Dangeles v. Muhlenfeld

• Decision Date: 01 December 1989
• Docket Number: No. 2-89-0186,2-89-0186
• Citation: 191 Ill.App.3d 791,548 N.E.2d 45,138 Ill.Dec. 815
• Parties: , 138 Ill.Dec. 815 George DANGELES et al., Plaintiffs-Appellants, v. William MUHLENFELD et al., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 45

548 N.E.2d 45

191 Ill.App.3d 791, 138 Ill.Dec. 815

George DANGELES et al., Plaintiffs-Appellants, v. William MUHLENFELD et al., Defendants-Appellees.

No. 2-89-0186.

Appellate Court of Illinois,

Second District.

Dec. 1, 1989.

Rehearing Denied Jan. 16, 1990.

David A. Novoselsky, argued, David A. Novoselsky & Associates, and Linda A. Bryceland, Chicago, for George Dangeles and First American Mortg. Co. Barry L. Kroll, argued, James K. Horstman, Manya A. Pastalan, and Lloyd E. Williams, Jr., Williams & Montgomery, Ltd., Chicago, for William Muhlenfeld, Centennial Mortgage Co., Nancy Gaskin, and Lisa Carpenter.

Justice REINHARD delivered the opinion of the court:

Plaintiffs, George Dangeles and First American Mortgage Company (First American), filed a six-count complaint in the circuit court of Du Page County against defendants William Muhlenfeld, Nancy Gaskin, Lisa Carpenter, and Centennial Mortgage Company (Centennial) alleging misconduct by the individual defendants in the establishment and operation of Centennial, a business competing with First American, and seeking recovery under various theories. Plaintiffs appeal the dismissal of counts asserting claims for breach of fiduciary duty and tortious interference with prospective economic advantage, and the entry of summary judgment in favor of defendants on their count for breach of contract and on portions of their count for tortious interference with contractual relations.

Plaintiffs filed their six-count first amended complaint on November 26, 1986. The pertinent allegations are as follows. Plaintiffs alleged that First American was in the business of mortgage brokering and lending and that from its formation until the middle part of 1985, Muhlenfeld and Dangeles each owned 50% of its stock. During that period of time, Muhlenfeld was president and chief operating officer of First American in charge of its day-to-day operations. In April 1985, Muhlenfeld and Dangeles executed a written agreement for the sale of Muhlenfeld's stock to Dangeles. The agreement contained the following covenant:

"In the event MUHLENFELD leaves the employ of [First American], he agrees that he will not employ any of the employees away from [First American]."

In July 1985, Muhlenfeld resigned from his position with First American and thereafter established and operated Centennial.

Count I of the first amended complaint alleged that Muhlenfeld violated the covenant above by hiring First American employees Nancy Gaskin and Lisa Carpenter. Count II sought rescission of the sale of Muhlenfeld's stock, alleging that in connection with the sale Muhlenfeld misrepresented the value of First American's assets and made other misrepresentations. In count III, plaintiffs advanced a claim for breach of fiduciary duty. Count IV advanced a claim for tortious interference with contractual relationships. Plaintiffs alleged that First American had contractual relationships with Horizon Federal Savings and Loan Association (Horizon) and Citicorp Savings and Loan (Citicorp), which funded loans originated by First American. Plaintiffs further alleged that First American had contractual relationships with numerous salespeople. Plaintiffs alleged that defendants falsely advised Citicorp, Horizon, and the salespeople that First American was without proper business management and was in financial difficulties, and as a result, First American "lost the services" of certain lending institutions and "lost the benefit of the employment of certain employees." Count V asserted a claim for tortious interference with prospective economic advantage based on the same communications alleged in count IV. Count VI, like count II, sought rescission of the sale of stock, based on misrepresentations as to the value of First American assets.

On January 9, 1987, defendants filed a motion to dismiss the first amended complaint pursuant to section 2-615 (Ill.Rev.Stat.1987, ch. 110, par. 2-615) for failure to state a cause of action. By order dated March 5, 1987, the circuit court dismissed counts III, V, and VI, granting plaintiffs leave to amend these counts. Plaintiffs elected not to file amendments, and defendants filed answers to the remaining counts. Subsequently, defendants moved for summary judgment on the remaining counts.

On August 3, 1988, the circuit court granted defendants' summary judgment motion with respect to count I and to count IV, except for First American's alleged business relationships with Horizon and two employees. The court denied the motion with respect to count II.

Thereafter, plaintiffs moved for voluntary dismissal of count II and the remainder of count IV. The circuit court granted this motion and in an order dated January 27, 1989, set forth the previous dismissal order of March 5, 1987, the summary judgment order of August 3, 1988, and found no just reason to delay enforcement or appeal of those orders.

