Appeal from the Circuit Court of Du Page County. No. 99--L--0193 Robert K. Kilander, Judge, Presiding
The opinion of the court was delivered by: Justice O'malley
Plaintiffs, Marvel of Illinois, Inc. (Marvel of Illinois), and Marvel Engineering Trust (Marvel Engineering Trust), appeal the circuit court's order granting defendants' motion to dismiss plaintiffs' complaint against Marvel Contaminant Control Industries, Inc. (MCC); Forest G. Niccum (Niccum); Niccum's wife, Doris Niccum; Sharon Kirby; and Frank Kirby and imposing sanctions against plaintiffs and their attorney, John R. Meyer (Meyer). Meyer appeals the circuit court's order imposing sanctions against him individually. We affirm and grant defendants' request for sanctions against plaintiffs and Meyer individually for bringing a frivolous appeal.
In 1989, Niccum, MCC, and Marvel Engineering Company (Marvel Engineering Company) filed suit in the United States District Court for the Northern District of Illinois against Meyer, individually and as trustee of MEC Trust No. 1 (MEC Trust); Marvel Industries, Inc. (Marvel Industries); MEC Enterprises (MEC); and certain other companies not relevant to this appeal. Niccum claimed that Meyer exercised undue influence in obtaining money and property from the plaintiffs while providing them legal services. Jurisdiction was alleged under the Racketeer Influenced and Corrupt Organization Act (18 U.S.C. §1961 et seq. (1988)). The one claim of undue influence relevant to this appeal involved the claimed purchase of Marvel Engineering Company's stock from Niccum by Meyer's company, MEC, pursuant to a stock purchase agreement dated December 30, 1985.
The chain of events leading to the agreement commenced in 1980 when Marvel Engineering Company, one of Niccum's companies, gave Niccum a $20 million note. In 1982, Niccum's attorney, Meyer, informed him that the Internal Revenue Service might consider the note a taxable dividend. To prevent this, Niccum assigned the note to another one of his companies, MCC. To further distance Niccum from Marvel Engineering Company, Meyer recommended that Niccum sell the company to MEC, the entire stock of which was held by Meyer in his family trust. Niccum initially declined, but three years later, in 1985, he agreed.
The stock purchase agreement between Niccum and MEC called for MEC to buy the stock of Marvel Engineering Company for $5,000 down with a $995,000 note to cover the balance. Although ownership of the stock would pass to MEC, the agreement required Niccum to manage the operations of Marvel Engineering Company, apparently because Meyer had no knowledge of business management. MEC was to pay the note in installments of $25,000 per quarter for 10 years. Another condition of the sale was Marvel Engineering Company's satisfaction of a note to MCC for about $10 million. The parties signed a pledge agreement to ensure satisfaction of the notes. Under the pledge agreement, Niccum was to give certificates representing Marvel Engineering Company's stock to an escrow holder on the day of sale. Until MEC made all the payments, the escrow holder would keep the certificates and Niccum would retain the right to vote the shares. If MEC defaulted, the escrow holder would return the certificates to Niccum, who, as a secured party, could then sell them.
The sale, however, never was completed. Niccum never gave the stock certificates to the escrow holder but retained them in a vault he controlled. MEC made the $5,000 down payment but made no payments under the $995,000 note. On March 23, 1988, Niccum sent MEC a letter stating that the stock purchase agreement was "null and void and of no force or effect" due to MEC's failure to make payments. Meyer ignored the letter, and Niccum sued in federal court to have the agreement declared void.
Meyer filed several counterclaims on behalf of himself and certain companies. Count II, brought by MEC against Niccum, alleged that Niccum breached the stock pledge agreement by treating Marvel Engineering Company's assets as his personal assets and by failing to place the stock certificates in escrow.
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In count III, MEC alleged that Niccum "breached the Stock Purchase agreement by failing to deliver the stock certificates of Marvel Engineering Company and accompanying assignments thereof to MEC, Inc." In count V, Meyer, Marvel Industries, and MEC alleged that Niccum and his wife "wrongfully and unlawfully converted to their own personal use and for the benefit of corporate Counter-Defendants, sums of money from Marvel Engineering Company in excess of those due Forest G. Niccum under the written Pledge Agreement."
