APPEAL from the Circuit Court of Cook County; the Hon. NATHAN
M. COHEN, Judge, presiding.
MR. PRESIDING JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:
Rehearing denied April 27, 1977.
Robert J. Voss, Robert L. Bastian and Nelson Thomasson III (plaintiffs), brought this class suit on behalf of all similarly situated shareholders of Lakefront Realty Corporation (Lakefront). In addition to Lakefront, the defendants are four of its directors, Joseph M. Scanlan, Karl Scheribel, Irma Elmore and Arthur Blome (defendants). The general theory of plaintiffs is that defendants acted in contravention of their responsibility and their legal duty to Lakefront with regard to trading in corporate stock of Lakefront. Plaintiffs sought injunctive relief, an accounting and an order compelling defendants to transfer certain shares of their stock to Lakefront. There was a lengthy and complicated trial. The report of proceedings contains some 1000 pages. At the close of plaintiffs' case, on motion of defendants, the trial court entered a detailed judgment order in favor of defendants. The trial court also denied defendants' motion seeking to recover costs and attorneys' fees from plaintiffs pursuant to section 41 of the Civil Practice Act. (Ill. Rev. Stat. 1975, ch. 110, par. 41.) Plaintiffs appeal and defendants cross-appeal. A factual summary is required.
Lakefront was created as a result of a 1947 reorganization of the bankrupt Lake Shore Athletic Club. The second product of that reorganization was the Lake Shore Club of Chicago (Club), a not-for-profit social and athletic club. Lakefront owns the land and building at 850 North Lake Shore Drive, in Chicago, and the personal property therein. Both Lakefront and the Club maintain offices in the building. This property is free from lien or encumbrance. All of this property is leased to the Club. The lease, expiring June 30, 1977, provides for a fixed minimum rent and for payment of all net profits of the Club as additional rent to Lakefront as lessor. The lease grants the Club a continuing option to purchase Lakefront's assets at a price of $6,600,000. In 1967 or 1968, a number of members of the Club unsuccessfully attempted to exercise this option. They were unable to obtain the required funds by solicitation of the Club's membership.
When Lakefront was incorporated, 100,000 shares of corporate stock were issued. A subsequent stock split has resulted in a total of 200,000 outstanding shares, of which 3380 shares are treasury stock. Ownership of Lakefront stock is restricted to dues-paying members of the Club. Article XII of the Lakefront bylaws states, as one of its purposes, facilitation of "the ownership of the stock of the corporation by as many such members [of the Club] as possible."
There are two methods by which Lakefront stock is traded. Members regularly buy and sell stock using Lakefront as a conduit in the transaction. Sales of stock in this manner are generally initiated when an offer to buy or sell stock is posted on the "bid and ask" board, sometimes referred to as the "quote" board, in the office of the secretary of the corporation. Responsive offers are then received by the corporate secretary. If there are no responses to such posted bids after four or five days, the secretary will contact those members who have expressed an interest in buying stock. She does not keep a formal list of such individuals and there is no particular order in which members are informed of stock availability.
To be considered "firm," an offer to buy stock in this manner must be accompanied by a check for the entire purchase price, payable to Lakefront. The money is then deposited in an "exchange shares" bank account. The seller receives a check for the purchase price, drawn on this account. The corporate secretary then directs the transfer agent to transfer the shares to the new owner. When this type of sale is consummated, as a general matter, neither the buyer nor the seller is aware of the identity of the other.
Club members also buy and sell stock directly from each other, without recourse to the above method. There was testimony at trial that there has always been more Lakefront stock available for sale than there have been buyers. Membership in the Club has decreased by about 370 members since 1966. At present about 330 or 340 of the Club members own Lakefront stock.
In accordance with the applicable corporate bylaw, when an individual ceases to be a dues-paying member of the Club, he is notified that he must sell his stock to a Club member or to the corporation. Similarly, individuals who inherit Lakefront stock are notified that they must sell their stock. The form letter used in such instances informs the recipient of the current trading price of Lakefront stock and tells him that it is necessary to send his stock certificate to the corporation, duly endorsed with signature guaranteed by a bank or brokerage house. An exception to this general rule, established as a long-standing custom, is the situation in which a widow or other close relative of a deceased member of the Club inherits Lakefront stock. Such individual may elect to join the Club and retain the stock thus inherited. The widow of a Club member is generally permitted to use Club facilities without charge for several months after her husband's death and she has the option of becoming a member at a reduced fee.
