                           ILLINOIS OFFICIAL REPORTS
                                        Appellate Court




                           Henry v. Waller, 2012 IL App (1st) 102068




Appellate Court            PAMELA HENRY, Plaintiff, v. HARVEY JACK WALLER,
Caption                    Individually and d/b/a Harvey Waller, Harvey Waller, Ltd., Firsch and
                           Waller, and Harvey Waller and Associates; and HARVEY WALLER,
                           LTD., Defendants-Appellees (Bank of America, Defendant-Appellant).



District & No.             First District, Sixth Division
                           Docket No. 1-10-2068


Filed                      June 29, 2012


Held                       Defendant bank was entitled to the fees and costs it incurred in litigation
(Note: This syllabus       arising from the allegedly fraudulent endorsement and deposit of two
constitutes no part of     checks defendant attorney obtained in the settlement of a judgment he
the opinion of the court   was retained by a collection agency to collect, notwithstanding the
but has been prepared      attorney’s contention that the fees and costs arose from the criminal
by the Reporter of         actions of a person at the agency who stole the funds due the judgment
Decisions for the          creditor, since defendant attorney deposited the fraudulently endorsed
convenience of the         checks into his trust account, he sent the agency certified checks
reader.)
                           representing the funds, the agency paid the attorney his fee, the remaining
                           fees were stolen and the terms of the indemnification agreement the
                           attorney had with the bank applied.



Decision Under             Appeal from the Circuit Court of Cook County, No. 07-L-11515; the
Review                     Hon. Daniel J. Lynch, Judge, presiding.
Judgment                   Reversed and remanded.


Counsel on                 Mark E. Wilson and Meghan W. Welch, both of Kerns, Frost & Perlman,
Appeal                     LLC, of Chicago, for appellant.

                           Joshua Sachs, of Joshua Sachs & Associates, of Evanston, for appellees.


Panel                      JUSTICE PALMER delivered the judgment of the court, with opinion.
                           Justice Garcia specially concurred, with opinion.
                           Justice Lampkin dissented, with opinion.


                                              OPINION

¶1           This appeal involves an indemnification agreement in an “Interest on Lawyers Trust
        Account” (IOLTA). Specifically, at all relevant times, defendant Harvey Waller, an attorney,
        held an IOLTA account at Bank of America and its predecessor in interest, LaSalle Talman
        FSB (collectively, Bank of America or the bank). One of the resolutions governing this
        account contained an indemnification agreement requiring Waller to indemnify the bank for
        attorney fees and costs that it incurred under certain circumstances. After prevailing in the
        underlying litigation involving the negotiation of checks with allegedly forged signatures,
        Bank of America filed a petition seeking attorney fees and costs from Waller that it allegedly
        incurred while defending the underlying litigation. Bank of America sought fees and
        expenses pursuant to the indemnification agreement and under certain provisions of the
        Illinois Uniform Commercial Code (UCC) (810 ILCS 5/1-101 et seq. (West 2006)).
        Following a bench trial, the circuit court found that Waller was not obligated to indemnify
        the bank and entered judgment in his favor. Bank of America appeals, contending that the
        circuit court erred as a matter of law in denying its petition for attorney fees under the
        indemnification agreement and in finding that the bank was not owed attorney fees under the
        UCC. The bank also challenges the circuit court’s denial of a motion in limine that it filed
        prior to trial seeking to bar the testimony of an expert witness. For the reasons that follow,
        we reverse and remand to the circuit court.

¶2                                         BACKGROUND
¶3          The relevant facts of this case are not in dispute. In 1993, plaintiff Pamela Henry received
        a $500,000 judgment against her husband in a marriage dissolution proceeding. Henry
        engaged defendant Jeffrey Olson of the collection agency Olson, Olson & Olson Ltd., to
        recover that judgment. In October 1998, Henry signed a limited power-of-attorney agreement
        in connection with her engagement of the Olson firm.
¶4          The Olson firm then hired defendant Waller to assist in collecting the judgment. The

