Shapo v. Tires 'N Tracks, Inc.

Case Date: 12/18/2002
Court: 1st District Appellate
Docket No: 1-01-4249 Rel

THIRD DIVISION

December 18, 2002





No. 1-01-4249

 

NATHANIEL S. SHAPO, ) Appeal from the
) Circuit Court of
                      Plaintiff-Appellee,  ) Cook County.
)
        v. )
)
TIRES 'N TRACKS, INC., ) Honorable
) John G. Laurie,
                      Defendant-Appellant, ) Judge Presiding.
 

PRESIDING JUSTICE SOUTH delivered the opinion of the court:

The underlying lawsuit arises out of a self-insured workers' compensation fund, Back ofthe Yards Neighborhood Council Risk Management Association, Inc. (BYRMA), which becameinsolvent. The Director of Insurance of the State of Illinois was affirmed by the circuit court asstatutory liquidator. Defendant, Tires 'N Tracks, became a part of the self-insured poolbeginning in 1997. Plaintiff, Nathaniel Shapo, the Director of Insurance of the State of Illinois,acting solely in his capacity as statutory and court-affirmed liquidator of BYRMA, assessed allmembers of the pool, including defendant, additional premiums necessary to pay the outstandingworkers' compensation claims. Defendant failed to pay the additional premium, and plaintiffsubsequently filed suit against it.

Defendant retained the law firm of Lord, Bissell & Brook to represent it in the underlyinglitigation. During the course of the litigation, the parties engaged in ongoing settlementnegotiations. On May 24, 2001, the circuit court entered an order dismissing the underlyinglawsuit, with prejudice, pursuant to a settlement agreement signed by defendant's attorney, DavidSeghetti, retaining jurisdiction to enforce the terms of the settlement agreement.

On May 24, 2001, Aaron Cohen, vice president of Tires 'N Tracks, and son of CharlesCohen, the president of Tires 'N Tracks, made various modifications to the settlement agreementand faxed it to Kevin McJessy, an attorney at Lord, Bissell & Brook. Upon receiving the fax, anattorney at Lord, Bissell & Brook called Aaron Cohen and informed him that the settlementagreement had already been agreed to by his father.

On July 16, 2001, plaintiff filed a motion to enforce the terms of the settlement agreementafter failing to receive premiums from defendant. Defendant discharged Lord, Bissell & Brookand retained new counsel with the firm of Stern, Holstein, Zimmerman & Hanson. The trialcourt entered an order allowing defendant to retain new counsel but refused to allow the formercounsel to withdraw its appearance. The court also gave plaintiff leave to file an amendedmotion to enforce the terms of the settlement agreement.

Plaintiff filed an amended motion to enforce the terms of the settlement agreement. Thomas Zimmerman filed his appearance as attorney for defendant and its combined response toplaintiff's amended motion to enforce the terms of the settlement agreement and a motion tovacate the court order entered on May 24, 2001. In its motion to vacate, defendant argued thatthe settlement agreement was void and unenforceable because its counsel lacked authority toenter into it.

Plaintiff issued subpoenas to defendant's former counsel with Lord, Bissell & Brook,Kevin McJessy and David Seghetti. The subpoenas were served on August 14, 2001, with theamount paid for witness and mileage fees.

Defendant filed a motion to quash the subpoenas. In its motion, defendant asserted thatplaintiff failed to provide copies of the subpoenas to defense counsel; that the subpoenas failed tocomply with Illinois Supreme Court Rule 237 (166 Ill. 2d R. 237); and that the testimony anddocuments sought in the subpoenas were work product and violated defendant's attorney-clientprivilege.

Alternatively, defendant moved to conduct discovery concerning the testimony anddocuments to be expected from McJessy and Seghetti, its former counsel, and to restrict thescope of the information and documents sought in the subpoenas on the basis of the work-product doctrine and attorney-client privilege.

The trial court denied defendant's motion to quash the subpoenas and to conductdiscovery and ruled that the attorney-client privilege had been waived. The court further orderedthat it would limit the testimony of the subpoenaed attorneys as narrowly as possible to thespecific issue with respect to the attorneys' authorization, or lack thereof, to settle the case. Thecourt then permitted defendant's former attorneys to testify at the hearing.

