Genevieve M. Daniels, Genevieve M. Daniels, P.C., Highland Park
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First District Held Punitive Damages Allowed Under Uniform Fraudulent Transfer Act, Possibly as an Indirect Means To Cover Successful Litigant’s Attorneys’ Fees
Illinois follows the American rule of attorneys’ fees, meaning that a prevailing party is prohibited from recovering its attorneys’ fees from the losing party absent express authorization by statute or by contract between the parties. Although the Uniform Fraudulent Transfer Act (UFTA), 740 ILCS 160/1, et seq., does not expressly allow for an award of attorneys’ fees, the First District in Bremel v. Quedas, Inc., 2024 IL App (1st) 231209, recently held that punitive damages were recoverable under the UFTA in relation to a failed real estate transaction and that such an award might just happen to equal the amount of attorneys’ fees incurred by the prevailing party. In other words, a successful litigant may be able to recover its attorneys’ fees under the guise of punitive damages, notwithstanding the American rule and the provisions of the UFTA.
Facts
Denis Bremel sued Quedas, Inc.; Bronislaw Chmiel, Quedas’ sole shareholder; and Thaddeus Gauza, an attorney and authorized representative of Quedas, for breach of contract and violation of the UFTA in connection with a failed real estate transaction between himself and Quedas. 2024 IL App (1st) 231209 at ¶1.
In April 2012, Chmiel formed Quedas and was its sole shareholder and owner throughout its existence. Additionally, Gauza served as Quedas’ incorporator and was its authorized agent. 2024 IL App (1st) 231209 at ¶5. According to Chmiel, the sole purpose of forming Quedas was for it to serve as the titleholder for a parcel of real property located on Augusta Boulevard in Chicago. Id.
Gauza, as authorized representative of Quedas, entered into an agreement with Bremel to sell the subject property. 2024 IL App (1st) 231209 at ¶6. During the pendency of the transaction, Chmiel, on behalf of Quedas, executed a warranty deed transferring the subject property to himself, individually, while at the same time also voluntarily dissolving Quedas, whose only asset had been the subject property. 2024 IL App (1st) 231209 at ¶8. Shortly thereafter, Gauza informed Bremel that Quedas was not able to proceed with this transaction and attempted to return the earnest money to him. 2024 IL App (1st) 231209 at ¶9. Bremel did not agree to accept the refund of the earnest money, considered the seller’s unilateral termination a breach of contract, and filed his lawsuit. 2024 IL App (1st) 231209 at ¶¶9, 11.
After motion practice on the pleadings, Bremel filed his second amended complaint, which alleged, in part, a violation of the UFTA, i.e., the transfer of the subject property from Quedas to Chmiel constituted a fraudulent conveyance. 2024 IL App (1st) 231209 at ¶15. Ultimately, the trial court found, in part, that “Quedas was a debtor liable to [Bremel], a creditor; (2) the transfer of the subject property from Quedas to Chmiel was fraudulent in law; and (3) the transfer was fraudulent in fact” and, as a result, “the transfer of the Property from Quedas to Chmiel violated the [UFTA] and is therefore void.” 2024 IL App (1st) 231209 at ¶19. In his petition for damages, Bremel requested, in part, the imposition of punitive damages, claiming that Quedas, Chmiel, and Gauza’s fraudulent conduct had led him to expend over $121,000 in attorneys’ fees to secure his rights and suggested that an award in that amount would be appropriate. 2024 IL App (1st) 231209 at ¶20. The trial court declined to impose punitive damages, noting that “[t]here are very few Illinois cases that discuss punitive damages and the UFTA” and that “punitive damages were unavailable for a breach of contract claim.” 2024 IL App (1st) 231209 at ¶21. Bremel timely appealed. 2024 IL App (1st) 231209 at ¶23.
Appellate Court
On appeal, Bremel contended, in part, that the trial court erred when it declined to impose punitive damages with respect to his UFTA claim. 2024 IL App (1st) 231209 at ¶25. Bremel grounded his claim on the fact that punitive damages are essentially included in the UFTA’s “catch-all” provision that allows a creditor to obtain a number of remedies for a violation, including “any other relief the circumstances may require.” 2024 IL App (1st) 231209 at ¶¶ 29 – 30, citing 740 ILCS 160/8(a)(3)(C). Bremel also claimed, erroneously, that “no Illinois decision discusses” 740 ILCS 160/8(a)(3)(C). 2024 IL App (1st) 231209 at ¶31.
