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Walsh v. Capital Engineering and Manufacturing Co.

March 27, 2000

VICTORIA M. WALSH, PLAINTIFF-APPELLEE,
V.
CAPITAL ENGINEERING AND MANUFACTURING CO., AN ILLINOIS CORPORATION, CAPITAL ENGINEERING AND MANUFACTURING CO, A PARTNERSHIP, CAPITAL ENGINEERING WAREHOUSING & SALES, AN ILLINOIS CORPORATION LEASE-A-MACHINE, A PARTNERSHIP VIRGINIA FERRELL, JOHN WALSH, VERONICA JARYMOWYCZ, THOMAS H. HANSEN, DONALD SMITH, SUCCESSOR TRUSTEES OF THE JOSEPH MILETIC TRUST, DATED OCTOBER 4, 1972, AND UNKNOWN OTHERS, VALERIA MCGRATH, AND BORYS JARYMOWYCZ, DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Cook County, Illinois. No. 92 CH 4500 Honorable Robert Boharic, Judge Presiding.

The opinion of the court was delivered by: Justice Tully

Defendants appeal from the denial of a Rule 137 motion for sanctions entered by the trial court on August 13, 1998. 155 Ill.2d R. 137. Defendant Walsh filed a timely Notice of Appeal on September 14, 1998. The remaining defendants filed their Notice of Appeal on September 4, 1998. Both appeals were consolidated by this court on November 5, 1998. Jurisdiction is vested pursuant to Supreme Court Rule 303. 155 Ill.2d R. 303.

For the reasons which follow, we affirm.

Plaintiff and defendants, Virginia Ferrell, Valeria McGrath and Veronica Jarmowycz are sisters and daughters of the late Joseph Miletic. (Miletic) In 1972, prior to his death, Miletic executed an irrevocable trust naming Virginia and Valeria as 25% beneficiaries, defendants Veronica and Borys Jarmowycz, as 12.5% beneficiaries, and plaintiff and her husband, Jack Walsh, as 12.5% beneficiaries. The res of the trust was the corporate stock of Capital Engineering and Manufacturing (CEMCO-C). Five trustees were named: Virginia, Veronica, Jack Walsh, Thomas Hanson and Donald Smith.

Miletic also established three other companies. Capital Engineering & Manufacturing Co., a partnership (CEMCO-P) which owns the real estate leased to CEMCO-C and conducts the design and drafting for CEMCO-C. The named partners were Veronica, Valeria and Victoria. Capital Engineering Warehousing & Sales Co., a corporation (CEWS), provides engineering services to CEMCO-C. Virginia, Valeria, Veronica and Victoria each own 15.625% of the CEWS stock. Lease-A-Machine, a partnership, leases machines and equipment to CEMCO-C. The named partners were Virginia, Valeria, Veronica, Victoria, Jack Walsh, and Borys Jarymowycz.

In 1976, plaintiff and defendant, Jack Walsh divorced. Pursuant to the terms of the Miletic trust document, Walsh's beneficial interest was terminated and transferred to plaintiff; increasing her proportionate share to 25%. However, Walsh continued in his capacity as a trustee of the Miletic trust, President of CEMCO-C, and partner in Lease-A-Machine (LAM).

Beginning in 1984, plaintiff and defendant Walsh engaged in acrimonious post-decree litigation in which plaintiff sought child support payments from Walsh. Throughout this litigation, Walsh's income and ownership interests in the various defendant entities were significantly contested issues necessitating extensive discovery which yielded detailed financial information about defendant Walsh as well as the defendant entities. Walsh resigned as president of CEMCO-C in 1987. In 1991, as part of a settlement agreement concluding seven years of post-decree litigation with plaintiff, Walsh agreed to sell his entire interest in LAM to plaintiff and resign as trustee of the Miletic Trust.

In 1992, plaintiff filed a verified complaint against all the defendants charging the individual defendants with violating their fiduciary offices and conspiring to deprive her of her interest in the Miletic trust; i.e., the profits of CEMCO-C. That complaint was dismissed for failure to state a cause of action. Over the next three years, plaintiff filed three substantially similar complaints, each of which was similarly dismissed.

From June, 1994, and continuing through June 1996, in an apparent effort to avoid further familial litigation, the individual defendants voluntarily allowed plaintiff's attorneys and accountants access to the financial records of the defendant entities. In June 1996, plaintiff's attorneys retained Norman Lorch, a forensic CPA, who subsequently testified as an expert witness in this case, to review and examine the financial records of the defendant entities. Hundreds of thousands of documents were photocopied and delivered to Lorch's office for his review.

On June 17, 1996, Valerie, Virginia and CEMCO-C's outside accountants Dave Jouza and Thomas Hanson, met with plaintiff's counsel and accountants to answer questions which had been raised as a result of the two-year investigation into the defendant companies' financial records.

On July 15, 1996, plaintiff filed her fifteen count Fourth Amended Complaint. The trial court dismissed all but the first two counts of that complaint. Count I sought an accounting of the Miletic trust and CEMCO-C. Count II sought dissolution and receivership of the Miletic trust.

Plaintiff alleged the defendants, in their capacities as owners or partners in the various defendant entities, engaged in a scheme to transfer profits and assets between the entities in a manner that substantially diminished plaintiff's interests. She further alleged this scheme had been ongoing since at least 1979 and that she was unable to discover the conspiracy until 1988 due to the active concealment by the named individual defendants. The active concealment "consisted of the defendants' denying plaintiff's requests for information with respect to the profits of the various defendant entities, including denying plaintiff's demands for formal accountings."

The first 36 paragraphs of the fourth amended complaint set forth the facts supporting the circuit court's proper jurisdiction over the cause and thus were incorporated and realleged in each count thereafter. Paragraph 40 of Count I contained 15 separate specific allegations of wrongdoing by the individual defendants (paragraphs A-O). Lorch's initial and supplemental reports provided the basis for those allegations and were incorporated into plaintiff's fourth amended complaint as exhibits.

Defendants deposed Lorch, plaintiff's sole accounting expert, on September 27, 1997. During that deposition, Lorch testified the allegations contained in paragraphs 40C, K, L, M, N, and O were, in his view, no longer at issue as documents submitted to him for review following the filing ...


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