United States District Court, N.D. Illinois, Eastern Division
July 14, 2004.
PARSONS TANNING CO., a Delaware corporation, ex rel. CURTIS WEINSTEIN, Plaintiff,
JAMES L. SCHWARTZ, MICHAEL WEINSTEIN and LISSA WEINSTEIN, Defendants.
The opinion of the court was delivered by: SUZANNE CONLON, District Judge
MEMORANDUM OPINION AND ORDER
This litigation arises out of complicated and acrimonious
family disputes spanning the last decade. Curtis Weinstein
("Curtis") brought this derivative action against his brother and
sister, Michael Weinstein ("Michael") and Lissa Weinstein
("Lissa") (collectively "Weinstein defendants") after a special
shareholders meeting was noticed for the purpose of amending the
bylaws of Parsons Tanning Company ("Parsons Tanning"), a
family-run corporation owning an 88-acre farm in Lake Geneva,
Wisconsin ("Upper Farm"). Curtis claims that the Weinstein
defendants improperly seek to oust him from the Upper Farm
leasehold by shareholder resolution, despite having lost their
shares in Parson Tanning stock to Greiner Corporation
International ("GCI"). Curtis seeks injunctive relief (Count I)
and a declaratory judgment (Count II) regarding the identity of
the rightful shareholders of Parsons Tanning stock. Curtis also
sues attorney James L. Schwartz ("Schwartz") based on conflicts
of interests in his legal representation of Michael, Lissa,
Parsons Tanning, and GCI (Count III). The Weinstein defendants
and Schwartz now move for summary judgment. BACKGROUND
I. Local Rule 56.1
Local Rule 56.1 requires litigants to follow a detailed
procedure in filing and responding to summary judgment motions.
Both the moving and non-moving parties are required to submit a
statement of material facts, including "specific references to
the affidavits, parts of the record, and other supporting
materials relied upon." Local Rule 56.1(a)(3); Local
Rule 56.1(b)(3)(B). All facts not properly supported by the record
evidence must be disregarded. Brasic v. Heinemann's Inc.,
121 F.3d 281, 284 (7th Cir. 1997). In response to a motion for
summary judgment, the non-moving party is required to submit a
response "to each numbered paragraph in the moving party's
statement [of material facts], including, in the case of any
disagreement, specific references to the affidavits, parts of the
record, and other supporting materials relied upon." Local
Rule 56.1(b)(3)(A). All relevant facts denied without supporting
documentation must be accepted as true provided the facts are
"properly supported by references to the record or other
evidentiary material." Jupiter Aluminum Corp. v. Home Ins. Co.,
225 F.3d 868, 871 (7th Cir. 2000); Stewart v. McGinnis,
5 F.3d 1031, 1034 (7th Cir. 1993). "If additional material
facts are submitted by the opposing party . . ., the moving party
may submit a concise reply in the form prescribed in that section
for a response." Local Rule 56.1(a)(3)(B).
Curtis' submissions fail to comply with Local Rule 56.1. He
fails to submit a statement of additional facts in the required
form. Instead, he repeatedly refers to extraneous facts in his
responses to the statement of facts submitted by Schwartz and the
Weinstein defendants. Accordingly, Curtis' responses to ¶¶ 9, 10,
14 and 17-18 of the Weinstein defendants. statement of facts and ¶¶ 8-12 of Schwartz's statement of facts will be
disregarded to the extent additional, non-responsive facts are
advanced. Local Rule 56.1(b)(3)(B).
