Nationwide Mutual Insurance Co. v. Srachta

2023 IL App (3d) 220089, 236 N.E.3d 1003

• Court: Appellate Court of Illinois
• Decided: August 14, 2023
• Docket: 3-22-0089
• Status: Published

Opinion

2023 IL App (3d) 220089

Opinion filed August 14, 2023 ____________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

NATIONWIDE MUTUAL INSURANCE ) Appeal from the Circuit Court COMPANY, ) of the 18th Judicial Circuit, ) Du Page County, Illinois, Plaintiff-Appellee and Cross-Appellant, ) ) v. ) ) Appeal No. 3-22-0089 CARL SRACHTA, GEORGIA KAEMPF, ) Circuit No. 21-MR-227 VIRGINIA DIGIACOMO, KATHY ) PERRY, CHERYL MOORE, BEVERLY ) GLEN HOMEOWNERS’ ASSOCIATION, ) TERESA JAGIELLO, and KATARYNZA ) Honorable JAGIELLO, ) Paul M. Fullerton, ) Judge, Presiding. Defendants ) ) (Carl Srachta, Georgia Kaempf, Virginia, ) DiGiacomo, Kathy Perry, Cheryl Moore, ) and Beverly Glen Homeowners’ Association, ) Defendants-Appellants and ) Cross-Appellees). ) ____________________________________________________________________________

JUSTICE HETTEL delivered the judgment of the court, with opinion. Presiding Justice Holdridge and Justice Albrecht concurred in the judgment and opinion. ____________________________________________________________________________

OPINION

¶1 Plaintiff, Nationwide Mutual Insurance Company (Nationwide), brought a declaratory

judgment action against insureds, Beverly Glen Homeowners’ Association (Association) and members of the board of directors Carl Srachta, Kathy Perry, Georgia Kaempf, Virginia

DiGiacomo, and Cheryl Moore (directors or board), asking the court to declare that Nationwide

had no duty to defend or indemnify defendants against claims made by Association residents in a

derivative suit. The trial court granted Nationwide’s motion for judgment on the pleadings,

finding that res judicata and collateral estoppel barred defendants from seeking a defense in the

derivative suit where judgment rendered in a prior case determined that Nationwide had no duty

to defend. Defendants filed a motion to reconsider and, in response, Nationwide filed a request

for sanctions under Illinois Supreme Court Rule 137 (eff. Jan. 1, 2018), which the court denied.

¶2 Defendants appeal, claiming that the circuit court erred in granting judgment on the

pleadings in Nationwide’s favor. Nationwide cross-appeals, arguing that the court erred by

denying its request for sanctions in response to defendants’ ill-grounded motion to reconsider. We

affirm.

¶3 I. BACKGROUND

¶4 This lawsuit arises out of an ongoing dispute between defendants and Teresa and

Katarzyna Jagiello, two Association residents.In December 2017, Nationwide issued a

businessowners’ policy to the Association. The policy was effective to December 11, 2018, and

was renewed annually until it lapsed in December 2020. Among other provisions, it contained a

liability coverage form, which was endorsed with a “Directors and Officers Liability”

endorsement. The endorsement provided, in part:

“1. INSURING AGREEMENT

We will pay those sums up to the applicable Limit of Insurance that the

‘insured’, as defined in this endorsement, becomes legally obligated to pay as

damages for any ‘claims’ made arising out of a ‘wrongful act’ committed during

2 the Coverage Period shown in the Schedule of this endorsement and to which this

insurance applies. A ‘claim’ seeking damages will be deemed to have been made

when notice of such ‘claim’ is received and recorded by an ‘insured’ or by us,

whichever comes first during the Coverage Period shown in the schedule of this

endorsement.

***

We will have the right and duty to defend an ‘insured’ against a ‘suit’

seeking those damages for a ‘claim’ for which there is coverage under

DIRECTORS AND OFFICERS LIABILITY.

HOWEVER,

b.We will have no duty to defend the ‘insured’ against any ‘suit’

seeking damages for ‘wrongful acts’ to which this insurance does not

apply.

c.We may, at our sole discretion, investigate any ‘wrongful acts’

and settle any ‘claim’ or ‘suit’ that may result.”

