defendants failed to fully comply

with discovery requests because defendants entered objections to several document requests, even

though the trial court had previously ordered production without objection. The trial court

continued the matter until September 23, 2005.

On September 23, 2005, when defendants’ attorney did not appear, the trial court entered

an order continuing the matter until September 30, 2005, and ordering defendants’ attorney to

“provide an affidavit stating the nature of his illness.”

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On February 22, 2006, the trial court held a hearing on defendants’ motion to vacate the

default judgment entered on July 11, 2005. Neither defendants nor their attorney appeared at the

hearing. The trial court entered a written order denying defendants’ motion to vacate the default

judgment and awarded damages to plaintiffs. The court awarded $315,340 on counts II, III, and

IV against both defendants, jointly and severally, $45,300 on count V against Michael, and

$46,730.62 in attorney fees and costs.

On March 22, 2006, represented by new counsel, defendants filed an emergency motion to

vacate the February 22, 2006, default judgment order. In their motion, defendants contended that

they were unaware of the discovery noncompliance, monetary sanctions, and default judgment

and that their former attorney failed to keep them properly informed about the case. The motion

characterized the case as “an ongoing battle between plaintiffs’ counsel and counsel previously

representing defendants.” In an affidavit, Michael stated that he was not informed of the default

judgment until the last week of February 2006. He also said that at no time prior to the last week

in February “was [he] ever given to understand that either [he] or the Bank was either tardy or

non-compliant with respect to any discovery requests that may have been issued by plaintiffs’

counsel in connection with the pending litigation.” On that date, defendants also filed an

emergency motion for leave to file an additional appearance. Plaintiffs filed a response to the

motion and later supplemented their motion with minutes from monthly meetings of the Citizens’

board of directors, in which Michael reported on the status of the case, to dispute Michael’s

affidavit.

On June 20, 2006, the trial court conducted an evidentiary hearing on defendants’

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emergency motion to vacate the February 22, 2006, default judgment order. At the hearing,

plaintiffs subpoenaed defendants’ former attorney to testify in response to defendants’ argument

that the former attorney failed to notify them of the discovery noncompliance.

On July 20, 2006, the trial court issued its written order denying defendants’ emergency

motion to vacate. The court found that defendants could not “abdicate their responsibility

because of [the former attorney’s] health; they were required to turn over documents.” The court

noted that the former attorney testified at the evidentiary hearing that his health problems had no

bearing on defendants’ responsibility of following the court’s orders and knowledge of the case.

In regard to defendants’ noncompliance, the court stated:

“Here, Defendants have a history of not responding to

Plaintiffs’ request for documents and the Court’s own orders

compelling them to do so. Initially, the sanctions against

Defendants were minor in that Plaintiffs were only awarded fees

and, in an attempt to encourage discovery and hold Defendants

responsible for further delay, the monetary sanctions would increase

for continued non-compliance. Because of Defendants’ non-

compliance, the fees increased and eventually this Court took

entered [sic] default judgment in favor of Plaintiffs. As this timeline

shows, Defendants had ample opportunity to comply with this

Court’s orders and Plaintiff’s request for documents. The Court

ordered default judgment against Defendants as a last resort

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measure because Defendants were not living up to their obligations

as fairness and justice required.”

The court also addressed Michael’s “seemingly false affidavit.”

“The affiant claims ignorance about the past proceedings,

particularly the escalating sanctions, in this case. Plaintiffs have

provided evidence that not only did Defendants know about the

progressing litigation, they spoke about this case on a monthly

basis. Additionally, [the former attorney’s] testimony at the

evidentiary hearing sheds light on the truthfulness of Defendant’s

affidavit. Seemingly, Defendants knew they were noncompliant

with the Court’s many orders compelling discovery, and they also

knew that this case was in jeopardy because of noncompliance.

Michael’s false affidavit shows a ‘deliberate and contumacious

disregard for the court’s authority.’ [Citation.]”

