to other materials relied upon by the parties.
First Wisconsin National Bank (FWNB) and its wholly-owned subsidiary FM Properties, Inc. acquired the assets of a steel fabricating plant located in Melrose Park, Illinois through a deed in lieu of foreclosure when the plant's former owner proved unable to repay a loan to FWNB. (Plaintiffs' Rule 12(m) Statement on Count I, PP 7, 10.) FM Properties created a wholly-owned subsidiary, Chicago Steel Corp. (here Chicago Steel/CSFM) to hold the assets.
A. Roles of Elbert, McKee, and Jasica
FWNB had no experience in the operation of a steel plant. Accordingly, in October 1984, FWNB entered into an Agreement for the Performance of Personal Services (hereinafter "Personal Services Agreement") with the consulting firm of Elbert & McKee Company.
(Plaintiffs' Rule 12(m) Statement on Count I P 11.) The Agreement provided that Elbert and McKee would serve initially as chief executive officers of Chicago Steel/CSFM with the authority, subject to Board approval, to formulate company policies; administer the company; hire and fire personnel; and enter into contracts. (Personal Services Agreement § 1, Ex. PX-2 to Plaintiffs' Rule 12(m) Statement on Count I.) Specifically, Elbert and McKee would serve as President and Executive Vice President, or in any other executive officer position designated by the company's Board of Directors. (Id.)
The Board of Directors formally elected Elbert and McKee to their respective positions on October 2, 1984 (Plaintiffs' Rule 12(m) Statement on Count I P 13) and filed notice to this effect with the Wisconsin Secretary of State on October 22. (Chicago Steel Corporation Certificate of Newly Elected Officers/Directors of 10/22/84, Ex. PX-24 to Plaintiffs' Rule 12(m) Statement on Count I.) Thereafter, the minutes of the board meetings consistently listed Elbert and McKee among the "officers present. " (See, e.g., Minutes of monthly meetings of Chicago Steel/CSFM's Board of Directors (hereinafter "Board Minutes") of 1/15/85 through 11/14/86 Ex. PX-30-39, PX-42-45, PX-52, PX-68, PX-151, and PX-154 of Plaintiffs' Rule 12(m) Statement on Count I.)
Plaintiffs claim they understood from the beginning that Elbert and McKee were to run the company. (Ehle Dep.
at 133-139, 167-169.) They further contend that the personnel of FWNB and the directors of Chicago Steel/CSFM and FM Properties believed that Elbert and McKee were officers of the company and relied upon them as such. (Plaintiffs' Rule 12(m) Statement P 20; Stark Dep.
at 201.) In addition, in a letter from Defendants' own attorney John Jeffries to Edwin Hochman, Vice President of Near North Insurance Agency, Jeffries described Defendants Elbert and McKee as being "in charge of operations of Chicago Steel Corporation . . . ." (Letter from Jeffries to Hochrnan of 11/1/85, Ex. PX-206 to Plaintiffs' Rule 12(m) Statement on Count I.) Jeffries went on to write that Elbert and McKee were involved in "managing" other steel facilities across the United States and would likely acquire Chicago Steel/CSFM by the second quarter of 1986. (Id.)
Defendants Elbert and McKee, however, strongly deny they were officers of Chicago Steel/CSFM. They assert that they repeatedly refused to serve as officers or employees of Chicago Steel/CSFM because to have done so would have harmed their business as independent consultants to the steel industry. (Elbert Dep., at 205-107; McKee Dep., at 122-24; Elbert Aff. P 7; McKee Aff. P 6.) They further contend that their initial appointments as President and Executive Vice President were intended solely to meet certain technical incorporation requirements and thus were not substantive positions. (Elbert Aff. P 4; McKee Aff. P 4.) In addition, McKee denies knowing he was included in the list of "officers present" in the board minutes (McKee Dep., at 140), and both he and Elbert deny knowing of the election notice filed with the Wisconsin Secretary of State's office. (Elbert Aff. P 4; McKee Aff. P 4.)
Despite their objections, the record shows that Defendants did perform a number of important managerial tasks for Chicago Steel/CSFM. These tasks, which were consistent with if not necessarily specified in the Personal Services Agreement, included assisting Plaintiffs in finding a buyer for the company (Letter from Elbert to Ehle on 12/12/84, Ex. PX-27 to Plaintiffs' Rule 12(m) Statement on Count I; Elbert Aff. P 8.); reporting regularly to the company's Board of Directors on the status of various projects and bids for contracts (Board Minutes of 1/15/85 through 11/14/86, Ex. PX-30-39, PX-42-45, PX-52, PX-68, PX151, and PX-154 of Plaintiffs' Rule 12(m) Statement on Count I); and signing checks drawn on the company's account with FWNB. (Board Minutes of 3/14/85, Ex. PX-32 to Plaintiffs' Rule 12(m) Statement on Count I.)
More significantly, in late 1984 Elbert and McKee recruited Raymond Jasica to be the company's President and Chief Executive Officer -- the "highest level full-time employee of the Chicago Steel Company," in Elbert's words. (Letter from Elbert to Jasica of 11/4/84, Ex. DX-16 to Plaintiffs' Rule 12(m) Statement on Count I.) In a letter to Jasica on November 4, Elbert wrote that he, Jasica, and McKee would initially serve as an executive committee for Chicago Steel/CSFM, make the necessary decisions, and then divide up the assignments. (Id.)
