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Machnicki v. Kurowski

Court of Appeals of Illinois, First District, Second Division

June 26, 2018

RICHARD MACHNICKI, KATHY MACHNICKI, and ZBIGNIEW KUROWSKI, Plaintiffs,
v.
MARIUSZ KUROWSKI and UNKNOWN OWNERS, Defendants Richard Machnicki and Zbigniew Kurowski, Plaintiffs and Counterdefendants-Appellants; Mariusz Kurowski, Individually and on Behalf of Kurowski Sausage Shop & Rich's Bakery, Inc., Counterplaintiff-Appellee.

          Appeal from the Circuit Court of Cook County. No. 12 CH 32792 The Honorable James P. Flannery, Judge Presiding.

          JUSTICE PUCINSKI delivered the judgment of the court, with opinion. Justices Hyman and Walker concurred in the judgment and opinion.

          OPINION

          PUCINSKI, JUSTICE

         ¶ 1 Plaintiffs-counterdefendants, Richard Machnicki and Zbigniew Kurowski (collectively, plaintiffs), appeal from the trial court's order directing them to pay $339, 000 in attorney fees and expenses to defendant-counterplaintiff, Mariusz Kurowski (defendant) pursuant to section 12.60(j) of the Business Corporation Act of 1983 (Corporation Act) (805 ILCS 5/12.60(j) (West 2016)). Plaintiffs contend on appeal that, in violation of the plain language of section 12.60(j), the trial court considered alleged acts by plaintiffs that occurred outside of the litigation when awarding said fees and expenses to defendant. For the reasons that follow, we disagree that reversible error occurred and affirm the trial court's judgment.

         ¶ 2 BACKGROUND

         ¶ 3 The facts relevant to the present dispute are essentially undisputed by the parties. In 1998, the parties opened a Polish delicatessen and bakery called Kurowski Sausage Shop & Rich's Bakery, Inc. (Kurowski's) in Chicago's "Avondale" neighborhood. Claiming a change in the local demographic, plaintiffs later opened a new delicatessen and bakery-Pulaski Polish Deli & Bakery-in Chicago's "Dunning" neighborhood but did not invite defendant to join them in the new venture. In August 2012, plaintiffs filed a complaint for the partition of the real property (property) out of which Kurowski's was operated and that was jointly owned by the parties and Kathy Machnicki as individuals but was not an asset of the corporation.

         ¶ 4 In October 2012, defendant filed a counterclaim in response. His third amended counterclaim contained six counts: count I alleged breach of fiduciary duty, count II alleged breach of contract, count III alleged violation of the Illinois Trade Secrets Act (765 ILCS 1065/1 et seq. (West 2012)), count IV alleged violation of the Uniform Deceptive Trade Practices Act (815 ILCS 510/1 et seq. (West 2012)), count V alleged tortious interference with a business expectancy, and count VI alleged unjust enrichment. Counts I and II sought relief for plaintiffs' alleged breaches under section 12.56 of the Corporation Act.

         ¶ 5 Following the confirmation of the court-ordered sale of the property, the matter was transferred from the chancery division to the law division of the circuit court for a jury trial on defendant's counterclaim. The jury found in favor of defendant and against plaintiffs and rendered an advisory verdict on counts II and V. In addition to following the jury's advice on counts II and V, the trial court also entered judgment on count I pursuant to section 12.56 of the Corporation Act. In sum, the trial court entered judgment in favor of defendant and against plaintiffs as follows: (1) plaintiffs were to purchase defendant's shares in Kurowski's for the sum of $152, 272 plus $17, 980.61 in prejudgment interest, (2) additional joint and several compensatory damages against both plaintiffs in the amount of $18, 618.90, (3) punitive damages against Richard Machnicki in the amount of $15, 454.54, and (4) punitive damages against Zbigniew Kurowski in the amount of $8, 181.81. Defendant voluntarily dismissed count VI without prejudice, and counts III and IV were dismissed by the trial court prior to trial.

         ¶ 6 Thereafter, defendant filed a petition for attorney fees and expenses pursuant to section 12.60(j) of the Corporation Act. In it, defendant argued that he was entitled to an award of attorney fees and expenses because plaintiffs had engaged in actions that were arbitrary, vexatious, and not in good faith when they attempted to squeeze him out of Kurowski's for less than fair market value, misused Kurowski's funds, and engaged in misconduct during discovery. Defendant also argued that by ordering the sale of defendant's shares in Kurowski's pursuant to section 12.56, the trial court must necessarily have found that plaintiffs committed shareholder oppression, wasted corporate assets, or otherwise breached their fiduciary duties, and that such findings justified an award of attorney fees and expenses under section 12.60(j).

         ¶ 7 Among other things, plaintiffs argued in response that the arbitrary, vexatious, or not in good faith actions that would justify an award of attorney fees and expenses under section 12.60(j) must take place within the litigation at issue and, because the actions relied upon by defendant occurred primarily outside of the litigation, they could not serve as a basis for an award. In addition, plaintiffs argued that the fees and expenses sought by defendant were unreasonable because some of the fees sought were not associated with claims subject to section 12.60(j) or were not a direct result of the allegedly arbitrary, vexatious, or bad faith actions of plaintiffs.

         ¶ 8 Following a hearing on the matter, the trial court issued an order denying defendant's fee petition. In the order, relying on the case of Abreu v. Unica Industrial Sales, Inc., 224 Ill.App.3d 439 (1991), the trial court held that the actions alleged by defendant did not fall within the scope of section 12.60(j) because they did not occur within the subject litigation.

         ¶ 9 Defendant filed a motion to reconsider, arguing that Abreu did not govern because it dealt with a fee provision of the Corporation Act that was no longer in existence and that contained different language than section 12.60(j). Defendant also argued that plaintiffs did commit arbitrary, vexatious, and not in good faith acts within the scope of the litigation. The trial court granted defendant's motion to reconsider and entered two separate orders in that regard. In the first order, the trial court apparently agreed with defendant's argument that the alleged misconduct did not need to occur during the legal proceedings to be considered under section 12.60(j), stating that it would "consider actions related which were vexatious (not in good faith)." The trial court also stated, "This trial court does not find in presiding over the law division jury case illegality, vexatious, otherwise arbitrary conduct in bad faith in this proceeding. This court cannot verify the resistance by [plaintiffs] & non-compliance re: discovery." The trial court ended the order by stating that it would review the billing statements submitted by defendant to arrive at an appropriate amount. In the second order, entered the same day, the trial court stated that it had reviewed all 93 pages of billing statements submitted by defendant and having taken "thoughtful consideration of the history of the LLC meeting, and the partition suit and the actions concerning discovery according to the interpretation of [defendant]," it awarded defendant attorney fees and expenses in the amount of $339, 000.

         ¶ 10 Plaintiffs filed a motion to alter or amend the trial court's award to defendant, again arguing that an award of attorney fees and expenses for the conduct alleged by defendant was not supported by section 12.60(j) and that the amount awarded was excessive. ...


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