Import Sales, Inc. v. Continental Bearings Corp.

• Court: Appellate Court of Illinois
• Writing for the Court: LaPORTA
• Citation: Import Sales, Inc. v. Continental Bearings Corp., 577 N.E.2d 1205, 217 Ill.App.3d 893 (Ill. App. 1991)
• Decision Date: 17 May 1991
• Docket Number: No. 1-89-1312,1-89-1312
• Parties: , 160 Ill.Dec. 634 IMPORT SALES, INC., Plaintiff, v. CONTINENTAL BEARINGS CORPORATION, Defendant-Appellant (Treesdale, Inc., Defendant, v. Ray E. Hicks and Walter Glass, Third Party Defendants-Appellees).

Page 1205

577 N.E.2d 1205

217 Ill.App.3d 893, 160 Ill.Dec. 634

IMPORT SALES, INC., Plaintiff, v. CONTINENTAL BEARINGS CORPORATION, Defendant-Appellant (Treesdale, Inc., Defendant, v. Ray E. Hicks and Walter Glass, Third Party Defendants-Appellees).

No. 1-89-1312.

Appellate Court of Illinois First District, Sixth Division.

May 17, 1991.

As Modified on Denial of Rehearing Aug. 16, 1991.

Martin, Craig, Chester & Sonnenschein, Chicago (Don R. Sampen, William A. Kummerer, of counsel), for defendant-appellant.

Braun & Rivkin, Ltd., Chicago (Ira N. Helfgot, of counsel), for third party defendants-appellees.

MODIFIED UPON DENIAL OF REHEARING

Justice LaPORTA delivered the opinion of the court:

This is defendant's interlocutory appeal from the trial court's order of April 18, 1989, which granted the Walter Glass and Ray Hicks section 2-615 motions to dismiss Continental's third party complaint pursuant to section 2-406(b) of the Illinois Code of Civil Procedure (Ill.Rev.Stat.1987, ch. 110, pars. 2-615, 2-406(b)) and striking Continental's second amended counterclaim against Import. In its notice of appeal defendant requests that this court (1) vacate or reverse the April 18 order thereby allowing Continental's amended third party complaint to stand, or, in the alternative, to allow Continental to file an amended third party complaint seeking indemnification from Glass and Hicks, and (2) allow Continental's counterclaim against Import to stand, or, in the alternative, to allow Continental leave to file a counterclaim against Glass and Hicks on the theory that they are the alter ego of Import.

In response Glass contends that the April 18 order was proper and should be affirmed. The April 18 order recites in pertinent part "IT IS ORDERED: (1) that Hicks' and Glass' motions to dismiss under [section] 2-406(b) of the Code of Civil Procedure are sustained and that CBC's amended third-party complaint be and is hereby dismissed pursuant thereto with prejudice. (2) It is the express finding of this court, pursuant to Supreme Court Rule 304(a) that there is no just reason for delaying enforcement or appeal of this order with respect to the dismissal of the amended third-party complaint pursuant to section 2-406;"

Glass contends that Continental has waived or forfeited its right to appeal three of the four issues raised. Continental has waived the failure of the trial court to permit further amendment of the third party complaint to seek indemnification because defendant did not request leave to amend. Continental may not appeal the dismissal of its amended counterclaim because it did not request leave to amend to allege an alter ego theory of liability as to Hicks and Glass. Continental may not appeal the order striking the counterclaim against Import since it was not final and appealable and Continental was given leave to replead. Glass contends therefore that only the dismissal of the third party complaint with prejudice is the subject of this appeal.

Hicks contends that the sole issue presented for review is whether the trial court erred in dismissing the third party complaint of Continental against Hicks and Glass pursuant to section 2-615 (Ill.Rev.Stat.1987, ch. 110, par. 2-615) for failing to conform to the requirements of section 2-406(b). (Ill.Rev.Stat.1987, ch. 110, par. 2-406(b).) Import Sales, Inc. brought suit against Continental Bearings Corporation and its parent company, Treesdale, Inc., for breach of a contract and breach of a subsequent settlement agreement and for compensatory and exemplary damages. Continental filed a combined counterclaim against Import and a third party complaint against Hicks, subsequently amended to include Glass. The trial court dismissed Continental's amended third party complaint with prejudice on the 2-615 motion of Hicks and Glass pursuant to section 2-406(b) of the Illinois Code of Civil Procedure (Ill.Rev.Stat.1987, ch. 110, pars. 2-615, 2-406(b)) on the ground that the pleading was not a proper third party complaint.

