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Buntrock v. Terra

May 28, 2004

[5] DEAN L. BUNTROCK AND RONALD GIDWITZ, PLAINTIFF-APPELLEES,
v.
JUDITH TERRA, PAUL TUCKER AND ALAN K. SIMPSON, DEFENDANTS-APPELLANTS, AND TERRA FOUNDATION FOR THE ARTS AND NAFTALI MICHAELI, DEFENDANTS-APPELLEES.
THE PEOPLE OF THE STATE OF ILLINOIS EX REL. LISA MADIGAN, ILLINOIS ATTORNEY GENERAL, PLAINTIFF-INTERVENOR-APPELLEE,
v.
JUDITH TERRA, PAUL TUCKER AND ALAN K. SIMPSON, DEFENDANTS-APPELLANTS. AND TERRA FOUNDATION FOR THE ARTS, DEFENDANT-APPELLEE.



[6] Appeal from the Circuit Court of Cook County. Honorable Dorothy K. Kinnaird, Judge Presiding.

[7] The opinion of the court was delivered by: Presiding Justice Campbell

[8]  Defendants, Judith Terra, Paul Tucker and Alan K. Simpson *fn1 , are three former directors of the Terra Foundation for the Arts (The Foundation), a non-for-profit corporation that operates an art museum in Chicago. The defendant Directors appeal from a court-ordered settlement that terminated the litigation by plaintiffs, Dean Buntrock and Ronald Gidwitz, two other directors of The Foundation, and by the plaintiff-intervenor the office of the Illinois Attorney General. On appeal, the defendant Directors contend that the trial court improperly approved the settlement without an independent inquiry into whether or not the settlement was fair, adequate, reasonable and in the best interests of The Foundation, whether or not plaintiffs were likely to succeed on the merits, and whether there were conflicts of interests as a result of the intervention of the Attorney General.

[9]  The Foundation filed a response brief as a defendant-appellee in the suit by the plaintiff-intervenor the Attorney General of Illinois, and the Attorney General filed a separate brief in response to the brief of the defendant Directors. For the following reasons, we affirm the judgment of the trial court.

[10]   BACKGROUND

[11]   Daniel Terra was a wealthy industrialist, diplomat and philanthropist, an avid collector of modern American art, a financier for the Republican Party, and the first ambassador-at-large for cultural affairs under President Reagan. In 1978, Terra, along with his wife, Adeline E. Terra, established the Terra Museum of American Art as an Illinois not-for-profit corporation "organized exclusively for charitable, educational , literary or scientific purposes," specifically including establishing and operating "a museum." Terra opened a museum in Evanston in 1980. At its inception, the Foundation had three directors, including Terra and his son James Terra. The original gift and subsequent gifts to the Foundation by Terra approximate $450 million.

[12]   Adeline Terra died in 1982. Terra eventually acquired adjoining parcels of land on North Michigan Avenue in Chicago for the purpose of expanding his museum.

[13]   In 1986, at the age of 75, Terra married Judith Banks (Judith Terra) of Washington, D.C. After his marriage, Terra continued to maintain his longtime residence in Kenilworth, Illinois, and also kept a second residence with Judith in Washington, D.C. That same year, Terra began taking steps toward the opening of a museum of American Art in Giverny, France (the Giverny Center), adjacent to the well-known museum devoted to the works of Claude Monet. Terra contributed the French property he acquired to the Foundation.

[14]   The Foundation relocated the Terra Museum to the new building located at 664-666 North Michigan Avenue in 1987, exhibiting a collection that included works by noted American artists John Singleton Copley, Winslow Homer and James Whistler.

[15]   In 1992, in anticipation of the opening of the Giverny Center, The Foundation's name was legally changed from "The Terra Museum of American Art," to "The Terra Foundation for the Arts." The stated purpose for the name change was "to accommodate the project in France and to clearly define that there will be two museums under the umbrella of the Foundation." Following the opening of the Giverny Center, the Foundation's articles of incorporation were amended to state its purposes including operating "museums and schools, both in the United States and abroad." The Foundation's by-laws were similarly modified.

[16]   On June 28, 1996, at the age of 85, Terra died suddenly following a massive stroke. In the spring of 2000, after the settlement of Terra's estate, the Foundation Board appointed a Strategic Planning Committee to consider a co-operative relationship with a major arts institution. The Foundation received proposals of cooperation from the Art Institute of Chicago, the Corcoran Gallery of Art and the National Gallery of Art, both located in Washington, D.C., and the Museum of Fine Arts in Boston.

[17]   At a Board meeting in August 2000, Foundation Board Member Dr. Paul Hays Tucker circulated a memorandum to the Board, at that time consisting of 11 members, advocating the closing of the Chicago museum and the relocation of its collection to Washington, D.C., for exhibition in collaboration with the National Gallery of Art. Director Margaret Daley, *fn2 said that she did not recall any discussion of "abandoning" Chicago. Director Buntrock *fn3 commented that moving the Foundation had not been previously discussed by the Board. Dr. Tucker responded that the Strategic Planning Committee would recommend this option to the Board, and that the Board should make a definite decision the following month.

[18]   The Board scheduled a formal discussion of the alternatives raised by the Strategic Planning Committee for its annual Board meeting, to take place at the Foundation's museum in Giverny, France, on September 26, 2000.

