Hursey v. Calhoun ( 2020 )

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Appellate Court Date: 2022.01.03
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Hursey v. Calhoun, 2020 IL App (5th) 190276Appellate Court DAVID H. HURSEY; ROBERT LISS; DONALD SKELTON;
Caption CHRISTOPHER HURSEY; BLUE ORBIS CAPITAL ADVISORS,
LLC; HLH, LLC; MULTIMODAL LOGISTICS MANAGEMENT,
INC.; and MICHAEL HEAD, Plaintiffs, v. BARRY CALHOUN;
ROBERT GRANA; TIMOTHY DESSER; VISIONARY CAPITAL,
LLC; BAYARD BUSINESS CAPITAL, INC.; and MARK XVI
TRANSPORTATION SOLUTIONS, INC., Defendants (David H.
Hursey, Robert Liss, Donald Skelton, Christopher Hursey, and
Michael Head, Plaintiffs-Appellants; Barry Calhoun; Bayard Business
Capital, Inc.; and Mark XVI Transportation Solutions, Inc.,
Defendants-Appellees).
District & No. Fifth District
No. 5-19-0276
Filed May 21, 2020
Decision Under Appeal from the Circuit Court of St. Clair County, No. 17-L-486; the
Review Hon. Julie K. Katz, Judge, presiding.
Judgment Affirmed and remanded.
Counsel on Alexander N. Loftus and Jeffrey L. Dorman, of Stoltmann Law
Appeal Offices, P.C., of Chicago, and David I. Cates, of Cates Mahoney, LLC,
of Swansea, for appellants.
George W. Spellmire and Timothy J. McInerney, of Spellmire Bruck,
LLP, of Chicago, and Steven M. Hamburg, of Steven M. Hamburg,
P.C., of St. Louis, Missouri, for appellees Barry Calhoun and Bayard
Business Capital, Inc.
Andrew J. Martone and Josephine P. Abshier, of Hesse Martone, P.C.,
of St. Louis, Missouri, for other appellee.
Panel JUSTICE BOIE delivered the judgment of the court, with opinion.
Justices Moore and Wharton concurred in the judgment and opinion.
OPINION
¶1 This is an interlocutory appeal pursuant to Illinois Supreme Court Rule 304(b)(5) (eff. Mar.
8, 2016) from an order finding plaintiffs David H. Hursey (D. Hursey), Robert Liss, Donald
Skelton, Christopher Hursey (C. Hursey), and Michael Head, and their attorney, in contempt
of court for refusing to comply with a discovery order. The discovery order at issue allowed
defendants Barry Calhoun and Bayard Business Capital, Inc. (Bayard), to conduct limited
postjudgment discovery, including taking the depositions of the plaintiffs and their attorney,
in connection with Calhoun and Bayard’s pending motion for sanctions for the plaintiffs’ filing
of an alleged frivolous lawsuit.
¶2 The plaintiffs voluntarily dismissed Calhoun and Bayard from the lawsuit prior to the entry
of a final judgment with respect to the claims against all named defendants. Prior to the entry
of a final judgment on the remaining claims against other defendants, Calhoun and Bayard
filed a motion for sanctions against the plaintiffs and their attorney 1 for filing claims against
Calhoun and Bayard. The circuit court determined that an evidentiary hearing was required to
adjudicate the motion and, over the plaintiffs’ objection, granted Calhoun and Bayard leave to
conduct limited discovery in connection with the pending motion. Another defendant in the
lawsuit, Mark XVI Transportation Solutions, Inc. (Mark XVI), also filed a motion for sanctions
against the plaintiffs and sought to participate in discovery. When the plaintiffs failed to appear
for the court-ordered depositions, the circuit court held them in civil contempt and entered a
judgment in favor of Bayard, Calhoun, and Mark XVI for attorney fees and costs associated
with preparing for the depositions.
¶3 The plaintiffs now appeal the contempt ruling, arguing that the circuit court lacked
authority to allow Calhoun, Bayard, and Mark XVI to conduct discovery in connection with
the pending motions for sanctions. In addition, the plaintiffs argue that the fees and costs
awarded were excessive. On appeal, Calhoun, Bayard, and Mark XVI request additional
sanctions against the plaintiffs pursuant to Illinois Supreme Court Rule 375(b) (eff. Feb. 1,
1994) for bringing this appeal. For the following reasons, we affirm the circuit court’s
1
For the sake of simplicity, when referring to the motion for sanctions, we will refer to the plaintiffs
and their attorney as simply the plaintiffs.
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judgment, deny the Rule 375(b) request for sanctions on appeal, and remand for further
proceedings on the motions for Rule 137 sanctions (Ill. S. Ct. R. 137 (eff. Jan. 1, 2018)) that
are pending in the circuit court.
¶4 I. BACKGROUND
¶5 The motions for Rule 137 sanctions in this case stem from allegations made against
Calhoun, Bayard, and Mark XVI in the plaintiffs’ first amended complaint. Accordingly, our
background discussion focuses primarily on the allegations in the first amended complaint.
¶6 D. Hursey, Liss, Skelton, and C. Hursey originally brought this lawsuit against Head and
Mark XVI. Calhoun, Bayard, and another entity that is not a party to this appeal were named
as respondents in discovery pursuant to section 2-402 of the Code of Civil Procedure (Code)
(735 ILCS 5/2-402 (West 2016)) in the original complaint because they allegedly had
“information essential to the determination of who should properly be named as additional
defendants in the action.”
¶7 Prior to the filing of the first amended complaint, the plaintiffs voluntarily dismissed Head
from the lawsuit. Head then rejoined the lawsuit as a plaintiff in the first amended complaint.
Also, in the first amended complaint, the plaintiffs named Mark XVI, Calhoun, Bayard, Robert
Grana, Timothy Desser, and Visionary Capital, LLC (Visionary), as defendants. Only the
claims against Calhoun, Bayard, and Mark XVI are relevant to this appeal. Accordingly, for
the sake of simplicity, we will focus primarily on the those claims when discussing the
proceedings leading up to the Rule 137 motions for sanctions at issue in this appeal.
