Find Legal Information

FIFTH DIVISION

October 9, 1998

No. 1-97-3616

JUSTICE HOURIHANE delivered the opinion of the court:

This matter comes before the court as an interlocutoryappeal pursuant to Supreme Court Rule 308. 155 Ill. 2d R. 308. We are asked to determine whether the unqualified release of oneof two parties who caused a monetary loss to plaintiffs precludesa claim by plaintiffs against the other party for breach offiduciary duty, considering the provisions of the JointTortfeasor Contribution Act (Act) (740 ILCS 100/2 (West 1996),and the relevant common law. Because we answer in theaffirmative, we reverse that part of the circuit court's orderdenying defendant's motion for summary judgment as to count I ofplaintiffs' first amended complaint.

Count I of the first amended complaint alleges thatplaintiffs Jerry Cherney (Jerry) and Robert Gainsberg (Gainsberg)are the shareholders, officers and directors of Eagle InsuranceAgency, Inc. (Eagle) and Legal Financial Associates, Inc. (LFA). Until September 1993, Burton Cherney (Burton), Jerry's brother,was also an officer and director of the corporations. DefendantLarry Soldinger performed accounting services for thecorporations.

In 1985, plaintiffs discovered that Burton had obtained$63,000 in excess advance payments from the corporations. Burtonexecuted a promissory note in that amount, payable to Eagle, asevidence of his indebtedness. At this time, plaintiffsinstructed defendant to make sure that Burton's advance accountnever exceeded plaintiffs' advance accounts by such largeamounts, and that defendant advise plaintiffs if they needed todraw additional compensation so as to equalize all parties'compensation for a particular year.

Plaintiffs claimed that defendant, in violation of theseinstructions and in breach of his fiduciary duties to thecorporations and its shareholders, failed to advise plaintiffsthat Burton was receiving excess salary and compensation and thatthe $63,000 note Burton executed had been reduced to $23,000through the payment of excess monies. Plaintiffs further claimedthat defendant had prepared the corporate books and records todisguise these transactions.

Plaintiffs alleged other theories of recovery in counts II,III, and IV, on which summary judgment was granted in favor ofdefendant. The trial court's ruling on these counts is not apart of this appeal.

Prior to the instant litigation, Burton had filed acomplaint in the chancery court against Jerry and Gainsberg,seeking declaratory relief, specific performance, and anaccounting. Burton alleged that the parties were equalshareholders of Eagle and LFA and that, contrary to certainshareholder agreements, in October 1992, Jerry and Gainsbergremoved him as an officer and employee of the corporations.

Jerry and Gainsberg filed a counterclaim against Burton forbreach of fiduciary duty. They alleged that, without their priorconsent, Burton borrowed $63,000 from Eagle's funds, executed apromissory note to repay the loan, and reduced the principalbalance on the note to $23,000 solely through accountingadjustments and not by directly paying any funds to Eagle. Theyfurther alleged that Burton drew salary and advances farexceeding his share and contrary to the best interests of thecorporation.

Jerry, Gainsberg and Burton settled their dispute andexecuted a "Mutual Release". The release states that, subject tocertain exceptions not relevant here:

"[E]ach of Eagle ***, [LFA] ***, Jerry *** and ***Gainsberg *** hereby releases and foreverdischarges Burton *** from any and all causes ofaction, contracts, agreements, debts and promises,whether known or unknown, which any of Eagle, LFA,Jerry, [or Gainsberg] *** now has or ever had, ormay have in the future, by reason of any matter,event, cause or thing occurring prior to the dateof this Mutual Release. The release *** includes,without limitation, a release and discharge ofBurton from any and all liabilities andobligations (a) to Eagle or LFA for any advances,borrowings, loans or other sums due to Eagle orLFA, (b) to any party as a result of any matter,event cause or cause of action alleged in or whichcould have been alleged in the Counterclaims inthe action entitled Burton Cherney v. JerryCherney, et al., No. 93 CH 964, pending in theCircuit Court of Cook County, Illinois ***, and(c) under or pursuant to any employment,shareholders or other agreement relating to Eagleor LFA."

