Hagshenas v. Gaylord, 2-88-0840

Decision Date18 May 1990
Docket NumberNo. 2-88-0840,2-88-0840
Citation199 Ill.App.3d 60,557 N.E.2d 316
Parties, 145 Ill.Dec. 546 Bruce HAGSHENAS, Plaintiff and Counterdefendant-Appellee and Cross-Appellant, v. Robert GAYLORD, Jr., and Virginia Gaylord, Indiv., and Imperial Travel, Ltd., Defendants and Counterplaintiffs-Appellants and Cross-Appellees.
CourtUnited States Appellate Court of Illinois

Page 316

557 N.E.2d 316
199 Ill.App.3d 60, 145 Ill.Dec. 546
Bruce HAGSHENAS, Plaintiff and Counterdefendant-Appellee and
Cross-Appellant,
v.
Robert GAYLORD, Jr., and Virginia Gaylord, Indiv., and
Imperial Travel, Ltd., Defendants and
Counterplaintiffs-Appellants and Cross-Appellees.
No. 2-88-0840.
Appellate Court of Illinois,
Second District.
May 18, 1990.

As Modified on Denial of Rehearing

June 27, 1990.

Page 317

[199 Ill.App.3d 62] [145 Ill.Dec. 547] Reese & Reese, William E. Gottfred, and Bernard P. Reese, Jr., argued, Rockford, for Robert Gaylord, Jr. and Virginia Gaylord.

Holmstrom & Green, P.C., Richard D. Gaines, argued, and Roberta L. Holzwarth, Rockford, for Bruce Hagshenas.

Justice DUNN delivered the opinion of the court:

Robert and Virginia Gaylord, and Imperial Travel, Ltd. (Imperial), appeal from the lower court's determination of damages in their successful suit against Bruce Hagshenas for breach of fiduciary duty. The lower court found that damages were too uncertain and, therefore, ordered an equitable remedy requiring Hagshenas to forfeit his shares of Imperial stock to Imperial and pay court costs. The Gaylords argue that damages were not too uncertain to be awarded. Hagshenas has filed a cross-appeal contesting liability. He contends the court erred in finding he breached a fiduciary duty in establishing a competing business

Page 318

[145 Ill.Dec. 548] even though he had resigned as an officer and director of Imperial. [199 Ill.App.3d 63] For the reasons stated below, we affirm the finding of liability and reverse and remand the damage award.

This case was initiated on April 29, 1982, when Bruce Hagshenas (Bruce) sued for dissolution of Imperial based on the dissension and corporate deadlock between himself, a 50% shareholder, and Robert Gaylord (Robert) and Virginia Gaylord (Virginia), the other 50% shareholders. The Gaylords filed a counterclaim alleging breach of fiduciary duties and sought damages. The Gaylords filed on August 6, 1982, a motion for a temporary restraining order regarding the day-to-day operations of Imperial and for appointment of a receiver. On August 9, 1982, the trial court entered an order that enjoined the parties from interfering with each other in the business operation, entitled the parties to access to business records, required all checks to be signed by a Gaylord and a Hagshenas, and made procedures for handling the mail.

On October 2, 1982, Bruce and his wife, Barbara, resigned from Imperial as officers and directors. The following day they purchased a new agency and began competing with Imperial. On November 1, 1982, the Gaylords moved for a preliminary injunction to stop Bruce from competing with Imperial. On February 16, 1983, the court entered a preliminary injunction that ordered Bruce to deliver an irrevocable voting proxy of his stock and barred him from personally soliciting travel business from Imperial for one year.

In April 1983, the cause proceeded on Bruce's amended complaint for dissolution and the Gaylords' amended complaint for damages for breach of fiduciary duty. On October 1, 1987, the trial court ruled Bruce failed to prove his case and found in favor of the Gaylords on their complaint for breach of fiduciary duty. The court found that damages were too inexact to be determined and therefor fashioned an equitable remedy, ordering Bruce to transfer his Imperial stock to Imperial to be held in constructive trust as treasury stock and voted on by the Gaylords. Bruce was also ordered to pay court costs.

The facts considered by the trial court consisted of evidence from the preliminary injunction hearing, the trial on the merits, and several written stipulations. Below is a summary of the relevant stipulations listed by the parties followed by other evidence relevant to Bruce's appeal of liability. We will address the damage evidence later in the context of discussing the Gaylords' appeal.

STIPULATIONS

(1) Imperial, an Illinois corporation, was purchased January 25, 1980, with all the outstanding shares divided equally between Bruce [199 Ill.App.3d 64] Hagshenas and Robert Gaylord. Robert later conveyed one-half of his shares to his wife, Virginia. The board of directors was as follows: Virginia, president; Bruce, vice-president and assistant secretary; Barbara Hagshenas (Bruce's wife), secretary; and Robert, treasurer.

