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Anest v. Audino

July 12, 2002

BILL ANEST, PLAINTIFF-APPELLEE,
v.
DAVID AUDINO, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Lake County. No. 97-L-787 Honorable Stephen E. Walter, Judge, Presiding.

The opinion of the court was delivered by: Justice Callum

Released for publication.

BILL ANEST, PLAINTIFF-APPELLEE,
v.
DAVID AUDINO, DEFENDANT-APPELLANT.

Appeal from the Circuit Court of Lake County. No. 97-L-787 Honorable Stephen E. Walter, Judge, Presiding.

The opinion of the court was delivered by: Justice Callum

Plaintiff, Bill Anest, sued defendant, David Audino, for breach of a note and enforcement of a guaranty. Audino filed a counterclaim, alleging, inter alia, breach of fiduciary duty (count VI) and tortious interference with business expectancy (count VII). The trial court entered judgment for Anest on his claim and awarded him $130,000 in damages, $47,041 in attorney fees, and $1,634 in costs. Audino appeals the award of attorney fees, and we affirm on that issue. On Audino's counterclaim, Anest moved for a directed finding at the close of Audino's case in chief. The court granted Anest's motion, and Audino now appeals that ruling. We reverse the directed finding on Audino's counterclaim and remand the cause.

In 1995, Anest lent $80,000 to Intergroup Financial Corporation, Inc. (Intergroup). In exchange, Intergroup executed a note in favor of Anest. The five shareholders of Intergroup, one of whom was Audino, executed a guaranty on the note. In September 1997, Anest sued Intergroup and the guarantors for breach of the note and enforcement of the guaranty. In January 1998, Anest obtained a default judgment against Audino. Anest subsequently levied against Audino's interest in another company, Precision Pour, L.L.C. (Precision Pour), and, in February 1999, purchased the interest at a sheriff's sale. On July 27, the trial court vacated the default judgment for want of service.

Precision Pour sold a product called the BLM 2000, a beer line cleaning device that replaces the manual cleaning of beverage lines with continuous radio waves. Precision Pour was the exclusive distributor of the device in the United States in 1997 and 1998 and was a nonexclusive sales agent in 1999.

Before Anest acquired an interest in the company, the members of Precision Pour were Audino, Leon Teichner, and William Schilling. Membership interests in Precision Pour were held as follows: Audino held a 23.33% interest; Teichner, 43.3%; and Schilling, 33.3%. The operating agreement of Precision Pour defines a membership interest as a right to participate in the profits and losses of the entity, in addition to the right to vote on, or consent to, management decisions. A membership interest is distinguished from an economic interest, which affords the holder merely a right to the profits and losses of the company.

After Anest acquired Audino's interest in Precision Pour, the following actions were taken on behalf of the company. On June 18, Anest, Teichner, and Schilling executed a "Resolution of Precision Pour, L.L.C." that stated as follows. Schilling and Teichner converted their accrued, but unpaid, salaries into capital. Accordingly, their interests in the entity increased to 41% and 54% respectively, and Anest's (formerly Audino's) interest was diluted to 5%. The resolution described Anest's interest as an economic interest.

On July 13, Anest, Teichner, and Schilling executed a "Memorandum of Understanding" that amended the operating agreement as follows. Precision Pour was insolvent and desired additional capital. Anest was willing to purchase membership units in the company and to lend it money. Thus, Anest bought an 18.3% membership interest from the entity and an additional 1.67% membership interest from Schilling. He also lent Precision Pour $59,166.67. Teichner and Schilling permitted Anest to convert his 5% economic interest (the diluted interest that was formerly Audino's) into a membership interest. In sum, the document states that Anest held a 25% membership interest in Precision Pour. In addition to the monetary transactions, the resolution altered the management structure of Precision Pour in that the company changed from a manager-managed limited liability company to a member-managed limited liability company. The memorandum also stated that the parties agreed to permit Schilling to transfer up to 6.77% of his interest to Anest and to permit Anest to transfer up to one-half of his interest to Mitchell Iseberg, his attorney.

