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Van Daele v. Vinci

SEPTEMBER 16, 1970.




Appeal from the Circuit Court of Cook County; the Hon. WALTER P. DAHL and GEORGE N. LEIGHTON, Judges, presiding. Reversed. MR. JUSTICE DRUCKER DELIVERED THE OPINION OF THE COURT.

Rehearing denied November 6, 1970.

This action, Count IV of a multicount complaint against defendants, was brought to enjoin disciplinary action against plaintiffs as members of a private, voluntary incorporated association, and for other relief. The trial court granted plaintiffs' motion for a temporary injunction, and subsequently a permanent injunction was issued restraining defendant corporation, Certified Grocers of Illinois, Inc., (hereinafter "Certified") its employees, representatives, servants and agents, from taking any action to carry out the resolutions of the Board of Directors of Certified (hereinafter "Board") expelling plaintiffs as members, and from taking any punitive action against the plaintiffs by reason of the resolutions. Defendants appeal from these injunction orders.

A summary of the events culminating in the trial court's injunction orders follows. On January 30, 1969, the Board sent notices to the plaintiffs, Sparkle Food Center, Inc., (hereinafter "Sparkle") and Hickory Hills Super Mart, Inc., (hereinafter "Hickory") of a special meeting of the Board to be held on February 25, 1969, for the purposes of determining whether Sparkle and Hickory should be censured, suspended or expelled as members of Certified pursuant to section 22 of Article II of Certified's bylaws. The charges were based upon the alleged acts of Frank R. Guinta, a shareholder and officer of Sparkle, and Adolph Kalchbrenner, a fifty percent shareholder and President of Hickory. It was charged that these men associated with the "Certified Stockholders Committee for Fair and Better Management," disrupted Certified's business, impeded the resolution of problems associated with Certified's construction program, spread false rumors and made untrue statements which were intended to, and which did injure Certified's directors and officers, and engaged a public relations firm to publicize charges against Certified for the purpose of aiding the election of the Stockholders' Committee's nominees to the Board of Directors of Certified.

The notifications sent to plaintiffs further advised them that:

You may be present at said meeting and present such evidence, make such arguments as you may deem necessary in your defense, and you may be accompanied by legal counsel to assist and advise you during the course of said proceedings.

On February 21, 1969, four days before the expulsion hearing was to be held, plaintiffs amended a previously filed complaint in the Circuit Court by adding Count IV in which Sparkle and Hickory sought equitable relief against Certified. Sparkle and Hickory prayed for a temporary and permanent injunction restraining the defendants from taking any action to censure, suspend or expel them from membership in Certified. In response, defendants filed a verified answer to Count IV denying the material allegations therein set forth. The trial court continued the cause in order to determine what action the Board would take based on the charges brought against the plaintiffs.

Hearings before the Board were held on February 25 and April 9, 1969. At the hearings plaintiffs made several preliminary motions. They moved to disqualify specific members of the Board as being prejudiced; to disqualify those who would allegedly profit in the event of plaintiffs' removal; and to dismiss the statement of the charges. These motions were denied by the Board. Plaintiffs also requested that any person not a member of the Board be excluded from the hearing room. This request was granted and several nonmembers of the Board were excused. The Board's attorney then presented the evidence in support of the charges against plaintiffs. The evidence consisted of documents marked as exhibits, excerpts from transcripts of sworn testimony given in depositions, and trial testimony taken with respect to other counts of plaintiffs' multicount complaint. After the Board's counsel rested, plaintiffs again moved to dismiss the charges. The Board in a vote of ten in favor and one abstention denied plaintiffs' motion. The plaintiffs, through their private counsel, offered as their only proof in opposition to the Board's charges their good standing membership in Certified through the years and their rebate schedules for the past several fiscal years. *fn1

After closing arguments of counsel, the directors by a vote of ten to one approved resolutions expelling the plaintiffs as members of Certified effective April 9, 1969. Plaintiffs were permitted to purchase merchandise from Certified until May 9, 1969.

Subsequent to the Board's passage of the expulsion order, Sparkle and Hickory filed a motion for a temporary injunction to restrain enforcement of this resolution and on May 5, 1969, a temporary injunction enjoining defendants' enforcement of their expulsion order was issued.

Thereafter Hickory and Sparkle sought a permanent injunction. The trial court considered Count IV of plaintiffs' second amended and supplemental complaint, defendants' answers, the transcripts of the hearings before the Board on February 25, 1969, and April 9, 1969, relating to the expulsion of Sparkle and Hickory, and the exhibits introduced at these hearings. On September 30, 1969, the trial court entered an order permanently enjoining Certified from taking any action to carry out the resolution of the Board expelling plaintiffs as members of Certified and from taking any punitive action against plaintiffs by reason of the April 9, 1969, expulsion resolution.


