Reiter v. Illinois Nat. Cas. Co.

• Decision Date: 25 March 1946
• Docket Number: Gen. No. 43492.
• Citation: 328 Ill.App. 234,65 N.E.2d 830
• Parties: REITER v. ILLINOIS NAT. CASUALTY CO. et al.
• Court: United States Appellate Court of Illinois

328 Ill.App. 234

65 N.E.2d 830

REITER

v.ILLINOIS NAT. CASUALTY CO. et al.

Gen. No. 43492.

Appellate Court of Illinois, First District, First Division.

March 11, 1946.

Rehearing Denied March 25, 1946.

Appeal from Superior Court, Cook County; Donald S. McKinley, Judge.

Suit by T. H. Reiter against Illinois National Casualty Company and others for an accounting and for the return to plaintiff of certain stock in named defendant. From a decree of dismissal, plaintiff appeals.

Affirmed as to defendant Fidelity Deposit Company of Maryland and reversed and remanded with directions as to other defendants.John A. Brown, of Chicago, of appellant.

Paul H. Heineke, of Chicago, for appellee Illinois Nat. Casualty Co.

Walter T. Day, of Springfield, for appellees Barr and Fitzgerald.

George F. Barrett, Atty. Gen. (William C. Wines, Asst. Atty. Gen., of counsel), for appellee Palmer.

Dent, Weichelt & Hampton, of Chicago, for appellee Fidelity & Deposit Co. of Maryland.

NIEMEYER, Justice.

Plaintiff brought suit for an accounting and for the return to him of certain stock of the Illinois National Casualty Co. (hereafter called the Casualty company) which he claimed was obtained from him by duress and coercion by the defendants Barr, vice-president and principal minority stockholder of the Casualty company, Fitzgerald, the personal attorney for Barr and later attorney for Barr as ‘conservator’ of the Casualty company, and Palmer, Superintendent of Insurance. The Casualty company, and Fidelity Deposit Company of Maryland, surety on Palmer's official bond, were also made defendants. At the close of plaintiff's evidence before the master to whom the cause had been referred, each defendant moved for a finding in his behalf and for a report recommending the dismissal of the amended complaint for want of equity. The master reported, making certain findings of fact and recommending the dismissal of the complaint. The trial court, overruling plaintiff's exceptions, approved the master's report and entered a decree dismissing the complaint. Plaintiff appeals.