Defendant Soldinger moved for summary judgment in theinstant litigation, arguing that plaintiffs' unqualified releaseof Burton in the prior suit, with respect to the same loss thatis the subject of the present litigation, also released him. Defendant asserted that this result follows from application ofthe common law rule that the release of one joint tortfeasorreleases all others. Porter v. Ford Motor Co., 96 Ill. 2d 190,195, 449 N.E.2d 827 (1983). According to defendant, although theAct changed this common law rule by making the release of onejoint tortfeasor ineffective against any other unless its termsprovide otherwise (740 ILCS 100/2 (West 1996)), the Act does notapply to claims for breach of fiduciary duty (People ex rel.Hartigan v. Community Hospital, 189 Ill. App. 3d 206, 213, 545N.E.2d 226 (1989)) and does not govern the release executed byplaintiffs' and Burton. Thus, defendant reasoned that the commonlaw rule must be applied. Under this rule, the defendant argued,the release of a fiduciary duty claim against one person alsoreleases such claims against others, at least where there is oneindivisible injury. See McCormick v. McCormick, 180 Ill. App. 3d184, 536 N.E.2d 419 (1988).

Plaintiffs argued that the common law rule, which providesthat the unqualified release of one joint tortfeasor releases allothers, was abolished with adoption of the Act. To the extentthe common law rule has survived, plaintiffs maintained that itis not applicable here because a breach of fiduciary duty is nota tort, and because there is not a single indivisible injury. Plaintiffs urged application of a "modern approach", permittingthe release only of those persons specifically identified in therelease. See Alsup v. Firestone Tire & Rubber Co., 101 Ill. 2d196, 461 N.E.2d 361 (1984).

The circuit court denied defendant's motion for summaryjudgment as to plaintiffs' claim for breach of fiduciary duty. The court ruled that such a breach is not a tort for purposes ofthe Act, and that the release of Burton did not act as a releaseof defendant. The circuit court also denied defendant's motionfor reconsideration, but certified the following question forreview (155 Ill. 2d R. 308):

"When plaintiffs have released one of twopersons who caused an injury to the plaintiffswithout any reservation of rights against thesecond person who also caused injury to theplaintiffs, does the unqualified release of thefirst person preclude a claim against the secondperson for an alleged breach of fiduciary dutybecause, inter alia, breach of fiduciary duty isnot a 'tort' under the *** Act *** and, therefore,an unqualified release of one potentially liableperson constitutes a release of the second suchperson under Section 2(c) of the *** Act and thecommon law."

At common law, the unconditional release of one of two ormore joint tortfeasors released the other tortfeasors, eventhough the latter were not a party to the release or specificallyidentified in the release, unless a contrary intent appeared fromthe face of the instrument. Porter, 96 Ill. 2d at 195;McCormick, 180 Ill. App. 3d at 204; Schrempf v. New EnglandMutual Life Insurance Co., 103 Ill. App. 3d 408, 412, 431 N.E.2d402 (1982); Tidwell v. Smith, 27 Ill. App. 2d 63, 72, 169 N.E.2d157 (1960). The law presumed that where a general release,without restriction or reservation, was given by the injuredparty to one of several joint wrongdoers, it was given in fullsatisfaction for the injury. Manthei v. Heimerdinger, 332 Ill.App. 335, 347-48, 75 N.E.2d 132 (1947).

The common law rule applied not only to those who weretechnically joint tortfeasors, but to wrongdoers whose conductproduced the same single injury. Tidwell, 47 Ill. App. 2d at 72;Chapin v. C. & E.I.R.R. Co., 18 Ill. App. 47, 50 (1885). Therule was also applied outside of the tort area to co-obligors ona contract. Clark v. Mallory, 185 Ill. 227, 56 N.E. 1099 (1900); Parmelee v. Lawrence, 44 Ill. 405 (1867).

