In re Estate of Schroeder , 2022 IL App (5th) 210307-U ( 2022 )

2022 IL App (5th) 210307-UNOTICE
NOTICE
Decision filed 11/02/22. The
This order was filed under
text of this decision may be NO. 5-21-0307
Supreme Court Rule 23 and is
changed or corrected prior to
not precedent except in the
the filing of a Petition for IN THE limited circumstances allowed
Rehearing or the disposition of
under Rule 23(e)(1).
the same.
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
______________________________________________________________________________
In re ESTATE OF WILLIAM A. SCHROEDER, ) Appeal from the
Deceased ) Circuit Court of
) Jackson County.
(Carrollton Bank, )
)
Petitioner-Appellant, )
)
v. ) No. 16-P-68
)
David H. Schroeder, as Independent Administrator )
of the Estate of William A. Schroeder, Deceased, ) Honorable
) Ella L. York,
Respondent-Appellee). ) Judge, presiding.
______________________________________________________________________________
JUSTICE WELCH delivered the judgment of the court.
Justices Cates and Moore concurred in the judgment.
ORDER
¶1 Held: The order of the circuit court of Jackson County denying Carrollton Bank’s petition
for citations to recover assets from the beneficiaries of the decedent’s trust is hereby
affirmed where any recovery is barred under the equitable doctrines of laches and
avoidable consequences.
¶2 This is an appeal from the Jackson County circuit court’s order filed September 27, 2021,
denying the petition filed by the petitioner, Carrollton Bank (bank), for citations to recover assets.
The case arises from the administration of the estate of William A. Schroeder, deceased. The bank,
a creditor of the decedent’s estate, filed the petition seeking the recovery of five trust assets
distributed to the beneficiaries of the decedent’s trust (Schroeder Trust) in order to satisfy the
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outstanding debt of $290,000 owed on two promissory notes that were personally guaranteed by
the decedent. We affirm.
¶3 I. BACKGROUND
¶4 The decedent died on August 28, 2016. Prior to his death, he executed his last will and
testament and a declaration of trust on April 21, 2015. The will named the Schroeder Trust as the
beneficiary of his residual estate. The trust was amended on February 5, 2016, and June 10, 2016.
The will was admitted into probate on September 19, 2016. On February 8, 2017, the bank filed
a claim against the estate for $632,961.05 owed on two promissory notes made by WAAL
Investments, LLC (WAAL) and personally guaranteed by the decedent.
¶5 The first promissory note, executed on December 17, 2013, loaned WAAL $387,308.10
and was personally guaranteed by the deceased. The second promissory note, executed on October
22, 2014, loaned WAAL an additional $375,000 and was also personally guaranteed by the
decedent.
¶6 On July 10, 2018, the bank filed a motion for entry of order for allowance of claim. On
August 7, 2018, the trial court entered an order allowing the bank’s claim against the estate. On
October 23, 2018, an inventory of the decedent’s estate was filed. On November 6, 2018, the court
granted the bank’s petition for current account. On January 3, 2019, an amendment to the
inventory was filed. On January 2, 2019, the executor of the decedent’s estate filed an interim
account, which showed payments made to the bank on September 14, 2017, for $20,714.57;
October 4, 2017, for $12,661.54; November 15, 2017, for $6330.77; December 19, 2017, for
$6330.77; January 26, 2018, for $6330.77; March 6, 2018, for $12,660.94; and April 25, 2018, for
$12,661.68. No other payments are noted through November 30, 2018. The interim account
showed the estate’s balance to be $11,053.15.
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¶7 On April 11, 2019, the trial court entered an order granting the bank’s petition for removal
of executor and for citation to show cause, which removed Amy Curry as the executor of the
decedent’s estate for cause pursuant to section 23-2 of the Probate Act of 1975 (755 ILCS 5/23-2
(West 2018)). The final account filed on May 2, 2019, showed no additional payments made to
the bank through April 11, 2019.
