Opinion ID: 2709519
Heading Depth: 2
Heading Rank: 2

Heading: Breach of Fiduciary Duty Claim Against Kotter

Text: We next address the district court’s grant of summary judgment in favor of Kotter. In doing so, we again note 26 No. 12-1969 that we are not prohibited under the Illinois Dead Man’s Act from considering Geldes’ testimony and, like the district court, will consider it when necessary. The Administrators contend Kotter breached the fiduciary duty she owed Hedstrom as his real estate agent. This is simpler than a negligence claim in that “the relevant standard of care in a negligence claim encompasses a broader range of conduct than is covered by a fiduciary duty and that a negligence claim for legal malpractice is based in tort, while a claim for breach of fiduciary duty is founded on principles of agency, contract, and equity.” Pippen v. Pederson & Houpt, 986 N.E.2d 697, 2013 IL App. (1st) 111371, at ¶28 (Ill. App. Ct. 1st Dist. Feb. 26, 2013). To succeed in a claim for breach of fiduciary duty, a plaintiff must prove the following elements: (1) a fiduciary duty exists; (2) the fiduciary duty was breached; and (3) the breach proximately caused the injury of which the plaintiff complains. Neade v. Portes, 739 N.E.2d 496, 502 (Ill. 2000). As to the first element, it is widely understood that a fiduciary relationship “may arise as a matter of law, such as between an agent and principal, or it may be moral, social, domestic, or personal.” Kurtz v. Solomon, 656 N.E.2d 184, 190 (Ill. App. Ct. 1st Dist. 1995). The parties do not dispute on appeal that Kotter was Hedstrom’s agent, as a matter of law or as a matter of fact. 5 Therefore, as it 5 The district court concluded that the undisputed facts and circumstances in this case demonstrated that Kotter owed a (continued...) No. 12-1969 27 relates to elements two and three, Kotter had a duty to treat Hedstrom with “the utmost candor, rectitude, care, loyalty, and good faith.” See Benson v. Stafford, 941 N.E.2d 386, 397 (Ill. App. Ct. 1st Dist. 2010). The overall question presented in this appeal is whether a reasonable juror could conclude that Kotter breached her fiduciary duty and that the breach proximately caused harm to Hedstrom’s estate.
The parties agree that the outcome of this case hinges on the interpretation and interplay of two “strong” presumptions arising in agency law that directly relate to the Administrators’ breach of fiduciary claim against Kotter: the presumption of undue influence and the presumption of fraud. The presumption of undue influence has been defined as “any improper . . . urgency of persuasion whereby the will of a person is overpowered and he is induced to 5 (...continued) fiduciary duty to Hedstrom because of her position as his real estate agent, as well as because of the agency relationship between Kotter and Hedstrom that “went beyond a typical real estate broker-client relationship.” See Ball, 2012 U.S. Dist. LEXIS 38739, at -33 (citing Ioerger v. Halverson Constr. Co., 902 N.E.2d 645, 648 (Ill. 2008)). Our analysis does not require us to resolve the question as to what relationship between the parties or underlying fact establishes the fiduciary duty as a matter of law. 28 No. 12-1969 do or forbear an act which he would not do or would do if left to act freely.” Franciscan Sisters Health Care Corp. v. Dean, 448 N.E.2d 872, 875 (Ill. 1983) (hereinafter Franciscan Sisters). Similarly, the presumption of fraud is generally understood to mean as follows: “[w]here the existence of a fiduciary relationship has been established, the law presumes that any transactions between the parties, by which the dominant party has profited, are fraudulent.” Jones v. Washington, 107 N.E.2d 672, 674 (Ill. 1952). Under Illinois law, the names of each presumption are used almost interchangeably, see Hofert v. Latorri, 174 N.E.2d 866, 869 (Ill. 1961) (“The defendants made no effort to rebut the presumption of fraud and undue influence that arose from the proof that a confidential relationship existed and that the dominant party had gained from the transaction.”) (emphasis added), and the principles underlying each overlap. Compare Long v. Lyon, 726 N.E.2d 187, 193 (Ill. App. Ct. 4th Dist. 2000) (explaining that the defendant “did not meet his burden of showing that he exercised good faith and did not betray the confidence reposed in him” during the transaction), with Franciscan Sisters, 448 N.E.2d at 877 (stating that attorneys who stand to gain from wills they prepared for their clients must demonstrate “they are not defrauding or unduly influencing their clients”). To the extent the Administrators contend there are two completely separate lines of authority—one for will contests and one for transactions—we disagree. Both presumptions arise from a fiduciary’s general duty to “refrain from seeking a selfish benefit during the relationship,” see Neade, 739 N.E.2d at 500 (internal quotation marks omitNo. 