The common law rule was intended to prevent multiplerecoveries for a single claim. Diamond Headache Clinic, Ltd. v.Loeber Motors, Inc., 172 Ill. App. 3d 364, 369, 526 N.E.2d 599(1988). As this court explained:

"'It is an ancient doctrine that a release toone joint trespasser, or a satisfaction from him,discharges the whole. The same doctrine appliesto all joint torts, and to torts for which theinjured party has an election to sue one or moreparties severally. . . . If it were not so, aparty having a claim against several persons onaccount of a single tort might sue one and settlethe suit, receiving damages; he might then sueanother and settle in the same way, and repeat theproceeding as to all but one, and then sue him andrecover the whole damage, as if nothing had beenpaid by the others. A door would thus be openedto a class of speculations that do not deserveencouragement. The rule of law which makes onesatisfaction or release a bar to further claimsfor the same tort is founded in good reason.'" Manthei, 332 Ill. App. at 350, quoting Brown v.City of Cambridge, 3 Allen 474 (Mass. 1862).

Notwithstanding the "good reason" underlying the common lawrule, its application frequently caused the unintended dischargeof joint tortfeasors. Alsup, 101 Ill. 2d at 201. A purpose ofthe Act was to change this harsh result. Alsup, 101 Ill. 2d at201. Thus, section 2(c) of the Act provides:

"When a release or covenant not to sue or notto enforce judgment is given in good faith to oneor more persons liable in tort arising out of thesame injury or the same wrongful death, it doesnot discharge any of the other tortfeasors fromliability for the injury or wrongful death unlessits terms so provide but it reduces the recoveryon any claim against the others to the extent ofany amount stated in the release or the covenant,or in the amount of the consideration actuallypaid for it, whichever is greater." (Emphasisadded.) 740 ILCS 100/2 (West 1996).

Plaintiffs do not claim that the provisions of section 2(c)of the Act apply where, as here, liability is predicated upon abreach of fiduciary duty. Clearly, the Act does not apply. American Environmental, Inc. v. 3-J Co., 222 Ill. App. 3d 242,247, 583 N.E.2d 649 (1991); Giordano v. Morgan, 197 Ill. App. 3d543, 549, 554 N.E.2d 810 (1990); Hartigan, 189 Ill. App. 3d at213. Rather, plaintiffs argue that the Act completelyeviscerated the common law rule and that the modern approach isto permit the release only of those parties identified in therelease. We disagree.

Statutes which are in derogation of the common law will bestrictly construed and nothing will be read into such statutes byintendment or implication. Even if a statute is remedial innature, if it is in derogation of the common law, it will bestrictly construed when determining which persons come within itscoverage. Thus, the meaning of a statute and the extent to whichit changes the common law will not be extended beyond that whichthe language of the statute absolutely requires by its expressterms or by necessary implication. In re W.W., 97 Ill. 2d 53,57, 454 N.E.2d 207 (1983); Malfeo v. Larson, 208 Ill. App. 3d418, 424, 567 N.E.2d 364 (1990).

By its own terms, section 2(c) of the Act governs releasesgiven to "persons liable in tort" for the same injury. Consistent therewith, our supreme court has stated that the Actwas intended to abolish the rule that produced an involuntarydischarge of "joint tortfeasors". Alsup, 101 Ill. 2d at 201. Significantly, at the time the Act was adopted, the common lawrule had been applied outside of the tort area to co-obligors ona contract. See Clark, 185 Ill. 227; Parmelee, 44 Ill. 405. The Act, however, does not direct itself to co-obligors, topersons liable in contract, or to wrongdoers liable on any theoryother than tort. Accordingly, based on the rule of strictconstruction, we find that the Act has abolished the common lawrule only as to certain tortfeasors and that the rule otherwisesurvives.⁽¹⁾

Plaintiffs maintain that even if the common law rule hassurvived in some limited fashion, it does not apply in breach offiduciary duty cases, which are governed by the substantive lawsof agency, contract, and equity. Kinzer v. City of Chicago, 128Ill. 2d 437, 445, 539 N.E.2d 1216 (1989). Citing McCormick,defendant asserts that the common law rule does apply in cases ofbreach of fiduciary duty.