On July 14, Schilling and Teichner executed an "Amendment to Memorandum of Understanding." The resolution contains a provision entitled "Company Obligation to Repurchase," which states that, if a court voids the sheriff's sale or otherwise returns Audino's original interest in Precision Pour, and if the dilution of Audino's interest is also invalidated, then the company (1) will repurchase the interest that Anest purchased from Precision Pour and (2) repay the loan from Anest. The resolution also contains a provision entitled "Anest Right to Purchase," which states that, if Audino reacquires his "5% diluted interest," Schilling will convey to Anest a 5% interest in the company for $4,286.33. Moreover, if Anest subsequently reacquires his diluted interest by court order, Anest will reconvey the interest to Schilling for the same consideration.

On September 14, the trial court vacated the sheriff's sale, ordering that Audino's interest in Precision Pour "is restored as if said Sheriff's Sale(s) had never taken place."

A Precision Pour consent dated September 15 lists Audino as a 5% membership interest holder in the company and lists Anest as a 20% holder. A company consent dated September 16 sets forth the membership distribution on that date as follows: Teichner, 43 1/3 units; Schilling, 26 2/3 units; Iseberg, 12½ units; Anest, 12½ units; and Audino, 5 units.

On October 29, the office of Ronald Panter, Precision Pour's attorney, faxed a notice of an "emergency meeting" of Precision Pour to Audino's attorney, John Miller. The notice stated that the purpose of the meeting was "to discuss changing the business relationship of the company from a nonexclusive distributor to an importer and the ramifications thereof." It stated that the meeting would be held on November 1. Section 7.3 of the operating agreement of Precision Pour states that at least five days' notice must be provided to members before a membership meeting. Section 7.4 of the agreement permits a waiver of the notice requirement only with unanimous member consent. The agreement does not address facsimile notice.

On November 1, Anest, Teichner, Schilling, Iseberg, Panter, and one of Panter's associates attended the emergency meeting of Precision Pour. Teichner testified that during the meeting a call was made to Miller's office and Miller stated that Audino would not attend the meeting. Teichner and Anest testified that during the meeting the parties discussed an offer from BLM International, Limited, the holder of the patent for the BLM 2000, for a five-year exclusive distributorship agreement. Teichner testified that the offer had to be acted upon no later than November 1 and that Anest was aware of this deadline.

Teichner testified that BLM International was concerned about Precision Pour's financial ability and requested a letter of credit to guarantee the purchase of a certain number of units of the BLM 2000. Teichner stated that in October 1999 Precision Pour was insolvent. He testified that Iseberg relayed the following financial information about Precision Pour during the meeting. The company had depleted the loan from Anest. It had current payables of $40,000 and needed additional working capital in the amount of $60,000 to continue business. Teichner testified that a vote was taken during the meeting as to whether the members would contribute to the company their proportionate shares of a $100,000 capital contribution and the funds to secure an $850,000 letter of credit in order to obtain the exclusive distributorship offer. The members voted against making any such contributions.

After the emergency meeting of Precision Pour, Teichner testified that another meeting took place among Anest, Teichner, and Schilling, at which they agreed to exercise the exclusive distributorship offer. Thus, on December 9, BLM Technologies, L.L.C. (BLM Technologies), was formed. The members of BLM Technologies and their percentage interests are as follows: Anest, 40%; Iseberg, 10%; Schilling, 25%; and Teichner, 25%. Anest was the company's manager, and he testified that he put up the necessary funds to secure the letter of credit required for BLM Technologies to become the exclusive distributor of the BLM 2000 in the United States and Canada.

Audino testified that his original position with Precision Pour was to secure financing for the company. He stated that he had raised slightly under $1 billion for various entities from 1988 through 2000 and that he secured a letter of credit for one of Precision Pour's clients to purchase BLM 2000 devices from the company. Audino stated that he was not asked to raise any funds for Precision Pour during the fall of 1999.

James Donoval, an accountant and attorney, testified that he was hired by Audino to obtain regulatory approvals for the use of the BLM 2000 in Illinois. He stated that the first part of the two-step process was accomplished in that the applicable regulation was changed. However, he testified that the second step--approval of the BLM 2000 by a state liquor commission--was not completed. Audino testified that Schilling worked with Coors Brewing Company (Coors) to begin Coors' testing of the BLM 2000 for its draft beer facilities. Teichner testified that Coors notified Precision Pour on ...


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