Nor will the court consider Curtis' discussion of the
background of the Aries Arabian Corporation bankruptcy in his
response to ¶¶ 17-18 of the Weinstein defendants' statement of
facts; only the monetary loan subsequently obtained by the
Weinstein defendants from GCI for the purpose of settling the
Carver Litigation is relevant to Curtis' claims. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (facts that are
irrelevant or unnecessary to summary judgment motion will not be
Finally, Curtis improperly relies on Schwartz's 1996 engagement
letter and deposition testimony as evidence that Michael
fraudulently conveyed his shares of Parsons Tanning stock to
Lissa. In the 1996 engagement letter, Schwartz states "it is my
understanding that Lissa Weinstein is a shareholder of Parsons
Tanning Company and Michael Weinstein assigned his shares of
stock in Parsons Tanning Company to Lissa Weinstein several years
ago." Pl. Resp. Def. Facts at Ex. 33. At Schwartz's deposition,
he attested that Michael was not a shareholder at the time of the
1996 shareholders meeting. Schwartz Dep. at 37. However, Curtis
failed to establish foundation to show how Schwartz knew or
understood that Michael transferred his shares to Lissa.
Accordingly, the court cannot consider Schwartz's 1996 engagement
letter and deposition testimony as evidence that Michael
fraudulently conveyed his stock to Lissa. Fed.R.Evid. 602 ("[a]
witness may not testify to a matter unless evidence is introduced
sufficient to support a finding that the witness has personal
knowledge of the matter"). See also Woods v. City of Chicago,
234 F.3d 979, 988 (7th Cir. 2000) (evidence submitted at
summary judgment must be admissible at trial under the Federal
Rules of Evidence). II. Facts
All facts are undisputed unless otherwise noted. Michael,
Lissa, Curtis, and Richey Weinstein are siblings. Weinstein Facts
at ¶ 5. Herbert Weinstein, their deceased father, formed Parsons
Tanning, a Delaware corporation, in 1964 for the purpose of
engaging in the leather tannery business along with his brother
Jerome and another business partner. Id. at ¶¶ 1, 6. Herbert
also controlled another tannery, GCI. Id. at ¶ 27. Richey is
now president of both Parsons Tanning and GCI. Id. at ¶¶ 9, 28.
Schwartz is an Illinois attorney who has represented Parsons
Tanning and the Weinstein defendants. Schwartz Facts ¶¶ 8-12.
A. Parson Tanning Stock Ownership
Curtis' horse breeding business has leased the Upper Farm since
1990. Weinstein Facts at ¶ 7, 10. The current lease expires on
March 31, 2005. Id. The parties dispute the propriety of a
proposed Parsons Tanning shareholder resolution to approve the
sale of the Upper Farm. Id. at ¶¶ 20-22; Pl. Resp. Weinstein
Facts at ¶¶ 20-22; Pl. Resp. Schwartz Facts at ¶ 5. According to
Curtis, the Weinstein defendants are not entitled to vote on the
Upper Farm resolution because they are no longer stockholders.
Pl. Resp. Weinstein Facts at ¶¶ 21-22; Pl. Resp. Schwartz Facts
at ¶¶ 6-7.
Parsons Tanning has 600 issued and outstanding shares of common
stock. Weinstein Facts at ¶ 12. In 1990 or 1991, Parsons
Tanning's stock was divided among the four Weinstein siblings in
quarters, giving each 150 shares. Id. at ¶ 14.*fn1 Richey
and Curtis each undisputedly retain ownership of 150 shares of Parsons Tanning stock. Id. at ¶¶
15-16. According to Curtis, the Weinstein defendants no longer
own the 150 shares of Parsons Tanning stock originally issued to
them. Pl. Resp. Weinstein Facts at ¶¶ 17-19, 23-25, 27, 29-31.
