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Fields v. Sax





Appeal from the Circuit Court of Cook County; the Hon. George A. Higgins, Judge, presiding.


This appeal arises from the granting of defendants' motion for judgment at the close of plaintiffs' case. (Ill. Rev. Stat. 1981, ch. 110, par. 2-1110.) The cause of action, a derivative suit by shareholders of Exchange National Bank, was originally filed in 1970. The defendants, George Sax, Samuel Sax, Samuel Bergman, Melvin Lippe and Walter Hepner, were directors of the nominal defendant, Exchange National Bank. George Sax was the chairman of the board of directors until his death in 1974, and Samuel Sax was the president of the bank. Jerome Sax was the nominal plaintiff in the original action, which also included several personal claims. These latter claims are not part of this appeal.

In Sax v. Sax (1977), 48 Ill. App.3d 431, 363 N.E.2d 16, this court upheld, on equity grounds, a trial court determination that Jerome Sax was an improper plaintiff to prosecute the derivative action. The trial court's order was modified, however, to require notice be given to the other shareholders of record so that they be given the opportunity to carry on the litigation. After successfully intervening in this cause, plaintiffs filed their amended derivative action. The basic claims made in the amended action remained the same: (see 48 Ill. App.3d 431, 432-33)

1. Defendant paid excess fees, salaries and expenses to George Sax from 1969 to his death in 1974 when he was too ill due to heart disease to perform his duties.

2. Bank funds were misapplied in settlement of the claims of the receivers of American Allied Insurance Company, Bell Mutual Casualty Company and Bell Casualty Company. These claims arose out of certain loan transactions between the bank and Philip Kitzer, Jr. (Kitzer transactions).

3. An improper and illegal loan was made to George Liederman. This loan was allegedly increased periodically without the collection of interest or principal.

4. A loan was made to Marvin Hornstein, a nephew of George Sax, which was illegal, excessive and improperly made with the knowledge that repayment could not be made.

Plaintiffs presented their case in chief over 13 days of trial. The evidence will be discussed as it related to the various issues on appeal. The allegations relating to the Hornstein loan were withdrawn.

Upon defendants' motion, and after considering arguments from all the parties, the trial court entered judgment for defendants on each claim. The trial court found that George Sax performed important services to the bank as chairman of the board despite suffering from "periods of acute illness" and that no funds were improperly paid to him. It was further determined that plaintiffs had not proved that defendants violated the National Bank Act (12 U.S.C. § 21 et seq. (1976)) or the bank's lending procedure with regard to the alleged illegal loans. The trial court also found there was no proof that any defendants participated in the Kitzer transactions. The settlement of the litigation arising out of those transactions was determined to be "a prudent exercise of directional discretion and judgment." For similar reasons, the Liederman loan, of which approximately 86% of the balance was collected, was found to have been properly settled.

Plaintiffs appeal contending: (1) the trial court's judgment for defendants was improper; (2) defendants have the burden of proving they did not act in their own self-interest during the alleged transactions; and (3) the evidence at trial showed funds were misappropriated in paying George Sax for services that were never performed and in settling fraudulent loan transactions. We affirm.

The controlling issue is whether judgment in defendants' favor at the close of plaintiffs' case in chief was correct. When ruling on a motion under section 2-1110 of the Code of Civil Procedure (Ill. Rev. Stat. 1983, ch. 110, par. 2-1110), the trial court must weigh all the evidence, including any favorable to the defendant, pass on the credibility of witnesses, draw reasonable inferences from the testimony, and generally consider the weight and quality of the evidence. (Kokinis v. Kotrich (1980), 81 Ill.2d 151, 407 N.E.2d 43; Stender v. National Boulevard Bank (1983), 114 Ill. App.3d 1041, 449 N.E.2d 873, appeal denied (1983), 96 Ill.2d 551.) The trial court should apply a two-step analysis when ruling on the motion, determining first whether a prima facie case has been presented, and if so, weighing the evidence to determine if a prima facie case still exists. (Kokinis v. Kotrich; Chicago Title & Trust Co. v. Ceco Corp (1980), 92 Ill. App.3d 58, 415 N.E.2d 668.) The trial court's decision will not be reversed unless it is contrary to the manifest weight of the evidence. Kokinis v. Kotrich.

Plaintiffs state that defendants, as directors, bear the burden of proof as fiduciaries. (Briggs v. Spaulding (1891), 141 U.S. 132, 35 L.Ed. 662, 11 S.Ct. 924; Shlensky v. South Parkway Building Corp. (1960), 19 Ill.2d 268, 166 N.E.2d 793.) It is contended that under this burden defendants must prove the fairness of each and every act beyond a shadow of suspicion. Karris v. Water Tower Trust & Savings Bank (1979), 72 Ill. App.3d 339, 389 N.E.2d 1359; Majewski v. Gallina (1959), 17 Ill.2d 92, 160 N.E.2d 783.

• 1 We agree with plaintiffs' assertion that defendants, as directors, stood in a fiduciary relationship with the bank and its shareholders. However, plaintiffs misapprehend the applicability of these basic tenets to the case at hand. The party asserting a fiduciary relationship, and a breach thereof, "must also affirmatively show that [the defendant] was the dominant party and that it gained" from the transaction. (Brown v. Commercial National Bank (1968), 94 Ill. App.2d 273, 279, 237 N.E.2d 567, aff'd (1969), 42 Ill.2d 365, 247 N.E.2d 894, cert. denied (1969), 396 U.S. 961, 24 L.Ed.2d 425, 90 S.Ct. 436.) This rule of law was applied in Karris where it was determined the plaintiff failed to show that the bank directors profited from the transactions at issue. 72 Ill. App.3d 339, 354.

Plaintiffs further rely on Santarelli v. Katz (7th Cir. 1959), 270 F.2d 762, to place the burden of proof on defendants. In that case, executive compensation in a family-owned corporation was determined by the executives who were acting in their capacity as directors. The defendant-executives had to meet the burden of proving the fairness of the compensation paid to themselves as officers and directors. Plaintiffs in this case ...

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