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NORRIS v. WIRTZ

January 4, 1989

SUSAN MARY NORRIS, Plaintiff,
v.
WILLIAM W. WIRTZ, individually and as executor of the Estate of Arthur M. Wirtz; WIRTZ CORPORATION, WIRTZ REALTY CORPORATION, WIRTZ INSURANCE AGENCY, INC.; CONSOLIDATED ENTERPRISES, INC.; CHICAGO STADIUM CORPORATION; and FIRST SECURITY TRUST & SAVINGS BANK, Defendants


George M. Marovich, United States District Judge.


The opinion of the court was delivered by: MAROVICH

GEORGE M. MAROVICH, UNITED STATES DISTRICT JUDGE

 This lawsuit is one of several brought by a beneficiary against her trustee and various businesses he owns or controls, for alleged self-dealing. Plaintiff Susan Mary Norris contends that defendant William A. Wirtz abused his position as trustee under her parents' testamentary trusts. The pending amended complaint contains seven counts. Three counts allege violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961, et seq. ("RICO"); one count alleges securities fraud under Section 78(j)(b) and Section 10(b) of the Securities Exchange Act of 1934; one count alleges state law claims of breach of fiduciary duty; and the final two counts are a shareholder derivative suit on behalf of two closely held corporations for breach of fiduciary duty and a suit for liquidation of those corporations under Section 12.55(f) of the Illinois Business Corporation Act. Now pending before the court is defendants' motion to dismiss the amended complaint or, in the alternative, for summary judgment. For the reasons explained below, the court denies defendants' motion.

 I. Factual Background

 This case is the second of two formerly consolidated cases wherein Susan Norris seeks recovery for various alleged misdeeds of William A. Wirtz.

 Many of the facts underlying both suits are set forth in the appellate opinions of Norris v. Wirtz, 719 F.2d 256, 257-58 (7th Cir. 1983), cert. denied, 466 U.S. 929, 104 S. Ct. 1713, 80 L. Ed. 2d 185 (1984), and Norris v. Wirtz, 818 F.2d 1329 (7th Cir.), cert. denied, 484 U.S. 943, 108 S. Ct. 329, 98 L. Ed. 2d 356 (1987). For purposes of clarity and completeness, the court will summarize the relevant facts. As befits the posture of this case, the facts alleged in plaintiff's complaint are taken as true, and all reasonable inferences will be construed in plaintiff's favor.

 Plaintiff Susan Mary Norris (hereafter "Susan") is a member of the Norris family which acquired a substantial fortune in sports, real estate, banking and liquor interests. These included from time to time the Madison Square Garden in New York City, athletic stadiums and arenas in Chicago, Detroit, St. Louis, and elsewhere, hockey teams, including the Detroit Red Wings and the Chicago Black Hawks, promotion of boxing contests, including professional world championships, the Ice Follies, racing stables, and office buildings, residential buildings and commercial and hotel properties and theatres. Many of these interests were owned or controlled together with the Wirtz family.

 In February, 1966, plaintiff's father, James Norris, died, leaving his wife Mary Norris and defendant William Wirtz (James Norris's business partner)(hereafter "William") as co-executors of his will. Under the terms of that will, any property which remained after the closing of the estate was to be divided into two trusts, one for the benefit of Mary Norris (Trust A) and the other for the benefit of Susan (Trust B). William was appointed trustee and defendant Arthur Wirtz, William's father, was named successor trustee. The estate closed in 1977.

 Mary Norris, Susan's mother, died in 1976, exercising a power of appointment to divide the corpus of Trust A into four further trusts, one of which was for Susan's benefit. William Wirtz also acted as executor of the Mary Norris Estate, which was closed in 1983. William continues to act as the sole trustee of Trust B and of the four trusts created from Trust A.

 Plaintiff alleges in this suit and several others filed in both state and federal court that William has been less than an ideal trustee. Most relevant to the instant motions is a 1980 federal securities fraud suit. In case No. 80 C 6836, Susan claimed that William and others defrauded her in connection with a 1967 and 1968 sale of Jim Norris Estate stock in three closely held corporations - Arena Bowl, Inc., Judge & Dolph, Ltd., and St. Louis, Arena Corp. The suit is based on William's sale of the Jim Norris Estate's shares in the three corporations back to those corporations as a repurchase and redemption of shares. Because defendant Wirtz Corporation, owned by the Wirtz family, held a controlling interest in each of the three corporations, there was a potential for self-dealing in the transaction on the part of William. Before the stock transactions were routinely approved by the probate court, William went to plaintiff several times when she was eighteen and nineteen years old and secured her approval of the stock sales. The suit alleges that in the course of inducing Susan's uninformed approval of the sales, William made false statements concerning the value and fair price of the stocks.

