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Pierce v. Macneal Memorial Hospital Ass'n

OPINION FILED FEBRUARY 14, 1977.

THADDEUS S. PIERCE, M.D., ET AL., PLAINTIFFS-APPELLEES,

v.

THE MACNEAL MEMORIAL HOSPITAL ASSOCIATION ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Cook County; the Hon. L. SHELDON BROWN, Judge, presiding.

MR. PRESIDING JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:

In this rather unusual piece of litigation, one participating group (defendants) seeks to avoid a conditional settlement agreement incorporated within a consent decree. The principal defendant, The MacNeal Memorial Hospital Association (Hospital), was organized in 1919; reorganized in 1931 and adopted its present name in 1962. It is subject to the General Not For Profit Corporation Act of Illinois (Ill. Rev. Stat. 1975, ch. 32, par. 163a et seq.). There are four individual defendants; all of them are members of the Hospital's Board of Directors. They constitute a majority and a quorum of the board and serve without compensation. The seven plaintiffs are all doctors and life members of the Hospital. They filed this suit as a class action in behalf of all life members.

The dispute appears to center upon the voting rights of life members of the Hospital corporation under the bylaws. Prior to 1974, the bylaws provided for nomination and election of directors by the membership, composed of regular, life and honorary members. On December 17, 1974, the directors adopted a comprehensive revision of the bylaws. The bylaw which is material here, and which precipitated the instant litigation, provided as a part of Article IV pertaining to membership:

"Section 7. Voting Rights. Members of the corporation shall have no voting rights."

Plaintiffs' complaint, filed January 10, 1975, alleged that, by the December 17, 1974, amendment, the defendants had acted "to deprive plaintiffs of all voting rights * * *" in violation of the contractual rights of plaintiffs. In a second count, plaintiffs asserted that the individual defendants had thus breached a fiduciary duty. The complaint sought injunctive and other relief. Defendants filed a motion for summary judgment and plaintiffs responded with objections. The parties submitted various memoranda on the propriety of summary judgment.

On November 26, 1975, the parties filed a joint motion informing the court that they had entered into a "Stipulation of Settlement and Compromise." A copy of the settlement stipulation, dated November 26, 1975, was appended to the motion. The stipulation recited the parties' conditional agreement to the adoption of a new set of bylaws in full settlement and discharge of the suit. A copy of the proposed bylaws was attached to the agreement. The conditions to the effectiveness of the bylaws, and thus to the entire settlement, were that "on or before December 31, 1975, or such later date on or prior to January 31, 1975 [sic] as may be fixed by the Hospital's Board of Directors, there shall be full compliance with all of the terms and conditions set forth in the [attached] resolution * * *." The resolution, which had been adopted by the Hospital directors on October 28, 1975, prescribed three conditions which will be examined in detail later in this opinion. Briefly, these conditions required approval of the proposed amendatory bylaws and election of directors by the Hospital medical-dental staff; receipt by the Hospital of a written opinion from the law firm of Chapman and Cutler to the effect that the directors could act according to the terms of section 7 of Article VI of the proposed bylaws "without any vote of the members"; and, finally, that the case be disposed of with prejudice to the claims of plaintiffs' class "in a manner satisfactory to legal counsel to the hospital."

In areas relevant to this appeal, the proposed settlement bylaws expanded the life members' representation to 100% of the nominating committee which was to select candidates for directorships. Also, life members were given the right to vote on changes in the articles of incorporation or bylaws which would alter the representation, voting or nominating rights of life members or the medical-dental staff. All other voting rights were expressly denied all members of the corporation.

On November 26, 1975, the court entered an order finding, for the purposes of settlement only, that the action was a proper class action and that plaintiffs were members of and represented the class; ordering notices of a hearing to consider fairness of the proposed settlement to be sent to all class members and setting this hearing for December 11, 1975. The notices which were sent to all members of the class pursuant to this order contained summaries of the background of the litigation and the terms of the proposed settlement and stated that any class member could appear at the hearing to object to the fairness of the settlement or to withdraw from the class and not be bound by the disposition of the suit. In due course, four persons withdrew from the class; two of them additionally stating an intention to appear to contest the proposed settlement.