12-1969 29 ted), be it in a transaction, the drafting of a will, or the preparation of a trust. When applicable, these presumptions create a prima facie case as to the disputed issue; they do not shift the burden of proof in the case. Franciscan Sisters, 448 N.E.2d at 876. Rather, “the presence of a presumption in a case only has the effect of shifting to the party against whom it operates the burden of going forward and introducing evidence to meet the presumption.” Diederich v. Walters, 357 N.E.2d 1128, 1131 (Ill. 1976). But once the party on the adverse side of the presumption introduces sufficient evidence to rebut the presumption, the “bubble bursts” and the presumption vanishes. Dep’t of Cent. Mgmt. Servs. v. Ill. Labor Relations Bd., 902 N.E.2d 1122, 1134 (Ill. App. Ct. 4th Dist. 2009). The issue is then decided as if no presumption ever existed. Lipscomb v. Sisters of St. Francis Health Servs., Inc., 799 N.E.2d 293, 298 (Ill. App. Ct. 1st Dist. 2003). Illinois courts have required “clear and convincing” evidence to overcome the presumptions of fraud and undue influence. Franciscan Sisters, 448 N.E.2d at 878; see R.J. Mgmt. Co. v. SRLB Dev. Corp., 806 N.E.2d 1074, 1081 (Ill. App. Ct. 2d Dist. 2004) (explaining that the “clear and convincing” standard applies to “strong” presumptions that typically arise “where the party challenging the presumption was a fiduciary of the party receiving the favor of the presumption”). Conversely, if the party is unable to offer “clear and convincing” evidence to the contrary of the presumption, the prima facie case will support a finding as to the issues involved. See Franciscan Sisters, 448 N.E.2d at 876 (citations omitted); Diedrich, 357 N.E.2d at 1132. 30 No. 12-1969
The district court correctly concluded that the presumption of fraud applies here. (We refer to the applicable presumption as one of fraud for convenience and in accordance with the parties’ briefing.) Neither party disputes that on appeal.6 It follows that, in order to overcome the presumption, Kotter must demonstrate by clear and convincing evidence that the transactions involving the Units were fair and did not result from any undue influence. See In re Estate of Pawlinski, 942 N.E.2d 728, 736-37 (Ill. App. Ct. 1st Dist. 2011); Miller, 778 N.E.2d at 267. This is a determination the court can make as a matter of law, that is, whether the “bubble has burst” and whether the case should then be decided on factual matters. Compare Franciscan Sisters, 448 N.E.2d at 878 (“Our decision here affirms the appellate court, which held that after the presumption is rebutted as a matter of law ‘[w]hat remains is a factual question, and we remand the cause to the trial judge as trier of fact to assess the strength of the evidence.” (quoting 429 N.E.2d 914, 921 (Ill. App. Ct. 4th Dist. 1981)) (emphasis added), with Spring Valley Nursing Ctr., L.P. v. Allen, 977 6 Kotter argued in the district court that the presumption of donative intent, which arises with the creation of a joint tenancy, cancelled out the presumption of fraud as to Unit 4705. See Murgic v. Granite City Trust & Savings Bank, 202 N.E.2d 470, 472 (Ill. 1964); Miller v. Ford, 778 N.E.2d 262, 269 (Ill. App. Ct. 5th Dist. 2002). The district court properly rejected that contention, quoting In re Estate of DeJarnette, 677 N.E.2d 1024, 1029 (Ill. App. Ct. 4th Dist. 1997). No. 12-1969 31 N.E.2d 1230, 1234 (Ill. App. Ct. 3d Dist. 2012) (“A trial court’s determination as to whether a presumption of fraud has been overcome, made after an evidentiary hearing, is entitled to deference and will not be reversed on appeal unless it is against the manifest weight of the evidence.”) (emphasis added). And in making this determination, Illinois courts consider three “significant” factors, also known as the McFail factors: whether (1) the fiduciary made a full and frank disclosure of all relevant information that he had; (2) the fiduciary paid adequate consideration; and (3) the principal had competent and independent advice. E.g., McFail v. Braden, 166 N.E.2d 46, 52 (Ill. 1960); Miller, 778 N.E.2d at 267. Kotter claims that Hedstrom intended for the Units to be “gifts”; Kotter must therefore provide clear and convincing evidence supporting that intention. Simply put, she must show that the transfer of title to Kotter, as a result of the joint tenancy or through the Kotter Family Trust, “was the result of full and free deliberation on the part of [Hedstrom].” See Lemp v. Hauptmann, 525 N.E.2d 203, 206 (Ill. App. Ct. 5th Dist. 1998). If Kotter is unable to do that, she automatically loses. We thus turn our focus to whether Kotter provided sufficient evidence to rebut the presumption.
