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Comedy Cottage, Inc. v. Berk

OPINION FILED JUNE 9, 1986.

COMEDY COTTAGE, INC., ET AL., PLAINTIFFS-APPELLEES,

v.

JAY BERK, INDIV. AND D/B/A COMEDY COMPANY, ET AL., DEFENDANTS-APPELLANTS.



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

JUSTICE O'CONNOR DELIVERED THE OPINION OF THE COURT:

Plaintiffs, Edward Hellenbrand and Comedy Cottage, Inc., operate a comedy club known as the Comedy Cottage at 6350 North River Road in Rosemont, Illinois. They brought this injunctive action against Jay Berk, a former vice-president and general manager of the club. Among other things, the complaint alleged that Berk breached his fiduciary duty by acquiring a lease to the premises after the corporation's lease had been terminated and establishing a rival club there. The trial court agreed and enjoined Berk from interfering with plaintiffs' possession of the premises. Berk brought this interlocutory appeal. We affirm.

Hellenbrand began leasing the premises in 1975. He operated a restaurant and lounge which began presenting comedy acts produced by an agency known as the Comedy College. After a dispute with the owner of the Comedy College, Hellenbrand changed the name of the club to the Comedy Cottage and began presenting comedy acts on his own. The Comedy Cottage, Inc., was incorporated soon afterwards. Hellenbrand and his wife were the sole directors and stockholders of the corporation.

In 1978, Hellenbrand hired defendant Jay Berk as general manager of the Comedy Cottage. In 1979 or 1980, Berk was given 10% of the shares and made vice-president of Comedy Cottage. Experiencing health problems, Hellenbrand moved to Nevada and left Berk to manage the daily affairs of the business. For the next five or six years, Berk acted as general manager and Hellenbrand made periodic visits to the club.

In 1984, Hellenbrand and Berk discussed making Berk a 50% shareholder of the corporation. At trial Berk testified that Hellenbrand promised to make him a half owner but later reneged on his promise. However, Hellenbrand testified that he offered the stock to Berk but Berk rejected the offer because the corporation was involved in a dispute regarding alleged lease arrearages with a former landlord. Hellenbrand testified that he decided not to reoffer the stock on the advice of family and friends. Berk was never made a 50% shareholder in the corporation.

In June 1984, the ownership of the premises changed hands and the Comedy Cottage's lease expired. Hellenbrand directed Berk to obtain a new lease for the premises. Berk negotiated with the new owner, defendant Carl Swanson, and entered into a written month-to-month lease for the premises. This lease listed Berk as lessee and not the corporation, but was signed by Berk as vice-president and general manager of the Comedy Cottage, Inc. Apparently, Hellenbrand was unaware of the month-to-month lease because he continued to direct Berk to obtain a new lease. In February of 1985, Berk sent Hellenbrand a proposed lease for a term of 1 1/2 years. Again, the proposed lease listed Berk as lessee and not the Comedy Cottage, Inc.

Upon receiving the proposed lease, Hellenbrand became upset and called Berk to berate him for having the lease drawn up in his own name. Afterward Hellenbrand sent a letter to Berk informing him that he would never be made a 50% shareholder of Comedy Cottage, Inc. Hellenbrand also contacted Swanson to find why the Comedy Cottage, Inc., was not listed as lessee. Swanson told him to change the signatory portion of the lease as he saw fit. Hellenbrand changed the named lessee on the proposed lease to the Comedy Cottage, Inc., and signed it without removing Berk's name from the signatory portion of the lease. He sent the proposed lease back to Berk who was to sign it "if he wanted to." Berk then forwarded it to Swanson who never signed the proposed lease.

Shortly thereafter, Swanson decided not to lease the premises to Hellenbrand and delivered a notice to Berk terminating the month-to-month tenancy of Comedy Cottage. The notice was dated March 30, 1985. Berk testified that he immediately called Hellenbrand in Nevada to inform him of the notice of termination. During that conversation he resigned as an employee of the corporation. However, he agreed to continue running the club until Hellenbrand could take over. On March 30, 1985, Berk sent a formal letter of resignation by certified mail to Hellenbrand in Nevada and enclosed the notice of termination of the lease. Hellenbrand's wife signed for the letter on April 1, 1985. Although Hellenbrand claimed that he had already left for Chicago by the time the letter arrived, he testified that he telephoned Swanson from Nevada on April 2, 1985. During their conversation Swanson said that he did not want to do business with Hellenbrand and that he had relet the premises to a new tenant who was not identified to Hellenbrand. Hellenbrand testified that he learned Berk was the new tenant of the premises when he arrived in Chicago on April 4, 1985.

After resigning from the Comedy Cottage, Inc., Berk formed a new corporation known as the Comedy Company, Inc., and began negotiating for a lease of the premises. On April 1, 1985, Berk contacted the insurance agent for the Comedy Cottage to have the corporation's group insurance policy transferred to his new corporation, the Comedy Company. However, the policy was never changed. On April 5 or 6, 1985, Berk executed a lease of the premises on behalf of the Comedy Company, Inc. During this period of time, Berk also attempted to get a liquor license for the premises in the name of the Comedy Company.

Subsequently, Hellenbrand placed a sign on the premises that stated, "Guess what? After ten years our landlord does not want us to live here anymore. So what? Neither do we. We do not need this building. Our Shows are great anywhere. We are expanding to the following locations * * *." Another sign was also posted in the club that made a derogatory comment about Berk.

On April 26, 1985, Hellenbrand and Comedy Cottage, Inc., filed their complaint for injunctive and other relief along with their petition for a temporary restraining order. The complaint was directed against Berk, the Comedy Company, Inc., Carl Swanson and his realty companies as owners and trustees of the premises. In addition to allegations of breach of fiduciary duty, the complaint alleged the existence of a conspiracy between Berk and the owner of the premises.

The case came before Judge Murray, who granted a temporary restraining order. Judge Murray then heard testimony of the parties and others on various motions including a motion for preliminary injunction and a motion to dismiss. Subsequently, Swanson was dismissed as a party pursuant to a settlement in which he agreed to take a "neutral position" in the litigation and to be bound by the court's decision regarding the right to lease and possess the premises. As a result, the conspiracy charges were dropped and the case proceeded solely on the allegations of breach of fiduciary duty.

On defendant's motion, the cause was later transferred to Judge Higgins, who reviewed the transcripts of the hearings before Judge Murray and heard testimony by Hellenbrand and Berk, among others, on the motion for preliminary injunction. On September 4, 1985, Judge Higgins issued an order in which he found a breach of fiduciary duty based on his finding that Berk's acts of (1) resigning as general manager immediately upon receipt of notice of termination of the month-to-month lease, (2) entering into a lease for the premises without disclosure, and (3) forming the Comedy Company to occupy the premises were designed to acquire his employer's longstanding business without purchase. Judge Higgins determined that plaintiffs had a right to possession of the premises and to secure such right by establishment of a leasehold agreement with the owner of the premises. The judge then enjoined Berk from interfering with plaintiffs' possession.

Berk filed the instant interlocutory appeal. The next day, the owners of the premises filed a motion in circuit court to intervene and to modify and vacate the judgment. Judge Higgins granted the motion to intervene but refused to modify or vacate the judgment, stating that his September 4, 1985, order did not dictate the terms of any proposed lease or provide that ...


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