This appeal followed.

On appeal, defendants argue that the trial court erred in failing to vacate the default

judgment entered against them because they complied with the court-ordered discovery. In the

alternative, defendants assert that they were entitled to an evidentiary hearing to determine the

amount of damages and proper attorney fees.

Supreme Court Rule 219 addresses the consequences of refusing or failing to comply with

discovery rules or orders and the trial court has broad powers to enforce its discovery orders.

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166 Ill. 2d R. 219. Subsection c of the Rule 219 specifies that if a party:

“unreasonably fails to comply with [the discovery rules] or

fails to comply with any order entered under these rules, the court,

on motion, may enter, in addition to remedies elsewhere specifically

provided, such orders as are just, including, among others, the

following:

***

(iv) That a witness be barred from testifying concerning that issue;

(v) That, as to claims or defenses asserted in any pleading to

which that issue is material, a judgment by default be entered

against the offending party or that the offending party's action be

dismissed with or without prejudice[.]” 166 Ill. 2d R. 219(c).

Rule 219(c) further provides that “[i]n lieu of or in addition to the foregoing, the court, upon

motion or upon its own initiative, may impose upon the offending party or his or her attorney, or

both, an appropriate sanction, which may include an order to pay to the other party or parties the

amount of reasonable expenses incurred as a result of the misconduct, including a reasonable

attorney fee, and when the misconduct is wilful, a monetary penalty.” 166 Ill. 2d R. 219.

“Under Rule 219(c), the imposition of sanctions is largely a matter within the discretion of

the trial court and will not be disturbed on review unless the sanctions constitute an abuse of

discretion such as where the sanctioned party's conduct was not unreasonable or where the

sanction itself is not just.” Hartnett v. Stack, 241 Ill. App. 3d 157, 172 (1993).

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“The purpose of imposing sanctions is to coerce compliance with court rules and orders,

not to punish the dilatory party.” Sander v. Dow Chemical Co., 166 Ill. 2d 48, 68 (1995). “Our

discovery procedures are meaningless unless a violation entails a penalty proportionate to the

gravity of the violation. Discovery for all parties will not be effective unless trial courts do not

countenance violations, and unhesitatingly impose sanctions proportionate to the circumstances.”

Buehler v. Whalen, 70 Ill. 2d 51, 67 (1977). “To determine whether a sanction order was just, a

court must look to the conduct that gave rise to the sanction order and to the effect of that

conduct on the parties.” Hartnett, 241 Ill. App. 3d at 173.

However, “[d]ismissal of a cause of action or sanctions which result in a default judgment

are drastic sanctions and should only be employed when it appears that all other enforcement

efforts of the court have failed to advance the litigation.” Sander, 166 Ill. 2d at 67-68. “Dismissal

of a cause of action for failure to abide by court orders is justified only when the party dismissed

has shown a deliberate and contumacious disregard for the court's authority.” Sander, 166 Ill. 2d

at 68. “[B]efore a default judgment will be set aside, the sanctioned party has the burden of

establishing that his failure to comply with discovery orders was justified by extenuating

circumstances and must show a willingness to comply with discovery orders in the future.”

Hartnett, 241 Ill. App. 3d at 176.

Here, defendants conceded before the trial court that they had been subject to 12 orders

regarding their discovery noncompliance. They further concede on appeal that the initial

sanctions for attorney fees were proper, but have never been paid. Yet, they maintain that they

acted with due diligence and fully complied with the trial court’s orders, even though they

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continue to assert that plaintiffs’ production requests were overbroad.

Our review of the record shows that defendants were initially served with plaintiffs’ first

request for document production on October 21, 2003. Three days later, defendants filed a

motion to dismiss plaintiffs’ complaint and discovery was stayed through a series of orders until

the motion to dismiss was denied on August 24, 2004. Once the stay on discovery was lifted,

defendants failed to respond to plaintiffs’ requests. The trial court issued several orders from

January 2005 to July 2005, which entered increasing sanctions against defendants to compel

discovery. Those orders culminated in the July 11, 2005, entry of a default judgment.