McJessy testified that in the underlying case the parties exchanged settlement agreementswhich contained various terms and general releases. The plaintiff in the underlying case refusedto agree to release certain claims that it had as a matter of statutory right under Illinois law. Theparties continued to negotiate until the arbitration date neared. According to McJessy, on orabout May 22, 2001, defendant eventually agreed to the provision during a telephoneconversation, which included him, Seghetti and Aaron and Charles Cohen. Based upon thatconversation wherein the Cohens agreed to the terms of the settlement, a formal agreement wasdrafted incorporating the terms of that agreement, and a copy was sent to the defendant forsignature.

McJessy further testified that he waited for the Cohens to return the signed agreement tohim, but he never received it. McJessy's notes of the telephone conversation wherein the Cohensagreed to the terms of the settlement were submitted as an exhibit. When the case came up forhearing on May 24, McJessy still had not received a signed copy of the agreement, so Seghettisigned on behalf of the client, defendant, and the case was dismissed. He received a fax fromAaron Cohen either later on the afternoon on May 24 or the next day. After receiving that fax,he spoke with Seghetti about it and asked him to call the Cohens. On or about May 30, heforwarded a copy of the agreement to Tire's 'N Tracks for its signature so that it would have oneon file.

Seghetti testified that he had several telephone conversations with Charles Cohenconcerning the contents of the settlement agreement, specifically the issue of the waiver ofplaintiff's statutory rights. He informed Charles Cohen that either they would settle the case orproceed to arbitration. Seghetti testified that Cohen stated to him that the language in theproposed agreement was acceptable and to proceed with settlement.

Seghetti clarified that the telephone conversation between the lawyers and the Cohens which McJessy referred to in his earlier testimony occurred prior to his conversation with CharlesCohen. When McJessy informed him of the fax from Aaron Cohen, he called Aaron Cohen andinformed him that the language he struck on the faxed copy of the settlement had already beenagreed to by his father. Seghetti testified that Aaron Cohen told him that he would speak with hisfather and get back to him, but he never did. He never spoke with either Aaron or CharlesCohen again.

Charles Cohen testified that he never gave authority to either Seghetti or McJessy to enterinto the settlement agreement.

Aaron Cohen testified that he never gave Seghetti or McJessy authorization to enter into asettlement agreement with plaintiff even though he had the authority to participate in and makesettlement decisions on behalf of defendant.

At the close of the subpoenaed testimony, the trial court denied defendant's motion tovacate and granted plaintiff's motion to enforce the settlement agreement.

Defendant filed a motion to vacate the judgment entered on August 20, 2001, and for arehearing, which the trial court denied.

The issues raised for our consideration are: (1) whether the trial court abused itsdiscretion in denying defendant's motion to quash the subpoenas issued to its former counsel; (2)whether the circuit court abused its discretion by denying defendant's motion to conductdiscovery of plaintiff's witnesses and their expected testimony, and to restrict the scope ofinformation and documents sought in the subpoenas; and (3) whether the trial court erred when itdenied defendant's motion to vacate the order entered on May 24, 2001, dismissing the casepursuant to a settlement agreement; by granting plaintiff's motion to enforce the terms of thesettlement agreement, and entering judgment against defendant; and in denying defendant'smotion to vacate the judgment entered August 20, 2001, and in denying defendant's motion for arehearing.

Defendant argues that plaintiff failed to provide copies of the subpoenas to defensecounsel; that plaintiff failed to comply with Supreme Court Rule 237; and that the testimony anddocuments sought in the subpoenas were work product and violated defendant's attorney-clientprivilege.

Defendant argues that, pursuant to the Illinois Supreme Court Rules 11(b) and 104(b)(134 Ill. 2d Rs. 11(b), 104(b)), each party is required to serve all court papers on counsel for allother parties not in default and that copies of the subpoenas were never served upon defendant'sattorney of record but, instead, copies were sent to defendant's counsel as a courtesy and torequest guidance.

