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Shlensky v. South Parkway Bldg. Corp.

OCTOBER 29, 1963.




Appeal from the Circuit Court of Cook County; the Hon. DANIEL A. ROBERTS, Judge, presiding. Reversed and remanded.


MR. JUSTICE BRYANT delivered the opinion of the court:

October 23, 1962. Additional opinion,

This case began in 1952 as a derivative stockholders' suit brought by Harold Shlensky and Max Shlensky, owners of 236 shares of defendant South Parkway Building Corporation, on their own behalf and on behalf of all other stockholders similarly situated against said corporation and its directors: Aleck L. Bernstein, Harry M. Engelstein, Robert W. Mackie, and Louis R. Peyla. The chancellor entered a final decree in favor of plaintiffs on December 11, 1957, which found, inter alia, that the defendants-directors had violated their fiduciary duties to the stockholders of South Parkway Building Corporation and that they were in equity and in good conscience jointly and severally liable for the loss, if any, which resulted to the corporation in each of five transactions. The decree directed the defendants to account to the corporation for the benefit of its shareholders for such loss and set forth certain standards to govern the accounting. The court reserved jurisdiction of all matters pertaining to the accounting. The defendants were also required to pay costs aggregating $8,763.95 incurred by plaintiffs in bringing the suit.

An appeal was taken from this decree and the Appellate Court reversed and remanded with directions to dismiss the complaint for want of equity. Shlensky v. South Parkway Bldg. Corp., 21 Ill. App.2d 538, 159 N.E.2d 31. On further appeal the Supreme Court reversed the Appellate Court and "remanded to the circuit trial court so that the decree entered by the chancellor may be properly effectuated." Shlensky v. South Parkway Bldg. Corp., 19 Ill.2d 268, 166 N.E.2d 793.

On August 10, 1960 judgment was entered for costs aggregating $9,894.75, plus $1,427 for the costs incurred by plaintiffs in the Supreme Court. This judgment has been paid in full and satisfied. Thereafter on March 27, 1961, plaintiffs filed a "petition for order on defendants to file statement of account." Defendants were ordered to file this statement by April 27, 1961 and this was later extended to May 29, 1961. Defendants have never filed this statement.

Beginning June 9, 1961, plaintiffs and defendants initiated a plan of compromise, the general outline of which, was for the corporation to borrow money and redeem the shares owned by the minority shareholders at a price of $97 per share and for the corporation to pay counsel for plaintiffs $85,000 as attorneys' fees for services and to pay plaintiffs a special additional sum of $20,000 to cover the "costs of the litigation not otherwise heretofore reimbursed." Defendants-directors were to be excused from their joint and several liability to account and pay for the loss to the corporation for the five transactions referred to in the original decree. This plan was approved on September 27, 1961 by final order of court, at which time the court also found that the plan of compromise obviated the need for an accounting and denied the application of Louis Engelstein for leave to intervene.

It is from this order that the instant appeal is taken.

In the present proceeding counsel for plaintiffs estimated that the total amount recoverable by the corporation from the defendants would be approximately $446,500. He also testified that assuming counsel fees and costs aggregating $105,000 were deducted from the $446,500, there would remain a total of $341,500 which, divided by the 17,284 2/3 shares of the corporation outstanding, would produce a recovery to the corporation in the gross amount of $19.71 per share.

Louis Engelstein, applicant for intervention, contends in this appeal that, following the affirmance by the Supreme Court and the remandment to effectuate an accounting, the Circuit Court had no jurisdiction except to take the accounting and fix the joint and several liabilities of defendants.

Louis Engelstein is a 40% partner in a partnership, Englestein v. Mackie, 35 Ill. App.2d 276, 182 N.E.2d 351, which owns approximately 92% of the shares of South Parkway Building Corporation. The remaining 8% is owned by miscellaneous persons including plaintiffs. The final order from which this appeal is taken excuses defendants from accounting and paying anything to the corporation and instead provides that the corporation shall buy out the 8% minority interest at $97 per share and pay plaintiffs' attorneys' fees of $85,000 plus an additional $20,000 for unrecorded costs. Louis Engelstein contends that the provisions of the order appealed from prejudice him and that the order is invalid. He further contends that he is entitled to intervene pursuant to Ill Rev Stats 1961, c 110, § 26.1 on the ground that the representation of his interests by existing parties has become inadequate and that he will be bound by the final order. The applicant prays for a reversal of the order and a remandment of the case to the Circuit Court to take the accounting ordered by the Supreme Court.

After the remandment by the Supreme Court the Circuit Court was bound to proceed in conformity with the specific directions of the Supreme Court and take an accounting. We agree with the applicant for intervention that the Circuit Court had no right to readjust any part of the former decree and it was improper to enter the order approving the plan of compromise. Wolkau v. Wolkau, 217 Ill. App. 471; People v. Waite, 243 Ill. 156, 90 N.E. 183; Griesbach v. People, 226 Ill. 65, 80 N.E. 734; Union Nat. Bank v. Hines, 187 Ill. 109, 58 N.E. 405. See also Baum v. Hartmann, 238 Ill. 519, 87 N.E. 334. It was the duty of the Circuit Court to examine the opinion of the Supreme Court and proceed in conformity with it. Pittsburgh, C., C. & St. L. Ry. Co. v. Gage, 286 Ill. 213, 117 NE 726.

The plaintiff in a stockholders' suit does not sue in an individual capacity, but as the representative of the corporation. Duncan v. National Tea Co., 14 Ill. App.2d 280, 294, 144 N.E.2d 771 (citing numerous cases). In view of this general rule and the facts presented here which show that the so-called plan of compromise would wipe out what may prove to be a substantial recovery from the directors, keeping in mind that the recovery accrues to the corporation rather than to any individual stockholder, the plan of compromise presented here is not such a situation where the parties may consent to the entry of a decree in a lower court different from that directed by the mandate or judgment of a higher court. See Spring Lake Drainage & Levee Dist. v. Stead, 263 Ill. 247, at 251, 104 N.E. 1014.

Plaintiffs attempted to pave the way for the plan of compromise by filing an unverified petition for liquidation of the corporation, which contained no factual allegations as grounds for liquidation. See Ill Rev Stats 1961, c 32, § 157.86(a) 3 & 4; Central Standard Life Ins. Co. v. Davis, 10 Ill.2d 566, 141 N.E.2d 45; Gidwitz v. Lanzit Corp. Box Co., 20 Ill.2d 208, 170 N.E.2d 131. No answer was made to the petition since defendants were excused from answering, the court never acted on the petition, no receiver was ever appointed and there was no decree of ...

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