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PARSONS TANNING CO. v. SCHWARTZ

July 14, 2004.

PARSONS TANNING CO., a Delaware corporation, ex rel. CURTIS WEINSTEIN, Plaintiff,
v.
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 considered).

  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 ...


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