¶8 On October 14, 2020, the bank filed a petition for citations to recover assets. The petition
iterated that an unsatisfied claim against the estate remained in the amount of $290,000. The
petition sought recovery of the following assets by the estate: (1) an undivided one-third interest
in 100 acres, Wayne County, Illinois, transferred to David Schroeder and Matthew Schroeder on
October 3, 2017; (2) a residence at 27 Pinewood Drive, Carbondale, Illinois, transferred to David
Schroeder on February 7, 2018; (3) an undivided one-half interest in 120 acres located in Marion
County, Illinois, transferred to Elizabeth Patterson in 2017; (4) 60 acres in Marion County, Illinois,
transferred to Paul Schroeder, trustee of the Schroeder Family Trust (Family Trust); and (5) cash
in the amount of $485,000 distributed to Paul Schroeder, trustee of the Family Trust. The petition
noted that a letter was received from David Schroeder, the administrator of the estate, in which he
refused to seek recovery of assets from the trust to pay the estate’s claims on July 7, 2020, and the
bank therefore sought an order from the trial court authorizing the issuance of citations to recover
assets requiring the beneficiaries of the trust to return the aforementioned assets to the estate.
¶9 On May 12, 2021, the respondents, David Schroeder, Matthew Schroeder, Elizabeth
Patterson, and Paul Schroeder, filed an answer and affirmative defenses to the petition for citations
to recover assets. The following affirmative defenses were cited as to why the recovery sought by
the bank should be barred: (1) the claim was filed outside the statute of limitations provided in
section 505(a)(6) of the Illinois Trust Code (760 ILCS 3/505(a)(6) (West 2020)); (2) the recovery
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sought was barred by the doctrine of laches where the bank waited an unreasonably long time to
bring the cause of action despite its knowledge of the transfers, which was prejudical to the
respondents (specifically, that the bank waited until October 14, 2020, to file its petition seeking
recovery of trust assets—approximately 2½ to 3 years after the transfer of said assets); (3) recovery
was barred by the doctrine of waiver where delay in seeking recovery resulted in the bank waiving
its right to bring the cause of action; (4) the bank failed to mitigate its damages in delaying to file
the cause of action; (5) recovery should be barred where the bank had unclean hands in waiting an
unreasonably long time in seeking recovery; and (6) recovery would result in the bank being
unjustly enriched where it was seeking to recover more than it was entitled as it sought the recovery
of assets worth more than the amount still owed.
¶ 10 On May 14, 2021, the trial court held a hearing on the motion. 1 As to the petition for
citation to recover assets, David Schroeder, the decedent’s son, testified that he was made executor
of the decedent’s estate after Amy Curry, the original executor named in the decedent’s will, was
removed by the trial court. He testified that he received from the Schroeder Trust property in
Carbondale located at 27 Pinewood Drive, one-sixth interest in a 100-acre farm located in Wayne
County, 2 and one-tenth of the value of coins located in a safe deposit box later sold at auction for
approximately $600,000. The property on Pinewood was appraised at $210,000; the farm was
appraised at $3300 per acre, valuing his one-sixth share at $55,000. After the decedent’s death,
the Family Trust was created. The assets of the Schroeder Trust went to the Family Trust. It was
his understanding that his four siblings and he shared equally in the Family Trust. He received the
1
The court also ruled on the motion addressed in case No. 5-21-0163. In this appeal, we will only
address those portions of the hearing relevant to the issues in this case.
2
David, his brother Matthew, and the decedent each owned a one-third interest in the property prior
to the decedent’s death, and so David gained one-half of the deceased’s one-third interest at the time of his
death.
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farm on October 3, 2017, and the Pinewood property on January 31, 2018, in accordance with the
terms of the decedent’s will. The conveyance of the Pinewood property was recorded on February
21, 2018. An inventory of the estate was filed in 2018, after both conveyances had already
occurred.