                                                  -2-
     Olson firm and Waller negotiated a $450,000 settlement of the divorce judgment. The parties
     stipulated at trial that Henry orally agreed to a settlement in that amount. In December 1998,
     Waller received the settlement in two cashier’s checks payable to “Pamela A. Henry and
     Harvey Waller” in the amounts of $150,000 and $300,000. Waller did not send the checks
     to Henry for her endorsement before depositing them into his IOLTA account at LaSalle
     Bank. It is undisputed that at some point prior to Waller endorsing and depositing the checks,
     they were endorsed with the signature “Pamela Henry.” There was no evidence presented at
     trial as to how the signatures in Henry’s name appeared on the back of each check. Henry
     testified in an evidence deposition that she “never touched” the checks and the parties
     stipulated at trial that Henry’s endorsements were “not authentic.”
¶5        Waller endorsed and deposited each check into his IOLTA account at the bank. The
     parties stipulated at trial that the bank accepted in good faith the checks deposited in Waller’s
     IOLTA account. Waller then caused the bank to issue two cashiers checks payable to the
     Olson firm for the entire amount of the settlement proceeds and Olson thereafter paid Waller
     $75,000. Henry did not receive any of the settlement money from Olson, who allegedly stole
     the money and disappeared. Olson has never been found. In 1999, Henry sued Olson and his
     firm but was unable to serve the complaint and summons on them.
¶6        In 2000, Henry amended her complaint to sue the bank and Waller, asserting that the
     endorsement signatures in her name on the back of the cashier’s checks were forgeries. In
     her legal malpractice, breach of contract and fraudulent transfer claims against Waller, Henry
     alleged that Waller failed to procure her signature on the settlement checks, failed to pay the
     settlement proceeds to her and failed to communicate with her regarding the settlement.
     Henry also sued the bank under section 3-420 of the UCC (810 ILCS 5/3-420 (West 2006)),
     alleging that the endorsements in her name on the settlement checks were unauthorized and
     that the bank was liable for conversion because it accepted the checks for deposit over
     unauthorized signatures.
¶7        Bank of America, as successor in interest to LaSalle Bank, ultimately moved for
     summary judgment. The motion included affidavits from two expert witnesses, who opined
     that the bank had exercised ordinary care and had no liability under the comparative
     negligence scheme of the UCC. The circuit court granted the bank’s motion, finding under
     section 3-405(b) of the UCC (810 ILCS 5/3-405(b) (West 2006)) that Henry had not
     presented any evidence that the bank failed to exercise ordinary care in its handling of the
     checks, and that the bank’s acceptance of the checks did not cause any harm to Henry. Henry
     and Waller ultimately reached a settlement agreement with respect to the professional
     negligence dispute.
¶8        Bank of America then filed a petition for attorney fees and expenses against Waller,
     seeking to collect $225,000 in attorney fees and expenses it incurred during the 11 years of
     litigation in the Henry matter. The bank sought fees on two alternative grounds. First, the
     bank claimed that Waller contractually agreed to indemnify it pursuant to the terms of his
     account agreement. Second, the bank sought fees and expenses under the transfer warranty
     provisions of the UCC. See 810 ILCS 5/4-207(a), 3-416(a) (West 2006).
¶9        A bench trial was held on the petition. Prior to trial, the bank filed a motion in limine,


                                               -3-
       seeking to bar the testimony of Waller’s expert witness, Robert Markoff, a collection lawyer.
       The trial court denied that motion. Markoff testified that Waller would have had the authority
       as Henry’s attorney to endorse her signature on the checks and deposit them. The bank
       presented the testimony of David Mulvihill, the bank’s in-house attorney who oversaw the
       litigation. Mulvihill testified about the account resolutions and that the bank incurred
       attorney fees and expenses as a result of actions it took under specific account resolutions.
       The bank also presented Henry’s evidence deposition, the relevant testimony from which we
       set out above.
¶ 10        The trial court denied the bank’s petition for attorney fees and costs, ruling that Waller’s
       negotiation of the checks through his account neither triggered the indemnification
       provisions of his account agreement nor breached the UCC transfer warranties. With respect
       to Bank of America’s contractual claim for indemnification, the court stated that the
       negotiation of the checks through the bank by Waller was “uneventful” and therefore “was
       not a triggering event for the contractual indemnification obligations of this contract.”
       Instead, the court stated, the cause of action was triggered by a “subsequent conversion” by
       Olson. The court reasoned that the bank was not entitled to indemnification because “[t]he
       conversion here followed the otherwise proper settlement negotiations and the negotiable
       instrument acts herein through [the bank]. *** This case sounds in criminal theft and in
       conversion, not in breach of warrant[y] or certainly not in breach of the [UCC].” Bank of
       America appeals.

¶ 11                                            ANALYSIS
¶ 12        Bank of America first contends that the trial court erred as a matter of law in construing
       the terms of the account agreement and holding that the bank was not entitled to be
       indemnified for its attorney fees and expenses. The bank claims that it incurred those fees
       and expenses in connection with actions it took under two resolutions governing Waller’s
       account and that it is therefore entitled to indemnification.
¶ 13        Bank of America’s contention raises an issue of contract interpretation. The interpretation
       of a contract presents a question of law, which we review de novo. Gallagher v. Lenart, 226
       Ill. 2d 208, 219 (2007); see also Erlenbush v. Largent, 353 Ill. App. 3d 949, 952 (2004) (the
       appellate court reviews the circuit court’s interpretation of a fee-shifting agreement de novo).
¶ 14        The indemnification agreement at issue in this case states:
                “2) In order to induce said Bank to act pursuant to the foregoing resolutions, this
            Corporation hereby agrees as follows:
                                                    ***
                (c) To indemnify the Bank and save it free and harmless from any and all claims,
            demands, expenses (including attorney fees and costs), losses or damages it may suffer
            resulting from or growing out of or in connection with any act taken by the Bank as a
            result of, or its failure to act under any or all the foregoing resolutions, or its failure not




