Zang v. Alliance Financial Services of Illinois, LTD. et al

Filing 191

MEMORANDUM Opinion and Order Signed by the Honorable Michael T. Mason on 6/21/12.(rbf, )

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JOHN ZANG,
Plaintiff
v.
ALLIANCE FINANCIAL SERVICES
of ILLINOIS, LTD. and TODD STERN,
estate of BURTON STERN,
Defendants

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No. 08 C 3370

Magistrate Judge Michael T. Mason

MEMORANDUM OPINION AND ORDER
Michael T. Mason, United States Magistrate Judge:
Before the Court are defendants’ motion for summary judgment [148, re-filed at
181] and plaintiff’s motion for partial summary judgment [154, re-filed at 180].1 The
parties have extensively briefed the motions and the Court heard oral argument on
February 10, 2012, after which additional materials were submitted [182, 183, 187,
188].2 For the reasons set forth below, defendants’ motion for summary judgment is
granted and plaintiff’s motion for partial summary judgment is denied.
I.

Background

1

As explained in more detail below, defendants filed their first motion for summary judgment [107]
on October 18, 2010. That motion was denied without prejudice as premature [111]. Plaintiff filed his
original motion for partial summary judgment [123] on March 3, 2011. We granted plaintiff leave to
withdraw that motion [147] and plaintiff subsequently filed the pending motion.
2

Following oral argument on the pending motions, the parties agreed to participate in a settlement
conference with the Court. Unfortunately, a few days before the scheduled settlement conference,
defense counsel informed the Court that defendants were not interested in a settlement conference and
the conference was stricken.

A.

Factual Background3
1.

The Parties

Plaintiff John Zang (“Zang”) is a resident of Michigan. (Pl.’s LR 56.1 Statement
of Facts (“SOF”) [156] ¶ 1.) Defendant Burton Stern (“Stern”), deceased, was a resident
of Illinois and the former president and sole owner of defendant Alliance Financial
Services of Illinois, Ltd. (“Alliance”). (Id. ¶ 4; Defs.’ LR 56.1 SOF [150] ¶ 3.) As
explained in more detail below, Stern's son and executor of his estate, Todd Stern, has
since been substituted in this matter pursuant to Fed. R. Civ. P. 25. (See 3/25/10 Order
[94].) Alliance, now dissolved, was a closely held corporation with a principal place of
business in Chicago, Illinois. (Pl.’s SOF ¶¶ 2, 6.) According to defendants, the Estate
of Burton Stern is now the sole owner of the assets of Alliance.4 (Defs.’ SOF ¶ 12.)
2.

Zang's Relationship with Defendants

In the Spring of 2007, Zang began exploring opportunities to acquire his own
manufacturing business. (Pl.'s SOF at Ex. 3 - Zang Aff. ¶ 4.) On or about June 19,
3

The following facts are taken from the parties’ LR 56.1 statements of fact and supporting
documents. As explained in more detail below, the majority of those facts are supported by testimony that
is barred by the Illinois Dead Man’s Act. We include those facts here simply for ease of comprehension.
Any disputes regarding the facts are noted. Additionally, in a previously filed motion, defendants objected
to plaintiff’s LR 56.1 statement of facts, arguing that the paragraphs were neither short nor concise, and
contained argument beyond fact. (See Defs.’ Rule 12(f) Mot. to Strike [159].) We take little issue with the
length of plaintiff’s paragraphs, but we have disregarded any legal argument contained in the parties’ LR
56.1 statements. See Malec v. Sanford, 191 F.R.D. 581, 585 (N.D. Ill. 2000) (“The purpose of the 56.1
statement is to identify for the Court the evidence supporting a party's factual assertions in an organized
manner: it is not intended as a forum for factual or legal argument.”).
4

In response to defendants’ LR 56.1 SOF, plaintiff took issue with defendants’ assertions that
Stern was the sole owner of Alliance and that Stern’s Estate is now the sole owner of the assets of
Alliance. (See Pl.’s Resp. to Defs.’ LR. 56.1 [163] ¶¶ 3, 12.) The Court questioned defendants about this
issue at oral argument, at which time defense counsel explained that they did not have documentary
support for these statements, but that they were based on counsel’s conversations with defendants and
the allegations of plaintiff’s complaint. (2/10/12 Tr. at 11-12.) Neither party had any reason to believe that
Jess E. Forrest, once listed as a registered agent for Alliance, had any involvement in Alliance. (Id.)

2

2007, Zang telephoned Stern in response to an advertisement Stern placed on the
website "BizBuySell.com."5 (Pl.'s SOF ¶ 14.) The advertisement states: "Alliance
Financial Services, Ltd. Listings of Profitable Manufacturing and Distribution Companies
for acquisition with NO principal payments. We provide the Accounting and Business
Plan." (Pl.'s SOF at Ex. 2.) In a section marked "Financing," the advertisement states
that "Alliance will provide Buyer with Investment Bankers." (Id.) The following
geographic locations are noted in the advertisement: "Greater Midwest, South WE,
Illinois." (Id.)
At some point in June 2007, Zang traveled to Stern's office in Chicago for a
meeting. (Pl.'s SOF ¶ 16.) According to Zang’s Statement of Facts, as a result of that
meeting, he and Alliance entered into a written "Consulting Agreement" (the
"Agreement"), whereby Alliance agreed to act "in its capacity as a Consultant and
accountant, and not as a partner, joint venturer, broker, or in any other capacity" to "use
its best efforts to locate a company to be purchased." (Id; Pl.'s SOF at Ex. 4.) The
Agreement also included language that the contracting “Company” acknowledges that
“Alliance is not licensed in any professional capacity.” (Id.) Appendix 3 to the
Agreement states that Zang would provide a one-time retainer of $5,000 for the services
to be performed under the Agreement. (Id.) Appendix 3 also indicates that a 3%
consulting fee shall be payable "at the closing and funding of each candidate
transaction." (Id.) “Upon the first closing under the Agreement the retainer will be
refunded by deduction from the consulting fee due at closing and funding.” (Id.) The

5

“BizBuySell.com” is described on its website as “The Internet’s Largest Business For Sale
Marketplace.” Biz Buy Sell Home Page, http://www.bizbuysell.com (last visited June 19, 2012).

3

version of the purported Agreement in the record before us is dated June 16, 2007 and
includes only Stern’s signature. (Id.)
Zang claims he tendered the agreed upon $5,000 retainer fee to Stern. (Pl.'s
SOF ¶ 18.) To support this claim, Zang has submitted a cancelled check for $5,000,
dated June 25, 2007 and made out to Alliance Financial Services. (Pl.'s SOF at Ex. 5.)
"B. Stern" is listed on the memo line. (Id.) The check appears to have been deposited
in New Century Bank account number 1017789. (Id.) Also on June 25, 2007, Zang
contends that he sent Stern a list of seventeen companies that he was interested in
evaluating as potential businesses to purchase. (Zang Aff. ¶ 12 and Ex. C.) The June
25, 2007 letter listing those businesses indicates that Stern and Zang previously had
telephone conversations, but were not meeting in person at Stern’s office until June 30.
(Zang Aff. at Ex. C.)
In early July of 2007, Zang contacted business broker Pat Nolan of Nolan &
Associates, Ltd., to inquire about purchasing Frontline Manufacturing, Inc. (Pl.'s SOF ¶
20.) On August 3, 2007, Zang and Stern participated in a conference call with Nolan
regarding that purchase. (Pl.'s SOF ¶ 21.) At some point during that call, Stern told
Nolan that he had a bank that would finance 100% of the purchase price using life
insurance policies as part of the collateral. (Id.)
Zang further claims that, at Stern's request, he provided Stern with two additional
payments of $14,500 and $18,000 on July 19, 2007 and August 16, 2007, respectively.
(Pl.'s SOF ¶¶ 19, 22.) The cancelled checks purporting to represent those payments
are attached to plaintiff's statement of facts as Exhibits 6 and 9. The July 19 check is
made out to Burton Stern and appears to have been deposited in the same New
4

