Henry v. Waller

ILLINOIS OFFICIAL REPORTS
Appellate Court
Henry v. Waller, 2012 IL App (1st) 102068Appellate Court PAMELA HENRY, Plaintiff, v. HARVEY JACK WALLER,
Caption Individually and d/b/a Harvey Waller, Harvey Waller, Ltd., Firsch and
Waller, and Harvey Waller and Associates; and HARVEY WALLER,
LTD., Defendants-Appellees (Bank of America, Defendant-Appellant).
District & No. First District, Sixth Division
Docket No. 1-10-2068
Filed June 29, 2012
Held Defendant bank was entitled to the fees and costs it incurred in litigation
(Note: This syllabus arising from the allegedly fraudulent endorsement and deposit of two
constitutes no part of checks defendant attorney obtained in the settlement of a judgment he
the opinion of the court was retained by a collection agency to collect, notwithstanding the
but has been prepared attorney’s contention that the fees and costs arose from the criminal
by the Reporter of actions of a person at the agency who stole the funds due the judgment
Decisions for the creditor, since defendant attorney deposited the fraudulently endorsed
convenience of the checks into his trust account, he sent the agency certified checks
reader.)
representing the funds, the agency paid the attorney his fee, the remaining
fees were stolen and the terms of the indemnification agreement the
attorney had with the bank applied.
Decision Under Appeal from the Circuit Court of Cook County, No. 07-L-11515; the
Review Hon. Daniel J. Lynch, Judge, presiding.
Judgment Reversed and remanded.
Counsel on Mark E. Wilson and Meghan W. Welch, both of Kerns, Frost & Perlman,
Appeal LLC, of Chicago, for appellant.
Joshua Sachs, of Joshua Sachs & Associates, of Evanston, for appellees.
Panel JUSTICE PALMER delivered the judgment of the court, with opinion.
Justice Garcia specially concurred, with opinion.
Justice Lampkin dissented, with opinion.
OPINION
¶1 This appeal involves an indemnification agreement in an “Interest on Lawyers Trust
Account” (IOLTA). Specifically, at all relevant times, defendant Harvey Waller, an attorney,
held an IOLTA account at Bank of America and its predecessor in interest, LaSalle Talman
FSB (collectively, Bank of America or the bank). One of the resolutions governing this
account contained an indemnification agreement requiring Waller to indemnify the bank for
attorney fees and costs that it incurred under certain circumstances. After prevailing in the
underlying litigation involving the negotiation of checks with allegedly forged signatures,
Bank of America filed a petition seeking attorney fees and costs from Waller that it allegedly
incurred while defending the underlying litigation. Bank of America sought fees and
expenses pursuant to the indemnification agreement and under certain provisions of the
Illinois Uniform Commercial Code (UCC) (810 ILCS 5/1-101 et seq. (West 2006)).
Following a bench trial, the circuit court found that Waller was not obligated to indemnify
the bank and entered judgment in his favor. Bank of America appeals, contending that the
circuit court erred as a matter of law in denying its petition for attorney fees under the
indemnification agreement and in finding that the bank was not owed attorney fees under the
UCC. The bank also challenges the circuit court’s denial of a motion in limine that it filed
prior to trial seeking to bar the testimony of an expert witness. For the reasons that follow,
we reverse and remand to the circuit court.
¶2 BACKGROUND
¶3 The relevant facts of this case are not in dispute. In 1993, plaintiff Pamela Henry received
a $500,000 judgment against her husband in a marriage dissolution proceeding. Henry
engaged defendant Jeffrey Olson of the collection agency Olson, Olson & Olson Ltd., to
recover that judgment. In October 1998, Henry signed a limited power-of-attorney agreement
in connection with her engagement of the Olson firm.
¶4 The Olson firm then hired defendant Waller to assist in collecting the judgment. The
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Olson firm and Waller negotiated a $450,000 settlement of the divorce judgment. The parties
stipulated at trial that Henry orally agreed to a settlement in that amount. In December 1998,
Waller received the settlement in two cashier’s checks payable to “Pamela A. Henry and
Harvey Waller” in the amounts of $150,000 and $300,000. Waller did not send the checks
to Henry for her endorsement before depositing them into his IOLTA account at LaSalle
Bank. It is undisputed that at some point prior to Waller endorsing and depositing the checks,
they were endorsed with the signature “Pamela Henry.” There was no evidence presented at
trial as to how the signatures in Henry’s name appeared on the back of each check. Henry
testified in an evidence deposition that she “never touched” the checks and the parties
stipulated at trial that Henry’s endorsements were “not authentic.”
¶5 Waller endorsed and deposited each check into his IOLTA account at the bank. The
parties stipulated at trial that the bank accepted in good faith the checks deposited in Waller’s
IOLTA account. Waller then caused the bank to issue two cashiers checks payable to the
Olson firm for the entire amount of the settlement proceeds and Olson thereafter paid Waller
$75,000. Henry did not receive any of the settlement money from Olson, who allegedly stole
the money and disappeared. Olson has never been found. In 1999, Henry sued Olson and his
firm but was unable to serve the complaint and summons on them.
