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10/04/96 THOMAS M. SERAFIN AND SERAFIN & ASSOCIATES

October 4, 1996

THOMAS M. SERAFIN AND SERAFIN & ASSOCIATES INC., PLAINTIFFS-APPELLANTS,
v.
ALEX R. SEITH, WILLIAM D. SEITH, GREAT LAKES NETWORK INC., FORMERLY KNOWN AS SEITH-SERAFIN COMMUNICATIONS, INC., WISCONSIN NEWS NETWORK, INC., LORD, BISSELL & BROOK, AND LH&S COMMUNICATIONS, INC., DEFENDANTS-APPELLEES.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. No. 91 CH 07485. THE HONORABLE DOROTHY KINNAIRD, JUDGE PRESIDING.

The Honorable Justice Cousins delivered the opinion of the court: McNULTY, P.j., and Gordon, J., concur.

The opinion of the court was delivered by: Cousins

JUSTICE COUSINS delivered the opinion of the court:

In 1986, plaintiff Thomas Serafin (Serafin) and defendants William Seith and Alex Seith formed a corporation. Alex Seith was former partner in the law firm of Lord, Bissell & Brook. Serafin sued Alex Seith and others on August 14, 1991, alleging that Alex Seith acted as Serafin's lawyer when he prepared corporate resolutions in 1991 that permitted dilution of Serafin's 30% stock ownership interest in the corporation. On April 16, 1993, Serafin filed an amended complaint against Lord, Bissell & Brook, seeking to compel statutory disclosure of corporate records and for statutory remedies. The complaint also alleged legal malpractice and negligence, as well as breach of contract for legal services. Lord, Bissell & Brook filed a motion to dismiss, which the trial court granted. Serafin filed a sixth amended complaint asserting that Lord, Bissell & Brook had a duty to advise him of the majority shareholders' ability to eliminate preemptive rights when the corporation was formed in 1986. Lord, Bissell & Brook filed another motion to dismiss. The trial court granted the motion, finding that Serafin's claims were barred by the six-year statute of repose applicable to actions based on attorney malpractice.

On appeal, Serafin contends that: (1) the trial court erred in finding that his complaint against Lord, Bissell & Brook was time-barred by the statute of repose; (2) the trial court erred in finding that the 1991 act was not the proximate cause of his injury; (3) section 13-214.3 of the Code of Civil Procedure (735 ILCS 5/13-214.3(West 1992)) is unconstitutional; (4) the trial court erred in not applying equitable estoppel; and (5) the trial court erred in not finding that Alex Seith as a partner with Lord, Bissell & Brook fraudulently concealed the cause of action from Serafin.

BACKGROUND

On October 13, 1986, a preorganization agreement was executed between Thomas Serafin, Alex Seith and Seith's son, William Seith. The preorganization agreement was prepared by Alex Seith, with the assistance of attorneys and/or employees of Lord, Bissell & Brook. The preorganization agreement specified the number of shares that each of the three shareholders would receive once the corporation was incorporated. The number and percentage of stock ownership were as follows: Alex Seith, 510 shares with 51% ownership; William Seith, 190 shares with 19% ownership and Thomas M. Serafin, 300 shares with 30% ownership. The subscription agreement stated, among other things:

"The subscribers hereto shall take whatever action is appropriate in order to assure that the common stock for which they hereby subscribe is held only by them and by those persons similarly interested in the objectives and operations of the proposed corporation, all in order to insure continuity and harmony in management by persons familiar with the corporation's requirements and devoted to its best interests."

On or about October 17, 1986, Great Lakes Network, Inc., formerly known as Seith-Serafin Communications, Inc. (the corporation), was incorporated. The articles of incorporation were drafted by Alex Seith with the assistance of attorneys and/or employees of Lord, Bissell & Brook. The articles contained the following words which gave the stockholders preemptive rights to acquire unissued shares of stock in order to protect their respective position(s) within the corporation:

"The share holders of the corporation shall have preemptive rights to acquire unissued shares of the corporation, or securities of the corporation convertible into or carrying a right to subscribe to or acquire shares."

On December 26, 1990, the articles were amended by unanimous consent to provide for 5,000 authorized shares of common stock. The unanimous consent was prepared by Alex Seith with the assistance of attorneys and/or employees of Lord, Bissell & Brook. Also, by unanimous consent, on January 2, 1991, 2,000 shares of stock were issued and all three shareholders were given the benefit of preemptive rights as follows: Alex Seith, 510 original shares and a total of 1,020 shares after new stock issue with 51% ownership; William Seith, 190 original shares and a total of 380 shares after new stock issue with 19% ownership, and Thomas M. Serafin, 300 original shares and a total of 600 shares after new stock issue with 30% ownership.

On April 22, 1991, Susan Gordon, an employee of Lord, Bissell & Brook and secretary to Alex Seith, met with Serafin at a restaurant and showed him two corporate documents that Alex Seith requested that Serafin sign. The first document was a unanimous consent of the directors of the corporation to recommend to the shareholders that the authorized stock be increased from 5,000 to 50,000 shares and that the articles be amended to eliminate the shareholders' preemptive rights:

"RESOLVED: That Article Four Paragraph 2 of the Articles of Incorporation be amended to delete the following sentence: 'The shareholders of the corporation shall have preemptive rights to acquire unissued shares of the corporation, or securities of the corporation convertible into or carrying a right to subscribe to or acquire shares.'

FURTHER RESOLVED: That Article Five of the articles of Incorporation shall be amended to provide that the authorized number of shares of stock be increased from 5,000 to 50,000."

The second document was a unanimous consent of the shareholders of the corporation adopting the above resolution eliminating preemptive rights. Serafin told Susan Gordon that he wanted to talk to Alex Seith before signing the two documents. The same day, Alex Seith had the documents faxed to Serafin's office and telephoned Serafin at his office. Alex Seith told Serafin that the documents would help the company, would help the investors get stock more easily, and would be good for each of the shareholders. On April 22, 1991, Serafin signed both documents.

On April 22, 1991, the corporation's board of directors was comprised of Alex Seith, William Seith, Thomas Serafin, and James L. Fletcher, Esq. On May 10, 1991, the articles were amended to increase the number of board members to add Carol Seith, wife of William Seith, as a director.

On May 13, 1991, majority shareholders Alex Seith and William Seith voted to remove Serafin as director of the corporation. On May 15, 1991, by unanimous consent of the remaining directors, Alex Seith, Carol Seith and James L. Fletcher, Serafin was removed as president of the corporation.

On May 20, 1991, the board of directors unanimously consented to issue an additional 100,000 shares of stock: Alex Seith received 70,000 shares and William Seith received 30,000 at a price of 20 cents per share. The Seiths executed stock subscription agreements pursuant to the board's action, agreeing that as consideration for the stock, they would forgive part of the outstanding principal on a loan that they had made to Seith-Serafin Communications. On May 28, 1991, by the informal action of majority shareholders Alex ...


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