Central to our inquiry here is Kotter’s admission that she did not provide any “consideration” regarding the titling of either Unit. This includes “natural love and affection,” which courts often evaluate in the context of a deed to the 32 No. 12-1969 relatives of a grantor—though we take no position regarding the particular relationship between Kotter and Hedstrom here. Cf. Boryca v. Parry, 181 N.E.2d 124, 129 (Ill. 1962). The Administrators have steadfastly relied on Kotter’s admission because they believe the presumption of fraud arising from a transaction can never be overcome without providing adequate consideration. Conversely, Kotter claims that the consideration factor is irrelevant in this case because the Units were gifts, and it necessarily follows that a gift would not be accompanied by consideration. See Provena Covenant Med. Ctr. v. Dep’t of Revenue, 925 N.E.2d 1131, 1151 (Ill. 2010) (“It is a fundamental principle of law . . . that a gift is a voluntary, gratuitous transfer of property by one to another, and that [i]t is essential to a gift that it should be without consideration.”) (internal quotation marks and citation omitted). The Administrator’s contention has more than a scintilla of support; some cases involving the presumption of fraud have essentially been decided on the issue of consideration alone. See, e.g., Falcon v. Thomas, 629 N.E.2d 789, 794-96 (Ill. App. Ct. 4th Dist. 1994). But the Administrators have not directed us to, and we are unable to find, a single case in Illinois holding that the presumption of fraud cannot be rebutted unless adequate consideration is provided. Rather, Illinois case law evinces an intent to treat the McFail factors as just that, factors, as opposed to mandatory elements that must be satisfied. See Klaskin v. Klepak, 534 N.E.2d 971, 975 (Ill. 1989) (explaining that the McFail factors are “[s]ome of the factors which this court deems persuasive”) (emphaNo. 12-1969 33 sis added). Courts would not regularly look to all the factors if a lack of consideration was always determinative of the issue. See, e.g., Hofert, 174 N.E.2d at 869 (concluding that the presumption of fraud and undue influence was not rebutted because the defendants did not show that adequate consideration was paid or that the grantor received any independence advice re- garding the constructive trust); Long, 726 N.E.2d at 191-93 (concluding that the presumption of undue influence was not overcome because there was no evidence that (1) the defendant made a full and frank disclosure of the relevant information; (2) the defendant paid adequate consideration; or (3) the decedent had competent and independent advice. As explained in a more-recent Illinois appellate court decision, [The Illinois] supreme court has looked to several factors in determining whether the presumption of undue influence has been overcome, including whether (1) the attorney made a full and frank disclosure of all relevant information; (2) the client’s agreement was based on adequate consideration; and (3) the client had independent advice before com- pleting the transaction. In re Marriage of Pagano, 607 N.E.2d 1242, 1247 (Ill. 1992). Other Illinois decisions have considered slightly different factors, including whether (1) the agreement was offered by the lawyer with unquestionable good faith and with complete disclosure, (2) the client entered into the agreement with a full understanding of all facts and their legal 34 No. 12-1969 importance; and (3) the client’s decision was free from undue influence and was fair. Id. at 1248. Bruzas v. Richardson, 945 N.E.2d 1208, 1215 (Ill. App. Ct. 1st Dist. 2011). This explanation makes sense given that the presumption of fraud can arise in many different situations and contexts, including when a grantor gives a gift to a fiduciary. If consideration was always required to rebut the presumption of fraud, a gift—“a voluntary, gratuitous transfer of property by one to another,” Provena Covenant Med. Ctr., 925 N.E.2d at 1151—could never be made to a fiduciary. We decline to interpret Illinois law in that fashion.7 In short, Kotter faces an uphill battle in trying to rebut the presumption of fraud because adequate considera- 7 We are cognizant of the cases involving the presumption of fraud that arise from a debtor’s conveyance of property that is allegedly made to avoid paying a valid creditor. In those cases, the party can only rebut the presumption