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Stathis v. Geldermann Inc.

March 13, 1998

GUS STATHIS, PLAINTIFF-APPELLANT AND CROSS-APPELLEE,
v.
GELDERMANN, INC., AN ILLINOIS CORPORATION, AND GELDERMANN SECURITIES, INC., A DELAWARE CORPORATION, DEFENDANTS-APPELLEES AND CROSS-APPELLANTS.



Appeal from the Circuit Court of Cook County. Honorable Leonard R. Grazian, judge Presiding.

The opinion of the court was delivered by: Justice Hartman

Plaintiff, Gus Stathis (Gus), brought this action against defendants after they entered into an agreement with his son, James Stathis (James), and took over the business and operations of Star Clearing Partnership (SCP), in which Gus possessed a controlling interest. The circuit court granted summary Judgement for defendants, but in Stathis v. Geldermann, Inc., 258 Ill. App. 3d 690, 698-701, 630 N.E.2d 926 (1994) (Stathis I), we reversed and remanded, holding that genuine issues of material fact existed with respect to whether James was authorized by Gus to execute the agreement with defendants. On remand, the case was tried; the court directed verdicts for defendants on two counts, and the jury entered verdicts in favor of defendants on the remaining two law counts. The court entered Judgement for Gus on his unjust enrichment claim and awarded him $176,050. Much of the pertinent evidence has been set forth in our first opinion (258 Ill. App. 3d at 691-96) and will be repeated only where necessary for an understanding of the instant opinion.

On appeal, Gus maintains that he is entitled to judgment notwithstanding the verdict or, in the alternative, a new trial, based upon the cumulative effect of several assertedly prejudicial erroneous evidentiary rulings which denied him a fair trial. On cross-appeal, defendants argue that the Judgement in favor of Gus on the unjust enrichment claim was against the manifest weight of the evidence.

In April 1986, James met with vice-president Dennis Zarr, of Geldermann, Inc. (Geldermann), at the time one of the world's five largest futures clearing firms, to discuss forming some type of relationship between Geldermann and SCP. Geldermann wanted to expand its business, and "enter the non-equity option (NEO) clearing business for institutional customer transactions, to develop a floor presence on the , and to actively engage in the clearing of market makers on the Exchange." Geldermann planned to operate this business through its wholly-owned subsidiary, Geldermann Securities, Inc. (GSI), originally named Heinold Securities, Inc. (Heinold) until it was purchased by Geldermann and subsequently renamed GSI on February 1, 1987. Geldermann sought a relationship with a company that already was a member of and clearing trades on the CBOE. On December 24, 1986, James, Geldermann and GSI executed an agreement (December 1986 agreement) in which GSI would operate SCP's business and employ its workers, and James would work for GSI and be responsible for all operations relating to clearing services and market makers.

Between February and December 1987, Gus received a series of payments from SCP totaling approximately $630,000. After failing to receive repayment of the remaining $460,000 loaned to the partnership, Gus filed a complaint against Geldermann, GSI, SCP, James, and others, stating claims for conversion of the capital and profits of SCP, and diversion of corporate opportunity, but dismissed all parties, except for Geldermann and GSI.

After this court reversed the circuit court's order granting summary Judgement for defendants and remanded the case for trial, Gus filed a five-count amended complaint, alleging that defendants converted his interest in SCP; conspired to divert a business opportunity; conspired to defraud him; and committed constructive fraud. Count V purported to state a claim for unjust enrichment, alleging that defendants took over SCP without sufficient compensation to SCP or Gus.

At trial, Gus, a retired real estate broker, testified that in 1985, James asked him to invest in a new clearing firm on the CBOE. They formed a partnership with John F. Martorello, Gus providing the capital, and James and Martorello running the business and providing $10,000 each in start-up costs. *fn1

Gus first heard of Geldermann in April 1986, when James introduced him to Zarr. James later informed Gus that Geldermann was interested in purchasing an interest in the partnership. At James' request, Gus forwarded a letter to James, which permitted James to negotiate a deal with Geldermann "on behalf of my interest," further stating that "whatever deal you may or may not conclude, I will abide by it and I am obligated to accept."

In the summer and fall of 1986, Gus saw Geldermann employees at the partnership's offices. He did not converse with or attend any meetings with them. In September, he asked James and Patricia Pokuta, then SCP's office manager, about the Discussions with Geldermann. In December 1986, James asked Gus if he would be happy with a return of the money he loaned the partnership plus $100,000, after Geldermann paid him $3 million for the partnership. Gus approved. On Christmas Eve 1986, when Gus saw the contract James signed with Geldermann for the first time, he became very angry, and said the agreement was not worth the paper it was written on. Gus returned to the SCP's offices on December 28, where he saw that Geldermann already had taken over. Gus took files, ledgers, and checkbooks from the office, portions of which he later returned, and gave them to his attorney to review. Gus expected to see any final deal with Geldermann before it was signed, and to consult with his attorney before approving the deal. *fn2