¶ 11 Paul Schroeder, the decedent’s brother, testified that he was a co-trustee along with Curry
of the Schroeder Trust. He explained that there were 10 beneficiaries of the trust. In order to
properly divide the trust, which contained the coin collection and properties, evenly amongst the
10 beneficiaries, it was decided that the trust would liquidate all assets and then the cash proceeds
from the sale of the assets could be split 10 ways evenly. He was to be responsible for selling the
coin collection and Curry was responsible for selling the properties. He eventually became aware,
prior to her removal as trustee, that she had ceased making payments to the bank on the outstanding
loan and disputes with Curry led to the trust modification, which also created the Family Trust. At
the time the loan was executed between the bank and WAAL, it was his understanding that there
was at least $350,000 in equity in WAAL, and the estate had between $150,000 and $200,000 in
assets. Therefore, he argued that, had the bank been prudent in collecting the loan, there would
have been sufficient assets to cover the debt. It was his understanding based on correspondence
with Greg Heggemeier and the bank’s counsel that Curry missed the payments on behalf of WAAL
in July, August, and September 2017. Curry then used estate assets, rather than WAAL’s assets,
to pay back the past due amount owed for those three months. He also noted that, under the terms
of the loan, it was immediately in default upon a change in management. Therefore, the loan was
in default immediately upon the death of the decedent, and the bank could have, at that time, sought
foreclosure or additional financial information.
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¶ 12 Paul testified that the 60-acre property located in Marion was transferred to the Family
Trust and the deed was recorded on June 4, 2018; that property was appraised for approximately
$186,000. The one-half interest in the 120-acre farm in Marion County was appraised at $192,000,
it was sold in May 2020, and the deed was recorded on June 5, 2020. The estate assets also
included two coin collections, one worth between $80,000 and $88,000 and the other worth
approximately $600,000. Once the specific bequests were distributed, he sold the remaining coins,
netting approximately $604,000 or $605,000. In May 2018, approximately $485,000 from the
proceeds of the coin collection was transferred from the Schroeder Trust to the Family Trust, of
which he was the only trustee. Additionally, the farm located in Jackson County was sold for
approximately $160,000, which was also transferred to the Family Trust, totaling $664,000 that
was transferred from the Schroeder Trust to the Family Trust. However, only the proceeds from
the sale of the coin collection were distributed amongst all five beneficiaries; the proceeds from
the land sale went directly to two of the decedent’s children as the land had been earmarked for
them by the decedent. After satisfying the costs associated with the Family Trust, the entire
principal amount was distributed amongst the five beneficiaries during 2018 and 2019. The only
remaining asset in the Family Trust was the 60-acre farm in Marion County.
¶ 13 Paul recounted his observations of Curry’s subpar performance in acting as executor, co-
trustee of the Schroeder Trust, and in managing WAAL, which at the time of the decedent’s death
was valued between $950,000 and $1 million, an excess of approximately $300,000 due on the
loan. In September 2017, the bank sent Curry a letter warning her that if she did not pay $60,000
in addition to keeping the loan current, it was going to bring legal action. He expected the bank to
sue Curry for the amount owed on the loan. The bank did not take legal action and instead allowed
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Curry to renew the loans. Once she again fell behind on the loan payments, the bank finally took
legal action.
¶ 14 Matthew Schroeder, the decedent’s son, testified that he received his one-fifth share of the
$485,000 distributed by the Family Trust, some coins that were held in a safety deposit box
appraised at approximately $40,000, a portion of an IRA, and a one-sixth interest in land that his
brother David received.
¶ 15 Patricia Hoke, attorney for the decedent’s estate and the Schroeder Trust, testified that in
July 2017, she had a conversation with the bank’s counsel wherein she told him that between
WAAL’s assets and the estate’s assets, there should be enough assets to pay the bank’s claim. She
also sent an email with an inventory of WAAL’s assets, showing the decedent’s 99% ownership
interest valued at $944,000. She denied making any statement that the trust assets would be used
to pay the loan as there were sufficient funds to pay the loan from WAAL’s assets.
¶ 16 Heggemeier, the bank’s senior vice president, testified that the bank filed a claim against
the decedent’s estate in excess of $600,000 for payment of the WAAL promissory notes that were
personally guaranteed by the decedent. He admitted that, at the time of the decedent’s death, the
bank’s rights included the right to demand financial information from WAAL, rent rolls, and tax
returns. Though these things were requested, they were not timely received from Curry. He also
acknowledged that the bank could have demanded additional security on the loan, which it failed
do. It was his understanding, based on after-acquired knowledge, that the first default on the loan
occurred when the decedent transferred his ownership interest in WAAL to the Schroeder Trust
prior to his death. His death then also triggered a default, and the adverse material change in the
make up of WAAL also triggered a default.