In the July 11, 2005, order entering a default judgment, defendants were given until July

22, 2005, to comply and the default judgment would be vacated. On July 22, 2005, defendants’

former attorney gave plaintiffs a box of documents, which defendants contend constituted full

compliance. However, defendants’ answer to plaintiffs’ document request included objections to

multiple documents that they believed constituted “confidential supervisory information” pursuant

to section 48.3 of the Illinois Banking Act (Act) (205 ILCS 5/48.3 (West 2004)). According to

defendants’ answer, “certain production requests of plaintiffs may fall within the restriction of

disclosure as contained in the Act. As such, disclosure or production of such confidential

supervisory information is restricted unless the guidelines of subsections (c)(1)-(3) are met.”

Defendants made these objections in contradiction of the trial court’s January 5, 2005, order,

which ordered production without objection.

Defendants contend that these objections were required under the Act and that if they did

not object, they would be subject to a penalty.

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Section 48.3(a) of the Act defines “confidential supervisory information” as follows:

“Any report of examination, visitation, or investigation

prepared by the Commissioner under this Act, the Electronic Fund

Transfer Act, the Corporate Fiduciary Act, the Illinois Bank

Holding Company Act of 1957, and the Foreign Banking Office

Act, any report of examination, visitation, or investigation prepared

by the state regulatory authority of another state that examines a

branch of an Illinois State bank in that state, any document or

record prepared or obtained in connection with or relating to any

examination, visitation, or investigation, and any record prepared or

obtained by the Commissioner to the extent that the record

summarizes or contains information derived from any report,

document, or record described in this subsection[.]” 205 ILCS

5/48.3(a) (West 2004).

However, the Act excludes “any information or record routinely prepared by a bank or other

financial institution and maintained in the ordinary course of business or any information or record

that is required to be made publicly available pursuant to State or federal law or rule” from the

meaning of “confidential supervisory information.” 205 ILCS 5/48.3(a) (West 2004).

Defendants used the Act as the basis for their objections to the production of the

defendants’ federal and state income tax returns, defendants’ financial statements, any

documentation of indebtedness and other liabilities and assets, all loans or notes payable to

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defendants, all documents relating to wire transfers for Michael, all documents relating to

Michael’s account at Citizens, and all documents relating to any checks or drafts written to or by

Michael. The documents were limited to 1998 through the present time of discovery.

The documents requested by plaintiffs do not appear to be comprised of “any report of

examination, visitation, or investigation” by the Commissioner. Rather, the documents, including

tax returns, bank account statements, and checks, seem to fit into the exclusion as “information or

record routinely prepared by a bank *** and maintained in the ordinary course of business.”

However, even if these documents did fit within the definition of “confidential supervisory

information,” defendants did not adhere to the statute in raising these objections.

While subsection 48.3(c)(1) prohibits disclosure of “confidential supervisory information”

without authorization from the Commissioner, subsection 48.3(c)(2) provides that when a request

is made for any “confidential supervisory information,” the Commissioner shall be notified and a

determination regarding disclosure will be made within 15 days. 205 ILCS 5/48.3(c)(1), (c)(2)

(West 2004). Defendants failed to notify the Commissioner prior to the objections being raised.

According to the record, the Commissioner was not notified of the objections until May 3, 2006.

At the June 20, 2006, hearing, defendants’ attorney stated that the Commissioner found that there

was no “confidential supervisory information” contained in the requests. Following that

statement, defendants’ attorney continued to object to the production of those documents as

being “extremely overbroad.”

Defendants contend that the objections under the Act were timely and they also should

have been heard on their objections that the document requests were overbroad. However,

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defendants failed to raise these objections in a timely fashion. Defendants were aware of what

documents plaintiffs were seeking in discovery in October 2003, but failed to raise these

objections until July 2005, and also failed to contact the Commissioner until May 2006.

