Palm v. Sergi

2022 IL App (2d) 210057, 209 N.E.3d 390, 463 Ill. Dec. 272

• Court: Appellate Court of Illinois
• Decided: June 13, 2022
• Docket: 2-21-0057
• Status: Published

Opinion

2022 IL App (2d) 210057 No. 2-21-0057 Opinion filed June 13, 2022 ______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT ______________________________________________________________________________

KATHERINE A. PALM, as Co-trustee of ) Appeal from the Circuit Court the Diane L. Sergi Trust, Dated March 4, 2001, ) of Du Page County. ) Plaintiff-Appellant, ) ) v. ) No. 16-L-389 ) DANIEL A. SERGI, Individually, as Trustee ) of the Daniel A. Sergi Trust, Dated March 4, ) 2001, and as Former Trustee of the Diane L. ) Sergi Trust, Dated March 4, 2001, and ) GREATBANC TRUST COMPANY, as ) Trustee of the R.H. Wine & Co. Employee ) Stock Ownership Trust, ) Honorable ) Angelo J. Kappas, Defendants-Appellees. ) Judge, Presiding. ______________________________________________________________________________

JUSTICE SCHOSTOK delivered the judgment of the court, with opinion. Justice Jorgensen concurred in the judgment and opinion. Justice McLaren specially concurred in part and dissented in part, with opinion.

OPINION

¶1 The plaintiff, Katherine A. Palm, the sister of the late Diane Sergi and an eventual co-

successor trustee of the Diane L. Sergi Trust, sued the defendants, Daniel A. Sergi (Dan), Diane’s

husband, and GreatBanc Trust Company (GreatBanc), asserting claims relating to breach of

fiduciary duty and breach of contract. After the parties filed cross-motions for summary judgment, 2022 IL App (2d) 210057

the trial court denied Palm’s motion, granted the defendants’ motions, and entered judgment in

favor of the defendants. Palm now appeals. We reverse and remand.

¶2 I. BACKGROUND

¶3 The following facts are drawn from the parties’ submissions and exhibits in support of their

motions and, except where noted, are undisputed. Diane and Dan were married in 1982 and had

two children, Justin and Janelle. Diane maintained the home and took care of the children, while

Dan was the sole breadwinner.

¶4 In 2001, Diane and Dan created two trusts, the Diane L. Sergi Trust (Diane Trust) and the

Daniel A. Sergi Trust (Dan Trust). Diane was the sole beneficiary of the Diane Trust, entitled to

the income and any principal from the estate as she directed in writing. Under the original terms

of the Diane Trust, the trust would serve as the vessel for all of Diane’s assets when she died. If

she predeceased Dan, Dan could receive certain distributions from the Diane Trust during his life

and the remainder would pass to Justin and Janelle. The Dan Trust mirrored these terms.

¶5 Diane and Dan were co-trustees of both trusts. Article V of the trusts, “General Trust

Provisions,” granted the trustees the power to hold, sell, invest, and otherwise manage the trust

property. Section 6 of that article in the Diane Trust stated, “Notwithstanding the foregoing, while

I am living and not unable to manage my affairs,” the settlor of the trust (Diane, in the case of the

Diane Trust) had the sole power “to direct the retention or sale of any trust assets,” but “my

husband, as trustee, need not seek my approval to make any sale or investment.”

¶6 Section 1 of article VI, “Trustee Provisions,” stated:

“Notwithstanding anything to the contrary herein, and unless specifically provided

otherwise by me in writing, while my husband and I are acting as co-trustees, either my

husband or myself, as co-trustee, may act unilaterally (i.e. without the participation of the

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other co-trustee) for me and on my behalf under this trust agreement and I agree, on behalf

of myself, my heirs, successors and assigns, to hold harmless any person or entity that relies

in good faith upon any such unilateral acts or directions by a trustee pursuant to this

paragraph.”

¶7 The Dan Trust held, among other things, shares of his employer, R.H. Wine & Company

(R.H. Wine). Near the end of 2004, the Dan Trust sold these shares to R.H. Wine’s employee stock

ownership plan (ESOP) in return for a note in the amount of $6.4 million (Note), issued to the Dan

Trust. GreatBanc was the trustee, holder, and administrator of the ESOP.

¶8 In February 2005, through a series of assignments, a 20% interest in the Note was assigned

to the Diane Trust. In March 2005, GreatBanc received a copy of the assignments, which identified

Dan and Diane as co-trustees of both the Dan Trust and the Diane Trust. According to GreatBanc,

this was the only information they ever received regarding the trusts; they never received copies

of the trust agreements. GreatBanc also received a letter from Dan and Diane’s lawyer, directing

GreatBanc to split all future payments on the Note, with 80% going to the Dan Trust and 20%

going to the Diane Trust. Beginning in April 2005, the monthly payments were split this way. In

December 2005, the ESOP made a $2 million payment of principal, and the Diane Trust received

$400,000 (20%) of that payment.

¶9 In 2007, Dan issued new wiring instructions to deposit each trust’s share of the monthly

payments in separate accounts at The Private Bank. He did this by instructing R.H. Wine’s chief

financial officer, Matthew Reed, to issue new deposit instructions to GreatBanc. Diane was copied

on this e-mail. In their cross-motions and on appeal, the parties did not identify any evidence about

whether Diane was a signatory on the account in which the Diane Trust’s share of the monthly

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payments was deposited, received statements from that account, or had any other access to the

account.

¶ 10 In July 2008, Diane filed a petition to dissolve the marriage.

¶ 11 In April 2009, Dan redirected the monthly payments on the Note so that 100% of those

payments were deposited into his personal bank account, including the 20% that formerly went to

the Diane Trust account. He did this by instructing Reed to issue new deposit instructions to

GreatBanc. Diane was not copied on any of these e-mails. GreatBanc then began depositing all of

the monthly payments in Dan’s personal account.

¶ 12 In his second amended affirmative defenses, Dan stated that he redirected these funds while

acting as co-trustee of the Dan Trust. The record suggests that no one acting on behalf of the Diane

Trust was involved in rerouting the Diane Trust’s share of the monthly payments on the Note into

Dan’s personal account. Reed testified in deposition that he never spoke to Diane and did not know

that the Diane Trust existed. 1 Although GreatBanc knew that the Diane Trust held a 20% interest

in the Note, it did not require any authorization from the Diane Trust before redirecting that portion

of the monthly payments into Dan’s personal account.