Plaintiff responds that defendant was provided with a copy of the subpoenas attached tothe amended motion to enforce the terms of the settlement agreement on August 15, 2001. Inaddition, on August 15, a fax was sent to defendant by McJessy regarding the subpoenas,requesting guidance, and defendant could not have been surprised because it filed a motion toquash subpoenas two days after receiving that fax.

We agree with plaintiff. The record shows that a copy of the subpoenas was filed alongwith plaintiff's reply in support of his motion to enforce the settlement agreement, which wasserved on defendant's attorney of record, Thomas Zimmerman. Defendant concedes that itreceived a copy of the subpoenas when it received the amended motion to enforce the terms ofthe settlement agreement and responded to that fax by filing a motion to quash those subpoenas. We fail to see how defendant can reasonably argue that it was never served when the factsdemonstrate otherwise. Defendant argues, however, that the subpoenas failed to comply with Supreme CourtRule 237 because they were not served on McJessy and Seghetti until six days prior to the date ofthe subpoenas and that the rules require a seven-day notice and an affidavit attesting to thewitness fee and mileage, which these subpoenas lacked.

We find no merit to these arguments. The day before the parties' oral argument, the courtreceived a supplemental record on appeal which indicated that the subpoenas were date-stampedby the clerk of the circuit court of Cook County on August 13, 2001, seven days before the dateto appear, and served upon the witnesses on August 14, 2001, six days before they were requiredto appear. Furthermore, contrary to defendant's assertions, the record supports the fact that thesubpoenas contained an attestation of witness fees and mileage. Additionally, neither McJessynor Seghetti, the subpoenaed parties, objected to being served, and they attended the hearing onAugust 20. Rule 237(a) states that "[a]ny witness shall respond to any lawful subpoena"(emphasis added) (166 Ill. 2d R. 237(a)), which they did. Therefore, defendant's argument mustfail.

Defendant next argues that its motion to quash should have been granted because thetestimony and documents sought in the subpoenas were work product and violated the attorney-client privilege.

In defining the attorney-client privilege, this court has stated that where legal advice ofany kind is sought from a professional legal advisor in his capacity as such, the communicationsrelating to that purpose, made in confidence by the client, are protected from disclosure byhimself or the legal adviser. In re Himmel, 125 Ill. 2d 531, 541, 533 N.E.2d 790 (1988). " 'Thepurpose of the attorney-client privilege is to encourage and promote full and frank consultationbetween a client and legal advisor by removing the fear of compelled disclosure of information.' " Waste Management, Inc. v. International Surplus Lines Insurance Co., 144 Ill. 2d 178, 190, 579N.E.2d 322 (1991), quoting Consolidation Coal Co. v. Bucyrus-Erie Co., 89 Ill. 2d 103, 117-18,432 N.E.2d 250 (1982); see also Upjohn Co. v. United States, 449 U.S. 383, 66 L. Ed. 2d 584,101 S. Ct. 677 (1981). Moreover, "[t]he [attorney-client] privilege recognizes that sound legaladvice or advocacy serves public ends and that such advice or advocacy depends upon thelawyer's being fully informed by the client." Upjohn, 449 U.S. at 389, 66 L. Ed. 2d at 591, 101S. Ct. at 682.

Rule 201(b)(2) sets the parameters for the scope of discovery of work-product materials. It provides, in pertinent part: "(2) *** Work Product. *** Material prepared by or for a party inpreparation for trial is subject to discovery only if it does not contain or disclose the theories,mental impressions, or litigation plans of the party's attorney." 166 Ill. 2d R. 201(b)(2).

The work-product doctrine provides a broader protection than the attorney-client privilegeand is designed to protect the right of an attorney to thoroughly prepare his case and to preclude aless diligent adversary attorney from taking undue advantage of the former's efforts. SeeHickman v. Taylor, 329 U.S. 495, 91 L. Ed. 451, 67 S. Ct. 385 (1947).

