Beale v. EdgeMark Financial Corp.

• Decision Date: 29 March 1996
• Docket Number: No. 1-94-2235,1-94-2235
• Citation: 279 Ill.App.3d 242,664 N.E.2d 302
• Parties: , 215 Ill.Dec. 905 Joseph S. BEALE, Petitioner-Appellee, v. EDGEMARK FINANCIAL CORPORATION, Respondent-Appellant.
• Court: United States Appellate Court of Illinois

Page 302

664 N.E.2d 302

279 Ill.App.3d 242, 215 Ill.Dec. 905

Joseph S. BEALE, Petitioner-Appellee, v. EDGEMARK FINANCIAL CORPORATION, Respondent-Appellant.

No. 1-94-2235.

Appellate Court of Illinois,

First District, Fifth Division.

March 29, 1996.

Appeal from the Circuit Court of Cook County; The Hon. Kenneth L. Gillis, Judge Presiding.

Paul E. Freehling, Victoria P. Pappas, D'Ancona & Pflaum, Chicago, for Appellant.

Hedlund Hanley & John, Chicago, Rueben L. Hedlund, Charles A. Tausche, Edward F. McCormack, Edwin L. Durham, for Appellee.

Justice GORDON delivered the opinion of the court:

This is an appeal from an order granting a Supreme Court Rule 224 (134 Ill.2d R. 224) petition for pre-suit discovery. The issues presented for review are whether Rule 224 authorizes pre-suit discovery of information beyond the names and addresses of persons "who may be responsible in damages" and whether Rule 224 can be used if the petitioner is aware of the identity of at least one defendant at the time of filing his petition.

Before addressing the merits of the instant appeal, we must first address this court's jurisdiction to hear it. Although the appellee does not contest appellant's argument that jurisdiction exists, jurisdiction cannot be stipulated to or waived by the parties (Provident Life & Accident Insurance Co. v. Smith (1994), 266 Ill.App.3d 705, 203 Ill.Dec. 307, 639 N.E.2d 627); and this court must determine sua sponte whether jurisdiction exists (Salemi v. Klein Construction Co. (1994), 266 Ill.App.3d 110, 203 Ill.Dec. 309, 639 N.E.2d 629). In this regard, we must determine whether the trial court order granting a Rule 224 petition for discovery is a final and appealable order pursuant to Supreme Court Rule 301 or whether the respondent must incur a contempt citation before he can seek review of the correctness of the underlying discovery order.

Generally, an order allowing discovery or directing disclosure of information is considered interlocutory and is not appealable until the underlying action is completed. In re Marriage of Young, 244 Ill.App.3d 313, 185 Ill.Dec. 289, 614 N.E.2d 423 (1993). In order to test the validity of the discovery order, the party must refuse to comply and seek the imposition of a contempt citation and sanctions which are final and appealable orders. Laurent v. Brelji, 74 Ill.App.3d 214, 30 Ill.Dec. 164, 392 N.E.2d 929 (1979); see Almgren v. Rush-Presbyterian-St. Luke's Medical Center, 162 Ill.2d 205, 205 Ill.Dec. 147, 642 N.E.2d 1264 (1994); Fidelity Financial Services, Inc. v. Hicks, 267 Ill.App.3d 887, 204 Ill.Dec. 858, 642 N.E.2d 759 (1994). In the instant case, no contempt order was entered and no sanctions were imposed. Appellate jurisdiction exists nevertheless since we find that a discovery order entered on a Rule 224 petition is final because it finally adjudicates the rights of the parties and terminates the litigation (see F.H. Prince & Co. v. Towers Financial Corp., 266 Ill.App.3d 977, 203 Ill.Dec. 940, 640 N.E.2d 1313 (1994); Anest v. Bailey, 265 Ill.App.3d 58, 202 Ill.Dec. 473, 637 N.E.2d 1209 (1994)).

The filing of a Rule 224 petition creates an independent action for discovery for the "sole purpose of ascertaining the identity of one who may be responsible in damages." 134 Ill.2d R. 224. The relief sought in that action is the entry of an "order authorizing the petitioner to obtain * * * discovery [of] the identification of responsible persons and entities" (134 Ill.2d R. 224). Here, the trial court granted petitioner's discovery request and ordered the respondent to turn over a document that, in the court's opinion, would identify certain persons who could be responsible in damages to the petitioner. As no other relief is permitted by a Rule 224 petition, the entry of that order terminated the proceedings.