¶ 13 Dan testified generally that he continued to support Diane while the divorce was pending,

paying for family expenses. The record does not contain any documentation of such expenditures

from Dan’s personal account that received the monthly payments on the Note between April 2009

1 Reed’s testimony contradicts Dan’s assertion that it is “undisputed” that Reed

communicated with GreatBanc in connection with Dan’s role as co-trustee of the Diane Trust. If,

in fact, Dan was acting on behalf of the Diane Trust in issuing instructions to Reed, the record

indicates that he did not tell Reed that (or, through Reed, GreatBanc).

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and April 2011, or otherwise document how the Diane Trust’s 20% share of the monthly payments

was spent or retained after April 2009.

¶ 14 In October 2010, Diane was diagnosed with stage 4 breast cancer.

¶ 15 In late fall 2010, Dan decided to buy out the retail insurance brokerage business of his

employer, and, in December 2010, he presented his employer with a formal letter of intent with

the terms for the purchase of the business under the name Wine Sergi & Co., LLC (Wine Sergi).

Under those terms, Wine Sergi would purchase the business for $2.55 million, a sum that included

the tender of the Note, which had a total unpaid principal balance of about $1.6 million. The closing

date was scheduled for April 30, 2011.

¶ 16 Dan asked Diane to contribute her trust’s 20% share of the Note as part of the transaction.

The record contains multiple e-mails between Dan and Diane, and between Diane and Justin,

discussing this request. The e-mails reflect that both parties viewed the Diane Trust as having an

interest in the Note separate from the Dan Trust and assumed that Diane’s consent was needed

before that interest could be used for the deal. The e-mails also reflect that Diane wavered on and

resisted Dan’s request, telling Dan as late as April 24, 2011, that she did not agree to use the Diane

Trust’s interest in the Note to fund the new company. Dan pressured her, saying it was necessary

to the deal and would benefit her and the children, who would then have an interest in a more

profitable company. Between December 2010 and April 24, 2011, Dan repeatedly promised that

the stock of the new company would be placed in a family trust, of which the children would be

the sole beneficiaries.

¶ 17 During this same period, Diane privately expressed concern to Justin and Palm about losing

her financial support from Dan, including her health insurance coverage. Dan averred that, in

January 2011, he and Diane reached an oral agreement under which they would remain married

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and Diane would remain covered under Dan’s insurance, he would pay her credit card bills and

$5000 per month for other expenses, and he would provide a home and car for her use. Diane

voluntarily dismissed the divorce proceeding in March 2011.

¶ 18 On April 22, 2011, The Private Bank, which held the accounts for the Dan and Diane Trusts

as well as Dan’s personal account to which he had redirected the monthly payments, sent Dan an

e-mail (copying Diane) that read:

“Per your request, below I have outlined the terms of the investment agency

agreement and the terms of your trust agreement.

The PrivateBank [sic] is acting as investment agent to the Daniel A. Sergi and Diane

L. Sergi, Co-Trustees, Daniel A. Sergi Trust dated 3/4/01, Diane A. Sergi Trust dated

3/4/01, Tenants in Common. Given the account is titled in both of your trusts and as

Tenants in Common, either co-trustee may act alone on behalf of both trusts. Therefore,

either Co-Trustee may give me directions to withdrawal [sic] any amount from the

investment agency account. I’m faxing an email we received from the attorney who drafted

your trust agreements supporting this position you both have over the investment agency

***

Also, please note in each of your respective trust agreements under Article I,

paragraph 1, Income and Principal it states ‘During my lifetime the trustee shall pay the

income from the trust estate in convenient installments to me or otherwise as I may from

time to time direct in writing, and also such sums from principal as I may request at any

time in writing.’ What this says, since you both are co-trustees, either party can withdraw

funds for any amount.”

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Diane forwarded the e-mail to Justin, saying that she was “[n]ot sure what this is about.”

¶ 19 On April 25, 2011, Diane sent Dan an e-mail that included the following statement: “For

no other reason than I have always supported and encouraged you in all your business endeavors

I will sign the note.” In an e-mail sent three days later, Diane voiced doubts and unhappiness about

transferring her portion of the Note but again said she would “sign the papers.” Ultimately,

however, Diane signed only the documents prepared by Dan’s lawyers, which did not mention the

Diane Trust’s interest in the Note and instead transferred only the interest held by the Dan Trust.

It is undisputed that Diane signed those documents only in her capacity as co-trustee of the Dan

Trust, and that the use of the Diane Trust’s interest in the Note to fund Dan’s purchase of Wine

Sergi was never authorized in writing by anyone purporting to act on behalf of the Diane Trust.

Nevertheless, on April 30, 2011, GreatBanc applied the entire balance of the Note to the purchase

transaction, extinguishing all of the interest held by the Dan Trust and the Diane Trust. The Diane

Trust did not receive any compensation for the release or termination of its interest in the Note,

either on April 30, 2011, or later.

¶ 20 Dan was removed as a co-trustee of the Diane Trust through an amendment to the trust on

August 30, 2012. Diane died on October 2, 2012. Justin succeeded her as trustee of the Diane

Trust.

¶ 21 Dan became the sole owner of the newly formed company Wine Sergi. Although Dan had

promised to place the ownership of Wine Sergi in a trust for the benefit of Justin and Janelle, he

did not do so. Dan remarried. In 2014, Dan sold Wine Sergi. None of the proceeds from the sale

of Wine Sergi were paid to the Diane Trust. When asked in deposition whether he could identify

any benefit that the Diane Trust received from the use of its interest in the Note, Dan said no.

Instead, he asserted that he provided substantial support to the trust’s beneficiaries.

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¶ 22 On April 29, 2016, Palm, identified as an “agent” of the Diane Trust, filed suit against Dan

and GreatBanc. At the time she filed suit, she was not a trustee of the Diane Trust. Count I of the

complaint alleged that GreatBanc breached the terms of the Note by releasing the Diane Trust’s

interest in the Note without authorization. Counts II through V were directed against Dan

individually and as a trustee for the Dan Trust, and asserted claims of breach of fiduciary duty,

unjust enrichment, and constructive trust, and for an accounting.

