Logan v. 3750 North Lake Shore Drive, Inc.

• Decision Date: 07 February 1974
• Docket Number: Nos. 57494,57605,s. 57494
• Citation: 17 Ill.App.3d 584,308 N.E.2d 278
• Parties: Cyrel D. LOGAN, Plaintiff-Appellant, v. 3750 NORTH LAKE SHORE DRIVE, INC., a corporation, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 278

308 N.E.2d 278

17 Ill.App.3d 584

Cyrel D. LOGAN, Plaintiff-Appellant, v. 3750 NORTH LAKE SHORE DRIVE, INC., a corporation, Defendant-Appellee.

Nos. 57494, 57605.

Appellate Court of Illinois, First District, Third Division.

Feb. 7, 1974.

Harold Stotland, Edward S. Margolis, Teller, Levit & Silvertrust, Chicago, for plaintiff-appellant.

Rudnick, Wolfe, Snyderman & Foreman, Chicago, for defendant-appellee; Lester D. Foreman, Stanley N. Gore, Chicago, of counsel.

MEJDA, Justice.

Plaintiff, a shareholder-lessee of a cooperative apartment, commenced this action against the lessor corporation seeking a declaration of her rights relative to the subletting of her apartment and for damages for defendant's refusal to consider and approve a prospective sublessee. The case was tried without a jury. The trial court sustained defendant's motion for a finding and judgment at the close of plaintiff's case and entered an order dismissing the suit. Plaintiff appeals from that order.

In April of 1966 plaintiff purchased 124 shares of capital stock of defendant corporation, 3750 North Lake Shore Drive, Inc., and also executed a Stockholders Proprietary Lease for the right to occupy apartment 2--H. In January 1969, plaintiff wished to sublet her apartment for the period commencing in the summer of 1969 and ending in the summer of 1970, and submitted a written request to the Board of Directors pursuant to the provisions of Article II, paragraph 6(b) of the Stockholders Proprietary Lease. ^*

No action was taken at the special meeting of the Board of Directors held on January 20, 1969. At the meeting on February 11, 1969, the Board tabled plaintiff's request 'until additional information' was received by the Board. On April 21, 1969, plaintiff submitted to the Board a written request for approval of Mr. and Mrs. Joseph Herr as prospective sublessees. A special meeting of the Board was held on April 29, 1969. The minutes of that meeting contain the following:

'Before considering the application of the proposed sublessee, the (Applications) Committee considered the desirability of approving the subleasing of apartments. In accord with the long-established policy of the building. The Committee decided not to approve the request of Mrs. Logan to sublet her apartment. The Committee therefore did not review the application of the sublessee and recommended to the Board that the application of Mrs. Logan to sublet apartment 2--H for a period of one year be disapproved.'

The recommendation of the Applications Committee was unanimously adopted by the Board. On May 1, 1969, plaintiff delivered to the president of the defendant corporation a letter requesting a general meeting of the shareholders pursuant to Article II, paragraph 5 of the above lease. Paragraph 5 provides, Inter alia, that the decision of the Board is final, except that the aggrieved shareholder, within five days after notice of such decision, 'may appeal from the decision to the stockholders of the lessor,' by giving the president written notice of appeal. Under this provision, the president is required to call a special meeting of the stockholders. Their decision is final and conclusive. The record shows that such a meeting was never called.

Prior to the trial, plaintiff moved for a summary judgment. Defendant, in opposition to the motion, filed an affidavit of its president, stating in part that plaintiff had abandoned her request for a special meeting of the stockholders and had affirmatively advised the affiant that she did not wish to have such a meeting called. Plaintiff's motion was denied.

