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10/20/87 David C. Disher, v. Gian M. Fulgoni

October 20, 1987





514 N.E.2d 767, 161 Ill. App. 3d 1, 112 Ill. Dec. 949 1987.IL.1567

Appeal from the Circuit Court of Cook County, Honorable Albert S. Porter, Judge Presiding.




This is the second appeal involving the same parties. The first appeal (Disher v. Fulgoni (1984), 124 Ill. App. 3d 257, 464 N.E.2d 639, appeal denied (1984), 101 Ill. 2d 564), resulted in the reversal of the circuit court's denial of a preliminary injunction by which plaintiff, David C. Disher, sought to nullify or restrain enforceability of an employee confidentiality agreement executed by him while in the employ of Information Resources, Inc. , formerly known as NEWIRI, Inc., a defendant.

Upon remandment, Disher sought release of stock from a voting trust under the Illinois Securities Law (Ill. Rev. Stat. 1981, ch. 121-1/2, par. 137.1 et seq.) ("Securities Law"); attorneys fees under the Securities Law; invalidation of his employee confidentiality agreement; and a finding that IRI tortiously interfered with Disher's prospective economic advantage. The circuit court directed defendants to release Disher's stock, but not under the Securities Law, and therefore denied Disher's request for fees under that law. The employee confidentiality agreement was invalidated and IRI was held to have tortiously interfered with Disher's prospective economic advantage.

The questions raised by Disher in this appeal include whether: (1) the issuance of voting trust certificates constituted a sale under the Securities Law; and (2) the issuance of voting trust certificates was a transaction exempt from registration which would support denial of attorneys fees. Alternative issues raised by Disher need not be considered here in view of our decision.

The cross-appeal brought by defendant IRI and individual defendants raises issues as to whether the circuit court erred in (1) failing to bar Disher from asserting the alleged breach, if there was a breach, by his own inaction; (2) ordering the release of all Disher's stock from the voting trust; (3) holding the IRI employee confidentiality agreement invalid and unenforceable; and, (4) holding that IRI tortiously interfered with Disher's prospective economic advantage.

Only those facts necessary to the Disposition of the present appeal, will be repeated or otherwise set forth here; additional facts may be found in our first opinion. (124 Ill. App. 3d 257.) IRI is a marketing research firm which designed, developed and maintained computer-based systems and services for the collection and analysis of market information on sales of packaged consumer goods, thereby assisting manufacturers of consumer goods in the testing and evaluation of their marketing plans for new products, media advertising, pricing and sales promotions.

In August 1981, Disher was offered and accepted employment by IRI at a lower salary than he had previously earned. One of the inducements of employment by IRI was the opportunity to by IRI stock through stock option rights. He began employment with IRI as vice-president of operations and directed all market operations of IRI's "BehaviorScan," service *fn1 including market fieldwork, data input and in-market quality control.

During the pertinent periods involved, defendant Gian M. Fulgoni was president and chief operating officer of IRI; defendant John L. Malec was chairman of the board and chief executive officer of IRI; and defendant William C. Walter was vice-chairman of the IRI board.

Disher was presented with an employee confidentiality agreement, to which he objected on the grounds of vagueness and overbreadth; however, after he was told that the agreement was a non-negotiable condition of employment, Disher signed it on January 19, 1982, for fear of losing his job.

In late 1981 or early 1982, IRI wanted to buy out a substantial shareholding in IRI held by Penny Baron, one of its founders. IRI did not have sufficient capital surplus to buy the shares itself. Certain employees, including Disher, were called to a meeting by Malec, who told them that: they could surrender their IRI stock option rights in return for the opportunity to buy twice as many shares of Baron stock; IRI would arrange bank financing for the purchases and would pay interest on the loans for three years; the employees' stock would be placed in an employees' voting trust; and the trust would expire if IRI sold stock to the public or in 1992, unless extended.

Three proposed agreements were given to these employees to sign in early 1982: the "Fulgoni-Employee Agency Agreement"; the "IRI-Employee Agreement"; and the "IRI, Inc. Voting Trust Agreement." The agreements were drafted by IRI's attorney working solely for IRI and not representing the individual employees.

Disher's individual Fulgoni-Employee Agency Agreement and IRI-Employee Agreement, both dated February 19, 1982, ratified IRI president Fulgoni's 1000 share purchase from Baron as "agent" for Disher, and provided that the shares would be deposited with Fulgoni and Walter as trustees of the voting trust. The consideration specified for the transaction was the "mutual promises, covenants and conditions of this Agreement." The Baron stock was purchased on February 23, 1982 and transferred to Fulgoni as agent for Disher and the other selected employees (collectively "Disher et al"). Fulgoni deposited the shares into the voting trust on March 5, 1982. The above-described agreements were not signed by Disher personally until March 11, 1982.

