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06/30/88 Frank Sciarabba, v. Chrysler Corporation

June 30, 1988

FRANK SCIARABBA, PLAINTIFF-APPELLEE

v.

CHRYSLER CORPORATION, DEFENDANT-APPELLANT (NORTHWESTERN CHRYSLER-PLYMOUTH SALES, INC., DEFENDANT)



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FOURTH DIVISION

527 N.E.2d 368, 173 Ill. App. 3d 57, 122 Ill. Dec. 870 1988.IL.1023

Appeal from the Circuit Court of Cook County; the Hon. Charles E. Freeman, Judge, presiding.

APPELLATE Judges:

PRESIDING JUSTICE JIGANTI delivered the opinion of the court. McMORROW, J., concurs. JUSTICE JOHNSON, Dissenting.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE JIGANTI

The plaintiff, Frank Sciarabba, filed this action against Chrysler Corporation, the manufacturer of Chrysler automobiles, and against Northwestern Chrysler-Plymouth Sales, Inc., an automobile agency selling Chrysler products located on the north side of the city of Chicago. The lawsuit sought an injunction and an accounting and further sought a judgment in the amount of $55,600, severance pay of $2,000 and attorney fees. This action was filed in March of 1982 and tried before a court without a jury on intermittent dates between May 12 and July 30, 1986. All claims for equitable relief were abandoned prior to the judgment. Judgment was entered in favor of Sciarabba and against Chrysler in the amount of $57,600. The plaintiff's theory against the defendant and the rationale for the judgment are in dispute. There is no judgment against Northwestern Chrysler-Plymouth and it is not a party to this appeal.

Northwestern Chrysler-Plymouth was a dealership owned by Chrysler and operated under a Chrysler program known as the "Marketing Investment" program. Under this program individual investors were able to purchase an equity in a Chrysler dealership by purchasing stock, then operating the dealership with the aim of buying out Chrysler's stock from profits. A dealership is capitalized at a certain level, typically at $400,000 with Chrysler owning 75% of the equity and the investor owning 25%. An audit, referred to as the "buy-in" audit, is performed to verify the dealership's equity and financial condition as of the date of the individual investor's investment. Audits are then performed annually at year end. A "buy-out" audit is performed if the relationship between the operator/investor is terminated to determine each party's equity. The investor also becomes president and general manager of the dealership and supervises its day-to-day operation, including the work and performance of all management employees. Until the investor buys out Chrysler's stock, Chrysler maintains two of its representatives on a three-member board of directors, but does not participate in the day-to-day management of the dealership.

From 1971 to 1979, Sciarabba was in the automobile business, principally in management and supervisory positions in other agencies. In 1979, he decided to participate in Chrysler's marketing investment program through an investment in Northwestern Chrysler-Plymouth. In mid-July, prior to his investment, he began operating Northwestern Chrysler-Plymouth as president and general manager in order to get the feel of the business. Available to him were the dealer financial statements, which he looked at and which showed the amount of working capital for the months immediately prior to Sciarabba's taking over.

On July 19, 1979, Sciarabba entered into a stock agreement with Chrysler. The stock agreement is the subject of this proceeding. That agreement recited that Chrysler held 1,668 shares of preferred stock with a par value of $166,800 and that Sciarabba had purchased and was the holder of 556 shares of common stock with a par value of $55,600. The agreement stated that the parties desired to provide for the purchase and sale from each other of the stock interest under the terms of the agreement. The agreement further stated that if for any reason Sciarabba ceased to be president of Northwestern Chrysler-Plymouth then Chrysler would repurchase Sciarabba's interest at 25% of Northwestern Chrysler-Plymouth's net worth or $1, whichever was greater. Sciarabba could at any time end his relationship with Chrysler and, subject to the terms of the agreement, receive 25% of the dealership's net worth.

Sciarabba also signed a bonus agreement with Northwestern Chrysler-Plymouth which provided that he was entitled to receive a bonus equal to 25% of the dealership's profits and that any profits were to be used to buy Chrysler's stock interest. Significant to the issue in this case, the bonus agreement provided that the board of directors of Northwestern Chrysler-Plymouth had an absolute right to remove Sciarabba as president and general manager at any time.

A third agreement, called the "Minimum Working Capital Agreement," was entered into between Northwestern Chrysler-Plymouth and Chrysler. Although Sciarabba was not a party to this agreement, it forms the basis of Sciarabba's complaint of misrepresentation. The details of the agreement will be subsequently related.

During Sciarabba's 27-month tenure as president of Northwestern Chrysler-Plymouth there was a total operating loss of $571,205. On October 29, 1981, the board of directors removed Sciarabba as president. Subsequently, he submitted his resignation both as a board member and as president. The book value being less than $1, under the terms of the agreement, Sciarabba was paid $1 for his interest.

The complaint filed on March 3, 1982, alleged that Sciarabba had entered into the stock agreement with Chrysler and that Sciarabba had relied upon the representation of the minimum working capital agreement between Northwestern Chrysler-Plymouth and Chrysler that there was "Net Working Capital of $345,700." In fact there was considerably less than that amount, which was to Sciarabba's detriment. Further, while Sciarabba operated the agency, he lost money because he did not have an adequate working capital. The complaint also alleged that Chrysler used "shady practices" to cause Sciarabba and Northwestern Chrysler-Plymouth to lose money in the operation of the automobile agency. In addition, there was an allegation that Chrysler coerced Sciarabba into resigning by threatening him and offering him the return of his $55,600 investment.

The trial court entered a judgment in favor of Sciarabba and against Chrysler only. The judgment of $57,600 represented Sciarabba's initial investment of $55,600 plus $2,000 for vacation and severance pay. In rendering the judgment, the court stated that "Plaintiff's amended complaint does not state a claim for fraud." The court commented that the gravamen of the complaint was the "various wrongful acts" as alleged in the plaintiff's complaint. The court found that the plaintiff had "proved the allegations of motive and the various wrongful acts by a preponderance of the evidence," and that those acts were "intended to and did cause the Plaintiff losses of his investment in the dealership." The court also found that the evidence was sufficient to prove the plaintiff resigned as president based on the promise to return the investment. The court stated that "[this] is also the only reasonable Conclusion to draw from the resignation of the Plaintiff." At the Conclusion of ...


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