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Leib v. Toulin





Appeal from the Circuit Court of Cook County; the Hon. Paul F. Elward, Judge, presiding.


This is an interlocutory appeal pursuant to Supreme Court Rule 307(a)(2) (87 Ill.2d. R. 307(a)(2)) from an order appointing a receiver to manage and liquidate a joint venture. Plaintiff also appeals from the refusal of the trial court to disqualify defendants' attorneys.

We reverse the order appointing a receiver and remand for further proceedings and determine we have no jurisdiction in an appeal pursuant to Rule 307(a)(2) to review the refusal to disqualify defendants' attorneys.

The somewhat involved background of the controversy follows:

On November 4, 1964, Marshall D. Leib (Leib), a licensed architect, contractor and real estate broker, entered into a joint venture agreement with the Bank of Lincolnwood (the Bank), a State banking association, to develop a parcel of real property located in Lincolnwood on which Leib already owned an option to purchase. At that time, the Bank was controlled by Richard Goodman. The joint venture thereby created provided for the construction of a banking facility which would also contain other rentable commercial space. On October 18, 1965, the 1964 joint venture agreement was amended to substitute a newly created corporation, defendant Toulin, Inc. (Toulin), for the Bank as Leib's joint venturer. At that time, all of the stock of Toulin was owned by the Bank.

Long-term financing for the joint venture was arranged through a 5 3/4% mortgage; the Bank is not the mortgagee. This mortgage remains in place, and has a present outstanding indebtedness of approximately $933,000. The final payment on the mortgage is due in 1992. The mortgage specifies that the entire indebtedness is accelerated "if the premises are placed under the control of any court" and contains the usual prohibitions against permitting mechanic's liens to attach or remain against the mortgaged premises. The mortgage does not expressly provide for acceleration if such lien attached although the paragraph permitting acceleration in case of nonpayment, bankruptcy, or actual or threatened demolition or placing of premises under control of court, concludes by stating "or if the mortgagor fails to perform fully any other act or agreement required of the mortgagor hereunder."

The joint venture agreement as amended provided that:

"The Joint Venturers shall receive no compensation for any services rendered to the Joint Venture except as mutually agreed upon, it being understood and agreed that such parties shall mutually agree to and make provision for the payment of compensation to either of the Joint Venturers rendering special services to the Joint Venture not being rendered by the other Joint Venturer, including without limiting the foregoing, management and similar services."

In May 1966, Leib and Toulin signed a memorandum regarding leasing commissions for Leib and resident manager fees for Toulin; a revised memorandum was signed on April 11, 1969. While under these written agreements the duties were split between the two parties, in fact, according to Leib's uncontradicted testimony, the parties orally agreed that Leib (through MDL Realty which he owned) assumed all management duties except for the maintenance of certain financial records and accounts which were maintained by an assistant cashier of the Bank, without charge to the joint venture.

From the beginning the Bank has rented 40% of the building. While the lease itself is not in the record, it appears from the original joint venture agreement that the lease was to be for 25 years with certain options to renew. The base rent was $3.15 per square foot but escalated rent based on increases in the cost of maintaining and operating the building and on increases in real estate taxes was also provided for.

In the late 1970's control of the Bank was transferred to defendant, GSC Enterprises, Inc. (GSC), which now owns 96% of the Bank stock. GSC was at one time a publicly traded corporation. Majority control of GSC was obtained by the Engle group (so-called because of the dominance of Clyde W. Engle in the investment group) in the mid-1970's, who made GSC private. (See generally Issen v. GSC Enterprises, Inc. (N.D. Ill. 1981), 508 F. Supp. 1278.) Clyde W. Engle is chairman of the board of GSC; Roger Weston is its president; William Weaver, of the law firm of Sachnoff, Weaver and Rubenstein, Ltd. (present counsel for all defendants herein), is its secretary; and Nathan Dardick of the firm of Dardick & Jadwin (additional counsel for the Bank herein) is its registered agent. Clyde W. Engle and Roger Weston are two of GSC's three directors. The officers of the Bank include Clyde W. Engle, chairman of the board, James Hamilton, president, and Roger Weston, vice-president.

The officers of Toulin include Roger Weston, president, and Nathan Dardick, secretary. Roger Weston and Clyde W. Engle are its two directors. Toulin has no assets other than its 50% interest in the joint venture. It has no employees. Its offices are at 625 North Michigan Avenue, Chicago, on the premises of GSC. It is not listed in the phone book, building directory, or on its own front door. It was not until after June 26, 1981, that it even had stationery printed. Although the joint venture agreement as amended in 1965 provided that "there will be no transfers, assignments (or any interest therein) except to Goodman, his spouse or descendants," sometime in late 1977, or early 1978 the Bank transferred all of its stock in Toulin to GSC. Toulin in its pleadings alleged that Leib, who was then a director of the bank, approved the transfer. This allegation was denied, however, and Toulin has pointed to no evidence in the record establishing such consent. The provision in the 1965 amendment prohibiting transfers replaced a provision in the original agreement giving Leib a right of first refusal to purchase Toulin's stock at whatever price the Bank's intended transferee was to pay.

