Monco v. Janus, JI-SCO-NI

• Decision Date: 21 October 1991
• Docket Number: No. 1-90-0670,JI-SCO-NI,1-90-0670
• Parties: , 164 Ill.Dec. 659 Dean A. MONCO, on behalf of himself andEnterprises, Inc., an Illinois corporation, Plaintiffs-Appellants/Cross-Appellees, v. Ronald JANUS, andEnterprises, Inc., an Illinois corporation, Defendants-Appellees / Cross-Appellants (Hamman & Benn, a law firm, and Marvin N. Benn, Appellees/Cross-Appellants).
• Court: United States Appellate Court of Illinois

Page 575

583 N.E.2d 575

222 Ill.App.3d 280, 164 Ill.Dec. 659

Dean A. MONCO, on behalf of himself and JI-SCO-NI Enterprises, Inc., an Illinois corporation Plaintiffs-Appellants/Cross-Appellees, v. Ronald JANUS, and JI-SCO-NI Enterprises, Inc., an Illinois corporation, Defendants-Appellees / Cross-Appellants (Hamman & Benn, a law firm, and Marvin N. Benn Appellees/Cross-Appellants).

No. 1-90-0670.

Appellate Court of Illinois First District, First Division.

Oct. 21, 1991.

As Modified Dec. 23, 1991.

Schuyler, Roche & Zwirner, Chicago (Paul E. Lehner, of counsel), for plaintiffs-appellants/cross-appellees.

Hamman & Benn, Chicago (Dawn M. Cassie, of counsel), for defendants-appellees/cross-appellants.

MODIFIED ON DENIAL OF REHEARING

Justice BUCKLEY delivered the opinion of the court:

In February 1987, plaintiff Dean Monco (Monco) petitioned to dissolve on the grounds of deadlock JI-SCO-NI Enterprises, Inc. (Jisconi), an Illinois corporation, owned 50% each by Monco and defendant Ronald Janus (Janus). Jisconi's sole asset is its ownership of patent rights to an invention which Monco and Janus had assigned to Jisconi. Janus counterclaimed against Monco seeking to vacate the assignment and to compel Monco to turn over the Jisconi shares he owned on the grounds that the invention was Janus' idea, that Monco was Janus' personal attorney, and that the assignment and Monco's stock ownership in Jisconi were the result of Monco's undue influence and breach of fiduciary duty to Janus. Monco responded in part to the counterclaim with a motion for sanctions pursuant to section 2-611 of the Code of Civil Procedure (Ill.Rev.Stat.1989, ch. 110, par. 2- 611) against Janus and his attorneys. In this motion, Monco alleged that Janus' counterclaim contained false allegations of fact, that Janus' counsel failed to investigate these facts before filing, and that Janus' counsel improperly threatened disciplinary proceedings against Monco to force Monco to settle the case.

On October 4, 1989, the circuit court of Cook County dismissed Janus' counterclaim holding that, while an attorney-client relationship existed and a breach of fiduciary duty had occurred, Janus knowingly ratified his dealings with Monco. Thereafter, the court denied Monco's motion for sanctions.

Monco appeals from the circuit court's denial of his motion for sanctions. Janus cross-appeals from the dismissal of his counterclaim and from the denial by the circuit court of leave to file three affidavits which Janus tendered during the hearing on Monco's motion for sanctions. For the reasons that follow, we affirm the denial of sanctions and reverse the dismissal of Janus' counterclaim.

The facts of this case defy succinct summary. The record shows that Janus is a college graduate, a certified teacher, and the sole proprietor of his own landscaping business for over 17 years. Monco is an attorney admitted to practice in Illinois and before the United States Patent and Trademark Office. Monco is also a shareholder in a Chicago law firm.

Prior to the transaction in question, Janus and Monco had been social acquaintances since 1970. In 1981 and 1984, Janus contacted Monco to discuss possible patentable ideas. These ideas were not pursued. In the spring of 1985, Monco engaged Janus to perform landscaping services for his home. On Memorial Day weekend, while performing such services, Janus sat down with Monco at Monco's kitchen table and drew a sketch of an idea for a beverage container to be worn around the neck of the user. The contents of the conversation which next transpired is disputed by the parties and nothing in writing exists to verify either party's version of the agreement.

Janus testified that after Monco told him that his idea was fantastic, Janus asked Monco if he was interested in pursuing the idea together. Janus told Monco that Monco could help him with the idea and share in any profits. Janus testified that he and Monco agreed to share expenses equally and that Monco would provide business contacts and free legal services to the venture. Janus denied that Monco told him to obtain independent legal advice and denied that he and Monco were " 50/50" partners.