In addition, part IV of the “Premier Businessowners Liability Coverage” (Liability Coverage)

policy, stated:

“IV. LIABILITY CONDITIONS

The following conditions apply in addition to the COMMON POLICY

CONDITIONS.

2. Duties In The Event Of Occurrence, Offense, Claim or Suit

3 ***

c. You and any other involved insured must:

(1) Immediately send us copies of any demands,

notices, summonses or legal papers received in connection

with the claim or ‘suit’;

(2) Authorize us to obtain records and other

information;

(3)Cooperate with us in the investigation or

settlement of the claim or defense against the ‘suit’;

d. No insured will, expect at that insured’s own cost,

voluntarily make a payment, assume any obligation, or incur any

expense, other than first aid, without our consent.”

¶5 Beginning in 2014, the Association and the Jagiellos engaged in multiple disputes. In

July 2017, the Jagiellos filed a small claims complaint (No. 17-SR-1066) alleging breach of the

Common Interest Community Association Act (Association Act) (765 ILCS 160/1-1 et seq.

(West 2016)), breach of the Association’s declaration of covenants, and constructive fraud based

on uncontrolled flooding in the garage of their unit. After determining that Katarzyna was not

entitled to judgment because she was not a unit owner, the trial court ruled in favor of Teresa on

count I and found that she was entitled to reasonable attorney fees and costs under the

Association Act. It also entered judgment in favor of Teresa on count III as it related to

foundation repair on the garage and awarded her $4700 for those costs. The trial court dismissed

count II. Nationwide defended the suit at the trial level with a reservation of rights but refused to

appeal.

4 ¶6 Defendant appealed the trial court’s judgment without Nationwide’s assistance. The

reviewing court affirmed the circuit court’s order as to counts I and II but reversed on count III

and vacated the corresponding damage award. See Jagiello v. Beverly Glen Homeowners’ Ass’n,

2019 IL App (2d) 180621-U.

¶7 In August 2018, the Association filed a complaint against the Jagiellos (No. 18-MR-

1123). In response, the Jagiellos filed a seven-count counterclaim against the Association and

directors Carl Srachta, Kathleen Perry, and Ina Aponte, alleging that they refused to comply with

a letter, dated August 24, 2018, requesting Association documents and board minutes pursuant to

section 1-30(i)(1) of the Association Act (765 ILCS 160/1-30(i)(1)(i)-(iii) (West 2018)). Count I

of the counterclaim alleged that the Association violated the Association Act by failing to fulfill

the Jagiellos’ request. Counts II, III, and IV claimed that named board members, in his or her

capacity as a director, had access to the Association Act documents and refused to disclose them.

Counts V, VI, and VII are not relevant to this appeal.

¶8 The Association and the directors, as counterdefendants, tendered defense of the

counterclaim to Nationwide on April 5, 2019. On June 24, 2019, Nationwide informed the

counterdefendants that it had retained counsel to defend their interests and that it agreed to do so

without any reservation of rights to deny defense or indemnity, up to the policy limits of $1

million.

¶9 Subsequently, attorney Kenneth DucDuong contacted Nationwide on behalf of the

Association and the individual directors and stated that he believed Nationwide could not appoint

the same counsel to represent the Association and the members of the board because the

Association had a conflict with one of its directors. Nationwide then offered to appoint two

separate attorneys, one to defend the Association and the “non-conflicted” directors, Srachta and

5 Perry, and another to represent the “conflicted” director, Aponte. The Association declined

Nationwide’s offer.

¶ 10 On October 15, 2019, Nationwide was allowed to intervene in the Jagiellos’ counterclaim

(No. 18-MR-1123) and filed a claim for declaratory relief against the Association. The trial court

held a partial settlement conference on November 8 and December 6, 2019. Attorney DucDuong

participated on behalf of the Association. Attorney Catherine Weiler participated as Nationwide

counsel on behalf of the non-conflicted directors, Srachta and Perry.