Instead, Curtis contends the Weinstein defendants experienced a
series of financial setbacks that forced them to encumber their
ownership interest in Parsons Tanning. Id. at ¶¶ 17-18, 27,
29-32. Specifically, Curtis contends Michael anticipated filing
for bankruptcy in 1995 and shielded his 150 shares of Parsons
Tanning stock from judgment creditors by fraudulently
transferring that stock to Lissa. Id. Curtis contends Lissa
pledged both her and Michael's fraudulently transferred stock as
collateral to GCI in December 1996 in exchange for a loan to
enable her and Michael's payment of a legal settlement in an
unrelated California lawsuit ("Carver litigation"). Id. at ¶¶
17, 29-30, and Ex. 13. In support of his position, Curtis tenders
a note signed by Lissa in which she agreed "to put my Parsons
Tanning Company stock aside as collateral for a $100,000.00 loan
made to me." Id. at ¶ 27, Ex. 13. The Weinstein defendants
admit they are indebted to GCI, but dispute that Lissa ever
pledged Parsons Tanning stock as collateral. Weinstein Reply at ¶
17. In addition to Lissa's note, Curtis relies on a later
agreement executed by Michael and Richey purportedly governing
Michael and Lissa's repayment of multiple GCI loans, including
the December 1996 loan. Pl. Resp. Weinstein Facts at ¶ 27. The
agreement specified, inter alia, that
[t]he $100,000 loaned to Lissa & Michael Weinstein in
December of 1996 for payment of the California
judgment will be secured with Parson stock. A $4,000
payment will be made on or before July 15, 1997 for
interest accumulated on this loan through June 30,
1997. GCI will continue to make this loan available
to Michael & Lissa provided that they are negotiating
with Richey and/or Curtis Weinstein for the sale of
Michael & Lissa Weinstein's interest in the "Upper
Farm," or a minimum of October 1, 1997. If after this
time, GCI decides to call in the note they must give
written notice and 45 days from the date of notice to
pay the $100,000 loan. This note will bear interest at 8% and payments
will be made quarterly with the first payment due on
September 30, 1997 of $2,000.00.
Id. at ¶ 27, Ex. 30. Curtis contends the Weinstein defendants
defaulted on this loan, causing the Weinstein defendants to
forfeit their stock to GCI. Id. at ¶¶ 17, 30; Ex. 21, 27.
According to the Weinstein defendants, Michael never conveyed
his shares to Lissa, they never agreed to pledge their shares as
collateral in exchange for the GCI loan, and they still each own
150 shares. Weinstein Facts at ¶¶ 17-19, 23, 29-30; Ex. 1, ¶ 5;
Ex. 2 ¶ 5. Instead, Michael contends that he and Lissa had an
informal understanding that she would control his shares in early
1995, but that he thereafter reclaimed control in January 1996.
Id. at Ex. 1, ¶ 7. The Weinstein defendants further challenge
Curtis' evidence that they gave their Parsons Tanning stock as
collateral to GCI. Weinstein Reply at ¶ 17. According to the
Weinstein defendants, the agreement executed by Michael and
Richey was merely a discussion draft, not a final contract
executed by all parties including Lissa. Weinstein Facts at Ex.
1, ¶ 12-13; Ex. 3, ¶ 14.
Despite differing positions on whether Michael transferred his
stock to Lissa and whether the Weinstein defendants actually
pledged their Parsons Tanning stock as collateral for the GCI
loan, it is undisputed that GCI did not follow through with legal
proceedings against the Weinstein defendants after the default.
Weinstein Facts at ¶¶ 31, 33. Although GCI sent the Weinstein
defendants an initial notice of default in 2000 and Lissa a
subsequent notice of collateral sale in 2001, it is undisputed
that the sale never occurred. Id. at ¶¶ 17, 33; Ex. 21; Ex. 27;
Pl. Resp. Weinstein Facts at ¶ 33. B. Schwartz's Legal Representation
Over the last decade, Schwartz has provided legal
representation to the Weinstein defendants and Parsons Tanning;
Schwartz has never represented GCI. Schwartz Facts ¶¶ 8-13. As to
the Weinstein defendants, Schwartz has represented Michael in
multiple matters since 1994. Id. at ¶ 10. In the mid-1990s,
Schwartz counseled Michael on asset protection and was retained
as special counsel for various bankruptcy proceedings. Id. at
11; Pl. Resp. Schwartz Facts at ¶ 11. When the Carver litigation
settled in 1996, Schwartz represented the Weinstein defendants in
the negotiation of GCI loans for payment of the settlement. Pl.
