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03/31/87 Lindenhurst Drugs, Inc., v. Allen Becker

March 31, 1987





506 N.E.2d 645, 154 Ill. App. 3d 61, 106 Ill. Dec. 845 1987.IL.408

Appeal from the Circuit Court of Lake County; the Hon. Jack Hoogasian, Judge, presiding.


JUSTICE REINHARD delivered the opinion of the court. LINDBERG, P.J., and DUNN, J., concur.


Plaintiff, Lindenhurst Drugs, Inc., filed a second amended six-count complaint seeking damages, a constructive trust, and an accounting against defendant, Allen Becker, and other defendants not parties to this appeal, arising out of defendant's purchase of a Ben Franklin store franchise to be used as a combination pharmacy-variety store while defendant was a shareholder, director, and officer of plaintiff, which operated a general pharmacy. Following a bench trial, the circuit court found for plaintiff on count I, which alleged that defendant violated a fiduciary duty by competing with plaintiff and failing to act for the benefit of plaintiff; on count II, which alleged that defendant usurped a corporate opportunity by purchasing the Ben Franklin store franchise for himself; and on count VI, which alleged that defendant misappropriated corporate assets for himself. The court ordered an accounting and created a constructive trust in favor of plaintiff, but denied plaintiff's prayer for punitive damages.

Our examination of defendant's brief indicates that the sole issue raised is whether the trial court's decision that he personally took advantage of a corporate opportunity in purchasing the Ben Franklin store franchise was against the manifest weight of the evidence. Defendant's principal argument is that the facts show that while the opportunity to buy the Ben Franklin store franchise was initially a corporate opportunity, plaintiff's failure to pursue the opportunity allowed him to obtain that opportunity for himself.

Initially, we point out that defendant has failed to address the trial court's decision on counts I and VI and has thereby waived review of any issue as to those counts. (103 Ill. 2d R. 341(e)(7); Village of Crainville v. Argonaut Insurance Co. (1980), 81 Ill. 2d 399, 405, 410 N.E.2d 5.) While defendant undertakes some minimal Discussion of these counts in his reply brief, an argument not raised in the initial brief may not be raised in the reply brief and is waived for purposes of review. 103 Ill. 2d R. 341(e)(7); Murdy v. Edgar (1984), 103 Ill. 2d 384, 393, 469 N.E.2d 1085; Village of Crainville v. Argonaut Insurance Co. (1980), 81 Ill. 2d 399, 405, 410 N.E.2d 5.

We summarize the pertinent evidence at trial. The undisputed facts are as follows. Burton and Marvin Steinberg are brothers. Defendant began working for Marvin as a stock clerk or delivery boy around 1960 and later, in 1970, worked as a pharmacist at Northbrook Pharmacy, which was owned by both Burton and Marvin. Burton, Marvin, and defendant formed Lindenhurst Drugs, Inc., in 1971, with each of them owning one-third of the shares in the corporation. Each of them was also an officer and director of the corporation. The corporation then purchased a drugstore, called Lindenhurst Drugs, in the Linden Plaza Shopping Center. It entered into a lease with Allan Roberts, Inc., the owner of Linden Plaza Shopping Center, through its controlling shareholder, Morton Engel. The lease gave the corporation the exclusive right to operate a pharmacy in the shopping center and, by its terms, terminated December 31, 1981. The store contained about 5,000 square feet.

Burton, Marvin, and defendant agreed that defendant would manage the store and would be compensated by receiving a pharmacist's salary, other benefits, and 15% of the profits of the store. Defendant was in charge of general store operations, including hiring and firing employees, purchasing for the store, running sales, and negotiating with vendors. The store was successful and had gross yearly sales of around $758,000. The relationship between the shareholders was basically harmonious, although defendant did express some dissatisfaction with the business relationship in 1979 and asked Burton if he could buy out Burton's interest in the corporation sometime prior to 1980. Defendant was given an interest in several other pharmacies owned by Burton and Marvin, including a 10% interest in Palwaukee Drugs.

