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Eychaner v. Gross

March 30, 2001


Appeal from the Circuit Court of Cook County No. 94 CH 11328 Honorable Aaron Jaffe, Judge Presiding.

The opinion of the court was delivered by: Justice O'mara Frossard

Plaintiffs, Fred Eychaner and Betty Lou Weiss, as directors of the Auditorium Theater Council (Council) and the Auditorium Theatre Council, an Illinois not- for-profit corporation (ATC) (collectively referred to as plaintiffs) brought this action to prevent Roosevelt University (Roosevelt) and its president, Theodore Gross (collectively referred to as defendants), from transferring funds from the Auditorium Theatre (Theatre). During the ATC executive board meeting on December 15, 1994, Gross presented a resolution to have a distribution from the Theatre of $1.5 million to Roosevelt to finance Roosevelt's new Schaumburg campus. Gross stated: "*** I'm saying that we need to do this because as I said at the outset it's the most important step the University has taken in its history. And therefore, this is a primary project and the chief source of immediate cash is in the Auditorium Theatre. That belongs to the University. It does not belong to the Auditorium Theatre Council. That is our legal interpretation of it. The Auditorium Theatre Council can take whatever vote it wants to take in its January meeting. We are going to access those funds, because we must have those funds in order for this project to go forward. I mean, I have to take this hard line because we've reached the point now with with this fiction and it's a fiction, that the Auditorium Theatre Council, Inc. has some kind of legal authority over those funds. They do not. The Auditorium Theatre, Inc. was created for fund raising purposes only. The Auditorium; those funds are University funds. As much as the funds for any other unit of the University. So that's our interpretation of it." ATC members objected to the transfer of funds and the meeting was adjourned in order to get an opinion from Roosevelt's counsel as to the legality of the transfer.

Eychaner and Weiss brought suit the next day. In the amended complaint they alleged: (1) Roosevelt placed the Theatre in a charitable trust for the benefit of the public with the Council and its successor, ATC, as trustee; (2) ATC has ownership rights to all funds and assets in the Theatre pursuant to the Illinois Charitable Trust Act (760 ILCS 55/1 et seq. (West 1998)) and the Illinois General Not For Profit Corporation Act of 1986 (805 ILCS 105/101.10 et seq. (West 1998)); (3) a constructive trust should be imposed on Roosevelt, allowing ATC to restore and operate the Theatre; and (4) Roosevelt should be estopped from preventing ATC from operating the Theatre. Defendants brought a counterclaim seeking that Roosevelt be declared the sole and exclusive owner of the Theatre and alleging that Eychaner and Weiss breached a fiduciary duty to Roosevelt and ATC. ATC brought a counterclaim against Roosevelt and Gross alleging (1) an express charitable public trust; (2) constructive trust; (3) breach of contract based on the 1960 resolution and standard operating procedures; (4) equitable estoppel; (5) breach of contract based on a 1993 letter of intent; (6) promissory estoppel; (7) unjust enrichment; and (8) director conflict of interest. The trial court dismissed plaintiffs' causes of action and this court reversed and remanded for trial. Eychaner v. Gross, Nos. 1-95-3614, 1-96-1412 cons. (1997) (unpublished order under Supreme Court Rule 23).

During the 10-week trial, the court heard testimony from 37 witnesses and reviewed approximately 400 documents generating 98 volumes of transcripts. On September 28, 1998, the court entered judgment in favor of Roosevelt and Gross on its counterclaim, denied plaintiffs' theories of relief and ATC's counterclaim, declared Roosevelt as the sole and exclusive owner of the Theatre, ordered an accounting, found Eychaner breached his fiduciary duty and reserved resolution of damages against Eychaner until after the accounting.

On September 29, 1998, the court ordered that control of the Theatre be immediately turned over to the Auditorium Theatre of Roosevelt University (AT of RU), created by Roosevelt to take over and operate the Theatre. On September 29, 1998, plaintiffs filed an interlocutory appeal of the September 28, 1998 order (appeal No. 1-98- 3573) and on October 13, 1998, filed an amended appeal of the orders from September 28 and 29. On December 2, 1998, the trial court denied plaintiffs' motion to stay trial court proceedings, ordered the accounting of the Theatre's financial status to proceed, scheduled a damages hearing against Eychaner and scheduled a Rule 137 hearing (155 Ill. 2d R. 137). On December 22, 1998, plaintiffs filed an interlocutory appeal from the December 2, 1998, order (appeal No. 1-98- 4735). We consolidated these appeals.


