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Charles P. Young Co. v. Leuser

OPINION FILED NOVEMBER 5, 1985.

CHARLES P. YOUNG COMPANY ET AL., PLAINTIFFS-APPELLANTS,

v.

ROBERT H. LEUSER ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County; the Hon. Albert Green, Judge, presiding.

JUSTICE BILANDIC DELIVERED THE OPINION OF THE COURT:

This is an expedited interlocutory appeal from the circuit court's denial of plaintiffs-appellants' motion for a preliminary injunction. Plaintiffs-appellants, Charles P. Young Company (CPY) and its wholly owned subsidiary Charles P. Young Chicago, Inc. (CPYC), sought to enjoin appellees Robert H. Leuser and Alfred H. Shotwell III from working for appellee Pandick Midwest, Inc. (Pandick), one of appellants' competitors. Appellants also sought to enjoin Pandick from employing appellees Leuser and Shotwell and 14 other former CPYC employees who are not parties to this action. The circuit court granted appellants' motion for a temporary restraining order (TRO) but after a hearing it dissolved the TRO and refused to issue a preliminary injunction. This appeal followed. The sole issue is whether the trial court abused its discretion in refusing to issue the preliminary injunction.

Appellant CPYC is a financial printer in the Chicago area, and it is a wholly owned subsidiary of CPY (formerly Ticor Print Network, Inc.), a national company with regional offices throughout the United States. Appellants are owned by Norlin Corporation (Norlin), which is headed by its chairman of the board, chief executive officer (CEO), and president, Patrick J. Rooney. Appellee Pandick is also a financial printer in the Chicago area, and it is a wholly owned subsidiary of Pandick, Inc., a national company with regional offices. Appellees Leuser and Shotwell were officers of CPYC who resigned their positions, followed two days later by 14 "at-will" employees. These resignations are the subject of this litigation.

First, some background is required. Before Rooney assumed control of Norlin, he was, and continues to be, an investment banker and a principal in the firm of Rooney, Pace Inc. On or about March 2, 1983, Rooney and a group of investors (the Rooney Group) embarked on a course of action that was designed to accomplish the takeover of Norlin, whose stock is publicly traded. By January 12, 1984, the Rooney Group had acquired some 32% of Norlin's stock. In order to fend off an apparent hostile takeover, Norlin filed suit on January 13, 1984, alleging violations of Federal securities laws and seeking to enjoin the Rooney Group from buying any more stock. Norlin's motion for a TRO was denied because it failed to show irreparable harm.

On January 20, 1984, the same day that its motion was denied, Norlin began a series of defensive maneuvers. It countered by diluting the Rooney Group's holdings with the issuance of more Norlin stock that would find itself into friendly hands. This tactic, of comparatively recent origin, is known as "shark repellant." Norlin's goal was to have the Rooney Group exhaust its resources before Norlin ran out of creative ways to issue more stock, which would result in the Rooney Group's abandoning its hostile takeover plans.

On January 20, 1984, Norlin transferred over 28,000 shares of treasury common stock to Andean Enterprises, Inc., a Panamanian-based wholly-owned subsidiary of Norlin. Five days later, Norlin conveyed 800,000 shares of authorized, but unissued, voting stock to Andean. Norlin also issued and transferred 185,000 shares of common stock to the newly created Norlin Industries, Inc., Employees Stock Option Plan and Trust (ESOP), to which Norlin appointed three board members as trustees. On February 9, 1984, the Rooney Group filed a counterclaim against Norlin, alleging that Norlin's transfers violated various securities laws. It also sought injunctive relief and, on April 16, 1984, the Federal district court enjoined Norlin from voting the shares transferred to Andean and to the ESOP. The Second Circuit affirmed. Norlin Corp. v. Rooney, Pace Inc. (2d Cir. 1984), 744 F.2d 255.

