Appeal from the Circuit Court of Cook County; the Hon. B. FAIN
TUCKER, Judge, presiding. Order affirmed.
MR. JUSTICE BURMAN DELIVERED THE OPINION OF THE COURT.
The plaintiffs, beneficiaries of a testamentary trust, brought this action on June 14, 1961, against the defendants as executors under the will and as trustees under the trust charging them with breach of their fiduciary obligations in their dealing with a large block of common stock of Lytton's, Henry C. Lytton and Company, an Illinois corporation, engaged in owning and operating retail apparel stores in Chicago. This appeal is from an order of the trial court entered on November 26, 1963, granting the motion of certain defendants to strike the amended complaint and dismissing the cause at plaintiff's costs.
The testator, Henry C. Lytton, who died on March 31, 1949, was survived by defendant Carlotta Doty Lytton, his spouse; plaintiff, Walter Lytton, a son; Gertrude Benziger, a daughter; and defendants, Katherine Lytton Zazulinski and Rosemary Lytton Sheppard, grandchildren. The plaintiffs are Walter Lytton, a primary beneficiary under the trust, and Henry D. Lytton, Louise Lynch Gaston and Ware Lynch who are remaindermen under the trust. The defendants with whom we are concerned are First National Bank of Chicago, Carlotta Doty Lytton and Willard W. Cole all of whom are executors under decedent's will and trustees of the trust and Leonard B. Ettelson, attorney for the Estate of Henry C. Lytton and the Lytton company. The First National Bank of Chicago, in addition to being executor and trustee, is the transfer agent of the capital stock of the corporation and defendant Carlotta is a primary beneficiary of the trust.
The decedent's last will and testament, dated March 25, 1944, was admitted to probate on April 27, 1949. Prior to his death, decedent was the chief executive officer of the corporation and when he died, decedent owned 83,000 shares of the corporation's common stock which then had 336,200 shares of $1 par value common stock outstanding.
The plaintiffs' complaint, which was filed in the Circuit Court on June 14, 1961, was stricken on defendants' motion whereupon the plaintiffs filed an amended complaint. Plaintiffs contend that, contrary to their fiduciary obligations, the defendants, First National Bank of Chicago, Carlotta Doty Lytton, and Willard W. Cole, in connivance with defendant, Leonard B. Ettelson, conspired and schemed to retain control over the defendant corporation, Lytton's, by carrying out in self-dealing transactions the sale of a block of 83,000 shares of Lytton's stock which was held by the estate and which represented approximately 25 per cent of the outstanding shares, at a bargain price of $8 for the benefit of defendants, Carlotta and Cole.
The defendants contend that the amended complaint consists of unsupported conclusions and that the facts pleaded therein fail to charge the defendants with any wrongful conduct; that the matters in controversy were adjudicated by the Probate Court when, on February 16, 1955, an order was entered approving the Executors' Third and Final Report and Account and discharging the executors and are not subject to collateral attack; that since the Probate Court ordered the sale of the stock in question to Carlotta about eleven years before this suit was commenced, the claim is barred by laches, by the statute of limitations and by res judicata.
[1-3] Defendants' motion to strike and to dismiss the complaint admits the truth of all the facts well pleaded. Miller v. City of Chicago, 348 Ill. 34, 180 N.E. 627. Not admitted, however, are conclusions drawn by the pleader from those facts. Kurtzon v. Kurtzon, 395 Ill. 73, 69 N.E.2d 341. Fraud, collusion, or conspiracy cannot be made out by the interpolation of adjectives characterizing acts alleged to be done as fraudulently done. Nechanicky v. Morton Park Federal Savings & Loan Ass'n of Cicero, 32 Ill. App.2d 444, 178 N.E.2d 197.
That a fiduciary relationship existed between the parties appears to be conceded. Persons or corporations who accept positions as conservators, executors, trustees, etc. are thereby placed in a fiduciary relationship and should observe, or should be compelled to observe, the law which governs the high duty which they have agreed to perform. In re Estate of Nonnast, 300 Ill. App. 537, 21 N.E.2d 796. In Consumers Co. v. Parker, 227 Ill. App. 552, the court stated:
Public policy forbids every fiduciary from in any manner dealing in the subject-matter of the relation, and from using for himself any information gained by him in regard thereto. The rule is not merely remedial, for wrong actually committed, but is intended to be preventive of wrong. Interest in or control over the subject matter is not essential to the raising of a trust. It is of no consequence that no fraud was intended, that no advantage was gained by the fiduciary, or that no damage was done to the principal. (227 Ill. App at 563.)
Plaintiffs having elected to stand upon the amended complaint, judgment was entered for defendants, from which plaintiffs appeal. With the above rules and principles in mind we first consider the allegations charging the defendants with violating their fiduciary obligations by dealing in trust assets for their personal benefit. Plaintiffs alleged in the amended complaint that on June 29, 1950, a petition was filed in the Probate Court by the executors-trustees asking approval of a public offering and sale of the 83,000 shares on the ground that it was in the best interests of the estate. The Probate Court approved the proposed offering and sale on October 25, 1950, and the executors-trustees prepared the required registration statement. It was further alleged that prior to the filing of the petition to sell, defendant Cole owned 65,520 shares or 19.54%; defendant Carlotta owned 13,000 shares or 3.9%; defendant Ettelson owned 1,100 shares or 1.33%. Golding, Inc., the principal buying agent owned 25,000 shares or 7.44%. Under these circumstances the plaintiffs alleged that the 23.77% held by the estate had to be kept in the possession of persons friendly to defendants, if defendants were to be certain of retaining effective control over the corporation.
