Downs v. Rosenthal Collins Group, L.L.C.

895 N.E.2d 1057, 385 Ill. App. 3d 47, 324 Ill. Dec. 342, 2008 Ill. App. LEXIS 912
CourtAppellate Court of Illinois
DecidedSeptember 17, 2008
Docket1-08-0636
StatusPublished
Cited by9 cases

This text of 895 N.E.2d 1057 (Downs v. Rosenthal Collins Group, L.L.C.) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Downs v. Rosenthal Collins Group, L.L.C., 895 N.E.2d 1057, 385 Ill. App. 3d 47, 324 Ill. Dec. 342, 2008 Ill. App. LEXIS 912 (Ill. Ct. App. 2008).

Opinion

PRESIDING JUSTICE MURPHY

delivered the opinion of the court:

On September 19, 2007, plaintiff, Michael A. Downs, filed a complaint against defendant, Rosenthal Collins Group, L.L.C., for breach of contract and declaratory judgment. Plaintiff alleged that defendant breached its operating agreement by failing to indemnify plaintiff for attorney fees incurred in his successful defense of claims of breach of fiduciary duty and breach of contract brought by defendant in an earlier action. Defendant filed a motion to dismiss pursuant to section 2 — 615 of the Illinois Code of Civil Procedure. 735 ILCS 5/2 — 615 (West 2004). The trial court granted defendant’s motion with prejudice, finding the indemnification provision of the operating agreement did not give rise to indemnification for attorney fees. For the following reasons, we affirm the findings of the trial court.

I. BACKGROUND

In 1997, plaintiff became chief executive officer and a member of defendant company. As such, plaintiff was entitled to the rights and privileges of defendant’s operating agreement. On February 3, 2004, defendant filed the underlying complaint asserting claims of breach of fiduciary duty and breach of contract against plaintiff. Plaintiff asserted his own claims against defendant, which in turn filed counterclaims. Plaintiff successfully moved to dismiss defendant’s original claims and two counterclaims. One additional counterclaim was subject to plaintiff’s motion for summary judgment at the time of the instant complaint.

Defendant denied plaintiffs request for indemnification for his defense of these claims and counterclaim. On September 19, 2007, plaintiff filed the instant action, asserting breach of contract claims and a declaratory action seeking a declaration he was entitled to indemnification for his defense of these claims and the counterclaim. Plaintiff asserted that the operating agreement provided for indemnification for the defense of claims arising out of activities undertaken for defendant company.

Sections 21.1 and 21.2 of the operating agreement constitute the sole liability and indemnification provisions and state in full:

“21.1 A Member shall not be liable, responsible or accountable, in damages or otherwise, to any other Member or to the Company for any act performed by the Member within the scope of the authority conferred hereunder by Unanimous Approval, except for fraud, gross negligence or an intentional breach of this Agreement.
21.2 The Company shall indemnify each Member for any act performed by such Member with respect to Company matters permitted by this Agreement and/or Majority Approval, but in no event for fraud, willful misconduct, negligence or an intentional breach of this Agreement.”

Plaintiff asserted that all actions underlying the complaint were taken with respect to company matters. Furthermore, plaintiff claimed that as the claims were dismissed as factually and legally without merit, he was entitled to indemnification for all sums expended in defense of the claims pursuant to section 21.2.

There was no dispute that plaintiff was a member of the company and entitled to the protections of these sections of the operating agreement. However, defendant filed a section 2 — 615 motion to dismiss arguing that plaintiff failed to sufficiently plead a cause of action. Defendant argued that section 21.2 did not specifically provide for indemnification for attorney fees and that plaintiff’s complaint was therefore insufficient at law.

The trial court considered the parties’ briefs on the motion and entered an order granting dismissal. The trial court noted that it is well settled in Illinois that indemnity contracts must be strictly construed. McNiff v. Millard Maintenance Service Co., 303 Ill. App. 3d 1074, 1077 (1999). Furthermore, the trial court noted that Illinois cases have established that attorney fees are only recoverable pursuant to an indemnity contract if such terms are specifically provided for within the contract. Nalivaika v. Murphy, 120 Ill. App. 3d 773, 777 (1983); Bartsch v. Gordon N. Plumb, Inc., 138 Ill. App. 3d 188, 204 (1985).

Strictly construing the express language of section 21.2 of the operating agreement, the trial court found that it did not specifically allow for recovery of attorney fees. The trial court found that McNiff, Nalivaika and Bartsch clearly require specific terms and addressed the issue of the case. Therefore, the trial court opined that a review of plaintiff’s citations to persuasive authority from foreign jurisdictions was unavailing. Viewing plaintiffs allegations in a light most favorable to plaintiff, the trial court concluded that no set of facts could be proven to overcome the requirements of Illinois law. Plaintiff now appeals the trial court’s dismissal.

II. ANALYSIS

A motion to dismiss under section 2 — 615 of the Code of Civil Procedure challenges the legal sufficiency of a complaint based on facial defects of the complaint. Borowiec v. Gateway 2000, Inc., 209 Ill. 2d 376, 413 (2004). We follow a de novo review of a trial court’s ruling on the sufficiency of a motion to dismiss. Gallagher Corp. v. Russ, 309 Ill. App. 3d 192, 196 (1999). While we must view the allegations in the complaint in a light most favorable to the plaintiff, we may affirm the decision to dismiss a case on any basis contained within the record. Gallagher Corp., 309 Ill. App. 3d at 196.

Plaintiff argues that the trial court erred in dismissing his complaint under section 2 — 615. He contends that the broad indemnification provision of the operating agreement includes attorney fees. Plaintiff asserts that the lack of any limit on the types of costs, fees or expenses that may be indemnified demonstrates that attorney fees were not intended to be excluded. Alternatively, plaintiff asserts that the trial court improperly applied the rules of contract interpretation and should have interpreted the ambiguity against defendant or allowed parol evidence to properly discover the parties’ intent in forming the indemnification provisions.

Plaintiff argues that the specific terms of section 21.2 merely exclude indemnification for acts of fraud, willful misconduct, negligence or an intentional breach of the operating agreement. Despite this clear limitation, plaintiff notes there is a lack of any limitation with respect to the types of costs indemnified. Accordingly, plaintiff concludes that the parties’ intent to include such expenses was clear and the trial court violated the cardinal rule of contract interpretation by requiring specific language to grant indemnification for attorney fees.

Plaintiff argues that the recent decisions in Buenz v. Frontline Transportation Co., 227 Ill. 2d 302 (2008), and Nicor Gas Co. v. Village of Wilmette, 379 Ill. App. 3d 925 (2008), support his argument. Plaintiff contends that each case allowed for an indemnification obligation based on general language in an indemnity contract. He concludes that these cases confirm that the trial court erred in ignoring the persuasive authority of federal cases cited below that specific language is not necessary to award attorney fees.

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Bluebook (online)
895 N.E.2d 1057, 385 Ill. App. 3d 47, 324 Ill. Dec. 342, 2008 Ill. App. LEXIS 912, Counsel Stack Legal Research, https://law.counselstack.com/opinion/downs-v-rosenthal-collins-group-llc-illappct-2008.