In mid-1979, defendant heard that the Ben Franklin store, located in the same shopping center as Lindenhurst Drugs, was for sale. That store had 15,000 square feet, as well as a 4,500-square-foot basement for storage. Defendant told Burton and Marvin that the store was for sale and arranged for a meeting with representatives of Ben Franklin at the store location. Defendant, Burton, and Marvin had previously been discussing the possibility of acquiring more space, and they thought it would be a good idea to explore the possibility of buying the Ben Franklin store franchise to make a Ben Franklin-Lindenhurst Drugs combination. At that time, City Products Corp., of which Ben Franklin is a division, was in charge of granting Ben Franklin franchises. The franchise on the Ben Franklin store at Linden Plaza Shopping Center was held by James Schmuck through his corporation, Fox Valley Hardware. The store was in poor financial shape and wasn't doing much business for a store of that size. The price James Schmuck was asking for his franchise was $30,000 for fixtures and 65% of the retail value of the inventory. Any offers made on the store, however, had to be made directly to City Products, who would relay the offer to James Schmuck to determine if the price was satisfactory. The buyer would also have to submit financial statements and be approved as a franchisee by City Products.

Burton, Marvin, and defendant met with Morton Engel, who informed them that he would be willing to give them an exclusive right to operate a pharmacy at the Ben Franklin location, but also told them that they would still be responsible for the 2 1/2 years remaining on their lease. At a meeting at City Products' office in July 1979, Burton and Marvin made an offer on the store, on behalf of Lindenhurst Drugs, of 60% of the actual wholesale cost of the inventory, or roughly 38% to 39% of retail cost, and nothing for the fixtures. Financial statements were not given to City Products. The offer was later rejected; however, Lindenhurst Drugs remained interested in purchasing the Ben Franklin store franchise. Burton spoke to Donald Erikson of City Products sometime in 1980 and discussed the possibility of Lindenhurst Drugs and the shopping center's liquor store sharing the space occupied by Ben Franklin, with the Ben Franklin store taking over Lindenhurst Drugs' space. At that time, Burton told Erikson that Lindenhurst Drugs still had an ongoing interest in purchasing the Ben Franklin store. Marvin attempted on many occasions to contact James Schmuck. Burton then told defendant in early 1981 to contact City Products and see what he could do. Defendant talked to Donald Erikson and asked him, on behalf of Lindenhurst Drugs, if anything was happening and was told no.

Engel informed defendant in June 1981 that Lindenhurst Drugs' lease would not be renewed. Defendant did not inform the Steinbergs at that time that the lease would not be renewed. Defendant began negotiations in July 1981 with City Products to purchase the Ben Franklin store franchise on his own. Defendant told Engel in June 1981 that he would be leaving the corporation and asked Engel if he would assign the exclusive right to operate a pharmacy in the shopping center to the Ben Franklin store, if defendant could reach an agreement with City Products. Engel agreed in the hope of having one strong store rather than two weak ones. Becker formed his own corporation, Linden Plaza Drug and Variety, Inc., on September 30, 1981, in order to purchase the franchise for the Ben Franklin store. His financing statements were submitted to City Products in August 1981, franchise agreements were signed on October 6, 1981, the agreement granting Ben Franklin the exclusive pharmacy right in the shopping center was signed November 5, 1981, a purchase and sales agreement in which defendant agreed to meet the price James Schmuck was asking was signed November 28, 1981, and the date of closing was January 6, 1982. Defendant did not inform Burton and Marvin that he was planning to leave the corporation or that he was purchasing the Ben Franklin store franchise. When confronted by Burton and Marvin in November 1981, defendant told them that he didn't know whether he was buying the Ben Franklin store. Although defendant knew that the lease for Lindenhurst Drugs ended December 31, 1981, he didn't do anything to find a new space for the store.

Defendant removed $39,693.05 of inventory from Lindenhurst Drugs, taking the most saleable items. This inventory was eventually taken to the Ben Franklin store. He also removed some fixtures, one cash register, and patient profile cards, so that customers of Lindenhurst Drugs had to be sent to the Ben Franklin store to get their prescription information. ...

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