¶ 23 Dan moved to dismiss for lack of standing, arguing that Palm could not sue as an agent for

the Diane Trust because, under the Trusts and Trustees Act (760 ILCS 5/1 et seq. (West 2014)

(repealed eff. Jan. 1, 2020)), only trustees had the power to sue on behalf of trusts. In August 2016,

Palm was appointed as a co-successor trustee of the Diane Trust. In that capacity, she sought and

was granted leave to file an amended complaint asserting the same claims but identifying herself

as co-trustee of the Diane Trust and Dan as a former trustee of that trust. The trial court thereafter

denied Dan’s motion to dismiss, finding that Palm had standing to sue and that the amended

complaint was timely because it related back to the date on which the original complaint was filed.

¶ 24 The parties conducted discovery and filed cross-motions for summary judgment. Palm

moved for summary judgment on the basis that Diane signed the assignment of the Dan Trust’s

interest in the Note only in her capacity as co-trustee of the Dan Trust, and thus the use of the

Diane Trust’s interest in the Note was indisputably unauthorized. Further, that use was improper

because Dan used that interest to benefit himself to the detriment of the Diane Trust. Dan moved

for summary judgment on several bases, arguing that (1) Palm lacked standing because only

beneficiaries, not successor trustees, could assert claims against trustees, (2) the Diane Trust

allowed him to act unilaterally with respect to its assets, and thus he could not have breached his

fiduciary duty toward the trust, and (3) Diane consented to the use of the Diane Trust’s interest in

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the Note. Finally, GreatBanc’s motion argued that it merely followed Dan’s instructions about

where to direct the payments on the Note and Dan was authorized to issue those instructions

unilaterally under the terms of the Diane Trust. The trial court denied Palm’s motion and granted

summary judgment to Dan, agreeing with his argument that Palm lacked standing because only

trust beneficiaries could bring equitable claims against a former trustee. The trial court also

construed the terms of the Diane Trust as permitting Dan to act unilaterally and permitting

GreatBanc and other third parties to rely on Dan’s unilateral actions, and it therefore granted

GreatBanc’s motion for summary judgment as well.

¶ 25 Finally, the trial court held that any claims arising from the 2009 diversion of the monthly

payments on the Diane Trust’s 20% interest in the Note were time-barred. Palm had argued that

none of the trustees of the Diane Trust (Diane and then Justin) knew of the diversion until after

Diane’s death and thus, under the discovery rule, the diversion claims were timely. The trial court

found that Diane knew or reasonably should have known about the diversion earlier because it was

“unrebutted” that Diane “was getting statements from the bank account associated with the Diane

Trust from 2010 to 2012” and should have noticed that the monthly payment was no longer being

paid into that account. 2

2 It is unclear where in the record the trial court found evidence that Diane received such

statements. Dan’s statement of undisputed facts did not assert that Diane received such statements.

Palm testified in deposition that Diane was capable of reading and understanding financial records

throughout that period, but she never testified that Diane in fact received statements from the Diane

Trust account. Dan and GreatBanc submitted one e-mail from 2007 (two years earlier than the

diversion), on which Diane was copied, that provided separate routing instructions for the Dan

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¶ 26 This appeal followed.

¶ 27 II. ANALYSIS

¶ 28 On appeal, Palm contends that the trial court erred in granting summary judgment in favor

of the defendants, because it misapprehended the applicable law regarding standing, it

misconstrued the authority to act unilaterally granted by the trusts, and at a minimum there were

genuine disputes of material fact regarding whether the claims relating to the 2009 diversion of

payments were timely. A motion for summary judgment is properly granted where the pleadings,

depositions, admissions, and affidavits establish that no genuine issue of material fact exists and

that the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005 (West 2016);

Gaylor v. Village of Ringwood, 363 Ill. App. 3d 543, 546 (2006). “In determining whether a

genuine issue as to any material fact exists, a court must construe the pleadings, depositions,

admissions, and affidavits strictly against the movant and liberally in favor of the opponent.”

Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 43 (2004). Plaintiffs need only present evidence

sufficient to show a genuine dispute about a factual issue; they “are not required to prove their case

at the summary judgment stage.” Thompson v. Gordon, 241 Ill. 2d 428, 438 (2011). A triable issue

precluding summary judgment exists where material facts are disputed or where the material facts

are undisputed but reasonable persons might draw different inferences from the undisputed facts.

Trust’s 80% share and the Diane Trust’s 20% share of the monthly payments. However, there was

no evidence that, during or after 2009, Diane received any statements for the Diane Trust account.

And, although Dan acknowledged that he directed the 2009 diversion of the Diane Trust’s 20%

share of the monthly payments into his own account and averred that “Diane did not object,” he

did not provide any evidence that she actually knew or should have known of the diversion.

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Adams, 211 Ill. 2d at 43. “Summary judgment should be granted only when the right of the moving

party is clear and free from doubt.” Thompson, 241 Ill. 2d at 438.

¶ 29 When the parties have filed cross-motions for summary judgment, they believe that the

matter presents to the court no genuine issues of material fact, only questions of law. Gaylor, 363

Ill. App. 3d at 546. However, the fact that the parties filed cross-motions for summary judgment

does not establish the absence of factual issues sufficient to preclude summary judgment; both the

trial court and the reviewing court may independently determine that a genuine issue of material

fact exists despite the parties’ belief that no factual issue exists. Id. at 547. We review de novo the

trial court’s determination on cross-motions for summary judgment. Id. With these standards in

mind, we turn to the issues.

¶ 30 A. Standing to Sue

¶ 31 Dan’s motion for summary judgment argued that Palm lacked standing to sue because

(1) when she first filed suit, she was merely an agent of the Diane Trust, not a trustee; (2) even

after her later appointment as a co-trustee, she lacked standing because only beneficiaries of trusts

may sue trustees; and (3) even if co-trustees are proper plaintiffs in this action, the terms of the

Diane Trust required both co-trustees (Justin and Palm) to join the suit as plaintiffs. In support of

the second argument, Dan cited Fuller Family Holdings, LLC v. Northern Trust Co., 371 Ill. App.

3d 605 (2007), the case on which the trial court relied in finding that Palm lacked standing. Palm

counters that she had standing because Justin, as successor trustee of the Diane Trust, appointed

her as an agent of that trust with the power to file the suit on behalf of the trust, and Justin later

supported her becoming a co-successor trustee. She also argues that Fuller Family does not apply

here, as Dan is a former trustee rather than a current one.