Century Bank account that the $5,000 payment was deposited. (Pl.'s SOF at Ex. 6.)
The memo line appears to read “Frontline Mfg.” (Id.) The back of the check reads "Non
Refundable Check Only at Closing" and appears to be signed by Burton Stern. (Id.)
The August 16 check is made out to Mid America Company and the memo line reads
"Pine Tech Factory." (Pl.'s SOF at Ex. 9.) That check appears to have been deposited
in a different New Century Bank account, and the back reads "Non-Refund Fee To
Purchase Blue [illegible] Lumber Co."6 (Id.) Zang's understanding was that, upon
closing of a business purchase, these payments would be deducted from the 3%
commission set forth in the agreement.7 (Zang Aff. ¶ 14.)
On December 26, 2007, Stern and Nolan had a phone conversation in which the
two discussed the financing plan for Zang's prospective purchase of Frontline. (Pl.'s
SOF ¶ 23.) During that call, Stern told Nolan that he had approximately $32,000 of
Zang's money. (Id.) At his deposition, Nolan testified that although he did not recall if
Stern told him what the money was provided for, Nolan presumed it was for the
Frontline deal. (Pl.’s SOF at Ex. 8 - Nolan Dep. at 122.) Nolan also repeatedly testified
that he had no knowledge of any specific agreement or arrangement between Zang and
Stern. (Id. at 53-55, 77, 111.)
On March 26, 2008, Nolan and his son Patrick went to Chicago for a meeting

6

In describing all three of his checks in his Memorandum in Support of Summary Judgment
[155], plaintiff mistakenly provides his own account numbers as the accounts in which the checks were
deposited. (See Mem. ¶¶ 17-18, 20.)
7

Defendants contest the majority of the facts in the preceding three paragraphs, arguing that the
facts are improperly supported by testimony barred by the Illinois Dead Man’s Act, explained in more detail
below. (See Defs.’ Resp. to Pl.’s SOF [165].) Defendants also deny that the Agreement, as written, was
ever agreed to by the parties or that its terms were otherwise applicable to the multiple financial
exchanges alleged by plaintiff. (Id.)

5

with Stern at which they again discussed the Frontline purchase. (Pl.'s SOF ¶ 24.)
Larry Selig of the Secure Group also attended that meeting and, along with Stern,
provided a document detailing how life insurance policies would be used to collateralize
100% of the financing of Zang's loan to acquire Frontline. (Pl.'s SOF ¶ 25.) Nolan
further testified at his deposition that following that meeting, he determined that the
financing plan was not practical for the deal. (Nolan Dep. at 108.) Ultimately, the
Frontline deal did not close.
Zang contends that between June 2007 and April 2008, Stern continued to
provide him with business listings for businesses located throughout the Midwest,
including Illinois. (Pl.'s SOF ¶¶ 28, 29.) Zang also contends that he continued to submit
other businesses to Stern for evaluation. (Zang Aff. ¶ 16.) But, according to Zang,
despite the fact that no closing on any business ever took place, Stern refused to return
the $37,500 Zang had provided to him, and said that the funds would be applied to
Stern's commission once Zang finally purchased a business. (Zang Aff. ¶ 18.)
Defendants contest these facts, again citing the Dead Man's Act.
3.

The Illinois Secretary of State Consent Order of Prohibition

Attached to plaintiff’s LR 56.1 SOF, as well as his June 5, 2012 second amended
complaint [63], is a “Consent Order of Prohibition” (“Consent Order”) entered by the
Illinois Secretary of State Securities Department against Alliance and Stern on March
10, 2009.8 (Pl.’s SOF at Ex. 1.) The Consent Order makes clear that it was the result of
a “Stipulation to Enter Consent Order of Prohibition” (“Stipulation”) executed by Alliance

8

Plaintiff’s SOF indicates that the Consent Order was entered on February 23, 2009, but the date
of that order is actually March 10, 2009.

6

and Stern on February 23, 2009. (Id.)
According to the language of the Consent Order, “by means of the Stipulation,”
Alliance and Stern “acknowledged, while neither admitting nor denying the truth thereof,
that the following allegations [among others] contained in the Notice of Hearing shall be
adopted as the Secretary of State’s Findings of Fact:”9
...
3.

That from on or about April 2006 Respondents [Alliance and Stern]
individually and by and through their Officers, Directors, Employees,
Affiliates, Successors, Agents and Assigns...offered and held
themselves out as providing business for sale and services to
potential business buyers for a fee to at least one Illinois Resident.

4.

That the Respondents’ activities described at paragraph 3 are the
activities of engaging in the business of acting as a Business Broker
as that term is defined pursuant to Section 10-5.10 of the Illinois
Business Brokers Act of 1995 [815 ILCS 307/10-1 et seq.] (the “Act”).

5.

That Section 10-85(b)(1) of the Act provides, inter alia, that it is
prohibited under the Act for a business broker to either directly or
indirectly engage in the business of acting as a business broker
without registration under the Act unless exempt under the Act.

6.

That at all times relevant hereto, the Respondents were not registered
as a business broker with the Secretary of State prior to the
aforementioned activities in the State of Illinois, and that on June 22,
1998 an Order of Permanent Prohibition was entered wherein Stern
was permanently prohibited from registering as a business broker.

7.

That by virtue of the foregoing, the Respondents have violated
Section 10-85(b)(1) of the Act.

8.

That on June 22, 1998, an Order of Permanent Prohibition was
entered in the matter of Nationwide Industries Inc., its officers,
directors, employees, agents, affiliates, successors and assigns...
Burton Stern was found to be included in the officers, directors,

9

The “First Amended Notice of Hearing” is attached as Exhibit 3 to plaintiff’s second amended
complaint and is dated November 19, 2008.

7

employees, agents, affiliates, successors and assigns of Nationwide
and Stern was permanently prohibited from registering as a business
broker.
9.

That on or about October 5, 2007, Respondent Stern attempted to
register as a Business Broker, in derogation of the prior order of this
Department.

10.

That section 10-5.10 of the Act provides in part: Business Broker
means any person who is required to register under Section 10-10 of
this Act and...(4) advertises or represents himself as a business
broker.

11.

That continuing to on or about February 21, 2008 Burton Stern and
Alliance Financial Service LTD were listed on the
http://www.bizbuysell.com in alliance with the Wall Street Journal
Online as Cook County Business Brokers. That the area served by
Burton Stern was listed as Cook County, Illinois at the phone number
773-697-6869. That Alliance Financial Service Ltd. had a ‘featured
businesses for sale’ a ‘Profitable Manufacturing and Dis...’ with a ‘cash
flow $1,000,000' and ‘asking: undisclosed.’. Under the heading
‘About the Sale’ it provided: ‘Financing: Alliance will provide Buyer
with Investment Bankers.’ [sic].
...