¶8 The plaintiffs’ claims against Calhoun, Bayard, and Mark XVI were based on allegations
that the plaintiffs were shareholders of Mark XVI. Head was the CEO of Mark XVI and
allegedly owned the only voting shares of stock in the company. The plaintiffs alleged that
Mark XVI was an international, third-party logistics company. They alleged that D. Hursey,
Liss, Skelton, and C. Hursey were experienced in international logistics and were directly
involved in Mark XVI’s management and operations. 2
¶9 The plaintiffs’ first amended complaint alleges that D. Hursey, Liss, Skelton, and C.
Hursey were being “stripped” of their ownership interest in Mark XVI by the defendants and
that they faced “the imminent risk of losing 80% of their equity” in the company. The
allegations stem from efforts by Head to secure financing for Mark XVI’s operations. The
plaintiffs alleged that, through Head, Mark XVI entered into an agreement with Bayard in
which Bayard agreed to serve as a consultant for obtaining mezzanine financing and a new line
of credit for Mark XVI. Calhoun was Bayard’s director and the individual Head contacted at
Bayard.
¶ 10 The plaintiffs alleged that Bayard and Calhoun sought to exploit Mark XVI for Calhoun’s
financial benefit. According to the plaintiffs’ allegations, Calhoun proposed several financing
2
The plaintiffs’ complaint alleged that D. Hursey was the managing member of plaintiff HLH, LLC
(HLH); Liss was the president of plaintiff Multimodal Logistics Management, Inc. (Multimodal
Logistics); and Skelton was the managing member of plaintiff Blue Orbis Capital Advisors, LLC (Blue
Orbis Capital). The complaint alleged that HLH, Multimodal Logistics, and Blue Orbis Capital
provided consulting services to Mark XVI pursuant to consulting agreements and that plaintiff C.
Hursey provided services to Mark XVI pursuant to an employment agreement. HLH, Multimodal
Logistics, and Blue Orbis Capital are not parties to this appeal.
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opportunities that involved $2 million in debt to Mark XVI in exchange for an 85% equity
ownership interest in the company. The plaintiffs alleged that Head rejected Calhoun’s
financing proposals and that Calhoun then attempted to orchestrate a “palace coup” with other
individuals and the coup involved the removal of Head as Mark XVI’s sole director, the
appointment of others as new corporate leadership, the cancellation of the plaintiffs’ consulting
agreements with Mark XVI, and the termination of the plaintiffs’ employment with Mark XVI.
¶ 11 The claims in the first amended complaint included the following. In counts I and II, D.
Hursey, Liss, Skelton, and C. Hursey alleged claims against Mark XVI pursuant to Arizona
statutes, requesting the court to compel the corporation to purchase their shares of stock and
requesting an order directing Mark XVI to allow them to inspect and copy the corporation’s
records. In count III, D. Hursey, Liss, Skelton, and C. Hursey alleged claims against Grana and
Desser for breach of fiduciary duties. In count IV, D. Hursey, Liss, Skelton, and C. Hursey
alleged a claim against Bayard based on allegations that Bayard aided and abetted Grana’s and
Desser’s breaches of their fiduciary duties. 3 In count V, Head alleged a claim against Calhoun
on behalf of Mark XVI for tortious interference with an economic expectation. In count X, C.
Hursey alleged a claim against Mark XVI for breach of contract. 4
¶ 12 On February 27, 2018, Bayard and Calhoun filed a combined sections 2-615 and 2-619
(735 ILCS 5/2-615, 2-619 (West 2018)) motion to dismiss the amended complaint pursuant to
section 2-619.1 of the Code (id. § 2-619.1). Calhoun and Bayard asserted in the motion that
Mark XVI contracted with Bayard in February 2017 to help Mark XVI locate possible sources
of capital. To facilitate this task, Calhoun had contact with Head and other members of Mark
XVI’s management team and received financial materials to assess Mark XVI’s
creditworthiness and to accurately disclose the company’s financial condition to potential
lenders. According to allegations in the motion to dismiss, Mark XVI provided this financial
information pursuant to a “Mutual Nondisclosure and Confidentiality Agreement”
(Confidentiality Agreement) signed by D. Hursey on behalf of Mark XVI.
¶ 13 The motion to dismiss alleged that Bayard had discussions with several potential lenders
but was unable to secure any financing. Calhoun and Bayard alleged in their motion that there
were no possibilities for a capital infusion due to deficiencies in management, irregularities in
the corporation’s accountings, an illness suffered by Head, and marital discord between Head
and his wife. Bayard and Calhoun then allegedly withdrew from their role in securing financing
for Mark XVI in early September 2017.
¶ 14 Calhoun and Bayard alleged that Bayard’s agreement with Mark XVI was established by
an engagement letter that contained a forum selection provision in which the parties agreed to
litigate any claims stemming from the agreement in St. Louis County, Missouri. In addition,
Calhoun and Bayard alleged that the Confidentiality Agreement between Mark XVI and
Bayard also contained a forum selection clause that provided the “exclusive forum and venue
to all disputes shall be the state and federal courts having jurisdiction in Lancaster County,
3
Visionary was also named as a defendant in the allegations of count IV. Visionary is not a party
to this appeal.
4
In count VI, Head alleged a claim against Desser and Grana on behalf of Mark XVI for intentional
spoliation of evidence. Desser and Grana are not parties to this appeal. In counts VII, VII, and IX, HLH,
Multimodal Logistics, and Blue Orbis Capital alleged claims against Mark XVI for breach of contract.
As noted above, HLH, Multimodal Logistics, and Blue Orbis Capital are not parties to this appeal.
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Nebraska.” Therefore, Calhoun and Bayard maintained in their motion that the claims alleged
against them in the first amended complaint had to be litigated in St. Louis County, Missouri,
or in Lancaster County, Nebraska.
¶ 15 Calhoun and Bayard also alleged that the engagement letter signed by D. Hursey on behalf
of Mark XVI included an agreement by Mark XVI to indemnify and hold Bayard and its
officers and directors harmless from claims related to or arising from their agreement.
Accordingly, Calhoun and Bayard concluded that the claims against them in the first amended
complaint constituted “an exercise in futility.”
¶ 16 On March 23, 2018, before the circuit court ruled on Calhoun and Bayard’s motion to
dismiss, the plaintiffs filed a motion to voluntarily dismiss the claims against Calhoun and
Bayard without prejudice pursuant to section 2-1009 of the Code (735 ILCS 5/2-1009 (West
2018)). In their motion, the plaintiffs referenced Calhoun and Bayard’s motion to dismiss, in
which Calhoun and Bayard invoked the “forum and indemnification provisions” in Mark
XVI’s agreement with Bayard. The plaintiffs requested dismissal of Calhoun and Bayard from
the lawsuit without prejudice “[b]ased on the Retainer Agreement.” On April 4, 2018, the
circuit court entered an order dismissing Calhoun and Bayard from the proceedings without
prejudice.