¶6 In 2000, Henry amended her complaint to sue the bank and Waller, asserting that the
endorsement signatures in her name on the back of the cashier’s checks were forgeries. In
her legal malpractice, breach of contract and fraudulent transfer claims against Waller, Henry
alleged that Waller failed to procure her signature on the settlement checks, failed to pay the
settlement proceeds to her and failed to communicate with her regarding the settlement.
Henry also sued the bank under section 3-420 of the UCC (810 ILCS 5/3-420 (West 2006)),
alleging that the endorsements in her name on the settlement checks were unauthorized and
that the bank was liable for conversion because it accepted the checks for deposit over
unauthorized signatures.
¶7 Bank of America, as successor in interest to LaSalle Bank, ultimately moved for
summary judgment. The motion included affidavits from two expert witnesses, who opined
that the bank had exercised ordinary care and had no liability under the comparative
negligence scheme of the UCC. The circuit court granted the bank’s motion, finding under
section 3-405(b) of the UCC (810 ILCS 5/3-405(b) (West 2006)) that Henry had not
presented any evidence that the bank failed to exercise ordinary care in its handling of the
checks, and that the bank’s acceptance of the checks did not cause any harm to Henry. Henry
and Waller ultimately reached a settlement agreement with respect to the professional
negligence dispute.
¶8 Bank of America then filed a petition for attorney fees and expenses against Waller,
seeking to collect $225,000 in attorney fees and expenses it incurred during the 11 years of
litigation in the Henry matter. The bank sought fees on two alternative grounds. First, the
bank claimed that Waller contractually agreed to indemnify it pursuant to the terms of his
account agreement. Second, the bank sought fees and expenses under the transfer warranty
provisions of the UCC. See 810 ILCS 5/4-207(a), 3-416(a) (West 2006).
¶9 A bench trial was held on the petition. Prior to trial, the bank filed a motion in limine,
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seeking to bar the testimony of Waller’s expert witness, Robert Markoff, a collection lawyer.
The trial court denied that motion. Markoff testified that Waller would have had the authority
as Henry’s attorney to endorse her signature on the checks and deposit them. The bank
presented the testimony of David Mulvihill, the bank’s in-house attorney who oversaw the
litigation. Mulvihill testified about the account resolutions and that the bank incurred
attorney fees and expenses as a result of actions it took under specific account resolutions.
The bank also presented Henry’s evidence deposition, the relevant testimony from which we
set out above.
¶ 10 The trial court denied the bank’s petition for attorney fees and costs, ruling that Waller’s
negotiation of the checks through his account neither triggered the indemnification
provisions of his account agreement nor breached the UCC transfer warranties. With respect
to Bank of America’s contractual claim for indemnification, the court stated that the
negotiation of the checks through the bank by Waller was “uneventful” and therefore “was
not a triggering event for the contractual indemnification obligations of this contract.”
Instead, the court stated, the cause of action was triggered by a “subsequent conversion” by
Olson. The court reasoned that the bank was not entitled to indemnification because “[t]he
conversion here followed the otherwise proper settlement negotiations and the negotiable
instrument acts herein through [the bank]. *** This case sounds in criminal theft and in
conversion, not in breach of warrant[y] or certainly not in breach of the [UCC].” Bank of
America appeals.
¶ 11 ANALYSIS
¶ 12 Bank of America first contends that the trial court erred as a matter of law in construing
the terms of the account agreement and holding that the bank was not entitled to be
indemnified for its attorney fees and expenses. The bank claims that it incurred those fees
and expenses in connection with actions it took under two resolutions governing Waller’s
account and that it is therefore entitled to indemnification.
¶ 13 Bank of America’s contention raises an issue of contract interpretation. The interpretation
of a contract presents a question of law, which we review de novo. Gallagher v. Lenart, 226
Ill. 2d 208, 219 (2007); see also Erlenbush v. Largent, 353 Ill. App. 3d 949, 952 (2004) (the
appellate court reviews the circuit court’s interpretation of a fee-shifting agreement de novo).
¶ 14 The indemnification agreement at issue in this case states:
“2) In order to induce said Bank to act pursuant to the foregoing resolutions, this
Corporation hereby agrees as follows:
***
(c) To indemnify the Bank and save it free and harmless from any and all claims,
demands, expenses (including attorney fees and costs), losses or damages it may suffer
resulting from or growing out of or in connection with any act taken by the Bank as a
result of, or its failure to act under any or all the foregoing resolutions, or its failure not
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to conform in all respsects to the authorizations specified hereunder.”1
The “foregoing resolutions” referred to in the indemnity agreement include resolution II,
which states that Waller was authorized to “endorse for negotiation, negotiate, and receive
the proceeds of any negotiable instruments or orders for the payment of money payable to
or belonging to this Corporation.” Additionally, resolution I provides that for checks and
other like obligations endorsed by Waller and deposited into the account, “all prior
endorsements are guaranteed by this Corporation whether or not an express guaranty is
incorporated in this Corporations’s endorsement.”
