A state appeals panel on Thursday affirmed sanctions against an insurance company and its attorney for seeking a declaratory judgment in trial court even after they learned the action lacked merit.
American Access Casualty Co. and its attorney, James P. Newman of James P. Newman & Associates LLC in St. Charles, were hit for more than $13,000 in attorney fees and costs after pursing a declaration that the insurer was not required to provide coverage for its insured, Jose Alcauter, after he failed to attend an arbitration hearing as required by his auto policy.
Following the arbitration hearing that resulted in a $10,000 judgment to Kimberly Krebs, American Access sought a ruling saying it did not have to cover the award because Alcauter was given notice at his mailing address of the mandatory arbitration and still failed to cooperate.
Alcauter was incarcerated at the time of the arbitration. When he failed to appear in the declaratory judgment action, the trial court found him in default.
The 1st District Appellate Court came down hard on American Access and Newman for not thoroughly checking whether Alcauter was incarcerated when it sought the action.
The panel found American Access and Newman eventually learned of Alcauter’s status through Krebs’ counsel, and they had a duty to withdraw their lawsuit as soon as they became aware of Alcauter’s imprisonment.
“Newman made little effort to ascertain whether Alcauter had, in fact, been incarcerated,” Justice David Ellis wrote. “Critically, Newman did not even request to continue the trial so that he could investigate the information that Krebs’ counsel sent him. Instead, he went to trial as if nothing happened.”
“Newman’s conduct represents the kind of vexatious and unreasonable behavior that Rule 137 is aimed to punish,” Ellis wrote in the 14-page opinion.
In addition to the $10,000 judgment, American Access and Newman must pay $12,678.75 in attorney fees and $865.95 in costs under Supreme Court Rule 137.
Rule 137 requires attorneys make filings rooted in fact and that present good-faith arguments. Attorneys can be sanctioned if they are found to violate it.
Krebs was injured in a Sept. 30, 2011, car collision with Alcauter, who tendered his defense to American Access.
According to her attorneys — Barry S. Silver and Robin M. Winer of Barry S. Silver P.C. in Riverwoods — her injuries were not severe, but her car was totaled.
Alcauter was then arrested on April 16, 2013, and placed in jail, charged with aggravated criminal sexual assault and predatory criminal sexual assault.
Alcauter has been incarcerated since his arrest. He never appeared at the May 30, 2013, arbitration hearing, which was required under his insurance policy.
In October 2013, American Access sought a declaratory judgment saying it was not on the hook for the $10,000 judgment because Alcauter never appeared.
And in March 2014, Alcauter pleaded guilty to the charges against him. According to state correctional records, he is incarcerated at Big Muddy Correctional Center.
In October 2014, American Access moved for summary judgment, specifically asserting at least two letters were sent to Alcauter’s address and that Alcauter’s attorney, Clifford M. Panek, of Parrillo Weiss LLC, called him 24 hours before the arbitration hearing.
By March 2015, Newman — on behalf of American Access — asserted he spoke with Alcauter on the phone in May 2013 when he confirmed he would attend the arbitration hearing then.
However, Newman would later concede during a sanctions hearing that he did not think he or anyone at his firm called Alcauter.
On April 9, 2015, Krebs mailed information regarding Alcauter’s arrest and incarceration to Newman by certified mail. Newman received it four days later.
On May 11, 2015, days before the trial was set to begin, Newman corresponded with Krebs’ attorneys over Alcauter’s incarceration and engaged in settlement talks.
No deal was reached — Krebs sought her original $10,000 judgment, along with interest and attorney fees and costs. Newman only offered the $10,000.
During the May 2015 hearing before Circuit Judge Thomas R. Allen, Panek was pressed whether he checked state correctional records to see if Alcauter was there. He couldn’t recall if he did, and he couldn’t recall if he spoke with Alcauter.
Meanwhile, Krebs submitted her information about Alcauter’s incarceration.
Allen ruled American Access owed coverage for Alcauter’s judgment. He rejected the testimony stating that Alcauter was called about the arbitration hearing as “imaginary” and “bogus.”
“Nobody made a phone call. It’s outrageous to come in here and say you made a phone call on May 23,” Allen said, according to Ellis’ opinion.
Krebs filed a motion for sanctions under state Supreme Court Rule 137 arguing that American and Newman pursued a lawsuit they knew had no merit.
Krebs also sought sanctions against Panek, but that motion was dismissed by Allen, Silver said.
As evidence, she attached the receipt confirmation from April 2015, showing that Newman received the information about the incarceration a month before trial.
Newman argued he did not receive the information about Alcauter’s incarceration until “the eve of trial,” then said, “maybe three weeks before trial.” When asked by Allen why he did not call off the trial, Newman brought up their failed settlement talks.
Allen rejected Newman’s argument, finding that he had a duty to withdraw the action once he and his client became aware of Alcauter’s incarceration.
“You keep going back to the [offer], but the [offer] is not cause of action,” Allen said, according to Ellis’ opinion. “The cause of action is your … action that you, as an attorney, are proffering to the court and you are presenting evidence on this thing and you know the evidence is bogus.”
Allen imposed the sanctions, which Newman and American Access appealed.
The 1st District panel found that, as soon as Newman and his client learned their lawsuit became unfounded, they had a duty to either withdraw or continue it to further investigate Krebs’ findings.
Ellis wrote that Newman “did nothing” for 29 days after he received information about Alcauter’s incarceration. Instead of bringing it before the court, Newman and American Access prepared for trial.
Ellis rejected their contention they lacked time to investigate Alcauter’s incarceration. They noted that they had six weeks to verify the information Krebs gave them.
“We were very pleased both courts recognized the sanctionable conduct of both the attorney and the insurance company,” Winer said.
Added Silver: “He should have been inquiring and investigating this guy’s whereabouts before they filed the suit.”
American Access was represented on appeal by Newman. He did not return a request for comment.
Panek, who did not represent any of the parties on appeal, also did not return a request for comment.
Justices Nathaniel Howse Jr. and Eileen O’Neill Burke concurred with the opinion.
The case is American Access Casualty Company v. Kimberly Krebs, et al., 2017 IL App (1st) 160775.