¶ 17 On April 18, 2018, Calhoun and Bayard filed the motion for sanctions against the plaintiffs
pursuant to Illinois Supreme Court Rule 137 (eff. Jan. 1, 2018). This motion for sanctions lies
at the heart of this appeal. Calhoun and Bayard alleged that the first amended complaint
contained false and baseless allegations and that the plaintiffs and their attorneys failed to make
any reasonable inquiry into the basis of those claims prior to signing and filing the first
amended complaint. Specifically, Bayard and Calhoun alleged that the sanctionable allegations
in the first amended complaint included (1) that “Calhoun stole tens of millions of dollars of
revenues for himself and installed new leadership comprised of Robert Grana and Timothy
Desser and disposed of the interests of other owners,” (2) that “Calhoun participated in
‘looting’ Mark XVI and participated in destroying evidence and burning down a warehouse to
further destroy evidence,” (3) that “Mark XVI was worth over $17.5 million dollars,” (4) that
“[o]ver [$]1.3 million was stolen from Mark XVI and/or its subsidiary [Multimodal Logistics]
via a wire transfer and sent to an off-shore account,” (5) that there “were multiple financing
offers made to Mark XVI but Calhoun refused to pursue such deals unless he was given an
ownership interest in Mark XVI,” and (6) that Calhoun orchestrated a “ ‘palace coup’ to install
new leadership in Mark XVI.”
¶ 18 Calhoun and Bayard alleged that the above allegations were untrue, were made with
disregard for whether they were true or false, and constituted a violation of Rule 137. Calhoun
and Bayard argued that, before the plaintiffs filed their lawsuit, the plaintiffs and their attorneys
could have discovered that there never were any financing offers, that Calhoun never desired
or requested any equity stake in Mark XVI, that there was no theft or evidence of theft of any
of the corporation’s funds, that the plaintiffs’ claimed valuation of Mark XVI was highly
implausible, that there was no evidence that Calhoun was involved with any warehouse fire,
and that the “notion of a palace coup is a complete farce.”
¶ 19 Calhoun and Bayard alleged that Calhoun “never stole anything from Mark XVI, never
destroyed any evidence, never wanted or asked for an ownership interest in Mark XVI, never
held any financing deals hostage because there never were any financing offers in the first
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place, and never participated in what had dubiously been described as a ‘palace coup.’ ” In
addition, they alleged that “[t]here has never been any evidence of any of the foregoing.”
¶ 20 Calhoun and Bayard alleged that the plaintiffs and their attorneys violated Rule 137 by
signing and filing the first amended complaint and causing them to incur thousands of dollars
in attorney fees. Calhoun and Bayard alleged that their attorney “turned over hundreds of
documents he was under no obligation to produce in the hopes that taking an open book
approach might convince [the plaintiffs’ attorney] and his clients to reconsider their frivolous
allegations.” They asked the court to order the plaintiffs to reimburse them for their attorney
fees in defending the lawsuit and in bringing the motion for sanctions.
¶ 21 The plaintiffs filed a motion to strike Calhoun and Bayard’s request for sanctions. The
plaintiffs alleged in the motion to strike that Calhoun and Bayard were voluntarily dismissed
from the lawsuit without prejudice within days of their counsel “producing a signed contract
setting forum in another jurisdiction and providing indemnity for [Bayard].” They further
alleged that the contract was not shared with plaintiffs’ counsel at any time earlier in the
litigation, including in response to the plaintiffs’ discovery requests prior to the filing of the
first amended complaint.
¶ 22 The plaintiffs argued that the allegations pled in the first amended complaint were well
founded in fact and that Calhoun and Bayard were not able to produce any affirmative evidence
to contradict the first amended complaint’s allegations other than their own assertions. They
maintained that there were numerous factual questions and that they made “a good faith effort
to get to the bottom of the factual morass,” including attempting extensive discovery and
naming Calhoun and Bayard as defendants in discovery. The plaintiffs argued that “all
discovery attempts were thwarted,” resulting in the first amended complaint “being filed in a
vacuum based on the Plaintiffs’ verified averments.”
¶ 23 The plaintiffs asked the court to dismiss the request for sanctions with prejudice “[r]ather
than litigate these factual questions that would require discovery and a lengthy hearing.”
(Emphasis added.) They argued that if any party had demonstrated bad faith, it was “Calhoun
and his counsel who did not produce the ultimately dispositive documents until they were
attached to its Motion to Dismiss after both sides incurred attorneys’ fees.”
¶ 24 In their reply, Calhoun and Bayard maintained that there were
“numerous third parties who would have been able to refute the allegations in the first
amended complaint, such as employees of the bank from which funds were purportedly
stolen, or employees for the financiers who purportedly were deterred from investing
in Mark XVI due to Calhoun’s insistence on an ownership share.”
Calhoun and Bayard argued that the “total lack of written corroboration for any of these claims,
when at least some evidence would be expected to be in Plaintiffs’ possession, should have
spurred a reasonable lawyer to conduct some further investigation.” They asked the court to
grant their request for sanctions “outright.” They noted that, alternatively, if the court
concluded that a hearing was necessary, they would “seek to question the individual plaintiffs,
[their attorney], and other witnesses having knowledge of the facts alleged in the first amended
complaint concerning the bases for their allegations.”
¶ 25 Meanwhile, the circuit court granted a motion to dismiss the remaining counts in the first
amended complaint against the remaining defendants, including Mark XVI. The plaintiffs,
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therefore, filed a second amended complaint. There were no claims in the second amended
complaint alleged against Calhoun or Bayard.
¶ 26 On June 5, 2018, the circuit court denied the plaintiffs’ motion to strike Calhoun and
Bayard’s motion for sanctions, finding that the motion for sanctions was “sufficient to state a
cause of action.” The court directed the parties to “submit a proposed briefing schedule” and
stated that it would “determine whether further argument and/or briefing [would be] required
after reviewing the parties’ briefs.”