¶ 15 Indemnification agreements are contracts and are subject to the ordinary rules of contract
interpretation. Buenz v. Frontline Transportation Co., 227 Ill. 2d 302, 308 (2008). When
construing the language of an indemnity agreement, our primary objective is to give effect
to the intent possessed by the parties at the time they entered the agreement. Buenz, 227 Ill.
2d at 308. Where the terms of a contract are clear and unambiguous, they will be given their
natural and ordinary meaning. Buenz, 227 Ill. 2d at 308. When there is no ambiguity in the
language of the agreement, courts should not adopt a strict construction of that language that
reaches a different result from that intended by the parties. Higgins v. Kleronomos, 121 Ill.
App. 3d 316, 321 (1984).
¶ 16 Applying these principles to the present case, the indemnification agreement clearly and
unambiguously requires Waller to indemnify Bank of America for “any and all” attorney
fees and expenses it incurs resulting from “any act” taken by the bank under any of the
account resolutions. (Emphases added.) Based upon the undisputed facts of this case, we
conclude, as a matter of law, that the bank acted under two account resolutions and that those
actions resulted in the bank incurring attorney fees and costs for which it is contractually
entitled to be indemnified. The essence of Henry’s complaint against the bank was that it was
liable for conversion because it allowed Waller to negotiate the two settlement checks for
deposit that contained forgeries of Henry’s endorsement. The bank’s actions in this respect
were first taken under resolution II, which specifically authorized Waller to endorse,
negotiate and receive the proceeds of any negotiable instrument. Moreover, in accepting the
checks for deposit and crediting Waller’s account, the bank relied on Waller’s guarantee of
Henry’s prior endorsement on those checks. The bank’s actions were therefore also taken
under resolution I, pursuant to which Waller guaranteed all prior endorsements on all items
deposited into his account. The bank was sued by Henry for these specific acts and it thus
incurred attorney fees and costs as a result of actions it took under the account resolutions.
Accordingly, Waller’s obligation to indemnify the bank for those attorney fees and costs
under the IOLTA agreement was triggered.
¶ 17 Waller argues that the indemnification agreement was not triggered because he acted as
an “innocent depositor” whose actions did not cause the bank to incur those expenses.
1
Waller opened the IOLTA account through an entity called “Harvey Waller, Ltd.” However,
the parties stipulated at trial that the Illinois Secretary of State dissolved that entity on May 1, 1991.
Additionally, Waller agrees that in this case, he personally was the account holder and that the
corporate resolutions governing the account agreement apply to him personally.
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Instead, Waller asserts, the attorney fees and costs incurred by the bank were the result of
Olson’s criminal actions and, as such, those fees and expenses fall outside the scope of the
indemnification agreement.
¶ 18 Waller essentially argues that his obligations under the indemnity agreement would be
triggered in this case only if he, as opposed to Olson, converted the settlement checks or
forged Henry’s endorsement on them. We disagree. The indemnification agreement contains
no language limiting Waller’s obligation to indemnify the bank to those situations in which
he acts criminally by converting checks or forging endorsements. In other words, the
indemnification agreement does not limit the obligation to indemnify to situations in which
Waller’s actions, as opposed to those of a third party such as Olson, were the direct and
immediate cause of the bank incurring attorney fees. The indemnification agreement is
triggered whenever the bank is compelled to incur attorney fees and costs by virtue of the
bank account held and utilized by the depositor. In fact, under the plain and ordinary
language of the agreement, it does not matter whether the checks were converted or whether
the endorsements on the checks were actually forged. It also does not matter whether Waller
had authority to endorse Henry’s name on the checks under the limited power of attorney or
that Olson is the person alleged to have stolen the money and disappeared. Because the
language of the indemnity agreement is clear and unambiguous, we decline to adopt the
narrow construction urged by Waller to limit its scope. See Higgins, 121 Ill. App. 3d at 321.
¶ 19 Instead, to determine whether the obligation to indemnify has been triggered, the only
relevant question under the indemnity agreement is whether the bank incurred attorney fees
and costs “resulting from or growing out of or in connection with any act” it took under any
of the account resolutions. The bank did so in this case when it was sued by Henry because
it accepted for deposit the two checks that contained allegedly forged endorsements and then
credited Waller’s account in the amount of those checks.
¶ 20 Waller raises concerns about the fairness of construing the indemnity agreement in what
he characterizes as a “broad,” “open ended” and “unlimited” manner so as to hold him liable
for the bank’s attorney fees based upon Olson’s criminal acts. We note, however, that parties
are free to portion out risk as they see fit. Evans v. Lima Lima Flight Team, Inc., 373 Ill.