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¶ 32 Dan’s first argument—that a trust cannot sue through a designated agent, even if that agent

was authorized by the trustee—is the same argument he raised in seeking to dismiss both the

original complaint and the amended complaint. The trial court rejected this argument, finding that

the real party in interest at all times was the Diane Trust, which was alleged to have appointed

Palm as an agent for the purpose of bringing suit. Dan renewed this legal argument in his motion

for summary judgment, but the trial court did not rule on it, granting summary judgment on a

different ground instead. On appeal, Dan again argues that a trust cannot bring suit through an

agent who is not a trustee or beneficiary of the trust and thus, when the suit was first filed, Palm

lacked standing to bring suit on behalf of the Diane Trust. Although the trial court did not rely on

this argument in granting summary judgment, Dan argues that we should consider it, as we may

uphold a trial court’s judgment on any ground supported by the record. Ultsch v. Illinois Municipal

Retirement Fund, 226 Ill. 2d 169, 192 (2007).

¶ 33 In support of his argument, Dan cites a case holding that, to have standing, a plaintiff must

have some real interest in the cause of action, such as a legal or equitable interest in the subject

matter of the action. Weihl v. Dixon, 56 Ill. App. 3d 251, 253-54 (1977). However, for the purposes

of summary judgment, it is undisputed that, when she filed suit, Palm was acting on behalf of the

Diane Trust, which had a legal interest in the subject of the suit, and that she was authorized to file

suit by Justin, who also had legal title to that trust’s property by virtue of being the sole successor

trustee. Dan has not presented any evidence that Palm was not in fact authorized to file suit on

behalf of the Diane Trust. Dan also cites authorities stating that trustees and sometimes

beneficiaries may sue on behalf of a trust. He does not, however, cite any authority stating that an

agent cannot act on behalf of a trustee to file a suit.

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¶ 34 We concede that it is strange to see an agent, rather than a trustee, file suit on behalf of a

trust. We have not discovered any case law explicitly either condoning or condemning this

practice, although section 4.09 of the former Trusts and Trustees Act (760 ILCS 5/4.09 (West

2016) (repealed eff. Jan. 1, 2020)), which was in effect at the time this action was filed, expressly

granted trustees the power to “appoint attorneys, auditors, financial advisers and other agents” to

assist them. Importantly, however, in this case the trial court found that, at all times, the real party

in interest was the Diane Trust. Dan has not argued that this finding was incorrect. Palm alleged

that her standing to bring suit flowed solely from her appointment first as an agent and then as a

co-successor trustee of the Diane Trust, and she has asserted no personal claims of her own in this

action, only claims on behalf of that trust. As the Diane Trust was the real plaintiff when the suit

was filed and remained the real party in interest after the complaint was amended, the fact that

Palm acted on its behalf as a designated agent before being appointed as a co-successor trustee

does not persuade us to accept Dan’s argument.

¶ 35 Dan also argues that, even if Palm had standing to sue once she became a co-successor

trustee, the amended complaint asserting her new role could not “relate back” to the filing of the

original complaint and thus the suit was untimely. Contending that she lacked standing when the

suit was first filed, he argues that the suit was a nullity from the start. We reject this argument as

contradicted by the relevant legal authority.

¶ 36 In In re Estate of Kleine, 2015 IL App (2d) 150063, this court considered a similar

argument. There, a surviving spouse, Jim Kleine, filed suit against the nursing home where his

wife died. At the time he filed suit, someone else—Richard Calkins—was the special administrator

of the estate of Kleine’s deceased wife, but Calkins was not named as a plaintiff in Kleine’s suit.

Id. ¶¶ 2-4. At his request, Kleine was appointed as an additional special administrator of the estate

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and obtained leave to file an amended complaint alleging that he represented the estate. Calkins

still was not named as a plaintiff in the amended complaint. Id. ¶ 5. The defendants moved to

dismiss on the basis that Kleine’s appointment as a special administrator was void because Calkins

had already been appointed. The trial court granted the motion, but gave Calkins time to file a

second amended complaint. Id. ¶ 6. Calkins, as plaintiff, filed that pleading, but by then the statute

of limitations on the claims had run. The defendants again sought dismissal, arguing that the

second amended complaint could not relate back to the original complaint’s filing date, and thus

it was untimely. Id. ¶ 7. The trial court denied their motion but certified the question of whether

the relation-back doctrine applied when the original complaint was filed by an improper

representative and no proper plaintiff was substituted until after the limitations period had expired.

¶ 37 In considering that question, we reviewed several relevant cases, including In re Estate of

Mankowski, 2014 IL App (2d) 140154, ¶ 47, in which this court held that, although the plaintiff

lacked standing to bring suit on behalf of the estate when the suit was filed, her later appointment

as special administrator “cured” the procedural defect, and the estate’s claims should be allowed

to proceed, and Pavlov v. Konwall, 113 Ill. App. 3d 576, 578-79 (1983), which held that the

relation-back doctrine applied where an improperly appointed administrator was not properly

appointed until after the limitations period had run. We also noted that section 2-616(a) of the

Code of Civil Procedure (Code), which permits amendments “introducing any party who ought to

have been joined as plaintiff” at any time before the entry of judgment (735 ILCS 5/2-616(a) (West

2012)), was a companion to section 2-616(b), which allows amended pleadings to relate back to

an original timely filing date if the claims grew out of the same transaction or occurrence (id. § 2-

616(b)). Kleine, 2015 IL App (2d) 150063, ¶ 35. We concluded that, where the original complaint

was timely filed by a plaintiff who lacked proper capacity at the time of filing, but the amended

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complaint substituted a plaintiff with the proper representative capacity and filed an amended

complaint that asserted claims arising from the same facts, the amended complaint related back to

the original filing date. Id. ¶ 33.

¶ 38 Kleine is directly on point with the facts in this case. Indeed, Kleine is a more difficult case,

because there, the person who initially filed suit was not the same person who, as a proper

representative, filed the amended complaint. Here, that person is the same, and even if Palm lacked

the capacity to represent the Diane Trust when she first filed suit, she acquired that capacity before

filing the amended complaint. Thus, under Kleine, the amended complaint relates back to the

original filing date and is timely.

