Nelson v. Quarles & Brady, LLP

• Decision Date: 30 September 2013
• Docket Number: Docket No. 1–12–3122.
• Citation: 2013 IL App (1st) 123122,997 N.E.2d 872,375 Ill.Dec. 561
• Parties: Kenneth A. NELSON, Plaintiff–Appellant, v. QUARLES AND BRADY, LLP, Defendant–Appellee.
• Court: United States Appellate Court of Illinois

2013 IL App (1st) 123122

997 N.E.2d 872

375 Ill.Dec. 561

Kenneth A. NELSON, Plaintiff–Appellant,

v.QUARLES AND BRADY, LLP, Defendant–Appellee.

Docket No. 1–12–3122.

Appellate Court of Illinois, First District, Fourth Division.

Sept. 30, 2013.

Stewart M. Weltman, of Stewart M. Weltman LLC, and Martin J. Oberman, of Law Offices of Martin J. Oberman, both of Chicago, for appellant.

Michael T. Trucco and Megan T. Hughes, both of Stamos & Trucco LLP, of Chicago, for appellee.

OPINION

Justice EPSTEIN delivered the judgment of the court, with opinion.

¶ 1 This case involves an action for legal malpractice filed by plaintiff Kenneth A. Nelson against defendant Quarles & Brady, LLP, the law firm that represented him in a federal action involving a dispute concerning the terms of a stock purchase agreement between plaintiff and his former business partner, Richard Curia. Plaintiff filed this appeal after the circuit court dismissed his third amended complaint with prejudice pursuant to section 2–615 of the Code of Civil Procedure (735 ILCS 5/2–615 (West 2010)) for failing to state a cause of action. For the reasons that follow, we reverse and remand.

¶ 2 BACKGROUND

¶ 3 For purposes of our review of the ruling on defendant's motion to dismiss, where the legal sufficiency of the complaint has been attacked, we accept as true the allegations in plaintiff's third amended complaint. See Imperial Apparel, Ltd. v. Cosmo's Designer Direct, Inc., 227 Ill.2d 381, 384, 317 Ill.Dec. 855, 882 N.E.2d 1011 (2008); River Park, Inc. v. City of Highland Park, 184 Ill.2d 290, 293, 234 Ill.Dec. 783, 703 N.E.2d 883 (1998). We also interpret the allegations in the light most favorable to plaintiff. Imperial Apparel, Ltd., 227 Ill.2d at 384, 317 Ill.Dec. 855, 882 N.E.2d 1011.

¶ 4 Underlying Contractual Dispute Between Plaintiff and Richard Curia

¶ 5 According to the allegations of plaintiff's third amended complaint, he was the beneficial owner of a majority of shares in two corporations that owned two car dealerships, Ken Nelson AutoPlaza, Inc. (AutoPlaza), and Ken Nelson AutoMall, Inc. (AutoMall). A dispute arose between plaintiff and Richard Curia, with whom plaintiff had contracts that included a written 1989 stock purchase agreement, a written 1993 modification agreement, and an oral 2004 agreement. The dispute involved Curia's attempt to exercise certain options in the 1989 agreement. Curia claimed it entitled him to purchase shares in the two car dealerships, which would force plaintiff to sell his majority interests in the dealerships and the land upon which they were situated. Plaintiff claimed that the 1989 agreement was inoperative and unenforceable. Specifically, plaintiff alleged that, within a month of its execution, both he and Curia “embarked on a course of conduct over a period of years that materially departed from the terms of the 1989 [agreement] in deed and words, all of which made it impossible for the three 1989 [agreement's] options to be exercised in accordance with their terms.”

¶ 6 The 1989 agreement was attached to plaintiff's complaint. As plaintiff notes, the agreement recited that plaintiff was the sole owner of all of the outstanding shares of capital stock in the dealerships, and that, as of that date, AutoPlaza had 8,180 shares, and AutoMall had 1,200 shares. The 1989 agreement provided that plaintiff agreed “to sell, assign, transfer, and convey to [Curia] all right, title and interest in and to 1000 shares of capital stock in [AutoPlaza] and 144 shares of capital stock in [AutoMall].” The purchase price was $100,000 and the closing date was to be on or before February 15, 1989. Plaintiff notes that this would have resulted in plaintiff retaining 7,180 shares of Plaza stock and 1,056 shares of Mall stock.

¶ 7 The 1989 agreement also gave Curia a series of three additional, successive options to purchase the remaining shares. Specifically, paragraph 4 provided that Curia had an initial option to purchase an additional 1,000 shares of capital stock in AutoPlaza and 144 shares of capital stock in AutoMall for an additional $100,000. Plaintiff notes that this would have resulted in plaintiff retaining 6,180 shares of Plaza stock and 912 shares of Mall stock, while Curia would have owned 2,000 shares of Plaza stock and 288 shares of Mall stock. After exercising this initial option, Curia could exercise the next option.

