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12/17/97 MICHAEL POLSKY v. BDO SEIDMAN RICHARD

December 17, 1997

MICHAEL POLSKY, PLAINTIFF-APPELLANT AND CROSS-APPELLEE,
v.
BDO SEIDMAN; RICHARD KRIEBERG; AND LELAND GRAUL, DEFENDANTS-APPELLEES AND CROSS-APPELLANTS.



Appeal from the Circuit Court of Lake County. No. 95--L--1315. Honorable Bernard E. Drew, Jr., Judge, Presiding.

Released for Publication January 16, 1998. As Corrected January 14, 1998.

The Honorable Justice Doyle delivered the opinion of the court. Rathje and Hutchinson, JJ., concur.

The opinion of the court was delivered by: Doyle

The Honorable Justice DOYLE delivered the opinion of the court:

Plaintiff, Michael Polsky, appeals from a series of trial court orders that dismissed his first amended complaint; granted a motion for sanctions against him; denied his motion for reconsideration; and awarded fees and costs against him. Defendants, BDO Seidman (BDO), Richard Krieberg (Krieberg), and Leland Graul (Graul), cross-appeal from the order awarding fees and costs.

On August 2, 1995, plaintiff filed a complaint against defendants in the circuit court of Lake County. A subsequent first amended complaint (the amended complaint) identified BDO as an accounting firm and Krieberg and Graul as BDO partners. The amended complaint alleged that defendants conspired with plaintiff's former employer, Indeck Energy Services, Inc. (Indeck), to defraud plaintiff of salary, bonuses, and the fair market value of Indeck stock owned by plaintiff in violation of written employment and shareholder agreements between plaintiff and Indeck. The amended complaint sought compensatory damages in excess of $25 million and punitive damages in excess of $25 million.

The amended complaint contained four counts. The four counts were based on theories of tortious interference with contractual relations; tortious interference with prospective economic advantage; fraud; and conspiracy to defraud plaintiff of the economic benefits of his employment and shareholder agreements.

We summarize the facts as taken from the amended complaint. Indeck terminated plaintiff on September 21, 1990. The termination was pursuant to a clause in plaintiff's written employment agreement with Indeck. The employment agreement allowed Indeck to terminate plaintiff if Indeck's net worth, as of June 1, 1990, was less than - $500,000. The termination was allegedly wrongful because Indeck actually had a net worth far greater than -$500,000 on that date.

The amended complaint further alleged that defendants precipitated plaintiff's wrongful termination by certifying financial statements for Indeck as of May 31, 1990, and November 30, 1990; the financial statements improperly deferred a $16 million gain realized by Indeck on March 16, 1990, and an $11.3 million gain realized by Indeck on June 23, 1990; defendants knew that the sole reason Indeck wanted to defer these gains was so the financial statements would show a net worth for Indeck of less than -$500,000 thereby allowing plaintiff's termination; defendants' legal and professional obligations as auditors required the recognition of the gains at the time they were received; such recognition would have resulted in a positive net worth on the financial statements; and, but for the financial statements, Indeck would have had no grounds to terminate plaintiff.

The amended complaint further alleged that on September 21, 1990, pursuant to his employment agreement, plaintiff initiated an arbitration claim; during a hearing in the arbitration proceeding, Indeck relied on the May 31, 1990, financial statement prepared by BDO to attempt to show that Indeck had a net worth of less than -$500,000 on the audit date and that plaintiff's termination was therefore proper; Krieberg and Graul, who had prepared the financial statement, testified at the arbitration hearing in support of the financial statement; on November 27, 1991, the arbitrator determined that Indeck had wrongfully terminated plaintiff; the arbitrator awarded plaintiff $6,638,000 for lost salary and incentive compensation with interest of 10% per annum effective January 31, 1991; the arbitrator also awarded plaintiff $15,030,000 for the value of his Indeck stock; on February 20, 1992, the circuit court of Cook County confirmed the arbitrator's award for salary and incentive compensation, but vacated the award for the stock; and on February 28, 1992, Indeck paid plaintiff $7,301,005.80 pursuant to the arbitration award.