In McCormick, the common law rule was applied to release abreach of fiduciary duty claim against a co-trustee notidentified by name in the release of the other co-trustee. Because the liability of co-trustees is joint and several, thecourt applied the same legal principals that governed theliability of joint tortfeasors at common law, i.e., the releaseof one joint tortfeasor is the release of all, even though theothers were not specifically named in the release. McCormick,180 Ill. App. 3d at 184. This principal, the court explained,"applied to those currently liable for a single indivisibleinjury as well as those that were technically joint tortfeasors." McCormick, 180 Ill. App. 3d at 184.

Unlike the co-trustees in McCormick, defendant and Burtonshared no common fiduciary relationship with plaintiffs akin tothe fiduciary relationship shared by co-trustees. Whereasdefendant owed plaintiffs a fiduciary duty as their corporateaccountant, Burton owed plaintiffs a fiduciary duty as a fellowofficer and director.

Although McCormick does not address the particular situationpresent here, it is instructive in that it removes any doubt asto whether a breach of fiduciary duty case is necessarily outsidethe scope of the common law rule. It is not. This conclusion isbuttressed by the fact that breach of fiduciary duty cases aregoverned, in part, by the substantive law of contracts (Kinzer,128 Ill. 2d at 445) and, as noted earlier, the common law rulehas been applied in certain contract actions. See Clark, 185Ill. 227; Parmelee, 44 Ill. 405.

In addition, McCormick reaffirms the oft-cited principalthat the common law rule applies not only to those who aretechnically joint tortfeasors, but to those liable for a "singleindivisible injury". McCormick, 180 Ill. App. 3d at 184. Seealso Cram v. Showalter, 140 Ill. App. 3d 1068, 1072, 489 N.E.2d892 (1986) ("Just as a release of one joint tortfeasor releasesall joint tortfeasors, those concurrently liable for a singleindivisible injury are similarly released."); Schrempf, 103 Ill.App. 3d at 412 ("critical question then is whether the injury issingle and indivisible, and not whether the tortfeasors acted inconcert"); Alberstett v. Country Mutual Insurance Co., 79 Ill.App. 3d 407, 410, 398 N.E.2d 611 (1979) ("rule applies to thoseconcurrently liable for a single indivisible injury, not merelyto those who are technically joint tortfeasors"); Chapin, 18 Ill.App. at 50 ("It is enough if they were both liable for the sameinjury.").

While plaintiffs do not dispute that the common law rule, tothe extent it has survived adoption of the Act, is applicablewhere there is but a single injury, they maintain that such isnot the case here. Plaintiffs argue that defendant's allegedwrongdoing is merely "related" to wrongs allegedly committed byBurton, but that they did not involve the same single injury. Onthe one hand, Burton drew excess salary and advances in breach ofhis fiduciary duty as an officer and director of thecorporations. On the other hand, defendant failed to informplaintiffs of these transactions in breach of his fiduciary dutyas plaintiffs' corporate accountant.

Certainly it is possible, if not expected, that the breachof two different fiduciary obligations will inflict separate anddistinct injuries and losses. Here, however, the only lossalleged by plaintiffs is the excess salary and advances obtainedby Burton. Plaintiffs alleged no different or additional losssuffered as a result of defendant's conduct. Nor did plaintiffsallege that defendant retained any portion of the excess salaryand advances, or that defendant otherwise profited at theirexpense. Rather, the allegations make clear that plaintiffs seekto recover in this case the very same monies they sought torecover against Burton in the earlier litigation.