On April 9, 1992, Meyer filed for bankruptcy, triggering an automatic stay of the district court proceedings. Niccum then filed an adversary complaint in Meyer's bankruptcy case, realleging therein the plaintiffs' allegations in the district court litigation. The district court withdrew Niccum's adversary proceedings from the bankruptcy court and consolidated it with the federal suit. On October 1, 1993, the district court granted Niccum's motion to default all defendants except Meyer and to strike the counterclaims of Marvel Industries and MEC. On July 25, 1994, the district court granted Niccum's motion for summary judgment on his undue influence claims, finding that Meyer had failed to overcome the presumption under Illinois law that an attorney has defrauded his client when he engages in a transaction with the client and is benefitted thereby. Niccum v. Illinois, 171 B.R. 828, 834 (N.D. Ill. 1994). The court held that the stock purchase agreement was "voidable" and that Niccum was entitled to the remedy of choosing between rescinding the transaction or electing damages for the difference between the value he actually received and the value he would have received but for Meyer's misconduct. Niccum, 171 B.R. at 831, 834.
The court then remanded the case to the bankruptcy court for a determination of dischargeability and appropriate relief. The bankruptcy court found that Meyer had paid no consideration for the stock. The court determined that Meyer owed $14,520,743.17 as the fair market value of the stock on December 31, 1985. The court further held that this debt was non-dischargeable.
Meyer appealed to the district court, contending that Niccum never relinquished ownership of Marvel Engineering Company because he never transferred his stock certificates to an escrow holder pursuant to the purchase agreement. Meyer argued that awarding Niccum damages for the stock sale when Niccum retained ownership of the stock gave Niccum a double recovery. Accepting this argument, the district court vacated the damages award and retried the issue of ownership of the stock itself. In re Meyer, No. 95--C--6639, slip op. at 3 (N.D. Ill. September 20, 1996). Following a bench trial, the district court found, in relevant part:
"8. Forest Niccum is the owner of all stock of Marvel Engineering because (a) he has at all times operated, managed, and controlled the assets or properties of Marvel Engineering; (b) he did not complete the stock sales transaction; and (c) he declared the stock transaction to be null and void due to default." In re Meyer, No. 95--C--6639, slip op. at 16 (N.D. Ill. April 30, 1997).
The court also found that MEC had made no payments under the $995,000 note. Based on these findings, the court held that Niccum was entitled not to the value of the stock at the time of sale as determined by the bankruptcy court, but to $103,000, representing the amount due from Meyer under the stock transaction. The United States Court of Appeals for the Seventh Circuit affirmed, observing that the district court "reached a well-reasoned conclusion that Niccum retained ownership of Engineering." In re Meyer, Nos. 97--2318, 97--2492, 98--2090 cons., slip op. at 4 (7th Cir. August 21, 1998). The court declined to address Meyer's appellate arguments because they were "either frivolous or waived."
Plaintiffs filed the complaint at issue on February 18, 1999. They asserted five counts, each of which is labeled as "defalcation, breach of fiduciary duty and breach of contract." The factual premises for the claims are that in 1988, prior to the federal litigation, MEC was dissolved involuntarily by the State of Nevada. MEC assigned its rights to the stock of Marvel Engineering Company under the purchase agreement to Marvel Engineering Trust, which in turn transferred them to Marvel of Illinois. Marvel of Illinois then merged with Marvel Engineering Company. Plaintiffs submitted a certificate of ownership and merger to the trial court that purportedly effectuated the merger.
Plaintiffs asserted that, under the contracts between Niccum and MEC, Niccum "had certain fiduciary and contractual duties and responsibilities to Marvel Engineering Trust and its predecessors," including the "duties and responsibilities to Marvel Engineering Trust to supervise and manage the assets and operations of Marvel Engineering Company in a prudent manner." Plaintiffs also contended that Niccum, Doris Niccum, and Sharon Kirby, as officers, directors, managers, or employees of Marvel Engineering Company prior to its merger into Marvel of Illinois, "have had fiduciary and contractual duties and responsibilities, among ...