[19]   On September 22, 2000, prior to the annual Board meeting, Directors Buntrock and Gidwitz *fn4 filed an action in the circuit court of Cook County, against the three Director defendants and Naftali Michaeli, *fn5 alleging mismanagement of the Terra Museum after Terra's death and seeking an injunction to prevent the Board from convening an unscheduled meeting to alter the composition of the Board and to prevent any decision to close the museum or transfer its art collection to another institution. Plaintiffs alleged that although a Board meeting was scheduled for September 26, 2000, the defendant Directors unlawfully scheduled a pre-Board meeting for September 24, 2000, with the intention to remove Buntrock from the Board as a result of his opposition to the closing of the Chicago museum. Plaintiffs alleged that the defendant Directors would have the votes necessary to remove Buntrock at the unlawful meeting on September 24, 2000, but not at the regular Board meeting on September 26, 2000.

[20]   The complaint further alleged that defendants had committed various breaches of their fiduciary duties to the Foundation, including a "conscious effort" to "cause the failure of Terra Museum in Chicago to justify closing Terra Museum," including orchestrating replacements of Foundation Board members and "stacking Terra Foundation's Board" with loyalists to Judith Terra; moving the Foundation's Chicago-based art collection to Washington, D.C. contrary to the donative intention of Daniel Terra; holding illegal executive committee meetings in violation of the by-laws; consulting and taking advice from defendant Michaeli, despite the fact that Michaeli is not an officer, director or employee of the Foundation; making significant expenditures on art without obtaining input or approval from the Board; and wastefully incurring excessive legal fees.

[21]   On September 25, 2000, the Attorney General moved to intervene as an additional plaintiff, pursuant to the Charitable Trust Act (760 ILCS 55/16(b) (West 2002)), filing its complaint against the three Director defendants and the Foundation. James Terra was later permitted to intervene as a plaintiff, both personally, as Terra's heir, and as executor of Terra's estate, seeking to prevent the transfer of the Foundation's art collection to another city.

[22]   The trial court granted the plaintiffs' motion for a temporary restraining order, allowed the Attorney General to intervene as a plaintiff, authorized expedited discovery, and set the matter for further hearing in two weeks. The interlocutory injunction was continued throughout the course of the litigation through subsequent orders.

[23]   On February 5, 2001, at the suggestion of the three defendant Directors, the trial court ordered the parties to pursue mediation, appointed a mediator from among candidates proposed by the defendant Directors, and stayed the proceedings. The defendant Directors explained their desire to pursue mediation in order to obtain releases of the individual claims filed against them, which, if sustained, would prevent them from being reimbursed for legal fees under the Foundation's by-laws. Before agreeing to mediation, the Assistant Attorney General (AAG) for the Charitable Trust Division stated his opposition to any settlement under which the Foundation's art collection would be moved away from the Chicago area.

[24]   During the course of mediation, when it appeared that no settlement could be reached and the stay would be lifted, the AAG drafted an amended complaint adding Director Dr. Theodore Stebbins as an additional defendant and alleging that Stebbins breached his fiduciary duties to the Foundation in connection with potential purchases of artworks. At the same time, the Attorney General received information that Dr. Stephanie Marshall, another Board member, was involved in another charity which was engaged in a serious violation of the law. The Attorney General initiated an informal inquiry into the matter, and promptly determined that the information was inaccurate. The Attorney General treated the matter as closed.

[25]   After more than four months of mediation, the Foundation and the Attorney General reached a tentative agreement to settle the case. However, shortly before the meeting scheduled for the Board to vote on whether, and on what terms, the Foundation should agree to a settlement, the defendant Directors filed an action in federal court seeking to enjoin the Foundation from pursuing the settlement. The federal court dismissed the case. The defendant Directors immediately filed a motion in the trial court to enjoin any action by the Board that would permit the Foundation to implement the settlement. The trial court denied this motion.

[26]   On June 29, 2001, eight of the Board's 11 members, including two of the three defendant Directors, attended a board meeting, either in person or by telephone. The conversation was recorded and transcribed. The meeting included a lengthy discussion about the Attorney General's actions relating to Stebbins and Marshall, each of whom then stated that their votes were motivated by the best interests of the Foundation, and not encouraged by any actions of the Attorney General. Following a lengthy discussion of the terms of the settlement, the Board voted six-to-two in favor of a resolution that the Foundation enter into the settlement. Defendant directors Judith Terra and Dr. Tucker voted against the resolution. Defendant Simpson did not participate in the meeting, either in person or by telephone.

[27]   The Foundation filed a motion for court approval of the settlement, and the trial court set a briefing schedule and a hearing date for the motion. The defendant Directors filed objections, accompanied by voluminous attachments, contending that the settlement contravened Daniel Terra's donative intent and the Foundation's charitable purposes, and that the Attorney General's actions relating to Dr. Stebbins and Dr. Marshall invalidated their votes in favor of the settlement and, as a result, the Foundation's approval of the settlement. The Foundation, the Attorney General and the plaintiff Directors filed separate responses to these objections, and the defendant directors filed a reply in support of their opposition to approval of the settlement. The defendant Directors also filed a motion for leave to take discovery in support of their objections, and separately moved for leave to file counterclaims.

[28]   Among the materials submitted by the defendant Directors along with their filed objections was a 1990 memorandum from Daniel Terra to the Board in which he: (1) described the Foundation's ongoing operating deficits, as well as similar deficits in the other two major museums of American art; (2) expressed his concerns about the "viability" of "the whole concept of a Museum of American Art"; and (3) listed various options for the Foundation to address this problem over the long term, including, as a last resort, no longer operating a museum. ...


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