First of America Trust Co. v. First Illini Bancorp, Inc., s. 3-96-0324

• Decision Date: 02 May 1997
• Docket Number: Nos. 3-96-0324,3-96-0329,3-96-0330 and 3-96-0565,s. 3-96-0324
• Parties: , 226 Ill.Dec. 248 FIRST OF AMERICA TRUST COMPANY, as Trustee of the John Golofsky Trust, Plaintiff-Appellee, v. FIRST ILLINI BANCORP, INC., an Illinois corporation, successor by merger to First Galesburg National Bank & Trust Company, Defendant-Appellee (Marjorie Rudman Cooper, Daniel Rudman and Rose Rudman, Co-Executors of the Estate of Mitchell Rudman, Deceased, Defendants-Appellants.)
• Court: United States Appellate Court of Illinois

Page 351

685 N.E.2d 351 289 Ill.App.3d 276, 226 Ill.Dec. 248 FIRST OF AMERICA TRUST COMPANY, as Trustee of the John
Golofsky Trust, Plaintiff-Appellee,
v.
FIRST ILLINI BANCORP, INC., an Illinois corporation,
successor by merger to First Galesburg National Bank & Trust
Company, Defendant-Appellee (Marjorie Rudman Cooper, Daniel
Rudman and Rose Rudman, Co-Executors of the Estate of
Mitchell Rudman, Deceased, Defendants-Appellants.) Nos. 3-96-0324, 3-96-0329, 3-96-0330 and 3-96-0565. Appellate Court of Illinois,
Third District. May 2, 1997.
As Modified on Denial of Rehearing
July 17, 1997.

Page 354

[289 Ill.App.3d 279] [226 Ill.Dec. 251] Stuart R. Lefstein (argued), and Lori R. Lefstein, Katz, McAndrews, Balch, Lefstein & Fieweger, P.C., Rock Island, for Marjorie Rudman Cooper, Daniel Rudman, and Rose Rudman, Defendants-Appellants.

David B. Mueller (argued), and Christopher F. Cassidy, Cassidy & Mueller, Peoria, for First of America Trust Company, Plaintiff-Appellee.

David Wells, J. Powell Carman (argued), and Jeffrey R. Fink, Thompson Coburn, St. Louis, MO, for First Illini Bancorp, Inc.

MODIFIED UPON DENIAL OF REHEARING

Justice BRESLIN delivered the opinion of the court:

Plaintiff First of America Trust Company (Trustee), as trustee of the John Golofsky trust, brought this action against defendants First Illini Bancorp, Inc. and the estate of Mitchell Rudman. Each party filed an appeal and the appeals were consolidated by this court. We affirm in part, reverse in part and remand.

FACTS

The issues on appeal arise out of the administration of the estate of John Golofsky. The original executor of the estate was First Galesburg National Bank and Trust Company. However, after a subsequent merger, First Illini Bancorp (Bank) became the executor of the estate. Golofsky left a widow, Zoe Golofsky, and a daughter, Marilyn Urena, who received successive life estates under the testamentary trust. Golofsky was also survived by two grandchildren, Jon Urena and Zoe Urena Weiss, who were remainder beneficiaries under the trust. When he died in 1982, Golofsky owned one-half of the common stock [289 Ill.App.3d 280] of Brown Specialty Corporation, and Mitchell Rudman, now deceased, owned the other half.

The Bank delegated the responsibilities of running the business and finding a purchaser to Rudman. In 1986, John Sexton offered to purchase the company for $1.6 million. Rudman and the Bank accepted this offer. In

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[226 Ill.Dec. 252] May 1986, over the objections of the remainder beneficiaries, the Knox County probate court authorized the Bank to sell the shares in accordance with the terms of the offer and to "execute and deliver * * * such instruments of acceptance and such other instruments of transfer as may be necessary in the sale and transfer of said shares."