On December 1, 1984, the Board of Directors elected Jasica President of Chicago Steel/CSFM and removed Elbert and McKee from their positions as president and executive vice president. (Chicago Steel Corporation Directors' Consent Action of 12/1/84, Ex. PX-21 to Plaintiffs' Rule 12(m) Statement on Count I.) At the same time, the Board elected McKee and Elbert to the newly created position of "Vice Chairman." (Id.) Defendants Elbert, McKee, and Jasica remained in these respective positions for the remainder of the time they were employed by Chicago Steel/CSFM. (Plaintiffs' Rule 12(m) Statement P 15.)
As stated above, Defendants Elbert and McKee assert that they were not officers of Chicago Steel/CSFM and claim that the position of "Vice Chairman" was a purely nominal title. (Elbert Dep., at 205-207; McKee Dep., at 122-124; Elbert Aff. P 6; McKee Aff. P 5.) Defendants do not offer any evidence, however, that Jasica's role as President and CEO of Chicago Steel/CSFM was anything but substantive.
B. Defendants Were Aware That Plaintiffs Wanted to Sell Chicago Steel/CSFNI
The record shows that from a time early in their relationship with Plaintiffs, Defendants were aware that Plaintiffs wanted to sell the Melrose Park steel plant. In their initial offer to serve as consultants, Elbert wrote that he and McKee were uniquely qualified to determine whether the plant could be sold as an operating company. (Letter from Elbert to Pattinson
of 7/30/84, Ex. PX-20 to Plaintiffs' Rule 12(n) Reply on Count I.) In December 1984, Defendants offered to assist FWNB in finding a buyer, which Defendants recognized was the Bank's "primary thrust." (Letter from Elbert to Ehle on 12/12/84, Ex. PX-27 to Plaintiffs' Rule 12(m) Statement on Count I; see also Elbert Aff. P 8.) Both Elbert and McKee contacted a number of potential buyers in the steel industry (McKee Dep., at 128-134), and Elbert described the prospects for the sale of the company to the Board of Directors on several occasions. (Board Minutes of 1/15/85 and 2/19/85, Exs. PX-30 and PX-3 1, respectively, to Plaintiffs' Rule 12(m) Statement on Count I.)
C. Defendants' Purchase of Chicago Steel/CSFM
Defendants eventually decided to purchase the assets of Chicago Steel/CSFM themselves. In March 1985 Defendants notified Plaintiffs of their interest (Board Minutes of 3/14/85, Ex. PX-32 to Plaintiffs' Rule 12(m) Statement on Count I), and in March 1986 sent a letter of intent offering to purchase the stock of Chicago Steel/CSFM from Plaintiffs. (Letter from Elbert, McKee, and Jasica to First Wisconsin National Bank of 3/12/86, Ex. PX-46 to Plaintiffs' Rule 12(m) Statement on Count I.)
Defendants assert that from the time they first expressed interest in purchasing the company, it was understood by all parties that they were in a potentially adversarial relationship. (Defendants' Rule 12(m) Statement on Count I PP 8-11.) Defendants further claim that Plaintiffs subsequently took steps to protect their interests and verify any representations made by Defendants, such as obtaining outside appraisals of the property; actively searching for other potential buyers; requiring monthly financial reports from Defendants; and prohibiting Defendants from binding Chicago Steel/CSFM or entering into any contracts on its behalf. (Defendants' Rule 12(m) Statement on Count I, at 14.)
Defendants also contend that during this time Plaintiffs had identified another prospective buyer interested in purchasing Chicago Steel/CSFM's assets. (Defendants' Rule 12(m) Statement on Count I PP 47, 48.) Defendants claim this other buyer was willing to pay significantly more than what was paid by Defendants, but the record shows only that the prospective buyer offered some $ 3,000,000, which was comparable to what Defendants eventually paid. (Ehle Dep., at 118, 473-74, 477-79.) Moreover, the record shows that the buyer entered at the "eleventh hour" of Plaintiffs' negotiations with Defendants, and Plaintiffs put the second buyer on hold pending resolution of their negotiations with Elbert, McKee, and Jasica. (Ehle Dep., at 481-83.)
Plaintiffs and Defendants finally reached an agreement for the purchase and sale of Chicago Steel/CSFM. ("Purchase and Sale Agreement," found in Letter from Ehle, Fitzsimonds, and Giese
to Elbert, McKee, and Jasica of August 19, 1986, Ex. PX-5 to Plaintiffs' Rule 12(m) Statement on Count I.)
The Purchase and Sale Agreement included the following terms relevant to Count I:
* The purchase price would consist of $ 2,500,000 payable in cash at closing; plus $ 1,776,000 payable in cash in closing, but which amount would be decreased (or increased) by any amounts received by (or from) FWNB from (or to) the Buyers prior to closing; plus 1,500,000 shares of preferred stock, par value of $ 1.00 per share, in the new corporation. (Id. PP l(a-c).)