 According to the docket sheet, the instant suit was filed on February 17, 1984. *fn1" This suit, No. 84 C 1527, was consolidated for discovery with the related 1980 securities fraud suit, No. 80 C 6836. While the suits were consolidated, the defendants brought several motions which are the subject of opinions written by Judge Getzendanner. Judge Getzendanner declined to dismiss the cases and ultimately denied the summary judgment motions. Thereafter, the suits were separated for trial. The 1980 securities suit went first. A jury entered a verdict for Susan, finding that William had defrauded Susan in the 1967 and 1968 transactions.

 On appeal, the Seventh Circuit, two to one, reversed the jury's verdict on statute of limitations grounds. Norris v. Wirtz, 818 F.2d 1329 (7th Cir.), cert. denied, 484 U.S. 943, 108 S. Ct. 329, 98 L. Ed. 2d 356 (1987). The court found that the appropriate statute of limitations for Rule 10(b)-5 actions was three years. Susan was entitled under tolling rules to postpone the running of the statute because of equitable considerations, including fraudulent concealment and the fact that William was her trustee. However, the court found that since 1975 Susan had been dealing with William at arms length through independent attorneys and that by November, 1977, Susan knew enough to recognize that the method of valuation used in 1967 and 1968 was flawed. Therefore, the court held that the lawsuit filed December 24, 1980 was untimely. That opinion plays a significant role in defendants' present motions and will be referred to herein as " Norris II."

 II. Allegations in This Lawsuit

 Plaintiff alleges in this suit that William Wirtz used his position as trustee to carry out a deliberate and ongoing scheme to convert to his own use major assets of the Norris estates and trusts. The allegedly fraudulent conduct spans almost twenty years and involves many separate allegedly fraudulent transactions. The first of these suspect transactions is the 1967 and 1968 securities frauds which formed the basis of the 1980 10(b)5 action. In addition, plaintiff questions a 1981 sale of stock in First Security Trust & Savings Bank ("First Security transaction"); a 1975-1979 alleged fraud involving stock in Medical Investment Corporation ("Medicor fraud"); a 1977 transaction involving the purchase of DeLuca Importing Company and Nevada Beverage Company ("DeLuca/Nevada fraud"); a 1984-85 sale of the Rathjen Division of Consolidated Enterprises, a California liquor wholesaler ("Rathjen fraud"); a 1979 sale of the 666 Lake Shore Drive building in Chicago ("666 Lake Shore Drive fraud"); a 1984-1988 acquisition of a beer distribution business in Minnesota ("Griggs Beer fraud"); and other various allegedly illegal conduct.

 The complaint consists of seven counts. The first three counts allege violations of RICO Sections 1962(a)(Count I), 1962(b)(Count II), and 1962(c)(Count III). The fourth count alleges a securities fraud under Rule 10(b)5 of the Securities and Exchange Commission based on the First Security transaction. Count V alleges a common law breach of fiduciary duty. The count alleges that William breached his duties by preventing two Norris/Wirtz-owned corporations - Consolidated Enterprises and Chicago Stadium Corporation - from paying dividends from available funds. Count VI is a shareholder's derivative suit on behalf of the two aforementioned corporations. Finally, Count VII seeks dissolution of the same two corporations under the Illinois Business Corporations Act.

 The defendants move to dismiss or, in the alternative, for summary judgment on a multitude of grounds. After careful consideration, the court rejects each of the defendants' contentions. The court addresses each of the contentions in the order in which they were raised.

 A. RICO Counts: Statute of Limitations

 Defendants' first argument is that the RICO counts are untimely as they were filed more than four years after the RICO cause of action accrued. The issue here is when the RICO cause of action accrued.

 The Seventh Circuit has not yet ruled on the standard to be applied in determining when a RICO claim accrues. Among district courts and other circuits which have addressed the issue, two RICO accrual tests have emerged. The first test - the "last predicate act" standard - holds that the limitations period commences to run on a RICO claim from the date of the last predicate act comprising the RICO pattern. Plaintiff herein urges the court to adopt this rule and points out that a substantial number of judges in this district have adopted the approach. See Citicorp Savings of Illinois v. Streit, 1987 U.S. Dist. LEXIS 2860, No. 84 C. 7471 (N.D. Ill. April 3, 1987) (McGarr, J.); Carlstead v. Holiday Inns, Inc., 1987 U.S. Dist. LEXIS 2546, No. 86 C 1927 (N.D. Ill. March 26, 1987)(Plunkett, J.); County of Cook v. Berger, 648 F. Supp. 433, 433-35 (N.D. Ill. 1986) (Kocoras, J.); ...


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