(Pl.’s SOF at Ex. 1.) By means of the Stipulation, Stern and Alliance agreed, without
admitting or denying the averments thereof, that the Secretary of State’s Conclusions of
Law would be as follows: “That the Respondents Alliance Financial Services of Illinois...
and Burton Stern...have violated section 10-85(b)(1) of the Act.” (Id.) Alliance and
Stern were then prohibited from “acting as a Business Broker in or from the State of
Illinois” and, on March 9, 2009, paid “$10,000 to the Office of the Secretary of State,
Enforcement and Audit as reimbursement towards the costs of in [sic] this matter.” (Id.)
B.

Procedural Background

On June 11, 2008, Zang filed his eight-count complaint against Stern and
Alliance alleging the following federal and state law claims: (1) violation of the Securities
8

Exchange Act, (2) violation of the Illinois Consumer Fraud Act, (3) common law fraud,
(4) conversion, (5) breach of fiduciary duty, (6) violation of the Lanham Act, (7) violation
of the Illinois Deceptive Trade Practices Act, and (8) promissory estoppel [1].
The factual basis for Zang’s claims as set forth in his initial and subsequent
amended complaints (including the operative one) differs slightly from that which he
relies on now, which is explained above. Specifically, in his pleadings, Zang makes no
reference to a written consulting agreement. Instead, he alleges that when he went to
meet Stern on June 28, 2007, Stern made representations that he would use his best
efforts to locate a company for Zang to purchase and also explained his proposed
financing plan involving life insurance policies. (Second Am. Compl. ¶¶ 7-8.) Zang also
alleges that Stern explained that he would collect a 3% fee at the closing of a business
purchase deal and required a $5,000 refundable retainer fee in order to proceed. (Id. ¶
9.) Additionally, Zang refers to certain “literature,” provided by Stern, which stated
Alliance “do[es] NOT receive, nor handle, your funds prior to closing.”10 (Id.)
Despite those representations, Zang alleges that Stern merely forwarded Zang
listings for companies, few of which were located in the Midwest as Zang requested.
(Second Am. Compl. ¶ 11.) Zang alleges that he himself located Frontline
Manufacturing and Pine Tech and instructed Alliance to purchase each company on his
behalf. (Id. ¶ 12.) To initiate the financing process, Stern then purportedly asked Zang
to provide payments representing 0.1% of the purchase price of each company, a
request which was “contrary to Alliance’s bizbuysell.com advertisement, the literature

10

This language does not appear in the Agreement Zang relies on now, nor could we locate such
language in any other documents presented to this Court during these summary judgment proceedings.

9

that Stern provided to Zang, and the oral representations made by Stern during the
Parties’ June 28, 2007 meeting and thereafter.” (Id. at ¶¶ 13-17.) Zang alleges that
Stern failed to follow through on both purchases. (Id. ¶¶ 14-16.)
Defendants moved to dismiss Zang’s initial complaint arguing that the Court
lacked jurisdiction over Zang’s claims and that he failed to state a claim upon which
relief could be granted. (See Defs.’ Mem. in Supp. of Mot. to Dismiss [25].) The Court
heard oral argument on defendants’ motion to dismiss on January 29, 2009, at which
time the parties reported that they had been engaging in settlement negotiations. (See
Tr. of Proceedings on 1/29/09 [58].) Also at that time, defense counsel informed the
Court that Burton Stern was very ill. (Id.)
To assist the parties in attempting to settle this matter, the Court set a settlement
conference for April 30, 2009. Pursuant to this Court’s Standing Order for Settlement
Conference, the parties exchanged settlement demand and response letters, which
were submitted to Chambers for review. But then, at plaintiff’s request, the settlement
conference was stricken on April 28, 2009.11 (See 4/28/09 Order [43] & 4/30/09 Order
[44].) Shortly thereafter, on May 7, 2009, this Court granted defendants’ motion to
dismiss in part and denied it in part. The Court dismissed plaintiff’s Lanham Act claim
with prejudice, but granted plaintiff leave to file an amended Count I under the
Securities Exchange Act. (See Mem. Op. & Order [46].)
In his first amended complaint [51], plaintiff re-pled his claim under the Securities

11

In a motion for leave to amend the complaint filed on May 21, 2009, plaintiff contended that he
cancelled the settlement conference after learning of the Illinois Secretary of State Consent Order
discussed above. (See Pl.’s Mot. for Leave to Am. Compl. [47].)

10

Exchange Act and, with leave from the Court (see 6/2/09 Order [50]), added a claim for
violation of the Illinois Business Brokers Act. Defendants then sought to dismiss
plaintiff’s amended complaint, arguing once again failure to state a claim under the
Securities Exchange Act and lack of subject matter jurisdiction over the state law
claims. (See Defs.’ Mem. in Supp. of Mot. to Dismiss Am. Compl. [54].) Plaintiff
immediately sought leave to amend his complaint to add diversity jurisdiction as an
additional basis for jurisdiction [59]. The Court granted plaintiff’s request and denied
defendants’ second motion to dismiss as moot [62].
Plaintiff filed his second amended complaint [63] on July 24, 2009. In
defendants’ motion for an extension of time to answer or otherwise plead to that
complaint, defendants informed the Court that Burton Stern had died on August 3, 2009.
(Defs.’ Mot. For Add’l Time [64] at ¶ 1.) The Court granted defendants’ motion for an
extension of time and defendants eventually filed their third motion to dismiss on
October 1, 2009 [67]. In that motion, defendants again argued that plaintiff failed to
state a claim under the Securities Exchange Act. Defendants also continued to argue
that plaintiff’s pendent state claims must be dismissed for lack of subject matter
jurisdiction. (See Mem. in Supp. of Mot. to Dismiss Sec. Am. Compl. [68].)
After defendants’ third motion to dismiss was briefed, but before a ruling was
issued, defendants filed a Rule 25(a)(1) motion to dismiss Stern [76].12 According to
defendants, Stern must be dismissed because plaintiff failed to file a motion to

12

Federal Rule of Civil Procedure 25 provides in relevant part: “If a party dies and the claim is not
extinguished, the court may order substitution of the proper party... . If the motion [for substitution] is not
made within 90 days after service of a statement noting the death, the action by or against the decedent
must be dismissed.” Fed. R. Civ. P. 25(a)(1).

11

substitute within 90 days of receiving notice that he had died. We disagreed and held
that plaintiff’s failure to file a timely motion to substitute was “excusable neglect” given
that he was actively pursuing the information needed for that motion. (See 1/22/10
Order [85].) As such, we allowed plaintiff additional time to file his motion to substitute,
which he did on February 23, 2010. On March 25, 2010, this Court granted plaintiff’s
motion and Todd Stern, defendant Stern’s son and the executor of his will, was
substituted in this matter [94].
With the substitution issue resolved, on September 27, 2010, this Court entered
a Memorandum Opinion and Order denying defendants’ third motion to dismiss in part
and granting it in part [104]. Specifically, we held that plaintiff failed to state a claim for
violation of the Securities Exchange Act and dismissed that claim with prejudice. As for
the remaining state law claims, we held that those claims survived defendants’ attack
because there existed complete diversity and the amount in controversy requirement
was satisfied. Our ruling left plaintiff with the following state law claims (Counts II-VIII):
(II) violation of the Illinois Consumer Fraud Act, (III) common law fraud, (IV) conversion,
(V) breach of fiduciary duty, (VI) violation of the Illinois Deceptive Trade Practices Act,
(VII) promissory estoppel, and (VIII) violation of the Illinois Business Brokers Act.
On October 18, 2010, defendants filed a motion for summary judgment, a
supporting memorandum of law, and a Local Rule 56.1 statement of facts arguing (as
now) that all of plaintiff’s claims are barred by operation of the Illinois Dead Man’s Act
[107, 108, 109]. We denied that motion as premature, finding that discovery was
necessary before such a motion could be resolved [111]. The Court also ordered
defendants to file their answer to the remaining counts of plaintiff’s second amended
12

complaint, which they did on November 4, 2010 [112]. In their answer, defendants
provided the following response to most allegations of plaintiff’s complaint: “Defendant
is without knowledge or information sufficient to form a belief as to the truth or falsity of
the allegations [contained in the preceding paragraph].”
At the Court’s direction, the parties engaged in written and oral discovery through
June of 2011, albeit minimal. As in their answer, for the most part, defendants’
responses to plaintiff’s interrogatories and requests to admit simply stated that they
were without knowledge or information sufficient to respond to the requests. (See Pl.’s
SOF at Exs. 13-16.) In response to plaintiff’s requests for production of documents,
defendants responded that none existed, but that “investigation continues.” (See Pl.’s
SOF at Exs. 17-18.) As for depositions, plaintiff did not notice any depositions and
defendants took only the deposition of Patrick Nolan. The parties filed the pending
motions for summary judgment after the close of discovery.
C.

