Kalmin v. Varan

2021 IL App (1st) 200755

216 N.E.3d 984

466 Ill.Dec. 151

Fred KALMIN, Plaintiff-Appellee,

v.Joseph VARAN, Defendant

(... LLC, JV, Intervenor-Appellant).

No. 1-20-0755

Appellate Court of Illinois, First District, First Division.

Rule 23 order filed September 7, 2021

Motion to publish granted November 1, 2021

Filed November 1, 2021

Giovanni Raimondi, of RAI Law, LLC, of Chicago, for intervenor-appellant.

Gayle Weinberg Kalmin, of Law Offices of Gayle Weinberg, P.C., of Chicago, for appellee.

PRESIDING JUSTICE HYMAN delivered the judgment of the court, with opinion.

¶ 1 More than a decade ago, plaintiff Fred Kalmin obtained a default judgment against defendant Joseph Varan. In an attempt to collect, Kalmin filed a third-party citation to discover assets to Citibank, N.A. (Citibank), seeking funds in an account in the name of ... LLC JV (JV), for which Varan was the sole signatory. JV successfully intervened in the citation proceeding and, following a delay of several years, filed a motion to quash the citation. The trial court denied the motion and ordered Citibank to turn the funds over to Kalmin. JV filed a motion to reconsider the order denying the motion to quash the citation and granting the turnover of the funds in the Citibank account. The trial court denied the motion but granted JV an evidentiary hearing to determine who owned the Citibank account. After the hearing, the trial court ruled in favor of Kalmin, finding (i) Varan, the only witness, was not credible; (ii) the money in the Citibank account belonged to him; and (iii) Varan had created JV to shield assets, income, and profits from creditors.

¶ 2 JV contends that the trial court erred in denying its motion to quash because the third-party citation (i) had expired, (ii) was too broad, and (iii) was not served on JV. JV also seeks reversal of the turnover order on two grounds. First, Kalmin failed to meet his burden to show that the Citibank account belonged to Varan. And second, the trial court made improper adverse inferences against JV for failing to produce documentary evidence to corroborate Varan's testimony or Varan's wife as a witness. Alternatively, JV contends that Kalmin was not entitled to all the funds in the Citibank account.

¶ 3 We affirm the order denying JV's motion to reconsider. The trial court did not err in denying the motion to quash the citation. Further, it did not abuse its discretion in finding that Varan was not a credible witness and that the funds in the Citibank account belonged to him.

¶ 4 Kalmin asks for sanctions against JV, Varan, and their attorneys under Illinois Supreme Court Rule 375(b) (eff. Feb. 1, 1994) for filing a frivolous appeal. We decline Kalmin's request for sanctions.

¶ 5 BACKGROUND

¶ 6 This case, before us a second time, arises from an agreement between Kalmin and Varan to buy and sell foreclosed property. In December 2009, Kalmin filed a complaint alleging that Varan breached the agreement by failing to pay his share of expenses and losses. When Varan's attorney failed to appear at a case management conference, the trial court struck Varan's answer and entered default, citing Varan's repeated failure to respond to discovery requests. After a prove-up hearing, the trial court entered judgment in favor of Kalmin for $298,664. Later, the trial court granted Kalmin's motion to revise its order to state that "Defendant's answer, affirmative defense and counterclaim was struck in its entirety for Defendant's repeated failure to comply with court orders and respond to discovery, nunc pro tunc to September 10, 2010." Varan filed a pro se motion to vacate the court's nunc pro tunc order. The trial court never heard the motion; Varan filed for bankruptcy shortly thereafter, which stayed the case.

¶ 7 Citation Proceedings

¶ 8 After lifting the bankruptcy stay, Kalmin initiated supplementary citation proceedings to discover Varan's assets and collect on the judgment. In August 2014, Kalmin issued a third-party citation to discover assets to Citibank. The Citibank citation included a rider asking Citibank to produce "all accounts for which Debtor Joe Varan is in title or has signatory power" and listed a number of companies, including JV. Citibank responded to the citation and disclosed the existence of one account, with a balance of $26,453.95, which was held under the name "... LLC JV," for which Varan was the sole signatory. Citibank froze the money in the account under section 2-1402 of the Code of Civil Procedure. 735 ILCS 5/2-1402 (West 2020).

¶ 9 JV filed a motion for leave to intervene and to quash the citation. The trial court granted JV leave to file both motions. JV filed an appearance but did not file a motion to quash the citation.