of fraud by demonstrating adequate consideration was paid or the party retained sufficient assets to pay the creditor. See, e.g., Falcon, 629 N.E.2d at 794-97; Regan v. Ivanelli, 617 N.E.2d 808, 814-15 (Ill. App. Ct. 2d Dist. 1993). Those cases are easily distinguished, however, because the presumption in those cases is based in statutory law, not Illinois common law. Cf. Tower Investors, LLC v. 111 E. Chestnut Consultants, Inc., 864 N.E.2d 927, 943 (Ill. App. Ct. 1st Dist. 2007) (“This presumption [of fraud] stems for a public policy against [fiduciaries] using their position of trust and power to take unfair advantage of clients in transactions.”). No. 12-1969 35 tion was not paid. But contrary to the crux of the Administrators’ appeal, it is not “impossible.” Kotter must simply do it by providing evidence that satisfies the other relevant factors. See, e.g., Klaskin, 534 N.E.2d at 975-979.
Having rejected the Administrators’ contention that adequate consideration was necessary to rebut the presumption of fraud here, we look to the other relevant factors: whether (1) the titling of the Units was made with unquestionable good faith and with complete disclosure, and (2) Hedstrom assented to the titling of the Units with a full understanding of all facts and their legal importance. See Bruzas, 945 N.E.2d at 1215. Kotter has satisfied those factors. The evidence establishes, first, that Hedstrom received complete and adequate disclosure of the relevant facts regarding the titling of the Units. Geldes contends that she explained to Hedstrom the legal consequences of titling the Units in the different ways. Cf. Miller, 778 N.E.2d at 267 (stating that “the lack of having a disinterested attorney question the decedent regarding his understanding of a transaction meant that the presumption was not overcome” (citing Klaskin, 534 N.E.2d at 976)). Geldes explicitly stated in her affidavit, “After listening to his options, Mr. Hedstrom told me that he wanted to take the Properties jointly with rights of survivorship because he wanted to take care of Cherie Kotter and ensure that the Properties would pass to 36 No. 12-1969 Kotter upon his death as he was leaving several other properties he owned to his children.” There is no evidence to contradict this assertion regarding Unit 4705. Regarding Unit 1518, Geldes’ email to Hedstrom on September 18 specifically stated, “The power of attorney assigns the rights under the contract to the Kotter Family Trust. The Kotter Family Trust will own the property not Don and Cherie as joint tenants.” This email, coupled with Geldes’ calls to Hedstrom, constitutes complete disclosure as to Unit 1518. And in any event, even if Unit 1518 had been titled to Kotter and Hedstrom as “joint tenants with rights of survivorship” as originally discussed, complete title to the Unit would have passed to Kotter upon Hedstrom’s death. The fact that Hedstrom changed his mind and allowed Kotter to take complete title to Unit 1518 at an earlier point in time is not inconsistent with the series of events and the information in the record. Nor does it destroy Geldes’ competent, independent legal advice. The Administrators contend this factor falls in their favor because of Kotter’s admission that she did not provide any “competent and independent advice” to Hedstrom regarding the titling of either Unit. This is a red herring. As Kotter astutely points out, real estate agents are prohibited from offering such advice because it is within the purview of “the practice of law,” which she is not licensed to do. See Chi. Bar Assoc. v. Quinlan & Tyson, Inc., 214 N.E.2d 771, 772-75 (Ill. 1966). We reject this argument without further discussion. The evidence also establishes that Hedstrom had a full understanding of all relevant facts. The parties all No. 12-1969 37 agree that Hedstrom was a sophisticated business man who owned numerous other properties. In addition to Geldes’ testimony that she spoke to Hedstrom about the Units, each of the letters and emails explicitly states how the properties were to be titled. A presumption exists that they were all properly sent, received, and read. See Kennell v. Gates, 215 F.3d 825, 829 (8th Cir. 2000). And there is no evidence that Hedstrom did not read the emails or comprehend their contents. This presumption is further bolstered by Hedstrom’s strongly-worded email to Geldes on July 31 in which he said that he would get a new attorney if