Zarr, called as a witness by Gus, testified substantially as set forth in Stathis I. He also testified that James repeatedly told Zarr that he owned SCP in its expansion plans. Zarr believed the partnership's back office and floor expertise would be a major asset for Geldermann. In July 1986, Zarr encouraged Geldermann's president and chief executive officer, Kevin Mack, to consider SCP. By August 1986, when Zarr attended a lunch meeting with Mack, James, and Martorello, SCP was the primary candidate for a clearing relationship with Geldermann. Zarr wrote in his notes at a September meeting that Geldermann "ust replace his father's capital of $980,000 before deal is signed. This is very important and non-negotiable." Zarr told James that Geldermann could generate at least three million contracts for SCP. *fn3

Ned Bennett, also called as a witness by Gus, testified that he worked for Heinold and then GSI and was president and chief executive officer of GSI. In 1986, Bennett was responsible for Geldermann's efforts to become a member of or gain a presence on the CBOE and the Options Clearing Corporation (OCC). He reported to Caputo, who, in September 1986, introduced him to James and Martorello. Caputo wanted to form a business relationship with SCP. Mack and Caputo told Bennett they wanted to be working on the CBOE by January 1, 1987.

Heinold officials stated in the application for OCC membership that the company planned to rely upon the personnel, operations, and organization of SCP for clearing market-makers, describing their relationship as a "marriage" between the two firms, according to Bennett. Geldermann became a clearing member on OCC. On December 5, 19 days before the agreement between Geldermann and SCP was executed, Geldermann sent two SCP employees to a Heinold meeting with OCC. Although Geldermann had not yet entered into an agreement with SCP, the representations made to OCC bound Geldermann to some type of relationship with SCP and James. On December 26, two days after the agreement between Geldermann and SCP was signed, the name on the door to the partnership's offices was changed to Heinold, and Heinold employees moved into SCP's offices. In addition, all market-makers who were clearing through SCP began clearing through Geldermann, who took over SCP's obligations. Geldermann also made available to James $10 million in capital, to be invested in the business. *fn4

Mack, called by Gus, testified essentially as set forth in Stathis I. Additionally, Mack asserted that he ordered the preparation of a letter of intent to outline the SCP-Geldermann relationship. Eldon Ham, SCP's attorney, thereafter drafted the December 1986 agreement, with Geldermann's general counsel making some revisions. Geldermann expected to earn as much as $7 million at the end of SCP's first year of operation with Geldermann. James told Mack that he had made arrangements to transfer SCP's new and existing market-maker customers to Geldermann, induced by Geldermann's offer to James of fifty percent of the profits earned by the SCP division, and guaranteed to pay the division $3.75 million, minus expenses. James, Martorello and the other partnership employees became Geldermann employees.

Patricia Pokuta, called as a witness by Gus, testified that she worked for SCP as its operations manager from July 1985 until December 24, 1986, when she began working for Geldermann. She gave Zarr SCP's financial statements in August 1986 after James told her he wanted Geldermann to acquire SCP. Everyone who worked at SCP became Geldermann employees after December 24, 1986. On December 30, she wrote OCC requesting that it transfer all market-maker positions to Heinold, which enabled SCP to receive money from Geldermann so that it could release its existing capital, and be used to repay Gus. Geldermann overpaid SCP for the transfers by $71,000, which also was sent to Gus. He never expressed any dissatisfaction with the December 1986 agreement, asking only for the return of his money, and accepted checks from Pokuta without complaint.

Caputo testified as a witness in Gus' case. In addition to his testimony described in Stathis I, he stated that James told him SCP was a partnership consisting of him and Martorello. Caputo began negotiating with James, and they reached a verbal agreement by September, in which James would leave the partnership and join a Geldermann profits center, and SCP's business would be brought into Geldermann, by January 1, 1987.

Denise Hagerty, formerly Geldermann's comptroller, testified about financial computations she prepared in November 1986, analyzing projected expenses and profits in the proposed transaction with SCP. Hagerty was told that James had to pay his father back by December 31. No one at Geldermann went to SCP to examine their books and records before forming the projections.

James Stathis, called as a witness by Gus, testified in essence as set forth in Stathis I. James further testified that he built up SCP in order to sell it. Geldermann negotiated with him in order to acquire his license, personnel, equipment, and office facilities. After the December 1986 agreement was signed, Geldermann took over SCP's offices. James decided to sell SCP to Geldermann so he could repay Gus' investment, *fn5 and because he expected to make a lot of money from the transaction, including a $3.75 million guarantee under the contract with Geldermann, to be paid without regard to the costs of running SCP. He did not receive that money. The $3.75 million represented the value of SCP's business and assets. James showed the December 1986 agreement to his father the day after he signed it. Gus told him it wasn't worth the paper it was written on. In previous testimony, James stated that his father also said, "fine, when do I get my money out?"

James managed the SCP division of GSI for approximately 14 months. The division earned between $1.4 and $1.8 million. James terminated his relationship with Geldermann in February 1988 after the company stopped paying him money, which he believed to be in breach of their agreement. He received a total of $719,000 from Geldermann, including a $359,000 payment he was awarded through arbitration. SCP lost more than $200,000 in the last six months of 1986. James allocated a large amount of the loss suffered by SCP to Gus in proportion to the amount of his investment in the partnership. Geldermann was supposed to repay Gus, but James ...


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