In the 1950s, Roosevelt considered undertaking restoration of the Auditorium Theatre. The board of trustees of Roosevelt (Board) initially rejected creating a separate not-for-profit corporation for restoration because Roosevelt did not want to relinquish control of the Theatre. In 1959 in order to generate revenue to restore the Theatre, the board of trustees established the "Auditorium Restoration and Development Committee" (ARDC) made up of Roosevelt's Board, faculty and community members. The Board approved an ARDC fund-raising proposal conditioned upon Roosevelt retaining ownership and control of the Theatre.

ARDC recommended to the Board formation of a separate organization and used attorney Elmer Gertz to draft a resolution stating the organization's mission and responsibilities concerning the Theatre. On January 21, 1960, Gertz sent a draft of a resolution to Kenneth Montgomery, Roosevelt's attorney and stated in an accompanying letter:

"As a result of a good deal of discussion between certain officers and members of the board of Roosevelt University and the executive committee of the Auditorium Restoration and Development Committee, a draft of the resolution has been agreed upon ***. It is the consensus of all involved in this situation that it is best not to form any separate corporation, foundation, trust or other legal entity, but to proceed in the manner set forth in the resolution."

Gertz testified that he chose not to create a formal legal entity to avoid becoming "too technical, too bound down in detail" and because "it might defeat our purpose of raising funds and restoring the Theatre and operating it. We were against anything that was too rigid in form." Gertz also wanted to preserve real estate and tax exemptions for the Theatre. Regarding public fund-raising, Gertz testified "that their funds would go not at all to the University, but to the Theatre project and that Roosevelt would have no right to interfere with the rehabilitation or running of the Theatre after it was built."

On February 18, 1960, the Board passed the resolution that governed Theatre restoration and allowed formation of the Council. Montgomery told the Board that although the University "might be required in the public's interest to hold the Auditorium in readiness for public use for some considerable period," "*** the Council's power originated from the Board and the Board could deactivate the Council." Montgomery described the Council as an "agency" formed to operate and restore the Theatre. However, the resolution gave broad authority and responsibility to the Council in areas of maintenance, operation, and fund-raising.

Gerald Gidwitz and Jerome Stone were trustees present at the February 18, 1960, meeting and they testified that Roosevelt never intended to relinquish any authority or ownership in the Auditorium Theatre. Gidwitz testified that Roosevelt permitted a group of volunteers to assist in the restoration of the Theatre rather than giving them ownership, stating: "if the [Roosevelt Board] didn't like what was happening, in ten minutes they could dissolve the [Council's] Board and fire the whole bunch." Stone testified that the Board intended to retain authority to abolish the Council. Gertz, however, testified that based on the resolution Roosevelt could not abolish the Council unless the Council failed in its mission to restore the Theatre. Gertz stated:

"It was understood that the university could not change its mind, as long as the purpose was being accomplished. First of all, the funds had to be raised, and secondly, the restoration had to take place, and then the theatre had to be operated as a cultural institution in the best interest of the city and community of Chicago *** if there was a failure, then the university was free to step in, but it didn't fail."

In a letter to the Internal Revenue Service (IRS) Montgomery sought a determination that contributions to the Theatre via the Council would be tax deductible. Montgomery told the IRS that "contributions to the Council are, in fact, contributions to it [Roosevelt] because the Council is its agent." The IRS responded that contributions to the Council would be tax deductible to the donor because "it appears that contributions to the Council will inure entirely to your [Roosevelt's] benefit such contributions will be considered contributions to you."

Harland Allen chairman of the board of trustees of Roosevelt University issued a press release on March 8, 1960 describing the restoration process of the Auditorium Theatre and stated: "The University's trustees have been impressed by and are fully cognizant of the public trust which the ownership of the Theatre has imposed upon them." Chairman Allen and Mrs. Spachner who was Council chairman and a member of Roosevelt's Board asked Robert Ahrens to draft a Seven-Point statement to clarify plans for Theatre restoration and operation. Robert Ahrens testified that the Seven-Point statement paraphrased the resolution and did not change its terms. The statement indicated that the "[Council] will have full authority and responsibility for the restoration campaign and for the operation of the theatre."

The Council began its restoration campaign. Gertz testified that some people would not contribute to the Theatre unless they were assured that the funds would go only to the Theatre and not to Roosevelt. Other donors wanted assurances that Roosevelt would have no right to interfere with Theatre restoration and operation. A brochure distributed by the Council told potential donors that Roosevelt would not control a restored Theatre but that the Council would manage and operate the Theatre after the completed restoration. Bruce Sagan, William Peterson, and Gerald Stanton testified that they donated money to the Council because they believed the Council would manage and operate the Theatre independent from Roosevelt. Other testimony at trial indicated that Roosevelt's power to abolish the Council at any time was communicated to potential donors.

