Khoury v. Niew

2021 IL App (2d) 200388

184 N.E.3d 399

451 Ill.Dec. 812

Jamal I. KHOURY and Leda Khoury, Plaintiffs-Appellees,

v.Kathleen NIEW, Stanley Niew, and Niew Legal Partners, a/k/a the Niew Group, Defendants

(Stanley Niew, Defendant-Appellant).

No. 2-20-0388

Appellate Court of Illinois, Second District.

Opinion filed May 21, 2021

Aaron H. Stanton, Susan M. Horner, and Alex D. Marks, of Burke, Warren, MacKay & Serritella, P.C., of Chicago, for appellant.

William P. Suriano, of Riverside, for appellees.

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

¶ 1 This appeal arises from the trial court's grant of summary judgment for plaintiffs, Jamal I. Khoury and Leda Khoury, and denial of summary judgment for defendant Stanley Niew, who was an attorney at defendant Niew Legal Partners (Firm). At issue in this appeal is whether Stanley owed plaintiffs a fiduciary duty with respect to their funds deposited in the Firm's interest on lawyer trust account (IOLTA). For the reasons stated herein, we reverse.

¶ 2 I. BACKGROUND

¶ 3 In 2010, plaintiffs retained then-attorney Kathleen Niew¹ to represent them in the purchase of some real estate. Kathleen and Stanley were officers at the Firm, serving as secretary and president, respectively. They were also married. Plaintiffs transferred money for a real estate purchase into the Firm's IOLTA account, but Kathleen never completed the real estate purchase or returned the funds.

¶ 4 Plaintiffs filed their complaint against Kathleen, Stanley, and the Firm on September 17, 2012, alleging a single count that defendants breached their fiduciary duties to plaintiffs when they removed approximately $2.34 million of plaintiffs’ funds from the Firm's IOLTA account without plaintiffs’ knowledge or consent and used those funds for their own benefit. Plaintiffs alleged that, in 2010, they had identified a foreclosure property that they could purchase, improve, and then resell for a profit. To retain an attorney for the closing on the foreclosure property, they contacted Kathleen and entered into an attorney-client relationship with her. As to Stanley, they alleged that, by virtue of his marriage to Kathleen and of being her business partner, he was aware of all that Kathleen knew regarding the receipt and misuse of plaintiffs’ funds deposited in the Firm's IOLTA account.

¶ 5 Kathleen and the Firm answered the complaint on December 4, 2012. They admitted that Kathleen and the Firm were in a fiduciary relationship with plaintiffs, but they denied that Stanley stood in such a relationship. They denied that they breached their fiduciary duties and denied that plaintiffs were damaged.

¶ 6 Plaintiffs moved for summary judgment on December 14, 2012, and the matter was continued for a hearing on February 19, 2013. Prior to the hearing, counsel for Kathleen and the Firm, Tom Boundas, moved to withdraw, citing difficulties in cooperation and philosophical differences, and the trial court granted the motion to withdraw. On February 19, 2013, the trial court granted plaintiffs’ motion for summary judgment as to all defendants.

¶ 7 New counsel for Kathleen and the Firm filed an appearance on March 6, 2013. That same day, defendants filed a joint motion to vacate the summary judgment order. With respect to Stanley, defendants first argued that Stanley had never been properly served and was not represented by counsel on the summary judgment motion and that therefore the trial court did not have jurisdiction over Stanley. Prior counsel had entered an appearance only for Kathleen and the Firm. Second, they argued that, even if the trial court had jurisdiction over Stanley, plaintiffs failed to set forth facts sufficient to prove that Stanley was liable for a breach of fiduciary duty. With respect to Kathleen and the Firm, they argued that the summary judgment order should be vacated because it was entered only six days after the trial court granted their counsel leave to withdraw, instead of the required 21 days, and because they had raised an affirmative defense and should have been given an opportunity to conduct discovery on their affirmative defense.

¶ 8 On March 14, 2013, the trial court granted in part the joint motion to vacate. It vacated summary judgment as to Stanley but denied the motion as to Kathleen and the Firm.

¶ 9 Stanley moved for summary judgment on March 29, 2013, arguing that his marriage to Kathleen did not make him vicariously liable for her alleged fraudulent conversion and that instead plaintiffs had to provide admissible evidence that he knowingly or recklessly assisted or participated in Kathleen's alleged fraud, which they had failed to do. Stanley also filed his answer and affirmative defenses to the complaint. He answered that he never represented plaintiffs, worked on their legal matters, or had any involvement or control over their funds. He denied owing plaintiffs a fiduciary duty, breaching any duty, and knowing of or benefitting from their funds. He also alleged an affirmative defense of an independent intervening cause in that a third party removed plaintiffs’ funds from the Firm's IOLTA.

