Rubin v. Laser

• Decision Date: 10 November 1998
• Docket Number: No. 1-98-0653,1-98-0653
• Parties: , 234 Ill.Dec. 592 Marcia RUBIN, Michelle Gorchow, Jason Gorchow and Stephen Rubin, Plaintiffs-Appellants, v. Jules LASER, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 453

703 N.E.2d 453

301 Ill.App.3d 60, 234 Ill.Dec. 592

Marcia RUBIN, Michelle Gorchow, Jason Gorchow and Stephen

Rubin, Plaintiffs-Appellants, v. Jules LASER, Defendant-Appellee.

No. 1-98-0653.

Appellate Court of Illinois,

First District, Second Division.

Nov. 10, 1998.

Anton R. Valukas, Mark D. Pollack, Jenner & Block, Chicago, Richard S. Huszagh, Cutler & Hull, Chicago, for Plaintiffs-Appellants.

James Erens, James D. Ossyra, Hopkins & Sutter, Chicago, for Defendant-Appellee.

Justice COUSINS delivered the opinion of the court:

Marcia Rubin, one of the plaintiffs in this case, is the sole beneficiary of a trust (Mitchell Trust) created under the will of her father, Mitchell Nechtow. Along with her children, she is also a beneficiary of a trust (Marion Trust) created under the will of her mother, Marion Nechtow. Jules Laser, the defendant, was the executor of both wills and the trustee for both trusts. The Mitchell Trust started with about $710,000, and the Marion Trust started with about $240,000.

In 1993, Laser resigned as trustee, and the plaintiffs, Marcia Rubin, her children Michelle and Jason Gorchow and the successor trustee, Steven Rubin, brought suit alleging multiple improprieties in Laser's administration of the trusts.

The trial court granted summary judgment for Laser on three counts of the complaint. The plaintiffs appeal the award of summary judgment on those counts, pursuant to the trial court's finding under Supreme Court Rule 304(a) (134 Ill.2d R. 304(a)) that there was no just reason to delay an appeal.

The plaintiffs contend that the trial court erred by holding that: (1) Laser's duty of loyalty as a trustee did not obligate him to make additional purchases for the trust of a particular stock in which Laser and the trust already had holdings; (2) the plaintiffs' claim for breach of a stock redemption agreement had been released by an agreement with Laser; and (3) the release had not been procured by duress.

BACKGROUND

The counts that form the basis of this appeal all involve Laser's investments, both personal and in his capacity as trustee, in the First State Bank and Trust Company of Park Ridge (Park Ridge Bank).

In 1975, Laser became aware of an opportunity to buy the Park Ridge Bank. He put together a group of investors, mainly from among his law partners, who could provide the $1.1 million in capital needed. He bought 7,450 shares of stock for himself and 1,603 shares for one the trusts, representing 7.11% and 1.53% of the outstanding shares, respectively. Financing for the deal was put together by Continental Bank. The plaintiffs allege that Laser used the trust assets as collateral for the loans. In any case, soon after the loans were approved, Laser moved the bulk of the trust assets to the Continental Bank.

Laser and his partners received a certain amount of stock as compensation for the services rendered in connection with the purchase of Park Ridge Bank. The amount of stock going to each individual partner was calculated on the basis of the amount of stock that the person had previously purchased. The plaintiffs allege that Laser used the stock he purchased on behalf of the trust in calculating the amount of stock to which he was entitled as compensation.

From the beginning, Laser and his partners had planned to put together a bank holding company. To get approval for this from the Federal Deposit Insurance Corporation, the investors needed more capital. The plaintiffs claim it was in consideration of Laser's deposit of the trust assets in Continental Bank that Continental Bank assisted with the financing for the holding company as well as subsequent Park Ridge Bank stock purchases by Laser.

The investors signed a voting trust agreement, which gave Laser and his law partners authority to vote on behalf of the entire group. Laser and his partners adopted a no-dividend policy in order to promote long-term growth.

