Fowler v. Schmidt Advisory Services, Inc.

2025 IL App (1st) 250362-U

• Court: Appellate Court of Illinois
• Decided: September 30, 2025
• Docket: 1-25-0362
• Status: Unpublished

Opinion

2025 IL App (1st) 250362-U Order filed: September 30, 2025

FIRST DISTRICT THIRD DIVISION

No. 1-25-0362

NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1). ______________________________________________________________________________

IN THE APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT ______________________________________________________________________________

) DIANE FOWLER, individually and on behalf of a class Appeal from the of similarly situated individuals, ) Circuit Court of ) Cook County. Plaintiff-Appellant, ) ) 2024 CH 1610 v. ) ) Honorable SCHMIDT ADVISORY SERVICES, INC., d/b/a ) Thaddeus Wilson, Catalyst Wealth Management, SANFORD SCHMIDT, ) Judge, presiding. and JASON CLOTH, ) ) Defendants-Appellees. ) ______________________________________________________________________________

JUSTICE ROCHFORD delivered the judgment of the court. Justices Lampkin and Reyes concurred in the judgment.

ORDER

¶1 Held: Stay of a portion of this class action is vacated, and this matter is remanded for further proceedings, where circuit court abused its discretion in entering a stay that ignored recognized principles of law, including the Peppers doctrine.

¶2 Plaintiff-appellant, Diane Fowler, individually and on behalf of a class of similarly situated

individuals, appeals from an order entering a stay of a portion of this class action lawsuit pending

the resolution of a related declaratory judgment action involving insurance coverage for the claims

at issue in this matter. For the following reasons, we vacate the stay entered by the circuit court

and remand for further proceedings. No. 1-25-0362

¶3 On March 5, 2024, plaintiff filed the instant action against defendants-appellees, Schmidt

Advisory Services, Inc., d/b/a Catalyst Wealth Management, Sanford Schmidt (Schmidt), and

Jason Cloth. The complaint generally alleged that defendants had engaged in a complex Ponzi-like

scheme purporting to permit investors such as plaintiff to invest in various movie productions,

ultimately leading plaintiff and a class of similarly situated individuals to be defrauded out of

millions of dollars. The complaint sought to recover damages on behalf of this class of individuals

and included claims against Schmidt and Cloth for fraudulent misrepresentation, violations of

Illinois security laws, negligent misrepresentation, and unjust enrichment. Plaintiff immediately

began investigating available insurance and Schmidt’s ability to pay.

¶4 On June 4, 2024, plaintiff made a policy limits demand, demanding that Markel American

Insurance Company (“MAIC”) tender its $2,000,000 policy to the class. On June 9, 2024, Schmidt

also sent MAIC a letter demanding that MAIC accept plaintiff’s settlement demand and that it

should do so before June 24, 2024. Having heard nothing from MAIC, after July 12, 2024, Schmidt

sent MAIC another letter reiterating the importance of accepting plaintiff’s demand. As of July 22,

2024, with no response whatsoever from MAIC, plaintiff withdrew her policy limits demand.

¶5 On August 9, 2024, MAIC filed a declaratory judgment action seeking a determination that

MAIC does not owe a duty to defend or indemnify Schmidt in this lawsuit. The declaratory

judgment action started in federal court, and has since spread to other forums, including a separate

chancery action pending in the circuit court (Markel American Insurance v. Sanford Schmidt, et

al., Case No. 2024 CH 09499).

¶6 On September 20, 2024, plaintiff and Schmidt executed a settlement agreement that

provided for the entry of judgment against Schmidt and an assignment to the class of his claims

against MAIC. On September 24, 2024, plaintiff filed a motion for preliminary approval of the

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settlement. On October 23, 2024, Cloth filed a motion to dismiss the claims against him, based in

part on the argument that plaintiff lacked standing to sue him. On November 4, 2024, the circuit

court granted preliminary approval of the settlement with Schmidt.