Geldes did not comply with his demands. If Hedstrom was displeased with something, he made those concerns known. Furthermore, Hedstrom attended the closing for Unit 4705 and, according to Geldes, was fully aware of how the deed was being prepared. Including the deed, no fewer than four documents regarding Unit 4705 referred to the Unit as being titled to Hedstrom and Kotter as joint tenants with rights of survivorship. With respect to Unit 1518, the most convincing evidence in favor of Kotter’s position is the POA that Hedstrom signed and had notarized. The POA specifically stated, “The Kotter Family Trust will own the property not Don and Cherie as joint tenants.” That language is neither complex nor ambiguous. Again, Hedstrom owned numerous properties, and there is no evidence that Hedstrom did not understand the language in the POA. Instead, the evidence indicates that Hedstrom assented to the titling of Unit 1518 with a full understanding of the facts and their legal consequences. 38 No. 12-1969 We think the evidence Kotter provided is “clear and convincing” despite the Administrators’ attempt to direct us to a number of hypothetical, speculative “issues.” See Cloe v. City of Indianapolis, 712 F.3d 1171, 1176 (7th Cir. 2013) (“[O]ur favor toward the nonmoving party does not extend to drawing inferences that are supported by only speculation or conjecture.”). These include the Administrators’ assertions that: (1) Hedstrom receiving and responding to emails “in the past” cannot be used to satisfy the “clear and convincing” standard of “receipt and understanding”; (2) Unit 4705 was mentioned in Hedstrom’s will and living trust; (3) there is no evidence as to Hedstrom’s mindset in transferring the title of Unit 1518 to the Kotter Family Trust; (4) the POA used at the closing for Unit 1518 was not the POA that Geldes prepared and sent to Hedstrom; and (5) there is no evidence that Hedstrom “actually received, read or understood” the POA or its effect on his estate. Regarding the first assertion, this conclusory statement lacks any support. As we stated above, a presumption exists that the emails were received and read, and Hedstrom’s letters and conduct indicate that he received and read them. When Hedstrom disagreed with what Geldes said in an email, he told Geldes without reservation. When the email directed Hedstrom to sign the POA and have it notarized, he did that and sent the POA back to Geldes. This is enough. The Administrators have not put forth any evidence to the contrary of the presumption, so despite the Administrators’ contention that the presumption of receipt is not “evidence,” the presumption of receipt is binding and can be used No. 12-1969 39 to defeat the presumption of fraud. See Evidence, B LACK’S L AW D ICTIONARY 595 (8th ed. 2004) (“Something (including testimony, documents, and tangible objects) that tends to prove or disprove the existence of an alleged fact.”). Looking to the second assertion, the information included in Hedstrom’s will and living trust is entirely consistent with the titling of the Units. First, neither the will nor the living trust mentions Unit 1518. That makes sense because Hedstrom had no interest in the property; it was titled to the Kotter Family Trust. There was no reason to include a property in Hedstrom’s estate-planning documents if he did not have a present or future interest in it. Next, Hedstrom did have an interest in Unit 4705. His will and living trust were in preparation for the possible situation where Kotter predeceased him. If Kotter had predeceased Hedstrom, Hedstrom would have taken full title to the property. Hedstrom, who the parties agree was in control of his financial affairs, was planning for all possible situations. That is presumably why Unit 4705 was included in the will and living trust while Unit 1518 was not. This does not contradict the titling of the Units or dictate a different conclusion regarding Hedstrom’s overall intent. The third assertion, that we do not know Hedstrom’s particular mindset in titling Unit 1518 to the Kotter Family Trust, is somewhat true, but it is inconsequential to our conclusion. All of the evidence establishes that Hedstrom wanted Unit 1518 to be titled to the Kotter 40 No. 12-1969 Family Trust. The specific reason he made this choice, be it for tax purposes or his desire to provide for Kotter after he died, does not matter. All that matters is Hedstrom understood the legal