Diocese of Quincy v. Episcopal Church

56 N.E.3d 573

404 Ill.Dec. 589

The DIOCESE OF QUINCY, a Not–for–Profit Corporation; and the Trustees of Funds and Property of the Diocese of Quincy, Plaintiffs–Appellees

v.The EPISCOPAL CHURCH; and National City Bank, n/k/a PNC Bank, N.A., Defendants (the Episcopal Church, Defendant and Counterplaintiff–Appellant, Diocese of Chicago, as Successor by Merger to the Diocese of Quincy of the Episcopal Church, Counterplaintiff–in–Intervention–Appellant, and Edward A. den Blaauwen, Chris Potthoff, Leah Day, LeRoy Groff, Frank Dunaway, Mark L. Gamage, Bryce Dexter, Michael S. Brooks, Linda Terlesky, Warren Wilkins, Ronald R. Damewood, Jr., Nell German, Oscar P. Seara, Andrew Ainley, Kathi King, Ramsey Easterling, and Alberto Morales, Counterdefendants–Appellees).

No. 4–15–0193.

Appellate Court of Illinois, Fourth District.

June 30, 2016.

Timothy J. Cassidy, of Cassidy & Mueller, of Peoria, and David Booth Beers and Mary E. Kostel (argued), both of Goodwin Procter LLP, of Washington, D.C., for appellants.

Kent R. Schnack, of Quincy, for appellees Diocese of Quincy and Trustees of Funds and Property of the Diocese of Quincy.

Talmadge G. Brenner (argued), of Quincy, for appellee Alberto Morales.

OPINION

Justice POPE delivered the judgment of the court, with opinion.

¶ 1 Defendant-counterplaintiff, the Episcopal Church, and counterplaintiff-in-intervention, the Diocese of Quincy of the Episcopal Church (Episcopal Diocese), n/k/a the Diocese of Chicago (collectively, the Church), appeal the trial court's order granting a motion to enforce a prior judgment filed by plaintiffs, the Diocese of Quincy (Diocese) and the Trustees of Funds and Property of the Diocese of Quincy (Trustees), and counterdefendants, Edward A. den Blaauwen, Chris Potthoff, Leah Day, LeRoy Groff, Frank Dunaway, Mark L. Gamage, Bryce Dexter, Michael S. Brooks, Linda Terlesky, Warren Wilkins, Ronald R. Damewood, Jr., Nell German, Oscar P. Seara, Andrew Ainley, Kathi King, Ramsey Easterling, and Alberto Morales. The Church also appeals the trial court's award of sanctions pursuant to Illinois Supreme Court Rule 137 (eff. July 1, 2013). We affirm in part and reverse in part.

¶ 2 I. BACKGROUND

¶ 3 The Church is an unincorporated association created in 1789 and headquartered in New York. In 1877, the Diocese was formed. In 1893, the Diocese formed an Illinois not-for-profit corporation, i.e., the Trustees. The Trustees hold, manage, and distribute the Diocese's funds.

¶ 4 Over the years a doctrinal controversy developed, which resulted in a schism between the Diocese and the Church. In November 2008, the Diocese amended its constitution and aned its accession to the Church's constitution and canons. The Diocese voted to withdraw from the Church and enter into membership with the Anglican Church of the Southern Cone.

¶ 5 On January 9, 2009, the Church contacted defendant, National City Bank, n/k/a PNC Bank (National City), and informed it a disagreement had arisen over the ownership of funds (amounting to several million dollars) deposited with National City by the Diocese (testimony indicated as of December 31, 2012, National City was holding approximately $3,579,778 for the Diocese). According to the Church, it had an “enforceable interest in ensuring that all property of the Diocese, its parishes, missions, foundations, and other related institutions are held and used for the mission of the Church” and the Episcopal Diocese, which was created by the Church from the remaining loyal Episcopalians. Specifically, the Church wrote the following:

“We understand that [National City is] the Custodian of the Diocese's Endowment Funds. This letter is to inform you that a disagreement has arisen over the proper ownership of these funds. A faction within the Diocese purports to have removed the Diocese from the Episcopal Church, and claims to own these funds. The Episcopal Church takes a contrary view, which is that the funds continue to be owned by the Diocese which remains a subordinate part of the Episcopal Church, and must be used solely for the mission of the Church and the subordinate Diocese. * * *

The Episcopal Church shall therefore hold [National City] in your role as Custodian of the Diocese's Endowment Funds accountable for any dispositions made by you of such funds at the direction of any of the above listed persons or anyone else on their behalf.”

In response, National City froze the funds pending the resolution of the matter.