Resp. Schwartz Facts at ¶ 12; Schwartz Reply at ¶ 15-16. In 2001,
Schwartz represented the Weinstein defendants in the GCI loan
dispute. Schwartz Facts at ¶ 12. Finally, in the fall of 2003,
Schwartz represented Michael in an unrelated real estate sale.
Id. at ¶ 10; Schwartz Reply at ¶ 12.
Schwartz's legal representation of Parsons Tanning has been
more limited. Id. at ¶ 8. In August 1995, Schwartz was retained
as counsel to Parsons Tanning in connection with its annual
shareholder meeting. Id. After that meeting, Schwartz performed
no other legal services for Parsons Tanning until August 2003.
Id. at ¶ 9. In August, Richey retained Schwartz to aid in the
organization and operation of the special Parsons Tanning
shareholders meeting noticed to amend the corporate by-laws.
Id. In September, Schwartz also corresponded with a real estate
broker on behalf of Parsons Tanning regarding the proposed sale
of the Upper Farm. Pl. Resp. Schwartz Facts at ¶ 9. DISCUSSION
I. Legal Standard
A movant is entitled to summary judgment when the record,
viewed in the light most favorable to the non-moving party, shows
there is no genuine issue of material fact and that the movant is
entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c);
Dyrek v. Garvey, 334 F.3d 590, 597-98 (7th Cir. 2003); Celotex
Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548 (1986).
Entry of summary judgment against a party is proper when the
non-moving party fails to "make a showing sufficient to establish
the existence of an element essential to that party's case, and
on which that party will bear the burden of proof at trial."
Dyrek, 334 F.3d at 597-98; Celotex, 477 U.S. at 322,
106 S.Ct. 2548. To survive a motion for summary judgment, the
nonmovant must do more than merely demonstrate a factual dispute;
he must offer evidence sufficient to support a verdict in his
favor. Basith v. Cook County, 241 F.3d 919, 926 (7th Cir.
2001). "The mere existence of a scintilla of evidence in support
of the [nonmoving party's] position will be insufficient; there
must be evidence on which the jury could reasonably find for the
[nonmoving party]." Anderson v. Liberty Lobby Inc.,
477 U.S. 242, 249, 106 S.Ct. 2505 (1986).
II. Declaratory Judgment and Injunctive Relief (Counts I and
Curtis seeks a declaratory judgment regarding the identity of
the rightful Parsons Tanning stockholders. Specifically, he seeks
a declaration that the rightful stockholders are as follows: (1)
Curtis Weinstein 150 shares; (2) Richey Weinstein 150 shares;
and (3) GCI 300 shares. Curtis requests the Weinstein
defendants be permanently enjoined from participating in any
special or annual shareholders meeting because they do not own
any stock. Curtis predicates his claims solely on GCI's acquisition of the Weinstein defendants' stock by
collateral sale. Compl., Curtis Aff. at ¶ 26.*fn2 The
Weinstein defendants claim Curtis cannot prove GCI acquired their
Curtis contends Michael fraudulently transferred his stock to
Lissa in 1995, Lissa subsequently pledged both her and Michael's
stock to GCI as collateral in exchange for a loan in 1996, and
Michael and Lissa defaulted on the loan. Preliminarily, the
Weinstein defendants claim Curtis lacks competent evidence that
Michael conveyed his stock to Lissa in 1995. The Weinstein
defendants argue that absent a writing, Curtis cannot prove
Michael conveyed his stock to Lisa. Weinstein Mot. at 4. The
Weinstein defendants are mistaken. According to Delaware's
General Corporation Law, the Delaware Uniform Commercial Code
("UCC") governs the transfer of corporate stock. 8 Del. C. § 159;
("shares of stock in every corporation shall be deemed personal
property and transferable as provided in Article 8 of subtitle I
of Title 6"); 8 Del. C § 201 ("the transfer of stock and the
certificates of stock which represent the stock or uncertificated
stock shall be governed by Article 8 of subtitle I of Title 6");
Kallop v. McAllister, 678 A.2d 526 (Del. 1996). According to
the Delaware UCC, a writing is not necessary to transfer stock. 6
Del. C. § 8-113 ("A contract or modification of a contract for
the sale or purchase of a security is enforceable whether or not
there is a writing signed or record authenticated by a party
against whom enforcement is sought, even if the contract or
modification is not capable of performance within one year of its
making"). Thus, Curtis may demonstrate an issue of fact as to
whether Michael fraudulently transferred his shares of Parsons Tanning stock to Lissa even in
the absence of evidence of a written agreement between them.