In Illinois, however, both the attorney-client privilege and the work-product privilege (see134 Ill. 2d R. 201(b)(2)) may be waived as to a communication put "at issue" by a party who is aholder of the privilege. See Waste Management, 144 Ill. 2d at 199-200. Thus, when a client sueshis attorney for malpractice, or when a lawyer sues his client for payment of fees, waiver isapplicable to earlier communications between the now-adversarial parties. In re Marriage ofBielawski, 328 Ill. App. 3d 243, 254, 764 N.E.2d 1254 (2002); see also SPSS, Inc. v.Carnahan-Walsh, 267 Ill. App. 3d 586, 592, 641 N.E.2d 984 (1994) (legal malpractice claim).

In this case, the core of the instant litigation is premised upon defendant's complaint thatits former attorneys were not authorized to settle the case on its behalf. Therefore, defendant hasplaced the conduct of its former counsel at issue, and waiver is applicable to those earliercommunications between it and its former counsel involving the settlement agreement, and thetrial court did not abuse its discretion by allowing those communications to be disclosed. In fact,the court specifically stated that it would limit the testimony of the subpoenaed attorneys "asnarrowly as we can to the specific issue regarding the circumstances surrounding the actualsettlement agreement." We find that the trial court did not abuse its discretion. Defendant next argues that the circuit court abused its discretion by denying its motion toconduct discovery of plaintiff's witnesses and their testimony and to restrict the scope of theinformation and documents sought in the subpoenas.

Supreme Court Rule 201(b)(1), which relates to pretrial discovery, allows a party toobtain by discovery full disclosure regarding any relevant matter, even where the discovery"relates to the claim or defense of the party seeking disclosure." 134 Ill. 2d R. 201(b)(1). Thescope of discovery is limited to "any matter relevant to the subject matter involved in the pendingaction." 134 Ill. 2d R. 201(b)(1). A discovery request may properly be quashed where the trialcourt has before it sufficient information upon which to decide defendant's motion to dismiss. Continental Grain Co. v. FMC Corp., 27 Ill. App. 3d 819, 327 N.E.2d 371 (1975); Evers v.Edward Hospital Ass'n, 247 Ill. App. 3d 717, 734-35, 617 N.E.2d 1211 (1993) (trial court couldlimit discovery to what it viewed as primary issue on motion to dismiss); Heerey v. Berke, 179Ill. App. 3d 927, 941-42, 534 N.E.2d 1277 (1989).

The trial court has broad discretion in ruling on discovery matters. Willing v. St. JosephHospital, 176 Ill. App. 3d 737, 744, 531 N.E.2d 824 (1988). Absent a manifest abuse of itsdiscretion, affirmatively and clearly shown, the trial court's order concerning discovery shall notbe disturbed on appeal. Willing, 176 Ill. App. 3d at 744-45, 531 N.E.2d at 829. The burden is onthe appellant to affirmatively show an abuse of discretion. Bradfield v. Illinois Central GulfR.R., 137 Ill. App. 3d 19, 24, 484 N.E.2d 365 (1985).

Illinois has been exceedingly silent, however, on whether post-trial discovery is allowed. Several cases have taken a cursory look at the issue, but have declined to reach a finaldetermination on whether a party is specifically authorized to conduct discovery after a dismissalhas been rendered in a case.

In Gatto v. Walgreen Drug Co., 61 Ill. 2d 513, 337 N.E.2d 23 (1975), cert. denied 425U.S. 936, 48 L. Ed. 2d 178, 96 S. Ct. 1669 (1976), the supreme court held sub silentio thatdiscovery may be used in a post-judgment setting. In Gatto, the third-party defendant filed amotion for discovery and for reduction of a judgment on a jury verdict. The motion for discoverywas granted on the issue of whether there was a settlement agreement between plaintiff anddefendant. The discovery process revealed the existence of a fraudulently concealed settlementagreement. The trial court, however, denied the petition to vacate, and this court affirmed. Thesupreme court reversed, finding that the third-party defendant was entitled to relief from thejudgment against it because the settlement agreement eliminated controversy between plaintiffand defendant and, thus, any third-party claim. The court referred to the fact that discovery wasallowed, revealing the document which ultimately was the key in the court's decision, but thecourt did not address the question of the appropriateness of the use of post-judgment discoveryproceedings.

Other Illinois cases have acknowledged the questions raised by post-trial discovery buthave not squarely addressed the issue.