¶ 6 On March 30, 2009, the Diocese filed a complaint for declaratory judgment, seeking a determination it owned the funds. Specifically, the Diocese requested the court “adjudicate the rights and liabilities of the parties hereto with respect to the funds, money and accounts which are the subject of this action.”

¶ 7 On May 22, 2009, the Church filed a motion to transfer venue to Peoria County, which the trial court denied.

¶ 8 On March 3, 2010, the Church filed an amended counterclaim seeking declaratory and injunctive relief against the Diocese's directors and trustees, requesting, inter alia, (1) a declaration “that all property held by or for the Episcopal Diocese is held for and may be used only for the mission of the Church and the Episcopal Diocese,” (2) a declaration certain members of the Diocese are not the directors of the Trustees' corporation, (3) an injunction ordering the Diocese to relinquish control of the Trustees' corporation to the individuals the Church recognizes as the proper directors of those corporations, and (4) an accounting of all property held by those corporations.

¶ 9 Following a three-week bench trial before Judge Thomas J. Ortbal, the trial court issued its “Final Order and Judgment” on October 9, 2013. The court, applying a neutral-principles-of-law analysis, found, inter alia, the following:

“17. [The Church] is not a party to, nor a named beneficiary of, the Discretionary Agency Agreement between the [Diocese] and [National City]. That contract is the controlling document regarding the funds, money, endowments [,] and accounts in dispute.

18. The agreement does not suggest that [the Church] has any interest or other proprietary interest in the assets in this account.

19. No one from [the Church] had written authority with respect to the account.

20. [The Church] has never made deposits to, withdrawals from, used or administered this account.

21. There is nothing within the four corners of [the Discretionary Agency Agreement] which would suggest any trust or other proprietary interest of [the Church] in the assets held pursuant to that Agreement.”

The court then held “all disputed funds, money, endowments[,] and accounts held by [National City] are hereby declared to be owned by [the Diocese] without any claim by [the Church].”

¶ 10 On October 15, 2013, the Church filed its notice of appeal. (Enforcement of the trial court's judgment was stayed pending appeal.)

¶ 11 On November 6, 2013, while the matter was pending before the appellate court, the Church filed a complaint for declaratory and injunctive relief in Peoria County (Peoria County case No. 13–MR–582). The complaint was virtually identical to the counterclaim it filed in the Adams County litigation. In its prayer for relief, the Church requested, inter alia, (1) a declaration “that all property held by the Parishes of the Episcopal Diocese is held for and may only be used for the mission of the Church and the Episcopal Diocese,” (2) a declaration certain members of the Diocese are not the directors of the Trustees' corporation, (3) an injunction ordering the Diocese to relinquish control of the Trustees' corporation to the individuals the Church recognizes as the proper directors of those corporations, and (4) an accounting of all property held by those corporations and other entities controlled by the Diocese. As stated, the Trustees hold, manage, and distribute the Diocese's funds located in the National City account. (The Peoria proceedings have since been stayed pending the outcome of the instant appeal.)

¶ 12 On July 24, 2014, we affirmed the trial court's judgment, finding, inter alia , the following:

“The property in question in this case consists of the funds in the National City account and, although not emphasized by the Church on appeal, a deed to a piece of real property referred to by the Diocese as the ‘Diocesan House.’ The deed has been included in the record on appeal. It is undisputed the Church is not a party to the deed. Instead, the deed reflects title to the property is held by the Trustees. The language of the deed does not provide for an express trust in favor of the Church. The ‘Discretionary Agency Agreement,’ which is the contract between the Trustees and National City, is also contained in the record on appeal. Like the deed, it is undisputed the Church is not a party to that agreement. A review of the agreement does not indicate otherwise. It is also undisputed the Church has never had any involvement with the account, i.e., it never made any deposits or withdrawals, never authorized distributions, and never exercised any type of control over the account at all. In fact, in its brief on appeal before this court, the Church clearly states it ‘has never asserted that it owns those funds or any of the Diocese's assets, but rather has consistently asserted that they belong in the hands of the Episcopalians who are the proper leaders of the Diocese.’ This is no small concession.” (Emphasis omitted.) Diocese of Quincy v. Episcopal Church, 2014 IL App (4th) 130901, ¶ 50, 383 Ill.Dec. 634, 14 N.E.3d 1245.

¶ 13 Thereafter, the Church filed a petition for leave to appeal to the Illinois Supreme Court. On November 26, 2014, the supreme court denied the Church's petition (Diocese of Quincy v. Episcopal Church, No. 118186, 386 Ill.Dec. 794, 21 N.E.3d 713 (Ill. Nov. 26, 2014) (table)). The mandate was set to issue on December 31, 2014.

¶ 14 On December 30, 2014, one day before the mandate was to issue, the Church sent a letter to National City....