Curtis' reliance on a schedule filed by Michael during his 1996
Northern District of Illinois bankruptcy proceeding in which
Michael omitted any ownership interest in Parsons and the Upper
Farm sufficiently creates an issue of fact as to whether he had
transferred his Parsons Tanning stock. Pl. Resp. Weinstein Facts
at ¶ 18, Ex. 40. Michael signed the schedule declaring, "under
penalty of perjury that [he] read the foregoing . . . schedules,
consisting of 23 sheets, and that they are true and correct to
the best of [his] knowledge, information, and belief." Id.
Although Michael protests that he never conveyed his Parsons
Tanning stock to Lissa, he admits they had an informal agreement
whereby she would "control" them for him. Weinstein Facts, Ex. 1
at ¶ 7. Michael admits he requested his ownership interest in
Parsons Tanning stock be purposefully omitted from corporate
governance records due to the pursuit of judgment creditors.
Id. Based on this evidence, a reasonable factfinder could
conclude that Michael had fraudulently transferred his stock to
Lissa in order to shield the stock from judgment creditors. Nor
is Michael's protestation that his bankruptcy attorney committed
malpractice and erred in completing the forms persuasive. Michael
swore he read the schedules and that they were true and correct.
Pl. Resp. Weinstein Facts at ¶ 18, Ex. 40.
However, whether Michael fraudulently transferred his stock to
Lissa in 1995 ultimately is of no consequence. Even if a
reasonable factfinder found that Michael fraudulently transferred
his stock to Lissa, Curtis' claim would still fail because he has
not proven GCI owns either of the Weinstein defendants' stock.
Curtis advances no evidence that substantiates his allegation
that GCI enforced its right to the Weinstein defendants' stock by
collateral sale. Silk v. City of Chicago, 194 F.3d 788, 798
(7th Cir. 1999) (non-moving party must go beyond the pleadings
and set forth specific facts showing there is a genuine issue for
trial). Curtis simply concedes that GCI failed to complete the sale of the Weinstein defendants' stock. Pl. Resp. Weinstein
Facts at ¶ 33. See also Pl. Opp. Mem. at 14 ("Unbeknownst to
Curtis, it appears that Richey told Teibloom not to effectuate
the sale"); Id. at 20-21 ("Nevertheless, a sale did not occur
. . . [Lissa] realized a massive benefit, immediately defaulted,
and now gleefully embraces Richey's failure to actually
effectuate the sale as a life preserver for her duplicity"). Nor
does Curtis mention, let alone proffer any evidence, that GCI
pursued a UCC remedy other than collateral sale. Shank v.
William R. Hague, Inc., 192 F.3d 675, 682 (7th Cir. 1999)
(summary judgment is the time for the plaintiff to "put up or
shut up"). Absent any evidence GCI acquired the Weinstein
defendants' stock by collateral sale, Curtis' claim fails as a
matter of law and the Weinstein defendants retain their voting
rights under Delaware's General Corporation Law. 8 Del. C. § 217
("Persons whose stock is pledged shall be entitled to vote").