Thereafter, Sexton, Rudman, the Bank and Zoe Golofsky entered a stock purchase agreement. The agreement provided warranties that the Brown Specialty Corporation financial statements were prepared in accordance with generally accepted accounting principles, that the statements fairly represented the company's financial position, that there had been no adverse change in the business, assets or financial condition of the company between December 31, 1985 and August 4, 1986, and that the inventory shown on the June 30, 1986 financial statement was valued at the lower of cost or market value. Before the agreement was executed, Zoe Weiss, one of the remainder beneficiaries, her husband, Zeff Weiss, and Zeff's law partner, Phillip Bayt, offered to match Sexton's $1.6 million offer without any of the contingencies contained in the warranties. Moreover, in a letter to the Bank's trust officer, Zeff Weiss pointed out that many of the warranties made in the stock purchase agreement were false. Despite Weiss' offer and admonitions, the Bank entered the agreement with Sexton.

Following the sale of the business, Sexton sued the Bank, Rudman and Zoe Golofsky in federal court, alleging that they had breached the warranties contained in the stock purchase agreement and committed securities violations, fraud and misrepresentation. The Bank and Rudman were represented by the same attorney, Burrell Barash. Before trial, Rudman entered an agreement with the Bank's trust officer which provided that if a judgment was recovered against the Bank, the Bank could pursue an action for indemnity and/or contribution against Rudman and Rudman could not assert as a defense that the cross-claim should have been filed in the federal case or that the statute of limitations had run.

After trial, the jury returned a verdict in favor of Sexton for $200,000 and assessed $50,000 in punitive damages against Rudman. The court did not enter judgment because the issue of attorney fees needed to be resolved. However, before that issue was resolved, the [289 Ill.App.3d 281] parties settled the case for $375,000. Rudman paid $212,500 and the Bank paid $162,500. The Bank used estate assets to satisfy the settlement and to pay approximately $40,000 in attorney fees incurred in the litigation. The parties then filed a satisfaction of judgment, but the judge refused to accept the filing because no final judgment had been entered. Accordingly, the parties filed an order of dismissal which dismissed the case with prejudice. All of these matters were set out clearly in the federal court docket sheet.

Sometime after the federal case was settled, the Trustee filed the instant suit on behalf of the beneficiaries against Rudman's estate (Rudman Executors) and the Bank. The portions of the complaint relevant to this appeal sought to regain the amount expended by the Bank to settle the federal case and pay its litigation expenses. In the counts against the Bank, the Trustee alleged that these amounts were unlawfully expended from estate assets as a direct result of the Bank's breach of fiduciary duties. The complaint also alleged that the Rudman Executors were liable under theories of indemnity and contribution because Rudman acted as the Bank's agent. The Trustee alleged that a judgment was entered against the Bank and the Rudman Executors in the federal case. The Rudman Executors agreed with this allegation in their answer, but later denied the allegation in their amended answer.

The Bank responded to the Trustee's complaint by filing a counterclaim against the Rudman Executors for indemnity and contribution. The Bank alleged that if it was liable to the beneficiaries, then the Rudman Executors were liable to the Bank because Rudman was acting as its agent when he made the misrepresentations to Sexton. In addition, the Bank raised affirmative defenses. One affirmative defense pointed out that the probate court approved both the terms of the sale and the price. Thus, the Bank asserted

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[226 Ill.Dec. 253] that the Trustee's claim was barred by res judicata. Another affirmative defense asserted that the pendency of the probate action deprived the court of subject matter jurisdiction. The court granted the Trustee's motion to strike the jurisdictional defense and granted the motion to strike the res judicata defense to the extent that it sought to preclude relitigation of whether the terms of the sale were appropriate. The court denied the motion as it related to the sufficiency of the sale price and whether the Bank should have retained experts to evaluate the business before the sale. The Bank appeals both of these rulings (3--96--0329).

Eventually, all of the parties filed motions for summary judgment. The Bank's motion for summary judgment alleged that the basis for the federal lawsuit was that the purchase price exceeded [289 Ill.App.3d 282] the actual value of the business and that the settlement was paid out of the trust because the trust was not entitled to receive the inflated purchase price. Accordingly, the Bank claimed that it was proper to use...