Defendants contend that the courts cannot interfere with plaintiffs' expulsions from Certified since (1) it is a private, voluntary incorporated association and (2) the disciplinary proceedings conducted by the Board were in accordance with Certified's bylaws, by which plaintiffs agreed to be bound when they purchased and were issued their shares of stock in the corporation. In a series of cases the courts of this state have established the principle that they would not interfere with or regulate the internal activities of a voluntary association. People ex rel. Rice v. Chicago Board of Trade, 80 Ill. 134; Sturges v. Chicago Board of Trade, 86 Ill. 441; Pitcher v. Chicago Board of Trade, 121 Ill. 412, 13 N.E. 187; Ryan v. Cudahy, 157 Ill. 108, 41 N.E. 760; People ex rel. Keefe v. Women's Catholic Order of Foresters, 162 Ill. 78, 44 N.E. 401; Chicago Board of Trade v. Nelson, 162 Ill. 431, 44 N.E. 743; Green v. Chicago Board of Trade, 174 Ill. 585; Bostedo v. Chicago Board of Trade, 227 Ill. 90, 81 N.E. 42; Engel v. Walsh, 258 Ill. 98; Werner v. International Ass'n of Machinists, 11 Ill. App.2d 258, 137 N.E.2d 100. See also Parsons College v. North Cent. Ass'n of Colleges and Secondary Schools, 271 F. Supp. 65 (ND Ill 1967).

In Engel v. Walsh, supra, 103, the court in reviewing its prior decisions based on judicial nonintervention in the affairs of private, voluntary associations stated:

The courts have frequently been called upon to restrain voluntary associations, such as churches, lodges of various kinds, boards of trade, and the like, from expelling members for an alleged violation of some rule or regulation of the association, and in such cases this court has uniformly refused to sanction the practice of calling on a court of equity to adjust disputes arising between such associations and its members, . . . . In People v. Chicago Board of Trade, 80 Ill. 134, on page 137, it was said: "The board of trade, so far as we can see, is only a voluntary organization, which its charter fully empowers it to govern in such mode as it may deem most advisable and proper. It has adopted its bylaws, provided a forum for their enforcement, which has acted thereunder, and the court will not interfere to control its action." In churches, lodges, labor unions, and other like voluntary associations, each person on becoming a member, either by express stipulation or by implication, agrees to abide by all rules and regulations adopted by the organization. (Bostedo v. Chicago Board of Trade, 227 Ill. 90.) Courts will not interfere to control the enforcement of bylaws of such associations, but they will be left free to enforce their own rules and regulations by such means and with such penalties as they may see proper to adopt for their government.

See also Parsons College v. North Cent. Ass'n of Colleges and Secondary Schools, supra, for a more recent statement of the controlling Illinois law.

In Chicago Board of Trade v. Nelson, supra, Nelson was suspended by the Board pursuant to its bylaws. Nelson sought a writ of mandamus to compel the Board to permit him to resume his privileges. The court held that since the Board was a voluntary association it would not interfere with the Board's disciplinary powers. In its opinion the court discussed the contract obligation which existed between the Board and its newly accepted members. At page 438 the court said:

This corporation is not bound to admit any person to membership, nor was the relator in any way forced into such association. He voluntarily became a member, and by his contract is bound to abide by the rules and regulations of the board. The courts will never interfere to control the enforcement of bylaws of such associations, but they will be left to enforce their rules and regulations by such means as they may adopt for their government. . . . The court has repeatedly refused to interfere with the disciplinary powers of this board, in equity as well as at law. (Emphasis ours.)

In the instant case a similar contract obligation existed between Certified and plaintiffs. Article XV of Certified's bylaws provides in part:

These Bylaws, and any amendments hereinafter adopted, and any Rules and Regulations promulgated pursuant thereto, shall constitute a contract between the corporation and the shareholders, and between the shareholders, and shall be binding on all shareholders, their successors, heirs, executors, administrators, assigns and personal representatives, as the case may be. The purchase of shares and the issuance thereof to any shareholder shall constitute and be equivalent to a consent to be bound by these Bylaws and the Rules and Regulations promulgated pursuant thereto and an agreement on such shareholder's part to be bound thereby. (Emphasis ours.)

Therefore, as in Nelson, Certified and plaintiffs under their contract were bound by the corporation's bylaws then in effect.

Article II, section 22 of the bylaws provides for the censure, suspension or expulsion of a member of Certified. By its contract with plaintiffs the Board was required to follow the procedural rules set ...

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