For some years prior to the takeover by the Engle group, the accounting firm of Miller, Cooper & Co. had been both the Bank's auditors and the accountants for the joint venture. At about the same time that Miller, Cooper was replaced by the Bank the joint venture, with Toulin's full approval, engaged the services of the accounting firm of Weiss and Company to do its accounting work, including preparation of rental escalation calculations. While from 1973 to 1978 the Bank paid the rental escalation as calculated by Miller, Cooper, in 1979 Leib allegedly discovered that those calculations had understated the amount of escalated rent owed by the Bank and, on the other hand, the Bank allegedly determined that its accountant had overstated the escalation of operating costs. Thereafter the Bank refused to pay any of the escalated rents relating to operating costs although it has paid the real estate tax escalation.

Because of this dispute over the amount of rent owed by the Bank, Toulin attempted to invoke the buyout provisions of the joint venture agreement offering to sell its interests for $800,000. After five months of unsuccessful negotiations Leib filed the instant lawsuit. The original complaint filed on July 20, 1979, was in two counts. Count I seeks a declaration of rights relating to the alleged notice of termination, asking the court to determine that the notice was not an offer within the meaning of the 1965 amendment to the joint venture agreement, or alternatively, that an injunction issue precluding defendants from refusing to permit Leib to accept or reject the proposal contained in the notice. Count II sought a declaration of rights relating to the 1978 transfer of Toulin's stock from the Bank to GSC. Leib requested a declaration that he was entitled to purchase the Toulin stock upon payment of the same consideration paid by GSC. The defendants filed an appearance but did not file an answer until late 1981. The parties attempted in the interim to settle their differences but in January 1981 Leib refused to sign a tentative settlement agreement because, while he would have waived his claims with prejudice, Toulin's withdrawal of its notice of termination did not prevent it from sending a new notice of termination.

In April 1981, as found by the trial court, Toulin began to refuse to sign checks to Leib for his services. Toulin has made no contention that the service contracts were not still in effect at that point.

Since the Bank was still refusing to pay the rent allegedly due, Leib, on June 22, 1981, unilaterally served the Bank with notice of default and termination of its lease for failure to pay rent escalations due the joint venture according to Leib's calculations. Although Weston admitted at trial that it was to the interest of the joint venture to maximize its revenues, Toulin wrote Leib on June 26, 1981, that his action against the Bank was not authorized and that he was no longer authorized to act for the joint venture. On July 14, 1981, Leib filed a forcible detainer action against the Bank. This action was later dismissed, that court determining that Leib and Toulin must settle their differences before suit could be brought against the Bank.

Notwithstanding Toulin's alleged barring of Leib from their managerial and service positions on behalf of the joint venture in June 1981, those entities in fact continued to perform and contract for all management and related services for the building. Toulin, on the other hand, on October 1, 1981, unilaterally employed Romanek-Golub and Company to act as its agent to manage the building. Under this management agreement, the joint venture had no control over the operations of the building. While all expenses were to be paid by the joint venture, only Toulin could authorize or approve expenditures. Furthermore, although the joint venture agreement as amended provided that:

"The funds belonging to the Joint Venture or held by it for others shall be kept in such bank or banks as may be designated by the Joint Venturers and prior to such designation in the Bank, and the same shall be subject to withdrawals upon checks for drafts drawn in the name of the Joint Venture by the Joint Venturers jointly, or by either of such parties or such other person who may be designated by the Joint Venturers jointly."

Romanek-Golub was directed to deposit the revenues of the joint venture into a bank account selected only by Toulin and not by the joint venturers as required by the contract. Furthermore disbursements from that account were to be made at Toulin's direction only although the joint venture agreement gave Leib equal authority to make disbursements with Toulin, and, as apparently found by the trial court, required any other person making withdrawals to be designated by both joint venturers. The contract also provided that only Toulin could approve leases.

On October 1, 1981, Romanek-Golub sent computerized rental statements to the tenants in the building directing that they send their rent to Romanek-Golub at 625 North Michigan Avenue. Also on or about October 2, 1981, Romanek-Golub sent correspondence to the tenants in the building announcing that it was taking over "responsibility for all property related functions including day-to-day maintenance and administration," and asking that rental payments be forwarded to Bernice Cantor at the Bank of Lincolnwood. A bank account was opened in the name of Romanek-Golub, in which ...

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