¶ 39 We also find support in Bristow v. Westmore Builders, Inc., 266 Ill. App. 3d 257 (1994),

in which this court considered a similar argument in a different context. A painting contractor who

had not been paid for his work filed suit to enforce his mechanic’s liens, listing the plaintiff as a

corporation, “Manning Bristow Painting and Decorating, Inc.” Id. at 259. The defendants moved

to dismiss, asserting that the named plaintiff was a nonexistent legal entity. The contractor then

successfully requested leave to amend his complaint to substitute “Manning Bristow d/b/a

Manning Bristow Painting and Decorating,” a sole proprietorship, as plaintiff. Id. After judgment

was entered against the defendants, they appealed, arguing in part that, because the named plaintiff

in the original complaint did not exist, the suit was a nullity and the later filing of an amended

complaint naming a proper plaintiff was of no legal effect. Id. at 259-60.

¶ 40 We rejected this argument, holding that, although the plaintiff’s error in the original

complaint had raised a question about whether it was a proper plaintiff, the issue was essentially

one of misnomer, a mistake in the name or description of a party. Id. at 261-62. Under section

2-401(b) of the Code (735 ILCS 5/2-401(b) (West 2016)), misnomer is not a basis for dismissing

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a complaint. We noted that it was “abundantly apparent from the record that the parties were fully

aware of the identities of the actual litigants and that an actual plaintiff was in existence.” Bristow,

266 Ill. App. 3d at 262. Because “there were facts in the record which identified an entity capable

of suing,” and the error in styling the plaintiff as a (nonexistent) corporation rather than the correct

sole proprietorship “resulted in no actual prejudice” to the defendants (id.), we held that the trial

court did not err in permitting the plaintiff to amend the complaint to cure the defect. This result

was consistent with section 1-106 of the Code (735 ILCS 5/1-106 (West 2016)), which directs that

the Code should be liberally construed to promote a speedy final determination on the merits of

the parties’ claims. Bristow, 266 Ill. App. 3d at 262.

¶ 41 Facts similar to those that guided our decision in Bristow are present here. The record

confirms that the parties have always known and acted as if the Diane Trust was the real party on

whose behalf the suit was brought, the trust was always a legal entity that could sue to enforce its

interests, and Palm was asserting only that trust’s interests rather than any personal interest of her

own, regardless of whether she was doing so as an agent or a co-trustee of the trust. Thus, the suit

was not a nullity when it was filed, and the trial court did not err in permitting Palm to file an

amended complaint in her capacity as a co-successor trustee. Id. And because the amended

complaint asserted the same claims as the timely original complaint, it related back to the filing

date of the original complaint. Kleine, 2015 IL App (2d) 150063, ¶ 35.

¶ 42 Citing Fuller Family, 371 Ill. App. 3d at 615, Dan next argues that Palm lacked standing

to sue even after she was appointed a co-successor trustee, because only beneficiaries of trusts may

sue trustees. Palm argues that Fuller Family’s holding—that beneficiaries are the proper persons

to bring suit—applies only when the suit is directed at a current trustee of the trust. Here, however,

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Dan is a former trustee and thus is a “third person” who can be sued by the Diane Trust’s current

trustees. Palm is correct.

¶ 43 It is well settled that a trustee is a proper person to bring suit against a third person on

behalf of the trust and its beneficiaries. See 760 ILCS 3/816(24) (West 2020) (trustees may

“prosecute or defend an action, claim, or judicial proceeding in any jurisdiction to protect trust

property”); 760 ILCS 5/4.11 (West 2016) (repealed eff. Jan. 1, 2020; predecessor statute to 760

ILCS 3/816(24) (West 2020)) (same); Ready v. Ready, 33 Ill. App. 2d 145, 152 (1961) (“The right

to sue in the ordinary case vests only in the trustee.”); see also Restatement (Second) of Trusts

§ 282 (1959). Dan’s sole support for his contention that the suit should have been filed by the

beneficiaries of the Diane Trust rather than Palm (a co-successor trustee) is Fuller Family, 371 Ill.

App. 3d at 615, in which the court stated that “it is the trust beneficiary who has the right to bring

an action for damages based on a breach of fiduciary duty by the trustee.” (Emphasis added.) But

Fuller Family is inapplicable to the facts in this case, where neither Dan nor GreatBanc was a

trustee of the Diane Trust when the suit was filed. Rather, Dan was a former trustee and thus was

a stranger to the trust who could be sued by a trustee in the same way as any other third person.

See Grove v. Morton Community Bank, 2022 IL App (3d) 210177, ¶ 29 (co-successor trustee of

trust had standing to bring breach of fiduciary duty claim against former trustee); Axelrod v.

Giambalvo, 129 Ill. App. 3d 512, 519 (1984) (former trustees who no longer held that office “stood

as *** third persons in their relationship to the Trust”). Dan’s argument that this action should

have been brought by the beneficiaries of the Diane Trust is meritless.

¶ 44 Lastly, Dan argues that Palm cannot maintain this suit despite being a co-successor trustee,

because Justin, the other co-successor trustee, did not join the suit. He points to section 12.04 of

the Diane Trust, which states:

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“In all matters pertaining to the administration of any trust, unless otherwise

expressly provided by the terms of this agreement, when more than two Trustees are

serving, the concurrence and joinder of a majority of the Trustees is required. If only two

Trustees are serving, the joinder of both of them is required.”

We first note that Dan’s argument misapprehends the meaning of the term “joinder” as used here,

where it expressly applies to “all matters pertaining to the administration of any trust.” Because

the trust uses “joinder” as a requirement for a wide array of nonlegal matters, it cannot refer only

to the formal joining of a lawsuit. This is confirmed by the delegation powers in section 12.05—

the very next provision of the Diane Trust—under which a trustee may approve a co-trustee’s suit

without formally joining it:

“Any Trustee may, by an instrument in writing, delegate to any other Trustee the

right to exercise any power granted the Trustee in this agreement. During the time a

delegation under this Section is in effect, the Trustee to whom the delegation was made

may exercise the power to the same extent as if the delegating Trustee had personally

joined in the exercise of the power.” (Emphasis added.)