¶ 27 The plaintiffs then filed a response to the motion for sanctions, in which they argued that
they had evidence supporting the six factual averments that Calhoun and Bayard challenged in
the motion for sanctions. The plaintiffs maintained that Calhoun and Bayard could not meet
“the threshold requirement of showing that those averments were false.” In addition, the
plaintiffs maintained that Calhoun and Bayard engaged in a pattern of interference with the
plaintiffs’ attempt to investigate the factual averments in the complaint.
¶ 28 First, the plaintiffs addressed Calhoun and Bayard’s assertion that they were falsely
accused of destroying evidence. The plaintiffs stated that 60 hard drives were erased and that
an office used for Mark XVI’s operations burned down. The plaintiffs maintained that the facts
supported an inference that this destruction of data was intentional and that the persons who
benefited from the destruction were likely responsible. The plaintiffs concluded, “No more is
required at this state of litigation to support the averments in a complaint.” Nonetheless, the
plaintiffs argued, the first amended complaint did not aver that either Calhoun or Bayard were
responsible, only that the group who benefited from the destruction was likely responsible and
that the plaintiffs had not been able to complete discovery to determine which of those persons
were actually responsible.
¶ 29 Second, the plaintiffs noted that Calhoun and Bayard took issue with the allegation that,
prior to the plaintiffs’ removal from Mark XVI, the corporation had a market value of
approximately $17.5 million. The plaintiffs argued that Calhoun and Bayard had the burden of
proving that the valuation was wrong and that Calhoun and Bayard’s opinion that the valuation
was “implausible” does not establish that the averment was a basis for Rule 137 sanctions. The
plaintiffs also attached to their response a third-party evaluation that Mark XVI had a market
value of $17.5 million.
¶ 30 Third, the plaintiffs noted that Calhoun and Bayard challenged the allegation in the first
amended complaint that “in excess of $1,300,000 was wired from accounts held by Mark XVI
*** to off-shore bank accounts.” The plaintiffs argued that Calhoun and Bayard made no
attempt to prove that the allegation was untrue and noted that the averment did not mention
Calhoun or Bayard in connection with wiring money out of Mark XVI’s account. In addition,
the plaintiffs maintained that they had a reasonable basis for the allegation, in that an IT
provider who had “read-access” to Mark XVI’s accounts informed D. Hursey that there had
been dozens of withdrawals from the company’s accounts and deposited to an account in Oman
or a bank in Texas. The plaintiffs acknowledged that there was no direct evidence concerning
the exact amount taken by any of the defendants or how the money was divided among the
defendants but argued that whether the amount taken was $1.3 million or tens of millions and
whether Calhoun and Bayard merely abetted the theft or actually kept a portion was immaterial,
particularly when Calhoun and Bayard “stonewalled” the plaintiffs’ discovery efforts prior to
the filing of the first amended complaint.
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¶ 31 Fourth, the plaintiffs noted that Calhoun and Bayard took issue with the allegation that they
orchestrated the plaintiffs’ ouster as Mark XVI’s officers and directors. The plaintiffs
responded that at a July 5, 2017, meeting, Calhoun stated that the plaintiffs should be removed
from their positions with Mark XVI and replaced. The plaintiffs described a sequence of events
that occurred after the meeting that resulted in their removal from their corporate offices. They
concluded that, based on the sequence of events, there was a reasonable inference that Calhoun
“formulated and help execute [the plaintiffs’] dismissal from their positions.”
¶ 32 Fifth, the plaintiffs noted that Calhoun and Bayard took issue with the plaintiffs’ allegation
that Calhoun refused to pursue various financing offers made to Mark XVI unless he was given
an ownership interest in the corporation. The plaintiffs responded that Head had given a sworn
statement indicating that, prior to the plaintiffs’ removal from their corporate positions,
Calhoun demanded an ownership interest in Mark XVI.
¶ 33 Sixth, the plaintiffs noted that Calhoun and Bayard took issue with the plaintiffs’ allegation
that Calhoun and Bayard exploited Mark XVI’s vulnerability to take millions of dollars for
their own benefit and to install new corporate leadership. In their response, the plaintiffs argued
that there was evidence to support the conclusion that Calhoun and Bayard exploited Mark
XVI’s “desperate need for a cash infusing” and that Calhoun and Bayard were instrumental in
engineering the plaintiffs’ removal from their corporate positions.
¶ 34 The plaintiffs also argued that Calhoun and Bayard breached a discovery agreement that
necessitated the filing of the first amended complaint. The plaintiffs argued that they sought
discovery before naming Calhoun and Bayard as defendants in order to determine whether to
let Calhoun and Bayard out of the case or add them as defendants. According to the plaintiffs,
counsel for Calhoun and Bayard agreed that they would comply with the plaintiffs’ discovery
requests but then moved to quash the discovery. The plaintiffs alleged that Calhoun and Bayard
did not produce any documents until after the filing of the first amended complaint. The
plaintiffs alleged that they ultimately dismissed Calhoun and Bayard from the case, not because
Calhoun and Bayard controverted the plaintiffs’ factual allegations, but because the indemnity
agreement in the contract between Bayard and Mark XVI made pursuing a lawsuit against
Calhoun and Bayard illogical. The plaintiffs stated that they dismissed Calhoun and Bayard
from the lawsuit within four days after learning of the terms of the agreement.
¶ 35 In their reply, Calhoun and Bayard again asked the court to grant their request for sanctions
or, alternatively, “afford them the opportunity to take limited discovery in advance” of an
evidentiary hearing on their request. On July 25, 2018, Mark XVI filed its own motion for
sanctions against the plaintiffs pursuant to Rule 137. In its motion, Mark XVI argued that the
plaintiffs’ complaint and amended complaints “alleged numerous contrasting, conflicting
statements and outright falsehoods” in violation of Rule 137 and were used only to harass Mark
XVI.
¶ 36 On August 8, 2018, Calhoun and Bayard filed a motion requesting permission to conduct
discovery relevant to their pending motion for sanctions. They argued that they “would like to
conduct oral discovery of several of the parties and [the plaintiffs’ attorney] in order to
determine the extent to which they deviated from the requirements of Rule 137 in making their
allegations.” The plaintiffs objected to the motion, arguing that the circuit court lacked
“authority to allow a non-party to take discovery” with respect to a request for Rule 137
sanctions.