The finality of an order rendered on a Rule 224 petition can be analogized to an order entered pursuant to a petition for enforcement of an administrative subpoena duces tecum, the subject of an appeal in Laurent v. Brelji. In that case, the subpoena had been issued in an underlying wrongful discharge action pending before the Civil Service Commission. When the doctor against whom the subpoena was issued refused to comply, the underlying plaintiff and the Commission filed an enforcement petition in the circuit court. The circuit court ordered the recusant doctor to testify and produce the required records; and the doctor appealed. In addressing its jurisdiction, the appellate court stated:

"The absence of an order of contempt in this case, however, does not deprive us of jurisdiction over the matter, since we conclude the order of the circuit court was final and not interlocutory. An order which in substance finally adjudicates the rights of the parties and terminates the litigation is final and appealable. [Citation.] Here, the proceeding before the circuit court was a separate, independent action. (See Ill.Rev.Stat.1977, ch. 127, par. 63b116.) After the court ordered the recusant witness to testify and produce the records, the proceeding before it was terminated. In that sense it was distinguishable from other discovery orders entered in a cause pending in the same court. The order of the court finally determined the rights of the parties before it and terminated the litigation. [Citations.]" 74 Ill.App.3d at 216, 30 Ill.Dec. at 165-66, 392 N.E.2d at 930-31.

For similar reasons, we hold that the trial court's order granting petitioner's Rule 224 discovery request was a final and appealable order. The Rule 224 proceeding was a separate and independent action. Once the Rule 224 petition was ruled upon, the rights of the parties were determined and the litigation was terminated. Thus, we have jurisdiction to hear the matter before us pursuant to Supreme Court Rule 301.

As noted above, the instant appeal raises issues concerning the scope of discovery pursuant to Supreme Court Rule 224. On March 1, 1994, a verified petition for pre-suit discovery was filed by petitioner, Joseph S. Beale, against EdgeMark Financial Corporation (EdgeMark) and Harris Trust & Savings Bank (Harris). Beale alleged that he was a former EdgeMark shareholder and that prior to November 2, 1993 he had pledged 145,000 shares of EdgeMark stock to Harris as collateral for a loan from Harris and 4,000 shares to Merchandise National Bank of Chicago (Merchandise) as collateral for a loan from Merchandise. In connection with the stock pledge between Beale and Harris, Beale alleged that he and Harris entered into an agreement whereby Beale could reacquire his EdgeMark shares before July 31, 1993 at a price of $24 per share. Beale alleged that certain officers and directors of EdgeMark were aware of this agreement with Harris and withheld information from Beale concerning plans and negotiations for the sale of EdgeMark. Beale did not exercise his option prior to July 31, 1993; and Harris has refused Beale's subsequent efforts for reacquisition. With respect to the 4,000 shares pledged to Merchandise, Beale alleged that Merchandise "forcibly" and improperly sold that stock on or about October 1, 1993 at $22 per share "at a time when the board of directors of Merchandise National Bank [some of whom were also EdgeMark directors] and the board of directors of EdgeMark had reason to believe that a sale of EdgeMark in excess of $35 per share was imminent."

The petition further alleged that on November 2, 1993, EdgeMark publicly announced that it had entered into an acquisition agreement with Old Kent Financial Corporation (Old Kent). In accordance with that agreement, Old Kent offered to pay approximately $43 per share of EdgeMark common stock. Beale alleged that prior to this public announcement, EdgeMark stock was trading at $23.75 per share and that he "ha[d] reason to believe that officers, directors and/or other insiders were purchasing EdgeMark stock during the time when they were withholding * * * material information" with respect to the plans and negotiations for the sale of EdgeMark.

The Rule 224 petition further alleged that on December 14, 1993, the National Association of Securities Dealers, Inc. (NASD) wrote to EdgeMark's president and chief executive officer, Charles Bruning, requesting that EdgeMark identify whether certain persons and entities listed in an attached letter

"had a personal, professional or any other type of affiliation with [EdgeMark], its officers, directors or representatives * * * [which] could make them privy to non-public information concerning the business activities of [EdgeMark] * * * particularly * * * with respect to the events which preceded the press release made on November 2, 1993 regarding the company's definitive agreement to be acquired by [Old Kent]."

The NASD also asked Bruning to "state when and under what circumstances any knowledge of your company's activities may have been gained by them." The NASD letter and the attached list of names and addresses of 36 individuals or married couples were included as an exhibit to Beale's Rule 224 petition.

The Rule 224 petition concluded with allegations that the conduct of EdgeMark and certain of its officers and directors constituted fraud and breach of fiduciary duty and violated federal and Illinois securities laws. With respect to respondent EdgeMark, the petition sought: (1) discovery of all information provided to the NASD in response to the NASD letter; (2) discovery into the transfer to an unknown party of the EdgeMark stock that Beale had pledged to Merchandise Bank; and (3) the production of minutes from EdgeMark's 1993 board meetings to enable Beale to determine which of EdgeMark's officers and directors withheld information for the purpose of causing Beale to lose his option rights against Harris. The trial court granted petitioner's first request, ordering EdgeMark to turn over to petitioner a copy of EdgeMark's response to the NASD letter, and limited discovery concerning...