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C.g. Caster Co. v. Regan





APPEAL from the Circuit Court of Cook County; the Hon. ALBERT S. PORTER, Judge, presiding.


Rehearing denied October 2, 1980.

Robert J. Regan, the defendant and counterplaintiff, entered into an employment agreement with the C.G. Caster Company (Caster), the plaintiff and counterdefendant. The business of the Caster Company is the investigation and adjustment of insurance claims. The employment agreement contained a restrictive covenant which would go into effect upon Regan's separation from the company. The agreement also provided that either party could terminate the contract for cause and that upon termination for cause Regan was to receive certain monetary benefits. The employment agreement and a concurrent stock purchase agreement were executed on February 2, 1972. The employment agreement was amended on January 10, 1973. Regan was terminated on May 6, 1975. Upon termination Regan commenced his own insurance adjusting business with offices in Joliet, outside the area covered by the restrictive covenant, but he did accept business within the proscribed area.

Caster claims it is entitled to damages because Regan breached his fiduciary duties while an officer and director of the Caster Company and also because Regan breached the restrictive covenant provision. Regan replies that he breached no fiduciary duties while employed by Caster; that he was not bound by the restrictive covenant provision after his termination because Caster did not pay him under the termination clause; and that he is entitled to a judgment for the amounts due under the termination provisions. Caster responds that he does not owe Regan under the termination provisions because of Regan's breaches. Alternatively, Caster contends that if the court finds Regan is due termination benefits despite his breaches that Caster's failure to pay those monies at the time of Regan's termination was not a material breach because Caster offered Regan what Caster reasonably believed was due under the termination provision.

The trial court found for Regan on Caster's claim for damages for breach of the restrictive covenant and breach of fiduciary duties. The court also found for Regan on his claim for termination payments under the contract and entered judgment in the amount of $89,686.19. Caster appeals from both of these judgments.

Regan initiated the litigation between the parties by filing a declaratory judgment action on May 19, 1975, alleging that demands had been made upon Caster for his termination benefits to no avail. The complaint sought a money judgment and a declaration that the restrictive covenant was void. Six months later Caster filed this action seeking a temporary injunction to enjoin Regan's violation of the restrictive covenant and also seeking money damages. The allegations contained in Regan's complaint for declaratory judgment formed the basis of his counterclaim in the action for equitable relief. The trial court denied the temporary injunction. That order was reversed on appeal and remanded with directions to enter the requested relief in C.G. Caster Co. v. Regan (1976), 43 Ill. App.3d 663, 357 N.E.2d 162.

Under the terms of the employment agreement, Caster hired Regan as a director, officer and general manager for a salary of $20,000 per year plus 10% of the net profits for the preceding year multiplied by the years of service up to a maximum of 50% and other benefits. The restrictive covenant, contained in the amendment to the agreement, provided that for a period of two years following termination of the agreement Regan would not engage in the business of investigating and adjusting insurance claims in the area limited by a 38-mile radius from Caster's offices in downtown Chicago.

Caster contends that Regan breached his fiduciary duties by deliberately trying to get fired and that he planned to start his own business which was evidenced by the fact that he filed articles of incorporation for his new business a mere two days after his termination. The evidence on that issue included the testimony of Charles G. Caster, president of the Caster Company, that he discharged Regan because of Regan's refusal to follow established procedures; Regan's improper supervision of Caster employees and failure to make business development contacts which he was instructed to make; and for making other contacts which Caster thought were wasteful. Charles Caster testified that Regan also refused to comply with direct orders including a request that a written program of supervision be initiated. William Wilie, the Caster Company attorney, testified that following a meeting held four days after Regan's termination, Regan told him he was "doing things" to get fired and that he was prepared when the firing occurred. Regan denied making such a statement. The articles of incorporation for Regan's new business were introduced into evidence. They were filed with the Secretary of State in Springfield two days after Regan's termination by Caster. Regan testified that as soon as he received the termination notice he contacted his attorneys and advised them that his only recourse was to go into business for himself.

• 1 Concerning the alleged breach of fiduciary duties, the trial court found that Caster had not proved most of its allegations concerning the reasons for Regan's discharge, that Caster had "some cause" to terminate Regan but that there was no intentional scheme on Regan's part to bring about his own termination, that there was no showing that Regan had violated any fiduciary duties, and that Caster was simply "dissatisfied" with Regan's performance. We believe the trial court was correct.

The fiduciary obligations of a corporate officer or director have been described in the following terms:

"The duties that an officer or director owe to his corporation are so well established as to need no citation of authority to support them. They include the requirement of undivided, unselfish, and unqualified loyalty, of unceasing effort never to profit personally at corporate expense, of unbending disavowal of any opportunity which would permit the fiduciary's private interests to clash with those of his corporation." Patient Care Services, S.C. v. Segal (1975), 32 Ill. App.3d 1021, 1029, 337 N.E.2d 471, 478.

The testimony at trial did not demonstrate that Regan was disloyal or that he profited personally at Caster's expense during his years of employment with that company. Caster relies on Regan's filing of articles of incorporation a mere two days after his termination as evidence that he was setting up a competing business while still employed by Caster. The trial court made no express finding on this point but apparently rejected it in light of its conclusion that no breach of fiduciary duties was proved. We cannot agree with Caster's apparent position that it would be impossible for a person to draft and file articles of incorporation in a period of 48 hours, and we cannot say this fact demonstrates that Regan was guilty of a breach of his fiduciary duties. Additionally, it is clear from the trial court's findings that it did not find credible Wilie's testimony that Regan was deliberately attempting to get fired. As trier of fact, the court was entitled to so conclude.

Caster also asserts that it is entitled to damages resulting from Regan's breach of the restrictive covenant. Regan admits violating that covenant and the pertinent issue on appeal is not whether he breached but whether he was justified in so doing. Due to our subsequent disposition of this question in Regan's favor, it is not necessary to relate Caster's evidence on damages.

The counterclaim brought by Regan for amounts due under the termination clause relies on the amendment to the employment ...

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