                                                   -4-
           to conform in all respsects to the authorizations specified hereunder.”1
       The “foregoing resolutions” referred to in the indemnity agreement include resolution II,
       which states that Waller was authorized to “endorse for negotiation, negotiate, and receive
       the proceeds of any negotiable instruments or orders for the payment of money payable to
       or belonging to this Corporation.” Additionally, resolution I provides that for checks and
       other like obligations endorsed by Waller and deposited into the account, “all prior
       endorsements are guaranteed by this Corporation whether or not an express guaranty is
       incorporated in this Corporations’s endorsement.”
¶ 15       Indemnification agreements are contracts and are subject to the ordinary rules of contract
       interpretation. Buenz v. Frontline Transportation Co., 227 Ill. 2d 302, 308 (2008). When
       construing the language of an indemnity agreement, our primary objective is to give effect
       to the intent possessed by the parties at the time they entered the agreement. Buenz, 227 Ill.
       2d at 308. Where the terms of a contract are clear and unambiguous, they will be given their
       natural and ordinary meaning. Buenz, 227 Ill. 2d at 308. When there is no ambiguity in the
       language of the agreement, courts should not adopt a strict construction of that language that
       reaches a different result from that intended by the parties. Higgins v. Kleronomos, 121 Ill.
       App. 3d 316, 321 (1984).
¶ 16       Applying these principles to the present case, the indemnification agreement clearly and
       unambiguously requires Waller to indemnify Bank of America for “any and all” attorney
       fees and expenses it incurs resulting from “any act” taken by the bank under any of the
       account resolutions. (Emphases added.) Based upon the undisputed facts of this case, we
       conclude, as a matter of law, that the bank acted under two account resolutions and that those
       actions resulted in the bank incurring attorney fees and costs for which it is contractually
       entitled to be indemnified. The essence of Henry’s complaint against the bank was that it was
       liable for conversion because it allowed Waller to negotiate the two settlement checks for
       deposit that contained forgeries of Henry’s endorsement. The bank’s actions in this respect
       were first taken under resolution II, which specifically authorized Waller to endorse,
       negotiate and receive the proceeds of any negotiable instrument. Moreover, in accepting the
       checks for deposit and crediting Waller’s account, the bank relied on Waller’s guarantee of
       Henry’s prior endorsement on those checks. The bank’s actions were therefore also taken
       under resolution I, pursuant to which Waller guaranteed all prior endorsements on all items
       deposited into his account. The bank was sued by Henry for these specific acts and it thus
       incurred attorney fees and costs as a result of actions it took under the account resolutions.
       Accordingly, Waller’s obligation to indemnify the bank for those attorney fees and costs
       under the IOLTA agreement was triggered.
¶ 17       Waller argues that the indemnification agreement was not triggered because he acted as
       an “innocent depositor” whose actions did not cause the bank to incur those expenses.


               1
                 Waller opened the IOLTA account through an entity called “Harvey Waller, Ltd.” However,
       the parties stipulated at trial that the Illinois Secretary of State dissolved that entity on May 1, 1991.
       Additionally, Waller agrees that in this case, he personally was the account holder and that the
       corporate resolutions governing the account agreement apply to him personally.

                                                     -5-
       Instead, Waller asserts, the attorney fees and costs incurred by the bank were the result of
       Olson’s criminal actions and, as such, those fees and expenses fall outside the scope of the
       indemnification agreement.
¶ 18        Waller essentially argues that his obligations under the indemnity agreement would be
       triggered in this case only if he, as opposed to Olson, converted the settlement checks or
       forged Henry’s endorsement on them. We disagree. The indemnification agreement contains
       no language limiting Waller’s obligation to indemnify the bank to those situations in which
       he acts criminally by converting checks or forging endorsements. In other words, the
       indemnification agreement does not limit the obligation to indemnify to situations in which
       Waller’s actions, as opposed to those of a third party such as Olson, were the direct and
       immediate cause of the bank incurring attorney fees. The indemnification agreement is
       triggered whenever the bank is compelled to incur attorney fees and costs by virtue of the
       bank account held and utilized by the depositor. In fact, under the plain and ordinary
       language of the agreement, it does not matter whether the checks were converted or whether
       the endorsements on the checks were actually forged. It also does not matter whether Waller
       had authority to endorse Henry’s name on the checks under the limited power of attorney or
       that Olson is the person alleged to have stolen the money and disappeared. Because the
       language of the indemnity agreement is clear and unambiguous, we decline to adopt the
       narrow construction urged by Waller to limit its scope. See Higgins, 121 Ill. App. 3d at 321.
¶ 19        Instead, to determine whether the obligation to indemnify has been triggered, the only
       relevant question under the indemnity agreement is whether the bank incurred attorney fees
       and costs “resulting from or growing out of or in connection with any act” it took under any
       of the account resolutions. The bank did so in this case when it was sued by Henry because
       it accepted for deposit the two checks that contained allegedly forged endorsements and then
       credited Waller’s account in the amount of those checks.
¶ 20        Waller raises concerns about the fairness of construing the indemnity agreement in what
       he characterizes as a “broad,” “open ended” and “unlimited” manner so as to hold him liable
       for the bank’s attorney fees based upon Olson’s criminal acts. We note, however, that parties
       are free to portion out risk as they see fit. Evans v. Lima Lima Flight Team, Inc., 373 Ill.
       App. 3d 407, 412 (2007); Hartford Fire Insurance Co. v. Architectural Management, Inc.,
       194 Ill. App. 3d 110, 117 (1990). From a commonsense point of view, it is clear to this court
       that no bank would willingly undertake the risk of incurring attorney fees and costs of the
       magnitude incurred here in return for the privilege of providing a depositor with an IOLTA
       account that generates a relatively small amount of bank fees. Indemnity agreements exist
       to address circumstances such as those before us. We note that when counsel for the appellee
       was asked at oral argument how the indemnity agreement could have been made any clearer
       in advance to insulate the bank from these expenses, no adequate response was forthcoming.
¶ 21        Indemnification agreements are also generally valid and enforceable contracts. Hader v.
       St. Louis Southwestern Ry. Co., 207 Ill. App. 3d 1001, 1011 (1991); see also Scott Stainless
       Steel, Inc. v. NBD Chicago Bank, 253 Ill. App. 3d 256, 261-62 (1993) (indemnification
       agreement between bank and customer was a valid and enforceable contract under the UCC).
       Bank of America is not seeking to be indemnified for its own negligence; the trial court
       expressly found that the bank exercised ordinary care in its handling of the checks. While it

