Mensik v. Smith

• Decision Date: 22 January 1960
• Docket Number: No. 35305,35305
• Citation: 166 N.E.2d 265,18 Ill.2d 572
• Parties: C. Oran MENSIK et al., Appellees, v. Elbert S. SMITH, Auditor of Public Accounts, et al., Appellants. (John Selskyet al., Intervenors, Appellees.)
• Court: Illinois Supreme Court

Page 265

166 N.E.2d 265

18 Ill.2d 572

C. Oran MENSIK et al., Appellees, v. Elbert S. SMITH, Auditor of Public Accounts, et al Appellants. (John Selskyet al., Intervenors, Appellees.)

No. 35305.

Supreme Court of Illinois.

Jan. 22, 1960.

Rehearing Denied March 28, 1960.

Grenville Beardsley, Atty. Gen., Springfield, Barnabas F. Sears, and William S. Bodman, Spec. Asst. Attys. Gen., for appellants.

William A. Cunnea and L. A. Wescott, Chicago (John A. Brown, Chicago, of counsel), for appellees.

George S. Lavin and Rosenthal & Schanfield, Chicago (William P. Rosenthal, Leonard Schanfield, and Marshall G. Fields, Chicago, of counsel), for intervenors-appellees.

KLINGBIEL, Justice.

The defendants, Elbert S. Smith as Auditor of Public Accounts of the State of Illinois and Conrad F. Becker as Director of Financial Institutions of the State, appeal directly to this court from a decree of the circuit court of Cook County enjoining the Auditor from further custody of City Savings Association, requiring defendant Auditor to restore to the association certain special assistant Attorney General fees and other costs which had been paid and refusing to allow additional attorney fees.

The action was instituted by plaintiffs as officers of the association pursuant to section 7-12 of the Illinois Savings and Loan Act of 1955 (Ill.Rev.Stat.1957, chap. 32, par. 852) to enjoin further custody by the Auditor and for the entry of such further order as the court may deem in equity and good conscience. Intervenors petitioned the court on behalf of shareholders for an order re-opening the association and retaining jurisdiction to implement whatever decree the court should enter. Intervenors also petitioned the court for an order directing repayment of fees and costs to the association.

In 1908 City Savings Association was chartered by the State of Illinois to transact business as a savings and loan association. From its creation the association transacted its business pursuant to applicable law, free from any written criticism by the State Auditor, with no questions or objections raised regarding its operations or valuations until April 16, 1957. Elbert S. Smith was elected Auditor of Public Accounts of the State of Illinois in November, 1956, and took office as such on January 14, 1957. He caused an examination of the association to be instituted on February 18, 1957, which concluded on March 8, 1957.

The report of such examination was placed in the mail addressed to the officers and directors of the association on April 16, 1957, and was received by the association on April 18, 1957. Accompanying the report of examination was a letter of transmittal criticizing certain practices and challenging certain appraisals and valuations of the association. The letter specified 30 days as the 'reasonable' time required by statute within which the critcized practices were to be corrected, and the report bore on its face a legend that it was strictly confidential.

Late in the afternoon of April 23, 1957, one of the plaintiffs, C. Oran Mensik, filed a lawsuit against the defendant Smith as Auditor and others, which suit made no reference to and did not involve City Savings Association. Prior thereto on the same day the Auditor of Public Accounts released the report of examination and the letter of criticism to the Chicago Press. On the following day, April 24, 1957, the association was open and doing business as usual up to the close of business at noon. At 5:00 P.M. that day there appeared in one of the daily newspapers of Chicago a headline and article reading in part, as follows:

'Find Three NW Side Savings Firms of Hodge Pal Short 2 Million'

'Smith said his examiners will be on hand Trursday morning. He said if a run develops, the State will step in and may invoke a by-law which requires 60 day notice for withdrawals over $500.00.

'The confidential report noted that Mensik conducted his business in such a way 'that the Auditor may well be justified in a finding that the business of the Association is being conducted in a fraudulent, illegal and and unsafe manner."

On the morning following the news story, that is, on April 25, 1957, a run occurred on the association and a crew of examiners and a photographer previously sent by the Auditor were on hand. The photographer had been instructed to take pictures every half hour. At 12:45 P.M. the Auditor took custody of the association. At that time there was in excess of $270,000 cash on hand and, in addition, $1,000,000 was available by a previously committed loan from the Federal Home Loan Bank of which the Auditor was aware.

