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People ex rel White v. Travnick

March 17, 2004

THE PEOPLE EX REL. JESSE WHITE, SECRETARY OF STATE FOR THE STATE OF ILLINOIS, PLAINTIFF-APPELLANT,
v.
RANDALL S. TRAVNICK D/B/A EQUINE DATA MANAGEMENT SOFTWARE; ESTATE OF RANDALL S. TRAVNICK, JANICE G. TRAVNICK, ANY AND ALL LIFE INSURANCE POLICIES IN THE NAME OF RANDALL S. TRAVNICK, INCLUDING BUT NOT LIMITED TO (I) TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY POLICY NO. 40869194; (II) FIREMAN'S FUND AMERICAN LIFE GROUP POLICY NO. AX0103, CERTIFICATE PXL4017569; (III) GARDEN STATE LIFE POLICY NO. 005277679; (IV) ZURICH LIFE INSURANCE POLICY NO. 721331; (V) METROPOLITAN LIFE INSURANCE POLICY NO. 917--605--456 PR; AND (VI) AIG LIFE INSURANCE POLICY NO. 300105139, ANY AND ALL BANK ACCOUNTS, MUTUAL FUNDS, AND/OR SAFETY DEPOSIT BOXES OPENED BY AND/OR HELD IN THE NAME OF EITHER EQUINE DATA MANAGEMENT SOFTWARE, RANDALL S. TRAVNICK, OR JANICE S. TRAVNICK, INCLUDING BUT NOT LIMITED TO THE RANDALL S. TRAVNICK D/B/A EDMS CHECKING ACCOUNT AT HOME STATE BANK (ACCT. NO. 0007643001), ANY AND ALL ASSETS OF THE ESTATE OF RANDALL S. TRAVNICK, INCLUDING BUT NOT LIMITED TO AUTOMOBILES, THE HOUSE AND PROPERTY LOCATED AT 774 N. VALLEY HILL ROAD, WOODSTOCK, ILLINOIS, AND ANY AND ALL ASSETS AND PROPERTY INTERESTS IN THE TRAVNICK GROUP AND/OR EQUINE DATA MANAGEMENT SOFTWARE, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of McHenry County. No. 03--CH--0503 Honorable Michael T. Caldwell, Judge, Presiding.

The opinion of the court was delivered by: Presiding Justice O'malley

PUBLISHED

The State sued defendants for violations of the Illinois Securities Law of 1953 (Securities Law) (815 ILCS 5/1 et seq. (West 2002)) and sought a preliminary injunction freezing defendants' assets, including the proceeds of life insurance policies held in the name of the late Randall Travnick (Randall) with his wife Janice Travnick (Janice) as beneficiary. The trial court granted the injunction with respect to all assets except Janice's, finding that the State failed to establish a prima facie case that Janice committed securities fraud. Plaintiff appeals, and we affirm. *fn1

The State alleged the following in its complaint for injunctive relief. Randall and Janice owned and operated Equine Data Management Systems (EDMS), a company that produced a popular computer program for veterinarians and horse breeders. EDMS also offered an investment program. EDMS stated in its literature that contributions to the investment program would be applied to the purchase of computer hardware that EDMS would lease to its software customers. EDMS promised rates of return as high as 26.82% each year. EDMS began accepting investments as early as 1988, but by February 2003 several interest and principal checks to investors were returned for insufficient funds. The State alleged that Randall and Janice continued to solicit investors and accept investment funds despite knowing that EDMS's bank account was overdrawn. In May 2003, Randall committed suicide. The State alleged that defendants' conduct violated the Securities Law. The State sought an order enjoining Janice and the other defendants from continuing to violate the Securities Law. The State also sought the appointment of a receiver or conservator for defendants' assets. The State filed simultaneously with the complaint a motion for a temporary restraining order freezing defendants' assets, including the proceeds of several life insurance policies held in Randall's name with Janice as beneficiary. The State asserted that the Travnicks used investor funds to pay the premiums for the life insurance policies. The trial court entered a temporary restraining order freezing defendants' assets. Subsequently, Janice moved to dissolve the temporary restraining order as it applied to the insurance proceeds. Janice argued that the evidence did not show that she engaged in securities fraud. She also argued that Randall's liability was not a basis for process against the insurance proceeds. To support this claim, Janice cited section 238(a) of the Illinois Insurance Code (Insurance Code) (215 ILCS 5/238(a) (West 2002)), which exempts the proceeds of life insurance from process for the liabilities of the insured except in an amount equal to premiums that the insured paid in fraud of creditors. The court denied the motion to dissolve and set the preliminary injunction motion for a hearing.