                                                -6-
       is Olson who is alleged to have stolen the settlement funds, Olson is a stranger to the bank.
       It was Waller who triggered the bank’s involvement in this case by doing business with
       Olson; the bank had no control over that decision. Protecting against remote and
       unforeseeable risks presented by a third party such as Olson is one of the primary reasons that
       banks negotiate indemnity agreements into their contracts with account holders such as
       Waller. To impose a limitation on the indemnification agreement that is not found in the
       plain and unambiguous language of the contract would frustrate the purpose of indemnity
       agreements and the ability of banks and other parties to freely negotiate them into contracts.
       Because the language of the indemnity agreement is clear and unambiguous, we will enforce
       it as written and we will not read limitations into the contract to reach what Waller deems
       to be a more equitable result. See Tatar v. Maxon Construction Co., 54 Ill. 2d 64, 67 (1973)
       (“ ‘[U]nless a contract is ambiguous, its meaning must be determined from the words used;
       and courts will not, because a more equitable result might be reached thereby, construe into
       the contract provisions that are not contained therein.’ ” (quoting Westinghouse Electric
       Elevator Co. v. LaSalle Monroe Building Corp., 395 Ill. 429, 432 (1946))).
¶ 22        Waller also claims that the bank has not cited authority applying what he characterizes
       as a “non-negotiated” indemnity provision under the circumstances presented in this case.
       Waller’s characterization of the indemnity provision as a sort of contract of adhesion is
       inaccurate. Waller was free to attempt to negotiate a different contract with the bank or to
       open an account at a different banking institution if he was unable to negotiate the contract
       he preferred with Bank of America. There is no dispute that Waller freely and voluntarily
       entered into the contract with the bank and thereby agreed to the indemnification provision
       contained therein. And although neither party has presented this court with a case involving
       the same facts as those in the present case, our supreme court has observed that due to the
       varying nature of indemnity provisions, each case involving their interpretation must be
       decided based upon the language of the contract. See Tatar, 54 Ill. 2d at 67. The court has
       specifically stated:
                “We have examined the authorities cited by the parties and many of those collected
            [in the American Law Reports], and conclude that the contractual provisions involved
            are so varied that each must stand on its own language and little is to be gained by an
            attempt to analyze, distinguish or reconcile the decisions. The only guidance afforded is
            found in the accepted rule of interpretation which requires that the agreement be given
            a fair and reasonable interpretation based upon a consideration of all of its language and
            provisions.” Tatar, 54 Ill. 2d at 67.
¶ 23        Bank of America also contends that it was entitled to attorney fees and costs under
       provisions of the UCC. However, in light of our conclusion that the bank is entitled to
       indemnification under the terms of the indemnity agreement, we need not consider whether
       the bank would also be entitled to those fees and costs under the UCC.
¶ 24        Finally, the bank contends that the trial court abused its discretion when it denied its
       motion in limine to bar the expert testimony of Robert Markoff. At trial, Markoff essentially
       testified that under the limited power of attorney signed by Henry, Waller would have had
       the authority as Henry’s lawyer to endorse her signature on the checks and deposit them.
       Markoff’s testimony goes to the larger issue of whether Waller was at fault in negotiating the

                                                -7-
       settlement checks for deposit. However, as explained above, Waller’s alleged negligence is
       not relevant to the bank’s right to indemnification. It matters not that Waller, Olson or any
       other party was at fault or whether Waller would have had authority to endorse Henry’s name
       under the limited power of attorney. The indemnification agreement concerned only whether
       Bank of America incurred attorney fees and costs by virtue of the accounts under resolutions
       I and II.
¶ 25       Because the trial court never reached the question of the amount of attorney fees and
       costs to which Bank of America is entitled, we remand this case to the trial court for a
       hearing on that issue.

