Update: Comments from James E. Thompson of Gottreich Grace & Thompson were added to the story.
The Chicago police sergeants’ union can seize the home of its former president as a way to pay back funds he embezzled, a state appeals panel ruled last month.
John Pallohusky pleaded guilty to embezzling more than $1 million from the Chicago Police Sergeants’ Association Policemen’s Benevolent & Protective Association 156A in 2012.
Since then, the association has tried to recoup its money from Pallohusky. It won a court order against Pallohusky worth $690,215.17. Then, in 2015, the association began prodding the trust of Pallohusky’s wife, Mary O’Toole. She established the trust on June 6, 2010, the day before she died.
The trust’s primary asset is a house in Jefferson Park. The trust listed Pallohusky as both its trustee and its primary beneficiary; if Pallohusky died, other heirs would become the beneficiaries. Pallohusky served as the trustee from July 2010 to February 2015.
Then-Cook County Circuit Judge Alexander P. White ruled in May 2018 that the O’Toole trust was invalid because Pallohusky served as both trustee and beneficiary. As a result, the house could be sold to make up for Pallohusky’s debt to the union, White ruled.
The 1st District Appellate Court upheld White’s decision, calling the trust a “sham” because the trustee and the beneficiary have to be separate entities. If they’re not, “the trust fails,” Justice Mary L. Mikva wrote.
The trust on appeal argued the setup was proper because heirs other than Pallohusky would be beneficiaries if Pallohusky died. But the panel found he was “the trust’s sole real beneficiary.”
“And as the sole trustee, his only obligation was to act purely for his own benefit, not for the benefit of any purported co-beneficiaries who were unnamed, not yet determined and had no right to protection from Mr. Pallohusky using the trust property and proceeds solely for his benefit,” Mikva wrote.
The panel also dismissed the trust’s argument that Pallohusky’s resignation as trustee in 2015 restored the trust’s validity. Had Pallohusky “promptly” resigned in 2010, the validity of the trust could have been upheld, the panel wrote.
The trust was represented by John F. Stimson of the Law Offices of John F. Stimson Ltd. in Skokie. Stimson said his client is considering an appeal to the Illinois Supreme Court.
The sergeants’ association was represented by James E. Thompson of Gottreich Grace & Thompson.
“It was a collective effort from the association, the union officials and its lawyers to doggedly pursue Mr. Pallohusky to collect as much assets as they possible could to replenish the common fund that he embezzled from,” Thompson said. “At the end of the day, this is a success for the members of the sergeants’ union.”
Justices Daniel J. Pierce and Carl Anthony Walker concurred in the March 29 opinion.
The case is Chicago Police Sergeants’ Association Policemen’s Benevolent & Protective Association, Unit 156A, v. John Pallohusky, 2019 IL App (1st) 181194.