Continental appealed and expands the issues for our determination to the following considerations: (1) whether the claims alleged against the individual defendants Hicks and Glass in the third party complaint should have been considered a counterclaim under Illinois Code of Civil Procedure sections 2-608 and 2-614(a), (Ill.Rev.Stat.1987, ch. 110, pars. 2-608, 2-614(a)), because these defendants were the alter egos of the original plaintiff corporation; (2) whether Continental's counterclaim was sufficiently related to the plaintiff's claim to be maintained as a third party complaint under section 2-406(b) (Ill.Rev.Stat.1987, ch. 110, par. 2-406(b)); (3) whether Continental's amended counterclaim sufficiently alleged a claim for indemnity or contribution to meet the requirements of section 2-406(b) as a third party action; (4) whether Hicks and Glass are necessary parties to the action; and (5) whether the trial court erred in dismissing the amended counterclaim and third party complaint with prejudice.

The complaint filed by Import against Continental and Treesdale alleged that on October 28, 1985, Import agreed to purchase from Continental a large quantity of ball bearings for the price of $240,000, and that the purchase price was paid on that date; that Continental was to segregate and warehouse the bearings without additional cost to Import; that from time to time Continental would sell the bearings at a price that would result in a profit to Import and recoupment of Import's initial investment within "a few months"; that Continental would give first priority to resale of these bearings; if Import's investment was not recouped within "a few months" Import reserved the right to remove the bearings or to require Continental to repurchase them at their price plus a profit and interest.

The complaint further alleged that from time to time the bearings were sold but no payment was made to Import. Upon repeated demand by Import, Continental provided an accounting in July 1986, and thereafter Import demanded either payment or delivery of the bearings. Continental agreed to deliver the bearings but Treesdale, as the parent company and new owner, directed Continental to retain them. Import alleged that Continental advised plaintiff that Treesdale directed Continental to change the original agreement on the company books to reflect a $240,000 advance by Import to Continental in lieu of a purchase agreement and that plaintiff believed this was done to obtain financing using the bearings as security for a loan to Continental. Import contends it did not agree to a rescission of the original contract. In August or September 1986, Continental proposed to settle the claim by paying Import on or before September 26 an amount equal to the purchase price plus interest due plus $48,000, if plaintiff would withhold filing suit and Import agreed to these terms. Nothing was paid, no bearings were returned and plaintiff filed suit seeking in count I a judgment against both defendants for $320,000 plus additional interest from February 28, 1987, as compensatory damages for breach of contract, and in count II, a judgment against Treesdale for an additional $15,000 in exemplary damages based on defendant's alleged malicious conversion of the bearings and sale proceeds, its inducement of Continental to breach its contract with plaintiff, and misrepresentation as to the settlement agreement.

Continental and Treesdale filed a motion to dismiss the complaint and also filed an answer of general denial of plaintiff's claim and raised four affirmative defenses alleging (1) that Ray Hicks, as president of Continental at all times relevant and until April 1987, and as a shareholder of Import, was guilty of a conflict of interest and breach of fiduciary duty in that he actively participated in a plan of corporate waste, self-dealing, mismanagement and diversion of corporate business opportunities from Continental to Import; (2) that Hicks and Import fraudulently concealed his interest in Import to induce Continental to rely on Hicks to its detriment, as a result of which Continental was defrauded and damaged; (3) that Hicks advised Continental that he had personally paid off the $240,000 by virtue of loans he had obtained, and therefore his statement was an admission against the interests of Import and the amount was no longer due and owing to plaintiff; (4) that the transactions complained of are barred by the statute of frauds; and therefore that Import's recovery was barred for all of these reasons.

In addition to its answer to the complaint, Continental filed a combined counterclaim and third party complaint against Import and Hicks which pleading was stricken on plaintiff's motion. By subsequent amendments Continental filed its amended counterclaim and third party complaint against Import, Hicks and Glass, wherein Continental alleged a conspiracy by Import, Ray Hicks and Walter Glass to defraud Continental and to divert corporate business opportunities from Continental to Import, which alleged conspiracy spanned the years 1977 to 1987. The counterclaim and third party complaint alleged numerous specific instances of improper and unauthorized conduct by Hicks including but not limited to the underlying $240,000 transaction on which the original complaint is based and alleged that all such conduct was undertaken by Import, Hicks and jointly by Hicks and Glass as Import's alter ego with intent to injure Continental and to effectively destroy Continental as a viable business entity. The prayer of the combined amended counterclaim and third party complaint sought an accounting, compensatory and punitive damages and the imposition of a constructive trust in favor of Continental on the profits of Import and on the interest paid by Continental to Import, Hicks and Glass.

Import and Glass filed motions to dismiss the amended counterclaim and amended third party complaint...