Allegations of Spoliation

For the first time in his motion for partial summary judgment (initially filed on
March 11, 2011, and re-filed on July 8, 2011 and April 16, 2012), plaintiff raised the
issue of spoliation. As plaintiff explains, in response to certain interrogatories and
requests for production regarding defendants’ business records, defendants responded
as follows:
Upon the death of Burton Stern, Todd Stern as named executor of the Estate
of Burton Stern discovered the office of the defendant in complete disarray.
As the contents of the office including the unidentifiable piles of documents
were lacking any sense of order or purpose and without monetary value,
Todd Stern then disposed of all contents in the office shortly following the
death of Burton Stern. Weeks later Stern learned of the instant litigation.
13

(See Pl.’s SOF at Ex. 13 ¶ 2, Ex. 14 ¶ 5.) In response to another interrogatory, Todd
Stern, in his capacity as executor, stated that “he first became aware of the instant
lawsuit upon receiving contact from Defendant’s attorneys through the attorney for the
Estate of Burton Stern on or about September 3, 2009.” (Pl.’s SOF at Ex. 14 ¶ 4.) As
discussed in detail below, plaintiff relies heavily on this destruction of documents both in
support of his own motion summary judgment and in opposition to defendants’ motion.
Following oral argument, plaintiff sought leave to supplement the record with an
additional brief regarding the issue of spoliation [178]. We allowed plaintiff leave to file
that brief [182] and directed defendants to file a response [183]. As discussed in more
detail below, two additional affidavits on the issue of spoliation followed [187, 189].
II.

Legal Standard
Summary judgment is appropriate where the evidence of record shows that there

is "no genuine dispute as to any material fact and the movant is entitled to judgment as
a matter of law." Fed. R. Civ. P. 56(a). There is no genuine dispute of material fact
when "no reasonable jury could find in favor of the nonmoving party." Van Antwerp v.
City of Peoria, 627 F.3d 295, 297 (7th Cir. 2010) (quoting Brewer v. Bd. of Trs. of the
Univ. of Ill., 479 F.3d 908, 915 (7th Cir. 2007). The movant bears the initial burden of
demonstrating the absence of a genuine issue of material fact by specific citation to the
record; if the party succeeds in doing so, the burden shifts to the nonmovant to set forth
specific facts showing that a genuine issue of fact exists. Fed. R. Civ. P. 56(e); Celotex
Corp. v. Catrett, 477 U.S. 317, 325 (1986). The court must construe all facts and draw
all inferences from the record in favor of the nonmoving party. Anderson v. Liberty
14

Lobby, Inc., 477 U.S. 242, 255 (1986). Additionally, “a court may consider only
admissible evidence in assessing a motion for summary judgment.” Gunville v. Walker,
583 F.3d 979, 985 (7th Cir. 2009).
III.

Analysis
Defendants seek judgment in their favor on all seven remaining counts of

plaintiff’s second amended complaint, arguing primarily that those claims are barred by
operation of the Illinois Dead Man’s Act, 735 ILCS 5/8-201. As for Count VIII, for
violation of the Illinois Business Broker’s Act, 815 ILCS 307/10-105, defendants also
argue that plaintiff lacks standing to assert that claim. For his part, plaintiff seeks
judgment in his favor on Count VIII, as well as on Count IV for conversion. Because
both motions turn on the applicability and effect, if any, of the Dead Man’s Act, we
address that issue first.
A.

The Illinois Dead Man’s Act

The Illinois Dead Man’s Act (the “Act”) provides:
In the trial of any action in which any party sues or defends as the
representative of a deceased person or person under a legal disability, no
adverse party or person directly interested in the action shall be allowed to
testify on his or her own behalf to any conversation with the deceased or
person under legal disability or to any event which took place in the presence
of the deceased or person under legal disability, except in the following
instances:
(a) If any person testifies on behalf of the representative to any
conversation with the deceased or person under legal disability or
to any event which took place in the presence of the deceased or
person under legal disability, any adverse party or interested
person, if otherwise competent, may testify concerning the same
conversation or event.
(b) If the deposition of the deceased or person under legal disability
is admitted in evidence on behalf of the representative, any
15

adverse party or interested person, if otherwise competent, may
testify concerning the same matters admitted in evidence.
(c) Any testimony competent under Section 8-401 of this Act, is not
barred by this Section.
(d) No person shall be barred from testifying as to any fact relating
to the heirship of a decedent.
735 ILCS 5/8-201.
The purpose of the Act “is to protect decedents' estates from fraudulent claims
and also to equalize the position of the parties with respect to giving testimony.” Ball ex
rel. Hedstrom v. Kotter, 746 F. Supp. 2d 940, 947-48 (N.D. Ill. 2010) (citing Gunn v.
Sobucki, 837 N.E.2d 865, 869 (Ill. 2005); see also In re Estate of Gott, 571 N.E.2d
1167, 1169 (Ill. App. Ct. 1991) (“The Act is not designed to disadvantage the living, but
it is designed to protect estates against fraudulent claims being made by putting the
parties on equal footing.”). The Act does not bar testimony regarding “evidence of facts
that the decedent could not have refuted.” Balma v. Henry, 935 N.E.2d 1204, 1211 (Ill.
App. Ct. 2010). It is well settled that the application of the Dead Man’s Act is not only
limited to trial, but is also applicable in the context of summary judgment proceedings.
Brown, Udell & Pomerantz, Ltd. v. Ryan, 861 N.E.2d 258, 263 (Ill. App. Ct. 2006). See
also Rerack v. Lally, 609 N.E.2d 727, 729 (Ill. App. Ct. 1992) (“It strains logic to
construe the Dead Man's Act in a manner that forces litigants to proceed to trial when it
would be evident from an application of the Dead Man's Act, in the context of a
summary judgment proceeding, that a litigant cannot prove his case.”).
B.

The Application of the Dead Man’s Act in Federal Court.