At the hearing on December 11, 1975, one of these objectors, who had served notice of dissent upon all counsel, appeared and contested the fairness of the settlement and the adequacy of plaintiffs' representation of the class. After hearing statements of counsel, the court entered an "Order Approving Settlement" which overruled the objections of all the class members who had elected to withdraw, approved the settlement as a "fair compromise" and provided that all class members, except those who had objected and withdrawn, were bound by the settlement agreement and the order. In accordance with the stipulation of settlement, the order further provided:

"D. If the Settlement Agreement shall not be consummated for any reason whatever, or if, after entry, any attack by appeal or otherwise is made upon this order, the Settlement Agreement shall have no further force and effect. In the event this settlement is not fully consummated on or before February 1, 1976, then and in that event the Settlement Agreement shall be void and no longer binding upon the parties, and this order shall be vacated and set aside as of the date of its entry and this suit shall continue to be prosecuted. * * *.

F. The Court retains jurisdiction solely for the purposes of supervising and enforcing the consummation of the Settlement Agreement and vacating this order and reinstating this cause if the Settlement Agreement is not fully consummated on or before February 1, 1976."

The order dismissed the cause "on the merits with prejudice as to all members of the class" subject only to said paragraph F. The order was signed "Approved" by counsel for all parties.

On December 24, 1975, defendants filed a "Motion To Vacate Order Approving Settlement." The sole ground expressed in this motion pertained to the condition of satisfaction by counsel for the Hospital with the disposition of the suit. Defendants alleged that this condition could not be met on or before December 31, 1975, because objections to the settlement had been filed "and an appeal could be taken from the order approving the settlement, or the order could be otherwise attacked after December 31, 1975." The motion further stated that on December 22, 1975, the Hospital directors had voted not to extend the time for fulfillment of this condition beyond December 31, 1975.

Plaintiffs filed an answer which quoted portions of the settlement agreement and decree which had set February 1, 1976, as the final date for full consummation of the settlement. Plaintiffs alleged that the February 1 date superseded and amended the deadlines of December 31 and January 31 for fulfillment of the three conditions. After hearing argument of counsel, the court denied the motion on January 5, 1976. The order provided "that defendants may renew said motion in the event of an appeal from the order of this court entered December 11, 1975."

On January 9, 1976, defendants filed a "Motion To Reconsider Refusal To Vacate Order Approving Settlement." Defendants alleged that only one of the three conditions that qualified the settlement had been met, referring to the requirement that the medical-dental staff consent to the settlement bylaws. No facts were pleaded to supply a basis for the implied conclusion that the condition relating to the written opinion from Chapman and Cutler had not been met. Defendants further alleged that because of the withdrawals from the class and because several notices of the settlement had been returned undelivered, the settlement was subject to attack "even if consummated and the status of those who are not, or could claim they are not, bound by the settlement remains open to argument." The motion then quoted paragraph D of the order of December 11, 1975, concerning failure to consummate the settlement "on or before February 1, 1976." The motion further stated: "In view of the foregoing, it cannot be said that this case is or can be satisfactorily disposed of or that the Settlement Agreement can be fully consummated before February 1, 1976." Defendants also alleged that on December 22, 1975, the Hospital directors had voted not to extend the December 31 deadline for performance of conditions. Plaintiffs filed no written response and orally moved that their answer to the previous motion stand against the motion to reconsider. After argument of counsel, the motion to reconsider was denied on January 14, 1976. Defendants appeal from the orders of January 5 and 14, 1976.

In this court, defendants contend that reversal of the orders is necessary because they nullified the express valid conditions of the settlement agreement which had been entered with the court's approval; the orders are appealable and the trial court erred in failing to approve the defendants' version of a bystander's report of proceedings for the hearing of December 11, 1975. Plaintiffs urge that the December 11 order is a non-appealable consent decree; defendants' motion to vacate was based on a single condition which had been fully satisfied and constituted a waiver of any other conditions; defendants may not assert non-fulfillment of conditions resulting from their own failure to perform; the two motions were premature because filed before February 1, 1976, and the motion to reconsider did not alter defendants' position. Plaintiffs assert further that consummation by February 1, ...


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