Hamilton v. Williams

• Decision Date: 15 May 1991
• Docket Number: No. 2-89-1335,2-89-1335
• Citation: 573 N.E.2d 1276,214 Ill.App.3d 230
• Parties: , 158 Ill.Dec. 91 Allan J. HAMILTON, Indiv. and as Trustee, et al., Plaintiffs-Appellees, v. J. McDonald WILLIAMS, et al., Defendants-Appellants. Second District
• Court: United States Appellate Court of Illinois

Page 1276

573 N.E.2d 1276

214 Ill.App.3d 230, 158 Ill.Dec. 91

Allan J. HAMILTON, Indiv. and as Trustee, et al., Plaintiffs-Appellees, v. J. McDonald WILLIAMS, et al., Defendants-Appellants.

No. 2-89-1335.

Appellate Court of Illinois,

Second District.

May 15, 1991.

Rehearing Denied July 8, 1991.

Daniel E. Reidy (argued), James R. Daly (argued), F. Samuel Eberts, III, Carol A. Tiesi, Reavis & Pogue, Chicago, for J. McDonald Williams, Joel C. Peterson, Jon D. Hammes, Donald J. Thomas, Jr., Mark Biggs and Trammell Crow Co.

Dan K. Webb, Winston & Strawn, Chicago, John Edwin Norton, O'Reilly, Cunningham, Norton & Mancini, Wheaton, for appellants.

Cherry & Flynn, Chicago, Myron M. Cherry (argued), Peter Flynn, William R. Coulson, Cherry & Flynn, James R. Schirott (argued), Schirott & Associates, P.C., Itasca, for Allan J. Hamilton, Managing General Partner, Philip Leon Harris, John Wauterlek, Ronald C. Lunt and Trammell Crow Mgmt. Co.

Justice UNVERZAGT delivered the opinion of the court:

If, indeed, the object of arbitration is to achieve the final disposition of disputes in an easier, more expeditious and less expensive manner than by litigation (Board of Trustees of Community College District No. 508 v. Cook County College Teachers Union, Local 1600 (1981), 102 Ill.App.3d 681, 58 Ill.Dec. 307, 430 N.E.2d 249), this case is arbitration gone seriously awry. Following receipt of the arbitrator's award in July 1987, its subsequent vacation, ordered rearbitration and denial of vacation of the rearbitration award, more than three years' time has passed, 12,000-plus pages of pleadings and reports of proceeding have been generated and untold amounts of time and money have been expended. The parties, now on this court's doorstep, are still pointing fingers at each other. Given the history of this cause, final resolution in this penultimate forum seems unlikely, but "Hope springs eternal."

The defendants, collectively referred to hereafter as Crow, a nationwide real estate organization headquartered in Dallas, Texas, and the plaintiffs, who will be referred to collectively herein as Hamilton Partners (including primarily within that designation Messrs. Hamilton, Lunt and Wauterlek), became embroiled in litigation when Hamilton, Lunt, Wauterlek and all of their partners in the Itasca, Illinois, headquarters of Crow's Great Lakes Region abruptly resigned from Crow in January 1987 and formed Hamilton Partners. Various Hamilton and Crow partners and entities were partners in over 200 project partnerships in the Great Lakes Region, including some 56 in the Chicago/Du Page County area. The resignations automatically triggered the buy-sell procedures of the various limited partnership agreements. Crow's rejection of Hamilton Partners' initial buyout proposal and indication of an intention to exercise its option to buy Hamilton Partners out of the Crow partnerships precipitated the filing of three lawsuits in Du Page County and one suit in a Texas State court.

Concurrent settlement negotiations culminated in a June 17, 1987, letter of intent (Letter of Intent) wherein the parties agreed to a division of the properties and to an arbitration procedure for valuing those properties upon which the parties could not otherwise agree. It was agreed the three actions pending in Du Page County would be consolidated and dismissed, and the court would retain jurisdiction to enforce the Letter of Intent.

In the event the parties could not agree on the value of certain properties within the allotted 10-day period, the Letter of Intent provided that the values would be determined in accordance with section 1.2(b) thereof, to wit:

"Sudler Marling, Inc. and American Appraisal Associates, Inc. will be directed by the Hamilton Partners and TCC [Crow], respectively, to deliver by July 11, 1987 to TCC and to the Hamilton Partners their determination of the value of the Hamilton Interest and TCC Interest with respect to each of the Initial Closing Properties whose purchase price was not agreed upon by TCC and Hamilton Partners. The determination will be made in accordance with the instructions set forth in Subsection 1.2(c) below. Subject to each party's compliance with Section 4.7 [relating to access to records of the partnership that currently owns the property], if any report with respect to a determination of value is not delivered in a timely manner, the first determination to be delivered will be conclusive and binding on the parties. The parties will attempt to resolve any differences in the appraisers' determinations with respect to specific interests by July 13, 1987, failing which Cushman & Wakefield (the 'Arbitrator') will review the determination for each Initial Closing Property on which the appraisers do not agree, inspect those Initial Closing Properties and, solely on the basis of this review, its inspection, and any information it may request from the parties, arbitrate the dispute. It will deliver its determination of the values of the TCC Interests and Hamilton Interests in those Initial Closing Properties to TCC and Hamilton no later than July 17, 1987. This determination will be conclusive and binding upon the parties." (Emphasis added.)

The Letter of Intent contemplated that purchase of the interests in a substantial number of the various project partnerships would occur at an initial closing on July 22, 1987, and a second closing would deal with the remaining project partnership interests. The most significant individual partnership properties included in the initial closing were the vacant land parcels of Allen Hamilton's two Itasca namesake developments, Hamilton Lakes Office Park (Office Park) and Hamilton Lakes Business Park (Business Park).

Because the parties could not agree on the value of these two Hamilton Lakes properties by June 27, the appraisal arbitration mechanism provided for in the Letter of Intent was activated. The parties have provided commendable minutely detailed and thoroughly record-referenced statements of facts as to the what and why of the events which led to the submission of the matter of the Hamilton Lakes properties' valuations to arbitration. Condensing this material we find the following background is presented.

The initial market information Crow received from its appraiser, American Appraisal Associates, Inc. (hereinafter American), a Milwaukee-based corporation, on the Hamilton Lakes properties was not of the quality Crow desired. It became concerned that American would either not be able to meet the deadline for submission of the appraisal or, if it did, that its appraisal would not meet Crow's expectations of quality. Consequently, it sought out and hired Jared Shlaes of Chicago-based Shlaes & Company to appraise the Hamilton Lakes Office Park property. When Shlaes learned later from Crow that John T. Ryan of Cushman & Wakefield was to be the arbitrator, Shlaes disclosed to Crow that he and Ryan had worked together 13 years ago, but Shlaes told Crow that he did not believe that past relationship would be a problem for the arbitration. Crow expanded Shlaes' assignment to include the Business Park property as well. American was told to stop work on the Hamilton Lakes properties, to turn over its work product to Shlaes and lend whatever assistance Shlaes needed.

Shortly before the appraisals were due to be exchanged between the parties, Crow began to worry that its use of Shlaes rather than American might be viewed by Hamilton Partners as a technical breach of the Letter of Intent. Crow then essentially bullied American into assuming the appearance of a contractor/subcontractor relationship with Shlaes. At the time, Crow owed American over $1 million in fees, and, although American had no interest in a contractor/subcontractor relationship with Shlaes, and Shlaes did not have any interest in such a relationship with American, American nonetheless agreed to help Crow with what Crow termed was a "legal problem." Thereafter, Crow caused alterations to be made by American to appraisal cover sheets and transmittal letters to show that Shlaes prepared the appraisals at American's request, rather than Crow's as originally shown on the cover sheets, and that American had "adopted" Shlaes' appraisal reports in addition to having "accepted [them] as correct."

Pursuant to the Letter of Intent, Crow and Hamilton Partners received the appraisers' reports on July 11. Shlaes' appraisal reports for Crow valued the Office Park at $22.8 million and the Business Park at $14.8 million. Hamilton Partners' appraiser, Sudler Marling, Inc., valued the Office Park at $67.29 million and the Business Park at $22.5 million.

Upon receipt of the Crow appraisals along with the altered transmittal letters and cover sheets, Hamilton, Lunt, and Wauterlek were variously "surprised," "concerned," "upset," "confused," or "alarmed" when they saw the appraisal reports were prepared by Shlaes rather than American and felt the matter "needed to be investigated." All three recognized that American was to prepare the appraisals under the terms of the Letter of Intent. Hamilton testified he did not know at that time whether "if American appraisal was shorthanded, it would be permissible under the Letter of Intent for Shlaes to have become involved," and Wauterlek testified he did not do anything in reaction to seeing Shlaes' name on the reports because "it also had American Appraisal on a cover letter." Lunt said he was "unclear" as to the import of the cover sheets and transmittal letters and as to whether "the Shlaes reports tendered by Crow were American Appraisal appraisals within the meaning of the Letter of Intent." Lunt also said he "considered the possibility" that American might have subcontracted the Hamilton Lakes appraisals to Shlaes but that "in that time frame [July 11 through 20] was unclear" as to whether such subcontracting was permissible. Despite its confusion and uncertainty, Hamilton...