On April 30, 1957, plaintiffs filed their action as officers of the association to enjoin further custody. The court referred the matter to a master in chancery, who proceeded with hearings from June 17, to August 9, 1957, and filed his findings of fact and conclusions of law on August 22, 1957. Thereafter oral arguments were had before the court on objections to the master's report.

On October 15, 1957, intervenors filed their petition for leave to intervene on behalf of stockholders, praying for reopening of the association and for retention of jurisdiction by the court, which intervention was allowed.

On December 6, 1957, the trial court entered a decree which adopted most of the master's findings and specifically found that the association was solvent at the time the Auditor took custody and had remained so throughout the proceedings; that association earnings had been substantially in excess of dividend requirements at all relevant times; that no emergency existed prior to the run on the association on April 25, 1957; that such run was the direct result of the publication of the news article on April 24, 1957; that such publication was the direct consequence of the Auditor of Public Accounts furnishing the confidential report of examination to the newspapers on April 23, 1957; that the Auditor expected that after publication by the press of such report an emergency would arise at the association and he prepared for such eventuality; and that the taking of custody by the Auditor prevented the officiers and directors from complying with any of the requirements or correcting any of the practices objected to by the Auditor.

The decree of December 6, 1957, ordered that (1) the officers and directors of the association be permitted to immediately resume control of the operation and management thereof subject to continued jurisdiction of the court; (2) the Auditor of Public Accounts and all his employees, etc., be enjoined until further order of the court from custody and management of the association; (3) the Auditor account to the court for receipts and disbursements of the association during the period he was in custody thereof; (4) the Auditor return custody of the association to its officers and directors, subject to continued jurisdiction of the court; and (5) the officers and directors of the association, under the supervision of the court, undertake to perform certain specified undertakings with respect to conservation of assets, additional reverse requirements, management, officers' escrow accounts, leases of space in the association building and other matters.

Defendant Auditor filed a motion to vacate the decree which was denied. Prior thereto, the Auditor had applied to this court for leave to file a petition for writ of mandamus which was denied June 13, 1957. On December 26, 1957, the Auditor filed in this court a motion for leave to file a second petition for mandamus which was denied. On December 31, 1957, the Auditor filed notice of appeal to this court from the December 6, 1957, decree, which appeal was dismissed as not being a final appealable order under section 50(2) of the Civil Practice Act, Ill.Rev.Stat.1957, c. 110, § 50(2). In September, 1958, defendant Auditor filed a third petition for writ of mandamus for an order to require the expunging of the December 6, 1957, decree, which petition was dismissed as moot on March 10, 1959, after entry by the trial court of a final decree on February 3, 1959. Defendant Auditor never appealed the interlocutory injunction to the Appellate Court.

Custody of the association was restored to its officers and directors pursuant to the decree of December 6, 1957. From time to time plaintiffs made reports to the master in accordance with the decree. Such reports showed compliance with all requirements except those relating to procuring insurance of share accounts which the court had recommended but had not made mandatory, and the disposition by plaintiff Mensik of his stock holdings in the First Guarantee and Chicago Guarantee Savings associations. Defendant Auditor was given the opportunity to file objections to such reports and the master from time to time imposed further requirements as a result thereof. In the period between restoration of custody on December 6, 1957, and the entry of final decree on February 3, 1959, the association received substantial new saving deposits, paid dividends to its shareholders for 1957 and 1958, distributed Christmas savings accounts to its shareholders, permitted depositor withdrawals of $5,000,000 and paid $1,000,000 on its loan from Federal Home Loan Bank.

On July 1, 1958, defendant Becker, as Director of Finance, succeeded to the powers and responsibilities of the Auditor of Public Accounts under the Savings and Loan Act, entered his appearance herein and was added as a defendant. Subsequent to restoration of custody, both Auditor Smith and Director Becker made further examinations of the association. Defendant Becker granted the association permission to sell $6,500,000 of mortgages at par to raise funds for further mortgage loans, and they were so sold.

Prior to entry of the final decree, intervenors had filed a petition for entry of an order directing the defendant Auditor to repay to the association certain fees and disbursements withdrawn from...