Plaintiffs initially contend that the circuit court erred in dismissing count III of its first amended complaint which advanced a claim based on breach of fiduciary duty. Plaintiffs contend that count III properly stated a cause of action as pleaded. Defendants respond that the allegations pertaining to breach of fiduciary duty are all defective. With respect to certain alleged wrongful conduct, defendants contend that there is no allegation that the acts occurred during the duration of Muhlenfeld's fiduciary duty to First American to support a cause of action. Defendants also contend that other allegations were not pleaded with sufficient specificity to survive a motion to dismiss.

We agree with defendants that none of the allegations in question were, as pleaded, sufficient to support a cause of action. Accordingly, we conclude the trial court properly dismissed count III.

On review of the dismissal of a complaint for failure to state a cause of action, the reviewing court must determine the legal sufficiency of the complaint. (Kirk v. Michael Reese Hospital & Medical Center (1987), 117 Ill.2d 507, 516, 111 Ill.Dec. 944, 513 N.E.2d 387.) While pleadings are to be liberally construed, that does not lessen the obligation of the plaintiff to set out facts necessary for recovery under the theory asserted in the complaint. (Kirk, 117 Ill.2d at 516, 111 Ill.Dec. at 948, 513 N.E.2d at 391.) A pleader is required to set out the ultimate facts that support his cause of action. (Estate of Johnson v. Condell Memorial Hospital (1988), 119 Ill.2d 496, 509, 117 Ill.Dec. 47, 520 N.E.2d 37.) A complaint is insufficient if it states mere conclusions, whether of law or fact. (Wolcowicz v. Intercraft Industries Corp. (1985), 133 Ill.App.3d 157, 160, 88 Ill.Dec. 431, 478 N.E.2d 1039.) Pleadings which state mere conclusions and characterize acts rather than set forth facts are insufficient to state a cause of action. People ex rel. Roseman v. Trachtman (1985), 139 Ill.App.3d 5, 9, 93 Ill.Dec. 633, 487 N.E.2d 77.

We first consider plaintiffs' allegations in count III that Muhlenfeld breached a fiduciary duty owed to First American in that he:

"(a) operated a competing business, namely, CENTENNIAL MORTGAGE COMPANY;

(b) solicited customers of FIRST AMERICAN MORTGAGE COMPANY to do business with CENTENNIAL MORTGAGE COMPANY;

(c) solicited valued employees of FIRST AMERICAN MORTGAGE COMPANY to terminate their employment with FIRST AMERICAN MORTGAGE COMPANY and to work for him at CENTENNIAL MORTGAGE COMPANY;

(d) informed lending institutions with whom plaintiff funded loans originated by the plaintiff that the plaintiff was without proper business management and expertise and was in financial difficulty;

(e) informed plaintiffs' sales force that the plaintiff was without proper business management and expertise and was in financial difficulty."

Defendants contend that these allegations cannot sustain a cause of action because it is not alleged that any of this conduct occurred during a time when Muhlenfeld owed First American a fiduciary duty, that is, prior to Muhlenfeld's resignation as an officer of First American. We agree.

Despite plaintiffs' assertion, unsupported by citation of authority, that as a former officer Muhlenfeld owed First American a continuing duty, it is clear that after his resignation, Muhlenfeld owed First American no fiduciary duty. (See Voss Engineering, Inc. v. Voss Industries, Inc. (1985), 134 Ill.App.3d 632, 638, 89 Ill.Dec 711, 481 N.E.2d 63.) We are aware, as plaintiff points out, that resignation of an officer will not sever liability for transactions completed after termination of the party's association with the corporation if the transactions began during the existence of the relationship or were founded on information acquired during the relationship. (Comedy Cottage, Inc. v. Berk (1986), 145 Ill.App.3d 355, 360, 99 Ill.Dec. 271, 495 N.E.2d 1006.) This principle is not implicated by plaintiffs' allegations. It is not alleged that Muhlenfeld solicited customers or employees for Centennial, or engaged in any demonstrable business activity prior to resigning from First American, and, hence, no breach of fiduciary duty appears in the allegations. (See TAD, Inc. v. Siebert (1978), 63 Ill.App.3d 1001, 1005-06, 20 Ill.Dec. 754, 380 N.E.2d 963; see also Radiac Abrasives, Inc. v. Diamond Technology, Inc. (1988), 177 Ill.App.3d 628, 633, 126 Ill.Dec. 743, 532 N.E.2d 428.) Nor is it alleged that the communications with financial institutions and First American's sales force occurred while Muhlenfeld owed First American a fiduciary duty.

These allegations are not saved by the principle prohibiting transactions based on information acquired during a former officer's association with a corporation. That principle cannot be read so expansively as to encompass the allegations here. It has been stated that in our economy based on free competition " '[o]ne who works for another cannot be compelled to erase from his mind all of the general skills, knowledge,...