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Tonchen v. All-steel Equipment

AUGUST 6, 1973.




APPEAL from the Circuit Court of Kane County; the Hon. CHARLES G. SEIDEL, Judge, presiding.


Rehearing denied September 11, 1973.

The plaintiff filed a seven count complaint for fraud and deceit based on the alleged failure of the defendant, All-Steel Equipment, Inc., an Illinois Corporation (hereinafter referred to as All-Steel) to comply with promises made to plaintiff, which induced him to release his claims against a corporation entitled B.M. Fittings Corporation (hereinafter referred to as BMFC), when All-Steel was in the process of acquiring the assets of BMFC. Trial was had on the first four counts only; counts V, VI, and VII which sought specific performance of the alleged promises were not passed upon by the court or jury. The jury returned a verdict on all four counts totaling $2,340,000; $340,000 being for compensatory damages and $2,000,000 for punitive damages. Judgment was entered on the verdict and defendant appeals. The issues presented to this court are whether the defendant is entitled to a judgment notwithstanding the verdict, to a new trial, to a remittitur of all the punitive damages and a portion of the compensatory damages.

The plaintiff, Stephen Tonchen, had been engaged in various phases of design and manufacture of electrical fittings for a period of over thirty years. In 1957, at the request of the B.M. Fittings Corporation, a company owned by the Briegel family, Tonchen went to Galva, Illinois, and was employed for the purpose of introducing a method of producing fitting components which he developed into the operation of BMFC. BMFC was a manufacturing concern located in Galva, specializing in a type of electrical indenter fitting. Tonchen proceeded to replace BMFC equipment with multi-slide machinery, and his own tooling and machine parts of the value of $150,000 which he had brought from the east, where he had been engaged in business. Two years later, a dispute arose between Tonchen and the Briegels, the owners of BMFC. Tonchen filed a lawsuit and judgment was entered in Tonchen's favor in the amount of $204,485.56. BMFC was unable to pay the judgment and an agreement was entered into on May 16, 1964 as to payment in part, substantially as follows:

(1) $104,485.56 of BMFC's inventory was to be sold and Tonchen was to act as intermediary to collect the proceeds of the sale as partial payment.

(2) BMFC was to pay Tonchen $100,000 in annual installments equal to 20% and not more than 75% of net profits of BMFC before taxes. This payment was to be not less than $20,000 a year.

(3) Tonchen was to remain as general manager until the $100,000 evidenced by a note in that amount was paid, or for five years if the note was not paid off in that time. His salary was to be $15,000 a year plus 25% of BMFC's net profit before taxes.

(4) It was further provided that the contract entered into was not an exclusive contract and Tonchen could work for himself or others.

The agreement recognized ownership of his trade secrets, specifications, designs and processes for production being used by BMFC. Upon the termination of this management contract the title to machines, parts, and tooling parts, acquired or introduced into the operation of BMFC by Tonchen was to vest in BMFC, subject to the condition that

"none of such machines, machine parts, tooling or tooling parts shall be sold by the Company or otherwise disposed of so that the same enter into competition with Tonchen or any company or party that he may be connected with, otherwise said machines, machine parts, tooling or tooling parts shall become the property of Tonchen."

Tonchen proceeded to sell part of the inventory and collected $100,000. He then invested $22,000 of that back into the business of BMFC under the agreement of May 16th, 1964, above. Tonchen had also established and conducted his own business in Galva, Illinois, entitled the Royal Engineering & Manufacturing Company with some seven employees, which was concerned with the development of liquid tight fittings.

In May, 1964, All-Steel became interested in the BMFC plant in Galva and the liquid tight fittings. It happened that by blending the component parts of BMFC's and Tonchen's fittings, a saleable item could be produced.

In August, 1964, Tonchen went to Hawaii to visit his son who was ill. When he returned, BMFC locked him out of their plant on or about August 11, 1964.

About August 25, 1964, All-Steel through its various officers began negotiating with BMFC for the purpose of acquiring their plant. These negotiations continued on into the autumn.

On October 27, 1964, Tonchen filed a second suit against the Briegels and BMFC for the breach of the May 16, 1964 agreement. In that four count suit Tonchen prayed for the following:

(1) The sum of $71,875 salary due to him under the May, 1964, agreement.

(2) $100,000 as Tonchen's 25% share of BMFC's profits for five years.

(3) Restitution of trade secrets, specifications, tools and processes valued at $150,000.

(4) $96,533.02 balance due on the note given under the May 16, 1964 agreement.

In January, 1965, All-Steel came to the conclusion they would not purchase BMFC's assets without a release of Tonchen's claim or rights. Negotiations were continued however with Tonchen by All-Steel through a Mr. Weber (an employee of All-Steel) during the month of January, 1965. After conversations between Tonchen and Weber, on January 26, 1965, Weber set up a meeting with certain officers of All-Steel, Tonchen, and their respective attorneys for February 2, 1965, at All-Steel's headquarters in Aurora. The purpose of this meeting dealt with arrangements for All-Steel to purchase BMFC and to determine from Tonchen what would be necessary to release his claims.

On February 2, 1965, the All-Steel officials met with Tonchen and attorneys for both Tonchen and All-Steel were present. Tonchen was advised to keep in touch with Mr. Weber and a Mr. Rudolph, who was also from All-Steel. Several meetings were had between Tonchen, Weber and Rudolph, relative to the reducing of the February 2, 1965, agreement to writing. It is alleged that because of the animosity between the Briegels and Tonchen, All-Steel did not want to reduce the agreement to writing. Tonchen, on the other hand, sought to have it put in writing but this was never accomplished.

On May 14, 1965, Tonchen settled the second lawsuit described above, with BMFC for the sum of $122,000 and gave a complete release of any claim he had against the Briegels and BMFC under the May, 1964, agreement.

Ten days later, on May 24, 1965, Tonchen signed a letter to All-Steel in which he did not refer to any employment contract, liquid tight fittings, or other matters for which he is claiming compensation in the suit before this court. The letter signed by him is as follows:

"It is my understanding that you are now proposing to purchase the business and assets of B.M. Fitting Corporation, and that out of the proceeds of such purchase, settlement of my various claims against that corporation and affiliated parties will be effected by the payment of $122,000, in which I will participate.

This will confirm my understanding (and as an inducement to you to so purchase the assets of B.M. Fitting Corporation, I hereby covenant) that the various releases given by the undersigned to B.M. Fitting Corporation, with respect to the claims of the undersigned, are intended to include All-Steel Equipment, Inc. and its subsidiaries as beneficiary thereof by virtue of succession to the business of B.M. Fitting Corporation. Further, I warrant that said All-Steel Equipment Inc. or its subsidiaries may continue the production of the present products sold by B.M. Fitting Corporation without obligation for royalty, license fees, or other claim of the undersigned as a result of such operations."

The obvious purpose of this document was to induce All-Steel to purchase the assets of BMFC. It is contended that because of the bad feeling between Tonchen and the Briegels no mention was made of any possible connection between Tonchen and All-Steel in the future.

On June 2, 1965, the BMFC properties were purchased by and transferred to All-Steel. In July, 1965, All-Steel stopped all negotiations with Tonchen. The instant suit was filed by ...

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