¶ 26                                    CONCLUSION
¶ 27      For the reasons stated, we reverse the judgment of the circuit court of Cook County
       denying the bank’s petition for attorney fees and costs and remand the case to the circuit
       court.

¶ 28      Reversed and remanded.

¶ 29        JUSTICE GARCIA, specially concurring.
¶ 30        I agree with Justice Palmer. Attorney Waller’s deposit of two checks made payable to
       “Pamela A. Henry and Harvey Waller” into his IOLTA account is the legal basis of Ms.
       Henry’s complaint against Bank of America (the Henry litigation), which triggered the
       indemnity provision. Supra ¶ 16. I add a few words to explain where attorney Waller went
       wrong.
¶ 31        His fundamental mistake was the failure to recognize that, in addition to the duty of care
       he owed to the Olson firm as the party that retained him, under the facts of this case he also
       owed a duty of care to Ms. Henry as the clear beneficiary of the collection efforts he was
       retained to perform. See Pelham v. Griesheimer, 92 Ill. 2d 13, 21 (1982) (a duty of care to
       a third party arises whenever the evidence establishes “that the primary purpose and intent
       of the attorney-client relationship itself was to benefit *** the third party”). As confirmed
       by his settlement of Ms. Henry’s claim, attorney Waller violated his duty of care to Ms.
       Henry, which arose no later than when he deposited the two settlement checks that bore Ms.
       Henry’s name, which in turn brought the Henry litigation to the door of Bank of America.
       The breach occurred when he issued the IOLTA check to Olson without protecting Ms.
       Henry as the real person in interest in the collection effort.
¶ 32        Although he may be correct, as he intimates, that his deposit of the two settlement checks
       totaling $450,000 with the unauthorized signature of Ms. Henry violated no legal duty, there
       is also no dispute that Bank of America accepted the deposit of the settlement checks under
       the resolutions governing the IOLTA account. Based on that deposit, Ms. Henry could not
       have sued Bank of America without also suing attorney Waller and, between the two, only
       he breached a duty to Ms. Henry.
¶ 33        The circuit court got it wrong when it concluded that Ms. Henry’s suit, which had the

                                                -8-
       starting point of the deposit of the settlement checks, did not trigger the indemnification
       provision because of the “uneventful” nature of the deposit as compared to Olson’s clear
       criminal conduct, as our colleague in dissent argues. There is no persuasive authority for
       excluding the “innocent” act of a bank deposit from the protection afforded the bank in the
       indemnity provision; nor is there any authority for placing the risk of a third party engaging
       in criminal activity at the end point of bank transactions on the bank, as the dissent argues,
       rather than on the account holder. The “subsequent conversion” by Olson did not immunize
       Bank of America from being sued by Ms. Henry; nor did Olson’s criminal conduct somehow
       immunize attorney Waller under the bank’s indemnity provision.
¶ 34       I also question our dissenting colleague’s characterization of Olson as a third party. Infra
       ¶ 37. Olson and Waller were client and attorney; to that extent, attorney Waller acted as
       Olson’s agent. See In re Marriage of Stephenson, 2011 IL App (2d) 101214, ¶ 35 (the
       attorney-client relationship is one of principal and agent). Attorney Waller provided the
       means by which Olson was able to abscond with the proceeds of the settlement that belonged
       to Ms. Henry by issuing him the IOLTA check. I also disagree with the dissent’s suggestion
       that our resolution of the indemnity issue should turn on the “meritless lawsuit against the
       Bank.” Infra ¶ 38. The indemnity provision protected the bank regardless of the merits of the
       underlying lawsuit. To stop Bank of America’s fees and costs from accumulating against him
       during the Henry litigation, attorney Waller should have concluded that he breached his duty
       to Ms. Henry sooner rather than 11 years later.


¶ 35       JUSTICE LAMPKIN, dissenting.
¶ 36       I dissent from the majority’s decision that Waller was obligated to indemnify the bank
       pursuant to the terms of the parties’ indemnification agreement. A twofold standard of
       review applies to this matter. Whereas de novo review is applied to the trial court’s
       interpretation of the parties’ fee-shifting agreement as a matter of law, the trial court’s
       application of the terms of that agreement to the facts should be reviewed for an abuse of
       discretion. Peleton v. McGivern’s, Inc., 375 Ill. App. 3d 222, 225-26 (2007). I do not agree
       with the bank’s characterization of the trial court’s interpretation of the agreement as narrow;
       the trial court recognized that the broad indemnification provision protected the bank from
       losses that resulted from the bank’s acts under Waller’s IOLTA account resolutions. The trial
       court, however, determined that the bank’s legal fees resulted from the criminal act of a third
       person rather than from the bank’s acts under the account resolutions. That determination by
       the trial court was not an abuse of discretion.
¶ 37       In ruling against the bank’s petition for fees and costs, the trial court found that Waller’s
       negotiation of the settlement checks through his account and temporary possession of the
       settlement funds was “uneventful” and did not trigger the indemnification obligations of his
       account agreement. Specifically, the court found that Henry agreed to the $450,000
       settlement and, pursuant to the terms of the limited power of attorney she had signed, fully
       authorized Olson and Waller, as Olson’s agent, to negotiate the checks through Waller’s
       account. Consequently, Waller and Olson properly and lawfully came into possession of the
       settlement proceeds for 90 days. Thereafter, however, $225,000 of the settlement funds were