Sitting in federal court, we must first determine whether the Illinois Dead Man’s
16

Act applies here. Although, as a general matter, federal rather than state law governs
the admissibility of evidence, there are a number of exceptions, including Federal Rule
of Evidence 601. Lovejoy Electronics, Inc. v. O'Berto, 873 F.2d 1001, 1005 (7th Cir.
1989). That Rule provides:
Every person is competent to be a witness unless these rules provide
otherwise. But in a civil case, state law governs the witness's competency
regarding a claim or defense for which state law supplies the rule of decision.
Fed. R. Ev. 601. “The legislative history of Rule 601 reveals that the purpose of this
exception was, precisely, to preserve state dead man's laws in cases such as this
where state law supplies the rule of decision.” Lovejoy, 873 F.2d at 1005 (citing H.R.
Rep. No. 650, 93d Cong., 1st Sess. 9 (1973)).
Accordingly, where as here, Illinois law supplies the rule of decision for all of
plaintiff’s remaining claims, the Act is indeed applicable to determine the admissibility of
evidence.13 See Ball, 746 F. Supp. 2d at 948. Thus, we turn to the application of the
Act to the facts to determine whether it does, as defendants contend, require judgment
in their favor on all of plaintiff’s claims. Before doing so, we note that this case presents
an unusual interplay of issues, namely the competency of testimony under the Dead
Man's Act, the confidentiality and admissibility of settlement statements, and issues of
spoliation. Not surprisingly, neither the parties nor this Court has been able to uncover
case law addressing an analogous situation.
C.

Whether Plaintiff’s Claims Fail by Operation of the Dead Man’s Act.

13

Neither party has raised a choice of law issue and both parties rely on Illinois law in support of
their respective motions. As such, we presume that the substantive law of Illinois governs. See Kritikos v.
Palmer Johnson, Inc., 821 F.2d 418, 421 (7th Cir. 1987) ("When the parties fail to consider the choice of
law in a diversity case, the substantive law of the forum is presumed to control.") (quotation omitted).

17

As an initial matter, we easily conclude that Zang is an adverse party suing the
representative of a deceased person. It follows then that pursuant to the Act, Zang is
not allowed to testify on his behalf to any conversation with Stern or to any “event” that
took place in the presence of Stern. 735 ILCS 5/8-201. Naturally, the practical effect of
this prohibition on Zang’s testimony requires an examination of the elements of each of
plaintiff’s claims. Strangely, in their motion for summary judgment, despite seeking
judgment in their favor on all claims, defendants failed to address the elements of each
remaining claim of plaintiff’s second amended complaint. Instead, defendants argue,
rather conclusorily, that all of plaintiff’s claims are barred by operation of the Act. Then,
in response, plaintiff addressed only three of his remaining claims, specifically
conversion, breach of fiduciary duty, and violation of the Brokers Act. And again, in his
own motion, plaintiff only sought judgment in his favor on his conversion and Brokers
Act claims.
All of this left us uncertain as to whether the plaintiff was conceding that the Act
barred his claims for violation of the Illinois Consumer Fraud Act, common law fraud,
violation of the Illinois Deceptive Trade Practices Act, and promissory estoppel. At oral
argument, plaintiff’s counsel clarified that plaintiff was not conceding that any of his
claims fail by application of the Act, including those that his briefs did not address.
(2/10/12 Tr. at 17.) We also heard from defendants as to why, in their view, the Act
bars all of plaintiff’s claims. (Id. at 17-18.) In any event, the elements required to prove
each of plaintiff’s remaining state law claims are as follows:
1.

Violation of the Illinois Consumer Fraud Act (Count II)
18

To prevail on a claim under the Illinois Consumer Fraud and Deceptive Business
Practices Act, 815 ILCS 505/1 et seq., the plaintiff must show “(1) a deceptive act or
practice by the defendant, (2) the defendant's intent that the plaintiff rely on the
deception, (3) the occurrence of the deception in a course of conduct involving trade or
commerce, and (4) actual damage to the plaintiff that is (5) a result of the deception.”
De Bouse v. Bayer, 922 N.E.2d 309, 313 (Ill. 2009). The Illinois Supreme Court recently
reiterated that an essential part of a claim under the Consumer Fraud Act is that “the
plaintiff must actually be deceived by a statement or omission that is made by the
defendant. If a consumer has neither seen nor heard any such statement, then she
cannot have relied on the statement and, consequently, cannot prove proximate cause.”
De Bouse, 922 N.E.2d at 316.
2.

Common Law Fraud (Count III)

Under Illinois law, to prevail on a claim for common law fraud the plaintiff must
establish the following elements: (1) a false statement of material fact, (2) known or
believed to be false by the person making it, (3) an intent to induce the plaintiff to act,
(4) action by the plaintiff in justifiable reliance on the truth of the statement, and (5)
damage to the plaintiff resulting from such reliance. Doe v. Dilling, 888 N.E.2d 24, 3536 (Ill. 2008).
3.

Conversion (Count IV)

To prevail on a conversion claim under Illinois law, “a plaintiff must establish that
(1) he has a right to the property; (2) he has an absolute and unconditional right to the
immediate possession of the property; (3) he made a demand for possession; and (4)

19

the defendant wrongfully and without authorization assumed control, dominion, or
ownership over the property.” Joe Hand Promotions, Inc. v. Lynch, 822 F. Supp. 2d
803, 806 (N.D. Ill. 2011) (quoting Cirrincione v. Johnson, 703 N.E.2d 67, 70 (Ill. 1998)).
Where a plaintiff alleges conversion of money, “[i]t must be shown that the money
claimed, or its equivalent, at all times belonged to the plaintiff and that the defendant
converted it to his own use.” Horbach v. Kaczmarek, 288 F.3d 969, 978 (7th Cir. 2002)
(quoting In Re Thebus, 483 N.E.2d 1258, 1261 (Ill. 1985)) (emphasis in original).
4.

Breach of Fiduciary Duty (Count V)

Under Illinois law, the necessary elements of a breach of fiduciary duty claim are
(1) the existence of a fiduciary duty, (2) breach of that duty, and (3) damages
proximately resulting from that breach. Autotech Tech. L.P. v. Automationdirect.com,
471 F.3d 745, 748 (7th Cir. 2006).
5.

Violation of the Illinois Uniform Deceptive Trade Practices Act
(Count VI)

The Illinois Uniform Deceptive Trade Practices Act states, among other things,
that “[a] person engages in a deceptive trade practice when, in the course of his or her
business, vocation, or occupation, the person... advertises goods or services with intent
not to sell them as advertised” or “engages in any other conduct which similarly creates
a likelihood of confusion or misunderstanding.” 815 ILCS 510/2.
6.

Promissory Estoppel (Count VI)

“Promissory estoppel is a theory of recovery that provides a remedy ‘for those
who rely to their detriment, under certain circumstances, on promises, despite the
absence of any mutual agreement by the parties on all the essential terms of a
20

contract.’” Song v. PIL, LLC, 640 F. Supp. 2d 1011, 1016 (N.D. Ill. 2009) (quoting
Newton Tractor Sales, Inc. v. Kubota Tractor Corp., 906 N.E.2d 520, 526 (Ill. 2009)). To
prevail on a claim of promissory estoppel, plaintiff must prove that (1) defendant made
an unambiguous promise to plaintiff, (2) plaintiff relied on such promise, (3) plaintiff's
reliance was expected and foreseeable by defendants, and (4) plaintiff relied on the
promise to its detriment. Id.
7.

