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City of Chicago v. Airline Canteen Serv.





APPEAL from the Circuit Court of Cook County; the Hon. NATHAN COHEN, Judge, presiding.


Rehearing denied October 11, 1978.

In case number 77-1923, the defendants bring this interlocutory appeal from various orders of the circuit court dated December 20, 1977, including those: granting a preliminary injunction to the City of Chicago, enjoining defendants, Airline Canteen Service, Inc. ("Airline Canteen" or "Canteen") and its president, Walter J. Henely, Jr., from destroying or removing any financial records from their offices at Chicago-O'Hare International Airport; denying defendants' motions for a change of venue; and denying defendants' motion to dissolve a temporary restraining order ("TRO") entered on November 29, 1977. Case number 78-686 is an interlocutory appeal from an order of the trial court on April 18, 1978, denying Airline Canteen's motion for a preliminary injunction to prohibit the City from carrying out threats to forcibly evict it from its leased premises at O'Hare.

In both appeals defendants contend that the trial court abused its discretion in issuing each of the orders appealed from.

The dispute between these parties arises out of a contract entered into between the City of Chicago and Airline Canteen on February 24, 1972. Under that agreement, the City agreed to "demise and lease" certain specified spaces within the three O'Hare Airport terminal buildings to Airline Canteen for the operation of a "newsstand" business for a period of 10 years, ending on February 23, 1982.

Canteen was authorized to sell newspapers, magazines, periodicals, and various other items. Canteen was required to supply "all leasehold improvements [outer enclosures, walls, doors, etc.] * * * within or defining the space * * *." Article VIII ("RENTAL") of the agreement, around which much of this dispute centers, provides in relevant part:

"A. MINIMUM AND PERCENTAGE TO BE PAID. During the term of this Agreement, Lessee agrees to pay Lessor a minimum rental of Seventy-Five Thousand (75,000.00) Dollars per year for each year of this Agreement or to pay a sum equal to the percentage of the gross receipts derived by Lessee as follows, whichever is greater:

(1) 15% on gift, toy, and jewelry items

(2) 12% on all other items.

B. SCHEDULE OF PAYMENTS. The Lessee shall pay each month in advance to the City Comptroller of the City of Chicago (hereinafter called `City Comptroller') the sum equal to 1/12 of the minimum annual rental noted above.

Lessee, within fifteen (15) days of the end of each calendar month, shall pay to the City Comptroller a sum equal to the hereinabove described percentages of gross receipts for said calendar month less the amount prepaid as minimum rent for that month.

Annual adjustments for any rentals payable in excess of amount prepaid as required above shall be made within thirty (30) days after the close of each calendar year. Lessee shall submit within the same time an audit of the gross receipts for that year, prepared by a Certified Public Accountant."

Article VIII of the agreement further required Airline Canteen to maintain true and accurate records at its offices at O'Hare:

"Such Books, ledgers, journals, accounts and records shall be available for inspection and examination by the Commissioner of Aviation and the Comptroller of the City of Chicago, or their duly authorized representatives, at reasonable times during business hours, and to make copies and excerpts therefrom as may be necessary to make a full, proper and complete audit of all business transacted by Concessionaire in connection with its operation hereunder. At the expiration of each year of the term of this Agreement, Concessionaire shall furnish to the City a Certified copy of a statement prepared by a Certified Public Accountant covering the newsstand business transacted by Concessionaire at the Airport and showing the gross revenue derived by Concessionaire from the operation of its business hereunder. Concessionaire shall, upon request, furnish such other and further financial or statistical reports as the City may, from time to time, require."

Article XXII of the agreement ("DEFAULT") provided for cancellation of the lease by the City upon certain conditions:

"These entire agreements are made upon this condition, that * * * if said Lessee shall fail or neglect to do or perform or observe any of the covenants contained herein on its part to be kept and performed and such failure or neglect shall continue for a period of not less than thirty (30) days after the Commissioner of Aviation has notified Lessee in writing of Lessee's default hereunder and Lessee has failed to correct such defaults within said thirty (30) days (such thirty day notification period shall not be construed to apply to any default in payment of rent) * * * then in * * * said cases or event, the Lessor, or the Commissioner of Aviation, lawfully may, at its option, immediately or any time thereafter, without demand or notice, enter into, and upon said leased premises or any part thereof and in the name of the whole, and repossess the same of its former estate, and expel said Lessee and those claiming by, through, or under it, and remove its effects, if any, forcibly if necessary, without being deemed guilty of trespass and without prejudice to any remedy which otherwise might be used, for * * * preceding breach of covenant. On the re-entry aforesaid, this lease shall terminate."