The factual issue that concerns us on this appeal is whether the State produced sufficient evidence at the hearing to prove that Janice participated in a scheme to defraud investors in violation of the Securities Law. Among the witnesses whom the State called to prove Janice's alleged illegal activity were brothers George and Robert Evanson, both of whom had invested in the EDMS program. George testified that he first inquired of Randall regarding the EDMS program in the spring of 2001. Randall explained to George that the funds invested in the program would be used to purchase computer hardware that EDMS would lease to its software customers.

George testified that he subsequently spoke with Randall about the investment program on several occasions over the phone. Based on Randall's representations, George began to invest in the program. Later, at his request, George met with Randall and Janice at the offices of EDMS in Woodstock. Asked what was discussed at the meeting, George testified:

"What was discussed was the investment program that I was investing in and what I had invested in and that I wanted to invest more.

I wanted to just talk to them and see again what their business was because the first part was only done over the telephone with the $5,000 investment and then I invested it looks like in July the $35,000 *** but I didn't want to do that until I saw there was a going business." George recalled that at one point in the conversation, Randall and Janice both pointed to a large wall map of the United States and remarked that EDMS had 600 clients throughout the nation who leased EDMS computer equipment.

George testified that later, in May 2002, he and his brother Robert met with Randall and Janice in Woodstock to discuss the investment program. At one point in the conversation, George and Robert remarked that they were considering taking out a life insurance policy on Randall to protect their investment. Randall replied that he already had life insurance worth $3 million and that Janice would take over the business if he died. Janice acknowledged to George and Robert that the life insurance policies indeed existed. Asked about what else Janice said during the May 2002 meeting, George testified, "I could not say exactly what she said. We would ask a question on interest to Randy. She would acknowledge the interest. Randy would acknowledge the interest." Later, on cross-examination, George admitted telling Janice's counsel in an interview before the hearing that he did not remember anything that Janice said during the May 2002 conversation. George explained the discrepancy by stating he had been "very evasive" in speaking to Janice's counsel.

George testified that he had no substantive conversations with Janice regarding the investment program before his first meeting at the offices of EDMS. George testified that all of the correspondence he received regarding the investment program was signed by Randall. He further testified that after the checks from EDMS began to be returned for insufficient funds, he spoke with Randall, not Janice, about the checks.

Robert contradicted his brother's account of the May 2002 meeting with Randall and Janice. Robert denied that Janice was an active participant in the meeting. He testified that "she didn't say a word during the meeting" but "basically just sat there and listened." Robert agreed with George's testimony that they asked Randall at the meeting what would happen to the business after he died and that Randall answered that he had $3 million in life insurance and that Janice would take over the business when he died.

Plaintiff also called Carol Wood, who testified that she purchased the EDMS software in the late 1980s for use in her horse breeding business. She began selling software for EDMS in 1995 and continued for about four or five years. She negotiated her sales commission with Randall, not Janice. Wood testified that she phoned the EDMS office several times seeking technical assistance with the software, but she "usually" called to speak with Randall and does not remember ever speaking with Janice about a technical issue with the software. Wood worked in the EDMS booth at the annual equine convention from 1995 through 2000. She testified that she never saw Janice demonstrate the EDMS software or discuss the EDMS investment program with interested parties at these conventions. Janice's role at the conventions was "meeter and greeter." Wood testified that Janice knew less about the software than did Wood or any of the 3,000 EDMS customers who used the EDMS software. However, Wood later admitted that she did not know how much Janice actually knew about the EDMS software but "assumed" that she knew more than Janice.

Wood testified that she had invested in the EDMS program. She testified that she had no discussions with Janice regarding the investment program until after Randall's death. At that time Wood asked Janice about the security of the investors' funds. Wood testified that Janice became "very defensive" during the conversation.

Donna Woellert testified that from 1995 to 2001 she worked for EDMS out of the Woodstock office, providing technical support for users of the EDMS software. She was trained exclusively by Randall. Woellert testified that when she began working at EDMS, Janice was working another job outside EDMS and Woellert rarely saw her. Woellert testified that Janice subsequently moved to California for two years and returned to Woodstock in 2000, at which point Randall announced that Janice would assume a managerial role at EDMS. Woellert testified that Janice subsequently worked in the office for about one hour each day. Janice's work consisted principally of checking e-mail from EDMS customers, answering phone calls, and collaborating on the EDMS software newsletter with EDMS employee Betty Flagler. Janice often consulted Woellert regarding how to answer some of the e-mails. Woellert testified that she did not consider Janice's tasks as amounting to management activities. Woellert admitted, however, that she was not in the EDMS office at all hours and could not have observed what Janice might have been doing during those times. Woellert testified that she and Janice worked in the EDMS booth at equine conventions. Woellert described Janice's role at ...


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