The restored Auditorium Theatre opened on October 31, 1967, with the Council undertaking day-to-day operations. During a four-year period, Roosevelt and the Council negotiated an operating procedure or "agreement." On March 4, 1971, Roosevelt and the Council approved "Standing Policies and Operating Procedures for the Auditorium Theatre" (SOP) confirming the February 1960 resolution, noting both university and public uses for the Theatre, and preserving Roosevelt's real estate tax exemption because the University's use of the property was deemed "primary." The SOP contained procedures for the day-to-day operation of the Theatre, including maintenance of bank accounts, documentation of receipts, and payroll of Theatre staff.

During the 1960s and 1970s, donations to the Theatre were made pursuant to Roosevelt's tax-exempt status and number. Some members of the Council believed that fund-raising would improve if the Council secured its own tax-exempt status from the IRS. The Council sought to establish a corporation for this fund-raising purpose, approved articles of incorporation and sent them to the Board for approval. Roosevelt's attorney Gorman provided a memo to the Board regarding the corporation:

"If the Board of Trustees approves the establishment of a new corporation, the [Council] will exist in two legal capacities. In one capacity it will continue to exist as it has in the past as an unincorporated agency of Roosevelt University operating under, and subject to, the direction and control of the Board of Trustees of Roosevelt University. *** In its other legal capacity the [Council] will exist as an Illinois not-for-profit corporation in accordance with the Articles of Incorporation and By-laws submitted. *** [T]he corporation will exist and be used for the solicitation of funds only. It will not affect in any way whatsoever the operations of the Theatre Council and the Auditorium Theatre which will continue in the same manner as in the past."

In September of 1981, ATC was incorporated pursuant to the Illinois General Not For Profit Corporation Act and filed its bylaws with the Attorney General. The articles of incorporation were identical to the articles that the Board approved in 1979 and limited the function of the corporation to fund-raising. The bylaws filed with the Attorney General which defendants contend differ from the bylaws approved by the Board state that ATC's purpose was to "restore, modernize, and operate the Auditorium Theatre *** so that it will serve as a cultural center for the people of Chicagoland, with particular reference to the performing arts." The bylaws required ATC to create standing committees to oversee the Theatre restoration and operation. The bylaws required that 25% of the members of ATC's executive committee be trustees, officers, or faculty of Roosevelt. In contrast to these broad powers, paragraph 4 of the bylaws described ATC's power in terms consistent with the articles of incorporation and stated that ATC was organized "for the sole purpose of raising funds for the Auditorium Theatre Council, an independent board of Roosevelt University." This paragraph also stated that "[ATC] has no function in connection with the restoration, operation, use and maintenance of the Auditorium Theatre other than to raise funds for such activities. The responsibility to restore, operate, use, and maintain the Auditorium Theatre resides solely with the Board."

In 1983 the parties revised the 1971 SOP which is substantially similar to the original SOP, noting that the purpose of the Council is to maintain and to continue to restore the Theatre "for the benefit of faculty and students of Roosevelt, and subject to academic priorities of the University, to make artistic, cultural and educational contributions to the people of greater Chicago through the sponsorship of events in the performing arts." The 1983 SOP also stated that the sole purpose of ATC is to solicit funds for the Theatre.

On July 12, 1989, Ed Weil, the chair of the Council and ATC, proposed that Roosevelt lease the Theatre to ATC for $1 a year and that ATC conduct fund-raising independent of Roosevelt. President Gross and the Board rejected this proposal and passed a resolution requiring ATC to report to Gross regarding "budgetary and general operating matters." In response to these events, 17 members of the Council and ATC resigned. The resignations threatened the Theatre's production of Phantom of the Opera. Gross, university officials, Council and ATC members compromised and resignations were rescinded. In return for the Council and ATC receiving assurance of independence from Roosevelt, Gross was elected chairman of the Council and ATC.

On August 1, 1989, John Blew, secretary of the Council, acknowledged that Roosevelt owned the Theatre but wanted to disband the Council and transfer all operating authority to ATC. Roosevelt rejected this proposal. In 1993, Roosevelt and ATC discussed other proposals including the execution of a license agreement between Roosevelt and ATC and the effect of any transfer on ATC's tax-exempt status. ATC in a letter asked the IRS about the tax-exempt status of ATC if it took over Theatre operations. The letter acknowledged that the Council previously operated the Theatre, that the Council constituted a "separate, unincorporated unit within the University," and that following any transfer to ATC, Roosevelt officials or trustees would constitute a majority of ATC's board. In June 1994, the IRS responded that "the proposed transfer of operation of the Theatre from the Council to you [ATC] will not adversely affect your exempt status under 501(c)(3) of the Code."