All Lakefront shareholders may examine a list of the stock holdings of the various Club members at the annual shareholders' meeting. In addition, such a list is kept available in the secretary's office.
Prior to 1957, the book value was used as a trading price for Lakefront stock. In 1957, an amendment to the corporate bylaws was adopted containing a complicated formula for determining the trading price of Lakefront stock. At that time the trading price was computed by certified accountants in accordance with this formula as $6.06. Members were informed of this price by an official corporate letter which also told them that it was merely a general guideline for sales. As we will later note, recent attempts to recalculate the price according to this formula have resulted in a figure which is substantially lower than the actual price at which the stock is traded. Therefore, the computed trading price has not been used as a guide in stock transactions for some time. Lakefront stock currently sells for an average price in the vicinity of $9 or $10 per share.
The individual plaintiffs in this action are all members of the Club and are Lakefront shareholders. Robert Bastian owns 20 shares, Nelson Thomasson owns 210 shares and Robert J. Voss owns 700 shares.
This general background information will assist in our consideration of the pleadings. On June 7, 1974, plaintiffs filed their third amended complaint alleging in substance that defendants, by means of their domination of Lakefront and pursuant to a conspiracy, have at various times purchased Lakefront stock for prices of $10 or less per share, at amounts substantially below the real value of the stock, to the detriment of Lakefront, in contravention of their responsibility to Lakefront and "in violation of the fiduciary duty imposed upon them by the mandate to purchase such stock for the corporation or to offer such stock for purchase to the membership generally of the * * *" Club. It alleged that such conduct was "in antithesis of the avowed purpose of the corporation to have disseminated widely the ownership of its stock among members of the Lake Shore Club * * *." The third amended complaint further alleged that the defendants conspired to keep available stock from being purchased by Lakefront or from being offered to the members but instead purchased over 40,000 shares of such stock for less than its real value.
In their answer, defendants denied all the allegations of misconduct. In a supplement to their answer, they alleged that plaintiffs' claims were barred by laches because the matters alleged in the complaint were known to plaintiffs for many years prior to the filing of the instant action.
We will next summarize the testimony under various topical subdivisions.
Availability of Lakefront Stock
A large portion of the testimony presented in this case concerned the quote board where information was posted regarding the availability of Lakefront stock for purchase by members of the Club. That information was not posted elsewhere in the Club and was not included in the Club magazine or other correspondence sent to members. The one exception to this was correspondence sent out by Marshall Keig, during his tenure as first president of the Club and of Lakefront, urging members, in a most general manner, to purchase stock in the corporation.
At dinners given for new members of the Club, those present were informed about the availability of Lakefront stock to Club members. This discussion did not include information about specific offerings of stock. There was some testimony to the effect that this information is no longer presented at the dinners. However, one witness noted that the nature of the program at these dinner discussions depends upon the individual who is president of the Club at the time. There was testimony that this information was presented at the most recent new member dinners.
Plaintiff Robert Bastian testified that the quote board appeared to have fallen into disuse since about October 1966, though there were always some shares listed on it for sale. Furthermore, during the past few years, he noted stock always was available to those members who wished to purchase it.
Nelson Thomasson, another plaintiff, who was secretary of the Club from 1967 until 1971, testified that the board was not used much after 1966 or 1967. He stated that in late 1970 or early 1971, he was told to refer inquiries about stock purchases to Mr. Scanlan, president of Lakefront. The witness knew of no individual who actually put in a bid for stock and was unsuccessful in purchasing the desired shares. Mr. Thomasson went on to state that he had discussed the unavailability of stock with other members of the Club in 1966 or 1967. He felt that it was inappropriate for him to file suit at that time as he was serving as secretary of the Club.
James Alletto, an employee of the Club for about 20 years, testified that he had noted no entries on the quote board between 1966 and 1970. Another witness who was a member of the Club, a Lakefront shareholder and a resident of the Club, stated that the board was not used since 1966 or 1967. Defendant Arthur Blome agreed that the board was usually empty. Plaintiff Robert Voss ...