¶ 11 As a result of the conference, the parties partially resolved the counterclaim and entered a

settlement agreement. On December 6, 2019, in response to the terms of the settlement

agreement, the court entered the following order:

“Counts I, II, III and IV of [the Jagiellos’] Counterclaim are dismissed pursuant to

the following settlement agreement terms:

1) The Jagiellos will dismiss Counts I, II, III, and IV of the counterclaim with

prejudice pursuant to settlement, as stated on the record[;]

2) Ina Aponte will pay $1,500 to the Jagiellos to resolve the matter[;]

3) The Association has agreed to produce documents identified in the August 24,

2018[,] [l]etter for all dates between January 1, 2017[,] and December 6, 2019[;]

4) By agreement of the parties, the document inspection will take place on

December 19, 2019, at 1:00 p.m., at or near the office of Kenneth DucDuong;

5) Both the record request and the August 24, 2018[,] letter are attached and

incorporated into this order;

6) The transcript of the hearing is also incorporated into this order.”

6 ¶ 12 Thereafter, Attorney Weiler attempted to direct the defense and resolution of the

Association Act issues on behalf of directors Srachta and Perry. However, Attorney DucDuong

continued to participate in the resolution of those claims. In addition, the directors continued to

question Weiler’s representation and direct how Nationwide funds should be used to settle the

outstanding claims. As a result, Nationwide moved for summary judgment, claiming that it had

no duty to defend the directors or the Association because they breached the cooperation clause

in section IV of the liability coverage policy.

¶ 13 On April 14, 2020, the trial court granted Nationwide’s motion. Specifically, the court

ruled:

“Nationwide’s Motion for Summary Judgment is GRANTED for those

reasons set forth in Nationwide’s motion and reply briefs. There are no material

issues of fact in dispute and it is clear, as a matter of law, that the lack of

cooperation on the part of the insured and its counsel has relieved Nationwide of

its duties under its policy to control the defense of the [Jagiellos’] counterclaim.

Nationwide’s insured failed to cooperate with Nationwide, relieving Nationwide

of its duties under the policy, and Nationwide owes nothing to its insured for any

legal services rendered by attorney DucDong [sic]. As such, Nationwide owes

neither a duty to defend nor indemnify its insured in this matter.”

The trial court entered a finding pursuant to Illinois Supreme Court Rule 304(a) (eff. March 8,

2016). No appeal was taken from the summary judgment order.

7 ¶ 14 On October 15, 2020, the Jagiellos sought leave to file a derivative suit and/or an

amended complaint in case No. 18-MR-1123. Both requests were denied. 1 On December 31,

2020, the Jagiellos filed a separate derivative suit in the circuit court (No. 20-L-1507) against

directors Carl Srachta, Kathy Perry, Georgia Kaempf, Virginia DiGiacomo, and Cheryl Moore.

The complaint claimed that the board breached its fiduciary duty by (1) refusing Nationwide’s

defense and violating Nationwide’s cooperation clause without just cause (“fuel[ing] a personal

vendetta”), (2) refusing to cooperate with their document request under the Association Act,

(3) misappropriating funds, and (4) engaging in self-dealings. Kaempf notified Nationwide of the

derivative action and requested a defense from Nationwide. The Jagiellos’ derivative suit was

eventually dismissed on January 27, 2022.

¶ 15 On March 9, 2021, almost 10 months before the derivative suit was dismissed,

Nationwide filed a separate declaratory judgment complaint that is the subject of this appeal. In

its complaint, Nationwide sought a declaration that it owed no duty to defend or indemnify the

Association and the board in the Jagiellos’ derivative suit (No. 20-L-1507). Count I alleged that a

declaration in Nationwide’s favor was warranted because the summary judgment order in case

No. 18-MR-1123 operated as res judicata and/or collateral estoppel. Count II claimed that

Nationwide had no duty to defend or indemnify the Association and the directors because they

failed to cooperate with Nationwide in its efforts to defend and settle case No. 18-MR-1123 and

therefore breached the cooperation provision of the policy. Nationwide alleged that the

Association and the board actively deterred the settlement reached in case No. 18-MR-1123 from

being completed and that their failure to cooperate led to the filing of the derivative suit.

1 The Jagiellos’ remaining counts that were not dismissed per the settlement (counts V through VII) survived and are still pending before the trial court. 8 Nationwide claimed that by failing to cooperate in case No. 18-MR-1123, the Association and

the board voided coverage under the policy. Count III pleaded, in the alternative, that

Nationwide had no duty to defend or indemnify based on several exclusions in the policy that

negated any potential coverage.