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¶ 17 Curry made payments on the loan in October, November, and December 2016, and
January, February, March 2017. He noted that some of the payments were between 15 to 30 days
late. The bank encouraged Curry early on following the decedent’s death to sell WAAL’s assets
as she could not manage WAAL. He also admitted that he was aware that WAAL owned
additional property that was not already secured under the loan, and that the bank could have
demanded that WAAL provide additional security but failed to do so. Curry never provided
personal financial information or her tax returns, and she did not look into refinancing the loan
under her own name. He described Curry as “very elusive,” and that arranging a meeting with her
was a several-month-long process. He never received the requested financial documents from
Curry in 2017.
¶ 18 Heggemeier recalled that he began to sense that things might not be right with Curry’s
management of WAAL in late 2016. The two individual notes matured after the decedent’s death
on October 17, 2017, and six-month renewals on each loan were executed on October 22, 2017,
and November 21, 2017. Following the execution of the renewals, Curry made payments and sold
property, which brought down the balance owed and reduced the debt. In April 2018, the bank
again allowed Curry to renew the loans, which would mature in October 2018. Curry stopped
making payments after August 2018. There was also a property sold for $132,000 in October 2018
that went toward the loan; however, property sales did not constitute a payment by Curry.
Following the foreclosure action in Jackson County, the bank sold two of the properties subject to
that judgment, and WAAL received credit on the loan for the net profits resulting from the sales.
However, he explained that foreclosure sales reduce the value of the properties and had Curry sold
those two properties herself, which she told him that she was going to do, the properties would
have sold for a higher amount and the debt would have reduced that much more. He encouraged
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Curry to sell the properties at every opportunity he had; however, he lost contact with her at some
point.
¶ 19 Based on his relationship with the decedent and his family, Heggemeier knew that it was
the decedent’s intention that WAAL pay the loan and that his personal assets be distributed to his
children. Heggemeier stated that his goal “was to have WAAL pay the debt, but it didn’t happen
and it couldn’t happen and [Curry] was the reason why it didn’t happen.” He was not privy to all
of the estate and trust dealings; however, his conversations with Paul and David tended to focus
on Curry. They were all in agreement that Curry was a problem, and they needed to get her out.
Lastly, he explained that his dealings with the decedent were based on a 20-year relationship, and
he obviously would have sought more collateral in securing the loan had he known that the
decedent was going to die.
¶ 20 On September 27, 2021, the trial court entered a written order denying the petitions for
citations to recover assets from the beneficiaries of the Family Trust. In its recitation of the
arguments of the parties, the court reiterated the respondents’ argument that the distributions of
the assets of the Family Trust met the requirement of section 505(a)(6) of the Trust Code, and that
the bank’s recovery should be barred under the doctrine of laches, the doctrine of avoidable
consequences, and the doctrine of waiver. The bank now appeals.
¶ 21 II. ANALYSIS
¶ 22 On appeal, the bank argues that, pursuant to Rush University Medical Center v. Sessions,
2012 IL 112906, the trial court erred in denying its petition for citations to recover trust assets
where it is owed $335,789.23 on an outstanding debt from two promissory notes that were
personally guaranteed by the decedent, and where the decedent’s estate is insolvent and lacks
sufficient assets to satisfy the debt. The respondents argue that the bank’s recovery should be
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barred under the doctrines of laches, avoidable consequences, and waiver. We agree with the
respondents that equity requires we affirm the order of the trial court.
¶ 23 A. Rush
¶ 24 The bank first argues that whether the Schroeder Trust is liable for the debts of the estate
is not at issue where the trial court entered a final and appealable order on January 3, 2020, finding
the trust liable to the estate’s creditors for unpaid debts, and that decision cannot be overturned by
this court as it was not appealed by either. Generally, a party who has the opportunity to file an
appeal of a legal decision but fails to do so renders the decision the law of the case for future stages
of the same litigation. Liccardi v. Stolt Terminals, Inc., 178 Ill. 2d 540, 547 (1997).
¶ 25 During the January 3, 2020, hearing, the trial court found that the decedent’s will directed
the estate administrator to the Schroeder Trust upon insolvency to pay insolvent debts of the estate.