App. 3d 407, 412 (2007); Hartford Fire Insurance Co. v. Architectural Management, Inc.,
194 Ill. App. 3d 110, 117 (1990). From a commonsense point of view, it is clear to this court
that no bank would willingly undertake the risk of incurring attorney fees and costs of the
magnitude incurred here in return for the privilege of providing a depositor with an IOLTA
account that generates a relatively small amount of bank fees. Indemnity agreements exist
to address circumstances such as those before us. We note that when counsel for the appellee
was asked at oral argument how the indemnity agreement could have been made any clearer
in advance to insulate the bank from these expenses, no adequate response was forthcoming.
¶ 21 Indemnification agreements are also generally valid and enforceable contracts. Hader v.
St. Louis Southwestern Ry. Co., 207 Ill. App. 3d 1001, 1011 (1991); see also Scott Stainless
Steel, Inc. v. NBD Chicago Bank, 253 Ill. App. 3d 256, 261-62 (1993) (indemnification
agreement between bank and customer was a valid and enforceable contract under the UCC).
Bank of America is not seeking to be indemnified for its own negligence; the trial court
expressly found that the bank exercised ordinary care in its handling of the checks. While it
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is Olson who is alleged to have stolen the settlement funds, Olson is a stranger to the bank.
It was Waller who triggered the bank’s involvement in this case by doing business with
Olson; the bank had no control over that decision. Protecting against remote and
unforeseeable risks presented by a third party such as Olson is one of the primary reasons that
banks negotiate indemnity agreements into their contracts with account holders such as
Waller. To impose a limitation on the indemnification agreement that is not found in the
plain and unambiguous language of the contract would frustrate the purpose of indemnity
agreements and the ability of banks and other parties to freely negotiate them into contracts.
Because the language of the indemnity agreement is clear and unambiguous, we will enforce
it as written and we will not read limitations into the contract to reach what Waller deems
to be a more equitable result. See Tatar v. Maxon Construction Co., 54 Ill. 2d 64, 67 (1973)
(“ ‘[U]nless a contract is ambiguous, its meaning must be determined from the words used;
and courts will not, because a more equitable result might be reached thereby, construe into
the contract provisions that are not contained therein.’ ” (quoting Westinghouse Electric
Elevator Co. v. LaSalle Monroe Building Corp., 395 Ill. 429, 432 (1946))).
¶ 22 Waller also claims that the bank has not cited authority applying what he characterizes
as a “non-negotiated” indemnity provision under the circumstances presented in this case.
Waller’s characterization of the indemnity provision as a sort of contract of adhesion is
inaccurate. Waller was free to attempt to negotiate a different contract with the bank or to
open an account at a different banking institution if he was unable to negotiate the contract
he preferred with Bank of America. There is no dispute that Waller freely and voluntarily
entered into the contract with the bank and thereby agreed to the indemnification provision
contained therein. And although neither party has presented this court with a case involving
the same facts as those in the present case, our supreme court has observed that due to the
varying nature of indemnity provisions, each case involving their interpretation must be
decided based upon the language of the contract. See Tatar, 54 Ill. 2d at 67. The court has
specifically stated:
“We have examined the authorities cited by the parties and many of those collected
[in the American Law Reports], and conclude that the contractual provisions involved
are so varied that each must stand on its own language and little is to be gained by an
attempt to analyze, distinguish or reconcile the decisions. The only guidance afforded is
found in the accepted rule of interpretation which requires that the agreement be given
a fair and reasonable interpretation based upon a consideration of all of its language and
provisions.” Tatar, 54 Ill. 2d at 67.
¶ 23 Bank of America also contends that it was entitled to attorney fees and costs under
provisions of the UCC. However, in light of our conclusion that the bank is entitled to
indemnification under the terms of the indemnity agreement, we need not consider whether
the bank would also be entitled to those fees and costs under the UCC.
¶ 24 Finally, the bank contends that the trial court abused its discretion when it denied its
motion in limine to bar the expert testimony of Robert Markoff. At trial, Markoff essentially
testified that under the limited power of attorney signed by Henry, Waller would have had
the authority as Henry’s lawyer to endorse her signature on the checks and deposit them.
Markoff’s testimony goes to the larger issue of whether Waller was at fault in negotiating the
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settlement checks for deposit. However, as explained above, Waller’s alleged negligence is
not relevant to the bank’s right to indemnification. It matters not that Waller, Olson or any
other party was at fault or whether Waller would have had authority to endorse Henry’s name
under the limited power of attorney. The indemnification agreement concerned only whether
Bank of America incurred attorney fees and costs by virtue of the accounts under resolutions
I and II.
¶ 25 Because the trial court never reached the question of the amount of attorney fees and
costs to which Bank of America is entitled, we remand this case to the trial court for a
hearing on that issue.
