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Monotronics Corp. v. Baylor





APPEAL from the Circuit Court of Du Page County; the Hon. S. BRUCE SKIDMORE, Judge, presiding.


Monotronics Corporation, a small closely held corporation and two principals of that corporation, John S. Archer and Howard L. Plante, brought suit in the circuit court of Du Page County against Gary D. Baylor, a third principal who had served as the corporation president. In their complaint for injunctive relief and monetary damages, plaintiffs alleged (1) that Baylor had breached his fiduciary duty to the corporation by engaging in a competing business; (2) that Baylor had used the services of Monotronics employees in the conduct of his competing business without reimbursing Monotronics; and, (3) that Baylor had misused and misappropriated corporate funds by paying himself unauthorized sales commissions and unearned overtime.

The case originally came before the circuit court on February 11, 1980, on a petition for a temporary restraining order to prevent Baylor from acting as president of Monotronics or from entering the premises of the corporation. The order was granted and further hearings set for February 21, 1980. The order was later dissolved and an injunction entered which mandated that Baylor be allowed to serve as president of Monotronics. On June 10, 1980, the parties entered into a stipulation concerning the issues to be determined by the court. These were:

"A. Whether or not plaintiffs were entitled to have returned the sums represented by two checks drawn by the defendant, Baylor, as sales commissions for the years [sic] 1978 in the amount of $5,074.18 and 1979 in the amount of $15,114.94 and other alleged sales commissions during 1978-1980.

B. A claim of plaintiffs that the defendant in violation of his fiduciary responsibility to the plaintiff corporation, personally sold technical equipment to hospitals and other users, and in doing so, utilized the services of employees of the plaintiff corporation in assembling, distributing, and servicing said equipment without compensating the plaintiff corporation therefore.

C. Claims of plaintiffs that Gary D. Baylor paid overtime to himself in excess of time expended on matters involving the plaintiff corporation and paid himself for time spent on his individual and private business.

D. A counter-claim by defendant Baylor for his salary for the period February 11, 1980, to February 21, 1980, if any such sum is found to be due, in the sum of $1,000.

E. A counter-claim of defendant Baylor for attorney's fees in defense of the temporary injunction and the dissolution of the temporary restraining order of February 11, 1980 which, it has been agreed, shall not exceed $2,000."

The parties further agreed that any awards to Monotronics were to be subject to a one-third reduction in recognition of the defendant's ownership interest.

Following a bench trial, the court denied plaintiffs' claims regarding the overtime and commission payments; found that defendant had in fact breached his fiduciary duty to Monotronics by engaging in a competing business and entered judgment against him in the amount of $4,019, his gross profit realized from the competing venture; granted defendant's claim for $1,000 back salary and denied defendant's claim for attorney fees. On appeal, the plaintiffs raise four issues. These are: (1) whether the trial court properly calculated the damages awarded to plaintiffs as a result of Baylor's breach; (2) whether as a matter of law, the finding that defendant had breached his fiduciary duty necessitated forfeiture of all compensation owing defendant for the period of the breach; (3) whether the trial court's findings concerning the commission and overtime checks were against the manifest weight of the evidence; and (4) whether the plaintiffs were entitled to punitive damages in this case.

We were aided in our consideration of this case by the trial court's extensive memorandum of decision and findings of fact. Our review of the record reveals that these findings were in all regards accurate and fair.


• 1 Plaintiffs contend that the trial court erred in entering a judgment which fixed damages for Baylor's breach of fiduciary duty in the amount of the gross profit Baylor realized as a result of his breach. The plaintiffs maintain that the Illinois Supreme Court's decision in Vendo Co. v. Stoner (1974), 58 Ill.2d 289, 321 N.E.2d 1, cert. denied (1975), 420 U.S. 975, 43 L.Ed.2d 655, 95 S.Ct. 1398, requires that damages for such a breach reflect the amount of profits lost to the corporation. In Vendo, an employer brought suit against a former officer/director alleging a violation of fiduciary duty by virtue of that officer's efforts to develop a machine which would be competitive with the older, less satisfactory model produced by the plaintiff corporation. On appeal, it was the plaintiff corporation's position that damages should be granted in the amount of profits which it would have realized had it owned the newer machine. Defendant maintained that plaintiffs could recover only those lost profits attributable to the fact that the products made by plaintiffs had to compete with the newer machine. The supreme court adopted the former standard, noting the existence of two "limiting factors." (58 Ill.2d 289, 310, 321 N.E.2d 1, 13.) First, the court stated that the loss of profits is not a matter ordinarily susceptible of highly detailed direct proof. Thus the court held, inferential proof should be admissible to establish the amount of damages. (See also Schatz v. Abbott Laboratories, Inc. (1972), 51 Ill.2d 143, 281 N.E.2d 323.) The second limiting factor noted by the court is that the assessment of damages by a trial court sitting without a jury will not be set aside unless it is manifestly erroneous. Vendo Co. v. Stoner (1974), 58 Ill.2d 289, 311, 321 N.E.2d 1, 13; Schatz v. Abbot Laboratories, Inc. (1972), 51 Ill.2d 143, 149, 281 N.E.2d 323, 326.

In this case we find that the ruling of the trial court was not manifestly erroneous, was supported by substantial evidence, and further, is in harmony with the ruling set forth in Vendo Co. v. Stoner (1974), 58 Ill.2d 289, 321 N.E.2d 1, cert. denied (1975), 420 U.S. 975, 43 L.Ed.2d 655, 95 S.Ct. 1398. Plaintiffs in their brief argue that the award made by the court should include, at minimum: (1) the amount of time defendant spent on his business while being paid by Monotronics; (2) the amount of time spent by Monotronics employees in defendant's business; ...

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