¶ 45 Thus, under the terms of the trust (which, as Dan acknowledges, control here), Justin was

empowered to delegate to Palm his power to maintain suit on behalf of the Diane Trust, and that

delegation enables Palm to maintain such a suit to the same extent as if Justin had personally joined

in the suit. Dan asks us to treat this provision as ineffectual, but that would be improper. Schroeder

v. Sullivan, 2018 IL App (1st) 163210, ¶ 27 (a trust should be construed “so that no language is

treated as surplusage or rendered void or insignificant”). Moreover, the delegation that occurred

here itself demonstrates that the requirements of section 12.04 were met, as Justin and Palm both

agreed that the suit should be brought; if they did not, Justin would not have delegated to Palm the

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power to prosecute the suit. Dan argues that, in Stuart v. Continental Illinois National Bank &

Trust Co., 68 Ill. 2d 502, 523 (1977), the supreme court held that “a co-trustee cannot exercise a

joint power individually,” but he neglects to mention the first half of that sentence: “[i]t is

axiomatic that the limits of a trustee’s powers are determined by the instrument which creates the

trust.” Here, the terms of the Diane Trust plainly permitted Justin to delegate to Palm the power to

bring and maintain this suit.

¶ 46 We conclude that none of Dan’s arguments regarding Palm’s ability to bring this suit or

the relation back of the amended complaint have merit, and that the trial court erred in granting

summary judgment on that basis. However, Palm’s purported lack of standing was not the only

basis for the trial court’s grant of summary judgment for the defendants. We turn to the next issue,

whether the terms of the Diane Trust granted Dan the right to act unilaterally in the manner he did.

We also consider whether the unilateral-action provision of the Diane Trust exonerates GreatBanc

from liability.

¶ 47 B. Power to Act Unilaterally

¶ 48 In 2011, the terms of the Diane Trust included the following provisions in article V,

“General Trust Provisions”:

“6. Retained Powers. Notwithstanding the foregoing, while I am living and not

unable to manage my affairs:

(a) Power to Direct. I shall have the power to direct the retention or sale of

my trust assets and the purchase of property with any principal cash in the trust.

(b) Investment Approval. No sale or investment shall be made without my

written approval, *** provided that my husband, as trustee, need not seek my

approval to make any sale or investment.”

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Article VI, “Trustee Provisions,” included the following:

“1. Unilateral Acts of Trustee. Notwithstanding anything to the contrary herein, and

unless specifically provided otherwise by me in writing, while my husband and I are acting

as co-trustees, either my husband or myself, as co-trustee, may act unilaterally (i.e. without

the participation of the other co-trustee) for me and on my behalf under this trust agreement

and I agree, on behalf of myself, my heirs, successors and assigns, to hold harmless any

person or entity that relies in good faith upon any such unilateral acts or directions by a

trustee pursuant to this paragraph.”

Dan argues that these provisions gave him the right to act unilaterally with respect to the assets of

the Diane Trust, allowing both the 2009 diversion of that trust’s share of the monthly payments on

the Note and the 2011 use of the trust’s interest in the balance of the Note.

¶ 49 Palm counters with three arguments. First, she argues that Dan could act unilaterally, but

only to exercise those powers authorized under the trust agreement. Noting that the Diane Trust

received nothing in exchange for either Dan’s diversion of the payments on the Note or his use of

the balance, she asserts that the actions were unauthorized because the transfers of trust property

were essentially gifts to Dan, and the terms of the Diane Trust did not grant trustees the power to

make any gifts of trust property. Second, she contends that Dan’s actions benefitted only himself,

and thus were a breach of fiduciary duty even if he had been authorized to make gifts of trust

property to others. Third, she notes that, even if Dan had been authorized to act alone on behalf of

the Diane Trust, there is no evidence that he was in fact acting on behalf of the Diane Trust (rather

than himself or the Dan Trust) when he diverted the payments in 2009 or used the balance of the

Note in 2011. We examine each argument in turn.

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¶ 50 It is well established that trustees must administer trust property in accordance with the

terms of the trust instrument. Id.; In re Estate of Adames, 2020 IL App (1st) 190573, ¶ 59

(“Generally, ‘the powers and duties of a trustee must be determined by the instrument creating the

trust, and, by accepting the trust, the trustee becomes bound to administer it, or execute it, in

accordance with the provisions of the trust instrument’ ” (quoting In re Trusteeship Under the Last

Will & Testament of Hartzell, 43 Ill. App. 2d 118, 134 (1963))). Dan does not argue that the terms

of the Diane Trust gave him the power to make a gift of trust property to anyone. Instead, he argues

that his transfers of trust property in 2009 and 2011 should not be viewed as gifts because, although

the trust itself received no direct compensation in return, the transfers increased the money that

was available for him to use to benefit the family and thus were in the nature of investments.

¶ 51 The question of how the proceeds from Dan’s 2009 and 2011 uses of the Diane Trust’s

property were spent is a factual question, and it is not resolved by the record, which contains no

tracing of those proceeds, only Dan’s general statements that he used his assets to support the

family. However, Dan also testified that the Diane Trust received no benefit from his diversion

and use of the trust assets, evidence that supports the argument that Dan essentially gave away

trust property without authorization to do so under the terms of the trust. At the very least, it is

clear that there is a substantial factual dispute on this issue that makes summary judgment

inappropriate.

¶ 52 We next consider whether, even if the Diane Trust terms permitted trustees to make gifts,

Dan’s diversion and use of the trust’s assets to benefit himself was permitted. “[A] trustee owes a

fiduciary duty to serve the interest of the beneficiaries with total loyalty, excluding all self-interest,

and is prohibited from dealing with the trust’s property for [his or] her individual benefit.”

Giagnorio v. Emmett C. Torkelson Trust, 292 Ill. App. 3d 318, 325 (1997). This duty is paramount

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and takes precedence over the terms of a trust. See 760 ILCS 3/105(b)(2) (West 2020) (the duty

of a trustee to act in good faith prevails over the terms of a trust).

¶ 53 Dan offers no real argument on this point. Again characterizing his actions as investments

rather than gifts to himself, he argues that trustees are held only to a reasonable-person standard

of prudence and their investment decisions should not be overturned unless there are allegations

of bad faith, fraud, or abuse of discretion. See Continental Illinois National Bank & Trust Co. v.

Sever, 393 Ill. 81, 93 (1946). But of course, here there are allegations that Dan engaged in bad

faith and self-dealing to the detriment of the Diane Trust, whose assets Dan was charged with

preserving. Thus, Dan’s argument is unavailing.