Curtis' invocation of the doctrine of unclean hands cannot
change this result. While it certainly appears the Weinstein
defendants' enjoyed a windfall, neither seek equitable relief
from this court. Truserv Corp. v. Chaska Building Center, Inc.,
No. 02 C 1018, 2003 WL 924509 at * 21 (N.D. Ill. March 6, 2003)
("[t]he equitable doctrine of unclean hands provides that a party
seeking equitable relief cannot take advantage of his own wrong")
(internal quotation and citation omitted). Curtis' real dispute
is with GCI and Richey's failure to proceed against the Weinstein
defendants after they defaulted. Accordingly, summary judgment
must be granted as to Counts I and II.*fn3 III. Conflict of Interest (Count III)
Curtis' complaint alleged that Schwartz's representation of
Michael, Lissa, Parsons Tanning, and GCI at various times
constitutes a conflict of interest. Curtis primarily relies on
Schwartz's failure to advise the bankruptcy court of Michael's
interest in Parsons Tanning and to properly prepare loan
documentation obligating the Weinstein defendants' repayment of
GCI loans in 1996. Compl. at ¶¶ 36, 38-41, 67, 70, 73. However,
as Curtis now concedes, Schwartz never represented GCI. Pl. Resp.
Schwartz Facts at ¶ 13. Curtis cannot substantiate an actionable
conflict of interest based on duties to GCI. Schwartz v.
Cortelloni, et al., 685 N.E.2d 871, 875 (Ill. 1997) (attorney
only owes duty to actual client).
The remainder of Curtis' claim of conflict of interest involves
Schwartz's representation of both Parsons Tanning and the
Weinstein defendants. At the outset, Curtis argues Schwartz never
obtained a proper waiver of any conflict between Parsons Tanning
and the Weinstein defendants in 1996. Pl. Opp. Mem. at 21.
However, Curtis' supporting evidence fails to comply with the
explicit language of Rule 56.1(b)(3)(B). See Pl. Resp. Schwartz
Facts at ¶ 8. Curtis cannot oppose summary judgment by submitting
extraneous, non-responsive information in response to Schwartz's
statement of facts. Nor is Curtis' supporting evidence relevant
because he and the other shareholders subsequently ratified the
retention of Schwartz as counsel to Parsons Tanning for the 1996
shareholders meeting. Schwartz Response at Ex. B. On January 17,
1996, Curtis and the other shareholders signed a Consent of
Directors of Parsons Tanning Inc., resolving "that all of the
acts and deeds of the officers of the Company on or prior to the
date of this meeting during this past year be and said acts and
deeds are ratified and approved." Id.
Moreover, Schwartz's representation of Parsons Tanning is not
related to his representation of the Weinstein defendants.
Contrary to Curtis' position, Parsons Tanning had no interest in Michael's 1996 bankruptcy proceedings or the Carver litigation.
Schwartz, 685 N.E.2d at 878 (substantial relationship must
exist between two representations for conflict warranting
disqualification to exist). Parsons was not one of Michael's
creditors. Nor did Parsons lend Michael any funds to settle the
Carver litigation. Curtis mistakes GCI's interest in the
Weinstein defendants' affairs with that of Parsons Tanning. Nor
can Curtis establish a conflict of interest between Schwartz's
past representation of the Weinstein defendants and his
representation of Parsons Tanning in 2003. Curtis fails to submit
evidence to substantiate his claim that GCI now owns the
Weinstein defendants' Parsons Tanning stock. Thus, there is no
support for Curtis' claim that Schwartz assisted the Weinstein
defendants in exerting improper control over Parsons Tanning.
Rather, the record firmly establishes that Schwartz was retained
by Richey in 2003 on behalf of Parsons Tanning for the purpose of
dealing with the prospective sale of the Upper Farm a sale
supported by the majority of Parsons Tanning shareholders.
Majumdar v. Lurie, 653 N.E.2d 915, 918 (Ill.App. Ct. 1995)
(corporate attorney does not owe his duty to any individual
shareholder, but to corporate entity). Summary judgment must be
granted on Count III.
There are no disputed issues of material fact. Defendants are
entitled to summary judgment on all claims as a matter of law.