APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIFTH DIVISION
Inglee et al., Defendants)
532 N.E.2d 435, 177 Ill. App. 3d 504, 126 Ill. Dec. 750 1988.IL.1823
Appeal from the Circuit Court of Cook County; the Hon. Richard L. Curry, Judge, presiding.
JUSTICE MURRAY delivered the opinion of the court. LORENZ, P.J., and PINCHAM, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MURRAY
Plaintiffs, Alpheus Goddard III, Jane Goddard, Paul Dillon Goddard, Paul Whitman Goddard, Katherine Goddard, Sarah Goddard, and Christopher Goddard, trust beneficiaries, appeal from an order of the circuit court of Cook County dismissing their second amended complaint against defendants, Continental Illinois National Bank & Trust Company of Chicago and W. Martin Dillon, the corporate and investment trustees of three trusts, *fn1 which alleged that they breached their fiduciary duties in failing to sell stock comprising almost the entire corpus of the trusts in light of certain negative changes affecting the future value of the stock. The issues presented on appeal are: (1) whether the trial court erred in finding as a matter of law that the settlor of the trusts unambiguously authorized the trustees to continue to hold the stock "come what may"; (2) whether the trial court erred in dismissing plaintiff's complaint without holding an evidentiary hearing to explore the settlor's intent; and (3) whether the court erred in holding as a matter of law on a Code of Civil Procedure section 2-615 motion (Ill. Rev. Stat. 1987, ch. 110, par. 2-615) that the trustees acted in good faith so long as they continued to hold the stock, irrespective of fundamental negative changes which permanently affected the future value of the stock. For the reasons set forth below, we reverse and remand the cause for further proceedings.
Northwestern Steel & Wire Company (Northwestern) was initially formed by Paul W. Dillon (the settlor) and has been principally engaged in the production by electric furnace process of carbon steel products, such as structural shapes, bar and bar shapes, rods, wire and fabricated wire products. The company's principal place of business is in Sterling, Illinois. The subject trusts were created by the settlor in 1941, 1958, and 1973 and consist of the "Grandchildren's Trust," the "Jane Trust," and the "Great-Grandchildren's Trust," respectively. Northwestern stock represented the original corpus of the trusts. In 1973, when the last trust was created, Northwestern's annual sales exceeded $400 million.
In the mid-1970's, as alleged by plaintiffs, the steel industry began to experience profound and permanent changes in its structure, such as increased labor costs, which could be recovered only through higher prices to purchasers and could not be recouped through productivity gains, and an increasingly larger share of the United States steel market was being taken over by foreign producers in Europe, Japan and developing third-world countries. The industry also suffered increased costs as a result of increased energy costs and compliance with newly enacted governmental and environmental regulations and technological changes in certain product areas which the industry supplied. Due to increased foreign competition the industry was unable to raise its prices in sufficient amounts to recover the additional costs of production and the overall demand for steel permanently decreased because of the growing substitution of other materials, such as aluminum, plastics and ceramics, especially in the industry's traditional market of automobile manufacturing.
In the early 1980's, Northwestern experienced four years of losses, dividends were discontinued from 1982 through 1985, and, consequently, Northwestern's stock price declined. Currently, Northwestern has returned to profitability, dividends have been resumed, and its stock price has more than doubled since plaintiffs' original complaint was filed. *fn2
In November 1983, plaintiff Alpheus Goddard III, on behalf of all the plaintiffs, stressed by written and oral statements to Continental that he deemed it imperative that Continental prepare and implement a strategy to diversify the Goddard family investments out of Northwestern stock. Plaintiffs' efforts were unsuccessful and they instituted the instant action against defendants. Plaintiffs maintain that "[by] no later than the end of 1982 or early 1983 (and most probably much earlier), it was apparent by any standard that the Northwestern stock was no longer an appropriate investment for the Trusts. This was particularly true given that the Trusts were still almost exclusively funded with many millions of dollars of Northwestern stock. Defendants' fiduciary duties independently [therefore] required them to sell the Northwestern stock in the Trusts no later than this period" and defendants' failure to do so resulted in their loss of approximately $10 million.
On May 4, 1987, following an oral statement of its findings of fact and Conclusions of law, the trial court dismissed plaintiffs' first amended complaint. On July 27, 1987, the trial court granted plaintiffs leave to file their second amended complaint and, on the same day, dismissed that complaint after a hearing in which the court incorporated its May 4 findings. The court determined that the intent of the settlor was that the trustees retain the Northwestern stock indefinitely to preserve family control of Northwestern and that the trustees' actions in doing so were therefore in harmony with the settlor's intent. Accordingly, the trustees' action in deciding not to sell the stock could not be said to have been done other than in good faith. More specifically, the court stated:
"To even wet [ sic ] your appetite and entice the Appellate Court to go in and explore this thing, I would offer a definition. I would say in a fact situation like this, good faith means unswerving loyalty and fidelity to the wishes of the settlor. A loyalty and fidelity which may mean the trustee [ sic ] may give the trustee leave to ignore outside influences and changes and circumstances. That's what I believe good faith means when it's encompassed with trust documents such as this. . . . So that if indeed the settlor's wishes carried to their fullest, carry the beneficiaries down the drain, so be it. They go down the drain because the settlor instructed its trustee to do so on his future conduct.
There is nothing in the expressed provisions of the settlor, as contained in these trusts, which permits a Court to measure the good faith of the trustee's discharging his duty by the fluctuations ...