¶ 54 Palm’s third argument is that, even if the terms of the trust had authorized Dan to give

away the trust’s assets, and even if diverting and using those assets as he did were not a breach of

Dan’s fiduciary duty of loyalty, the transfers of the trust’s assets were legally ineffective, because

at no point did anyone purporting to act on behalf of the Diane Trust—including Dan—authorize

those transfers. The record supports this argument. In pleading his affirmative defenses, Dan stated

that he redirected the monthly payments in 2009 while acting as co-trustee of the Dan Trust, not

the Diane Trust. There is no evidence that Dan was acting on behalf of the Diane Trust in directing

the diversion of the monthly payments of 20% away from the Diane Trust account and into Dan’s

personal account.

¶ 55 As for the 2011 application of the Diane Trust’s interest in the balance of the Note toward

Dan’s purchase of Wine Sergi, there is no evidence that either Diane or Dan acted on behalf of the

Diane Trust to authorize that use of trust assets. In other words, even if Dan or Diane was capable

of acting alone on behalf of the Diane Trust to convey its interest in the Note, there is no record

that either of them actually did so (or even purported to do so). The assignment that Diane

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eventually signed was executed only in her capacity as a co-trustee of the Dan Trust, not the Diane

Trust, and it expressly authorized only the use of the Dan Trust’s interest in the Note. Dan directed

Reed to instruct GreatBanc to apply the entire balance due under the Note to the deal, but there is

no record that Dan ever told anyone that he was acting on behalf of the Diane Trust when he did

so. Indeed, Reed testified that he did not know of the Diane Trust’s existence, let alone its interest

in the Note. Thus, Reed cannot have conveyed to GreatBanc any authorization by the Diane Trust

to release its interest in the Note. The record simply does not support the conclusion that Diane,

Dan, or anyone else acting on behalf of the Diane Trust ever authorized the use of that trust’s assets

to fund Dan’s purchase of Wine Sergi.

¶ 56 Like Dan, GreatBanc also asserts that the Diane Trust’s unilateral-action provision

absolves it of liability. We reject this argument for the same reasons already discussed, in particular

the last one: no one acting on behalf of the Diane Trust authorized either the 2009 diversion of the

Diane Trust’s share of the monthly payments on the Note or the 2011 release of the Diane Trust’s

interest in the Note. GreatBanc stresses that it never dealt directly with Diane regarding the Note

and that it was accustomed to dealing instead with Dan and Diane’s agents, such as the attorney

who informed GreatBanc about the assignment to the Diane Trust of a 20% interest in the Note,

and Reed, who relayed instructions regarding the Note from Dan. This is not a defense, however,

as we explain.

¶ 57 GreatBanc insists that it knew very little about the Diane Trust. In 2005, it received notice

that a 20% interest in the Note was assigned to the Diane Trust, and instructions that henceforth it

should direct 20% of any payments on the Note to the Diane Trust’s separate account. It had copies

of the assignments, which identified Dan and Diane as co-trustees of both the Dan Trust and the

Diane Trust. However, it never had (and apparently did not request) copies of the trust agreements

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themselves. It therefore did not know (and again, apparently did not ask) who was authorized to

act on behalf of the Diane Trust. It certainly did not have any basis to think that Dan was authorized

to act unilaterally on behalf of the Diane Trust. To the contrary, the assignments—the only record

GreatBanc had of who was authorized to act for the trusts—included both Dan’s and Diane’s

signatures as co-trustees of each trust, suggesting that both co-trustees’ approval was necessary to

authorize transactions.

¶ 58 What GreatBanc did know after 2005 was that the Diane Trust was a holder of 20% of the

Note. Thus, GreatBanc owed the Diane Trust the same duties under the Note that it owed any other

holder: to make regular monthly payments to the place directed by the Diane Trust, and ultimately

to pay to the Diane Trust its share of any proceeds from the Note.

¶ 59 In 2009, GreatBanc nevertheless accepted instructions from Reed to divert the Diane

Trust’s share of monthly payments away from that trust’s account and into what GreatBanc knew

was Dan’s personal account. Despite knowing that the Diane Trust was the holder of an interest in

the Note, there is no evidence that GreatBanc made any effort to inquire whether this diversion

was authorized by anyone acting for the Diane Trust. Similarly, in 2011, GreatBanc simply

accepted instructions from Dan and Reed to release the Diane Trust’s interest in the Note, without

requiring any authorization from anyone acting for the Diane Trust. And as discussed earlier, there

is no evidence that these actions were in fact authorized by anyone acting on behalf of the Diane

¶ 60 GreatBanc also argues that its acceptance of the 2009 instructions to divert the monthly

payments owed to the Diane Trust to Dan’s personal account instead was proper because, under

the terms of the Note, “the holder” of the Note could designate a new place for payment to be

made. But that language only permits each holder of an interest in the Note to direct the place of

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payment for that holder’s interest. The Note does not say that any holder may direct the place of

payment for another holder’s interest, and such a reading would be contrary to the laws of title

and property rights. And although Dan was a co-trustee of the Diane Trust and theoretically could

have been acting on its behalf in redirecting these payments, it is uncontroverted that (1) he was

not doing so and instead was acting on behalf of the Dan Trust in directing the diversion, (2) Reed

did not know of the Diane Trust and thus was not acting on its behalf when he relayed Dan’s

instructions, (3) neither Dan nor Reed ever purported to be acting for the Diane Trust, and

(4) GreatBanc never inquired about whether the Diane Trust authorized this diversion of funds.

Thus, the terms of the Note do not assist GreatBanc here.

¶ 61 For all of these reasons, the trial court erred in granting summary judgment in favor of the

defendants on the ground that the Diane Trust authorized Dan’s unilateral actions to divert and use

the trust’s assets as he did.

¶ 62 C. Issues Relating to Diane’s Knowledge of the 2009 Diversion

¶ 63 The defendants argue that the trial court properly granted summary judgment on the claims

related to the 2009 diversion of the Diane Trust’s share of monthly payments on the Note, because

certain defenses raised by the defendants—the statute of limitations and equitable estoppel or

waiver—are incontestably established by the evidence. These defenses all turn on the factual

question of whether and when Diane knew or should have known of the diversion. The trial court

found that it was “unrebutted” that, as early as 2010, Diane “was getting statements from the bank

account associated with the Diane Trust” and that thus she either knew or should have known of

the diversion then.