¶ 26 CONCLUSION
¶ 27 For the reasons stated, we reverse the judgment of the circuit court of Cook County
denying the bank’s petition for attorney fees and costs and remand the case to the circuit
court.
¶ 28 Reversed and remanded.
¶ 29 JUSTICE GARCIA, specially concurring.
¶ 30 I agree with Justice Palmer. Attorney Waller’s deposit of two checks made payable to
“Pamela A. Henry and Harvey Waller” into his IOLTA account is the legal basis of Ms.
Henry’s complaint against Bank of America (the Henry litigation), which triggered the
indemnity provision. Supra ¶ 16. I add a few words to explain where attorney Waller went
wrong.
¶ 31 His fundamental mistake was the failure to recognize that, in addition to the duty of care
he owed to the Olson firm as the party that retained him, under the facts of this case he also
owed a duty of care to Ms. Henry as the clear beneficiary of the collection efforts he was
retained to perform. See Pelham v. Griesheimer, 92 Ill. 2d 13, 21 (1982) (a duty of care to
a third party arises whenever the evidence establishes “that the primary purpose and intent
of the attorney-client relationship itself was to benefit *** the third party”). As confirmed
by his settlement of Ms. Henry’s claim, attorney Waller violated his duty of care to Ms.
Henry, which arose no later than when he deposited the two settlement checks that bore Ms.
Henry’s name, which in turn brought the Henry litigation to the door of Bank of America.
The breach occurred when he issued the IOLTA check to Olson without protecting Ms.
Henry as the real person in interest in the collection effort.
¶ 32 Although he may be correct, as he intimates, that his deposit of the two settlement checks
totaling $450,000 with the unauthorized signature of Ms. Henry violated no legal duty, there
is also no dispute that Bank of America accepted the deposit of the settlement checks under
the resolutions governing the IOLTA account. Based on that deposit, Ms. Henry could not
have sued Bank of America without also suing attorney Waller and, between the two, only
he breached a duty to Ms. Henry.
¶ 33 The circuit court got it wrong when it concluded that Ms. Henry’s suit, which had the
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starting point of the deposit of the settlement checks, did not trigger the indemnification
provision because of the “uneventful” nature of the deposit as compared to Olson’s clear
criminal conduct, as our colleague in dissent argues. There is no persuasive authority for
excluding the “innocent” act of a bank deposit from the protection afforded the bank in the
indemnity provision; nor is there any authority for placing the risk of a third party engaging
in criminal activity at the end point of bank transactions on the bank, as the dissent argues,
rather than on the account holder. The “subsequent conversion” by Olson did not immunize
Bank of America from being sued by Ms. Henry; nor did Olson’s criminal conduct somehow
immunize attorney Waller under the bank’s indemnity provision.
¶ 34 I also question our dissenting colleague’s characterization of Olson as a third party. Infra
¶ 37. Olson and Waller were client and attorney; to that extent, attorney Waller acted as
Olson’s agent. See In re Marriage of Stephenson, 2011 IL App (2d) 101214, ¶ 35 (the
attorney-client relationship is one of principal and agent). Attorney Waller provided the
means by which Olson was able to abscond with the proceeds of the settlement that belonged
to Ms. Henry by issuing him the IOLTA check. I also disagree with the dissent’s suggestion
that our resolution of the indemnity issue should turn on the “meritless lawsuit against the
Bank.” Infra ¶ 38. The indemnity provision protected the bank regardless of the merits of the
underlying lawsuit. To stop Bank of America’s fees and costs from accumulating against him
during the Henry litigation, attorney Waller should have concluded that he breached his duty
to Ms. Henry sooner rather than 11 years later.
¶ 35 JUSTICE LAMPKIN, dissenting.
¶ 36 I dissent from the majority’s decision that Waller was obligated to indemnify the bank
pursuant to the terms of the parties’ indemnification agreement. A twofold standard of
review applies to this matter. Whereas de novo review is applied to the trial court’s
interpretation of the parties’ fee-shifting agreement as a matter of law, the trial court’s
application of the terms of that agreement to the facts should be reviewed for an abuse of
discretion. Peleton v. McGivern’s, Inc., 375 Ill. App. 3d 222, 225-26 (2007). I do not agree
with the bank’s characterization of the trial court’s interpretation of the agreement as narrow;
the trial court recognized that the broad indemnification provision protected the bank from
losses that resulted from the bank’s acts under Waller’s IOLTA account resolutions. The trial
court, however, determined that the bank’s legal fees resulted from the criminal act of a third
person rather than from the bank’s acts under the account resolutions. That determination by
the trial court was not an abuse of discretion.
¶ 37 In ruling against the bank’s petition for fees and costs, the trial court found that Waller’s
negotiation of the settlement checks through his account and temporary possession of the
settlement funds was “uneventful” and did not trigger the indemnification obligations of his
account agreement. Specifically, the court found that Henry agreed to the $450,000
settlement and, pursuant to the terms of the limited power of attorney she had signed, fully
authorized Olson and Waller, as Olson’s agent, to negotiate the checks through Waller’s
account. Consequently, Waller and Olson properly and lawfully came into possession of the
settlement proceeds for 90 days. Thereafter, however, $225,000 of the settlement funds were
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converted, and the bank’s losses resulted from or grew out of that subsequent conversion.
