The First District affirms sanctions against a judgment debtor raising frivolous defenses

On October 27, 2017, the Illinois Appellate Court for the First Judicial District (the “First District”), affirmed in part a circuit court’s grant of sanctions against a judgment debtor, an affiliated LLC and their attorney, for attempting to hide assets from a judgment creditor. See Williams Montgomery & John Limited v. Bret Broaddus, 2017 IL App (1st) 161063 (Oct. 27, 2017). While the First District affirmed the circuit court’s imposition of sanctions in favor of the judgment creditor, it vacated the amount of attorney’s fees awarded by the circuit court, and remanded the matter for an evidentiary hearing on the judgment creditor’s fee petition, while dismissing other aspects of the appeal. Id.

Facts and Procedural Background

The motion for sanctions stemmed from a lawsuit involving a partnership dispute in the Northern District of Illinois, in which the defendant, Bret Broaddus (“Broaddus”), sued a third-party, Kevin Shields (“Shields”), alleging that Shields had breached his fiduciary duty in the sale of Broaddus’ ownership interest in an entity called Will Partners, LLC (“Shields” or the “Shields Litigation”). Broaddus v. Shields, No. 08 C 4220, 2010 WL 3516110, at *7 (N.D. Ill. Sept. 1, 2010), aff’d, 665 F.3d 846 (7th Cir. 2011).

The federal district court rejected Broaddus’ claim, granted Shields’ motions for summary judgment as to Broaddus’ claim and Shields’ counterclaims for indemnification, and entered a judgment against Broaddus for $798,619.16.

Following the district court’s ruling on the motions for summary judgment, but before the court entered an order of judgment, Broaddus created the BRN Revocable Trust (“BRN”), from which Broaddus retained all income and had sole discretion over the distribution of assets. Additionally, Broaddus could revoke the trust at any time. Soon after creating BRN, Broaddus formed a new entity, Stanley, LLC (“Stanley”), in which BRN held a 99% interest and Broaddus’ daughter held the remaining 1% interest.

When Shields attempted to collect his judgment against assets held by and for the benefit of Broaddus, Broaddus responded that those assets were unavailable to satisfy his judgment debt to Shields. The district court rejected that argument, holding that Broaddus’ transfer of assets to BRN and then to Stanley shortly before the court entered judgment was a fraudulent transfer under Section 5 of the Illinois Uniform Fraudulent Transfer Act (“UFTA”). 740 ILCS 160/5 (2010). In relevant part, Section 5 of the Illinois UFTA states that a transfer is fraudulent if the transfer is made with the “actual intent to hinder, delay, or defraud any creditor of the debtor” or if the debtor transfers property “without receiving a reasonably equivalent value in exchange,” and the debtor knows or should know that he or she will incur a debt which is beyond the debtor’s ability to pay. 740 ILCS 160/5 (a). The district court held that Broaddus’ transfer of substantial assets to a trust over which he had full control and access, when he knew that the court would soon impose a monetary judgment against him, was a fraudulent transfer under the Illinois UFTA.

Subsequently, Williams Montgomery and John Ltd. (“WMJ”) filed a complaint against Broaddus in the instant case in the Circuit Court of Cook County seeking to recover unpaid legal fees amounting to $129,538.39. It is unclear from the opinion whether WMJ’s action was related to the Shields Litigation. WMJ issued a citation to discover assets to Bradley Associates, LLC (“Bradley”), a real estate investment company that held assets belonging to Broaddus, and subsequently filed a motion to require turnover of assets directed at Bradley. Bradley confirmed that the assets it held belonged to Broaddus, while Stanley and Broaddus claimed that the assets held by Bradley belonged to Stanley and were therefore outside the reach of WMJ. Bradley further claimed that it was prohibited from transferring assets to Stanley as requested by Broaddus because the request came after the federal district court’s grant of summary judgment in the Shields Litigation. Bradley was willing to turnover assets to WMJ if required by the court. Stanley and Broaddus objected to Bradley turning over any assets, arguing, among other things, that even if Broaddus’ transfer of assets had been fraudulent as pertained to Shields, the transfer was not fraudulent in relation to WMJ’s claims. WMJ argued that Broaddus’ transfers had already been deemed fraudulent in the Shields Litigation and any additional determination was unnecessary as Broaddus’ arguments were barred by collateral estoppel.

