Illinois Appellate Court Agrees With Trial Court in Dismissing Breach of Fiduciary Duty Claim for Missing Facts; Caplice, et al. v. Stahl Cowen Crowley, LLC, et al.

The Illinois Appellate Court affirmed the ruling of the trial judge dismissing a breach of fiduciary duty claim regarding a troubled condominium development. The west-side Chicago development was managed by Two South Leavitt, LLC, whose duties were directed by an individual, John R. Joyce. Mr. Joyce was an attorney employed by the defendant Stahl Cowen Crowley Addis, LLC. Mr. Joyce later moved on to two other law firms.

Before the start of the construction of the condominium development, Two South Leavitt and Joyce, with another business partner, were looking for investors. The solicitation they offered guaranteed a 12 percent annual return. Several investors contributed a total of $757,000 to Leavitt. On top of that, bank financing was secured.

Joyce was acting as legal counsel for Leavitt and negotiated a construction contract with a construction firm. Joyce, also acting as Leavitt’s manager, approved the construction contract. Construction began in 2004, but delays in costs overruns caused the building to remain unfinished. A lawsuit was filed shortly thereafter.

It was alleged in the complaint that Joyce commingled Leavitt funds with other projects with which Joyce and the construction contractor were involved. It was further alleged that Joyce was responsible for mortgaging the property with a very high interest rate and then redirected the mortgage proceeds into other projects. The mortgage details were allegedly concealed from the investors.

At one point, Leavitt also sued the construction contractor. That lawsuit was dismissed on motion that charged conflict of interest. Joyce later caused the sale of the Leavitt property at a below-market price. In the meantime, Joyce’s law firm employers collected attorney fees for the legal work that Joyce did for this project.

Several investors brought a lawsuit against Joyce’s law firms. The law firms moved to dismiss the counts, which alleged breach of fiduciary duty and professional negligence.

All but one of the counts against the law firms was dismissed. The investors appealed the one ruling.

The complaints alleged that Stahl Cowen and another law firm allowed Leavitt to become encumbered with debt in violation of their operating agreements and for purposes other than the advancement of Leavitt’s actual business. The complaints, however, failed to specify the debts or encumbrances that were actually improper. The one exception was the mortgage, which survived a motion to dismiss.

Because the complaint brought by the investors was lacking in alleging facts of conflict of interest that actually damaged them, the motions to dismiss were proper and the court’s decision on that was affirmed. It was argued that the facts that were necessary to make out a cause of action here were missing, but were in the minds of the defendants and were in their records. All that would have been made available by discovery. The court pointed out that, although the plaintiffs did plead that they learned of the misconduct of Joyce, they failed to plead any specifics about that misconduct. Without specific information of this nature, the complaints were too vague and conclusory for the defendants to be able to formulate their response. Therefore, the appellate court found that the standard for dismissal under Illinois Code of Civil Procedure, Rule 2-615, were met.

Michael Caplice, et al. v. Stahl Cowen Crowley, LLC, et al., No. 2012 IL App. (1st 110963-U).

Kreisman Law Offices has been handling commercial litigation matters for more than 36 years in and around Chicago, Cook County and its surrounding areas, including Chicago (Lincoln Park), Hinsdale, Oak Park, Oak Lawn, Oakbrook, Park Forest, Palos Park and Wheeling, Illinois.

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