¶ 16 Nationwide moved for judgment on the pleadings. See 735 ILCS 5/2-615(e) (West 2020).

On November 12, 2021, following extensive briefing and argument by the parties, the trial court

determined that Nationwide was entitled judgment on the pleadings as follows: (1) on count I,

under the doctrines of res judicata and collateral estoppel; and (2) on count II, for violation of

Nationwide’s cooperation clause. In particular, the court ruled that defendants were barred from

seeking a defense in the derivative suit based on the April 14, 2020, ruling entered in case No.

18-MR-1123 that defendants’ breach the cooperation clause in the liability coverage policy. The

court declined to award judgment on count III, finding that the policy exclusions did not apply

and that, regardless, count III was rendered moot by its ruling on the first two counts.

¶ 17 Defendants filed a motion to reconsider, in which they revealed that they had filed an

Attorney Registration and Disciplinary Commission (ARDC) inquiry against Attorney Weiler

and attached her ARDC response letter to the inquiry as an exhibit. In response, Nationwide

moved to strike the letter and asked for Rule 137 sanctions for costs and fees related to the

motion. Nationwide argued that attaching the letter was a clear violation of Illinois Supreme

Court Rule 766 (eff. June 14, 2006), which states that ARDC proceedings are intended to be

confidential.

¶ 18 Following a hearing on February 9, 2022, the trial court denied defendants’ motion to

reconsider, finding that there was no new evidence that was not available at the time of the initial

ruling. The court also granted Nationwide’s motion to strike Attorney Weiler’s ARDC response

9 letter and denied its request for sanctions. The court found that counsel’s actions did not rise to

the level of Rule 137 sanctions but noted:

“I would say that attaching that exhibit, which did not really provide any

support for the motion, was not professional.

I think, Mr. DucDuong, you are using your personal animosity toward

[Nationwide counsel] to make legal or purported legal arguments on behalf of

your clients is [sic] not appropriate.”

¶ 19 Defendants appealed. Nationwide responded and filed a cross-appeal.

¶ 20 II. ANALYSIS

¶ 21 1. Ripeness and Mootness

¶ 22 Initially, defendants claim that we should reverse the trial court’s order and remand with

directions to dismiss Nationwide’s complaint with prejudice because the complaint sought a

declaration of no duty to indemnify and was filed before judgment was entered in the Jagiellos’

derivative suit, making it unripe.

¶ 23 The Code of Civil Procedure (Code) (735 ILCS 5/1-101 et seq. (West 2022)) provides for

the issuance of declaratory judgment regarding the interpretation of disputed terms of a contract.

See id. § 2-701. “The court may, in cases of actual controversy, make binding declarations of

rights, *** including the determination, at the instance of anyone interested in the controversy, of

the construction of any *** contract or other written instrument, and a declaration of the rights of

the parties interested.” Id. It is well settled that declaratory relief is available where a case

presents “a concrete dispute admitting of an immediate and definitive determination of the

parties’ rights, the resolution of which will aid in the termination of the controversy or some part

thereof.” Underground Contractors Ass’n v. City of Chicago, 66 Ill. 2d 371, 375 (1977).

10 ¶ 24 An insurer taking the position that a claim against its insured is not covered by the policy

has the right to seek a declaratory judgment that there is no coverage. State Farm Fire &

Casualty Co. v. Martin, 186 Ill. 2d 367, 373 (1999). A declaratory judgment action brought to

determine an insurer’s duty to defend is ripe upon the filing of a complaint against the insured.

Metzger v. Country Mutual Insurance Co., 2013 IL App (2d) 120133, ¶ 18; see Weber v. St. Paul

Fire & Marine Insurance Co., 251 Ill. App. 3d 371, 373 (1993) (“issue of a duty to defend is

generally ripe for adjudication soon after the occurrence giving rise to the claim”).

¶ 25 Here, Nationwide filed a declaratory judgment complaint seeking a declaration that it

owed no duty to defend or indemnify. Regarding the duty to defend, there is no dispute that the

determination of Nationwide’s duty is ripe for declaratory judgment based on the derivative suit

and Kaempf’s request to defend. Thus, defendants’ ripeness argument fails.