In Hanson v. Hanson, 44 Ill. App. 3d 889, 891, 358 N.E.2d 967 (1977), the Third Districtwas faced with the issue of whether discovery should have been allowed after trial but prior to ahearing on counterdefendant's petition to vacate. Acknowledging that "[n]o cases on this pointwere cited to us and our study uncovered none," the court ruled that the material sought to bediscovered was irrelevant. Hanson, 44 Ill. App. 3d at 893.

In Darrough v. White Motor Co., 74 Ill. App. 3d 560, 393 N.E.2d 122 (1979), the FourthDistrict declined to decide the post-trial discovery issue because insufficient surprise was allegedto validate the request for a new trial based on newly discovered evidence. In Midwest Bank &Trust Co. v. Village of Lakewood, 113 Ill. App. 3d 962, 447 N.E.2d 1358 (1983), the SecondDistrict noted that post-trial discovery is an open question, but the possible inability of plaintiffsto conduct post-trial discovery after their case was dismissed constituted sufficient prejudice toreverse the dismissal order. The Second District did note, however, that although the rules aresilent regarding the authority permitting post-dismissal discovery, "neither is there authoritydenying use of discovery after dismissal." Midwest Bank & Trust Co., 113 Ill. App. 3d at 972-73. Declining to address the question, the issue of the permissibility of post-dismissal use ofdiscovery remained an "open question." Midwest Bank & Trust Co., 113 Ill. App. 3d at 973. See also Twaddle v. Litchfield, 115 Ill. App. 3d 191, 195, 450 N.E.2d 1 (1983) (the ThirdDistrict declined to address the issue of statutory authority to conduct post-trial discovery).

Illinois has addressed the issue of post-dismissal discovery in relation to relief grantedpursuant to section 2-1401 of the Illinois Code of Civil Procedure (735 ILCS 5/2-1401 (West2000).

In People v. B.R. MacKay & Sons, Inc., 141 Ill. App. 3d 137, 490 N.E.2d 74 (1986), thisdistrict held that the State had a right to conduct limited discovery proceedings in connectionwith its petition to vacate a judgment where the State made a prima facie showing that thejudgment was obtained by fraud. In MacKay, the State filed a complaint for injunctive reliefagainst defendant for alleged violations of environmental protection laws. MacKay, 141 Ill. App.3d at 138. The defendant filed a motion to dismiss for lack of personal jurisdiction asserting thatit did not conduct business in Illinois, which was supported by affidavit. MacKay, 141 Ill. App.3d at 138. The parties subsequently entered into a settlement agreement and the case wasdismissed. MacKay, 141 Ill. App. 3d at 139. The State subsequently obtained information thatthe affidavit of the defendant was false, and filed a motion to vacate the dismissal order. TheState requested discovery under section 2-1401, to have defendant produce documents related tothis issue, which was granted by the trial court. MacKay, 141 Ill. App. 3d at 139. However,defendant refused to comply, arguing that discovery was not authorized under section 2-1401,and was sanctioned by the trial court for failure to comply. Defendant subsequently appealedfrom the sanction.

Finding support in Gatto, the appellate court held that "the unusual facts present here,establishing a prima facie case for fraud, permit limited discovery in relation to the [section] 2-1401 petition." MacKay, 141 Ill. App. 3d at 140. The court ruled that under the circumstancesof that case, the trial court properly ordered respondent to comply with post-judgment discovery. McKay, 141 Ill. App. 3d at 142.