Based on plaintiffs' allegations, we conclude that the lossin this case is identical and inseparable from the loss in theearlier suit, which was settled. Accordingly, the common lawrule applies, and the unqualified release of plaintiffs' claimsagainst Burton also released defendant. See Buchbinder v.Register, 634 F.2d 327 (6th Cir. 1980) (under common law rule,release of fiduciary also operated to release claim againstaccountant whose gross negligence allegedly permitted fiduciaryto invade the corpus of the trust).

Plaintiffs argue that the intention of the parties to therelease controls and only those persons specifically identifiedtherein should be released. This argument was rejected by oursupreme court in Porter, and again by this court in McCormick. As we explained:

"Although the intention of the parties controlsthe scope and extent of the Release (Schrempf v.New England Mutual Life Insurance Co. (1982), 103Ill. App. 3d 408, 431 N.E.2d 402), the intentexamined is whether it is intended as absolute andunconditional, not whether it is intended torelease all joint tortfeasors. (Porter v. FordMotor Co. (1983), 96 Ill. 2d 190, 449 N.E.2d 827.)Accordingly, [plaintiff's] argument as to hisintent to limit the release to [one trustee] isirrelevant." McCormick, 180 Ill. App. 3d at 184.

The relevant events in Porter and McCormick preceded theeffective date of the Act, and those courts did not, therefore,need to consider what effect, if any, the provisions of the Actwould have had on their rulings. Porter, 96 Ill. 2d at 196. However, because we have already determined that the Act did notcompletely eviscerate the common law rule, we see no reason todepart from the principals set forth by our supreme court inPorter, and applied by this court in McCormick.

The language of the release executed by plaintiffs isunconditional and absolute as to Burton, and plaintiffs do notcontend otherwise. The release contains no reservation of rightswith respect to claims against defendant in particular, oragainst third parties in general. Accordingly, the release mustbe construed as a release of all wrongdoers liable for the singleloss sustained by plaintiffs, whether or not plaintiffs wereignorant that this would be its legal effect. See Porter, 96Ill. 2d at 194-95.

A review of Alsup and Diamond Headache Clinic, whichplaintiffs contend embody the modern approach, does not persuadeus otherwise. In Alsup, our supreme court considered whethersection 2(c) of the Act requires a release to name orspecifically identify another tortfeasor in order to dischargethat tortfeasor from liability. The court held that tortfeasors,other than the one or ones who bargained for the release, willnot be discharged unless they are specifically identified in therelease. The court did not consider the issue we address--whether, following adoption of the Act, the common law rule isapplicable in a breach of fiduciary duty case.

In Diamond Headache Clinic, plaintiff sued Mercedes-Benz andLoeber Motors for breaches of the warranties of merchantabilityand fitness for a particular purpose in connection withplaintiff's purchase of a defective automobile. Plaintifffurther sued Loeber Motors for negligent repair. The trial courtruled that plaintiff's release of all claims against Mercedes-Benz also released plaintiff's claims against Loeber Motors. Onappeal, the trial court's grant of summary judgment in favor ofLoeber Motors was reversed.

The court examined the propriety of the circuit court'sorder focusing first on the intent of the plaintiff, which itfound was in dispute. However, the court also considered theeffect of the release under the "well established" law that "afull and unconditional release of one of several co-obligors on ajoint obligation also discharges the other co-obligor." DiamondHeadache Clinic, 172 Ill. App. 3d at 369. The court found thatthe plaintiff alleged separate and different injuries resultingfrom the independent acts of defendants and presumably,therefore, the common law rule was not applicable in thiscircumstance. We do not view Diamond Headache Clinic as adeparture from the rule of law set forth in Porter.

For the foregoing reasons, we answer the certified questionin the affirmative. We thus reverse the order of the circuitcourt denying defendant's motion for summary judgment as to countI of plaintiffs' first amended complaint and grant summaryjudgment to defendant.

Certified question answered; order reversed in part.

1. ¹Not all tortfeasors come within the purview of the Act. See Gerill Corp., 128 Ill. 2d at 206 (intentional tortfeasors notentitled to contribution under the Act). Thus, the common lawrule may survive as to certain torts. This issue, however, isnot before the court.