Girsch v. Hiffman

1

2024 IL App (1st) 211098

BONNIE GIRSCH, as Special Representative of the Estate of John F. Girsch, Deceased, EDWARD ZIFKIN, MARK MUNARETTO, and MARK WHEELES, Individually and derivatively on behalf of TB LIMITED PARTNERSHIP; and MARK MUNARETTO and WILLIAM SKRZELOWSKI, Individually and derivatively on behalf of I.B.P. LIMITED PARTNERSHIP, Intervening-plaintiffs-appellees and Cross-Appellants, and THE LAW OFFICES OF EDWARD T. JOYCE & ASSOCIATES, P.C., Appellee and Cross-Appellant, v. DENNIS J. HIFFMAN; E. THOMAS COLLINS; and RICHARD E. HULINA, Defendants-appellants and Cross-appellees.

JOHN F. GIRSCH, et al., Plaintiffs-appellants, v. THOMPSON COBURN LLP; ICE MILLER LLP; LOCKE LO LLP; TABET DIVITO &ROTHSTEIN LLC; I.B.P. LIMITED PARTNERSHIP; and TB LIMITED PARTNERSHIP, Respondents-Appellees.

Nos. 1-21-1098, 1-22-0872, 1-22-1473

Court of Appeals of Illinois, First District, First Division

February 13, 2024

This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Cook County. No. 01 CH 21984 The Honorable Neil H. Cohen and John J. Curry, Jr., Judges Presiding.

JUSTICE LAVIN delivered the judgment of the court. Presiding Justice Fitzgerald Smith and Justice Pucinski concurred in the judgment.

ORDER

LAVIN JUSTICE

¶ 1 Held: The circuit court's final judgment and award of attorney fees is affirmed where intervening plaintiffs' claims were timely based on the discovery rule, tax gross-up damages were appropriate under the circumstances of this case, and defendants did not show that application of the common fund doctrine amounted to an abuse of discretion. Additionally, the court did not err in finding that defendants, as general partners of the Limited Partnerships, were entitled to share in the derivative judgment awards. Finally, we reverse the court's dismissal of intervening plaintiffs' citations to discover assets as the citations were properly issued in the parties' post-judgment collection proceedings, and we remand with instructions for the court to grant the citations.

¶ 2 This consolidated appeal stems from underlying litigation involving a derivative shareholder action brought more than twenty years ago by the limited partners of I.B.P. Limited Partnership (I.B.P.) and TB Limited Partnership (TB) against the general partners of those Limited Partnerships for breach of their fiduciary duties. More specifically, Marc Munaretto and William Skrzelowski brought the suit at issue here on behalf of I.B.P., while Munaretto, Edward Zifkin, Mark Wheeles, and John Girsch, who died during the pendency of this litigation and is now represented by his estate, brought the suit on behalf of TB (collectively referred to as intervening plaintiffs).^[1] Additionally, Munaretto, Wheeles Zifkin, and Girsch, individually, brought suit against the general partners of those Limited Partnerships, namely, E Thomas Collins, Jr., Richard E. Hulina, and Dennis J. Hiffman (collectively, defendants), as well as former defendant John E. Shaffer, who was later dismissed as a party to the litigation pursuant to a settlement agreement between the parties.

¶ 3 In the midst of the ongoing, decades-long litigation, intervening plaintiffs entered into a settlement agreement with Shaffer, ultimately resulting in $2.4 million being distributed to intervening plaintiffs and $1.6 million being distributed to their counsel, the Law Offices of Edward T. Joyce &Associates, P.C. (hereafter, derivative counsel). The circuit court later ruled that the proceeds from the Shaffer settlement belonged to the Limited Partnerships, not to the individual, intervening plaintiffs, and therefore, the court set off the $2.4 million from the amounts allocated to intervening plaintiffs in the resulting final judgment order. Meanwhile, defendants, as majority interest holders, agreed to not enforce "any rights to collect any amounts due to the Limited Partnerships" from the ultimate derivative awards in this case.

¶ 4 As will be discussed in more detail below, the circuit court issued a final judgment finding that defendants breached their fiduciary duties to the Limited Partnerships and the limited partners, and that the Limited Partnerships suffered compensatory damages totaling $87,325,788.^[2] The court thus entered judgment in favor of the Limited Partnerships for that sum. Due to the setoff from the Shaffer settlement, however, the court found that Girsch's estate, Zifkin, Munaretto, Wheeles, and Skrzelowski, were not entitled to any distribution of the derivative award. In addition, the court found that Collins and Hulina breached their fiduciary duties to Girsch's estate, Zifkin, Munaretto, and Wheeles, and as result, awarded them individual compensatory damages in various amounts that will be discussed below.

