B. Claims Against Hopkins and Cote
8. As for Evenson's claims of fraud, the Findings are replete with instances of deceptive and otherwise improper conduct by Hopkins (and to a lesser extent by Cote). But the difficulty is that even though such misconduct certainly caused major financial harm to Evenson -- measured by the damages that are attributable to the breaches of the Asset Purchase Agreement and Employment Agreement -- the misconduct cannot be said to have caused CNC-Illinois and Evenson either (a) to have entered into those agreements in reliance on the misrepresentations or (b) to have acted in reliance on any post-contract misrepresentations to their detriment. Instead the situation that emerged at trial was that Hopkins and Cote entered into the asset purchase transaction with the intention and hope that it would prove successful, and that any pre-purchase misrepresentations on their part did not qualify as common law fraud. It is true that all the machinations that Hopkins and Cote engaged in once they acquired control of the business and found that their hopes were not being realized have certainly damaged Evenson, but it is difficult to place that scenario under the rubric of fraudulent representation by identifying any post-closing representations that they made to Evenson or CNC-Illinois to which any resulting reliance damages may be traced. It suffices that full recovery (including attorneys' fees) is obtainable by Evenson on the breach-of-contract grounds discussed later. Evenson's fraud claim is dismissed.
Evenson's Alleged Breach of Employment Agreement
9. Opinion at 304-05 found that CNC-Wisconsin's Count III had survived -- but that was so because its factual allegations were then accepted as correct. Now Finding 35 has demonstrated CNC-Wisconsin's inability to sustain its burden of proving those allegations. Once again its failure in factual terms dooms the claim as a matter of law. It is dismissed.
10. As for Evenson's RICO claim, the evidence adduced in this action with respect to the Ettlies transaction (the PMA-E/PMS acquisition), although to be sure disturbing (see Finding 38), does not suffice to establish mail fraud against Ettlies on the part of Hopkins or Cote or any of their corporations. That being true, all that remains as a potential RICO springboard is the Hopkins-Cote conduct vis-a-vis CNC-Illinois and Evenson. And that alone fails to satisfy the essential "pattern" ingredient of a civil RICO claim as emphasized in the now-famous footnote 14 of Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985) and as explicated in a series of post-Sedima decisions by our Court of Appeals, most recently in Hartz v. Friedman, 919 F.2d 469, 1990 U.S. App. LEXIS 20894, at 6-10 (7th Cir. 1990).
Evenson's RICO claim is also dismissed.
Breach of Contract
11. CNC-Wisconsin, PMA, Hopkins and Cote have admitted that valid contracts were entered into by CNC-Wisconsin (a) with CNC-Illinois (the Asset Purchase Agreement) for the payment of $ 40,000 and $ 370,000 (each of those obligations also being evidenced by a promissory note) and (b) with Evenson (the Employment Agreement) for the payment of wages at the rate of $ 40,000 per year and fringe benefits at the rate of $ 7,000 per year. This Court has also found the existence of contract liability on the part of CNC-Wisconsin and PMA (and, for reasons stated hereafter, Hopkins and Cote as well) for the payment of the CNC-Illinois $ 50,000 obligation to Bank.
12. CNC-Wisconsin, PMA, Hopkins and Cote have admitted that all payments that were to be made to Evenson either individually or as successor in interest to CNC-Illinois were stopped in May 1988. This Court has made the findings (a) that their conduct in doing so was not justified and was in breach of the covenants of the Asset Purchase Agreement and the Employment Agreement and (b) that CNC-Illinois and Evenson had fully performed their own contractual obligations under the terms of both those agreements, except for this Court's previous ruling that CNC-Illinois had breached its warranty of title (a breach that has now been found to have been purely technical and not material, causing no damage).
13. Evenson is entitled to statutory prejudgment interest at the rate of 5% per annum pursuant to Ill. Rev. Stat. ch. 17, para. 6402, on all sums due and owing from CNC-Wisconsin, PMA, Hopkins and Cote where a specific rate of interest is not otherwise provided for.
14. Evenson's contract damages, both individually and as successor to CNC-Illinois, comprise the following amounts inclusive of interest:
(a) for nonpayment of the amount of
the CNC-Illinois line of credit with the
Bank of Elmhurst, the amount as reduced
to judgment in favor of Bank
against Evenson (to which shall be added
prejudgment statutory interest of 9% per
annum from and after March 10, 1990)
(b) for nonpayment of the note in the
principal amount of $ 370,000 (to which
shall be added the note-provided interest
of 10.5% per annum from and after June 1, 1988)
(c) for nonpayment of the note in the
principal amount of $ 40,000 (to which
shall be added prejudgment statutory interest
of 5% per annum from and after
June 1, 1988)
(d) for nonpayment of the compensation
plus fringe benefits under Evenson's
Employment Agreement from June 1,
1988 through September 30, 1988 (to
which shall be added prejudgment statutory
interest on each installment in the
amount of 5% from and after its due
(e) Evenson's attorney's fees incurred
in defending Bank of Elmhurst's suit on
the obligation referred to in Conclusion
14(a) as the necessary consequence of the
conduct of CNC-Wisconsin, PMA, Hopkins
(f) Evenson's attorney's fees and
costs incurred in this action
Amount to be supplied
15. Evenson's burden under 1934 Act § 10(b) and SEC Rule 10b-5 promulgated thereunder has been capsulized in Schlifke v. Seafirst Corp., 866 F.2d 935, 943 (7th Cir. 1989) (citation omitted):
In order to state a claim under Rule 10b-5, 17 C.F.R. § 240.10b-5, the plaintiffs must demonstrate that the Bank: (1) made an untrue statement of material fact or omitted a material fact that rendered the statements made misleading, (2) in connection with a securities transaction, (3) with the intent to mislead, and (4) which caused plaintiff's loss.
In this instance the securities that are the basis of Evenson's 1934 Act claim are the 100 shares of CNC-Wisconsin stock sold to him pursuant to Asset Purchase Agreement § 1.5(b)(3).
16. Even though the liability-triggering condition under 1934 Act § 10(b) must be "in connection with the purchase or sale of any security," Evenson wrongly emphasizes -- just as in his already-rejected fraudulent misrepresentation claim -- after-the-fact misconduct by Hopkins and Cote. But for any such later misconduct to be actionable as securities fraud, it must evidence misrepresentations or nondisclosure that preceded and induced the sale of securities. Evenson's approach to the matter is manifested by his proposed Conclusions of Law 31 and 32 (copied verbatim, errors and all):
31. Pursuant to those findings of fact made in this cause regarding the failure of defendants to disclose material facts which should have been disclosed to Evenson regarding the true state of defendants relationships with each other, their plans and intentions to comingle assets of CNC Wisconsin with those of PMA and their plans and intentions to further their financial objective by means of deceptive information given to third party commercial lenders all pursuant to 17 C.F.R. § 240.106-5, defendants Cote and Hopkins and each of them have committed and are guilty of the use of a deceptive contrivance in violation of Para 15 U.S.C. § 78j and as such are liable to Evenson for his actual damages arising from the sale of his business, which involved and was induced, in material part, by the issuance of CNC Wisconsin stock to Evenson.