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H. Vincent Allen & Assoc., Inc. v. Weis

OPINION FILED JULY 31, 1978.

H. VINCENT ALLEN & ASSOCIATES, INC., PLAINTIFF-APPELLEE,

v.

ROBERT M. WEIS ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Cook County; the Hon. GEORGE J. SCHALLER, Judge, presiding.

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

H. Vincent Allen & Associates, Inc. (plaintiff), a commercial art studio in Chicago, filed a complaint against Robert M. Weis (defendant), a former salesman and vice president of the plaintiff, and Art Associates, Ltd., a commercial art company established by defendant after leaving the plaintiff's employ. Count I sought to recover $7000 allegedly overdrawn by defendant while employed by plaintiff. Count II sought damages from defendant and his company, Art Associates, Ltd., for losses allegedly incurred by defendant's breach of fiduciary duty and solicitation of valuable accounts and employees belonging to the plaintiff. A jury returned a verdict awarding plaintiff the $7000 overdraft and $30,000 for the claimed losses. Defendant appeals.

Defendant contends the trial court erred in refusing to submit one of defendant's tendered jury instructions; the plaintiff was permitted to file a late jury demand without proper showing of good cause; the verdicts were contrary to the manifest weight of the evidence; and the evidence was insufficient to substantiate the $30,000 awarded on count II. The plaintiff contends there was no trial error with respect to the tendered jury instruction or the granting of the late jury demand; the verdicts were not contrary to the manifest weight of the evidence; and the $30,000 award is supported by sufficient evidence.

Ted Link, a commercial artist and art director of a large manufacturing company, testified as a witness for plaintiff that he had used the services of plaintiff for many years. In the spring of 1968 he was approached by the defendant while dining at a restaurant. The defendant said he was leaving plaintiff and asked if there was any possibility Link could provide him with some or all of the advertising work of the manufacturing company with which Link was associated.

John Allen testified that he was the son of H. Vincent Allen, founder and president of the plaintiff. The witness was working as a salesman for plaintiff in the spring of 1968. After a conversation with Joseph Peota, one of the art directors for plaintiff, he consulted with his father in Arizona and the decision was made to terminate defendant's association with the plaintiff. A letter prepared by the plaintiff's attorneys, dated May 31, 1968, was sent to defendant by registered mail informing him that his services were terminated as of May 31, 1968. The witness also testified that approximately one week later he encountered defendant in a tavern. He recalled the defendant saying, "I'm out of the studio [plaintiff], now; and * * * I will take the key personnel or the people I need and the business."

The defendant testified as an adverse witness. (Ill. Rev. Stat. 1977, ch. 110, par. 60.) He first came to work for plaintiff during 1955 as a salesman. On February 1, 1962, the parties entered into a written employment contract. Defendant was appointed executive vice president of the plaintiff company. It was his duty to "manage all operations and business affairs" of the plaintiff. Defendant's compensation was fixed at 25 percent of the annual gross profit of plaintiff. The contract defined the term "gross profit."

On October 21, 1963, the parties entered into an additional written contract. They modified the previous agreement of February 1, 1962, to provide that defendant's compensation was to be based upon the net profit of plaintiff. His compensation was to be 40 percent of plaintiff's net profit with additional compensation for any greater net profits, all as provided in the agreement. This agreement also provided for a weekly draw by defendant of $615 per week which was to be against his earnings as calculated on the net profit.

On December 11, 1967, the parties entered into a memorandum amendatory agreement which provided that any debit balance due from defendant to plaintiff corporation as of August 31, 1967, would not be considered in any future salary computation. The agreement provided for a base salary to defendant of $26,000 per year to apply against commissions with the stipulation that defendant was to receive whichever of these items was higher. It is undisputed that prior to the amendment of December 11, 1967, defendant was overdrawn to the extent of $7000 which constituted a debit against him.

The defendant also testified that in the last years of his association with the plaintiff he earned $26,000 per year. On the contrary, his wage and tax statement for 1967, his last year, revealed gross income of $31,980. The defendant further stated he began his own art business 2 or 3 months after leaving the plaintiff. However, the sales journals for defendant's company covering 1967 and 1968 received in evidence listed invoices billing several of the plaintiff's accounts for services apparently completed during the week of June 13, 1968. These journals also show that several of the customers of defendant were formerly accounts of the plaintiff. The defendant acknowledged that several employees of the plaintiff became associated with his company after they had left plaintiff.