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¶ 37 On August 20, 2018, the circuit court entered an order granting Calhoun and Bayard’s
motion for leave to take discovery. 5 The plaintiffs filed a motion asking the circuit court to
make a finding pursuant to Illinois Supreme Court Rule 308 (eff. July 1, 2017) that (1) the
August 20, 2018, discovery order, allowing Calhoun and Bayard to conduct discovery,
involved a question of law in which there was a substantial ground for difference of opinion
and (2) an immediate appeal from the order may materially advance the ultimate termination
of the litigation. The plaintiffs also asked, alternatively, that the circuit court find, pursuant to
Illinois Supreme Court Rule 304(a) (eff. Mar. 8, 2016), that there was no just reason for
delaying either the enforcement or appeal of the August 20, 2018, order or both. 6 On
November 2, 2018, the circuit court denied the plaintiffs’ motion.
¶ 38 Calhoun and Bayard subsequently issued subpoenas and deposition notices to each plaintiff
and two of their attorneys. The plaintiffs and the attorneys indicated that they would refuse to
appear for the depositions. The plaintiffs then filed a motion, asking for the circuit court to find
them in civil contempt, fine them a nominal fee, and stay discovery pending appellate
resolution of the contempt order and resolution of the plaintiffs’ underlying objections to the
discovery requests. The circuit court denied the motion on the basis that it was premature.
¶ 39 When the plaintiffs subsequently failed to appear for their scheduled depositions, Calhoun
and Bayard filed a motion for discovery sanctions pursuant to Illinois Supreme Court Rule 219
(eff. July 1, 2002). Calhoun and Bayard requested expenses and attorney fees incurred in
preparing and serving subpoenas and in preparing deposition notices and court appearances.
The plaintiffs then filed another motion requesting the circuit court to enter an order for civil
contempt and a nominal fine so they could contest the underlying discovery order on appeal.
¶ 40 On January 30, 2019, the circuit court entered an order awarding Calhoun and Bayard “out
of pocket expenses in the amount of $213.13” and reserved ruling on Calhoun and Bayard’s
request for attorney fees stemming from the subpoena and depositions. The circuit court stated
that the amount of the attorney fees claimed for the discovery violation “will be reasonable as
part of fees to be awarded in regard to ruling on Bayard and Calhoun’s Rule 137 motion.” The
circuit court ordered D. Hursey and the plaintiffs’ attorney to appear for depositions on
February 13, 2019. On February 14, 2019, Calhoun and Bayard filed another motion for
sanctions pursuant to Rule 219 due to the failure of D. Hursey and the plaintiffs’ attorney to
appear for the scheduled deposition. Mark XVI also filed a motion for discovery sanctions
pursuant to Rule 219.
¶ 41 On March 25, 2019, the circuit court entered an order finding the plaintiffs in contempt of
court. The court directed Calhoun and Bayard to submit proof of their “cost and fees.” On
April 4, 2019, the circuit court entered a judgment on the contempt finding. The circuit court
stated in the judgment that the plaintiffs 7 were in contempt of the court for failure to obey its
orders, including failure to appear for depositions as ordered and failure to pay Rule 219
sanctions as ordered. The court stated that the plaintiffs “will be fined in an amount equal to
the expenses incurred by Bayard, Calhoun[,] and Mark XVI relating to the aborted depositions,
5
The court also dismissed the second amended complaint with prejudice.
6
The plaintiffs also requested findings that would allow them to file an interlocutory appeal of the
dismissal of the second amended complaint with prejudice.
7
The judgment does not include any findings of contempt against HLH, Multimodal Logistics, or
Blue Orbis Capital.
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Rule 219 sanctions motions[,] and contempt proceedings.” The court directed Calhoun,
Bayard, and Mark XVI to submit an itemization of their fees and expenses.
¶ 42 Calhoun and Bayard’s attorneys submitted attorney fee affidavits establishing their
attorney fees and costs incurred in connection with the preparation and service of subpoenas,
the preparation for the scheduling of the depositions, and the addressing of plaintiffs’ motion
for an order of civil contempt. The affidavits included monthly attorney fee invoices. The
affidavits alleged that Calhoun and Bayard incurred a total of $16,766 in attorney fees and
$418.01 in expenses related to their attempts at discovery. Mark XVI submitted an attorney
fee affidavit that requested $9505.56 in attorney fees and $106.56 in expenses.
¶ 43 The plaintiffs object to the fee petitions of Calhoun, Bayard, and Mark XVI, arguing that
the attorneys failed to carry their burden of proving that the fees were reasonable and that the
court should carefully review and reduce the fee petitions because the petitions were vague
and inadequately documented. On June 6, 2019, the circuit court entered an order awarding
Mark XVI $9379.56 in attorney fees and costs and awarding Calhoun and Bayard $9346.88 in
attorney fees and costs. The plaintiffs now appeal the circuit court’s judgment holding them in
contempt and awarding attorney fees and costs.
¶ 44 II. ANALYSIS
¶ 45 On appeal, the plaintiffs first argue that the circuit court erred in allowing Calhoun and
Bayard to conduct discovery because they are nonparties. The plaintiffs maintain that Illinois
Supreme Court Rule 201(b) (eff. July 1, 2014) and sections 2-401(a) and (d) of the Code (735
ILCS 5/2-401(a), (d) (West 2018)) do not authorize nonparties to depose the plaintiffs and their
counsel.
¶ 46 A. Standard of Review
¶ 47 This issue is presented to us on an appeal from an order finding the plaintiffs in contempt
of court for refusing to obey the circuit court’s order that they appear for discovery depositions
in connection with Calhoun and Bayard’s pending motion for sanctions. The circuit court
found the plaintiffs in civil contempt for their refusal to appear for depositions as ordered. A
civil contempt order is intended to compel the contemnor to perform a particular act. People
v. Johnson, 2017 IL App (1st) 162876, ¶ 15. Our supreme court has previously indicated that
“whether a party is guilty of contempt is a question of fact for the trial court, and *** a
reviewing court will not disturb the finding unless it is against the manifest weight of the
evidence or the record reflects an abuse of discretion.” In re Marriage of Logston, 103 Ill. 2d
266, 286-87 (1984).