Both the Council and ATC had similar names, and had the same members, officers, directors, and bylaws. In August 1989, Gross became the chairmen of both organizations. Many members of the Council and ATC were unaware that there were two organizations. The Council took no official action to transfer or delegate any right to operate the Theatre to ATC. Roosevelt did not approve transfer or delegation of the right to operate the Theatre from the Council to ATC and did not amend the 1979 resolution prohibiting ATC from operating the Theatre.

ATC's attorneys recommended that the Council negotiate with Roosevelt a formal ratification of ATC's operation of the Theatre. On March 25, 1993, Roosevelt issued a letter of intent setting forth the proposed terms of a license agreement between Roosevelt and ATC. On April 1, 1993, ATC authorized the payment of $200,000 to Roosevelt and agreed to continue to negotiate regarding a license or lease. The parties dispute if the payment was for rent or was a contribution. ATC subsequently made another $200,000 payment to Roosevelt. The trial court found that these payments were a "proper distribution back to the parent, Roosevelt." ATC did not accept the terms of the letter of intent because the proposed lease or license gave Roosevelt 8 of 11 seats on the ATC board.

A year later, ATC officer Gordon Newman proposed disaffiliation of ATC from Roosevelt except for a lessor-lessee relationship and that ATC would contribute $1 million for the purchase of a campus in Schaumburg. Gross expressed his continued desire for Roosevelt to maintain several seats on the ATC board. The parties, however, did not agree to this proposal. Both Newman and Ed Weil, a former chair of the Council and ATC, testified that the Council and ATC attempted to license or lease the Theatre because these organizations lacked control.

In mid-1994, ATC offered to purchase the Theatre for $1 million from Roosevelt but the offer was rejected. On November 15, 1994, ATC offered to purchase the Theatre for $3 million, which Roosevelt again rejected. During a December 15, 1994, meeting of the ATC executive committee, Gross presented a resolution to have a distribution from the Auditorium Theatre of $1.5 million to Roosevelt to finance Roosevelt's new Schaumburg campus. ATC members objected to the transfer of funds, and the meeting was adjourned pending the receipt of an opinion from Roosevelt's counsel regarding the legality of the transfer.

The next day Eychaner and Weiss brought this lawsuit asserting that the demand by Gross for the transfer of $1.5 million of Theatre funds circumvented the following procedure established in the 1960 resolution describing how and when Theatre funds could be transferred to Roosevelt:

"(12) *** [A]ny surplus resulting from the operation of the Theatre be retained in a development reserve, and that when an adequate sum, as determined by the Executive Committee of the Council in consultation with the Executive Committee of this Board, has been accumulated, any amount above that reserve be transferred to the unrestricted funds of the University."

In 1995, the Roosevelt board of trustees terminated all rights and duties that were ever granted to the Council and ATC and created the Auditorium Theatre of Roosevelt University (AT of RU) to operate, restore, maintain and fundraise for the Theatre.


Plaintiffs claim that because the written 1960 resolution is at issue and "historical circumstances surround the resolution," this court should conduct a de novo review. Defendants argue that the trial court heard testimony, made credibility findings and made several findings of fact in its 75-page order and that when reviewing a trial judge's factual finding, the court's decision should be sustained unless it is against the manifest weight of the evidence. The issues raised in the pleadings required the taking of evidence, witness testimony, and resolution of conflicts of fact. Several issues also raised legal questions, including the construction of documents and the legal effect of a given set of facts. Therefore, this case presents mixed questions of law and fact, and the proper standard of review is the clearly erroneous standard. City of Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d 191, 205 (1998).


Plaintiffs contend that the February 18, 1960, resolution, together with the surrounding circumstances, created a charitable trust with the Council and its successor, ATC, as trustee in charge of restoring, operating, and maintaining the Theatre. A trust is a fiduciary relationship by which one or more entities hold trust property, subject to an equitable obligation to keep or use such property for the benefit of another. Restatement (Second) of Trusts §§2, 348 (1959). Charitable trusts have similar characteristics as private trusts, and the methods for creating both types of trust are the same. Restatement (Second) of Trusts §349, Comment a (1959). However, charitable trusts need not specify definite beneficiaries and are perpetual. Restatement (Second) of Trusts §365, Comment a (1959). In Illinois, the creation of a valid trust requires the following: "(1) intent of the parties to create a trust, which may be shown by a declaration of trust by the settlor or by circumstances which show that the settlor intended to create a trust; (2) a definite ...

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