H. Vincent Allen, founder and president of plaintiff, listed 13 artists and salesmen who had been employed by plaintiff for many years and left between 1968 and 1970 to become associated with defendant's company. The witness also testified it was necessary for plaintiff company to terminate the services of some of these employees, but this had been caused only by lost profits and inability to maintain payroll. According to Mr. Allen the gross amount of plaintiff's business for 1963 was $550,541. This figure was substantially duplicated from 1964 through 1967. Between 1969 and 1971 the gross profits dropped from $405,000 to $146,000. He attributed this decline directly to the loss of personnel essential to the marketing of specialized art work for the commercial projects produced by the plaintiff. The witness also stated the $7000 paid to plaintiff represented an overdraft by defendant prior to the December 11, 1967, amendment to the agreement and that this debt was not cancelled pursuant to the amendment. Allen's figures concerning business losses were corroborated by plaintiff's accountant.

Several artists who were formerly associated with the plaintiff for many years, and are now either partners or employees of defendant's art company, testified in defendant's behalf. These witnesses stated they left plaintiff's employment or were terminated between 1968 and 1970 due to declining profits and only thereafter were they employed by defendant. The witnesses stated that H. Vincent Allen had a drinking problem. They denied discussing association with defendant prior to his termination by plaintiff and prior to their own departure from employment of plaintiff. Tak Hirai, a scratch board artist employed by plaintiff since 1949, stated he left plaintiff in June of 1968 to begin a free-lance business. Shortly thereafter defendant approached him in the hopes of obtaining his services. On cross-examination the witness acknowledged that defendant's company, of which he is a partner, began business June 13, 1968, and took jobs from several customers formerly serviced by plaintiff. Joseph Peota, the art director for plaintiff, denied he had ever discussed defendant's plans to leave the studio with John Allen.

On direct examination the defendant referred again to his gross earnings for 1967 and testified he earned approximately $31,000 for the calendar year ending December 1967. The witness explained he was terminated because of his "investigation into the lack of making net profits." The defendant recalled meeting John Allen in a tavern but testified he only stated at that time, "I can't understand getting this letter from your father." The defendant denied approaching any employees of plaintiff prior to his own termination or prior to their departure from the employment of plaintiff. The defendant stated he was overdrawn $7000 against his commissions.

• 1-4 We will first consider defendant's contention that the verdicts are contrary to the manifest weight of the evidence. An imposing body of legal authority has recognized that officers or directors of a corporation owe a fiduciary duty toward it and "`* * * are subject to the general rule in regard to trusts and trustees, that they cannot, in their dealings with the business or property of the trust, use their relation to it for their own personal gain. * * *'" (Shlensky v. South Parkway Building Corp. (1960), 19 Ill.2d 268, 278, 166 N.E.2d 793, quoting from Dixmoor Golf Club, Inc. v. Evans (1927), 325 Ill. 612, 616, 156 N.E. 785.) Our supreme court has found an important consideration in the determination of breach of fiduciary duty to be whether the directors and officers were "actively exploiting" their positions within the corporation for their own personal benefit. (Kerrigan v. Unity Savings Association (1974), 58 Ill.2d 20, 29, 317 N.E.2d 39, cited in Vendo Co. v. Stoner (1974), 58 Ill.2d 289, 304-05, 321 N.E.2d 1, cert. denied (1975), 420 U.S. 975, 43 L.Ed.2d 655, 95 S.Ct. 1398.) An inquiry into a claim of breach of a fiduciary relationship must also consider that activities of the directors or officers may "hinder or defeat" the ability of the corporation to continue or develop the business for which it was created. (Patient Care Services, S.C. v. Segal (1975), 32 Ill. App.3d 1021, 1029-30, 337 N.E.2d 471, appeal denied (1976), 61 Ill.2d 602; see also Paulman v. Kritzer (1966), 74 Ill. App.2d 284, 289-292, 219 N.E.2d 541, aff'd (1967), 38 Ill.2d 101, 230 N.E.2d 262.) The burden of proof is upon the fiduciaries to establish the fairness of those transactions in which they have acquired corporate assets. Winger v. Chicago City Bank & Trust Co. (1946), 394 Ill. 94, 110, 67 N.E.2d 265; Gans v. Marlowe Pen Co. (1969), 112 Ill. App.2d 52, 60, 250 N.E.2d 811, appeal denied (1969), 42 Ill.2d 583.

In our opinion, the testimony of Ted Link supports the plaintiff's claim that defendant was actively soliciting plaintiff's business prior to his departure from plaintiff's employment. John Allen's version of the tavern conversation between himself and defendant further tends to prove that defendant actively sought key personnel and valuable accounts of plaintiff. Defendant's testimony concerning the substance of the tavern conversation as well as his denial of employee solicitation and the other testimony he adduced, raise issues of credibility for resolution by the jury. It must be remembered, as above shown, that defendant was impeached on several points, notably the actual starting date of his new business and his first statement of gross income for 1967. The evidence also revealed a quick decline in plaintiff's profits following defendant's departure, a significant number of plaintiff's ...


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