                                                 -9-
       converted, and the bank’s losses resulted from or grew out of that subsequent conversion.
       Like the trial court, I would hold that the indemnification provision did not insulate the bank
       from litigation expenses that resulted from the criminal act of a third party.
¶ 38        The bank insists that its fees and expenses resulted directly from Henry’s lawsuit and
       Henry sued the bank merely because it had handled the settlement funds. Doubtless the
       bank’s role in properly clearing the checks through Waller’s IOLTA account played a causal
       role in the conversion in the sense that no one could have absconded with the settlement
       funds if the settlement checks from Henry’s ex-husband were never negotiated through a
       bank. That is not, however, an accurate application of the terms of the indemnification
       provision to the facts before this court and, thus, not a satisfactory basis for awarding the
       bank its litigation costs. One might as well say that anytime the bank is sued by the client of
       an attorney that uses an IOLTA account with the bank, the bank will be entitled to
       reimbursement from the attorney for any litigation costs. While such insulation from the risk
       of meritless lawsuits would certainly be an appealing arrangement for the bank, the
       indemnification agreement negotiated by the parties here does not obligate Waller to
       compensate the bank for the losses it sustained when Henry attempted to recoup her loss by
       filing a meritless lawsuit against the bank.2
¶ 39        The bank wrote the indemnification provision and must be bound by the clause that limits
       its right to indemnification to losses that resulted from or grew out of or in connection with
       the bank’s acts in negotiating the settlement checks through Waller’s account. Moreover, the
       record supports the trial court’s determination that the bank’s fees and costs in defending
       against the Henry litigation resulted from, grew out of, or were connected with Olson’s
       subsequent criminal act of converting the settlement funds and not from the uneventful and
       authorized negotiation of the settlement checks through Waller’s bank account.
¶ 40       Specifically, the limited power of attorney3 signed by Henry authorized Olson and


               2
                Henry’s various allegations against Olson, Waller and the bank evolved over time in
       multiple lawsuits. Initially, she sued Olson and his firm for breach of contract. Later, she sued Waller
       in chancery court, alleging that Olson fraudulently transferred $225,000 to Waller and asserting that
       the transfer should be voided and Waller should be ordered to pay her $225,000. Later, Henry
       amended her claim against Waller to assert that the endorsement signatures in her name on the back
       of the cashier’s checks were forgeries and to add the bank as a defendant.
               3
                That limited power of attorney, which Henry, upon the advice of her divorce attorney,
       signed in October 1998, provided, in pertinent part:
                        “I, Pamela Henry (Engel), grant a [sic] exclusive limited power of attorney to Olson,
               Olson and Olson & legal counsel to act as my attorney-in-fact.
                        I give my attorney-in-fact the exclusive and maximum power under law to perform
               the following act on my behalf: to actively prosecute, proceed, negotiate and recover on the
               money judgment case # 89 D 9849 in the amount of $500,000 plus interest and court cost.
                                                          ***
                        Judgment holder Pamela Henry (Engel) will receive 50% of the moneys collected
               on the judgment. Funds received from judgment debtor will be dispersed [sic] within ninety

                                                    -10-
       Waller, as Olson’s agent, to endorse the settlement checks for negotiation, negotiate the
       settlement checks through Waller’s account, and receive for temporary possession the
       proceeds from the checks. When the banking transaction ended, the funds were properly in
       the hands of Henry’s agent. Furthermore, the bank acted consistent with the account
       resolutions in negotiating the settlement checks through Waller’s account. The parties agreed
       that Waller would indemnify the bank for attorney fees and court costs “it may suffer
       resulting from or growing out of or in connection with any act taken by the Bank as a result
       of” Waller’s guarantee of endorsements on checks and negotiation of checks. Those terms,
       which are given their plain and ordinary meaning, do not state that the bank will be
       indemnified from any and all claims involving Waller’s IOLTA account. Rather, Waller’s
       indemnification obligation would be triggered by damages from the bank’s acts under the
       account resolutions. The language of their contract does not indicate any intent by the parties
       that a remote cause which did not necessarily or immediately produce the injury would
       suffice to trigger Waller’s indemnity obligation.
¶ 41        Support for the trial court’s determination is found in County of Pierce v. Suburban Bank
       of Elmhurst, 815 F. Supp. 1124 (N.D. Ill. 1993). In that case, the county issued a warrant
       check payable to multiple payees for a project involving road improvements. Id. at 1125. The
       bank deposited the check in the proper account but technically violated the warranty of good
       title by failing to obtain the endorsements of all the payees on the warrant check. Id. One of
       the payees subsequently misappropriated the funds in the account and failed to pay the
       project creditors. Id. The county filed suit against the bank, but the trial court granted
       summary judgment in favor of the bank, finding that the county failed to show that it actually
       incurred damages as a result of the bank’s actions. Id. at 1126-27. Specifically, the trial court
       found that, despite the bank’s technical warranty violation of failing to verify the
       endorsement, the county’s damages were the result of the misconduct of a payee after the
       check was deposited in the appropriate account. Id. Similarly here, the bank has failed to
       show that it incurred damages as a result of its actions under Waller’s account resolutions.
¶ 42        Because I agree with the trial court’s determination that the bank was not entitled to
       indemnification, I also address the bank’s alternative argument that it is entitled to attorney
       fees and costs under Waller’s UCC transfer warranties. Specifically, the bank argues the trial
       court erred as a matter of law in finding that Waller did not breach the UCC transfer
       warranties. By transferring the two settlement checks to the bank, Waller warranted to the
       bank that “all signatures [on the checks were] authentic and authorized.” See 810 ILCS 5/3-
       416(a)(2), 4-207(a)(2) (West 2008). The bank contends Waller breached both those
       warranties because (1) the bank and Waller stipulated at trial that Henry’s signatures on the
       two checks were not authentic, and an endorsement does not have to be a forgery in order to
       constitute a breach of the transfer warranty; and (2) “there was a complete failure of proof”
       at the trial to establish that the endorsements were authorized.
¶ 43       A trial court’s application of the UCC to uncontroverted facts presents a question of law
       reviewed de novo. Here, however, the trial court applied the UCC to its determinations of