¶ 26 In the alternative, defendants claim Nationwide’s declaratory judgment complaint is now

moot based on the January 27, 2022, circuit court order dismissing the Jagiellos’ derivative suit

in case No. 20-L-1507. We find defendants’ mootness argument equally unavailing.

¶ 27 Illinois courts’ jurisdiction extends only to cases that present an actual controversy.

McCormick v. Robertson, 2015 IL 118230, ¶ 21. “Events occurring during the pendency of

litigation which ‘dissipate’ the controversy on which the litigation was founded may render the

case moot.” People ex rel. Hartigan v. Illinois Commerce Comm’n, 131 Ill. App, 3d 376, 378

(1985). “A case on appeal becomes moot where the issues presented in the trial court no longer

exist because events subsequent to the filing of the appeal render it impossible for the reviewing

court to grant the complaining party effectual relief.” Bettis v. Marsaglia, 2014 IL 117050, ¶ 8.

¶ 28 Defendants claim that with the dismissal of the Jagiellos’ underlying derivative complaint

in the January 27, 2022, order, Nationwide’s declaratory judgment complaint is now moot. To

11 resolve this argument, we take judicial notice of the January 27, 2022, order entered in the

derivative suit. 2 In that order, the court made the following rulings:

“Plaintiff’s [Teresa Jagiello’s] Motion to Disqualify Defense Counsel is granted

for the reasons stated on the record.

Defendants’ [directors] Motion to Disqualify Lead Plaintiff and Plaintiff’s

counsel is granted for the reasons stated on the record.

The Complaint is hereby dismissed without prejudice with Plaintiff given the

ability to replead and file an Amended Complaint with a new Lead Plaintiff and new

counsel by 3/18/22.

If no new Complaint and no new counsel appearance is filed by 3/18/22, the case

will be dismissed for want of prosecution on 3/21/22.”

¶ 29 The court’s January 27, 2022, order makes clear that Nationwide’s declaratory judgment

complaint is not moot. The court dismissed the Jagiellos’ derivative complaint without prejudice

and contained a self-executing dismissal for want of prosecution on March 21, 2022, if a new

plaintiff and new counsel failed to appear by March 18, 2022. Defendant argues that the

Jagiellos’ failure to appeal that order disposes of their derivative suit completely. However,

defendants overlook section 13-217 of the Code, which gives plaintiffs at least one year from the

dismissal for want of prosecution to refile, regardless of any appeal. See 735 ILCS 5/13-217

(West 2022) (“plaintiff *** may commence a new action within one year or within the remaining

period of limitation, whichever is greater, after such judgment is reversed or entered against the

plaintiff”); see also Jackson v. Hooker, 397 Ill. App. 3d 614, 618 (2010). Accordingly, we reject

2 On July 7, 2023, this court entered a minute order granting defendants’ motion to reconsider the denial of the motion to take judicial notice of the order entered on January 27, 2022. 12 defendants’ claim that the declaratory judgment action is moot based on the January 27, 2022,

order in case No. 20-L-1507.

¶ 30 B. Res Judicata and Collateral Estoppel

¶ 31 On the merits, defendants claim that the circuit court erred in granting judgment in

Nationwide’s favor on the basis of res judicata and collateral estoppel.

¶ 32 Defendants claim that res judicata and collateral estoppel do not apply in this case

because the April 14, 2020, order in case No. 18-MR-1123 made no findings of fact and

conclusions of law as to directors Kaempf, DiGiacomo, and Moore named in the Jagiellos’

derivative suit (No. 20-L-1507). They also claim that res judicata should not apply because new

facts arose after the April 14, 2020, order was entered. Whether res judicata and collateral

estoppel bar claims are questions of law, subject to de novo review. Lelis v. Board of Trustees of

the Cicero Police Pension Fund, 2013 IL App (1st) 121985, ¶ 13.

¶ 33 The doctrine of res judicata serves to bar actions in which (1) there was a final judgment

on the merits rendered by a court of competent jurisdiction, (2) there is an identity of cause of

action, and (3) there is an identity of parties or their privies in both actions. River Park, Inc. v.

City of Highland Park, 184 Ill. 2d 290, 302 (1998). Res judicata prevents the relitigation of

issues that could have been decided in the first action along with those issues that were actually

decided. Id.