¶ 48 Here, however, the sole issue raised in challenging the circuit court’s contempt order is
whether the circuit court had authority under supreme court rules and/or the Code to allow
Calhoun and Bayard to conduct discovery in connection with their pending motion for
sanctions. When a party appeals contempt sanctions imposed for violating a discovery order,
that discovery order is subject to review. Almgren v. Rush-Presbyterian-St. Luke’s Medical
Center, 162 Ill. 2d 205, 216 (1994). In the present case, addressing the plaintiffs’ argument
requires us to interpret the language of the Code and the supreme court rules. This task presents
us with a question of law that we review de novo. People v. Marker, 233 Ill. 2d 158, 162 (2009);
Medical Alliances, LLC v. Health Care Service Corp., 371 Ill. App. 3d 755, 756-57 (2007)
(“[T]he construction of a supreme court rule presents a question of law that we consider
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de novo.”); In re Marriage of Milne, 2018 IL App (2d) 180091, ¶ 25 (“We review de novo
questions of statutory construction ***.”).
¶ 49 Calhoun, Bayard, and Mark XVI argue that the issue should be reviewed under the abuse
of discretion standard because a circuit court has broad discretion in ruling on discovery
matters. We disagree because, initially, before we analyze whether the circuit court abused its
discretion, we must first determine, as a matter of law, whether the court had discretion to
allow a party dismissed from a case to conduct postjudgment discovery in connection with a
pending request for Rule 137 sanctions. We will review this initial question concerning the
existence of the circuit court’s authority to exercise discretion under the de novo standard of
review.
¶ 50 B. Postjudgment Discovery on Rule 137 Motions for Sanctions
¶ 51 The plaintiffs maintain that there is no authority in the Code or in supreme court rules that
authorizes the circuit court to allow discovery on Calhoun and Bayard’s and Mark XVI’s
pending Rule 137 motions for sanctions because Calhoun, Bayard, and Mark XVI are no longer
parties to the lawsuit after their dismissal from the lawsuit.
¶ 52 Turning to the statutory and rule language raised by the plaintiffs, sections 2-401(a) and
(d) of the Code provide as follows:
“(a) The party commencing an action shall be called the plaintiff. The adverse party
shall be called the defendant.
***
(d) Unless a contrary meaning is indicated, wherever used in this Act and in rules
adopted pursuant hereto the term ‘plaintiff’ includes counterclaimants and third-party
plaintiffs, and the term ‘defendant’ includes third-party defendants and parties against
whom relief is sought by counterclaim.” 735 ILCS 5/2-401(a), (d) (West 2018).
¶ 53 Next, Illinois Supreme Court Rule 201(b)(1) (eff. July 1, 2014) provides:
“Except as provided in these rules, a party may obtain by discovery full disclosure
regarding any matter relevant to the subject matter involved in the pending action,
whether it relates to the claim or defense of the party seeking disclosure or of any other
party, including the existence, description, nature, custody, condition, and location of
any documents or tangible things, and the identity and location of persons having
knowledge of relevant facts.” (Emphasis added.)
¶ 54 We note that the plaintiffs do not dispute that the circuit court has authority to conduct an
evidentiary hearing on Calhoun and Bayard’s and Mark XVI’s pending motions for sanctions.
See Hess v. Loyd, 2012 IL App (5th) 090059, ¶ 26 (“A hearing is necessary for a trial court to
determine if any untrue statement within a pleading was made without reasonable cause, unless
the court’s determination can be made on the basis of the pleadings or trial evidence.”). In the
present case, the circuit court determined, and we agree, that the Rule 137 motion raises factual
issues that must be resolved in order for the circuit court to adjudicate the merits of the motion.
The circuit court specifically observed that “an evidentiary hearing is needed in order to assess
what the Plaintiffs’ motives were for filing the pleadings herein.”
¶ 55 The parties’ dispute centers on whether the circuit court has discretion to allow limited
discovery prior to the evidentiary hearing. The plaintiffs argue that the clear and unambiguous
language of the supreme court rules and the Code cited above establishes that the right to
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discovery is limited to a “party.” They maintain that there is no provision in the supreme court
rules or the Code that empowers the circuit court to exercise its discretion to allow a nonparty
to take discovery of a party or a party’s counsel. The plaintiffs conclude that Calhoun and
Bayard were no longer parties to the action once they were voluntarily dismissed from the
action and, therefore, have no right to conduct discovery. They also argue that Mark XVI was
no longer a party and cannot participate in the discovery after the circuit court granted Mark
XVI’s motion to dismiss the second amended complaint with prejudice.
¶ 56 The circuit court disagreed with the plaintiffs’ argument that Calhoun, Bayard, and Mark
XVI were no longer “parties” to the proceeding once the claims against them were dismissed. 8
In rejecting this argument, the circuit court noted that Rule 137 provides that motions for
sanctions “must be filed within 30 days of the entry of final judgment, or if a timely post-
judgment motion is filed, within 30 days of the ruling on the post-judgment motion.” Ill. S. Ct.
R. 137(b) (eff. Jan. 1, 2018). The circuit court then reasoned as follows:
“[Calhoun and Byard] were clearly parties when they filed the Motion for Sanctions,
in that the Motion was filed within 30 days of their dismissal from the case. Clearly
litigants in a case continue to be deemed as ‘parties’ within the 30 day period following
entry of a final Order; otherwise, there would be no authority to file a post-trial motion
if a litigant were deemed to be a non-party at the exact moment he or she is dismissed
from a case. If the Defendants were still considered to be ‘parties’ at the time they filed
the Motion for Sanctions, they certainly remain in that status until the Motion for
Sanctions is resolved.”
¶ 57 We agree with the circuit court’s reasoning. As the circuit court observed, it is undisputed
that the motions were timely filed within the 30-day time period required by the rule. We agree
with the circuit court that parties that have been dismissed from a case maintain their status as
parties to the proceedings while timely filed postjudgment motions are pending in the case,
including motions for sanctions. Rule 137 gives defendants that have been dismissed from a
case 30 days to file a motion for sanctions after the entry of a final judgment, not 30 days from
their dismissal. Parties who have been dismissed from a lawsuit and who timely file motions
pursuant to Rule 137 are still parties to the proceedings while their motions are pending.
¶ 58 As Calhoun, Bayard, and Mark XVI argue in their briefs, the supreme court has held that,
in substance, the filing of a Rule 137 motion for sanctions “is the functional equivalent of
adding an additional count to a complaint, or counter-claim, depending on which party files
the motion.” John G. Phillips & Associates v. Brown, 197 Ill. 2d 337, 340 (2001). In Brown,
the court noted that Rule 137 “permits parties to request sanctions for improper filings.”
