Appeal from the Circuit Court of Cook County; the Hon. Joseph
M. Wosik, Judge, presiding.
JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:
The record brings before us an intrafamily struggle for ownership of a number of closely held corporate entities. This suit was brought by Riemore E. Nugent Collins (plaintiff), both individually and as beneficiary and trustee of various trusts, against a variety of defendants some of whom are also beneficiaries and trustees of trusts. In essence, however, plaintiff is suing the widow and heirs of her deceased half brother John A. Nugent. Plaintiff seeks rescission of a "realignment" of the family companies commenced in 1959 and a declaratory judgment regarding the ownership of the stock in the family companies. After hearing the case without a jury, the trial court entered judgment for plaintiff. Defendants appeal.
Plaintiff's father, William J. Nugent, was founder, president, and unchallenged director of the Nugent companies. These companies included Great Lakes Storage and Contracting Co., Maritime Services, Ltd., Midwest Machinery Movers, Inc., Mechanical Wallmaster, Inc., Nugent's-American Contractors, Inc., Nugent Services, Inc., and Superior Dock & Warehouse Co. It is not necessary to outline the various modifications in the structure of these companies.
William Nugent's wife was Myrtle Nugent. Plaintiff was the only child of that marriage. Myrtle had a son, John, by a previous marriage. After Myrtle's marriage to William, John lived in their home and, although never formally adopted by William, assumed the name of John or Jack Nugent. John Nugent was 20 years older than plaintiff. They were very close, and plaintiff was the flower girl at John's wedding. John became quite active in the operation of the Nugent companies. He was considered William's chief aide in managing the business.
On August 16, 1951, a trust was established by William Nugent. Defendants' counsel refers to this trust as a "certain" trust. Plaintiff's counsel refer to the trust as the "1951 trust." The trial court found in the judgment that this trust was also known as the "Riemore Trust," the "Riemore Nugent Trust" and by other names. We will use the designation, "1951 trust." John Nugent was named trustee of this trust. Plaintiff was the sole beneficiary. John eventually resigned as trustee on December 30, 1958. Myrtle became successor trustee until February 24, 1959. Then, by simultaneous instruments, Myrtle resigned and plaintiff appointed herself trustee. Therefore, after February 24, 1959, plaintiff was both beneficiary and trustee of the 1951 trust.
The corpus of the 1951 trust included the stock of Mechanical Wallmaster, Midwest Machinery Movers, and Maritime Services. By the terms of the trust, plaintiff was to receive income therefrom until her 30th birthday. Then the trust was to terminate and plaintiff would become outright owner of the companies involved.
In 1954, plaintiff enrolled at Northwestern University. After her first semester there, she became engaged to her hairdresser, Carl Rosauer. She withdrew from college and they were married in 1955. William Nugent did not approve of the marriage. However, the birth of plaintiff's son, William Rosauer, in 1956, seems to have changed William Nugent's attitude toward both Carl and the marriage. In November 1956, William Nugent established the William Rosauer trust which granted income for life to plaintiff and Myrtle with the remainder to plaintiff's children in equal shares. The stock of Nugent Services and Nugent's-American Contractors was transferred into this trust. In 1957, Carl Rosauer began to work for the Nugent companies and he became secretary-treasurer.
William Nugent died suddenly on May 12, 1958. His last will created a testimentary residual trust. Under this trust Myrtle received income for life. Plaintiff received the income after the death of her mother. John Nugent was left without any interest in the companies and was granted only a $15,000 bequest.
At the time of William Nugent's death, the number of Nugent companies had been reduced by merger of Midwest Machinery Movers and Mechanical Wallmaster into Maritime Services. The stock of Maritime Services continued to be owned by the 1951 trust. The William Rosauer trust owned the stock in Nugent's-American and Nugent Services. Superior Dock & Warehouse was owned outright by William Nugent and became part of his estate. Myrtle Nugent became the owner of Great Lakes Storage.
Upon the death of William Nugent, John Nugent became president of the Nugent companies though he had no proprietary interest in them. John was dissatisfied with the situation. Soon after the death of William Nugent, John approached both plaintiff and Myrtle. He insisted he receive half of the Nugent companies. He warned that if they did not accede to his request he would leave the companies and either work for a competitor or start his own business. Plaintiff and Myrtle agreed to John's demand. Plaintiff testified she did so reluctantly.
Thereafter, in 1959, a complex series of transactions was executed. Though the specifics of the plan are most complicated, and sometimes vague, John Nugent and plaintiff established the John A. Nugent trust and the Riemore E. Nugent trust, respectively. Although a concise statement of the entire realignment is impossible, it appears that the trusts were initiated through a loan from the Myrtle C. Nugent trust. The trusts would borrow cash from Great Lakes Storage, with the John A. Nugent trust borrowing additional money from the Myrtle Nugent trust. These trusts used the cash to purchase shares of the Nugent companies from the various trusts which owned them. Thereafter, the trusts would pay back the loans through their share of the profits generated by the Nugent companies.
An accountant testified that the realignment agreement and the subsequent buy-sell agreements created a "closed" system whereby the Nugent companies would really not have to generate a profit to keep the system operating and to continue the transfer of the ownership of Nugent companies' stock. However, the accountant admitted his calculations did not include family accounts through which both John Nugent's and plaintiff's families would regularly draw money from the companies.