¶ 34 Likewise, the doctrine of collateral estoppel prevents the relitigation of issues resolved in

earlier causes of action. Du Page Forklift Service, Inc. v. Material Handling Services, Inc., 195

Ill. 2d 71, 77 (2001). The elements for collateral estoppel are similar to those for res judicata.

The moving party must demonstrate that (1) the issue decided in the prior adjudication is

identical to the one presented in the suit in question, (2) there was a final judgment on the merits

13 in the prior adjudication, and (3) the party against whom estoppel is asserted was a party or in

privity with a party to the prior adjudication. In re Owens, 125 Ill. 2d 390, 399-400 (1988).

¶ 35 Defendants claim that, while the final judgment requirement has been met, the doctrines

of res judicata and collateral estoppel do not bar them from enforcing Nationwide’s duty to

defend and indemnify because (1) three of the directors named in the derivative suit were not

named in the prior counterclaim and are not in privity with a party to the prior adjudication and

(2) an identity of the cause of action does not exist. We disagree as to both.

¶ 36 First, we find that that defendants are in privity with the counterdefendants named in the

prior counterclaim. Privity exists when parties adequately represent the same legal interests,

irrespective of their nominal identities. Oshana v. FCL Builders, Inc., 2013 IL App (1st) 120851,

¶ 23 (citing People ex rel. Burris v. Progressive Land Developers, Inc., 151 Ill. 2d 285, 296

(1992)). “A nonparty may be bound pursuant to privity if his interests are so closely aligned to

those of a party that the party is the ‘virtual representative’ of the nonparty.” City of Chicago v.

St. John’s United Church of Christ, 404 Ill. App. 3d 505, 513 (2010). While there is not one

prevailing definition of privity utilized in all cases, Illinois courts have generally applied the

principles set forth in the Restatement (Second) of Judgments to determine privity. Direct Auto

Insurance Co. v. Bahena, 2019 IL App (1st) 172918, ¶ 63.

¶ 37 Under the Restatement, privity may fall into one of three categories: (1) representative,

such as trustee or executor; (2) “substantive legal relationship” in which one of the parties to the

relationship may bind the other to a judgment; and (3) “successor in interest to property.” Id.

¶ 64; Restatement (Second) of Judgments § 75, cmt. a, at 210 (1982). The second category

includes an “array of substantive legal relationships” in which one of the parties to the

relationship is “treated as having the capacity to bind the other to a judgment in an action to

14 which the latter is not a party.” Restatement (Second) of Judgments § 75, cmt. a, at 210 (1982).

These relationships include assignees and assignors, corporations and their officers, directors,

and shareholders, and members of partnerships. See Restatement (Second) of Judgments §§ 45 to

61 (1982). Corporations act through their officers and directors in a legal relationship and are

bound by the directors’ actions when performed within the scope of their authority. Ahlgren v.

Blue Goose Supermarket, Inc., 266 Ill. App. 3d 154, 162 (1994).

¶ 38 Here, the Association and directors Srachta and Perry were named as counterdefendants

in the initial counterclaim filed by the Jagiellos (No. 18-MR-1123). Thus, they are the same

parties for purposes of res judicata and collateral estoppel. As to directors Kaempf, Giacomo,

and Moore, the answer is not as clear and requires the application of the principles of privity and

corporate law.

¶ 39 In their derivative suit (No. 20-L-1507), the Jagiellos asserted claims against the

Association and directors Srachta, Perry, Kaempf, DiGiacomo, and Moore. Although some of

the directors named in the derivative complaint were not named in the initial counterclaim

action, the Jagiellos named the Association, along with two of the five directors, in both the

counterclaim and the derivative suit. It therefore appears the parties named in the counterclaim

were sufficiently representative of the additional defendant included in the subsequent derivative

suit. Moreover, in both the counterclaim and the derivative suit, the board members were named

in their capacity as directors of the Association. The directors act as the arms of the Association

and for all intents and purposes are one and the same. See id. In other words, there exists a legal

relationship in which the directors, acting within their corporate authority, bind the Association.

And in both actions, the Jagiellos alleged that the directors, acting on behalf of the Association,

refused to produce the Association Act documents and refused to cooperate with Nationwide

15 counsel, establishing a substantive legal relationship between the directors and the Association,

the corporate entity named in both suits. We therefore find the privity requirement of res judicata

and collateral estoppel has been met.

