Appeal from the Circuit Court of Du Page County. No. 95--MR--0354. Honorable Bonnie M. Wheaton, Judge, Presiding.
As Corrected October 21, 1997. Released for Publication November 14, 1997.
The Honorable Justice Rathje delivered the opinion of the court. Doyle and Hutchinson, JJ., concur.
The opinion of the court was delivered by: Rathje
The Honorable Justice RATHJE delivered the opinion of the court:
Plaintiff, Pamela Giagnorio (Pamela), brought this action, alleging that defendant, Joan Torkelson (Joan), breached her fiduciary duties as trustee of the Emmett C. Torkelson Trust (Trust), dated January 27, 1989. Specifically, Pamela alleged that the sale of the Trust corpus by Joan to defendant, James Torkelson (James), breached Joan's duty to Pamela, a contingent beneficiary of the Trust. Pamela's complaint was dismissed, and she was given leave to file an amended complaint. After extensive briefing and argument, the trial court dismissed Pamela's amended complaint with prejudice, citing Bracken v. Block, 204 Ill. App. 3d 23, 149 Ill. Dec. 577, 561 N.E.2d 1273 (1990). This timely appeal followed.
On appeal, Pamela generally argues that the trial court erred in finding her amended complaint did not set forth facts stating a recognized and viable cause of action and that said complaint, at the very least, raised genuine issues of material fact surrounding the subject transaction and the discharge of the trustee's duties, so as to preclude judgment in defendants' favor as a matter of law.
The record at bar reveals the following relevant facts. On January 27, 1989, Emmett C. Torkelson (Emmett), established the subject Trust to hold his interest in a business called Alu-Bra Foundry, Inc. (Alu-Bra). At the time the Trust was created, Emmett C. Torkelson was married to Joan Torkelson. Among their children were the plaintiff, Pamela Giagnorio, and one of the defendants, James Torkelson. Both Pamela and James are contingent beneficiaries of the Trust. The Trust's corpus consisted of all of Alu-Bra's outstanding shares, which totalled 3,333 1/3 shares. The Trust instrument designated Emmett's wife, Joan, and his daughter, Pamela, as co-trustees upon Emmett's death. Pursuant to the Trust instrument, either Joan or Pamela could act alone as trustee after the death, resignation, or disability of the other.
Further, the Trust instrument provided that, upon Emmett's death, the balance of the Trust shall be set aside as a separate Trust, known as the "Family Trust." The trustee was directed to pay income from the Family Trust to Joan in installments during her lifetime or to use the Trust's principal as "necessary or advisable" for Joan's "health, maintenance and reasonable comfort."
The Trust instrument also provided the following formula for a trust (marital trust) to be created for Joan's benefit upon Emmett's death:
"If JOAN M. TORKELSON, herein referred to as 'my wife' survives me, the trustee as of my death shall set aside out of the trust estate as a separate trust for her benefit a fraction of the trust property of which (i) the numerator is the smallest amount which, if allowed as a federal estate tax marital deduction, would result in the least possible federal estate tax payable by reason of my death, and (ii) the denominator is the federal estate tax value of the assets included in my gross estate which became (or the proceeds, investments or reinvestments of which became) trust property."
The Trust instrument further states that all of Emmett's children, with the exception of Candace M. Torkelson, will receive equal shares of the Family Trust "including any amounts added thereto from the Marital Trust" upon Joan's death, should she survive him. Descendants of any deceased children were to receive the deceased child's share per stirpes.
The Trust instrument granted to the trustee(s) broad discretionary powers, which included the trustee's right to retain Trust property, to invest the corpus, to lease Trust property, and to perform any other acts necessary for the proper administration of the Trust.
The Trust instrument also permitted the trustee to retain any ownership in the Trust corpus, namely, Alu-Bra. In addition to the ability to retain the ownership interest, the trustee was given broad discretion in making business decisions on behalf of Alu-Bra.
At some point not disclosed by the record or the parties' briefs, Emmett died. On February 10, 1991, Pamela resigned as cotrustee of the Trust, leaving Joan as the sole trustee. On February 22, 1995, in her capacity as the sole trustee of the trust, Joan entered into a stock purchase agreement (Agreement) with James, a contingent beneficiary of the Trust. Under this Agreement, Joan agreed to sell to James all the 3,333 1/3 shares of Alu-Bra in the Trust for $400,000, plus 8% interest per year to be paid in quarterly installments to Joan. James further agreed to execute a promissory note (Note) to pay the final purchase price on January 1, 2025. To secure the Note, James agreed to purchase two life insurance policies on Joan's life in the total amount of $437,993. In the event of Joan's death, James agreed to pay off the Note with the proceeds of these policies.
James also agreed not to borrow against the policies' cash value without Joan's permission, and, under no circumstances, was James to borrow any amount that would reduce the policies' cash value below $400,000. James further acknowledged pending zoning and building code disputes between Alu-Bra and the Village of Bensenville.
The Note was executed at the same time as the Agreement. The Note required James to make weekly interest payments to Joan of $615.38. The Note further provided for a final payment of $400,615.38 on February 22, 2025, or sooner, if James defaulted on the Note. The Note was secured by the two life insurance policies. It further provided that Joan had the right to accelerate the Note and demand full payment in the event of a default by James. Additionally, the Note was payable in full upon Joan's death.
James also executed a pledge and escrow agreement (Escrow Agreement) between Joan's law firm and himself. The Escrow Agreement provided that all the certificates for the 3,333 1/3 shares of Alu-Bra stock would be held in escrow by Joan's law firm pending the Note's payment. However, James retained the right to receive any income from the shares and the right to vote the Alu-Bra shares.
On June 1, 1995, Pamela filed her complaint, which generally alleged that there were significant deficiencies in the Agreement and that Joan had breached her fiduciary duties as sole trustee. Pamela sought to have the Agreement revoked and to have Joan removed as trustee. Thereafter, defendants filed a motion for dismissal pursuant to section 2--615 of the Code of Civil Procedure (735 ILCS 5/2--615 (West 1994)), and Pamela filed a response to said motion. The trial court granted the motion to dismiss but permitted Pamela to file an amended complaint.
The amended complaint alleged, inter alia, that Joan agreed to sell the Trust corpus for $400,000; that the value of the land owned by Alu-Bra was appraised at $290,000; that the company was valued by Bretel, Davey and Associates to be worth $500,000 on December 31, 1992; that, based upon all appraisals, the value of Alu-Bra stock and land ranged from a low of $665,000 to $790,000; that all appraised values were substantially higher than the agreed purchase price; that the Note executed by Joan and James required no cash down payment; that the Note is deficient in that it only allows for the entry of a judgment for any amounts due as of the date of a default as well as interest and attorney fees; that the Note does not allow for the recovery of the stock should James become insolvent, thus leaving the Trust and beneficiaries unprotected in the event of such a default; that the acceptance of the Note in the full amount was a breach of fiduciary duty owed the beneficiaries by Joan; that the pledge and escrow agreement regarding the Alu-Bra shares is merely a resort to the terms of ...