It is alleged in general terms that, in furtherance of their plan and conspiracy, defendants, Cole, Carlotta and the First National Bank, along with defendants Ettelson and Lytton's, disregarding the interest of the beneficiaries under decedent's will, engaged in numerous self-dealing transactions, and did or arranged to do certain specific overt acts: (a) that on or about October 10, 1950, the executors-trustees and decedent's daughter, Gertrude Benziger, and her husband, agreed that the Lytton's stock be sold to pay the Benzigers the sum of $350,000 on their alleged claim against the estate; (b) that about November 17, 1950, pursuant to the agreement Lytton's, by its officers, defendant Cole, as president, and defendant Ettelson, as secretary, filed a registration statement with the Securities Exchange Commission whereby the 83,000 shares of Lytton's held by the estate were to be offered for public sale at an estimated price of $10 per share; (c) that between November 17, 1950, and December 6, 1950, the defendants decided to arrange for a sale of the stock by interesting friendly parties to take the securities at a bargain sale of $8 per share so that these persons could hold the shares until the defendant corporation, acting under the control of the defendants, and specifically defendants Carlotta, Cole and Ettelson, arranged to retire a large portion of the shares so acquired and held by such friendly persons; (d) that the executor-trustees, acting through Ettelson, arranged for the City National Bank and Trust Company, as escrowee for undisclosed principals, to submit an offer for the purchase of 73,000 shares at $8. On the same day Carlotta offered to purchase 10,000 shares contingent upon approval of the Bank's offer; about the same time certain New York persons offered $8 per share; (e) that the executor-trustees failed to advise the Probate Court that they had been instrumental in setting up the escrow and had arranged for friends and associates to participate in the offer and deliberately concealed from the Probate Court and the plaintiffs, the identity of the purchasers who were known to them; (f) that the bid by Carlotta for 10,000 shares was conditioned upon Carlotta's being permitted to defer payment by utilizing a portion of what she would receive from the estate pursuant to the terms of an ante-nuptial agreement; (g) that the executor-trustees acting through their agent, Ettelson, gave all instructions to the escrowee; (h) that in order to carry out their plan and conspiracy the executor-trustees prevailed upon the Probate Court to enter an order on December 6, 1950, authorizing the acceptance of the bids made by undisclosed purchasers and Carlotta; (i) that the sum of $1,500 was paid to the New York bidders in settlement of their claim arising out of their rejected bid; (j) that about December 18, 1950, the executor-trustees informed the S.E.C. that the registration was withdrawn and that the stock was sold at a private sale; (k) that the executor-trustees failed to consult with the plaintiffs concerning the sale of stock and failed to ascertain whether the stock was sold at a fair price; (l) that by hurrying the proceedings in the Probate Court the executor-trustees made it impossible for the plaintiffs and the beneficiaries to investigate the circumstances under which the escrow was established; (m) that in inducing the Probate Court to approve a price of $8 per share, the executor-trustees deliberately failed to advise the court that the approximate book value of the stock was in excess of $15 per share or that Lytton's had retired some of its shares in 1949 at $15 per share and in 1950 at nearly $13 per share; (n) that in inducing the approval of the sale the executor-trustees fraudulently failed to disclose to the court that they had a personal and conflicting interest in the submitted proposed sale and had the facts been disclosed the sale would not have been approved; (o) that after the approval of the sale by the court, Lytton's, acting under the control of the executor-trustees and specifically Cole, Carlotta and Ettelson, retired 6,200 shares in 1952, 10,000 shares in 1953, 20,000 shares in 1954, and 25,000 shares in 1956, totaling 61,200 shares at about $8 per share using in part funds borrowed from the First National Bank; (p) that during the years between 1950 and 1961 defendant Cole purchased approximately 22,000 shares of Lytton's and some of the shares were shares that had been sold out of the estate to the City National Bank, as escrowee for undisclosed purchases; (q) that in their positions as controlling parties in the corporation, the executor-trustees arranged to sell the majority stock interest on June 15, 1961, to Cluett, Peabody & Co. of Troy, New York at a price of $15 per share.
The complaint further charged that the defendants knowingly and wilfully defrauded the beneficiaries of the estate by selling the stock at $8 when they knew or should have known that the price was inadequate thereby violating their fiduciary obligations in order to control Lytton's and eventually to sell their interests at a large personal profit. The complaint went on to allege that the estate had been substantially diminished and plaintiff Walter Lytton who should have received an income of $12,000 per year has received $3,000 per year and that as beneficiaries the plaintiffs are entitled to require the trustees to account for their acts and doings.
Among the numerous grounds specified in their motion to dismiss, the defendants contend that the claim of the plaintiffs constitutes a collateral attack on the various final orders of the Probate Court and is barred by the doctrine of res judicata. We agree.
The instant complaint was filed in June of 1961. Between six and eleven years earlier the Probate Court entered various orders directing the sale of the 83,000 shares, denying leave to file a petition for removal of the executors, and approving the second and final reports of the ...