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Met. San. Dist. Ex Rel. O'keeffe v. Ingram Corp.





Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. James H. Felt, Judge, presiding.


Rehearing denied October 19, 1981.

On April 18, 1979, the Cook County circuit court awarded petitioner A. Denison Weaver "the sum of $900,000.00 as and for attorney's fees" and "$16,842.30 for the expenses incurred" on behalf of "the taxpayer William F. O'Keeffe," and awarded petitioner George J. Cullen "$60,000.00 for services rendered on behalf of the taxpayer as co-counsel." Taxpayer O'Keeffe had instituted a derivative suit on behalf of the Metropolitan Sanitary District of Greater Chicago (MSD) against the Ingram Corporation and various related persons and entities (Ingram), in December 1975. The suit was brought under sections 11.18 and 11.22 of the Purchasing Act for the Metropolitan Sanitary District of Greater Chicago (the Purchasing Act or the Act) (Ill. Rev. Stat. 1971, ch. 42, pars. 331.18, 331.22). This suit and related actions filed by the MSD in Federal and State courts> were settled. On May 17, 1979, Aram A. Hartunian, pro se, attempted to appeal the attorney fee award derivatively on behalf of the MSD. As part of the settlement, the MSD had agreed not to appeal the fee award, and it refused Hartunian's demand to appeal. The appellate court held that Hartunian lacked standing to appeal (85 Ill. App.3d 859), and we granted leave to appeal. We reverse.

A contract to haul sludge, negotiated by the purchasing agent of the MSD on a noncompetitive-bid basis, was awarded to Ingram on May 12, 1971. In 1974, a Federal grand jury began investigating the circumstances under which the contract was awarded. The MSD's records were subpoenaed. Trustees, officers, and employees of the MSD appeared before the grand jury and testified. In late 1975, William F. O'Keeffe, a lawyer and MSD taxpayer, heard "[r]umors on the street" to the effect that the contract was let illegally, and published reports of the grand jury investigation appeared soon thereafter. He retained counsel and filed a complaint for declaratory judgment in the United States District Court for the Northern District of Illinois and in the circuit court of Cook County. The gravamen of the complaint was that the contract to haul sludge had been awarded in violation of section 11.18 of the Purchasing Act, which read, in pertinent part:

"All officers and employees [of the MSD] are expressly prohibited from accepting, directly or indirectly, from any person, association or corporation to which any purchase order, lease or contract may be awarded, any rebate, gift, money, or anything of value." (Ill. Rev. Stat. 1971, ch. 42, par. 331.18.)

Section 11.22 of the Act provides that "[a]ny purchase order or contract executed in violation of this Act shall be null and void." (Ill. Rev. Stat. 1971, ch. 42, par. 331.22.) The complaint averred that plaintiff was an MSD taxpayer and sought the return of all money Ingram had been paid pursuant to the contract. That sum was approximately $24 million.

The complaint was defective in several respects. The MSD was not made a party defendant. The complaint did not aver that the MSD was unwilling to sue Ingram for this violation. Nor did the complaint aver that O'Keeffe had asked the MSD to sue or why O'Keeffe had not asked the MSD to sue. Copies of the complaint, however, were sent to the MSD on December 29, 1975.

Proceedings were begun by the Illinois Commerce Commission on December 30, 1975, related to Ingram's alleged tariff overcharges on the same contract, and the MSD hired special counsel, Aram A. Hartunian, in January 1976, to secure an adjustment on the tariff charged by Ingram. The MSD, represented by Hartunian, filed suit in March 1976 in the United States District Court for the Northern District of Illinois (Metropolitan Sanitary District of Greater Chicago v. Ingram Corp. et al., No. 76 C 1009). The gist of this action was that Ingram overcharged the MSD, breaching the contract.

The grand jury, in that same month, returned a 39-count, 66-page indictment against, variously, the president and the chairman of the board of Ingram Corporation, E. Bronson Ingram and Frederic B. Ingram, respectively, MSD trustees Valentine J. Janicki and Chester P. Majewski, the general superintendent of the MSD, Bart T. Lynam, and other individuals, the names and positions of whom are irrelevant. If convictions were had on the indictments, a violation of section 11.18 would have been established.

