Gold v. Ziff Communications Co., 1-89-0082

• Decision Date: 26 September 1989
• Docket Number: No. 1-89-0082,1-89-0082
• Citation: 553 N.E.2d 404,196 Ill.App.3d 425,142 Ill.Dec. 890
• Parties: , 142 Ill.Dec. 890 Anthony R. GOLD, PC Brand, Inc., Software Communications, Inc., and Hanson & Connors, Inc., Plaintiffs-Appellees, v. ZIFF COMMUNICATIONS COMPANY, d/b/a Ziff-Davis Publishing Company, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 404

553 N.E.2d 404

196 Ill.App.3d 425, 142 Ill.Dec. 890

Anthony R. GOLD, PC Brand, Inc., Software Communications Inc., and Hanson & Connors, Inc., Plaintiffs-Appellees, v. ZIFF COMMUNICATIONS COMPANY, d/b/a Ziff-Davis Publishing Company, Defendant-Appellant.

No. 1-89-0082.

Appellate Court of Illinois First District, Second Division.

Sept. 26, 1989.

Francis J. Higgins, John J. Verscaj and Kenneth E. Rechtoris of Bell, Boyd & Lloyd, Chicago, for defendant-appellant.

Dan K. Webb and Calvin Sawyier of Winston & Strawn, Chicago, for plaintiffs-appellees.

Justice DiVITO delivered the opinion of the court:

Defendant, Ziff Communications Company, doing business as Ziff-Davis Publishing Company, appeals the circuit court's grant of a preliminary injunction requiring it to accept the reduced rate advertisements of plaintiff, PC Brand, Inc. ("PC Brand"). The issues presented are whether the circuit court erred in: (1) granting a mandatory preliminary injunction; (2) finding that plaintiffs would suffer irreparable harm in the absence of a preliminary injunction; and (3) granting the preliminary injunction despite the contention that plaintiffs failed to show that their threatened harm outweighed defendant's actual harm.

Defendant publishes, among other magazines, PC Magazine, PC Tech Journal, and PC Week (collectively, "PC Publications"). PC Magazine is a publication targeted at individuals and entities generally interested in, or in the market for, computer hardware and software products.

Plaintiff, Anthony R. Gold ("Gold") founded PC Magazine in October 1981. In November 1982, the corporate predecessor of defendant entered into various agreements with Gold whereby defendant obtained ownership and control from Gold of the corporation that owned PC Magazine. As consideration for the sale, Gold received a cash down payment, the right to installment payments tied to revenue, and the right to purchase a defined number of advertising pages in PC Magazine at a reduced percentage of the advertising fee published by defendant on its "rate cards," i.e. the rates at which defendant offered to sell advertising space to advertisers generally.

On September 15, 1986, defendant and Gold entered into an Amended Agreement, which restated and superseded the original agreement concerning reduced advertising fees. The Amended Agreement provided that through December 31, 1992, Gold was permitted to purchase a limited amount of advertising space in defendant's PC Publications, equal to the average number of ad pages used by each of the four largest advertisers in the preceding six issues, at a reduced rate that is 23.5% of defendant's "then current rate card" fees. The Amended Agreement contained no specific provision concerning the page placement of advertisements purchased by Gold; however, the practice was that Gold was given prime space position, in the first part of the magazine, similar to the space positions given to PC Magazine's four largest advertisers.

The Amended Agreement further provided that Gold could use the advertising pages personally or "by a company which Gold control[led] (that is, in which [Gold] own[ed] at least 51% of the voting stock)

* * * ", but this right could not be assigned, transferred or allocated to any other person or entity.

In January 1988, Gold and Stephen Dukker ("Dukker") formed PC Brand which was in the business of selling clone IBM personal computers by mail. Gold was the owner of 90% of the outstanding shares of PC Brand while Dukker held the remaining 10% interest. Various interrelated agreements were entered into between Gold, Dukker, and PC Brand, including an "Assignment of Advertising Rights Agreement" in which Gold assigned the right to reduced advertising fees in PC Magazine to PC Brand. That agreement further provided that if PC Brand profited financially, those corporate monies saved from the discount rate, with a 25% pretax net income cap, would be paid to Gold.

In May 1988, PC Brand became operational and commenced placing advertisements in PC Publications at the reduced rate. In approximately August or September 1988, defendant first obtained copies of the Assignment of Advertising Rights Agreement; the Shareholder Agreement of Gold, Dukker and PC Brand; and the Employment Agreement between Dukker and PC Brand. After analysis of the agreements, defendant concluded that Gold possessed nominal, but not real ownership of 90% of PC Brand's voting stock and that Dukker was vested with actual voting control of the company. Reasoning that Gold did not really own at least 51% of the voting stock of PC Brand and that Gold's rights to reduced advertising rates under the Amended Agreement were non-assignable "personal rights," defendant concluded that PC Brand was not entitled to the reduced advertising rates. On November 8, 1988, defendant notified Gold and PC Brand, by letter, of its conclusions and its intent not to honor the advertising rights under the Amended Agreement.

