Gidwitz v. Lanzit Corrugated Box Co.

• Decision Date: 29 September 1960
• Docket Number: No. 35627,35627
• Citation: 170 N.E.2d 131,20 Ill.2d 208
• Parties: Victor E. GIDWITZ, Exr., et al., Appellees, v. LANZIT CORRUGATED BOX CO. et al., Appellants.
• Court: Illinois Supreme Court

Page 131

170 N.E.2d 131

20 Ill.2d 208

Victor E. GIDWITZ, Exr., et al., Appellees, v. LANZIT CORRUGATED BOX CO. et al., Appellants.

No. 35627.

Supreme Court of Illinois.

Sept. 29, 1960.

Rehearing Denied Nov. 30, 1960.

Thomas C. McConnell, and Charles R. Kaufman, Chicago (Vedder, Price, Kaufman & Kammholz, and McConnell, Paschen & Curtis, Chicago, of counsel), for appellant.

Max Swiren, and Thomas R. Mulroy, Chicago (Ralph E. Davis, William P. Sutter, Chicago, Kenneth D. Palmer, Decatur, and Hopkins, Sutter, Owen, Mulroy, & Wentz, Chicago, of counsel), for appellee.

HERSHEY, Justice.

This action was brought by certain shareholders of Lanzit Corrugated Box Co., an Illinois corporation, under subparagraphs (1), (2), and (3) of paragraph (a) of section 86 of the Business Corporation Act of this State (Ill.Rev.Stat.1955, chap. 32, par. 157.86) on the theory that both the directors and shareholders of this corporation are deadlocked and that the original defendants had committed illegal, oppressive or fraudulent acts.

Answers and counterclaims were filed to this by defendants asking for an accounting and other relief and later an amended complaint was filed to which answers and counterclaims were also filed.

Thereupon this cause was referred to a master, who, after many hearings commencing in January, 1955, and extending over some three years with several thousands of pages of testimony and voluminous exhibits, made his finding recommending the entry of a decree ordering a dismissal of this cause at plaintiffs' costs.

After several hearings on the master's report, the trial court rendered an oral opinion sustaining the master's finding that the complaint be dismissed and that no relief be granted on the counterclaims.

Following that and prior to the entry of the final decree in this cause, a supplemental complaint was filed on March 16, 1959, setting out certain other matters occurring earlier in 1959. It asked (1) for the appointment of a liquidating receiver for the corporation, and (2) for a dissolution of the corporation under subparagraph (1) of paragraph (a) of section 86 of The Business Corporation Act. Ill.Rev.Stat.1955, chap. 32, par. 157.86.

To this supplemental complaint, answers and affirmative defenses were filed by the several defendants, and on August 17, 1959, without further evidence the trial court entered its final decree confirming the master's report in certain respects and overruling it to the extent inconsistent with the court's finding of facts as follows:

'1. The directors of the Corporation are now, and since 1950 have been deadlocked in the management of the corporate affairs.

'2. The shareholders of the Corporation are now, and since 1950 have been, unable to break the deadlock of the directors in the management of the corporate affairs.

'3. Irreparable injury to the Corporation is threatened by reason of the dead-lock of the directors and the shareholders.

'4. The shareholders of the Corporation are deadlocked in voting power and have failed, for a period of ten consecutive annual meeting dates since 1949, to elect successors to directors whose terms have expired or would have expired upon the election of their successors.

'5. The acts of Defendants Joseph, Gerald and Willard have been and are oppressive in that, through the medium of the deadlock among the directors and the stockholders, said Defendants have been in control of the Corporation for the last ten years by reason of Joseph being President and chief executive officer.'

The court then stated his conclusions of law as follows:

'1. Plaintiffs have established their right to have the assets and business of the Corporation liquidated pursuant to the provisions of Section 86(a)(1) of the Illinois Business Corporation Act.

'2. Plaintiffs have established their right to have the assets and business of the Corporation liquidated pursuant to the provisions of Section 86(a)(3) of the Illinois Business Corporation Act.'

The court thereupon decreed that the assets and business of the corporation be liquidated under paragraphs 8 and E of the amended complaint and section 86(a) (1) and section 86(a)(3) of the Business Corporation Act; appointed a liquidating receiver; retained jurisdiction for certain matters; denied the relief asked in the counterclaim, and dismissed same.