¶7 On February 20, 2025, the circuit court scheduled a hearing to address, inter alia, Cloth’s

motion to dismiss. At the conclusion of that hearing, the court entered an order that, inter alia,

granted that motion to dismiss in part and denied it in part, and dismissed the claims against Cloth

without prejudice. The order also granted plaintiff time to file an amended complaint “to address

the deficiencies identified in this Order, including leave to add an additional or substitute Plaintiff

class representative” as to the claims against Cloth and granted Cloth time to answer or otherwise

plead to such an amended complaint. As to the claims against Schmidt, the order held as follows:

“With respect to the class action against the Schmidt Defendants, the Final

Approval Hearing set for March 10, 2025, is STRICKEN and that class action aspect of

this case is stayed until further order of Court. Given that the Court has granted Plaintiff

leave to amend the complaint to add or substitute class representative(s), the Court may

need to modify the order approving the class, give notice to class members listing the

appropriate class representative(s), review the grant of preliminary approval and any

subsequent final approval. This is unless of course Plaintiff decides to stand on their

original pleading, take an involuntary dismissal and then appeal. Furthermore, even after

sorting through the technical points above, staying the Schmidt class action proceedings

would not prejudice the Plaintiffs because the sole source of funds for class recovery hinges

upon whether the Markel American policy that is the subject of Markel American

Insurance v. Sanford Schmidt, et. al., Case No. 2024 CH 09499, provides coverage for this

case.”

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¶8 On February 26, 2025, plaintiff timely filed a notice of appeal.

¶9 We first note that, because a stay is injunctive in nature, we have jurisdiction to review the

denial of a motion for a stay under Rule 307(a)(1) (eff. Nov. 1, 2017), which allows appeals from

interlocutory orders “granting, modifying, refusing, dissolving, or refusing to dissolve or modify

an injunction.” See Blumenthal v. Brewer, 2016 IL 118781, ¶ 39. We also note that on August 15,

2025, we entered an order taking this case for consideration on plaintiff's brief only. See First

Capitol Mortgage Corp. v. Talandis Construction Corp., 63 Ill. 2d 128, 133 (1976) (the reviewing

court may decide a case on the appellant's brief alone “if the record is simple and the claimed errors

are such that the court can easily decide them without the aid of an appellee's brief”).

¶ 10 A circuit court may grant a motion for stay as part of its inherent authority to control the

disposition of cases before it. Cullinan v. Fehrenbacher, 2012 IL App (3d) 120005, ¶ 10. The court

should consider certain factors including the orderly administration of justice and judicial economy

when making its determination. Id. We will not disturb a circuit court's decision on a motion for

stay unless it abuses its discretion. Id. An abuse of discretion occurs if the court “acted arbitrarily

without the employment of conscientious judgment or, in view of all the circumstances, exceeded

the bounds of reason and ignored recognized principles of law so that substantial prejudice

resulted.” (Internal quotation marks omitted.) Id.

¶ 11 Here, the circuit court ordered that portion of this matter involving the class action against

Schmidt stayed until further order of the court. In doing so, the circuit court relied upon the fact

that, (1) because it had granted plaintiff “leave to amend the complaint to add or substitute class

representative(s), the Court may need to modify the order approving the class, give notice to class

members listing the appropriate class representative(s), review the grant of preliminary approval

and any subsequent final approval,” and (2) “staying the Schmidt class action proceedings would

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not prejudice the Plaintiffs because the sole source of funds for class recovery hinges upon whether

the Markel American policy that is the subject of Markel American Insurance v. Sanford Schmidt,

et. al., Case No. 2024 CH 09499, provides coverage for this case.” We find that the circuit court

abused its discretion in entering a stay for the following reasons.

¶ 12 First, we fail to see why it is necessary to stay that part of this matter involving Schmidt

due to the need to amend the complaint as to the claims against Cloth. This is especially so

considering that the very same order set a defined schedule for the filing of an amended complaint

and answer thereto. While the circuit court should consider the orderly administration of justice

and judicial economy (Fehrenbacher, 2012 IL App (3d) 120005, ¶ 10), it is also the case that

courts should “avoid piecemeal litigation.” Butler v. BRG Sports, LLC, 2019 IL App (1st) 180362,

¶ 46. Allowing this matter to proceed only as to the claims against Cloth and not the claims against

Schmidt invites rather than avoids piecemeal litigation.

¶ 13 More importantly, the circuit court’s second justification—that "the sole source of funds

for class recovery hinges upon whether the Markel American policy that is the subject of [the

declaratory judgment action] provides coverage for this case”—reveals that it ignored recognized

principles of law so that substantial prejudice will result from the stay. It has “long been understood

that complaints for declaratory judgment must show that the issues of the case are not moot or

premature, as courts should not ‘pass judgment on mere abstract propositions of law, render an

advisory opinion, or give legal advice as to future events.’ ” Stokes v. Pekin Insurance Co., 298

Ill. App. 3d 278, 281 (1998) (citing Pincham v. Cunningham, 285 Ill. App. 3d 780, 782 (1996)).