The amended complaint also alleged that plaintiff subsequently filed an action in the circuit court of Lake County (Lake County I) seeking to recover the value of his Indeck stock; the action was against Indeck, Indeck's chairman of the board, and others, but not the defendants in this case; and on May 10, 1994, plaintiff Indeck and the other parties in Lake County I settled all of their disputes by entering into a settlement and release agreement which contained release provisions (the release).

Defendants responded to plaintiff's amended complaint by filing a motion to dismiss the complaint. Defendants asserted, inter alia, that plaintiff's action was barred by the two-year statute of limitations set out in section 13-214.2(a) of the Code of Civil Procedure (Code) (735 ILCS 5/13--214.2(a) (West 1996)) and by the release.

On February 14, 1996, the trial court entered an order dismissing plaintiff's first amended complaint with prejudice. The order was based on the statute of limitations and the release.

Defendants then filed a motion for sanctions pursuant to Supreme Court Rule 137 (155 Ill. 2d R. 137). The motion sought an order requiring plaintiff to pay defendants for their attorney fees and costs.

On May 22, 1996, the trial court entered an order granting defendants' motion for sanctions. On June 12, 1996, the trial court entered an order which slightly amended the reasoning set out in the May 22, 1996, order. The amended order stated, in relevant part:

"Supreme Court Rule 137 requires that this Court set forth with specificity the reasons and basis of any sanction imposed. The Court's specific reasons are as follows:

1. Plaintiff filed this action over 5 years after he received notice of his termination by Indeck, allegedly caused by the accountant defendants. This is 3 years plus after the two year statute of limitation applicable to accountants had expired. Plaintiff's research found no basis for a good faith belief that his claim was not barred by the statute of limitations in 735 ILCS 13-214.2(a).

2. In exchange for the receipt of a very large sum of money, plaintiff signed a broad release. The terms of the release extended to Indeck's 'agents,' 'affiliates of any kind,' and to 'any person acting on [Indeck's] behalf... .' By its terms, the release clearly encompassed defendants, who were alleged by plaintiff to have acted on Indeck's behalf and as its agents.

3. In dismissing this action, I found that Polsky's claim was barred by the statute of limitations and the release, as set forth above. This Court did not find it necessary to reach the other grounds raised by defendants. Because plaintiff's claim was clearly barred by the statute of limitations and release, and plaintiff's explanations for filing his action in the face of the statute of limitations and release provide no good faith basis for believing the action was well grounded in fact or law, this Court finds that defendants are entitled to an award of sanctions in the amount of their fees, costs and expenses caused by the filing of this action by plaintiff. I find that plaintiff's action in filing this suit was an egregious violation of Rule 137."

On June 12, 1996, the date that the trial court entered the amended order, plaintiff motioned for reconsideration. Plaintiff sought an order vacating the trial court's ruling insofar as it was based on the release. On July 24, 1996, the trial court entered an order which denied plaintiff's motion for reconsideration.

On August 22, 1996, the trial court entered an order awarding fees and expenses to defendants. The order awarded fees in the amount of $100,000 and expenses in the amount of $4,047.11. The order contained language allowing an immediate appeal.

On September 19, 1996, plaintiff filed a notice of appeal from the trial court orders entered on February 14, 1996; May 22, 1996; June 12, 1996; July 24, 1996; and August 22, 1996. On September 27, 1996, defendants filed a notice of cross-appeal from the trial court order entered on August 22, 1996.

Initially, we briefly address a motion that was taken with the case. On April 18, 1997, plaintiff filed a motion with this court seeking to strike parts of defendants' cross-appeal reply brief. Plaintiff alleged that defendants violated Supreme Court Rule 341(g) (155 Ill. 2d R. 341(g)) in their cross-appeal reply brief.

Rule 341(g) states:

"The reply brief, if any, shall be confined strictly to replying to arguments presented in the brief of the appellee and need contain ...


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