Monco testified that Janus specifically asked him to go into business and offered Monco a 50% interest in the venture. Monco accepted Janus' offer and the two shook hands. Monco testified they discussed various matters, including licensing the patent to a manufacturing concern, from which they would receive royalties, versus assigning the patent to a separate corporation owned by them equally, which would avoid personal liability but would require business capital and marketing. Monco testified that he specifically advised Janus to obtain outside counsel to make sure that Janus' interests were represented. Janus agreed. Monco's wife, who was present for much of the conversation, corroborated Monco's testimony.

Significantly, at the kitchen table meeting, or any time thereafter, Monco admitted that he never advised Janus that if Janus were to assign the patent to a jointly-owned corporation, Janus would lose exclusive control over the patent in the event of corporate dissolution. In such situation, Janus and Monco as co-owners of the patent would have equal rights to market the patent without accounting to the other for profits. Monco also testified that he did not inform Janus of the option of licensing the patent to Jisconi as opposed to a full assignment. Monco explained that Janus was not his client and that anything less than a full assignment to a jointly-owned company would be inconsistent with their agreement to be " 50/50" partners.

In the summer months following the "kitchen table" meeting, Janus and Monco communicated by telephone and letter and exchanged ideas on numerous matters involving the beverage container, including what entity would be best for liability and tax purposes. Ultimately, the parties agreed to incorporate and name the entity using the first names of their children. Monco also suggested and conducted a "prior art" search to determine if Janus' idea was patentable. Based on the results of this search, Monco concluded and Janus agreed that a patent application was appropriate.

On September 19, 1985, Janus and Monco met with Mark Fine, an attorney and friend of Monco, about incorporating Jisconi. Fine prepared draft articles of incorporation and testified that Monco and Janus told him that they were equal partners in the new business. Fine heard nothing during this conversation to indicate to him that Monco and Janus were anything other than business partners. Fine also testified that he advised Janus to obtain independent counsel to prepare a buy/sell and shareholders' agreement in order to protect Janus' interests. Janus' recollection about this meeting conflicted with Fine's. Janus denied ever discussing anything regarding specific ownership interests, and he could not remember Fine's advice to obtain independent counsel.

After the meeting with Fine, Janus asked Monco to prepare the incorporation papers. Monco was reluctant to prepare these papers because he did not practice corporate law. However, using Fine's draft, Monco prepared the papers and forwarded them to Janus for his review and signature. Janus admitted that Monco told him to have his own counsel review the papers but Janus never did. Janus testified that he considered Monco his attorney and thought that Monco would assure that Janus' interests were protected. Jisconi was incorporated on October 2, 1985.

Following the incorporation of Jisconi, Monco prepared the initial patent application for the beverage container. The application, related documents, and the assignment of the patent to Jisconi were forwarded to Janus for his review. Monco testified that he again told Janus to have his own counsel review the documents, but Janus denied ever receiving this advice. On October 28, 1985, without the aid of independent counsel, Janus executed the parent patent application and an initial assignment. Monco filed the parent patent application and related documents on November 12, 1985.

Monco later forwarded Janus an Internal Revenue Service Subchapter S election form showing Janus and Monco each owning 500 shares of Jisconi. Although Janus claimed that this was the first time he learned that he and Monco were equal owners of Jisconi, and although he disapproved, he signed the form in mid-November without expressing any objection to Monco. Janus explained that Monco was his attorney and he was just following Monco's instructions. Again, Janus did not have the aid of independent counsel before executing this document.

In February 1986, without Monco's knowledge, Janus began consultations with a patent attorney named George Dvorak who Janus learned about through a local bar reference. Janus saw Dvorak on several occasions throughout 1986 although the record is not entirely clear on what dates Dvorak was consulted or when their relationship ceased. During discovery and at trial, Janus asserted the attorney-client privilege regarding the content of his conversations with Dvorak.

In late February 1986, Monco prepared a draft of a second patent application, called a continuation-in-part (CIP) application, and gave it to Janus for his review. This application included patentable claims regarding the container having the capacity to hold a carbonated beverage and a specialized straw. Neither of these claims were included within the first application. Monco told Janus that because he had participated in the development of these new features, the patent laws required that he name himself as a co-inventor on the CIP application. Although the record is not entirely clear on this point, Janus either consulted with Dvorak before signing the application or soon afterwards. In any event, Janus made no objection to the CIP application. On March 26, 1986, at Monco's office and in the absence of Janus'...