As such, whether “ ‘the insurer has a duty to indemnify the insured for a particular liability is only

ripe for consideration if the insured has already incurred liability in the underlying claim against

it.’ ” Czapski v. Maher, 385 Ill. App. 3d 861, 867 (2008) (quoting Outboard Marine Corp. v.

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Liberty Mutual Insurance Co., 154 Ill. 2d 90, 127 (1992)).

¶ 14 Furthermore, under the rule in Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 196

(1976), it is “ ‘generally inappropriate for a court considering a declaratory judgment action to

decide issues of ultimate fact that could bind the parties to the underlying litigation.’ ” (Internal

quotation marks omitted.) Sentry Insurance v. Continental Casualty Co., 2017 IL App (1st)

161785, ¶ 43 (quoting Landmark American Insurance Co. v. NIP Group, Inc., 2011 IL App (1st)

101155, ¶ 59). “This proscription specifically precludes determination of any ultimate facts upon

which liability or recovery might be predicated in the underlying case.” NIP Group, 2011 IL App

(1st) 101155, ¶ 59. Thus, it is an abuse of discretion for a trial court in a declaratory judgment

action to make such a determination. Peppers, 64 Ill. 2d at 196; Empire Fire & Marine Insurance

Co. v. Clarendon Insurance Co., 267 Ill. App. 3d 1022, 1027 (1994).

¶ 15 Staying any portion of this litigation in favor of first obtaining a determination of coverage

in the declaratory judgment action—and perhaps a determination of ultimate facts—runs afoul of

these well-recognized principles of law, putting the cart before the horse, and invites substantial

prejudice to the parties. As such, this consideration cannot provide a solid justification for the stay

ordered by the circuit court, reveals an abuse of discretion, and leads us to conclude that the stay

must be vacated.

¶ 16 Finally, we briefly address two other arguments raised by plaintiff on appeal. First, plaintiff

alternatively contends that the stay was improperly entered “because the Order was entered without

notice or an opportunity to meaningfully respond in violation of due process.” However, our

decision above to grant plaintiff relief from the stay order on the merits renders this alternative

argument moot, as when an “intervening event occurs making it impossible for a reviewing court

to grant relief to any party, the case is rendered moot because a ruling on the issue cannot have

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any practical effect on the controversy.” In re Tekela, 202 Ill. 2d 282, 292-93 (2002).

¶ 17 Second, plaintiff also presents an argument on appeal challenging in part the circuit court’s

ruling as to plaintiff’s standing. Specifically, plaintiff contends that the circuit court’s order

“muddled standing for the different claims and parties,” claims that “[w]hether Fowler is a proper

plaintiff to assert a securities fraud claim against Cloth is apples to oranges as to whether she is a

proper party to settle a negligence claim against [Schmidt,]” and asserts that “there is no legitimate

question that Fowler has standing to assert and settle her claims against the Schmidt Defendants

for negligence. And, to the extent this was the Circuit Court’s reason to stay final approval, it was

an abuse of discretion and the settlement with no objections and no intervention should proceed to

final approval expeditiously.” We perceive two problems with this argument.

¶ 18 Initially, the discussion of standing in the circuit court’s February 20, 2025, order solely

involved its discussion of Cloth’s motion to dismiss the claims against him alone. We see no

evidence of muddling this discussion with any consideration or ruling on plaintiff’s standing as to

the claims against Schmidt.

¶ 19 Furthermore, this argument essentially invites this court to make a substantive ruling as to

plaintiff’s standing to assert the claims plead against Schmidt, a request that “overlooks the limited

scope of review on a Rule 307(a)(1) appeal.” Postma v. Jack Brown Buick, Inc., 157 Ill. 2d 391,

399 (1993). It is well recognized that “[w]here an interlocutory appeal is brought pursuant to Rule

307(a)(1), controverted facts or the merits of the case are not decided.” Bishop v. We Care Hair

Development Corp., 316 Ill. App. 3d 1182, 1189 (2000). Thus, Rule 307(a)(1) does not provide us

with jurisdiction to review that portion of the circuit court's order ruling that plaintiff lacked

standing as to the claims against Cloth or issue a ruling as to her standing to assert the claims plead

against Schmidt, as “the rule may not be used as a vehicle to determine the merits of a plaintiff's

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case.” Postma, 157 Ill.2d at 399.

¶ 20 For the foregoing reasons, the stay granted by the circuit court is vacated, and this matter

is remanded for further proceedings.

¶ 21 Stay vacated; cause remanded.

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