¶ 40 Second, the two cases constitute the same cause of action. Our supreme court has adopted

the “transactional” test for determining whether two cases constitute the “same cause of action”

for purposes of res judicata. See River Park, 184 Ill. 2d at 310-12 (adopting Restatement

(Second) of Judgments § 24 (1982)). The transactional test provides that the assertion of

different kinds or theories of relief still constitute a single cause of action if a single group of

operative facts give rise to the assertion of relief. Id. at 307. Further the transactional test permits

claims to be considered part of the same cause of action even if there is not substantial overlap of

evidence needed to sustain the second lawsuit that would have sustained the first, so long as the

claims arise from the same transaction. Id. at 311. As section 24 of the Restatement (Second) of

Judgments provides:

“When a valid and final judgment rendered in an action extinguishes the plaintiff’s

claim ***, the claim extinguished includes all rights of the plaintiff to remedies

against the defendant with respect to all or any part of the transaction, or series of

connected transactions, out of which the action arose.” Restatement (Second) of

Judgments § 24 (1982).

¶ 41 In this case, the claims at issue in the counterclaim (No. 18 MR 1123) and the derivative

suit (No. 20-L-1507) evolved out of a series of connected transactions. In case No. 18-MR-1123,

the Jagiellos claimed that the Association and named directors refused to comply with their

request for documents and board minutes pursuant to section 1-30(i)(1) of the Association Act

(765 ILCS 5/1-30(i)(1)(i)-(iii) (West 2018)). In the derivative suit, the Jagiellos again claimed

16 that the Association and the board refused to comply with sections 1-30(i)(1)(i) through 1-

30(i)(1)(iii) of the Association Act and that the board members breached their fiduciary duty by

encouraging the Association’s continued refusal after settlement, which resulted in Nationwide

declining to provide fidelity insurance coverage. All of these claims arise from the same nucleus

of operative facts involving the Jagiellos’ request for documents and defendants’ subsequent

response. Accordingly, the trial court did not err in applying res judicata and collateral estoppel

and declaring that Nationwide had no duty to defend defendants in the derivative suit.

¶ 42 Defendants argue that res judicata should not apply because after the April 14, 2020,

order was entered in case No. 18-MR-1123, new facts arose, specifically: (1) Nationwide placed

undisclosed liability restrictions on attorney Weiler post-settlement, and (2) director Aponte

failed to cooperate with the defendants named in the counterclaim action. Assuming, arguendo,

these facts are well-grounded, they relate to the defendants’ refusal to comply with the Jagiellos’

request for documents under the Association Act. Thus, they are connected to the transaction or

series of connected transactions out of which the original counterclaim arose. Therefore, the

doctrines of res judicata and collateral estoppel still apply. See National Tea Co. v. Confection

Specialties, Inc., 48 Ill. App. 3d 650, 653-54 (1977) (breach of contract action for failure to

maintain insurance barred by res judicata effect of prior judgment in personal injury and

indemnity case).

¶ 43 Last, defendants argue that even if all the requirements for res judicata are met, the

doctrine should not apply “offensively” under the facts and circumstances of this case. We

disagree.

¶ 44 Res judicata is an equitable doctrine that should be applied “only as fairness and justice

require.” McHenry Savings Bank v. Moy, 2021 IL App (2d) 200099, ¶ 38. “It is intended to be

17 used as a shield, not a sword.” Id. Here, Nationwide is asserting the doctrine in a declaratory

judgment action to obtain a no-duty-to-defend ruling. It is, contrary to defendants’ argument,

attempting to use the doctrine as a shield in the underlying derivative suit. Further, under the

circumstances, applying the doctrine to deny defendants coverage in the derivative suit would

not be unfair or unjust. Defendants have refused to produce documents, ignored settlement

agreements and court orders requiring them to do so, and failed to cooperate with Nationwide

counsel in defending their actions. In continuing to dispute the Jagiellos’ claims, it should come

as no surprise to defendants that Nationwide would have no duty to defend or indemnify their

actions.