A review of cases from other jurisdictions reveals that the trial court is reluctant toexercise its discretion in allowing post-dismissal/post-judgment discovery unless there is somenewly discovered evidence compelling it to do so. In most cases, the courts have reviewed thisissue in relation to a motion for new trial. See Tazewell Oil Co. v. United Virginia Bank/CrestarBank, 243 Va. 94, 413 S.E.2d 611 (1992) (trial court did not abuse its discretion in refusingnonsettling defendant posttrial discovery of basis of plaintiff's settlements with other defendants,as nonsettling defendant was furnished with copy of settlement agreements, received answers topost-trial interrogatories filed regarding settlement negotiations, and did not indicate whatadditional evidence it expected to obtain in further discovery on issue of good faith that it couldnot have obtained in trial); Grillo v. Burke's Paint Co., 275 Or. 421, 551 P.2d 449 (1976) (whereone of two defendants knew that other defendant had advanced $5,000 to the plaintiff and wherefirst defendant had been repeatedly advised that the second defendant intended to settle withplaintiff, first defendant should have inquired, during pretrial discovery, as to whether theproposed settlement had been accomplished so that existence of Mary Carter agreement betweensecond defendant and plaintiff could, with due diligence, have been discovered before trial andits posttrial discovery did not entitle first defendant to a new trial on the basis of newlydiscovered evidence); Howard v. Howard, No. L-83-257 (6th Dist. Ohio App.) (1984) (the recorddisclosed that appellant sought to obtain evidence, by means of posttrial discovery, which couldhave been, and in some cases was, obtained at the time of the trial); Ryan v. United States LinesCo., 303 F.2d 430 (2d Cir. 1962) (worker denied new trial to seek greater damages whenexamination ten months after trial revealed increased disability); Prostrollo v. University ofSouth Dakota, 63 F.R.D. 9 (D.S.D. 1974) (in an action by university students to challengeregulation requiring freshman and sophomore students to live on campus, court of appeals heldthat evidence indicating that on campus students performed better academically than off campusstudents did not constitute "newly discovered evidence" that would warrant relieving universityfrom final judgment against it where the same statistics were available for prior semesters andcould have been compiled and introduced after the time of trial); Anthony v. Earnest, 443 So. 2d1256 (Ala. Civ. App. 1983) (after award of damages for defendant's failure to provide watersupply to property, it was error to vacate judgment on grounds that after trial the water authorityhad completed a line to plaintiff's property); Patrick v. Sedwick, 413 P.2d 169 (Alaska 1966)(post-trial discovery of new technique to treat plaintiff's condition was not allowed on motion fora new trial); Wagner v. Loup River Public Power District, 150 Neb. 7, 12, 33 N.W.2d 300,303-04 (1948) (supreme court of Nebraska held that where plaintiff sought damages to riparianland on theory that diversion of water from river destroyed benefits previously received by sub-irrigation but defendants testified that condition showed improving water levels in plaintiff's landwhich would continue with good rainfalls; evidence that more than one year after trial no suchimprovement had come about was not "newly discovered evidence" authorizing a new trial); Inre Disconnection of Certain Territory from Highland City, 668 P.2d 544 (Utah 1983) (supremecourt of Utah held that trial court did not abuse its discretion in refusing to grant new trial orreopen and amend its judgment on basis of "newly discovered evidence" that city had annexedproperty adjacent to land disconnected from city subsequent to the entry of decision ofdisconnection).

In all of the foregoing cases, the courts did not allow discovery in cases where theevidence could have been discovered prior to judgment or dismissal. Although these cases areanalyzed under the auspices of whether a new trial should have been granted, they are inagreement that post-trial discovery should only be allowed in limited circumstances. Inaccordance with the Illinois Supreme Court's reasoning in Gatto and the Illinois Appellate Court'sreasoning in MacKay, discovery in Illinois post-dismissal has not been specifically denied.

Furthermore, the prevailing standard with regards to pre-trial and post-trial discoveryrequests both in Illinois and other jurisdictions is that the trial court has the discretionary powerto grant or deny such requests. See Willing, 176 Ill. App. 3d at 744, 531 N.E.2d at 829 (the trialcourt has broad discretion in ruling on discovery matters).

Based upon the foregoing, we find that limited post-dismissal/post-trial discovery isallowed, within the trial court's sound discretion. However, we cannot say that the trial courtabused its discretion in denying defendant's post-dismissal discovery request in the case at bar.

The discovery defendant wished to conduct essentially had already been conducted duringthe hearing on plaintiff's discovery subpoenas. In its motion to quash, defendant alternativelyrequested discovery depositions from McJessy and Seghetti. At the hearing, defendant had theopportunity to cross-examine both of these attorneys and review all of their supportingdocumentation. Additionally, although Aaron Cohen was aware that the settlement agreementhad been signed by Seghetti that same day or shortly thereafter, defendant did not attempt tovacate the judgment until 2