Defendants should not be able to seek the protection of the Act, but then fail to follow the Act’s

provisions. Since defendants failed to follow the statute in a timely fashion, they did not fully

comply with the trial court’s discovery orders. Defendants’ disregard for the trial court’s orders

is further shown by defendants’ continued objections to these documents.

As the trial court stated in its July 20, 2006, written order, “Defendants, however, have

shown that no sanction would encourage them to satisfy their obligations and respect the Court’s

authority. *** Moreover, Defendants’ lack of compliance has increased Plaintiffs’ cost and

wasted valuable judicial resources.” Defendants’ actions in the trial court showed “a deliberate

and contumacious disregard for the court’s authority” (Sander, 166 Ill. 2d at 68), through

repeatedly ignoring the court’s orders and leading up to the filing of a “seemingly false affidavit”

with the court. Based on the circumstances presented, the trial court did not abuse its discretion

in entering a default judgment against defendants.

Defendants next contend that the trial court erred in failing to conduct an evidentiary

hearing on damages before awarding plaintiffs’ $315,340 against both defendants and $45,300

against Michael. However, defendants failed to raise this issue before the trial court. In response

to the trial court’s February 22, 2006, default judgment order awarding damages to plaintiffs,

defendants filed an emergency motion to vacate that order. In their written motion and

memorandum of reply, defendants did not claim that they were deprived of an evidentiary hearing

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on damages and they made no demand for one. At the June 20, 2006, evidentiary hearing on

defendants’ motion, the only mention of defendants’ contest to the damages occurred at the end

of the hearing. Defendants’ attorney made the following statement at the conclusion of his

argument:

“We ask that the Court vacate the judgement of default and

give us an opportunity — and one more thing, with judgment of

default on liability we had no opportunity to defend on damages,

but we ask that the Court to vacate [sic] of default, give the

Defendants an opportunity to have a hearing in that regard.”

We find that this was not sufficient to have presented the issue of an evidentiary hearing

on damages to the trial court and therefore, defendants have waived this issue on appeal. See

Wilkin Insulation Co. v. Holtz, 186 Ill. App. 3d 151, 158-59 (1989).

Defendants also contend that the trial court erred in awarding plaintiffs $46,730.62 in

attorney fees and costs because the court failed to conduct an evidentiary hearing on this issue.

However, the record belies defendants’ argument. The transcript for the February 22, 2006,

hearing contains a discussion between the trial court and plaintiffs’ attorney regarding the

attorney’s submitted fee petition. The court considered the fee petition and concluded that the

appropriate award was half of the amount requested, $93,000. On appeal, defendants assert that

no evidentiary hearing was held and that the fee petition was “vague, incomplete and confusing.”

Defendants base this assessment of the fee petition on the transcript of the February 22, 2006,

hearing, but failed to include the fee petition in the record on appeal. Defendants, as the

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appellants, bear the burden of providing a sufficiently complete record to support their claim or

claims of error, and in the absence of such a record on appeal, it will be presumed that the order

entered by the trial court was in conformity with law and had a sufficient factual basis. Foutch v.

O'Bryant, 99 Ill. 2d 389, 391-92 (1984). Moreover, any doubt arising from the incompleteness of

the record will be resolved against the appellants. Foutch, 99 Ill. 2d at 392. Since we do not

have plaintiffs’ attorney fee petition before us, we must presume that the trial court’s order was

proper.

Finally, plaintiffs make a single-sentence request, without argument, that this court should

award sanctions against defendants pursuant to Supreme Court Rule 375(b) (155 Ill. 2d R.

375(b)). We do not believe that further sanctions are appropriate in this case and decline to

impose them.

Based on the foregoing reasons, we affirm the decision of the circuit court of Cook

County.

Affirmed.

CAHILL and R. GORDON, JJ., concur.

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