(Emphasis added.) Id. at 339. The court held that a motion for sanctions under Rule 137 is a
“claim,” and because a notice of appeal cannot be filed before the circuit court has disposed of
all claims, a notice of appeal cannot be filed before the circuit court has ruled on all pending
Rule 137 motions. “A claim brought pursuant to Rule 137 is part of the civil action that gave
rise to the claim” and is “part of the underlying action.” Peabody Coal Co. v. Industrial
Comm’n, 307 Ill. App. 3d 393, 395-96 (1999).
¶ 59 Because the supreme court considers a pending motion for sanctions as the substantive
equivalent of a pending “claim” in the underlying action, the logical conclusion is that the
8
The circuit court’s order mentions only Calhoun and Bayard, but its reasoning applies equally to
Mark XVI.
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circuit court has discretion to allow discovery related to this “claim” so that the party seeking
sanctions can obtain full disclosure of matters relevant to the pending motion. This is
particularly true in cases, such as the case here, where the circuit court has determined that an
evidentiary hearing is necessary to adjudicate the claim.
¶ 60 The “claim” in Rule 137 motions concerns the propriety of the pleadings in the underlying
action. A defendant dismissed prior to the entry of a final judgment might not have access to
all evidentiary matters relevant to a claim for sanctions without discovery. Any party opposing
sanctions can always object to the request for discovery, and if an objection to discovery is
raised, the extent to which discovery should be allowed is a matter that lies squarely within the
circuit court’s discretion. “[T]he prevailing standard with regard to pretrial and posttrial
discovery requests both in Illinois and other jurisdictions is that the trial court has the
discretionary power to grant or deny such requests.” Shapo v. Tires ’N Tracks, Inc., 336 Ill.
App. 3d 387, 398 (2002).
¶ 61 Illinois Supreme Court rules allow for broad discovery regarding any matter relevant to the
subject matter involved in the pending action. Ill. S. Ct. R. 201(b)(1) (eff. July 1, 2014);
Shamrock Chicago Corp. v. Wroblewski, 2019 IL App (1st) 182354, ¶ 40. The purpose of the
discovery rules is “to be flexible and adaptable to the infinite variety of cases and
circumstances appearing before the trial court.” Doe 1 v. Board of Education of the City of
Chicago, 2017 IL App (1st) 150109, ¶ 16. As the circuit court observed in the present case,
“[c]learly parties are entitled to discovery before proceeding to trial on an issue.” We agree.
Accordingly, we hold that a circuit court has discretion to allow postjudgment discovery in
connection with pending motions for Rule 137 sanctions. See also Bangaly v. Baggiani, 2014
IL App (1st) 123760, ¶ 130 (finding that a trial court did not abuse its discretion in allowing
posttrial discovery); People v. B.R. MacKay & Sons, Inc., 141 Ill. App. 3d 137, 141 (1986)
(the supreme court has “held sub silentio that discovery may be used in a post-judgment
setting” (citing Gatto v. Walgreen Drug Co., 61 Ill. 2d 513 (1975))).
¶ 62 Having determined that the circuit court in the present case has discretion to allow Calhoun,
Bayard, and Mark XVI to conduct discovery pertaining to their pending motions for sanctions,
we need not conduct further analysis to determine whether the circuit court abused its
discretion in this case in allowing the discovery. The plaintiffs have not challenged the circuit
court’s exercise of discretion as an alternative argument. They have argued only that the circuit
court lacked authority to exercise any discretion, and we have rejected that argument.
¶ 63 Nonetheless, we again note that the circuit court determined that an evidentiary hearing
was required on the motions for sanctions because the motions raised factual issues related to,
among other things, what the plaintiffs and their counsel knew or should have known upon
reasonable inquiry prior to filing the first amended complaint. A circuit court will normally be
well within its broad discretionary authority when it allows parties to conduct discovery related
to a claim that requires an evidentiary hearing to adjudicate.
¶ 64 C. Circuit Court’s Fine for Indirect Civil Contempt
¶ 65 Next, the plaintiffs argue that the penalty assessed by the circuit court was excessive. They
argue that their refusal to appear for depositions was motivated by a “genuine held belief that
such discovery is unwarranted by Supreme Court Rules 201-217 and [the Code].” In addition,
they argue that the amount awarded was excessive because they informed Calhoun, Bayard,
and Mark XVI well in advance of the depositions that they intended to challenge the circuit
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court’s discovery order and would not appear for any depositions. They argue, therefore, that
any fees or expenses incurred in preparing for the depositions should not have been awarded
because those fees and expenses were needless and unnecessary. We disagree with the
plaintiffs’ argument.
¶ 66 Illinois Supreme Court Rule 219(c) (eff. July 1, 2002) provides that if a party unreasonably
fails to comply with discovery or fails to comply with a discovery order,
“the court, upon motion or upon its own initiative, may impose upon the offending
party or his or her attorney, or both, an appropriate sanction, which may include an
order to pay to the other party or parties the amount of reasonable expenses incurred as
a result of the misconduct, including a reasonable attorney fee.”
Here, the circuit court initially imposed a fine pursuant to Rule 219(c) when the plaintiffs failed
to appear for scheduled depositions. The court then ordered D. Hursey and the plaintiffs’
attorney to appear for depositions at a specified time and place. When they again failed to
appear, the circuit court, after a hearing, found the plaintiffs in civil contempt for their refusal
to comply with its discovery order and awarded attorney fees and costs as a fine.
¶ 67 Civil contempt generally occurs when a party fails to do something ordered by the circuit
court, resulting in the loss of a benefit or advantage to the opposing party. In re Marriage of
Tatham, 293 Ill. App. 3d 471, 479 (1997). Contempt that occurs outside of the presence of the
trial court is classified as indirect contempt. Id. at 480. The existence of an order of the circuit
court and proof of willful disobedience of that order are essential to any finding of indirect
civil contempt. Id.¶ 68 The procedure for establishing indirect civil contempt initially begins with the petitioner
proving by a preponderance of the evidence that the contemnor has violated a circuit court’s
order. In re Marriage of LaTour, 241 Ill. App. 3d 500, 508 (1993). If the petitioner meets his
or her burden, the burden shifts to the contemnor to show that noncompliance with the circuit
court’s order was not willful or contumacious and that he or she had a valid excuse for failure
to follow the circuit court order. Tatham, 293 Ill. App. 3d at 480. “Contumacious conduct
consists of ‘conduct calculated to embarrass, hinder, or obstruct a court in its administration of
justice or lessening the authority and dignity of the court.’ ” In re Marriage of Charous, 368
Ill. App. 3d 99, 108 (2006) (quoting In re Marriage of Fuesting, 228 Ill. App. 3d 339, 349
(1992)).