               days of receipt of same.”

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       fact following a trial on the merits. A trial court’s purely legal findings are reviewed de novo,
       but its determinations of fact should be upheld unless they are contrary to the manifest
       weight of the evidence. Salem National Bank v. Chapman, 64 Ill. App. 3d 625, 628 (1978).
       The ultimate decision to award or deny attorney fees under the UCC is committed to the
       discretion of the trial court and is reviewed for an abuse of discretion. Southern Provisions,
       Inc. v. Harris Trust & Savings Bank, 96 Ill. App. 3d 745, 748 (1981).
¶ 44       The bank’s argument challenging the authenticity of Henry’s signatures on the checks is
       unavailing. When the bank asserts on appeal that Waller has already stipulated that the
       signatures were not authentic, the bank attempts to read more into the parties’ stipulated facts
       for the bench trial than the parties had intended. It is clear from the record that the parties’
       stipulation that Henry’s signatures on the two cashier’s checks were “not authentic” simply
       meant that Henry herself did not sign her endorsement on those checks; Waller never
       conceded that the signatures were legally inauthentic for purposes of any provision of the
       UCC.
¶ 45       Furthermore, the bank cites no relevant authority to support the proposition that Henry’s
       signature could only be authentic for purposes of the UCC if Henry herself actually signed
       the back of the settlement checks. Although the UCC does not define the term authentic, the
       bank’s suggested meaning of the term is not supported by the statute. If, as the bank
       contends, authentic means that the signature on the check must be the actual, manuscript
       signature of the named person or entity, then the UCC provisions concerning an agent’s or
       representative’s authorized endorsement on behalf of the principal would be rendered
       meaningless. See, e.g., 810 ILCS 5/3-401 (West 2010) (a person’s liability on an instrument
       when signed by an agent or representative); 810 ILCS 5/3-402 (West 2010) (signature by a
       representative); 810 ILCS 5/3-405 (West 2010) (employer’s responsibility for fraudulent
       indorsement by an employee). The fact that Henry herself did not write her name on the
       checks does not satisfy the bank’s burden to prove a breach of the UCC transfer warranty due
       to an inauthentic endorsement.
¶ 46       The bank’s argument that Henry’s signatures on the checks were not authorized also
       lacks merit. On appeal, the bank attempts, without citation to any relevant authority, to attack
       the validity of the limited power of attorney by complaining that: Henry stated in her
       evidence deposition that she never authorized Olson, his firm, or anyone else to endorse the
       checks; no counterparty signed the limited power of attorney form with Henry; the form did
       not expressly convey authority to endorse the checks; and no evidence was presented at trial
       to establish that an authorized agent of the Olson firm actually signed the endorsement in
       Henry’s name on the checks. Finally, the bank asserts that even if the limited power of
       attorney form constituted an agreement with any attorney-in-fact, the attorney-in-fact
       breached the agreement and, thus, lost any authority conveyed by the document.
¶ 47       The bank’s failure to support these propositions by citation to relevant authority forfeits
       review of these arguments on appeal. Such forfeiture notwithstanding, the parties stipulated
       that Henry, upon the advice of her divorce attorney, signed the limited power of attorney in
       favor of Olson and his agents. Moreover, Henry approved the settlement negotiated by
       Waller. Consequently, Henry authorized the Olson firm and Waller to act as her agents.