The terms of the trust directed the same of the trustee. Therefore, the court determined that the
Schroeder Trust was liable to pay claims of the insolvent estate upon demand by the personal
representative of the estate. The court then stated that this finding was the limit of its ruling on the
issue. Following this finding by the court, the bank declared its intent to file supplemental
proceedings to seek payment from the remaining amount owed from the Schroeder Trust. This
statement, along with the fact that Curry’s counsel withdrew the request for a special finding under
Illinois Supreme Court Rule 308 (eff. Oct. 1, 2019) on the motion to reconsider, demonstrates that
the court’s finding was not an appealable order.
¶ 26 The bank’s substantive argument relies on the precedent established by the supreme court
in Rush, 2012 IL 112906. In Rush, defendant established an irrevocable spendthrift trust in which
he was the settlor and lifetime beneficiary and named himself as the “trust protector” with the
power to appoint and remove trustees and change beneficiaries. Id. ¶ 3. He then made a $1.5
10
million charitable pledge to Rush University Medical Center to fund new construction. Id. ¶ 4.
The construction was completed but defendant later became ill and blamed the medical center for
his illness. Id. ¶¶ 5-6. He thereafter revoked and executed a new will that made no mention of the
medical center pledge. Id. ¶ 6. The medical center filed suit against the trustees of the trust,
seeking full payment of the pledge by relying on the common law rule that if a settlor creates a
self-settled spendthrift trust for his own benefit, it is void as to existing or future creditors. Id. ¶ 9.
The court, in applying the common law rule, found that “it is not a fraudulent transfer of funds
that renders the trust void as to creditors under the common law, but rather it is the spendthrift
provision in the self-settled trust and the settlor’s retention of the benefits that renders the trust
void as to creditors.” (Emphases in original.) Id. ¶ 23. The court ruled that the trust was void as
to creditors of the estate and awarded plaintiff the full amount of the pledge. Id. ¶ 36.
¶ 27 Here, we first note that both the decedent’s will and trust addressed the issue of insolvency
and directed that the trust be used to pay the debts of the estate. The language of these documents,
as the trial court noted, indicate the decedent’s intent that the trust assets be used to pay unresolved
debts of the estate. This is not a situation where the decedent was attempting to hide assets or
avoid creditors through the trust. Additionally, the Schroeder Trust, as discussed in Rush, was a
self-settled spendthrift trust for the decedent’s benefit. The trust would therefore be liable for the
debts of the estate. However, whether the trust is liable for the debt of the insolvent estate is not
dispositive in this case. Though we agree with the bank’s recitation of the law, the facts of this
case require our consideration of equitable doctrines.
¶ 28 B. Laches
¶ 29 Laches is an affirmative defense based in equity and requires the party raising it to show
that there was an unreasonable delay in bringing an action and that the delay caused prejudice.
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PNC Bank, National Ass’n v. Kusmierz, 2020 IL App (2d) 190521, ¶ 31. Laches “can
preclude relief in an appropriate case where prejudice is demonstrated.” JPMorgan Chase Bank,
N.A. v. Robinson, 2020 IL App (2d) 190275, ¶ 30. The defense of laches is dependent on the
particular facts of the case. Slatin’s Properties, Inc. v. Hassler, 53 Ill. 2d 325, 329-30 (1972).
Laches is a defense that is asserted against a party who has knowingly slept upon his rights and
acquiesced for a great length of time, and its existence depends upon whether, under all the
circumstances of a particular case, a party is chargeable with want of due diligence and failing to
institute proceedings before he did. La Salle National Bank v. Dubin Residential Communities
Corp., 337 Ill. App. 3d 345, 350-51 (2003).
¶ 30 Here, both elements to bar relief based on laches are satisfied. First, the record
demonstrates that the bank’s delay in seeking payment of the decedent’s estate’s outstanding debt
was unreasonable. The record is replete with missed opportunities by the bank in enforcing
payment of its claim. The bank’s claim against the estate was entered in 2016, yet it sought no
full payment on the debt at that time, despite its legal right to do so. The bank then allowed Curry,
who Heggemeier described as “very elusive,” to execute renewals on the notes in 2017 and again
in 2018. The bank allowed the renewals without any additional collateral from Curry. There were
also indications that she was not competent to manage WAAL and the bank encouraged her over
a course of years to sell WAAL’s assets. The decedent died in 2016, and the bank’s claim was
entered shortly thereafter, yet the bank failed to exercise any of its legal rights in actually collecting
payment on the claim until 2020, long after all the assets of the trust had been distributed to the
beneficiaries.