On December 6, 1988, plaintiffs filed an action for declaratory judgment, injunction, and damages. On the same date, notice of a hearing on plaintiffs' motion for a temporary restraining order and preliminary injunction was given to defendant. On December 9, 1988, plaintiffs filed their motion for a temporary restraining order and preliminary injunction, including Gold's affidavit; defendant filed a verified answer, denying the allegations of the complaint, and a counter-claim; and a hearing was held. The primary issue was whether plaintiffs would suffer irreparable harm if defendant did not continue to advertise plaintiffs' products in PC Magazine. Defendant did not contest the issue of whether plaintiffs were likely to succeed on the merits.

At the hearing, Dukker testified that PC Brand had been formed to take advantage of the discounted advertising rate and that the operation of PC Brand was structured around the advertising discount which Gold obtained. Dukker testified that PC Brand's pricing, personnel, service, and credit standing were dependent upon its ability, as a new mail order house for PC computerware, to run multi-page ads in PC Magazine. According to Dukker, PC Brand, so structured and operated, could be successful even though it was then operating at a loss. Cross examination of Dukker developed specific book account figures of PC Brand's monthly sales and profits.

Pointing out that the difference between the full and discounted rates was $42,000 per issue, or $84,000 per month, Dukker testified that PC Brand would probably be forced out of business were it not able to advertise at the discount rate for even one month, in the only magazine of any consequence in the personal computer field. He testified that there was a "significant possibility" that he would leave PC Brand if the company was required to pay the full rate card rate and that his expertise would then be lost to PC Brand.

The affidavit of Gold, which was corroborative of Dukker's testimony, was admitted into evidence at the hearing on the preliminary injunction. Both Gold and Malcolm Morris, vice president and deputy general counsel for defendant, were present in court during the entire hearing, but neither was called to testify. At oral argument, counsel for PC Brand pointed out that all the financial records and contracts affecting PC Brand had been brought to court on the hearing date so that they were available to defendant for cross-examination purposes.

At the conclusion of the hearing, the circuit court entered a preliminary injunction in favor of plaintiffs and enjoined defendant from refusing to run PC Brand's advertisements in PC Magazine at the reduced rate provided in the Amended Agreement. The court held that irreparable injury to plaintiff was likely and therefore a preliminary injunction should issue to maintain the status quo. Counsel for the parties then agreed that they would draft and agree on the form of the order, which would then be presented to the circuit court.

The order, entered December 13, 1988, embodied what both parties accepted as a reasonable description of the advertisements which PC Brand had been allowed to run at a discount up until the time of the disagreement. The order required defendant to run "six consecutive four-color page ads organized as three consecutive two-page spreads to start on a left hand page beginning no farther back than page 222 the beginning of said ads to start on an average of page 185." No cash bond was required, but, in lieu thereof, the order, incorporating the suggestion from defendant's counsel made at the hearing, granted defendant a lien on any amounts which might become payable to Gold under his agreements with Dukker and PC Brand. No such amounts were payable for the fiscal year ending December 31, 1988 and, according to Dukker's testimony, none will become payable until April 1990 at the earliest.

On January 12, 1989, defendant appealed to this court, arguing that the circuit court abused its discretion in granting the preliminary injunction. For the following reasons, we affirm.

I

Defendant first asserts that the circuit court abused its discretion in ordering a "mandatory" preliminary injunction.

The issuance or denial of a preliminary injunction is within the trial court's sound discretion and its findings will not be disturbed unless they are against the manifest weight of the evidence. The Instrumentalist Co. v. Band, Inc. (1985), 134 Ill.App.3d 884, 891, 89 Ill.Dec. 530, 480 N.E.2d 1273, citing Booth v. Greber (1977), 48 Ill.App.3d 213, 217-218, 6 Ill.Dec. 477, 363 N.E.2d 6. The purpose of a preliminary injunction is to "preserve the status quo until the case can be decided on the merits [Citations.]" (Prentice Medical Corp. v. Todd (1986), 145 Ill.App.3d 692, 697, 99 Ill.Dec. 309, 495 N.E.2d 1044, citing Buzz Barton & Associates, Inc. v. Giannone (1985), 108 Ill.2d 373, 382, 91 Ill.Dec. 636, 483 N.E.2d 1271.) A preliminary...