¶ 5 Finally, the court awarded derivative counsel a total of $15,902,100.91, a fee equal to twenty percent (20%) of the total $87,325,788, common fund less the $1.6 million that derivative counsel received as a result of the Shaffer settlement, plus litigation expenses. That award was to be "paid out of the common funds," since derivative counsel obtained the judgment on behalf of the Limited Partnerships and defendants were entitled to share in that recovery, an issue that will be discussed at length below.

¶ 6 Defendants subsequently failed to post an appropriate appeal bond, leading intervening plaintiffs and derivative counsel to issue citations to discover assets in the name of the Limited Partnerships. The citations were issued to, among others, defendants' attorneys and third parties, Thompson Coburn, LLP, Ice Miller, LLP, Locke Lord, LLP, and Tabet DiVito &Rothstein, LLC. Those third parties, along with the Limited Partnerships, then moved, successfully, to quash the citations to discover assets. Specifically, the circuit court dismissed the citations with prejudice and barred intervening plaintiffs and their counsel "from undertaking collection proceedings to collect the judgment on behalf of' the Limited Partnerships, finding that intervening plaintiffs and derivative counsel lacking individual standing to pursue the citations to discover assets based on their receipts of the individual judgment awards and the fact that defendants, as the general partners of the Limited Partnerships acting on behalf of those partnerships, agreed to forego collection of the derivative awards entered against them. Last, the court agreed with defendants that they could decide, amongst themselves, and on behalf of the Limited Partnerships, to not fund the common fund from which derivative counsel's fee award was to be paid.

¶ 7 On appeal, defendants do not challenge the circuit court's finding that they breached their fiduciary duties to the Limited Partnerships, as well as to Girsch's estate, Zifkin, Munaretto, and Wheeles. Rather, defendants set forth a number of arguments contending that intervening plaintiffs' derivative claims were barred by the applicable statute of limitations period, or alternatively, the applicable statute of repose, because the claims were filed more than five years after the transactions at issue occurred. Defendants further argue that the discovery rule, which delays commencement of the applicable limitations period, did not apply to those derivative claims because some of the limited partners, who are not parties to this litigation, had contemporaneous knowledge of the wrongful transactions and the ability to sue, thereby precluding application of the discovery rule. Last, defendants contend that the lower court erroneously added approximately $18 million in tax gross-up amounts to the derivative awards and improperly applied the common fund doctrine when the court awarded derivative counsel roughly $15.8 million in attorney fees since that award benefits no party, only the Limited Partnerships.

¶ 8 On cross-appeal, intervening plaintiffs first contend that the lower court erred in finding that defendants, as general partners of the Limited Partnerships, were entitled to share in the compensatory damages award because defendants should not benefit from their own wrongdoing. Intervening plaintiffs also set forth a number of arguments that the court erroneously awarded defendants a setoff relating to the purchase of the Developer Bonds in this case.^[3] Finally, intervening plaintiffs contend that the court erred in both dismissing their citations to discover assets and in barring them from undertaking post-judgment collection proceedings to collect the derivative judgments on behalf of the Limited Partnerships because those rulings "effectively voided" the judgments and award of attorney fees to derivative counsel.

¶ 9 In response, third party respondents I.B.P., TB, Thompson Coburn, LLP, Ice Miller LLP, Locke Lord LLP, and Tabet DiVito &Rothstein LLC, assert that the citations to discover assets were properly dismissed because intervening plaintiffs lacked standing to pursue the citations because intervening plaintiffs were not entitled to any distributions from the derivative awards since their individual awards had already been satisfied in full.

¶ 10 For the following reasons, we affirm in part and reverse in part the lower court's judgment and remand for further proceedings consistent with this decision.

¶ 11 I. BACKGROUND

¶ 12 As this is the second time this litigation is before us (see related case, Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)), and given the extensive appellate record consisting of over 100 thousand pages, we will address only those facts necessary for the resolution of this consolidated appeal and cross-appeal.

¶ 13 In the early 1990s, HSA Commercial Real Estate, Inc ("HSA"), a real estate...