Disher v. Fulgoni

• Decision Date: 25 August 1987
• Docket Number: No. 85-3269,85-3269
• Citation: 514 N.E.2d 767,112 Ill.Dec. 949,161 Ill.App.3d 1
• Parties: , 112 Ill.Dec. 949, Blue Sky L. Rep. P 72,664 David C. DISHER, Plaintiff-Appellant and Cross-Appellee, v. Gian M. FULGONI, William C. Walter, John L. Malec and Information Resources, Inc., Defendants-Appellees and Cross-Appellants.
• Court: United States Appellate Court of Illinois

Page 767

514 N.E.2d 767

161 Ill.App.3d 1, 112 Ill.Dec. 949, Blue

Sky L. Rep. P 72,664

David C. DISHER, Plaintiff-Appellant and Cross-Appellee, v. Gian M. FULGONI, William C. Walter, John L. Malec and Information Resources, Inc., Defendants-Appellees and Cross-Appellants.

No. 85-3269.

Appellate Court of Illinois First District, Second Division.

Aug. 25, 1987.

As Modified on Denial of Rehearing Oct. 20, 1987.

Gary M. Elden, Gerald F. Lutkus, Chicago (Reuben & Proctor, of counsel), for Disher.

William J. Harte, Ltd., and Chadwell & Kayser, Ltd., Chicago (William J. Harte, William E. Snyder and Laura B. DiGiantonio, of counsel), for Fulgoni, et al.

Justice HARTMAN delivered the modified opinion of the court upon denial of petition for rehearing:

This is the second appeal involving the same parties. The first appeal (Disher v. Fulgoni (1984), 124 Ill.App.3d 257, 79 Ill.Dec. 735, 464 N.E.2d 639, appeal denied (1984), 101 Ill.2d 564), resulted in the reversal of the circuit court's denial of a preliminary injunction by which plaintiff, David C. Disher, sought to nullify or restrain enforceability of an employee confidentiality agreement executed by him while in the employ of Information Resources, Inc. ("IRI"), formerly known as NEWIRI, Inc., a defendant.

Upon remandment, Disher sought release of stock from a voting trust under the Illinois Securities Law (Ill.Rev.Stat.1981, ch. 121 1/2, par. 137.1 et seq.) ("Securities Law"); attorneys fees under the Securities Law; invalidation of his employee confidentiality agreement; and a finding that IRI tortiously interfered with Disher's prospective economic advantage. The circuit court directed defendants to release Disher's stock, but not under the Securities Law, and therefore denied Disher's request for fees under that law. The employee confidentiality agreement was invalidated and IRI was held to have tortiously interfered with Disher's prospective economic advantage.

The questions raised by Disher in this appeal include whether: (1) the issuance of voting trust certificates constituted a sale under the Securities Law; and (2) the issuance of voting trust certificates was a transaction exempt from registration which would support denial of attorneys fees. Alternative issues raised by Disher need not be considered here in view of our decision.

The cross-appeal brought by defendant IRI and individual defendants raises issues as to whether the circuit court erred in (1) failing to bar Disher from asserting the alleged breach, if there was a breach, by his own inaction; (2) ordering the release of all Disher's stock from the voting trust; (3) holding the IRI employee confidentiality agreement invalid and unenforceable; and, (4) holding that IRI tortiously interfered with Disher's prospective economic advantage.

Only those facts necessary to the disposition of the present appeal will be repeated or otherwise set forth here; additional facts may be found in our first opinion. (124 Ill.App.3d 257, 79 Ill.Dec. 735, 464 N.E.2d 639.) IRI is a marketing research firm which designed, developed and maintained computer-based systems and services for the collection and analysis of market information on sales of packaged consumer goods, thereby assisting manufacturers of consumer goods in the testing and evaluation of their marketing plans for new products, media advertising, pricing and sales promotions.

In August 1981, Disher was offered and accepted employment by IRI at a lower salary than he had previously earned. One of the inducements of employment by IRI was the opportunity to buy IRI stock through stock option rights. He began employment with IRI as vice-president of operations and directed all market operations of IRI's "BehaviorScan," service ¹ including market fieldwork, data input and in-market quality control.

During the pertinent periods involved, defendant Gian M. Fulgoni was president and chief operating officer of IRI; defendant John L. Malec was chairman of the board and chief executive officer of IRI; and defendant William C. Walter was vice-chairman of the IRI board.

Disher was presented with an employee confidentiality agreement, to which he objected on the grounds of vagueness and overbreadth; however, after he was told that the agreement was a non-negotiable condition of employment, Disher signed it on January 19, 1982, for fear of losing his job.