¶ 45 Having determined that the trial court properly awarded judgment on the pleadings based

on count I of Nationwide’s declaratory judgment complaint, we need not consider whether

judgment was appropriate under counts II and III. The trial court’s order granting judgment in

Nationwide’s favor as to count I of the complaint is affirmed.

¶ 46 C. Sanctions

¶ 47 On cross-appeal, Nationwide claims that the trial court erred in denying its motion for

Rule 137 sanctions against the Association and Attorney DucDuong and asks this court to

remand to the trial court for the presentation of a fee petition. Nationwide maintains that

sanctions were appropriate because defendant’s motion to reconsider, which included Attorney

Weiler’s ARDC letter, was based on false and confidential information.

¶ 48 The purpose of a motion to reconsider is to bring to the trial court’s attention a change in

the law, an error in the trial court’s previous application of existing law, or newly discovered

evidence that was not available at the time of the prior hearing or decision. Hachem v. Chicago

Title Insurance Co., 2015 IL App (1st) 143188, ¶ 34. Illinois Supreme Court Rule 137 (eff. Jan.

18 1, 2018) allows a court to sanction a party or attorney who has filed a pleading that is either not

well-grounded in fact or law or that is interposed for an improper purpose. Enbridge Pipeline

(Illinois), LLC, v. Hoke, 2019 IL App (4th) 150544-B, ¶ 48. The purpose of Rule 137 is to

prevent abuse of the judicial process by sanctioning parties who file vexatious and harassing

actions based on unsupported allegations of fact or law. Clark v. Gannett Co., 2018 IL App (1st)

172041, ¶ 66. It is intended to prevent the filing of false and frivolous pleadings, as opposed to

penalizing litigants just because they were unsuccessful. Id. Consequently, the party seeking

sanctions bears the burden of proof to show that the other party made untrue and false allegations

without reasonable cause. Id. Whether to grant sanctions under Rule 137 is within the trial

court’s discretion. Enbridge Pipeline, 2019 IL App (4th) 150544-B, ¶ 49. A court abuses its

discretion where no reasonable person would agree with its decision. Id.

¶ 49 Here, Nationwide moved for sanctions pursuant to Rule 137 for fees and costs incurred in

responding to defendants’ motion to reconsider the November 12, 2021, order granting judgment

on the pleadings. Defendants’ motion alleged, in part, that Attorney Weiler had a conflict of

interest in that she was more likely to protect the insurer rather than the insured and, because of

that conflict, defendants received substandard and inadequate representation. Counsel then

claimed that “under these facts, the application of res judicata and collateral estoppel offensively

bind the director defendants who were unnamed and unalleged in 18 MR 1123 is contrary to the

established law of the District, and this Court’s ruling on November 12, 2021, should be

reversed.” The motion then continued to make the same arguments based on res judicata and

collateral estoppel that defendants made in their response to Nationwide’s motion for judgment

on the pleadings.Although defendants’ motion did not contain any newly discovered evidence, it

did allege that the trial court erred in its previous application of existing law. As discussed, the

19 issue of whether res judicata and collateral estoppel apply in this case is not easily determined.

Although we concluded that the doctrines apply, defendants’ motion to reconsider asking the

court to review its prior ruling was not frivolous.

¶ 50 Moreover, Nationwide claims that sanctions are appropriate because the motion was

based on unsubstantiated accusations against Attorney Weiler. But Nationwide failed to show

that defendants made untrue or false allegations related to the specific legal issue the trial court

was asked to reconsider. While the attachment of the ARDC letter may have been irrelevant and

improper, as the trial court duly noted, we cannot say that the trial court’s refusal to imposed

sanctions for fees and costs associated with the motion to reconsider was an abuse of discretion.

¶ 51 III. CONCLUSION

¶ 52 The judgment of the circuit court of Du Page County is affirmed.

¶ 53 Affirmed.

20 Nationwide Mutual Insurance Co. v. Srachta, 2023 IL App (3d) 220089

Decision Under Review: Appeal from the Circuit Court of Du Page County, No. 21-MR- 227; the Hon. Paul M. Fullerton, Judge, presiding.

Attorneys Kenneth M. DucDuong, of KMD Law Office, Ltd., of Chicago, for for appellants. Appellant:

Attorneys Peter G. Syregelas, of Lindsay, Pickett & Postel, LLC, of for Chicago, for appellee. Appellee: