Butler v. Kent

• Decision Date: 13 September 1995
• Docket Number: No. 1-94-0770,1-94-0770
• Citation: 655 N.E.2d 1120,275 Ill.App.3d 217
• Parties: , 211 Ill.Dec. 737 Frank O. BUTLER, II, Plaintiff-Appellant, Cross-Appellee, v. Jorie Butler KENT and Michael Butler, Defendants-Appellees, Cross-Appellants.
• Court: United States Appellate Court of Illinois

Page 1120

655 N.E.2d 1120

275 Ill.App.3d 217, 211 Ill.Dec. 737

Frank O. BUTLER, II, Plaintiff-Appellant, Cross-Appellee, v. Jorie Butler KENT and Michael Butler, Defendants-Appellees Cross-Appellants.

No. 1-94-0770.

Appellate Court of Illinois First District, Third Division.

Sept. 13, 1995.

George N. Vurdelja, Jr., of Vurdelja & Heaphy, Chicago; Mayer, Brown & Platt, Chicago (Lee N. Abrams, June E. Daniel), for appellant.

Phelan, Pope, Cahill & Devine, Ltd., Chicago (Dean A. Dickie, Daniel L. Stanner), for appellees.

Presiding Justice GREIMAN delivered the opinion of the court:

Plaintiff Frank O. Butler II (Frank) sought specific performance in connection with the sale of stock pursuant to the terms of a shareholder agreement with his siblings, defendants Jorie Butler Kent (Jorie) and Michael Butler (Michael). The trial court found that Frank had not established the amount due him by clear and convincing evidence and was therefore not entitled to specific performance. We affirm.

On appeal plaintiff contends that the trial court improperly (1) denied his claim for specific performance based on his calculations or, in the alternative, failed to determine a price for Frank's holdings from its own findings; (2) denied him leave to amend his complaint; and (3) refused to admit a particular letter as evidence of Jorie and Michael's intention to be jointly and severally liable. In addition, on cross-appeal, Jorie asserts a right to a jury trial if this case is remanded for a rehearing.

Frank, Jorie and Michael are siblings and heirs to the estate of their father, Paul Butler, who died in 1981. Their inheritance included several parcels of real estate which were bequeathed to them in the form of a trust. In July 1986 the siblings entered into two separate agreements: (1) a final distribution and settlement agreement (settlement agreement), and (2) a shareholder agreement to effectuate the purposes and provisions of the settlement agreement.

The settlement agreement divided the trust properties into six separate corporations (hereinafter collectively referred to as estate corporations): Harger Corporation, Spring Farm Corporation, Kensington Realty Corporation, Office Realty Corporation, Old Oak Brook Investment Corporation and Village Green Investment Corporation (hereinafter Village Green, the corporation at issue in this case). The principal assets of these corporations were parcels of real estate. The stocks of each corporation were held in equal shares by each sibling.

The shareholder agreement established a "put" procedure whereby each shareholder had the right to require the other two shareholders to either purchase the entire interest of the putting shareholder or sell the corporation with one-third of the sale proceeds to be given to the putting shareholder. To exercise this option, the shareholder had to inform the other two shareholders in writing, i.e., the put. Paragraph 1A of the shareholder agreement specifically provided:

"Each Shareholder (the "exercising Shareholder") shall have the right to require the other Shareholders (the "recipient Shareholders") to either (a) purchase his or her entire interest in any Corporation for a price equal to one-third of the appraised Net Fair Market Value [hereinafter NFMV] of such Corporation plus the principal balance and unpaid interest on the Shortfall Loans made by the exercising Shareholder to such Corporation, or (b) sell such Corporation, by so informing the other Shareholders in writing (the "Put") * * *."

On April 10, 1989, Frank exercised a put for his interest in Village Green. A subsequent dispute over the timing of the appraisal process caused Frank to file a declaratory judgment action on May 25, 1989. The trial court held that the shareholder agreement required the recipient shareholders (Jorie and Michael) to decide whether to buy the interest of the exercising shareholder (Frank) before Frank selected an appraiser. This court affirmed the trial court's holding in Butler v. Kent (1991), 215 Ill.App.3d 680, 159 Ill.Dec. 338, 576 N.E.2d 7. On August 3, 1989, Jorie and Michael served written notice upon Frank that they had elected to purchase his interest in Village Green.

On May 1, 1990, Frank filed the instant specific performance action seeking to compel Jorie and Michael to perform their obligations under the shareholder agreement, i.e., payment for his stock.

