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Weigel v. O'connor

OPINION FILED JANUARY 19, 1978.

JOHN WEIGEL, PLAINTIFF-APPELLANT,

v.

J.W. O'CONNOR ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. RAYMOND K. BERG, Judge, presiding.

MR. JUSTICE LINN DELIVERED THE OPINION OF THE COURT:

Rehearing denied March 9, 1978.

Plaintiff, John Weigel, a shareholder in the defendant corporation, Weigel Broadcasting Company, filed a complaint seeking the issuance of a writ of mandamus to compel the defendant corporation and the defendant corporate officers to produce certain corporate books and records for examination. Plaintiff also sought assessment against the defendants of the statutory penalty for the refusal of the defendants to allow the examination. (Ill. Rev. Stat. 1975, ch. 32, par. 157.45.) The trial court entered judgment ordering the defendants to produce for inspection certain of the corporate documents listed in the complaint and dismissed plaintiff's demand for the remaining books and records, the court finding that as to the latter, plaintiff had failed to establish a proper purpose for their examination. No statutory penalty was assessed by the trial court.

On appeal, plaintiff contends that the trial court erred in refusing to compel the inspection of all the documents demanded because: (1) the plaintiff had established a proper purpose for examining all documents requested; and (2) once a proper purpose had been established the court could not properly limit the documents which were subject to inspection. Plaintiff appeals from that portion of the judgment which denies the inspection of certain corporate documents, books and records and from the subsequent denial of his motions to vacate the court's judgment and to compel further production of the remaining corporate documents, books and records. Plaintiff also appeals the trial court's denial of an award of a penalty against defendants as provided by the Illinois Business Corporation Act. Ill. Rev. Stat. 1975, ch. 32, par. 157.45.

We agree with the contentions of the plaintiff as to his right to the examination of the additional corporate documents, books and records and, accordingly, reverse the trial court. We remand for implementation of our decision and, further, for a hearing on the claim of plaintiff for a penalty award against the defendants.

Weigel Broadcasting Company, which operates Station WCIU, television Channel 26 in Chicago, was organized by the plaintiff in 1962. The corporation's capital stock consists of 181,669 shares of common stock and 4,588 shares of cumulative preferred stock owned of record by approximately 350 persons. Until 1966 the plaintiff held a controlling interest in the corporation. Currently, he is the owner of record of 16,150 shares, or approximately 9 percent, of the common stock. Defendants O'Connor, Shapiro and Weisberg are chairman of the board, president and secretary of the corporation, respectively. O'Connor and Shapiro hold more than two-thirds of the outstanding common shares. They acquired their controlling interest in 1966 by buying stock from plaintiff and from the plaintiff's former wife, she having received certain of the stock from the plaintiff as a result of a marital settlement. Defendants O'Connor and Shapiro are also the principal holders of the corporation's cumulative preferred shares, on which dividends first were paid in 1975. No dividend has ever been declared or paid on the common stock held by plaintiff and the other shareholders.

In a letter dated July 22, 1975, plaintiff, through his attorney, made a formal demand to inspect specific corporate books and records. The documents requested concerned corporate activities for various time periods from 1966 through 1975, and included: television logs; contracts with advertisers; invoices issued to advertisers; cash receipt journals; cash disbursement journals; all records evidencing due bills or trade-outs received by or issued to the company; documents reflecting fees paid in connection with sales of broadcast time; documents reflecting loans by the company to individuals; minutes of director and shareholder meetings; all reports filed by the corporation with the Federal Communication Commission; records of all work ordered from and performed by the corporation for C.E.T., Inc., and records of payment for such work; records of all gifts or gratuities given by the corporation; and a current list of all shareholders.

The demand stated the following purposes for which the plaintiff desired to examine the enumerated books and records: to ascertain the value of his shares and determine the true financial condition of the corporation; to determine the nature and amount of corporate expenses; to determine the source of corporate revenues; to determine the amount and kind of compensation paid to corporate officers and directors; to determine what amount of broadcasting time had been given as trade-outs; to communicate with other minority shareholders; and to allow informed voting by minority shareholders at future meetings.

The defendants admit receipt of the plaintiff's demand letter but had not responded to the demand as of the time plaintiff filed his complaint for a writ of mandamus on August 15, 1975. In the first count of that complaint, plaintiff sought to compel the defendants to produce for examination by the plaintiff or his agent or attorney the corporate books and records listed in the demand letter. In the second count, plaintiff sought the statutory penalty for defendants' allegedly wrongful refusal to comply with the plaintiff's demand asserting that said relief is available to him pursuant to section 45 of the Illinois Business Corporation Act. Ill. Rev. Stat. 1975, ch. 32, par. 157.45.

The defendants answered and affirmatively alleged that the demand for inspection and examination was made in bad faith and against the best interests of the corporation. A counterclaim, filed by defendants against the plaintiff based on charges of defamation, was severed from the mandamus action and remains pending in the Law Division of the Circuit Court of Cook County.

At trial the plaintiff testified that as organizer of the corporation he induced many of his personal friends and business associates to purchase some of the corporate common stock. He continues to maintain personal contact with these friends and business associates. Prior to the demand in issue, plaintiff previously had requested and received other information from the defendants. In 1970, plaintiff made a request to examine books and records of the corporation and had been allowed to review a partial payroll ledger. Plaintiff indicated that in 1974 he received a shareholder list and was shown the corporate minute book. He also reviewed the F.C.C. public file. Defendants admit that they had previously allowed the plaintiff to examine certain of the corporation's books and on occasion had afforded plaintiff the opportunity to examine more of the corporate records than he had specifically requested.

Plaintiff testified that he had been told by corporate employees of several incidents of alleged misconduct and mismanagement on the part of the corporate officers. He was particularly concerned that trade-outs and kickbacks had been employed to divert corporate profits for personal use by the officers of the corporation. A trade-out is the sale of advertising time in return for goods or services rather than cash. Plaintiff admitted that trade-outs are not uncommon in the broadcasting industry, but said he feared the possible use of products or services by employees without compensation to the corporation. He stated that he had heard from corporate employees that vacation trip trade-outs had been taken by corporate officers, their friends and relatives. When questioned about trade-outs in a private conversation at the 1974 annual shareholders' meeting, O'Connor admitted that he had taken trips paid for in the form of trade-outs.

Plaintiff also testified that inside sources had told him that regular thousand-dollar kickbacks had been paid to an advertising agent named Foristal. A kickback involves the payment of money to an advertising agent to induce the agent to buy additional advertising time. One reported incident involved the deposit of a television set in an airport locker and the subsequent delivery of the locker key to Foristal. In addition, plaintiff stated that he had been told by the station's former art director that C.E.T., Inc., of which defendant Shapiro is president, had not been charged for art work which had been done on its behalf.

Plaintiff testified that when he questioned Shapiro and O'Connor at the annual shareholders' meetings about these incidents he received inadequate responses. Plaintiff admitted making a statement at the 1974 annual shareholders' meeting accusing Shapiro and O'Connor of "greed." He followed this statement with two letters of similar substance to the shareholders. Plaintiff accused O'Connor of reneging on a promise to retain him as president of the corporation for a year following plaintiff's sale of stock to the defendants. He also admitted that he had written a letter to the F.C.C. in 1970, stating that he was preparing a petition asking that the station's license renewal be denied. Plaintiff wrote to the F.C.C. after he allegedly was denied access to the station's public file ...


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