Meyers v. Underwood

• Decision Date: 27 June 2000
• Docket Number: No. 1-98-4013, No. 1-99-0504.
• Citation: 250 Ill.Dec. 154,316 Ill.App.3d 970,738 N.E.2d 118
• Parties: David R. MEYERS and Frederick C. Meyers, Plaintiffs-Appellants, v. Henry J. UNDERWOOD, Jr. and Defrees & Fiske, Defendants-Appellees. David R. Meyers and Frederick C. Meyers, Plaintiffs-Appellees, v. Vedder, Price, Kaufman & Kammholz, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

738 N.E.2d 118

316 Ill.App.3d 970

250 Ill.Dec. 154

David R. MEYERS and Frederick C. Meyers, Plaintiffs-Appellants, v. Henry J. UNDERWOOD, Jr. and Defrees & Fiske, Defendants-Appellees.

David R. Meyers and Frederick C. Meyers, Plaintiffs-Appellees, v. Vedder, Price, Kaufman & Kammholz, Defendant-Appellant.

Nos. 1-98-4013, 1-99-0504.

Appellate Court of Illinois, First District, Second Division.

June 27, 2000.

Rehearing Denied November 9, 2000.

Peter C. Woodford, Christopher E. Paetsch, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, for David Meyers & Frederrick Meyers.

Matthew J. Gehringer, Melisa G. Thompson, Cahill, Christian & Kunkle, Ltd., Chicago, for Vedder, Price, Kaufman & Kammholz.

Michael J. Flaherty, Richard J. Jacobson, Flaherty & Jacobson, P.C., Chicago, for Underwood & Defrees & Fiske.

Justice GORDON delivered the opinion of the court:

In the first of these two consolidated legal malpractice cases, plaintiffs David R. Meyers and Frederick C. Meyers (the Meyers) appeal from orders of the Cook County circuit court granting summary judgment to defendants Henry J. Underwood, Jr., and Defrees & Fiske (Defrees), and denying the Meyers' motion to reconsider. In the second case, defendant Vedder, Price, Kaufman & Kammholz (Vedder) appeals from a Cook County circuit court order denying its motion to dismiss the Meyers' complaint. The Vedder case is being appealed pursuant to Supreme Court Rule 308(a) (155 Ill.2d R. 308(a)) upon submission by the trial court of two certified questions.¹ For the reasons set forth below, we affirm the granting of summary judgment in favor of Underwood and Defrees. In the Vedder appeal, we answer the first of the two certified questions in the affirmative as to section 13-214.3 of the Code of Civil Procedure (735 ILCS 5/13-214.3 (West 1992)), and we therefore reverse the denial of Vedder's motion to dismiss the Meyers' complaint.

BACKGROUND

The first of these two consolidated actions, both of which are for legal malpractice, was filed on October 27, 1995. In that action, plaintiffs David R. Meyers and Frederick C. Meyers (the Meyers) brought a complaint against defendants Defrees & Fiske, a Chicago law partnership, and Henry J. Underwood, Jr., an attorney with Defrees. Defendants (hereinafter referred to collectively as Defrees) had been retained by the board of Joanna Western Mills (Joanna) allegedly to assist in the sale of Joanna, a closely held, family-owned company in Chicago that manufactured interior window coverings. Count I of the complaint sounds in negligence and count II sounds in tort. According to the complaint, defendants failed to properly draft sale documents and incorrectly advised the Meyers with respect to the 1986 sale of Joanna to Kenner & Company (Kenner). As a result, a judgment of $1,626,555 was entered (on September 7, 1994) against the Meyers in a 1987 shareholders suit arising from the 1983 sale of 600 shares of Joanna stock to the Meyers. That judgment amount was subsequently increased to $4,359,900 as a result of an appellate court opinion issued April 22, 1997, in Regnery v. Meyers, 287 Ill.App.3d 354, 223 Ill.Dec. 130, 679 N.E.2d 74 (1997) [hereinafter Regnery II], In the instant suit, which was filed prior to the decision in Regnery II, the Meyers, two brothers who were officers and directors of Joanna, sought damages in excess of $2 million.

The second of these consolidated actions was filed by the Meyers against defendant Vedder, Price, Kaufman and Kammholz (Vedder), a Chicago law firm that was Joanna's corporate counsel from 1981 through the fall of 1986. The complaint was filed on March 17, 1998, but because of a tolling agreement executed by the Meyers and Vedder on December 16, 1994, that earlier date (December 16, 1994) is the effective filing date. The complaint is brought against Vedder in connection with a 1981 voting trust and the previously mentioned 1983 sale of 600 shares of Joanna stock to the Meyers for $500 per share. The complaint, consisting of four counts, alleges that Vedder failed to draft properly the voting trust and failed to give proper advice as to the trust and the Meyers' 1983 purchase of Joanna stock. Counts I and III sound in negligence, and counts II and IV allege breach of contract. The Meyers claim damages in excess of $5,289,324.01, which is the amount they paid (on January 20, 1998) in satisfaction of the judgment entered in the previously mentioned shareholder litigation. That amount represents the $4,359,900 judgment resulting from the decision in Regnery II plus post-judgment interest and costs.