Violation of the Illinois Business Brokers Act (Count VII)

The Illinois Business Brokers Act defines a business broker as any person who
“in return for a fee, commission, or other compensation: (1) promises to procure a
business for any person or assists any person in procuring a business from any third
person; (2) negotiates, offers, attempts or agrees to negotiate the sale, exchange, or
purchase of a business; (3) buys, sells, offers to buy or sell or otherwise deals in options
on businesses; (4) advertises or represents himself as a business broker; (5) assists or
directs in the procuring of prospects intended to result in the purchase, sale, or
exchange of a business; (6) offers, promotes, lists or agrees to offer, promote, or list a
business for sale, lease, or exchange.” 815 ILCS 307/10-5.10. Every person engaged
in business brokering must, among other things, register with the Office of the Secretary
of State, provide a written disclosure with certain information to his client, and maintain
records for a period of six years. See 815 ILCS 307/10-10, 815 ILCS 307/10-30, & 815
ILCS 307/10-75. If a business broker commits a material violation of the Brokers Act in
connection with a contract for business brokering services, “the contract is void, and the
prospective client is entitled to receive from the business broker all sums paid to the
business broker, with interest and any attorney's fee required to enforce this Section.”
21

815 ILCS 307/10–60. The Brokers Act applies “only when the person engaging or
seeking to engage the business broker is domiciled in this State or when the company
or business sought to be sold has its principal place of business in this State.” 815
ILCS 307/10-105.
In their motion, defendants argue, and we agree, that if plaintiff’s claims are
premised solely on Stern’s oral representations (as alleged in his current complaint), the
Dead Man’s Act requires the Court to enter judgment in defendants’ favor on all of
plaintiff’s claims. As discussed above, plaintiff’s second amended complaint makes no
reference to a written agreement. Instead, in support of his claims, plaintiff relies solely
on Stern’s purported misrepresentations and promises made during their in-person
meeting and subsequent phone conversations. In the affidavit submitted in connection
with the pending motions, Zang has presented testimony regarding his initial meeting
with Stern, his payments to Stern and the reasons therefor, Stern’s failure to close on a
business, and Stern’s refusal to return his money. Pursuant to the plain operation of the
Dead Man’s Act, that testimony is barred.
We note that such a harsh application of the Act might have been avoided had
plaintiff deposed Stern upon learning of his poor health. Indeed, Illinois Courts have
ruled that admissions contained in the discovery deposition of a deceased individual can
be used against the estate even if the estate does not waive protection of the Dead
Man’s Act. See, e.g., Balma v. Henry, 935 N.E.2d 1204, 1210-11 (Ill. App. Ct. 2010)
(“We conclude that [defendant’s] deposition is admissible even if [defendant’s] estate
had not waived the application of the Dead-Man's Act.”). When asked at oral argument
why plaintiff did not attempt to depose Stern, plaintiff responded that settlement
22

negotiations were ongoing and that the parties were not at issue at the time. (2/10/10
Tr. at 5-6.) While that may have been the case, at that point, it appears that the parties
may have already engaged in the requisite Rule 26(f) discovery conference (See
8/15/12 Joint Status Report to Judge St. Eve [18]), and there is no docket entry
indicating that discovery was ever stayed. See Fed. R. Civ. P. 26(d)(1) (allowing
discovery to move forward following the completion of the Rule 26(f) conference); Fed.
R. Civ. P. 26(d)(2) (“Unless...the court orders otherwise, “methods of discovery may be
used in any sequence.”). Even if the parties had not yet had their discovery conference,
or had otherwise agreed to hold off on discovery, upon learning of Stern’s poor health,
plaintiff should have sought, and the Court would likely have granted, leave to depose
Stern.
In any event, without Zang’s testimony as to his dealings with Stern, we are left
with Nolan’s testimony, the written Agreement, the Bizbuysell advertisement, cancelled
checks, letters purportedly exchanged between the parties, and the Illinois Secretary of
State documents. With respect to Nolan, his testimony is not barred by the Act as he is
a non-interested party. See Ball, 746 F. Supp. 2d at 9 (“To disqualify a witness as
directly interested in the action, the witness's interest in the judgment must be such that
a pecuniary gain or loss will come to the witness directly as the immediate result of the
judgment.”) (quotations omitted). Unfortunately, on the whole, Nolan’s testimony adds
little to create a genuine issue of material fact. Again, Nolan testified that, based on his
conversations with Stern and Zang, he knew Stern was working with Zang to find
financing for the Frontline purchase and had about $32,000 of Zang’s money, which he
presumed was for the Frontline deal. But Nolan repeatedly testified that he was
23

unaware of any agreement, or terms thereof, between Stern and Zang.
This brings us to the written Agreement signed only by Stern. Strangely, in
response to defendants’ motion, Zang has not argued that the Dead Man’s Act is
inapplicable, that any of the exceptions to the Act apply, or that the defendants
otherwise waived the application of the Act.14 Instead, relying heavily on the
Agreement, Zang argues that, even without his testimony, the documents in the record
support judgment in his favor on his conversion and Brokers Act claim or, at a minimum,
warrant denial of the defendants’ motion.
With respect to his conversion claim, Zang contends that the language of the
Agreemen (i.e., that the consulting fee was only “earned and payable” if and when a
closing of a business purchase took place), the cancelled checks, and the fact that no
closing did in fact take place entitle him to judgment. We disagree for a number of
reasons. First, the Agreement before us only contains Stern’s signature and does not
contain Zang’s signature. Additionally, the Agreement is dated June 16, 2007, which
pre-dates Zang’s own recollection of when he first contacted Stern (June 19, 2007), and
conflicts with the letter Zang purportedly sent Stern on June 25, 2007. (Zang Aff. at Ex.
C.) Naturally, this calls into question whether the parties did in fact enter the Agreement
that is before the Court.15

14

As we discuss separately below, Zang does ask the Court to essentially waive the application of
the Act as a result of defendants’ alleged intentional spoliation.
15

The agreement does indicate that it “shall be executed in two counterparts each of which shall
be deemed to be an original.” (Pl.’s SOF at Ex. 4.) Presumably, if Zang signed a copy of the agreement,
it would have been retained by Stern and may have been destroyed when Todd Stern admittedly cleaned
out his father’s office. We also note that both in response to defendants’ motion and in support of his own,
plaintiff relies on admissions contained in the defendants’ April 23, 2009 settlement letter. (Ex. 19 to Pl.’s
Resp.) We will address those issues below.

24

More importantly, even if we concluded that the Agreement was binding, it does
not answer the question as to why Zang gave Stern the additional two payments when
the language of the Agreement itself does not call for any payments beyond the initial
retainer. Notably, the third check was made payable to Mid-America Co., which Zang
contends (without support) was an investment banking firm owned and operated by
Stern. Again, Zang’s testimony would be required to prove the purpose of those
payments but, as we have already ruled, is barred.16
Further, as defendants argue, Zang’s conversion claim hits another wall in that
Zang voluntarily paid Stern. “Courts have consistently held that there is no conversion
where one has voluntarily transferred money to another.” Tahir v. Import Acquisition
Motors, L.L.C., No. 09 C 6471, 2010 WL 2836714, at *6 (N.D. Ill. July 15, 2010)
(collecting cases). This principle has been applied in situations where, like here, the
payor made up-front payments for products or services that were ultimately not provided
by the payee.17 See, e.g., Horbach v. Kaczmarek, 288 F.3d 969, 977 (7th Cir. 2002);
Tahir, 2010 WL 2836714, at *6; Baron v. Chehab, No. 05 C 3240, 2006 WL 156828, at
**10–11 (C.D. Ill. Jan. 20, 2006).
Zang takes a similar approach to his claim for violation of the Brokers Act, citing
the documents in the record, namely the Illinois Secretary of State documents, and
16

We note that Zang never included a breach of contract claim in any of his complaints despite
making reference to such a claim in his demand letter to Stern. (See Pl.’s SOF at Ex. 12.) Nor has Zang
argued that the Agreement is admissible under the exception to the Dead Man’s Act regarding account
books and records and other documents. See 735 ILCS 5/8-201(c) & 735 ILCS 5/8-401. At oral
argument, plaintiff’s counsel explained that he was not the attorney handling the case when the second
amended complaint was filed, but that he was of the opinion that a “breach of contract claim would not
ultimately further Zang’s chances of recovering his damages.” (2/10/12 Tr. at 3.)
17

Again, to refute defendants' argument on this issue, plaintiff relies on the admissions contained
in defendants' settlement letter, which we turn to in Section D below.