¶ 31 The bank’s recovery would result in prejudice where it delayed in asserting available legal
remedies, where the estate was not initially insolvent, and where WAAL’s assets at the time of the
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decedent’s death exceeded the amount owed on the loan by approximately $300,000. The bank
sat on its rights for so long, that in order to satisfy the debt, the court would now be required to
undue all of the distributions of the Family Trust, which would result in the decedent’s children
returning their inheritances in order to pay the debt. However, as Heggemeier noted, the cause of
this situation and the outstanding debt, is the result of Curry’s actions, not the beneficiaries. The
beneficiaries would effectively lose a large portion of their inheritance because the bank waited
too long to go after Curry for payment of the debt with WAAL assets, which were more than
enough to cover the loan. The bank cannot now, after sleeping on its rights and allowing Curry to
continue to renew the loans without collateral, turn around and ask this court to take back trust
assets that were distributed at a time when the loan could have been paid in full by WAAL, and
cause the beneficiaries to pay the debt even though no action was taken against Curry, despite the
bank’s recognition that she was the bad actor. Therefore, the relief sought by the bank would result
in prejudice.
¶ 32 As both elements of laches are satisfied by the particular facts of this case, the trial court
did not err in denying the bank’s petition for citations for recovery of trust assets.
¶ 33 C. Avoidable Consequences
¶ 34 Another affirmative defense raised by the respondents was the doctrine of avoidable
consequences. Illinois has long recognized the doctrine of avoidable consequences, which
prevents a party from recovering damages for consequences which that party could reasonably
have avoided. The supreme court has explained that the law imposes on a party injured from
another party’s breach of contract the active duty to make reasonable efforts to minimize the injury.
A party’s negligence or willfulness cannot allow the damages to be unnecessarily enhanced. Cedar
Rapids & Iowa City Ry. & Light Co. v. Sprague Electric Co., 280 Ill. 386, 391 (1917).
13
¶ 35 The doctrine of avoidable consequences “addresses itself to the equity of the law that a
plaintiff should not recover for those consequences of defendant’s act which were readily
avoidable by the plaintiff. Sutherland on Damages, (1844), vol. 1, p. 226, et seq.” (Internal
quotation marks omitted.) Kelly v. Chicago Park District, 409 Ill. 91, 98 (1951). “The general
rule is that it is the duty of a party injured by a breach of contract or tort to make a reasonable
effort to avoid damages therefrom, and such damages as might by reasonable diligence on his part
have been avoided are not to be regarded as the natural and probable result of plaintiff’s acts, and
therefore there can be no recovery for damages which might have been avoided by reasonable
effort on the part of the person injured.” Nelson v. Buick Motor Co., 183 Ill. App. 323, 325 (1913);
see Maere v. Churchill, 116 Ill. App. 3d 939, 946-47 (1983).
¶ 36 Here, the record establishes several means through which the bank could have reasonably
avoided its losses. As previously discussed, the bank could have called the loan due at the time of
the decedent’s death, which could have been paid entirely with assets held by WAAL. The bank
could have either refused to execute the renewals, calling the debt due sooner, or could have
required additional collateral in executing the renewals. The bank had legal remedies available to
it that were not available to the beneficiaries of the trust in ensuring the debt was satisfied. The
longer the bank waited to use its legal remedies, the greater its damages became, and the fewer
options it had in receiving payment. Now, approximately four years later, the only realistic way
for the bank to recover the sum owed is recovery of the trust assets as the estate is insolvent and
WAAL’s assets diminished to the point that they did not cover the entire amount owed. Therefore,
we find that the court did not err in denying the petition where the bank’s actions caused avoidable
consequences.
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¶ 37 III. CONCLUSION
¶ 38 Based on the foregoing, we find that the equitable doctrines of laches and avoidable
consequences are applicable where the actions of the bank, though legally permissible, would
result in an inequitable outcome. Therefore, the order of the circuit court of Jackson County
denying the bank’s petition for citations for recovery of assets is hereby affirmed.
¶ 39 Affirmed.
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