In late 1981 or early 1982, IRI wanted to buy out a substantial shareholding in IRI held by Penny Baron, one of its founders. IRI did not have sufficient capital surplus to buy the shares itself. Certain employees, including Disher, were called to a meeting by Malec, who told them that: they could surrender their IRI stock option rights in return for the opportunity to buy twice as many shares of Baron stock; IRI would arrange bank financing for the purchases and would pay interest on the loans for three years; the employees' stock would be placed in an employees' voting trust; and the trust would expire if IRI sold stock to the public or in 1992, unless extended.

Three proposed agreements were given to these employees to sign in early 1982: the "Fulgoni-Employee Agency Agreement"; the "IRI-Employee Agreement"; and the "IRI, Inc. Voting Trust Agreement." The agreements were drafted by IRI's attorney working solely for IRI and not representing the individual employees.

Disher's individual Fulgoni-Employee Agency Agreement and IRI-Employee Agreement, both dated February 19, 1982, ratified IRI president Fulgoni's 1000 share purchase from Baron as "agent" for Disher, and provided that the shares would be deposited with Fulgoni and Walter as trustees of the voting trust. The consideration specified for the transaction was the "mutual promises, covenants and conditions of this Agreement." The Baron stock was purchased on February 23, 1982 and transferred to Fulgoni as agent for Disher and the other selected employees (collectively "Disher et al"). Fulgoni deposited the shares into the voting trust on March 5, 1982. The above-described agreements were not signed by Disher personally until March 11, 1982.

The IRI-Employee Agreement, dated February 19, 1982, but purporting to be executed simultaneously with the Fulgoni agency agreement, provided that in consideration of IRI's agreement with a bank, sufficient to induce the bank to loan money to IRI employees, and IRI's payment of accrued interest for a three year period, or sale of the stock or voluntary employee termination, Disher et al would apply to the bank for a loan, purchase the Baron stock from Fulgoni under the agency agreement, and immediately deposit the Baron stock they received into a voting trust with Fulgoni and Walter as trustees, and Malec as successor trustee. Disher et al would, if necessary, pledge the voting trust certificates as security for any loan used to acquire the stock, or the certificates would be held in escrow by IRI to insure that they were not transferred in violation of the agreement. Disher et al would be restricted from selling, transferring or otherwise disposing of the shares or voting trust certificates except pursuant to paragraphs 4, 5 and 6. Paragraph 4 required Disher et al to sell their interest in the stock and voting trust certificates in the event that their employment was terminated under specified circumstances. Paragraph 5 required that Disher et al sell their stock or voting trust certificates to the maker of an offer to purchase all or substantially all the stock of the company, if such offer was accepted by a majority of the company's shareholders. Paragraph 6 provided that if the IRI common stock became publicly traded, Disher et al could sell, transfer or dispose of the shares or voting trust certificates free of all restrictions other than applicable federal and state securities laws, rules and regulations.

The voting trust agreement, dated March 1, 1982, required Baron's IRI stock certificates to be registered in the names of the trustees, who then issued voting trust certificates to the participating employees. This agreement gave the trustees the right to exercise the certificate holder's rights including the right to vote for IRI directors, or for or against any action or resolution, merger or sale of substantially all IRI assets. The voting trust agreement provided further that the trust would continue until March 1, 1992, but would terminate at any time upon the execution by the trustees of a deed of termination. Further, the trust could be terminated at the option of the holders of a majority of the voting trust certificates at any time after the company became publicly held.

Meanwhile, in April 1982 Disher was promoted to senior vice-president of IRI and, in lieu of a raise, was given and accepted the right to purchase 500 more shares of Baron stock under the same agreements previously described and signed by him.

The trustees did not register the voting trust certificates under the Securities Law, nor were Disher et al given a statutorily required prospectus, explaining in clear, concise and understandable fashion (1A Blue Sky L. Rep. (CCH) p 22,658 (1986)), the length of time the securities would remain in trust; how the voting trust could be extended; or how the voting trust could be amended. See 17 C.F.R. § 239.25, Item 4 (1986).

IRI began selling its stock to the public on March 4, 1983. On April 6, 1983, Disher was fired. Disher was told he could use the company's offices for 90 days in order to assist his transition to another job. Disher was first advised of IRI's preference that he not work for the Burke Companies; later, this was expanded to include other companies as well, including the A.C. Nielsen Co. Disher inquired about obtaining the release of some or all his stock in trust; IRI did not overtly object, but sent him a "letter-agreement" which provided that he now sign a limited non-competition agreement, in addition to his previous confidentiality agreement,...