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Noonan v. Harrington

September 16, 2010

DENNIS NOONAN AND LANA NOONAN PLAINTIFFS,
v.
THOMAS HARRINGTON, DEFENDANT.



The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge

OPINION

This case is before the court for ruling on a Motion for Summary Judgment (#73) filed by the defendant, Thomas Harrington. This court has carefully considered the arguments of the parties and the documents presented by the parties. Following this careful and thorough consideration, the defendant's Amended Motion for Summary Judgment (#73) is GRANTED.

BACKGROUND

On November 18, 2008, plaintiffs Dennis and Lana Noonan filed a complaint against defendant Thomas Harrington. Although the original complaint had two counts, I and II, plaintiffs voluntarily dismissed Count II (#16) and replaced it with Count III (#50). In his Amended Motion for Summary Judgment (#65), the defendant acknowledges certain material facts previously alleged by the plaintiff, and declines to concede others.

A. Undisputed Facts

Plaintiffs were minority shareholders in a corporation, Worden Martin, Inc, ("the Corporation") as well as owners of a parcel of real estate upon which the Corporation conducted business. A Shareholders' Agreement was executed in 2001 that conditionally limited the percentage of retained earnings that could be maintained by the Corporation. Before December 2004, the Corporation distributed 85-90% of its earnings to shareholders. On December 1, 2004, the majority shareholders closed on a sale of their stock to George Shapland, with the purchase running through January 1, 2008. At that time, Plaintiffs did not sell their shares. On May 22, 2006, the defendant prepared a Memo interpreting those paragraphs in the Shareholders' Agreement that controlled the retention of earnings. The Memo stated, in essence, that after the stock purchase was complete, the Corporation was required only to withhold a minimum of 10% of earnings annually and distribute $50,000 as a draw against the monthly earnings for a total of $600,000. On November 13, 2007, the Board of Directors passed a resolution designating 61.5% of earnings as retained earnings. After consulting with counsel, Plaintiffs declined to proceed with a lawsuit challenging Defendant's interpretation of the Shareholders' Agreement. In May 2008, Plaintiffs subsequently sold to George Shapland (1) their shares in the Corporation for $2,334,812.00, and (2) their interest in the real estate for $1,517,000. (Plaintiffs' Response to Defendant's Motion for Summary Judgment, #74, p.2).

B. Contested Allegations

Plaintiffs allege that Defendant was engaged as their attorney contemporaneous with his issuing the Memo to the Board of Directors. Plaintiffs further allege that as early as the initial sales negotiation beginning in 2003, the defendant had developed a conflict of interest between the plaintiffs and the stock purchaser, Shapland, as it was in Plaintiffs' interest that the Corporation continue to distribute 85-90% of earnings to shareholders, while it was in Shapland's interest to increase the percentage of shared earnings so as to have more control over cash flow. Therefore, Plaintiffs allege that Defendant's opinion letter enabled the Board of Directors to reduce substantially the earnings distributed by the corporation, thereby becoming the proximate cause of Plaintiffs' reduction in receipt of dividends. Additionally, Plaintiffs further allege that Defendant not only failed to disclose to them the substance of the Memo, but also that but for Defendant's failure to disclose or withdraw representation, they would have accepted the stock purchaser's original offer of $3,125,000 in 2003.

Plaintiffs' expert witness, Dennis Knobloch, testified that Plaintiffs suffered a total economic loss of $2,305,000.00 as a result of being "forced to sell real estate prematurely depriving them of future lease payments and a decrease in the amount of corporate distributions resulting from a change in percentage of earnings being retained by the corporation." (Plaintiffs' Expert Witness's Opinion Letter, #65 ex. 1, p.19; headings omitted). This sum was calculated by adding the present value of future payments for the real estate lease ($1,161,000) to the present value of the expected future cash flow in perpetuity of the dividends based on an 85-90% expected distribution rate ($2,189,000), and subtracting the present value of the expected future cash flow in perpetuity of the dividends based on a 35% expected distribution rate ($1,045,000). (Plaintiffs' Expert Witness's Opinion Letter, #65 ex. 1, p. 18 and Schedules B and C). Thus, Plaintiffs' alleged damages have all been reduced to present cash value equivalent.

Defendant's expert witness, Neil Gerber, testified that plaintiffs suffered no economic loss from selling their stock and real estate. On the issue of the stock, he testified that the model's estimated present value of the expected future cash flow of the dividends based on an 89% historical distribution rate would be $2,030,000. However, because the future cash flow was in fact converted to present value through sale of the stock, he subtracted the actual sales price of the stock sold, $2,334,812, to conclude that plaintiffs suffered no economic loss from the sale of the stock. On the issue of the real estate lease, Gerber testified that the model's estimated present value of the future lease payments plus residual was $1,480,000. Again, however, because Plaintiffs realized actual proceeds of $1,517,000 on the sale of the property, Defendant's expert witness opined that they suffered no economic loss. Finally, on the issue of loss in value from a premature sale of the stock, Gerber testified that, taking into consideration actual dividends received as well as projected investment earnings, Plaintiffs suffered no economic loss comparing their failure to sell the stock in May 2004 and their actual sale in April 2008. (Defendant's Expert Witness's Opinion Letter, #65 ex. 2, pp. 31-32, Table 1).

ANALYSIS

I. SUMMARY JUDGMENT

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Trentadue v. Redmon, --- F.3d ----, 2010 WL 3239397, at *3 (7th Cir. 2010). In ruling on a motion for summary judgment, a district court has one task and one task only: to decide, based upon the evidence of record, whether there is any material dispute of fact that requires a trial. Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). In making this determination, the court must construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Burwell v. Pekin Cmty. High Sch. Dist. 303, 213 F. Supp. 2d 917, 929 (C.D. Ill. 2002). However, the mere existence of a scintilla of evidence in support of the nonmoving party will be insufficient; there must be evidence on which the jury could reasonably find for the nonmoving party. Liberty Lobby, Inc., 477 U.S. at 252.

Once the moving party has shown that the facts entitle them to judgment in their favor, the burden shifts to the nonmoving party to identify some evidence in the record that establishes a triable factual issue. Trentadue, 2010 WL 3239397, at *3, citing Dugan v. Smerwick Sewerage Co., 142 F.3d 398, 402 (7th Cir. 1998). Specifically, to survive summary judgment, the nonmoving party "must make a sufficient showing of evidence for each essential element of its case on which it bears ...


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