Appeal from the Circuit Court of Cook County; the Hon. Richard
L. Curry, Judge, presiding.
JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:
Plaintiffs brought this action against defendant Norman Obermaier seeking to recover damages for breach of fiduciary duties and fraud in the sale of stock. After a trial without a jury, the trial court entered judgment for plaintiffs and awarded $1.1 million in compensatory damages, $250,000 in punitive damages, and $241,057 in prejudgment interest at the statutory rate. Defendant appeals, and plaintiffs have cross-appealed, urging that the damages are inadequate.
In the late 1930's, Alfred and Norman, who are brothers, began working for Alnor Instrument Company, a company owned by their father. Alfred contributed engineering skills and was responsible for several of Alnor's patents, while Norman contributed management skills. The parties' father died in 1958. Their mother, Emma, then controlled 230 shares of stock, while Alfred and Norman each had a one-half interest in the remaining 5,259 shares. Harris Trust & Savings Bank is a nominal plaintiff as the successor trustee of the Alfred A. Obermaier Trust No. 2, which held 870 shares in Alnor for Alfred's benefit at the time of the sale of stock at issue here.
The brothers did not get along, and Alfred's drinking problem following his father's death prevented him from contributing to Alnor as he had in the past. In order to ensure that Norman would control Alnor, in 1971 Emma added a codicil to her will. When she died in 1973, Norman received 115 shares outright and was appointed trustee of the other 115 shares under a trust for Alfred's benefit. After Norman had voting control, Alfred became less involved with Alnor but did keep apprised of its financial condition. In 1976, the brothers considered selling Alnor and retiring.
Norman and his attorney dealt with all of the prospective buyers. In August 1977, Podd-Bell Corporation expressed interest in buying Alnor at Norman's asking price of $8 million. Norman also offered to sell Alnor for $7.5 million if Podd-Bell would allow him to purchase back oil and gas leases for $39,000. At the time, Norman valued the leases at $500,000. When Podd-Bell refused this alternative, but offered $8 million, Norman demanded a consulting contract for 10 years at $50,000 a year. Although Alfred's attorney had asked to be apprised of any developments in the sale of Alnor, Norman did not tell him of the negotiations between Podd-Bell and himself.
Podd-Bell signed a letter of intent offering $8 million and a consulting contract for defendant. When it became clear, however, that Podd-Bell was having trouble raising the money, a second letter of intent with an expiration date of March 31, 1978, was signed. Both brothers signed the letter, Alfred relying on Norman's statement that the price was fair. Alfred's attorney never saw the letter of intent.
In an attempt to find financing, Podd-Bell contacted a Swedish corporation, Studsvik Energiteknik AB, which agreed to invest in Alnor. The proposed agreement called for installment payments to the brothers. Norman, however, was becoming displeased with Podd-Bell and the persons it chose to run Alnor. He was concerned that the installment payments would not be made. When Podd-Bell did not meet the March 31 deadline, Norman told Alfred about his concerns and, on April 3, 1978, refused to grant an extension.
When the Podd-Bell letter expired, Norman discussed buying out Alfred's stock. Alfred countered that he would buy out Norman, but Norman told him that no one at Alnor would work for him. Alfred then agreed to Norman's offer of $4 million for Alfred's interest. Norman also told Alfred, as he had told Podd-Bell earlier that day, that he would not look for another buyer for at least a year.
Prior to the expiration of the Podd-Bell offer, Norman and Albert Aspito, Alnor's executive vice-president, were in touch with Dr. Dezso Ladanyi, president of Alnor's subsidiary, Noral. Ladanyi indicated his interest in buying Alnor, and prior to April 3, he began organizing a group of investors. Norman initially indicated that he was interested in selling 49% of his stock for $1.96 million.
According to Ladanyi's testimony and his diary notations, on the same day on which Norman offered to buy out Alfred, Aspito contacted Ladanyi. Aspito told him Alnor was available for $8 million, and then he said Norman only wanted to sell 49% of the company, with Aspito getting part of the equity. Norman also told Ladanyi that Norman wanted $5 million for his interest in Alnor but that the deal was "on hold" because Alfred might find out and retaliate. Norman denied discussing anything more than the sale of 49% of his stock, while Aspito had no recollections of the conversations with Ladanyi. Ladanyi was never successful in finding investors and never made an offer to buy Alnor.
From April 3 to May 8, 1978, attorneys for the brothers drafted and revised the stock purchase agreement. Norman insisted that the agreement contain a specific provision releasing him from any liability for any sale of Alnor in "the near or distant future." A final draft of the agreement was approved and the closing was set for May 8. Alfred contracted for a private appraisal of his shares, although the appraiser did not tour the plant and was unaware of the continued interest of several buyers. The shares were appraised for less than $4 million. Alfred, individually and as his own trustee, sold 2,629 1/2 shares, and Norman, as trustee for Alfred under Emma's will, sold 115 shares to Alnor. Alfred received $800,000 immediately, the balance to be paid by Alnor in installments.
On May 8, prior to the closing, Norman received a call from Dr. Gerhard Kelter, Studsvik's attorney. Kelter arranged to meet Norman on May 10 to discuss the purchase of Alnor. Citing Alnor's increased sales potential, its improved profit picture and its new products, Norman asked for $6 million. By July 4, 1978, Norman and Studsvik agreed on the sale of Alnor. The sale was completed in December for $6.2 million, with Studsvik assuming the remaining payments to Alfred.
When Alfred learned of the sale and of Norman's additional profit, he brought this action alleging fraud and breach of fiduciary duties and seeking one-half of the additional consideration Norman received. After a trial, the trial court found clear evidence of fraud and a breach of Norman's fiduciary duty to disclose all information relevant to the stock sale.
• 1 We consider first Norman's contention that the trial court erred in finding constructive fraud and a breach of fiduciary duty. We believe, however, that the order of the court clearly ...