When the court rendered its decision, the Rooney Group owned 49.1% of the Norlin stock entitled to vote. Stripped of its ability to vote the shares intended as "shark repellant," the Norlin board "surrendered" control of the corporation to the Rooney Group. The transfer of power was accomplished by a settlement agreement that restructured the board and satisfied the requirements of control for the Rooney Group. The agreement was ratified by the Norlin shareholders at the annual meeting on September 6, 1984. Rooney promptly installed himself as chairman of the board, CEO and president. As part of this agreement, appellee Robert H. Leuser was forced to resign from the board, but he remained as CEO and president of CPYC, a wholly owned subsidiary on the lowest rung of Norlin's corporate ladder. Several months later, Rooney removed Calvin Aurand, who was CPY's chairman and president. Rooney assumed Aurand's position and thereby also became Leuser's immediate superior. Just as with his directorship, Leuser's official title with CPYC, as well as Shotwell's title as CPYC's executive vice-president, was, as a fact of corporate life, virtually terminable at the will of Rooney.

Appellees Leuser and Shotwell had signed employment contracts in December 1983, before Rooney's takeover of Norlin. The contracts were signed between appellees and CPY's predecessor, Ticor Print Network, Inc. Leuser signed a five-year contract and Shotwell a three-year contract. Paragraph 2(c) contained a covenant not to compete. Paragraph 5(a) provided in part that appellees could terminate their employment "as a result of a change of ownership of a majority of the Corporations' assets or voting securities not approved by the Corporation's Board of Directors * * *." Paragraph 5(a) was intended to protect appellees Leuser and Shotwell in the event of a hostile takeover, and they rely on that clause to assert that they are no longer bound contractually to CPYC. Thus, the exact employment status of Leuser and Shotwell, from the date of the takeover, September 6, 1984, to the date of their resignation, June 10, 1985, has yet to be determined.

After Rooney assumed control of Norlin and CPY, he began to implement changes that concerned appellees Leuser and Shotwell and that were unpopular with the at-will employees. The changes included a reduction in sales commissions, a reduction and freeze on salaries, and a freeze on spending for capital equipment. Rooney also planned a separate public offering that would eventually lead to Norlin's divestiture of CPYC. He also announced that he would only stay on as head of CPY for two or three years. None of these moves inspired security or confidence among CPYC employees.

Having accomplished this takeover of Norlin, Rooney moved to establish Norlin's presence in the financial printing market through its subsidiaries. Appellee Pandick is a principal competitor. The record shows that Norlin, through appellant CPY, raided employees of Pandick in Boston, Houston, San Francisco, and other cities throughout the United States for its own offices. Pandick, in apparent retaliation, hired away 14 of approximately 22 Norlin (CPYC) employees for its Chicago office. The 14 were "at-will" employees. "At-will" employees are those who work without employment contracts.

It is obvious that there was a revolving door through which employees of Norlin and Pandick passed prior to this litigation. As the trial court indicated, the evidence shows that raiding employees is a common practice within the industry, yet appellants seek to enjoin Pandick from employing the former CPYC employees.

Employees Leuser and Shotwell resigned on June 10, 1985, and they signed contracts with Pandick the next day. On June 12, 1985, Rooney replaced Leuser with Nick Kane, from CPY's Houston office. Kane's vacancy was then filled with Bill Jupp, whom CPY recruited from Pandick. Appellee Shotwell was also quickly replaced with Stan Byrum. The at-will employees resigned on June 12, and they signed employment contracts with Pandick on June 13, 1985.

On June 14, 1985, appellants filed their complaint. They seek to enjoin Pandick from employing Leuser, Shotwell, and the at-will employees. They also seek to keep Leuser and Shotwell from working for Pandick or any other competitor for the remainder of their contract terms. The at-will employees are not parties to this action, but they have emerged suddenly as unwilling pawns who are caught in the corporate cross-fire between Pandick and Norlin. Appellants also filed an emergency motion for a TRO and a preliminary injunction. The trial court issued a TRO the same day.

Appellees filed their answers and generally denied the allegations of the complaint; they also interposed affirmative defenses. A hearing on the motion for a preliminary injunction was held over four days, and in that time 14 witnesses were called by appellants. At the close of their case, the court dissolved the TRO and ...


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