In a letter dated November 5, 1977, the City notified Airline Canteen of an alleged violation of the agreement. In that letter, the City informed Airline Canteen that it had failed to supply a "certified copy of a statement prepared by a Certified Public Accountant concerning the newsstand business" for all years but 1974 and 1976. Even with respect to those years, the City maintained that Canteen was in violation of the agreement because the statements submitted were not certified. The letter stated:

"Because of the above failures and recent questions that have arisen in relation to the newsstand operation, the City of Chicago has determined that the interests of the City will be best served by requesting new proposals for the right to operate the newspaper concession at Chicago O'Hare International Airport and terminating your present contract.

This letter constitutes official notification of the City of Chicago's termination of your newspaper concession contract. You will have thirty (30) days from receipt of this letter to vacate, quit, and deliver the demised premises under the lease to the City of Chicago."

On November 29, 1977, the City filed a complaint for an accounting and other equitable relief alleging that Canteen had under-reported the gross amount of its sales in the International Terminal building, and had routinely and fraudulently deposited a portion of the gross cash receipts from the International Terminal in a bank account different from that in which it deposited the remainder. It accused defendant Henely of knowledge of the fraud and of failure to prevent it. The complaint prayed for an accounting of all unpaid rental fees due under the agreement and for other equitable relief.

Although the record on appeal does not reflect a copy of the order, the parties are in agreement that on November 29, 1977, a temporary restraining order was granted in favor of the City by Judge Donald O'Brien, enjoining defendants from removing or destroying any of its financial records from its O'Hare Airport offices. Defendants moved to dissolve the temporary restraining order on December 2, 1977. Defendants also filed a counterclaim for an injunction. Thereafter, on motion of one or both of the defendants, the case was transferred to Judge Nathan M. Cohen.

On December 9, 1977, the date on which the TRO was to have expired, the City filed its first amended complaint and a motion for a preliminary injunction seeking the same relief as that afforded by the TRO. The TRO was extended for an additional 10-day period to December 19, 1977.

The City's verified petition for a preliminary injunction pursuant to section 3-1 of the Injunction Act (Ill. Rev. Stat. 1977, ch. 69, par. 3-1) was based upon count III of its verified first amended complaint, which was expressly incorporated therein by reference. Count III of the first amended complaint included allegations that monitoring of the Canteen cash registers in the International Terminal by the City's auditors revealed that Canteen's gross cash receipts for the first 15 days of November 1977, exceeded the amount reported by Canteen for the entire month of November in 1976; that Canteen had routinely deposited its cash receipts from the International Terminal from the first to the 15th of the month in a bank account different from that in which it deposited the remainder of such funds; that Canteen had failed to report to the City as required by the contract, some portion of its gross cash receipts; that the gross retail value (excluding sales tax) of the merchandise sold by Canteen in fiscal year June 1, 1976, through May 31, 1977, was approximately $3.6 million, whereas the amount of sales actually reported by Canteen was only $2.9 million; that based on the records currently available, the City's auditors were unable to determine the amount of rental fees due and owing to the City under its contract with Canteen; that the City's auditors had requested the production of certain documents necessary to conduct a review; that on November 10, 1977, an automobile said to contain those records was reported stolen; that on November 28, 1977, the automobile was recovered, but that the records were not; that due to the circumstances surrounding the theft of the car, the City had reason to believe that other records relevant to the audit would also become unavailable; that without the missing records, and access to remaining records, the accounting review would be substantially impeded, resulting in irreparable harm to the City. The City's motion prayed that the defendants, their agents, and employees be enjoined from destroying or removing from its offices at O'Hare any business records of Canteen compiled during the ordinary course of its business; that access to the records be limited to duly authorized officials or employees of Canteen and representatives of the City; and that the City be given immediate access to said records.

On December 16, 1977, defendants filed separate motions to strike and dismiss the City's first amended complaint and motion for preliminary injunction. At a hearing on December 19, 1977, defendant Henely moved for a change of venue generally alleging the prejudice of Judge Cohen. After the court denied this motion, it denied a similar motion by Canteen which alleged specifically the prejudice of Judge Cohen. The court then proceeded to hear argument on the various pending motions.

On December 20, 1977, the court entered orders: denying defendants' motion to dissolve the TRO, striking count II of the City's first amended complaint (allowing the City until January 3, 1978, to file a second amended complaint), denying defendants' motion to strike and dismiss the City's motion for preliminary injunction, and granting the City's motion for preliminary injunction.

Defendants' notice of interlocutory appeal pursuant to Supreme Court Rule 307 (Ill. Rev. Stat. 1977, ch. 110A, par. 307) was filed that same day. On January 3, 1978, the City filed its second amended complaint. Defendants answered, denying the material ...

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