In rendering its decision, the trial court relied heavily on Bank of America v. WS Management, Inc., 2015 IL App (1st) 132551, ¶¶117 – 123, 33 N.E.3d 696, 392 Ill.Dec. 895, which does analyze 740 ILCS 160/8(a)(3)(C) and which, the appellate court noted disapprovingly, Bremel had failed to cite or acknowledge to the court below. 2024 IL App (1st) 231209 at ¶¶ 31 – 32. While Bank of America focused on the availability of attorneys’ fees under the UFTA and found that they were not recoverable per the American rule, the appellate court found that Bremel’s argument on appeal was distinguishable from that prior case in that Bremel argued “(1) that punitive damages are available in UFTA cases and (2) that, in his case, the proper award of punitive damages should equal his attorney fees.” 2024 IL App (1st) 231209 at ¶32.
The appellate court also noted thar the UFTA “is a uniform act and, in fact, expressly provides that ‘[t]his Act shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this Act among states enacting it.’ ” 2024 IL App (1st) 231209 at ¶33, quoting 740 ILCS 160/12. As such, “[o]pinions of the courts of other jurisdictions are . . . shown greater than usual deference,” although the appellate court’s ultimate decision would be based on its independent interpretation of the Illinois statute. 2024 IL App (1st) 231209 at ¶33, quoting Garver v. Ferguson, 76 Ill.2d 1, 389 N.E.2d 1181, 1183, 27 Ill.Dec. 773 (1979).
After examining the language of the UFTA and the decisions of other jurisdictions, the appellate court determined that punitive damages are allowed under 740 ILCS 160/8(a)(3)(C) and that the broad language of the statute allows a trial court “considerable discretion in fashioning an appropriate remedy based on the particular circumstances before it.” 2024 IL App (1st) 231209 at ¶37. The appellate court further noted that “the UFTA is clear that it is intended to ‘supplement’ the common-law except where it is ‘displaced’ by the provisions of the statute, and [that the Illinois Supreme Court] has interpreted this directive expansively.” Id., quoting 740 ILCS 160/11. The appellate court further noted that “limiting the available remedies in a UFTA claim may have the undesirable result of leaving [Bremel] worse off than he had been before asserting his claim, [essentially leaving Bremel] without a remedy despite a finding of fraud.” 2024 IL App (1st) 231209 at ¶37. Accordingly, the appellate court held that, “in appropriate circumstances, a violation of the UFTA may give rise to an award of punitive damages, as would be the case under the common law.” Id.
Because the trial court incorrectly held that punitive damages were not available under the UFTA, it never addressed whether Quedas, Chimel, and Gauza’s fraudulent behavior warranted the imposition of punitive damages and, if so, the proper amount of such an award. 2024 IL App (1st) 231209 at ¶¶39 – 40. The appellate court remanded the case to the trial court with instructions to consider whether punitive damages were appropriate under the circumstances of the case. Id. In doing so, the appellate court “express[ed] no opinion on the question of whether punitive damages are warranted or the proper amount of such damages, including [Bremel’s] arguments concerning attorney fees as a measure of damages.” 2024 IL App (1st) 231209 at ¶40.
It is worth noting that Justice Van Tine filed a specially concurring opinion, agreeing with the majority that the UFTA allows for the imposition of punitive damages and that attorneys’ fees, per the American rule, are not recoverable under the Act. 2024 IL App (1st) 231209 at ¶¶51 – 54. Justice Van Tine further remarked that the American rule “extends to a scenario where, as in this case, a UFTA plaintiff seeks ‘punitive damages’ that are actually attorney fees” and that a court may not award attorneys’ fees “under the guise of a punitive damages award.” 2024 IL App (1st) 231209 at ¶¶55, quoting International Union of Operating Engineers, Local 150 v. Lowe Excavating Co., 225 Ill.2d 456, 870 N.E.2d 303, 325, 312 Ill.Dec. 238 (2006). While he acknowledged that, “in assessing punitive damages, a trial court may consider the amount of attorney fees,” it did not mean that “an award of punitive damages can simply be an award of attorney fees under a different label,” which is what Bremel essentially sought in the case. 2024 IL App (1st) 231209 at ¶55. As such, Justice Van Tine found Bank of America, supra, to be directly on point and that the trial court “cannot award ‘punitive damages’ that are just attorney fees by another name.” 2024 IL App (1st) 231209 at ¶59.
It will be interesting to see whether the lower court allows Bremel to recover his attorneys’ fees under the guise of punitive damages. In any event, this First District opinion appears to open the door to indirect recovery of attorneys’ fees in claims under the UFTA moving forward, notwithstanding the American rule.
For more information about real estate law, see MORTGAGE FORECLOSURE: CORRESPONDING ISSUES (IICLE®, 2024). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.