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       Furthermore, the terms of the limited power of attorney were broad enough to confer on
       Olson and Waller the power to sign Henry’s name on the back of the settlement checks and
       negotiate those checks through Waller’s IOLTA. Accordingly, the trial court properly found
       as a matter of fact and law that Waller did not breach the UCC transfer warranty due to an
       unauthorized endorsement.
¶ 48       The bank has not met its burden to prove that Waller breached his transfer warranties.
       However, even assuming, arguendo, that Waller technically breached those warranties, any
       such breach did not cause the bank’s loss. As discussed above, the bank’s loss was the result
       of Olson’s criminal act after Waller had negotiated the settlement checks through his account
       and Henry’s meritless lawsuit. See County of Pierce, 815 F. Supp. at 1126-27.
¶ 49       Finally, the bank argues the trial court abused its discretion by allowing Waller’s witness,
       Robert Markoff, to testify as an expert on Illinois collection practices in a case that did not
       involve any issues of collection law. The bank states that the trial court never made a finding
       that the limited power of attorney was ambiguous and Markoff improperly offered parol
       evidence to interpret that document. See Todd W. Musburger, Ltd. v. Meier, 394 Ill. App. 3d
       781, 800-01 (2009) (court properly barred expert testimony that purported to offer legal
       conclusions and interpret the parties’ agreement). According to the bank, the trial court relied
       heavily on Markoff’s immaterial and irrelevant testimony.
¶ 50       The trial court is vested with broad discretion to determine the relevance and
       admissibility of evidence, including expert testimony. Alm v. Loyola University Medical
       Center, 373 Ill. App. 3d 1, 4 (2007). If the trial court is found to have abused its discretion,
       relief on appeal is warranted only where the appellant can demonstrate prejudice. Gill v.
       Foster, 157 Ill. 2d 304, 317-18 (1993).
¶ 51       According to the record, Markoff opined that the limited power of attorney signed by
       Henry gave the Olson firm and its authorized agents, like Waller, the authority to sign
       Henry’s name on the back of the settlement checks, negotiate the checks through the bank,
       and hold the settlement funds for 90 days before distributing the proceeds according to the
       terms of the compensation agreement between Olson and Henry. Markoff also opined that
       Waller did not breach any duty by following the limited power of attorney and sending the
       settlement proceeds to Olson instead of Henry.
¶ 52       Markoff also testified that, under the common practice in Illinois concerning debt
       collection, Waller had authority to sign Henry’s name on the back of the checks and deposit
       the checks. Markoff explained the debt collection practice and how collection lawyers
       usually were engaged in a case. He stated that collection lawyers usually worked through an
       agent and had little contact with the judgment holder or client. By negotiating the checks
       through a client trust fund account, a collection lawyer ensured that the checks had cleared
       properly for both the judgment holder and payor. Furthermore, it was commonly accepted
       that a collection lawyer could sign or endorse checks on behalf of the client or judgment
       holder, even if that action was not explicitly stated in any agreement. Markoff explained that
       a collection lawyer’s ability to endorse the checks eliminated the risk of sending endorsed
       checks through the mail. Furthermore, a collection lawyer’s ability to endorse and deposit
       checks immediately benefitted the payor by preventing the accumulation of interest on the

                                                -13-
       judgment. In addition, checks had to be deposited and negotiated quickly before the funds
       disappeared or became affected by a payor’s bankruptcy. Under the common practice, a
       collection lawyer remitted the funds to the collection agent with the collection lawyer’s fee
       portion retained.
¶ 53       The record establishes that the trial court did not abuse its discretion by allowing Markoff
       to testify regarding the debt collection practice. The bank presented the testimony of its
       assistant general counsel, who opined on the meaning of the contract provisions and the
       ultimate issues of whether Waller was in breach of transfer warranties and whether the bank
       had incurred legal fees within the scope of the indemnification clause. In turn, Waller
       presented Markoff’s testimony, which provided background on the usage and customs of the
       debt collection practice. Both witnesses provided information on the underlying commercial
       context of this dispute and thereby assisted the fact determinations made by the trial judge.
¶ 54       It is also clear that, in this bench trial, the trial judge understood the proper purpose and
       limitation of Markoff’s expert testimony. Although Markoff offered some parol evidence to
       interpret the limited power of attorney agreement, the record establishes that the trial court
       limited its consideration of Markoff’s testimony to the subject of collection law and how a
       collection attorney in the normal and customary course of collection practice would have
       acted under a limited power of attorney. In a bench trial, in the absence of evidence to the
       contrary, it is presumed that the court considered only competent evidence and the admission
       of incompetent evidence is harmless. Dowd & Dowd, Ltd. v. Gleason, 352 Ill. App. 3d 365,
       389 (2004). The record here supports that presumption. Specifically, before the trial judge
       questioned Markoff, the judge stated that he was not interested in any of Markoff’s legal
       conclusions but, rather, was concerned about the nature of the debt collection practice.
       Moreover, the trial judge stated in his oral ruling that he was particularly persuaded by
       Markoff’s testimony about the “practices that prevail in the collection industry” and “the
       important reasons why attorneys have to negotiate” instruments like cashier’s checks in a
       timely manner. The trial court properly considered Markoff’s expert testimony only to the
       extent that it was relevant to the factual issues before the court.
¶ 55       I would affirm the judgment of the circuit court, which denied the bank’s petition for
       attorney fees and costs and considered only the admissible testimony of Waller’s expert
       witness.




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