25

arguing that his testimony is not necessary to support that claim. At first glance, the
Secretary of State documents appear particularly damning as the advertisement
described therein is indeed almost identical to the advertisement at issue here and was
purportedly disseminated in a similar time frame. (Cf. Pl.’s SOF at Ex. 1, ¶ 11 with Pl.’s
SOF at Ex. 2.) However, what Zang ignores, and defendants point out, is that the
Consent Order arising from Stern’s publication of that advertisement is just that, a
consent order. The plain language makes clear that defendants neither admitted nor
denied the truth of the allegations therein. And, while courts may take judicial notice of
records from administrative proceedings, see Menominee Indian Tribe of Wis. v.
Thompson, 161 F.3d 449, 456 (7th Cir. 1998), "courts generally cannot take notice of
findings of fact from other proceedings for the truth asserted therein because these
findings are disputable and usually are disputed." General Elec. Capital Corp. v. Lease
Resolution Corp., 128 F.3d 1074, 1082 n.6 (7th Cir. 1997).
Additionally, the Brokers Act itself provides that only certified copies of Secretary
of State documents are admissible in actions or proceedings under the Act. 815 ILCS
307/10-50. The documents submitted by plaintiff are not certified. Nor has plaintiff
argued that the Consent Order before us should be construed as a “certificate” from the
Secretary of State showing compliance or non-compliance with the Act. See 815 ILCS
307/10-45(d) (providing that such a certificate constitutes prima facie evidence of
compliance or non-compliance and is admissible in any court to enforce the Brokers
Act). For these reasons, we disagree that the Secretary of State Consent Order is
alone dispositive on the issue of whether Stern was operating as an unregistered
business broker and, in turn, whether he failed to retain certain records as required by
26

the Act, and failed to provide Zang with the required written disclosures.
The applicability of the Dead Man’s Act also leaves Zang’s standing under the
Brokers Act (as a Michigan resident) on shaky ground. Nolan’s testimony as to the
types of services Stern was providing Zang relates solely to the purchase of Frontline,
an Indiana company, and does not support Zang’s assertion of standing. (Nolan Dep.
at 7.) Further, the list of businesses Stern purportedly provided Zang are insufficient to
support Zang’s standing, as his testimony would be necessary to show that Stern did in
fact provide him with those listings.
In response to defendants’ motion, Zang also argues that summary judgment is
appropriate in his favor on his breach of fiduciary duty claim, despite having not sought
judgment on that claim in his own motion. We easily disagree, as Zang has not
presented competent evidence upon which we could determine a fiduciary duty arose.
As forewarned, we now turn to the additional issues of spoliation and the settlement
letters.
D.

Whether Todd Stern’s Destruction of his Father’s Documents
Warrants a Sanction Forcing Defendants to Adopt the Statements
Set Forth in their Settlement Letter.

Zang seeks to avoid the application of the Dead Man’s Act with his allegations of
intentional spoliation. As mentioned above, Todd Stern, the executor of the estate, has
admitted to cleaning out his father’s office after his death, thereby possibly destroying
documents relevant to this action. Zang argues that as a sanction for such destruction,
the Court should force the defendants to adopt the factual assertions contained in their
April 23, 2009 settlement letter (drafted prior to Stern’s death), and allow Zang to rebut
those facts with his own testimony, thereby removing the protections of the Dead Man’s
27

Act. According to Zang, entering such a sanction would result in judgment in his favor
on his claims for conversion and violation of the Brokers Act.
In their settlement letter, as required by this Court’s Standing Order, defendants
identified the points of plaintiff’s demand letter with which they agreed. Particularly,
defendants, through counsel, agreed, among other things, that (1) Zang traveled to
Chicago to meet with Stern on June 28, 2007, (2) that Zang and Stern entered into the
written consulting Agreement (which they attached to the letter), (3) that Zang asked
Stern to evaluate Frontline and provided Stern a check in the amount of $14,500, (4)
that Zang asked Stern to evaluate Pine Tech and provided a check made payable to
Mid-America in the amount of $18,000, and (5) that Stern did state that Alliance would
hold the deposit until Zang had signed a letter of intent with Pine Tech. (Ex. 19 to Pl.'s
Resp.) Defendants dispute the remainder of plaintiff’s points and provide a number of
assertions of their own. For example, defendants contend that Stern provided
accounting services and that Zang’s payments were pre-payments for services to be
rendered at $450 an hour, as opposed to down payments. Attached to defendants’
letter were certain documents and correspondence purportedly received from Zang.
Defendants also wrote that "Alliance has hundreds of pages of financial records that it
reviewed at Zang's request during the course of its engagement." (Id.) Before
addressing Zang’s request to force defendants to accept the truth of these assertions,
we must first address whether the settlement letter on which Zang relies is even
admissible.
1.

Whether Defendants’ Settlement Letter is Admissible.

Like defendants, we take issue with Zang’s decision to submit the settlement
28

letter without first seeking leave from the Court. In doing so, plaintiff completely
disregarded this Court’s own Standing Order, Local Rule 83.5, and Federal Rule of
Evidence 408.18 Our Standing Order makes clear that the written demands and offers
required by the Court - which would include the defendants’ letter here - are governed
by Local Rule 83.5. That Rule dictates that:
all non-binding alternative dispute resolution ("ADR") proceedings referred
or approved by any judicial officer of this court in a case pending before such
judicial officer, including any act or statement made by any party, attorney or
other participant, shall, in all respects, be privileged and not reported,
recorded, placed in evidence, made known to the trial court or jury (without
consent of all parties), or construed for any purpose as an admission in the
case referred or in any case or proceeding.
Federal Rule of Evidence 408 also prohibits the admission of “conduct or a statement
made during compromise negotiations about the claim” to “prove or disprove the validity
or amount of a disputed claim or to impeach by a prior inconsistent statement or a
contradiction.” Of course we recognize that the exception to Rule 408 allows the court
to “admit [such] evidence for another purpose.” Fed. R. Ev. 408(b). Indeed, courts
often admit evidence regarding settlement negotiations when offered for another
purpose not prohibited by the Rule. See Bankcard America, Inc. v. Universal Bancard
Systems, Inc., 203 F. 3d 477, 484 (7th Cir. 2000) (collecting cases).
Here, plaintiff has provided us little argument as to why defendants’ letter should
be admitted in the face of Local Rule 83.5 and Rule 408. However, plaintiff has argued

18

In their supplemental brief, defendants improperly cite to Local Rule 16.3 to support the
confidentiality of their settlement letter and the statements therein. That Rule establishes a program for
voluntary mediation for cases arising under the Lanham Act and further provides that all statements made
in such mediation proceedings are confidential. Although plaintiff initially included a claim under the
Lanham Act, there is no indication the parties participated in the mediation proceedings established by
that Rule. Thus, we disagree that the Rule provides additional confidentiality protections here.

29

that the letter provides proof that defendants destroyed relevant documents once in
their possession. On this point we can agree, and we will allow plaintiff to rely on the
letter in support of his spoliation allegations. However, in our view, whether plaintiff can
rely on the factual assertions of that letter is a separate issue and turns on whether
defendants did in fact engage in sanctionable spoliation of evidence.
2.