In the order entered by the court on January 31, 1972, dismissing plaintiff's proceedings, the court found that plaintiff failed to introduce sufficient evidence to establish a Prima facie case for relief in the nature of a declaratory judgment or for the assessment of any damages against the defendant. During the discussion which followed defendant's motion for a finding in its favor, the court reasoned that plaintiff's evidence was insufficient to establish a Prima facie case for declaratory judgment as prayed in Count I of the amended complaint insofar as the Stockholders Proprietary Lease was not ambiguous in its terms as to the procedure to be followed in the event the Board of Directors denied a request to sublease an apartment. The court further stated that if the Board failed or refused to call a meeting of the stockholders, plaintiff's remedy would be to file a suit for a writ of mandamus to compel the Board to call such a meeting. As to the finding for defendant on Count II of plaintiff's amended complaint (damages for breach of contract), the court explained: 'First of all, she has to exhaust her remedies under the contract by asking that the Board of Directors be forced to call a meeting, and she has no damages until they act.'

On appeal plaintiff contends:

1) that according to the provisions of the lease she is not required to appeal to the stockholders from an adverse decision of the Board of Directors prior to the commencement of a suit for declaratory judgment and damages;

2) that the power of the Board of Directors to withhold its consent to a proposed sublease must be reasonably exercised; and

3) that the finding of the court is inconsistent with the evidence in that she exhausted all of her internal remedies by requesting the Board to convene a special meeting of the stockholders.

Defendant maintains that a member of a voluntary organization, before bringing a lawsuit, must exhaust his remedies within the organization, and that the refusal to approve the sublease by the Board of Directors was generally reasonable in light of the needs and purposes of the cooperative arrangement.

It is well established that members of voluntary associations are required to exhaust their internal remedies prior to instituting legal action to enforce certain rights. Johnson v. Schuberth, 40 Ill.App.2d 467, 476, 189 N.E.2d 768. A member of a voluntary association necessarily agrees to the reasonable rules and regulations of the order. However, there are exceptional circumstances in which a court may intervene without the aggrieved party having exhausted his organization's remedies. Michel v. Carpenters' District Council, 12 Ill.App.2d 510, 513, 140 N.E.2d 299. In Hill v. Mercury Record Corp., 26 Ill.App.2d 350, 358, 168 N.E.2d 461, we held that provisions which do not involve compulsory arbitration nor afford an exclusive remedy and only require exhaustion of internal remedies prior to the maintenance of legal proceedings will be enforced. Furthermore, as noted in Hill and Michel, supra, the cases where the requirement of exhaustion of remedies is enforced are usually cases dealing with the internal discipline of the organization itself.

In support of their respective positions, both plaintiff and defendant cite and rely upon the case of People ex rel. Keefe v. Women's Catholic Order of Foresters (1896), 162 Ill. 78, 44 N.E. 401. In that case, plaintiff sought by writ of mandamus to compel the organization to restore her membership in the society after she had been expelled by the 'high court.' Although the by-laws of the society provided plaintiff with the right to appeal the expulsion at the next annual session, she did not avail herself of that remedy but, instead, filed her petition for a writ of mandamus. The court, in denying her petition, held at page 83, 44 N.E. at page 403:

'Where the controversy is concerning the discipline or policy or doctrine of the order or fraternity, the member must resort to the method of procedure prescribed by the association including the remedy by appeal, before invoking the power of the courts.'

Distinguishing between controversies concerning proprietary rights of members and controversies concerning the discipline, policy or doctrine of the association, the court in Keefe at page 84, 44 N.E. at page 403 quoted from Zeliff v. Knights of Pythias, 53 N.J.Law 536, 22 A. 63:

"In determining whether courts will take jurisdiction (prior to exhaustion of internal remedies by the aggrieved party), a distinction must be observed between cases in which the association subjects its members to discipline for immoral conduct or for violation of the rules of the order, and those instances in which the member appeals to the court to secure property rights or to enforce money demands."

The rationale underlying the above distinction is obvious. As a general rule the courts were reluctant to allow individuals and associations to preempt the courts of their jurisdiction to settle controversies. Such preemption was contrary to public policy. Johnson v. Schuberth, Supra. However, as an exception to the general rule, members of voluntary associations were Required to exhaust their internal remedies prior to the commencement of legal proceedings to adjudicate and enforce their rights. With regard to discipline, policy or doctrine of an association, the doctrine of exhaustion of internal...