(2) Sales revenues for the 10 months ending July 31, 1982, were substantial, approximating $2 million.

(3) Imperial has been engaged in the travel agency business, a highly competitive industry where salespersons frequently establish and maintain personalized relationships with clients.

(4) Prior to October 2, 1982, Robert and Virginia were duly notified of a special meeting of the board of directors to be held on October 2, 1982, for the purpose of filling vacancies on the board, but they did not attend the meeting. Bruce and Barbara attended the meeting and submitted resignations from the board of directors to be effective immediately. Bruce also resigned as vice-president and assistant secretary.

(5) From prior to October 2, 1982, through the date of the execution of the stipulation, Bruce and Barbara have retained in their possession a key to the business office of Imperial.

(6) As of October 4, 1982, the following Imperial employees were engaged exclusively in sales: Cathy Detlof, Mary Jo

Page 319

[145 Ill.Dec. 549] Buthe, Michele Kling and Denise Oliver. Pamela Detlof was the office manager and had some sales responsibility. Gladys Lindsay was employed for bus tours only, and Rosemary Cleary was employed as a bookkeeper.

(7) On October 9, 1982, Pam Detlof resigned. Mary Jo Buthe submitted her resignation October 13, 1982, effective October 27, 1982. Cathy Detlof submitted her resignation October 15, 1982, effective October 29, 1982, and on October 26, 1982, Michele Kling submitted her resignation effective November 10, 1982.

(8) On October 6, 1982, Bruce and Barbara Hagshenas placed a blind "help wanted" ad that ran October 8 through 11 seeking travel agents with corporate and pleasure travel experience.

(9) On October 12, 1982, Bruce and Barbara held a meeting with their attorney and Pamela Detlof, Mary Jo Buthe, and Cathy Detlof, in which Bruce announced that he and Barbara had acquired Fare-Way Travel Agency, Inc. They soon after changed the name to Superior Travel, Inc. (Superior). Bruce told them that Pamela Detlof had been hired to work for them and then offered work to Cathy Detlof and Mary Jo Buthe.

(10) Michele Kling has been hired by Superior. Denise Oliver submitted her resignation November 1, 1982, effective November 15, 1982. She was fired by Virginia Gaylord at noon November 4, 1982.

[199 Ill.App.3d 65] (11) Since resigning from Imperial, Bruce has solicited customers of Imperial and has secured enough of Imperial's commercial customers to have a significant negative impact on Imperial's sales and profitability now and within the immediate future. In connection with his solicitation of Imperial's customers, Bruce made some or all of the following representations to some of the clients whose business he was soliciting on behalf of Superior: he was no longer involved in the direction of Imperial; he and his wife, Barbara, had opened a new travel agency; they had purchased new equipment; he could service their travel needs as cheap or cheaper than his competitors, including Imperial; Superior had hired the sales representatives who had serviced their accounts at Imperial; and he still retained an ownership interest in Imperial, but his partners or fellow shareholders were operating and managing its business.

(12) Bruce's attorney, Richard Gaines, wrote the Gaylords' attorney, Mike O'Brien, on October 1, 1982, and stated his client would agree to Imperial's purchase of another travel agency if it would be used to allow the parties to each take separate offices. In the absence of a vote by the Gaylords for Imperial to acquire a new agency, his client would feel free to acquire the agency personally. That day, O'Brien wrote Gaines to state that his clients objected to Bruce obtaining personally any competing travel agency and would pursue a cause of action for breach of fiduciary duty. On October 4, 1982, Gaines wrote to O'Brien and stated that his clients resigned after the Gaylords did not come to the October 2, 1982, meeting in which his clients had hoped to work out the parties' differences by discussing having Imperial purchase another travel agency. He also stated that his client, as a 50% shareholder of Imperial, opposed Imperial's purchase of another travel agency. In a letter written October 6, 1982, by Bruce to the Gaylords' attorneys, Bruce stated that, as he continued to own 50% of Imperial, he had a continued interest in its success. He outlined five specific areas of Imperial business and briefly stated how to service these areas.

TESTIMONY

The day-to-day oversight of the business was handled primarily by Barbara and Virginia. Barbara testified that she and Virginia were in the office from January to November 1980. She said Bruce worked on outside corporate sales. By May 1981, she and Virginia had many differences, and the husbands took over the day-to-day operations. She came back to the office in the fall 1981, and Virginia came back in February 1982. By March, everyone's temper was flaring.

[199 Ill.App.3d 66] The parties produced a great deal of testimony covering the disputes that had

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[145 Ill.Dec. 550] developed between them. It is safe to say that, by spring 1982, the parties did not get along and did not trust each other. Below is an outline summary of the main disputes between the parties.
DISPUTES

(1) Mail Procedure--For a substantial period of time after the purchase of Imperial, Virginia was solely responsible for mail coming to the company. She opened a post office box and only she had the combination. Bruce testified he told the Gaylords he wanted an...

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