WMJ also filed a motion seeking sanctions against Stanley and the attorney representing Stanley and Broaddus pursuant to Illinois Supreme Court Rule 137 on the grounds that Stanley’s arguments that Broaddus’ transfer of assets was not fraudulent, were frivolous given the court’s findings in Shields. Similarly, Bradley moved for sanctions against Stanley and Broaddus on the same grounds. The circuit court first granted WMJ’s petition for turnover of the assets held by Bradley, and then later granted WMJ’s motion for sanctions and its petition for attorney’s fees. The circuit court awarded WMJ fees against Broaddus, Stanley and their attorney in the amount of $74,578. The circuit court also granted Bradley’s motion for sanctions, but did not enter an award of any specific amount of money to Bradley.

Broaddus, Stanley and the attorney appealed the circuit court’s orders granting:

(1) WMJ’s motion for turnover regarding certain assets that Bradley held for Broaddus’ benefit,

(2) WMJ’s motion for sanctions, and

(3) Bradley’s motion for sanctions.

Broaddus, 2017 IL App (1st) 161063, ¶ 31.

Appellate Decision

The First District affirmed the circuit court’s grant of WMJ’s motion for sanctions, but vacated the circuit court’s award of attorney’s fees in favor of WMJ and remanded with instructions for the court to hold an evidentiary hearing to determine the appropriateness of WMJ’s fee petition. It dismissed the appeal of the order granting WMJ’s motion for turnover as untimely. It also dismissed the appeal of the order granting Bradley’s motion for sanctions because it was not a final, appealable order.

In so ruling, the First District noted that a party may only appeal a case once “the trial court has resolved all claims against all parties.” Id. at ¶33 (internal citations omitted). However, the court noted that Illinois Supreme Court Rule 304 (a) allows an appeal where the trial court has made a final judgment as to one or more, but less than all parties in a case. Id. Under Rule 304, Stanley and Broaddus could have appealed the order granting turnover to WMJ, but the appeal was not filed until more than two years after the circuit court’s order granting turnover and thus was dismissed as untimely.

The appellate court held that the circuit court’s order granting Bradley’s motion for sanctions was not a final, appealable order and dismissed the appeal on the grounds that no specific monetary amount had been entered in Bradley’s favor and, therefore, there was no judgment upon which it could collect.

The court held that the order granting sanctions to WMJ, on the other hand, became final and appealable once the circuit court awarded WMJ a fixed amount in attorney’s fees and costs. The court concluded that there was sufficient evidence for the circuit court to impose sanctions against Broaddus, Stanley, and their attorney under Rule 137. The court ruled that the circuit court’s imposition of sanctions was proper based on ample evidence that Broaddus’ and Stanley’s filings were objectively frivolous and brought for the sole purpose of delaying the proceedings. Neither Broaddus nor Stanley made any genuine attempt to seek evidence necessary to substantiate their claims. Additionally, the court found that Broaddus, Stanley, and their attorney had made numerous factual misrepresentations to the court that were “demonstrably false” and had not made any attempts to resolve these misrepresentations. Based on these facts, the court concluded that Broaddus’ and Stanley’s petitions were not well-grounded in fact and thus sanctions were appropriate. Broaddus, 2017 IL App (1st) 161063, ¶ 45-47.

However, the court held that the circuit court erred in refusing Broaddus, Stanley, and their attorney’s request for an evidentiary hearing on WMJ’s fee petition to determine the appropriate amount of the sanctions. It pointed out that, under Illinois law, the party seeking an award of attorney fees has the burden to present sufficient evidence to enable a trial court to determine the reasonableness of the request. Notably, the court held that:

Simply presenting the bills issued to the client or listing work hours multiplied by an hourly rate will not justify a fee award. Instead, the fee petition must specify the services performed, as well as the attorney who performed the services, the time expended, and the hourly rate charged. An evidentiary hearing is not always necessary in order to determine reasonable attorney fees if the trier of fact can determine a reasonable amount from the evidence presented, “including a detailed breakdown to fees and expenses,” and the party opposing the award is not denied an opportunity to present evidence.

Broaddus, 2017 IL App (1st) 161063, ¶ 49 (internal citations and parentheticals omitted) (emphasis in original).

Here, the appellate court reasoned that WMJ’s petition for fees was an inadequate basis for the circuit court’s award of attorney’s fees because some of the entries were vague, including language such as “Attention to status and strategy” and “Attend to status of turnover,” and many of the entries referred to worked performed outside of the circuit court’s presence. Thus, the court remanded with instructions for the trial court to hold an evidentiary hearing as to the appropriateness of WMJ’s request for fees.

Conclusion

The Broaddus opinion shows that Illinois courts are willing to grant sanctions against parties who repeatedly raise the same non-meritorious claims and/or defenses and make misrepresentations in court filings. Additionally, the opinion underscores the importance of counsel being detailed and specific in their billing entry practices and ever so vigilant in preparing evidentiary materials to support a fee petition. 