Ingram had originally assigned the contract to an Illinois Ingram subsidiary corporation. The assertion of Federal jurisdiction, accordingly, was problematic, and O'Keeffe nonsuited the Federal case on August 3, 1976. Repeated difficulties in obtaining jurisdiction over the Ingram individual defendants and obtaining discovery against them occupied O'Keeffe for the rest of the year.

O'Keeffe and the MSD had an arrangement whereby O'Keeffe would keep the MSD apprised of the status of his suit. One such letter was sent to the MSD on March 5, 1976. On January 17, 1977, however, the MSD, in responding to another O'Keeffe letter, advised him that it regarded "the O'Keeffe suit as being neither authorized by us nor necessary at this time. The [MSD] has this situation under review and will, at the appropriate time, enforce any rights which we may have under [the Purchasing Act] * * *." The letter continued, however, stating that the MSD intended "to be cooperative in responding to any request by you [O'Keeffe] for assistance. We hope that you will keep us informed of the status of the case. * * *" O'Keeffe's counsel argued in a responsive letter that the MSD's position was inconsistent with his position, for the MSD's actions in Federal court were predicated on the validity of the contract, and noted that he never requested authorization for the suit in part because the chief administrative officer and chairman of the judiciary committee of the MSD were under indictment.

Hartunian, on March 1, 1977, filed a motion to quash deposition subpoenaes directed to the MSD's attorney by O'Keeffe and Ingram. The deposition was ordered to be taken, however, and two days after it was taken, Hartunian resigned as the MSD's special counsel, citing adverse media publicity. A new firm, Jerome H. Torshen, Ltd., was engaged one week later.

For the next several months, problems of discovery occupied the parties. After the Ingram individuals, one MSD trustee, and others not relevant here, were convicted in the Federal criminal case in November 1977, the MSD amended its Federal-court complaint to include a count based on Ingram's alleged Purchasing Act violations. A separate suit in the same cause of action was filed by the MSD in circuit court (Metropolitan Sanitary District of Greater Chicago v. Ingram Corp. et al., No. 77 L 24930).

On January 3, 1978, the MSD moved to appear as amicus curiae in the O'Keeffe suit, for the purpose of suggesting O'Keeffe's lack of standing. This motion was denied. On January 20, 1978, the MSD's motion to intervene in the O'Keeffe suit pursuant to section 26.1 of the Civil Practice Act (Ill. Rev. Stat. 1975, ch. 110, par. 26.1) was granted.

In February 1978 the Federal district court denied O'Keeffe's petition to intervene under Federal Rule 24 (Fed. R. Civ. P. 24). The court found that the MSD's suit was being "vigorously prosecuted." This ruling was affirmed from the bench by the Seventh Circuit Court of Appeals.

In March 1978 O'Keeffe amended his complaint, setting forth reasons why he could maintain his action despite his failure to demand that the MSD sue Ingram. On May 12, 1978, the trial court, after an extensive hearing on the issue of O'Keeffe's standing, ruled that a demand upon the MSD to sue would have been useless, and held that O'Keeffe had standing. The MSD unsuccessfully sought review of this ruling in the appellate court and in this court.

On May 17, 1978, the MSD filed a motion for summary judgment in Federal court on the Purchasing Act count of its complaint. In October 1978 O'Keeffe also moved for summary judgment in the circuit court. In March 1979 O'Keeffe was given leave to withdraw this motion and the case was set for trial in May. On April 4, 1979, however, O'Keeffe petitioned the court to approve a settlement. In pertinent part this verified petition stated:

"That during the pendency of this litigation and at the suggestion of this Honorable Court, the parties hereto engaged in negotiations for the purpose of determining whether a common ground existed upon which a settlement of all disputes between MSD and Ingram relating to MSD's sludge removal program could be resolved. That pursuant to said negotiations, on March 30, 1979, an agreement was reached to settle this and all other litigation between the MSD and Ingram, subject to the approval of this Court, on the terms and conditions as stated in the form of Settlement Agreement attached hereto whereby:

(a) Ingram will pay to MSD the sum of $8,250,000. In addition, Ingram will relinquish any claims which it might have to recover any sum of money from MSD, said claims ...

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