On October 18, 1990, Frank filed a motion for partial summary judgment on the issue of liability. On June 28, 1991, the circuit court granted partial summary judgment on the issue of liability in favor of Frank, finding that there was no genuine issue of material fact over defendants' obligation to perform under the shareholder's agreement. The circuit court found that in accordance with the shareholder agreement, the appraisals had been performed and had set the gross fair market value of Village Green to be $15.6 million for the purpose of valuing Frank's shares as of the date on which Jorie and Michael were obligated to close their purchase of Frank's shares. Frank's action for specific performance was filed upon the failure of Jorie and Michael to close the purchase and their refusal to honor the shareholder agreement.

On November 18, 1991, Frank filed a motion for summary judgment alleging that the sum of $4,235,211.67 was owed to him by defendants for the purchase of his shares which the trial court denied on February 11, 1992.

On April 9, 1992, the court entered an order setting trial on the complaint for specific performance with proof limited to two issues: (1) whether liability is several or joint and several, and (2) the NFMV of the shares of stock in Village Green.

As to the first issue, the trial court found that Frank, based on the evidence admitted, conceded that Jorie and Michael were not jointly and severally liable and thus Jorie could only have a several obligation for the purchase of one-half of Frank's interest.

Regarding the NFMV issue, the starting point was the gross fair market value of Village Green which had already been established at $15.6 million on the valuation date upon which Jorie and Michael were obligated to close their purchase of Frank's shares.

To determine the NFMV of the Village Green shares, the shareholder agreement provided a specific formula:

"The 'Net Fair Market Value' of a Corporation shall be the Fair Market Value of its assets as determined by the appraisers, * * * minus (i) all liabilities of the Corporation (including all Shortfall Loans, but not including guaranties and similar contingent liabilities respecting loans of other Corporations), (ii) any amounts payable under the Incentive Compensation Agreements (as defined below), and (iii) the cost of the appraisal." (Emphasis added.)

The primary dispute concerns the specific deductions for "all liabilities" of Village Green required by "(i)" of the shareholder agreement.

The trial court found that Frank had satisfied his burden to prove that there should be no deduction to the NFMV for the Incentive Compensation Agreements (item (ii)). This appeal presents no issue as to amounts payable under these agreements.

Regarding the cost of appraisal (item (iii)), the parties advanced different amounts. Frank's expert witness, Thomas Beneventi, testified to an appraisal cost of $48,000. One of Jorie's expert witnesses, Benjamin Perks, testified to an appraisal cost of $108,330.

To establish the specific amount to be deducted as liabilities of Village Green as provided in item (i), the parties presented evidence for expenses such as taxes, accounting fees, engineering fees and legal fees.

The parties particularly contested the use of certain obligations as liabilities in determining the fair market value of Frank's interest. These obligations were: (1) special note 1 and special note 2 in the amount of $1,066,974; (2) a Boulevard Bank note in the principal amount of $4.975 million (Village Green note); and (3) a Boulevard Bank note in the principal amount of $7.85 million (Office Realty note). All of these notes derived from the following transactions.

In 1986, before the Butler siblings executed the settlement agreement, the six estate corporations had to obtain a loan to satisfy the debts of Paul Butler's estate by executing a principal note (the 1986 note) in the amount of $8.25 million with Boulevard Bank. Each estate corporation was held jointly and severally liable, and the note was secured with mortgages on each of the properties transferred from the trust to the several corporations.

The 1986 note was refinanced in 1987 through two notes (collectively referred to as the Boulevard notes) described above. The Village Green note was made and executed by each of the six estate corporations and was secured by the same mortgages which secured the 1986 note. The Office Realty note was made and executed by Boulevard Bank, as trustee for a trust to which the Office Realty property had been titled and in which Office Realty held a substantial beneficial interest. Boulevard Bank, as trustee, was not personally liable to pay the balance or any interest on the note. The note was secured by a mortgage on the Office Realty property and further secured by mortgages on the real estate of four of the other estate corporations (Village Green, Harger, Kensington Realty and Old Oak Brook Investment). Additionally, the corporations executed a guaranty wherein they jointly and severally guaranteed payment of the Office Realty note.

On October 22, 1987, two demand notes (special notes 1 and 2) were executed to Office Realty for the purpose of reallocating the Boulevard notes on the records of the estate corporations. Four corporations (Village Green, Harger, Kensington Realty and Old Oak Brook Investment) executed to Office Realty a demand note for $2.085 (special note 1) and another demand note for $300,000 (special note 2), which was transferred to Oak Brook Office...