¶ 64 Dan relies on this finding to argue that the claims relating to the 2009 diversion are

untimely. In his motion for summary judgment, Dan first argued that those claims were untimely

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on their face, because the limitations period for those claims is five years but the suit was not filed

until 2016. Palm responded by asserting that the discovery rule applied. “The discovery rule

postpones the start of the limitations period until a party knows or reasonably should know both

that an injury has occurred and that it was wrongfully caused.” Henderson Square Condominium

Ass’n v. LAB Townhomes, LLC, 2015 IL 118139, ¶ 52. Palm pointed to Justin’s deposition

testimony that he did not discover the diversion until 2014. Thus, she argued, the suit was brought

within five years of the time that a trustee of the Diane Trust first knew of the diversion. Dan

rejoined that, Diane (as the initial trustee) knew or reasonably should have known of the diversion

well before April 29, 2011, making these claims untimely. GreatBanc similarly relies on the trial

court’s finding to argue that Diane’s knowledge of the diversions should preclude her claims

against GreatBanc, asserting defenses of equitable estoppel and waiver.

¶ 65 As noted earlier, however, the evidentiary basis for the trial court’s finding is unclear—the

defendants have not identified any evidence that supports it, and our own review of the record has

yielded no such evidence, let alone “unrebutted” proof. We review de novo all of the trial court’s

determinations in connection with summary judgment. Gaylor, 363 Ill. App. 3d at 547.

¶ 66 Regarding whether or when Diane knew or reasonably should have known of the diversion,

the record is almost completely silent. In 2007, Diane was copied on an e-mail that contained an

account number for the Diane Trust’s account at The Private Bank. However, there is no evidence

as to how that account was set up or even that Diane had the right to see the records for the account.

Although it would not be uncommon for a bank to have records indicating to whom account

statements were sent during a given period of time, no such records have been presented here.

Palm testified that Diane was capable of reading and understanding bank records throughout her

illness, but Palm did not know what, if any, bank records Diane actually saw. It is undisputed that

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Diane was not copied on the 2009 e-mails directing the diversion of the Diane Trust’s share of the

monthly payments.

¶ 67 In considering the lack of any evidence that Dan told Diane directly about the diversion,

we are also mindful that, although Dan and Diane were the co-trustees of the Diane Trust, Diane

was its primary beneficiary, and thus Dan owed her a fiduciary duty to disclose relevant facts. In

fact, if, as it appears, Dan failed to tell Diane about the diversion, his silence could amount to

fraudulent concealment of a cause of action:

“[I]t is the prevailing rule that, as between persons sustaining a fiduciary or trust or

other confidential relationship toward each other, the person occupying the relation of

fiduciary or of confidence is under a duty to reveal the facts to the plaintiff (the other party),

and that his silence when he ought to speak, or his failure to disclose what he ought to

disclose, is as much a fraud at law as an actual affirmative false representation or act; and

that mere silence on his part as to a cause of action, the facts giving rise to which it was his

duty to disclose, amounts to a fraudulent concealment ***.” (Internal quotation marks

omitted.) Henderson Square, 2015 IL 118139, ¶ 40.

Fraudulent concealment can be another basis for tolling the limitations period, if it prevents

discovery of the cause of action. Id. ¶ 36.

¶ 68 Because we conclude that the trial court’s finding that Diane knew or reasonably should

have known of the diversion as early as 2010 is not supported by the record, we set it aside. And

lacking that, the defendants have not shown that they are entitled to summary judgment on the

claims arising from the 2009 diversion. “The question of when a party knew or reasonably should

have known both of an injury and its wrongful cause is one of fact, unless the facts are undisputed

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and only one conclusion may be drawn from them.” Id. ¶ 52. Accordingly, the entry of summary

judgment on these claims was error.

¶ 69 III. CONCLUSION

¶ 70 For the reasons stated, the judgment of the circuit court of Du Page County is reversed and

the cause is remanded for further proceedings.

¶ 71 Reversed and remanded.

¶ 72 JUSTICE McLAREN, specially concurring in part and dissenting in part:

¶ 73 I have no quarrel with what the majority has related; I dissent because I do not believe it

goes far enough.

¶ 74 The majority states:

“Palm’s third argument is that, even if the terms of the trust had authorized Dan to

give away the trust’s assets, and even if diverting and using those assets as he did were not

a breach of Dan’s fiduciary duty of loyalty, the transfers of the trust’s assets were legally

ineffective because at no point did anyone purporting to act on behalf of the Diane Trust—

including Dan—authorize those transfers. The record supports this argument. In pleading

his affirmative defenses, Dan stated that he redirected the monthly payments in 2009 while

acting as co-trustee of the Dan Trust, not the Diane Trust. There is no evidence that Dan

was acting on behalf of the Diane Trust in directing the diversion of the monthly payments

of 20% away from the Diane Trust account and into Dan’s personal account.” Supra ¶ 55.

That being said, I believe partial summary judgment, at minimum, should have been granted to

Palm.

¶ 75 Additionally, the majority relates:

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“Because we conclude that the trial court’s finding that Diane knew or reasonably

should have known of the diversion as early as 2010 is not supported by the record, we set

it aside. And lacking that, the defendants have not shown that they are entitled to summary

judgment on the claims arising from the 2009 diversion. ‘The question of when a party

knew or reasonably should have known both of an injury and its wrongful cause is one of

fact, unless the facts are undisputed and only one conclusion may be drawn from them.’

Id. Accordingly, the entry of summary judgment on these claims was error.” Supra ¶ 69.

Based on this record, the majority’s determination, coupled with the implications of the Dead-

Man’s Act (735 ILCS 5/8-201 (West 2016)), should have resulted in summary judgment being

granted to Palm against defendants.

¶ 76 I agree that the cause should be remanded. However, I submit that it should be remanded

only to determine the amount of Palm’s damages.

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2022 IL App (2d) 210057

Decision Under Review: Appeal from the Circuit Court of Du Page County, No. 16-L-389; the Hon. Angelo J. Kappas, Judge, presiding.

Attorneys David C. Blickenstaff and David C. Giles, of ArentFox Schiff for LLP, of Chicago, for appellant. Appellant:

Attorneys Joseph P. Carlasare, Michael Resis, and Glen E. Amundsen, of for SmithAdmundsen LLC, of Chicago, for appellee Daniel A. Appellee: Sergi.

Ryan C. Williams and Gregory A. Kubly, of Akerman, LLP, of Chicago, for other appellee.

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