¶ 69 Whether a party is guilty of indirect civil contempt is a question for the trial court, and its
decision will not be disturbed on appeal unless it is against the manifest weight of the evidence
or the record reflects an abuse of discretion. Logston, 103 Ill. 2d at 286-87. “A decision is
against the manifest weight of the evidence where the opposite conclusion is clearly evident or
where the court’s findings are unreasonable, arbitrary, and not based on any of the evidence.”
(Internal quotation marks omitted.) In re Marriage of Demaret, 2012 IL App (1st) 111916,
¶ 43.
¶ 70 In the present case, we cannot conclude that the circuit court’s contempt judgment was
against the manifest weight of the evidence. When the circuit court initially granted Calhoun
and Bayard’s request to conduct discovery, over the plaintiffs’ objection, the plaintiffs
requested the circuit court to certify a question under Rule 308 for an immediate appeal of the
issue of whether the circuit court had authority to allow the discovery. Alternatively, the
plaintiffs asked the circuit court to make the findings pursuant to Rule 304(a), which would
allow the immediate appeal of the discovery order. After hearing arguments from the attorneys,
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the circuit court denied the plaintiffs’ requests for these findings. The circuit court entered a
detailed, nine-page order explaining the grounds for denying the requests. The plaintiffs then
made two additional requests that the circuit court enter a “friendly” contempt order with a
nominal fine that would allow them to appeal the issue. Again, the court declined the requests.
The circuit court, therefore, made it clear to the plaintiffs that it expected discovery on the
pending motions for Rule 137 sanctions to move forward. Despite these rulings, the plaintiffs
continued their refusal to comply with the circuit court’s discovery order.
¶ 71 Under these facts, we will not second-guess the circuit court’s decision to find the plaintiffs
in contempt and to award, as a fine, the fees incurred by Calhoun, Bayard, and Mark XVI in
preparing for the depositions. The plaintiffs were on notice that the circuit court required
compliance with its order, and Calhoun, Bayard, and Mark XVI were obligated to prepare to
take depositions on the date ordered by the circuit court.
¶ 72 The plaintiffs argue that the fees and costs awarded by the circuit court were excessive, but
the circuit court carefully reviewed Calhoun and Bayard’s and Mark XVI’s fee requests
stemming from the plaintiffs’ failure to comply with discovery order. The circuit court did not
award the fees and costs wholesale but engaged in a careful analysis and ultimately declined
to award a portion of the requested fees. Again, in a detailed order, the circuit court identified
specific time entries on specific dates that it found to be related to the discovery dispute. The
circuit court also identified time entries involving two attorneys from two law firms handling
the same task and excluded duplicative fees for those services.
¶ 73 A circuit court has broad discretion to award attorney fees, and its decision will not be
reversed on appeal unless the court abused that discretion. Pietrzyk v. Oak Lawn Pavilion, Inc.,
329 Ill. App. 3d 1043, 1046 (2002). Here, the record is more than adequate to support the
circuit court’s determination concerning the amount of reasonable attorney fees and expenses
to award as a fine for the plaintiffs’ indirect contempt of court. We will not disturb the circuit
court’s exercise of its discretion based on the record before us.
¶ 74 D. Appellees’ Request for Rule 375(b) Sanctions on Appeal
¶ 75 On appeal, Calhoun, Bayard, and Mark XVI have requested additional sanctions against
the plaintiffs pursuant to Illinois Supreme Court Rule 375(b) (eff. Feb. 1, 1994). Rule 375(b)
authorizes sanctions for appeals that are frivolous, not taken in good faith, or for an improper
purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of
litigation.
¶ 76 Specifically, Rule 375(b) provides:
“If, after consideration of an appeal or other action pursued in a reviewing court, it is
determined that the appeal or other action itself is frivolous, or that an appeal or other
action was not taken in good faith, for an improper purpose, such as to harass or to
cause unnecessary delay or needless increase in the cost of litigation, or the manner of
prosecuting or defending the appeal or other action is for such purpose, an appropriate
sanction may be imposed upon any party or the attorney or attorneys of the party or
parties. An appeal or other action will be deemed frivolous where it is not reasonably
well grounded in fact and not warranted by existing law or a good-faith argument for
the extension, modification, or reversal of existing law. An appeal or other action will
be deemed to have been taken or prosecuted for an improper purpose where the primary
purpose of the appeal or other action is to delay, harass, or cause needless expense.” Id.- 15 -
¶ 77 Reviewing courts apply an objective standard to determine whether an appeal is frivolous.
An appeal “is considered frivolous if it would not have been brought in good faith by a
reasonable, prudent attorney.” Dreisilker Electric Motors, Inc. v. Rainbow Electric Co., 203
Ill. App. 3d 304, 312 (1990). The imposition of Rule 375 sanctions is left entirely to the
discretion of the appellate court. Kheirkhahvash v. Baniassadi, 407 Ill. App. 3d 171, 182
(2011).
¶ 78 In the present case, the plaintiffs’ arguments ultimately lack merit, but we do not find that
their appeal is frivolous. The plaintiffs support their position with good faith arguments
stemming from the language of the Code and supreme court rules. We disagree with the
arguments of Calhoun, Bayard, and Mark XVI that this appeal is one that would not be brought
in good faith by a reasonable and prudent attorney. In denying Calhoun, Bayard, and Mark
XVI’s request for Rule 375(b) sanctions, we offer no opinion on the merits of any legal or
factual issues stemming from the pending Rule 137 motions for sanctions.
¶ 79 III. CONCLUSION
¶ 80 For the foregoing reasons, we affirm the circuit court’s contempt judgment and deny the
appellees’ request for sanctions pursuant to Rule 375(b). We remand this cause for further
proceedings on the pending motions for Rule 137 sanctions, including the discovery ordered
by the circuit court.
¶ 81 Affirmed and remanded.
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