These two consolidated cases arise from the same facts, which are largely undisputed.² In 1981 Joanna was experiencing severe financial losses. Following a number of meetings in mid-August to discuss the situation, Joanna President William Regnery resigned. Shortly thereafter, Frederick Meyers was named president of Joanna and David Meyers was named vice president. The August 1981 meetings also led to creation of a voting trust agreement among certain of Joanna's shareholders. The agreement was drafted by Vedder attorney Robert J. Stacker³ and other Vedder attorneys working under his supervision. Frederick Regnery, Henry Regnery and David Meyers were named the trustees of the voting trust, which included 3,745 shares, or slightly more than half the outstanding and issued shares of Joanna stock. Those shares were deposited into the trust by Verla Regnery, one of Joanna's majority shareholders. (Regnery II, 287 Ill.App.3d at 357, 223 Ill.Dec. 130, 679 N.E.2d at 76.)

In 1983, Stucker suggested to Fred Meyers that it would be appropriate for Fred and his brother, David, to be allowed to purchase stock in Joanna for $500 per share, a price that Stucker said was consistent with recent sale and purchase transactions among shareholders. Stucker was directed by Joanna to advise the company on the structure and manner in which the proposed sale of shares to the Meyers would be presented, approved and implemented, and to draft the necessary documentation. On September 13, 1983, Joanna's board authorized the issuance of 600 shares of stock to be sold to the Meyers at $500 per share, and on September 26, 1983, the sale was approved by the stockholders. All of the shares in the voting trust were counted in favor of the sale, even though the voting trust proxy was executed by only two of the trustees, David Meyers and Henry Regnery. Frederick Regnery, the third trustee, did not approve the sale and did not execute the proxy. Stucker and other Vedder attorneys drafted all of the documentation used to propose and approve the sale of shares to the Meyers.

According to the Meyers, in 1986 negotiations began for the sale of Joanna. The Meyers allege that in March or April of 1986, Defrees was retained as special counsel to Joanna's board to assist in the sale. Separate proposals for the purchase of Joanna's stock were submitted by Kenner & Company (Kenner) and by a group that included Frederick Regnery, the voting trust trustee who did not approve the 1983 sale of shares to the Meyers. On September 3, 1986, Joanna Chairman Henry Regnery sent a letter to Joanna stockholders informing them that, on August 21, 1986, Joanna had entered into an acquisition agreement calling for the acquisition of all of Joanna's stock by Kenner for $58 million in cash. The letter stated that the stockholders would receive $7,766 for each share, of which $7,097 was to be paid to the stockholders at closing and $669.50 was to be held in escrow to pay undisclosed company obligations. Attached to the letter were transactional documents prepared by Defrees, including an agreement of merger, an escrow agreement, an agency agreement, and a consent agreement. On September 12, 1986, the majority of Joanna's shareholders executed the consent agreement, thereby approving the Kenner acquisition and (in accordance with the agency agreement) designating Alfred Regnery as the shareholders' agent in connection with the acquisition. The sale closed in October 1986.

In July 1987, certain former Joanna shareholders, including several Regnery family members (the Regnerys), sued the Meyers, alleging that the 1983 sale of 600 Joanna shares to David and Fred Meyers constituted a common law breach of trust and a breach of the express terms of the 1981 voting trust agreement. The Meyers contacted Alfred Regnery, the shareholders' agent, and requested that he release them from the shareholders' claims against them pursuant to the agency and consent agreements prepared by Defrees. Regnery II, 287 Ill.App.3d at 359, 223 ULDec. 130, 679 N.E.2d at 77. Alfred subsequently filed a declaratory judgment action in Cook County circuit court requesting authorization to release the Meyers from the shareholders' claims in the 1987 suit. Regnery II, 287 Ill.App.3d at 359, 223 Ill.Dec. 130, 679 N.E.2d at 77. The shareholders' suit and Alfred's complaint were consolidated, and both Alfred and the shareholder plaintiffs filed cross-motions for summary judgment. The trial court granted Alfred's motion, thus allowing him to release the Meyers from the claims. On appeal, that decision was reversed. The appellate court found that the agency agreement did not authorize Alfred to release the Meyers from the shareholders' claims, and it remanded the case for "entry of judgment for the Regnerys on Alfred's declaratory judgment complaint and for further proceedings in the Regnerys' breach of trust action [against the Meyers]." Regnery v. Regnery, 211 Ill.App.3d 607, 616, 156 ULDec. 81, 570 N.E.2d 557, 563 (1991) [hereinafter Regnery I ].

In its 1994 final judgment order in the 1987 shareholders' litigation (following a bench trial), the trial court; found that the $500-per-share price the Meyers paid for the stock in 1983 was "substantially below its fair value" and that at the time they acquired the stock the Meyers knew it was worth substantially more. The court found that "[t]he...