consequences of his decision; the uncontroverted evidence indicates he did. The Administrators’ fourth argument, that we do not know who changed the provisions in the POA Geldes sent on September 18, which listed Geldes, and the one presented at the closing, which listed Kotter, is much ado about nothing. The record demonstrates that the parties were initially unsure as to whether Kotter would be able to attend the closing for Unit 1518. That is why more than one POA was prepared. Once it was certain that Kotter could attend the closing, however, it made sense that Hedstrom would use the POA that listed Kotter because Kotter was the person essentially receiving title to Unit 1518. And we repeat, no party contends that the POA used at the September 18 closing was not validly executed or did not include Hedstrom’s signature. The Administrators’ claim that the POA could have been altered or doctored in some fashion is pure speculation and conjecture. In light of this, we reject the Administrators’ contention that the POA was “invalid under the controlling law and cannot be used to establish Mr. Hedstrom’s knowledge, understanding or intent[.]” The Administrator’s final contention, that there is no evidence Hedstrom received, read or understood the POA or its effect, is a repeating of the Administrators’ other arguments, albeit phrased differently. It is unnecesNo. 12-1969 41 sary for us to again explain why we think Hedstrom received, read, and understood the POA. In sum, Kotter has presented “clear and convincing” evidence that the Units were given to her as “gifts” and that Hedstrom did so with a full understanding of the legal consequences of his decision. Kotter has demonstrated that the transactions were fair and, therefore, has sufficiently rebutted the presumption of fraud. See Franciscan Sisters, 448 N.E.2d at 878.
Because Kotter has “burst the bubble” and overcome the presumption of fraud, the Administrators must point to an issue of material fact in order to survive Kotter’s motion for summary judgment. See Cloe, 712 F.3d at 1176; Dep’t of Cent. Mgmt. Servs., 902 N.E.2d at 1134. We are not convinced they have done that. The Administrators’ claim requires them to prove at trial that Kotter breached a fiduciary duty owed to Hedstrom. See 1515 N. Wells, L.P. v. 1513 N. Wells, L.L.C., 913 N.E.2d 1, 11 (Ill. App. Ct. 1st Dist. 2009). Kotter could only breach a fiduciary duty owed if she did not treat Hedstrom with “the utmost candor, rectitude, care, loyalty, and good faith.” See Benson, 941 N.E.2d at 397. In other words, if Kotter helped procure the outcome of the real estate transactions that Hedstrom wanted, then there was no breach. See Clark v. Clark, 76 N.E.2d 446, 451 (Ill. 1947) (“Contracts and transactions between parties to a fiduciary relation, if open, fair and honest 42 No. 12-1969 when deliberately made are as valid as contracts between other parties.”). The Administrators’ conclusory statement that Kotter breached her duty because the Units were not titled in accordance with Hedstrom’s wishes lacks any real support. The only direct support the Administrators can point to is the July 26 letters in which Geldes wrote, “At closing, title for Unit shall be conveyed by warranty deed to Mr. Donald Hedstrom.” The problem for the Administrators is all the documents and admissible testimony after that point demonstrate that Hedstrom did not want title to the properties to be solely in his name. As we have explained, the undisputed evidence demonstrates that Hedstrom received complete and adequate information regarding the Units’ titling and that he knew exactly what he was doing during the transactions, regardless of the future tax implications on his estate. Accordingly, the Administrators are unable to demonstrate that a reasonable juror could find in their favor on the issue of breach, an essential requirement of their claim. And when a party cannot prove an essential element of a claim at trial, summary judgment against that party is appropriate. See Majors v. GE Elec. Co., 714 F.3d 527, 53233 (7th Cir. 2013) (“Summary judgment is appropriate if the nonmoving party ‘fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party with bear the burden of proof at trial.’ ” (quoting Ellis v. CCA of Tenn. LLC, 650 F.3d 640, 646 (7th Cir. 2011))). We No. 12-1969 43 believe the district court properly granted summary judgment in favor of Kotter and against the Administrators.