¶ 10 On April 1, 2013, the trial court entered judgment against Kathleen and the Firm in the amount of $2,664,809.80 and continued open motions to a later date.

¶ 11 Plaintiffs responded to Stanley's motion for summary judgment on January 21, 2014. Therein, they argued that, under the specific facts of this case, Stanley owed them a fiduciary duty and breached that duty. They argued that a fiduciary relationship can exist apart from an attorney-client relationship. Plaintiffs also responded to Stanley's written interrogatories. They answered in part that, as best as they could recall, they had not spoken with Stanley via telephone or other electronic or written communication and that they were not aware of any specific legal service that Stanley performed on their behalf.

¶ 12 On February 13, 2014, the trial court denied Stanley's motion for summary judgment. On November 19, 2014, the trial court entered an agreed order setting a status pending Kathleen's federal criminal trials and sentencings, and the case was continued multiple times over the next several years. In 2014, Kathleen had pled guilty to wire fraud for misappropriating approximately $2.34 million from plaintiffs, and in 2015, she was sentenced to 70 months’ imprisonment. She had been disbarred since 2013.

¶ 13 On March 6, 2020, plaintiffs moved for summary judgment for a second time. Therein, they argued that the undisputed facts showed that Stanley owed them a fiduciary duty to safeguard their funds deposited in the Firm's IOLTA account, he breached that fiduciary duty, and his breach caused them damages. Plaintiffs attached to their motion Stanley's deposition and several other document exhibits related to the Firm. That same day, Stanley filed his second motion for summary judgment. He attached to his summary judgment motion, inter alia , Kathleen's deposition, both of plaintiffs’ respective discovery depositions, and his own affidavit.

¶ 14 In Stanley's affidavit, he attested to the following, in relevant part. Plaintiffs were represented by Kathleen, and he never represented or communicated with plaintiffs. He never had control over the funds that plaintiffs entrusted to Kathleen, and he and Kathleen worked in separate areas of law and generally did not represent the same clients. With respect to plaintiffs, he never met with them, and Kathleen did not talk to him about them or their funds. The Firm had an IOLTA account, which his clients used infrequently and only for the deposit of prepaid legal services. The Firm had a bookkeeper for the IOLTA account, who was responsible for administrative work, including providing reconciliation reports for the account. The reports listed only the deposits, not the source, and therefore did not specifically identify plaintiffs’ funds. The bookkeeper did not mention plaintiffs’ funds to Stanley during the course of Kathleen's representation of plaintiffs. Any transfer of plaintiffs’ funds was done without his knowledge, consent, or participation. Prior to February 20, 2013, he did not have any knowledge of plaintiffs’ allegations in this case nor any knowledge that Kathleen transferred their funds without their permission.

¶ 15 In Stanley's deposition from June 2013, he testified as follows. He had been an attorney since 1972, and he had been married to Kathleen since 1986. He was currently 72 years old. He and Kathleen first formed a partnership called Niew and Zitzka (Zitzka being Kathleen's maiden name) around 1985 and incorporated as Niew and Associates a few years later. A few years after that, Kathleen left the firm to open her own office in Naperville. About seven or eight years prior to his deposition, he joined Kathleen at her practice, which was the Firm. In joining Kathleen at the Firm, he took with him another attorney, a secretary, and a legal assistant. At the beginning of 2013, the Firm employed approximately seven people, including Stanley and Kathleen. One lawyer left in early 2013 to avoid being "involved with the bad publicity."

¶ 16 Kathleen owned 100% of the stock in the Firm; Stanley was never a shareholder. He and Kathleen were the officers, and he had been the president of the Firm. He resigned as an officer in February 2013 because he was angry that he had not known about plaintiffs’ lawsuit. He did not learn about plaintiffs’ lawsuit until he received a copy of Boundas's motion that month. Stanley had never had his attorney license suspended, but he had been disciplined once in the 1980s for taking out a marriage license for his marriage to Kathleen while still married to another woman.²

¶ 17 Denise Wilson was the Firm's bookkeeper, but she was not a Firm employee; she was an independent contractor who also worked for other firms. Stanley would discuss the IOLTA account with her at least once a month, but he could not recall specifics of their...