Whether Defendants Engaged in Spoliation of Evidence.

As plaintiff correctly acknowledges, courts have the inherent power to impose
sanctions against a party or counsel for the failure to preserve or produce documents.
Chambers v. NASCO, Inc., 501 U.S. 32, 49 (1991); Barnhill v. U.S., 11 F.3d 1360, 1368
(7th Cir. 1993).19 Sanctions may be appropriate "where the noncomplying party acted
either with wilfulness, bad faith or fault." Marrocco v. General Motors Corp., 966 F.2d
220, 224 (7th Cir. 1992); Jones v. Bremen High Sch. Dist., No. 09 C 3548, 2010 WL
2106640, at *5 (N.D. Ill. May 25, 2010). Courts have broad discretion to choose an
appropriate sanction for discovery misconduct based on the unique facts of every case.
Danis, 2000 WL 1694325, at *31 (citing National Hockey League v. Metropolitan
Hockey Club, Inc., 427 U.S. 639, 642, (1976)). Any award of sanctions must be
proportionate to the offending conduct. Ty Inc. v. Suzhou Young Chang Plastic Prods.,
No. 08 C 4217, 2010 WL 680932, at *2 (N.D. Ill. Feb. 22, 2010) (citing Langley, 107
F.3d at 515). We consider three factors in determining an appropriate sanction: (1) a
19

Courts also have the statutory authority, under Rule 37, to sanction a party for the failure to
preserve and/or produce documents where a court order or discovery ruling has been violated. China
Ocean Shipping (Group) Co. v. Simone Metals Inc., No 97 C 2694, 1999 WL 966443, at *2 (N.D. Ill. Sept.
30, 1999). The analysis for imposing sanctions under Rule 37 or our inherent power is “essentially the
same.” Danis v. USN Communications, Inc., No. 98 C 7482, 2000 WL 1694325, at *30 (N.D. Ill. 2000)
(quoting Cobell v. Babbit, 37 F. Supp. 2d 6, 18 (D.D.C.1999).

30

breach of the duty to preserve or produce documents, (2) the level of culpability for the
breach, and (3) the prejudice that results from the breach. Danis, 2000 WL 1694325, at
*31.
Here, defendants have openly admitted in their discovery responses and these
summary judgment proceedings that Todd Stern cleaned out his father’s office after his
death. In doing so, we agree that Todd Stern likely destroyed relevant documents,
including those referred to in defendants’ settlement letter. But, defendants have also
repeatedly asserted that Todd Stern was not aware of this action when he disposed of
the documents. In defendants’ view, plaintiff has thus failed to show a level of spoliation
that would support the remedy he seeks.
To refute defendants’ assertions, one would assume that plaintiff might have
sought leave to depose Todd Stern upon learning he cleaned out his father’s office.
Plaintiff did not do so here. Instead, plaintiff has submitted merely speculative evidence
to prove Todd Stern’s knowledge of this action.20 For example, plaintiff provided a
February 4, 2009 e-mail from defense attorney Dan Austin relating to settlement
discussions, in which Austin states, “We’ll see if his children are willing to pay anything
more, but they were not last time you offered $22,000 in October [of 2008].” (Pl.’s
Supp. Brief [182] at Ex. B.) From this e-mail, plaintiff asks us to infer that defense
counsel was in contact with Todd Stern as early as October of 2008. It would follow
then that Stern was aware of this lawsuit when he destroyed the documents. But

20

Plaintiff has also provided information regarding other legal proceedings in which Todd Stern
was a party. Presumably, plaintiff wants us to infer intentional spoliation from Stern’s allegedly checkered
past. We decline to do so, as we find Stern’s involvement in those proceedings irrelevant to this action.

31

defendants’ attorneys have submitted affidavits indicating they did not speak to any of
Stern’s family members prior to his passing. Defense counsel also clarified on the
record at the May 31, 2012 status hearing that it was Burton Stern who was in contact
with his children regarding settlement negotiations. Even so, the e-mail makes clear
that Burton Stern had more than one child. Thus, without more, we cannot conclude
that Burton must have been in contact with Todd in October of 2008.
More recently, plaintiff submitted the affidavit of Marc Harris, the president of the
property management company that managed Burton’s Stern’s office [187]. According
to Harris, Alliance’s lease was terminated on July 31, 2009 and a new tenant
“commenced occupancy on that date.” Plaintiff asks us to infer from this affidavit that
Todd Stern could not have possibly cleaned out his father’s office following his death
because a new tenant had since moved in. We ordered Todd Stern to respond to this
affidavit. Todd provided an affidavit indicating that the property management company
contacted him following his father’s death and informed him that some of his father’s
items remained in the unit and needed to be cleaned out, which he did [189]. Todd
reiterated that he did not learn of this action until weeks after he cleaned out the office.
On this record, and absent stronger evidence indicating that Stern was aware of
this lawsuit, we simply cannot award plaintiff the extraordinary remedy he seeks for
what he views as intentional spoliation. Again, plaintiff asks us to force the defendants
to adopt the statements in their settlement letter, allow plaintiff to testify, and enter
judgment in his favor. Doing so would remove the protections of Rule 408 and the
Dead Man’s Act. With respect to Rule 408, in our view, plaintiff’s proposed remedy
would result in the improper admissibility of defendants’ settlement statements for the
32

purpose of proving the validity of plaintiff’s claims. See Burdick v. Koerner, 988 F.
Supp. 1206, 1215 (E.D. Wis. 1998) (“Allowing the plaintiffs to introduce into evidence
the admissions of fact made by the defendants in the [settlement] letters would run
counter to the policy of fostering freedom of communication in settlement
negotiations.”).
As for the prejudice Zang suffers as a result of the missing documents, we
disagree that it is as severe as he contends. Again, even if the documents had not
been destroyed and certain account books and records were admissible under the
exception to the Dead Man’s Act, because of the plain operation of that Act, Zang’s
testimony as to his relationship and dealings with Stern would still be barred.
All of this leads us to conclude that without his own testimony, Zang has failed to
present competent admissible evidence to establish a genuine issue of material fact.
While this may seem an inequitable result, courts have entered summary judgment
where the plaintiff lacks sufficient proof to support his case after his own testimony has
been ruled inadmissible pursuant to the Dead Man’s Act. See, e.g., Kahn v. First Nat'l
Bank of Chicago, 576 N.E.2d 321, 326 (Ill. App. Ct. 1991); Kamberos v. Magnuson, 510
N.E.2d 112, 115 (Ill. App. Ct. 1987). And, as the Appellate Court of Illinois once noted,
although “[c]ommentators have long criticized the [Dead Man’s] Act...any change should
come from the legislature, and not under the guise of judicial construction of the
statute.” Theofanis v. Sarrafi, 791 N.E.2d 38, 53 (Ill. App. Ct. 2003) (citations omitted).
Lastly, this Court’s Chambers recently received a call from plaintiff’s counsel who
indicated that plaintiff intended to file a motion pursuant to Rule 11 of the Federal Rules
of Civil Procedure. Given the 21-day grace period set forth in Rule 11, we are unaware
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of the nature of that motion or if plaintiff did in fact serve a Rule 11 motion on
defendants. See F.R.C.P 11(c)(2). In any event, we see no reason in further delaying
our ruling on the pending motions.
III.

CONCLUSION
For the foregoing reasons, defendants’ motion for summary judgment [181] is

granted and plaintiff’s motion for partial summary judgment [180] is denied. It is so
ordered.

ENTERED:

__________________________
MICHAEL T. MASON
United States Magistrate Judge
Dated: June 21, 2012

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