Like the trial court, I would hold that the indemnification provision did not insulate the bank
from litigation expenses that resulted from the criminal act of a third party.
¶ 38 The bank insists that its fees and expenses resulted directly from Henry’s lawsuit and
Henry sued the bank merely because it had handled the settlement funds. Doubtless the
bank’s role in properly clearing the checks through Waller’s IOLTA account played a causal
role in the conversion in the sense that no one could have absconded with the settlement
funds if the settlement checks from Henry’s ex-husband were never negotiated through a
bank. That is not, however, an accurate application of the terms of the indemnification
provision to the facts before this court and, thus, not a satisfactory basis for awarding the
bank its litigation costs. One might as well say that anytime the bank is sued by the client of
an attorney that uses an IOLTA account with the bank, the bank will be entitled to
reimbursement from the attorney for any litigation costs. While such insulation from the risk
of meritless lawsuits would certainly be an appealing arrangement for the bank, the
indemnification agreement negotiated by the parties here does not obligate Waller to
compensate the bank for the losses it sustained when Henry attempted to recoup her loss by
filing a meritless lawsuit against the bank.2
¶ 39 The bank wrote the indemnification provision and must be bound by the clause that limits
its right to indemnification to losses that resulted from or grew out of or in connection with
the bank’s acts in negotiating the settlement checks through Waller’s account. Moreover, the
record supports the trial court’s determination that the bank’s fees and costs in defending
against the Henry litigation resulted from, grew out of, or were connected with Olson’s
subsequent criminal act of converting the settlement funds and not from the uneventful and
authorized negotiation of the settlement checks through Waller’s bank account.
¶ 40 Specifically, the limited power of attorney3 signed by Henry authorized Olson and
2
Henry’s various allegations against Olson, Waller and the bank evolved over time in
multiple lawsuits. Initially, she sued Olson and his firm for breach of contract. Later, she sued Waller
in chancery court, alleging that Olson fraudulently transferred $225,000 to Waller and asserting that
the transfer should be voided and Waller should be ordered to pay her $225,000. Later, Henry
amended her claim against Waller to assert that the endorsement signatures in her name on the back
of the cashier’s checks were forgeries and to add the bank as a defendant.
3
That limited power of attorney, which Henry, upon the advice of her divorce attorney,
signed in October 1998, provided, in pertinent part:
“I, Pamela Henry (Engel), grant a [sic] exclusive limited power of attorney to Olson,
Olson and Olson & legal counsel to act as my attorney-in-fact.
I give my attorney-in-fact the exclusive and maximum power under law to perform
the following act on my behalf: to actively prosecute, proceed, negotiate and recover on the
money judgment case # 89 D 9849 in the amount of $500,000 plus interest and court cost.
***
Judgment holder Pamela Henry (Engel) will receive 50% of the moneys collected
on the judgment. Funds received from judgment debtor will be dispersed [sic] within ninety
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Waller, as Olson’s agent, to endorse the settlement checks for negotiation, negotiate the
settlement checks through Waller’s account, and receive for temporary possession the
proceeds from the checks. When the banking transaction ended, the funds were properly in
the hands of Henry’s agent. Furthermore, the bank acted consistent with the account
resolutions in negotiating the settlement checks through Waller’s account. The parties agreed
that Waller would indemnify the bank for attorney fees and court costs “it may suffer
resulting from or growing out of or in connection with any act taken by the Bank as a result
of” Waller’s guarantee of endorsements on checks and negotiation of checks. Those terms,
which are given their plain and ordinary meaning, do not state that the bank will be
indemnified from any and all claims involving Waller’s IOLTA account. Rather, Waller’s
indemnification obligation would be triggered by damages from the bank’s acts under the
account resolutions. The language of their contract does not indicate any intent by the parties
that a remote cause which did not necessarily or immediately produce the injury would
suffice to trigger Waller’s indemnity obligation.
¶ 41 Support for the trial court’s determination is found in County of Pierce v. Suburban Bank
of Elmhurst, 815 F. Supp. 1124 (N.D. Ill. 1993). In that case, the county issued a warrant
check payable to multiple payees for a project involving road improvements. Id. at 1125. The
bank deposited the check in the proper account but technically violated the warranty of good
title by failing to obtain the endorsements of all the payees on the warrant check. Id. One of
the payees subsequently misappropriated the funds in the account and failed to pay the
project creditors. Id. The county filed suit against the bank, but the trial court granted
summary judgment in favor of the bank, finding that the county failed to show that it actually
incurred damages as a result of the bank’s actions. Id. at 1126-27. Specifically, the trial court
found that, despite the bank’s technical warranty violation of failing to verify the
endorsement, the county’s damages were the result of the misconduct of a payee after the
check was deposited in the appropriate account. Id. Similarly here, the bank has failed to
show that it incurred damages as a result of its actions under Waller’s account resolutions.