¶ 8 The second option provided that Curia could “purchase from [plaintiff] an additional 2,009 shares of capital stock of [AutoPlaza] and 300 shares of capital stock in [AutoMall] which shares with previous purchased shares would represent 49% of the issued and outstanding shares of capital stock in said corporations.” The purchase price for these shares was to be based on a defined valuation formula and was to “be determined by adding to the total net worth of each corporation a sum representing fifty (50) per cent of the total accumulated depreciation and including the ‘LIFO’ (last in first out) reserve plus twenty (20) per cent of the total ‘LIFO’ reserve and dividing the total sum thereof by the number of shares in each corporation.” This formula required reference to the monthly operating reports issued by General Motors Corporation and Nissan Motor Corporation.

¶ 9 As to the third and final option, paragraph 4 stated: “After exercising the first two options to purchase as provided in this Agreement, [Curia] shall have a third option to purchase from [plaintiff] the remaining 4,171 shares of stock in [AutoPlaza] and 612 shares of stock in [AutoMall], provided that [Curia] also offer to purchase the land and four buildings of [AutoPlaza].” The purchase price of the shares, similar to that of the shares described in the second option, was to be based on a valuation formula. The purchase price of the land and the buildings was to be determined by an appraiser.

¶ 10 The 1989 agreement required Curia to provide notice in writing of his election to exercise each option. The contract also required that he make a lump-sum cash payment to plaintiff of the amount required under the formula 60 days after notice was sent.

¶ 11 Curia subsequently did not pay the initial $100,000 for 1,000 shares of AutoPlaza and 144 shares of AutoMall. Instead, at some point (the complaint contains no date), Curia paid $200,000. Apparently, at some point (the complaint contains no date), “each corporation was re-capitalized such that thereafter [plaintiff] owned 8,000 shares of [AutoPlaza] (instead of 7,180 as specified in the 1989 [agreement] ), and 1,200 shares of [AutoMall] (versus 932 specified in the 1989 [agreement] ).” Curia then “owned 2,000 shares of [AutoPlaza] (versus 1,000 specified in the 1989 [agreement] ) and 300 shares of [AutoMall] (versus 288 specified in the 1989 [agreement] ).

¶ 12 In 1993, plaintiff and Curia executed a modification agreement (the 1993 Modification Agreement), which was also attached to plaintiff's complaint. The agreement recited, in part, that “a mutual mistake was made by [plaintiff] and Curia in determining the fair market value of the capital stock of said corporations and in evaluating the minority interest in said corporations which were intended to be sold by [plaintiff] and purchased by Curia pursuant to paragraph 1 and paragraph 4 of [the 1989 agreement].” The 1993 Modification Agreement further altered the number of shares issued and outstanding and the amounts owned by each which, plaintiff alleges, underscored “the impossibility of transferring the number of shares specified in the 1989 [agreement] options.”

¶ 13 Plaintiff alleges that, in the 1993 Modification Agreement, he and Curia “agreed that the corporations would authorize and issue additional stock so that Curia, without the payment of additional monies, would approximately double his ownership interest in each corporation.” Pursuant to this agreement, Curia obtained an additional 5,306 shares in AutoPlaza (which increased his ownership interest to 47.7%) and an additional 480 shares in AutoMall (which increased his ownership interest to 43.3%).

¶ 14 The 1993 Modification Agreement also contained a paragraph 5, entitled “Purchase of Additional Shares,” which stated:

“Curia shall have the right to purchase additional shares of stock in said corporations upon those terms and conditions subsequently agreed upon by the parties hereto. The purchase price for said additional shares of stock shall be determined by adding to the total net worth of each corporation a figure representing the accumulated ‘LIFO’ (last in first out) reserve and dividing the total sum thereof by the number of shares of each corporation.”

Plaintiff alleges that the effect of this paragraph was that “any future purchase of shares by Curia after 1989 could not be taken pursuant to the 1989 [agreement] because exercise of the 1989 options was no longer possible because both the substantial changes in the number of shares issued and outstanding in each corporation and the substantial changes in the number of shares owned by [plaintiff] and Curia were completely different from and inconsistent with the 1989 [agreement].” Plaintiff further alleges: “Because pursuant to the 1993 Modification, Curia received substantial additional shares in each corporation without paying any additional monies, as a matter of law and fact, after the 1993 Modification, the 1989 [agreement's] Options were completely inoperative and incapable of being exercised in accordance with their own terms.” As an example, plaintiff notes that if Curia had demanded plaintiff sell him 2,009 shares in AutoPlaza—pursuant to the second option in the 1989 agreement—that sale would have resulted in Curia owning more than 49% of AutoPlaza. This result, plaintiff contends, would have made Curia a majority owner and was “clearly contrary to the terms of the option.” Plaintiff further states: “Likewise, if, in order to avoid becoming a majority owner, Curia offered to purchase...