Appeal was then taken to the Appellate Court for the First District and by order of that court on November 3, 1959, the cause was transferred to this court because the termination of a corporate franchise was involved.

From this voluminous record the undisputed facts appear to be that this is a family corporation, all shares being owned or controlled by the Gidwitz family, so that fifty per cent of the shares are owned by the defendants and the other fifty per cent owned or claimed to be under the control of plaintiffs.

Subparagraphs (1), (2), and (3) of paragraph (a) of section 86 of the Business Corporation Act (Ill.Rev.Stat.1955, chap. 32, par. 157.86) invoked here, read as follows:

'Courts of equity shall have full power to liquidate the assets and business of a corporation:

'(a) In an action by a shareholder when it is made to appear:

'(1) That the directors are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock, and that irreparable injury to the corporation is being suffered or is threatened by reason thereof; or

'(2) That the shareholders are deadlocked in voting power, and have failed, for a period which includes at least two consecutive annual meeting dates, to elect successors to directors whose term has expired or would have expired upon the election of their successors; or

'(3) That the acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent; * * *.'

We turn at once to subparagraph (3) of paragraph (a) of section 86, which applies when 'the acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent.' There appears to be no claim that the acts of the directors or officers in this case are 'illegal' or 'fraudulent,' but only that the 'deadlock' is 'oppressive' to the plaintiffs as shareholders because they, as directors, are precluded thereby from participating at the policy level in the direction and supervision of Joseph Gidwitz's activities as president of the corporation.

Without considering the 'trust' question in the voting of certain shares, also presented in the briefs, there appears to be a fifty-fifty division of directors as well as all shares for voting purposes in this case, with one group headed by the president (one of the defendants) and the other by the secretary-treasurer (one of the plaintiffs in this case.)

Our statute pertaining to 'officers' (Ill.Rev.Stat.1955, chap. 32, par. 157.43,) after naming the officers a corporation is to elect, provides as follows: 'All officers and agents of the corporation, as between themselves and the corporation, shall have such authority and perform such duties in the management of the property and affairs of the corporation as may be provided in the by-laws, or as may be determined by resolution of the board of directors not inconsistent with the by-laws.'

The by-laws of this corporation fix the duties of the president of this corporation (omitting matters not here pertinent) as follows: 'Unless otherwise provided by resolution of the Board of Directors the President shall be the chief executive officer of the corporation, and when present shall preside at all meetings of the Board of Directors, and all meetings of the shareholders; he shall have power to appoint and discharge employees and agents of the corporation, and to fix their compensation. * * * the President shall, while the Board of Directors is not in session, have the general and active management and control of the business and affairs of the corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect; he shall have general supervision and direction of the other officers of the corporation, and shall see that their duties are properly performed.'

In arguing that the acts of the directors or those in control of the corporation were 'oppressive' to plaintiffs as shareholders, certain specific acts of the president and the other defendants are relied upon in the brief of the plaintiffs to support this charge:

(1) That plaintiffs have been deprived of participation in the management of the corporation although two of them are directors;

(2) That the president, without consulting plaintiffs and without board authorization, organized another corporation, 'Custom Made,' with Lanzit funds, which corporation lost some $290,000 during a five-year period;

(3) That there is a ten-year deadlock which defendants refuse to break by increasing the number of directors from four to five;

(4) That in 1954 the president hired John Spence at a salary of $32,500 and the promise of a car, as 'Managing Officer of the Corporation,' but serving (without title) in the capacity of executive vice-president.

(5) That the president made arbitrary deductions from the salary of Victor Gidwitz.

(6) That without board approval the president borrowed $300,000 from the American National Bank in 1951; borrowed $50,000 on two occasions from Rockwell Realty Company of which he was president, and borrowed $50,000, $50,000 and $100,000 from Tribros Investment Company, a partnership of himself and his two brothers, all in the name of Lanzit;

(7) That the president executed a proxy to himself to vote the stock of a Lanzit subsidiary, Chippewa;

(8) That the president failed for ten years to consult with the directors, other than his brother, on corporate policy decisions.

We have held that the word 'opressive' as used in this statute, does not carry an essential inference of imminent disaster; it can contemplate a continuing course of conduct. The...