¶ 42 Because I agree with the trial court’s determination that the bank was not entitled to
indemnification, I also address the bank’s alternative argument that it is entitled to attorney
fees and costs under Waller’s UCC transfer warranties. Specifically, the bank argues the trial
court erred as a matter of law in finding that Waller did not breach the UCC transfer
warranties. By transferring the two settlement checks to the bank, Waller warranted to the
bank that “all signatures [on the checks were] authentic and authorized.” See 810 ILCS 5/3-
416(a)(2), 4-207(a)(2) (West 2008). The bank contends Waller breached both those
warranties because (1) the bank and Waller stipulated at trial that Henry’s signatures on the
two checks were not authentic, and an endorsement does not have to be a forgery in order to
constitute a breach of the transfer warranty; and (2) “there was a complete failure of proof”
at the trial to establish that the endorsements were authorized.
¶ 43 A trial court’s application of the UCC to uncontroverted facts presents a question of law
reviewed de novo. Here, however, the trial court applied the UCC to its determinations of
days of receipt of same.”
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fact following a trial on the merits. A trial court’s purely legal findings are reviewed de novo,
but its determinations of fact should be upheld unless they are contrary to the manifest
weight of the evidence. Salem National Bank v. Chapman, 64 Ill. App. 3d 625, 628 (1978).
The ultimate decision to award or deny attorney fees under the UCC is committed to the
discretion of the trial court and is reviewed for an abuse of discretion. Southern Provisions,
Inc. v. Harris Trust & Savings Bank, 96 Ill. App. 3d 745, 748 (1981).
¶ 44 The bank’s argument challenging the authenticity of Henry’s signatures on the checks is
unavailing. When the bank asserts on appeal that Waller has already stipulated that the
signatures were not authentic, the bank attempts to read more into the parties’ stipulated facts
for the bench trial than the parties had intended. It is clear from the record that the parties’
stipulation that Henry’s signatures on the two cashier’s checks were “not authentic” simply
meant that Henry herself did not sign her endorsement on those checks; Waller never
conceded that the signatures were legally inauthentic for purposes of any provision of the
UCC.
¶ 45 Furthermore, the bank cites no relevant authority to support the proposition that Henry’s
signature could only be authentic for purposes of the UCC if Henry herself actually signed
the back of the settlement checks. Although the UCC does not define the term authentic, the
bank’s suggested meaning of the term is not supported by the statute. If, as the bank
contends, authentic means that the signature on the check must be the actual, manuscript
signature of the named person or entity, then the UCC provisions concerning an agent’s or
representative’s authorized endorsement on behalf of the principal would be rendered
meaningless. See, e.g., 810 ILCS 5/3-401 (West 2010) (a person’s liability on an instrument
when signed by an agent or representative); 810 ILCS 5/3-402 (West 2010) (signature by a
representative); 810 ILCS 5/3-405 (West 2010) (employer’s responsibility for fraudulent
indorsement by an employee). The fact that Henry herself did not write her name on the
checks does not satisfy the bank’s burden to prove a breach of the UCC transfer warranty due
to an inauthentic endorsement.
¶ 46 The bank’s argument that Henry’s signatures on the checks were not authorized also
lacks merit. On appeal, the bank attempts, without citation to any relevant authority, to attack
the validity of the limited power of attorney by complaining that: Henry stated in her
evidence deposition that she never authorized Olson, his firm, or anyone else to endorse the
checks; no counterparty signed the limited power of attorney form with Henry; the form did
not expressly convey authority to endorse the checks; and no evidence was presented at trial
to establish that an authorized agent of the Olson firm actually signed the endorsement in
Henry’s name on the checks. Finally, the bank asserts that even if the limited power of
attorney form constituted an agreement with any attorney-in-fact, the attorney-in-fact
breached the agreement and, thus, lost any authority conveyed by the document.
¶ 47 The bank’s failure to support these propositions by citation to relevant authority forfeits
review of these arguments on appeal. Such forfeiture notwithstanding, the parties stipulated
that Henry, upon the advice of her divorce attorney, signed the limited power of attorney in
favor of Olson and his agents. Moreover, Henry approved the settlement negotiated by
Waller. Consequently, Henry authorized the Olson firm and Waller to act as her agents.
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Furthermore, the terms of the limited power of attorney were broad enough to confer on
Olson and Waller the power to sign Henry’s name on the back of the settlement checks and
negotiate those checks through Waller’s IOLTA. Accordingly, the trial court properly found
as a matter of fact and law that Waller did not breach the UCC transfer warranty due to an
unauthorized endorsement.
¶ 48 The bank has not met its burden to prove that Waller breached his transfer warranties.