The IRI-Employee Agreement, dated February 19, 1982, but purporting to be executed simultaneously with the Fulgoni agency agreement, provided that in consideration of IRI's agreement with a bank, sufficient to induce the bank to loan money to IRI employees, and IRI's payment of accrued interest for a three year period, or sale of the stock for voluntary employee termination, Disher et al would apply to the bank for a loan, purchase the Baron stock from Fulgoni under the agency agreement, and immediately deposit the Baron stock they received into a voting trust with Fulgoni and Walter as trustees, and Malec as successor trustee. Disher et al would, if necessary, pledge the voting trust certificates as security for any loan used to acquire the stock, or the certificates would be held in escrow by IRI to insure that they were not transferred in violation of the agreement. Disher et al would be restricted from selling, transferring or otherwise disposing of the shares or voting trust certificates except pursuant to paragraphs 4, 5 and 6. Paragraph 4 required Disher et al to sell their interest in the stock and voting trust certificates in the event that their employment was terminated under specified circumstances. Paragraph 5 required that Disher et al sell their stock or voting trust certificates to the maker of an offer to purchase all or substantially all the stock of the company, if such offer was accepted by a majority of the company's shareholders. Paragraph 6 provided that if the IRI common stock became publicly traded, Disher et al could sell, transfer or dispose of the shares of voting trust certificates free of all restrictions other than applicable federal and state securities law, rules and regulations.

The voting trust agreement, dated March 1, 1982, required Baron's IRI stock certificates to be registered in the names of the trustees, who then issued voting trust certificates to the participating employees. This agreement gave the trustees the right to exercise the certificate holder's rights including the right to vote for IRI directors, or for or against any action or resolution, merger or sale of substantially all IRI assets. The voting trust agreement provided further that the trust

Meanwhile, in April 1982 Disher was promoted to senior vice-president of IRI and, in lieu of a raise, was given and accepted the right to

The trustees did not register the voting trust certificates under the Securities Law, nor were Disher et al given a statutorily required prospectus, explaining in clear, concise and understandable fashion (1A Blue Sky L. Rep. para. 22,658 (1986)), the length of time the securities would remain in trust; how the voting trust could be extended; or how the voting trust could be amended. See 17 C.F.R. 239.25, Item 4 (1986). IRI began selling its stock to the public on March 4, 1983. On April 6,

1983, Disher was fired. Disher was told he could use the company's offices for 90 days in order to assist his transition to another job. Disher was first advised of IRI's preference that he not work for the Burke Companies; later, this was expanded to include other companies as well, including the A.C. Nielsen Co. Disher inquired about obtaining the release of some or all of his stock in trust; IRI did not overtly object, but sent him a "letter-agreement" which provided that he now sign a limited non-competition agreement, in addition to his previous confidentiality agreement, and IRI then would attempt to facilitate the private placement of trust certificates representing 15,000 shares among other existing certificate holders at a price Disher set at $22 per share, and would use its best efforts to persuade all the certificate holders to allow the remaining 7,500 shares to be withdrawn from the voting trust on July 1, 1985. IRI acknowledged that it had no legal right to terminate the voting trust but, in consideration of the limited non-competition agreement, it would use its best efforts including, if necessary, the guarantee of loans to certificate holders for purposes of purchasing Disher's certificates, and to obtain the agreement of all the other voting trust certificate holders and trustees to this procedure. Disher declined to sign the agreement.

Disher sought employment with other firms and after two interviews with the A.C. Nielsen Company, was offered a position there as field operations manager. A letter was sent by IRI's legal counsel apprising A.C. Nielsen's general counsel of the existence and nature of the confidentiality agreement signed by Disher in 1982. The IRI letter declared that IRI would enforce and maintain to the fullest extent its proprietary rights under the agreement. The offer was renewed, contingent upon Disher's receiving a declaratory judgment or injunction restraining enforcement of his employee confidentiality agreement with IRI by October 15, 1983. Disher thereafter filed a motion for a

On July 28, 1983, after earlier receiving an Illinois Secretary of State certificate confirming the trustees' failure to register the voting trust certificates, Disher gave notice of his desire to void and rescind the issuance of the certificates pursuant to the Securities Law. The notice stated that he was rescinding only the voting trust certificates, not the IRI common stock issued or sold. In admitted "retaliation," defendants sent Disher letters inferentially threatening forfeiture of Disher's entire stock holdings having an estimated value of over $1,000,000, with return of the purchase price of the shares, about $18,000, unless he dropped his claim.

Disher file suit. In his amended verified complaint filed August 16, 1983, he asserted, among other things: (a) defendants failed to comply with the Securities Law by not registering the voting trust certificates; (b) his contract with IRI clearly entitled him to sell the stock when IRI went public and that, in any event, if the contract was ambiguous, those ambiguities had to be construed against IRI as the draftsman; (c) IRI officials acting as fiduciaries breached their duties by not clearly explaining ambiguities and complex terms to him; (d) the trustees violated their duties of loyalty and even-handedness; and (e) the voting trust agreements, as construed by IRI, rendered the entire voting trust apparatus an unreasonable restraint upon alienation.

A verified answer to Disher's complaint and a verified counterclaim were filed by defendants, and Disher filed his verified answer to the counterclaim. The counterclaim sought, among other things: (a) a preliminary and a permanent injunction restraining Disher from disclosing or using IRI's trade secrets or proprietary information; and (b) a declaration of whether or not Disher had the right to rescind his agreements with IRI and the trust.

On November 15, 1983, Walter and Fulgoni, as trustees of the voting trust, issued a memorandum to the participants in the trust, except Disher, proposing its early termination. The stock would be withdrawn and distributed to the participants on an annual basis, beginning in 1984 and ...

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