¶ 10 After a prolonged delay while the parties litigated other issues, Kalmin revived the judgment in March 2018, and filed a renewed motion for turnover of the Citibank funds. In response to the revived judgment, Varan renoticed his motion to vacate the nunc pro tunc order. The renoticed motion also sought to quash the citation to discover assets. The trial court entered an order finding it lacked jurisdiction to consider Varan's motion to vacate. Varan appealed the order. Without ruling on the merits, this court affirmed the trial court's finding that it lacked jurisdiction. Kalmin v. Varan , 2019 IL App (1st) 181437-U.

¶ 11 During the pendency of the appeal, Varan filed a motion asking the trial court to hold a hearing on JV's motion to quash the citation and stay the proceedings pending appeal. The trial court entered an order (i) denying Varan's motion to stay the proceedings, (ii) denying Varan's motion to quash the citation, and (iii) granting Kalmin's renewed motion for turnover of the Citibank funds.

¶ 12 After Citibank turned over the funds to Kalmin, JV filed a motion to reconsider the turnover order. JV argued for the first time that the trial court should have conducted an evidentiary hearing to determine whether Varan possessed an ownership interest in the Citibank funds. The trial court denied JV's motion to reconsider the denial of its motion to quash but granted its request for an evidentiary hearing to determine who owned the Citibank funds.

¶ 13 Varan was the only witness at the evidentiary hearing. According to the trial court's findings of fact, Varan established JV in 2013, as part of a series of limited liability companies. Varan testified that another limited liability company he controls, "LLC 1 Plus 1" (1 Plus 1), was the manager of JV. Varan asserted he is the sole member and manager of 1 Plus 1. The sole member of JV is the "Becky Trust," which Varan also established in 2013. Varan was the sole trustee of the Becky Trust and his wife, Rebecca Varan, its sole beneficiary. The trial court noted that Varan did not present documents to support his claim that the Becky Trust was the sole member of 1 Plus 1 or testimony from corroborating testimony from his wife. (Kalmin tried unsuccessfully to subpoena Rebecca Varan to testify.)

¶ 14 Varan testified that he was an agent for, but not an employee of, JV, which had no employees. Varan acknowledged he performed a number of services for JV, including signing up members who needed legal representation and recruiting lawyers and law firms to represent members. But he said JV did not pay him for these services.

¶ 15 Varan opened an account with Citibank on behalf of JV in mid-September 2013. The Citibank account application identified the business as "LLC JV" and Varan as the primary contact. In addition, the application listed Varan's home as the business address. Varan acknowledged that he was the only authorized signatory on and user of the Citibank account.

¶ 16 Kalmin introduced monthly statements for the Citibank account from September 2013 to August 2014, which the trial court said showed "staggering amounts" of cash withdrawals. Specifically, over $150,000 was withdrawn during those 12 months, often within a day or two after a similar amount had been deposited. The court found the Citibank statements also revealed additional direct payments to Rebecca Varan of $73,400 by check or wire transfer.

¶ 17 Varan testified that he withdrew cash from the Citibank account and gave it to his wife as the beneficiary of the Becky Trust and entitled to all profits from JV's business, even though she performed no work for JV and was not an officer, director, or employee. Varan stipulated that he turned over to Rebecca "95 percent or more" of all of the cash withdrawals from the Citibank account. He said the withdrawals were in cash rather than by check because the Becky Trust did not have a bank account. Varan took none of the $150,000 cash withdrawals for himself, but Rebecca gave him varying sums of money at her sole discretion.

¶ 18 After the evidentiary hearing, the trial court issued a memorandum opinion and order denying the motion to reconsider, finding that the money in the Citibank account belonged to Varan and was subject to turnover under section 2-1402. The court said it "had the opportunity to observe Varan and to make determinations about his credibility" and found his "explanation of the underlying facts, particularly those relating to the Citibank account activity, [were] convenient, self-serving, and totally lacking in credibility." The court concluded Varan established JV "to shield wages, income, and profits attributable to his efforts, time, and industry by simply (a) claiming not to receive compensation himself, (b) distributing JV's profits through cash withdrawals, some of which he kept for himself, and (c) funneling some of the JV's profits directly to his wife, Rebecca."

¶ 19 The court noted, "Rebecca Varan had no management, agency, or employment responsibilities for JV. *** By contrast. Varan and only Varan expended time, energy, effort, and industry to form and operate the business and affairs of JV. Yet, according to Varan, he neither received nor accepted any remuneration for these considerable...