Defendants' motions had the effect of submitting the cause on plaintiff's evidence alone. Kanauske v. Clark, 388 Ill. 357, 57 N.E.2d 890. This evidence shows: Reiter, the plaintiff, had been engaged in the insurance business in Chicago since 1911, first in the general brokerage agency business, and from about 1918 to August 1930 as manager of the Reciprocal Insurance Exchange, which was converted into an Illinois corporation (Illinois National Casualty Co.) with a capital stock of $200,000-4,000 shares of a par value of $50, and a surplus of $40,000. Plaintiff owned approximately 75 per cent of the capital stock and was the president of the company. It started in business August 1, 1930. Within a short time the U. & I. Service Company, an Illinois corporation with a capital stock of $5,000, was organized to act as general agent of the Casualty company and other lines of insurance. Plaintiff owned and controlled this company. O. E. Winzer, a certified public accountant specializing in the auditing of insurance companies, was the auditor and financial adviser of plaintiff's companies from 1921 to 1933. The Casualty company and the U. & I. Service Company were formed at his suggestion and under his direction. In 1931 defendant Barr owned the controlling stock of the Eastern Underwriters Corporation of Springfield, Ill., and was in charge of the business of that company. It was attorney in fact for the Eastern Automobile Insurance Underwriters, a reciprocal exchange similar to that operated by plaintiff before the organization of the Casualty company. Winzer was the auditor of the Barr companies. In early March 1931 he suggested the merger of plaintiff's companies and the Barr companies. Following conferences between plaintiff, Barr and Winzer it was agreed that the companies be merged and that a holding company be organized for that purpose; that the stock of this company be divided 55 per cent to plaintiff and approximately 40 per cent to Barr-the exact amount to be determined later by Winzer after the acquisition of all the stock in the Barr companies, and the remaining 5 per cent to Winzer, who was to attend to all details of the merger, the organization of the holding company, liquidation of the Eastern Underwriters Corporation, etc. The Finance and Investment Company was organized as a holding company with a capital stock of 40,000 shares, no par value. The par value of the Casualty company stock was changed to $10 per share and the number of shares increased to 20,000. In March 1931 the Casualty company took over all assets of the Eastern Automobile Insurance Underwriters and assumed all its risks, liabilities, etc. This merger was approved by the Insurance Department of the state. Barr owned 130 shares of the capital stock of the Eastern Underwriters Corporation. Other persons owned the remaining 120 shares. All this stock was exchanged for stock in the Casualty company at the rate of 15 shares of the latter company for one of the former. To effect this change plaintiff delivered to Winzer 4,000 shares of his stock in the Casualty company. Nineteen hundred fifty of these shares were turned over to Barr for his stock, and 1,800 shares were delivered to the remaining stockholders of the Eastern Underwriters for their stock. The stock thus acquired was turned over to the holding company. In April 1931, following the absorption of the Eastern Automobile Underwriters by the Casualty company, the latter company entered into a verbal agreement with the Equitable Adjustment Company of Chicago, a corporation, the capital stock of which was owned by the holding company, whereby the Adjustment company was to handle all loss adjustments of the Casulaty company for 7 per cent of the net premiums received by the latter company. As a part of the merger it was agreed that each of the parties was to transfer to the holding company his shares of stock in the companies involved and that the holding company was to assume loans which plaintiff had obtained from the Lake Shore Trust & Savings Bank and the Cosmopolitan State Bank, both of Chicago, and with Baker Walsh & Co., an investment brokerage company of Chicago, totalling about $70,000. Blocks of plaintiff's stock in the Casualty company totaling 5,050 shares had been deposited with each of the Chicago banks as collateral to secure the respective loans at the bank. Pending completion of the merger and full operation thereunder, plaintiff was to continue payment on these obligations and was to be reimbursed by the holding company for such payments. In May 1933 the books of the holding company showed a credit to plaintifff of approximately $25,000, representing amounts paid by plaintiff on the loans. Plaintiff remained as president of the Casualty company, managing the Chicago office and in full charge of the entire organization of the affiliates and the holding company. Barr became vice-president, managing the Springfield office and in charge of the field and sales agency end of the business. Winzer had a man on the board of directors and was to look after all the investments and advise and counsel relative to the securities and take charge of the auditing and of the financial reports and statements. The business was conducted in apparent harmony until the fall of 1932 when Barr employed Fitzgerald as his personal attorney and began a controversy with plaintiff regarding the conduct of the business of the Casualty company and the completion of the merger.

In December 1932 the Insurance Department commenced an examination of the Casualty company for the period from December 1, 1930 to and including November 30, 1932. This examination was under the direction of Neil Russell of the department. He reported to the defendant Palmer, as acting Director of Trade and Commerce and Superintendent of Insurance, under date of February 23, 1933. He found that the Casualty company settled its just claims promptly and equitably, but that it had paid the Adjustment company $17,465.50 in excess of the amount due under its agreement with the Casualty company; that the loss ratio of the company was normal, its administrative expenses excessive, and that its surplus of $15,795.31 over liabilities appeared small. No other major objections to the condition of the company or its method of doing business were noted.

On March 1, 1933, the Casualty company filed in the Insurance Department at Springfield its annual report for the year 1932. This report was prepared by Winzer and signed in blank by plaintiff and the secretary of the company C. L. Morris. It showed, among the securities held by the Casualty company, $15,000 par value Liberty bonds. May 8, 1933, Russell appeared at the office of the Casualty company in Chicago and asked plaintiff to show him the Liberty bonds shown in the report. Plaintiff replied that the company had no Liberty bonds and that Russell knew it; that he had checked the securities of the company with plaintiff in January and didn't find any Liberty bonds; that the company did not have any. The next day plaintiff received notice to appear at the offices of the Insurance Department in Springfield on May 10. He appeared with his attorney, Mr. Albert Hassell. He there met Barr and his attorney, Fitzgerald, and Morris, the secretary of the company. Fitzgerald introduced them to Palmer, who in turn introduced them to Nelson and Conover of the Insurance Department, stating that Nelson and Conover would conduct the hearing or examination. Palmer took no part in the meeting which followed. Barr, Fitzgerlad, Morris, plaintiff and Hassell, and Nelson and Conover from the department, were present. In answer to inquiries by Conover plaintiff stated that the annual report had been prepared by Winzer and sent to the department by him, and that he, plaintiff, had signed the report in blank; that the company had never had any Liberty bonds;...