The system was conceived by Edmund Spencer, who had been William Nugent's personal attorney, accountant and friend. Spencer also did considerable legal and tax work for the Nugent companies. The parties stipulated he had drafted the 1951 trust and other relevant trust documents. Before the system went into effect, Spencer discussed the plan with attorneys Fred Jonas, attorney for the William Nugent estate, and Fred Turner, attorney for John Nugent. Both Jonas and Turner died before this litigation commenced.
In the mid-1960s friction developed between the Nugent and Rosauer families. John tried to fire Carl. Carl hired an attorney, Frank Wright, who counseled Carl about his rights in the Nugent companies. The attempt to fire Carl was unsuccessful and there were discussions toward an amicable division of the family companies, but the discussions failed.
In 1974 plaintiff divorced her husband. He then left the Nugent companies. Plaintiff took a more active role in the operations of the business. She testified that she started coming to the companies' office in Chicago in an effort to learn the business. John Nugent died on January 11, 1979. Upon John's death plaintiff became president of the Nugent companies. When Myrtle was informed of the death of her son, she immediately changed her will and gave her entire estate to plaintiff. Myrtle Nugent died on February 14, 1979. This suit was filed on October 23, 1979.
Virtually all of the facts set forth above are accepted by both parties. However, the parties dispute additional facts and the interpretation thereof. Therefore, we must briefly outline some of the relevant testimony.
Plaintiff testified that during her "early years" she was handicapped by dyslexia, a learning difficulty which affected her reading ability. Plaintiff stated she had absolutely no knowledge of the terms or even of the existence of the 1951 trust, until the trust instrument was discovered inadvertently in 1979. She testified John never told her about it and never mentioned it to her. Plaintiff believed all the income she was receiving from the trust was actually from her father's estate.
"Right after" her father died, John told her she and their mother had received "everything" and he had received "nothing." John demanded half of the companies. He told her he would go into competition and "you won't have anything." About a week later, plaintiff discussed this demand with her mother, her husband, and Edmund Spencer. Her husband and Edmund Spencer advised her to accept John's demands. Spencer told her if she did not acquiesce John would go into business "and you will be sitting there with nothing." Plaintiff had no discussion with Spencer concerning "outside, non-company connected counsel" to advise her.
Plaintiff did not attend any meeting concerning the plan to reorganize the companies. Her husband went to these meetings. By letter dated August 8, 1958, Mr. Spencer sent copies of the proposed plan to plaintiff's husband. She testified this letter and the document were never shown to her. Similarly she stated she never saw a letter from Mr. Spencer dated September 25, 1958, addressed to her husband or an analysis of the Nugent companies which was enclosed. Plaintiff testified she did not understand the plan. However, she realized the various documents she was signing in great number were to effectuate the realignment as demanded by John. From time to time, her husband would bring home various checks and documents for her to sign. She would simply sign at the indicated places without reading the documents and without understanding their significance. Even between 1960 and 1962 she signed many checks tendered to her by her husband. Some of the checks had her initials affixed so as to indicate where she was to sign or endorse them.
Plaintiff testified that during May or June of 1979, she was in the Kinzie Street office. Joanne Gorczyza had been employed by the Nugent companies since July 1948. She supervised accounting operations at the Kinzie Street office since 1952. Gorczyza testified the company safe had a combination lock. In one corner of the safe was a locked compartment with three drawers. One of these drawers was also locked. She has kept possession of all of these keys. During May or June of 1979, she received a building violation notice. At that time plaintiff was in the office. She brought plaintiff a number of documents from the safe pertaining to the violation. She also brought plaintiff the original document containing the 1951 trust. Plaintiff testified that was the first time she had ever seen this trust document or had knowledge of its existence.
Brian Lambert testified he is a certified public accountant who was assigned in late 1978 to audit the Nugent companies and examine "some questionable expenses" in the course of preparing a financial statement. Plaintiff specifically asked him to examine a series of checks she signed at a particular time every year and to determine "what they meant."
When the witness began his audit, he was presented with "literally a garbage bag" full of checks and bank statements. During his analysis, the witness noted reference to the 1951 trust and the Myrtle C. Nugent for Riemore E. Nugent trust. He questioned plaintiff regarding those trusts. Plaintiff advised she had no knowledge of them. Plaintiff also stated she did not know the significance of various checks she endorsed to effectuate the reorganization of the Nugent companies and the repayment of various loans.
After the 1951 trust was uncovered in 1979, Lambert was able to determine that the 1951 trust and the Myrtle Nugent for Riemore Nugent trust were one and the same. Furthermore, only after perusing the 1951 trust instrument could the witness successfully determine how the Nugent companies were realigned and how the system, which effectuated the reorganization, operated. The witness stated he had never seen a system to repay loans as complex as this.
Jerome Hankin testified he was comptroller of the Nugent companies from 1962 through 1978. When he came to the companies they were on the verge of bankruptcy. Neither John nor plaintiff knew very much about the business. After 1966 the witness "basically ran the companies" himself "by default." The companies "really began to take off" in 1967. The witness believed he was the reason for the dramatic financial turnaround of the Nugent companies.
Hankin testified he was responsible for keeping the books for both the companies and the family trusts. He prepared the checks which effectuated the buy-sell agreements, and loan repayments. That job took no longer than a few hours a year. The witness also helped ...