However, even assuming, arguendo, that Waller technically breached those warranties, any
such breach did not cause the bank’s loss. As discussed above, the bank’s loss was the result
of Olson’s criminal act after Waller had negotiated the settlement checks through his account
and Henry’s meritless lawsuit. See County of Pierce, 815 F. Supp. at 1126-27.
¶ 49 Finally, the bank argues the trial court abused its discretion by allowing Waller’s witness,
Robert Markoff, to testify as an expert on Illinois collection practices in a case that did not
involve any issues of collection law. The bank states that the trial court never made a finding
that the limited power of attorney was ambiguous and Markoff improperly offered parol
evidence to interpret that document. See Todd W. Musburger, Ltd. v. Meier, 394 Ill. App. 3d
781, 800-01 (2009) (court properly barred expert testimony that purported to offer legal
conclusions and interpret the parties’ agreement). According to the bank, the trial court relied
heavily on Markoff’s immaterial and irrelevant testimony.
¶ 50 The trial court is vested with broad discretion to determine the relevance and
admissibility of evidence, including expert testimony. Alm v. Loyola University Medical
Center, 373 Ill. App. 3d 1, 4 (2007). If the trial court is found to have abused its discretion,
relief on appeal is warranted only where the appellant can demonstrate prejudice. Gill v.
Foster, 157 Ill. 2d 304, 317-18 (1993).
¶ 51 According to the record, Markoff opined that the limited power of attorney signed by
Henry gave the Olson firm and its authorized agents, like Waller, the authority to sign
Henry’s name on the back of the settlement checks, negotiate the checks through the bank,
and hold the settlement funds for 90 days before distributing the proceeds according to the
terms of the compensation agreement between Olson and Henry. Markoff also opined that
Waller did not breach any duty by following the limited power of attorney and sending the
settlement proceeds to Olson instead of Henry.
¶ 52 Markoff also testified that, under the common practice in Illinois concerning debt
collection, Waller had authority to sign Henry’s name on the back of the checks and deposit
the checks. Markoff explained the debt collection practice and how collection lawyers
usually were engaged in a case. He stated that collection lawyers usually worked through an
agent and had little contact with the judgment holder or client. By negotiating the checks
through a client trust fund account, a collection lawyer ensured that the checks had cleared
properly for both the judgment holder and payor. Furthermore, it was commonly accepted
that a collection lawyer could sign or endorse checks on behalf of the client or judgment
holder, even if that action was not explicitly stated in any agreement. Markoff explained that
a collection lawyer’s ability to endorse the checks eliminated the risk of sending endorsed
checks through the mail. Furthermore, a collection lawyer’s ability to endorse and deposit
checks immediately benefitted the payor by preventing the accumulation of interest on the
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judgment. In addition, checks had to be deposited and negotiated quickly before the funds
disappeared or became affected by a payor’s bankruptcy. Under the common practice, a
collection lawyer remitted the funds to the collection agent with the collection lawyer’s fee
portion retained.
¶ 53 The record establishes that the trial court did not abuse its discretion by allowing Markoff
to testify regarding the debt collection practice. The bank presented the testimony of its
assistant general counsel, who opined on the meaning of the contract provisions and the
ultimate issues of whether Waller was in breach of transfer warranties and whether the bank
had incurred legal fees within the scope of the indemnification clause. In turn, Waller
presented Markoff’s testimony, which provided background on the usage and customs of the
debt collection practice. Both witnesses provided information on the underlying commercial
context of this dispute and thereby assisted the fact determinations made by the trial judge.
¶ 54 It is also clear that, in this bench trial, the trial judge understood the proper purpose and
limitation of Markoff’s expert testimony. Although Markoff offered some parol evidence to
interpret the limited power of attorney agreement, the record establishes that the trial court
limited its consideration of Markoff’s testimony to the subject of collection law and how a
collection attorney in the normal and customary course of collection practice would have
acted under a limited power of attorney. In a bench trial, in the absence of evidence to the
contrary, it is presumed that the court considered only competent evidence and the admission
of incompetent evidence is harmless. Dowd & Dowd, Ltd. v. Gleason, 352 Ill. App. 3d 365,
389 (2004). The record here supports that presumption. Specifically, before the trial judge
questioned Markoff, the judge stated that he was not interested in any of Markoff’s legal
conclusions but, rather, was concerned about the nature of the debt collection practice.
Moreover, the trial judge stated in his oral ruling that he was particularly persuaded by
Markoff’s testimony about the “practices that prevail in the collection industry” and “the
important reasons why attorneys have to negotiate” instruments like cashier’s checks in a
timely manner. The trial court properly considered Markoff’s expert testimony only to the
extent that it was relevant to the factual issues before the court.
¶ 55 I would affirm the judgment of the circuit court, which denied the bank’s petition for
attorney fees and costs and considered only the admissible testimony of Waller’s expert
witness.
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