The investors also signed a stock redemption agreement. This agreement provided that any shareholder who wished to sell his or her stock was required first to offer it to the other shareholders. The other shareholders Laser acted as chairman of the board of directors of the bank and received substantial compensation for his services. His law firm handled Park Ridge Bank's normal legal work.

[234 Ill.Dec. 595] could purchase a pro rata portion of the available stock based on their current holdings. In this way, the balance of power among the remaining shareholders could be maintained.

The Park Ridge Bank was operated as a private, closely held corporation. The plaintiffs claim that Laser controlled the market for shares. Laser bought stock from other shareholders; however, the sellers did not tell the others as mandated by the stock redemption agreement. Laser neither informed the beneficiaries of these purchases nor bought any stock for the trusts, although it is alleged that he knew the stock was worth much more than he was paying for it. It is also alleged that Laser violated the stock redemption agreement by selling stock without notifying other shareholders.

Plaintiffs allege that Laser failed to segregate the trust funds starting in the late 1970s. After 1987, they contend, he stopped filing separate tax returns for the two trusts and treated the Mitchell Trust as containing all the funds. Plaintiffs contend there has been some difficulty reconstructing where all the funds were due to Laser's failure to keep records and failure to render an accounting.

In 1993, Laser withdrew as trustee and was succeeded by Stephen Rubin, one of the plaintiffs in this suit. The record is unclear concerning which trust owned the bank stock. The plaintiffs allege that Laser has given them contradictory answers on this issue.

Following Laser's withdrawal, Marcia Rubin wished to remove the trust assets from Park Ridge Bank and invest them in a way that would provide more immediate return. She contends that she needed the money in order to provide for her children, one of whom is handicapped. She looked into the possibility of a sale of the bank. She was informed that there was a limited "window of opportunity" to sell the bank at an advantageous price. Laser, the largest shareholder, was opposed to a sale. In order to induce Laser to go along with a sale, other shareholders executed a release of all claims relating to the stock redemption agreement. Stephen Rubin insisted upon an exception to the release indicating that Laser would still be liable for any breaches of his duty as trustee.

Mr. Rubin signed the release as trustee of the "Maria Gorchow Rubin" trust since this was the name on the stock certificates. Mr. Rubin signed the exception agreement accompanying the release as trustee of the "Marion Trust."

The plaintiffs filed this action in December 1993 alleging many violations of Laser's duties as trustee. Laser moved for summary judgment on certain claims regarding Park Ridge Bank. Count VII of the second amended complaint alleged that Mr. Laser breached his fiduciary duty by not obtaining a pro rata share for the trusts of the bank stock that he bought after the initial acquisition. Count VIII alleged that Laser violated the stock redemption agreement by buying stock without notifying the trust beneficiaries. Count IX alleged that Laser violated the agreement by selling stock without notifying the trust beneficiaries and other shareholders. Count X alleged that Laser breached his fiduciary duty by not enforcing the trusts' rights under the stock redemption agreement.

The trial judge granted summary judgment on count VII on the grounds that Mr. Laser had no duty to buy any additional bank stock for the trusts. He granted summary judgment as to counts VIII and IX because these claims were covered by the release. He denied summary judgment on count X, however, on the grounds that the claim for breach of fiduciary duty fell within the scope of the exception to the release.

The plaintiffs appeal the grant of summary judgment on counts VII, VIII and IX. As to count VII, they claim that the court erred because the bank stock acquired was "so connected" with the trust property that Mr. Laser had a duty to buy at least some for the trust. As to counts VIII and IX, they claim that the release should not have been held effective because it was obtained through For the reasons that follow, we affirm the judgment of the trial court.

[234 Ill.Dec. 596] duress. Furthermore, they claim that there is a material issue of fact as to whether the trust on whose behalf the release was signed was, in fact, the trust that held the stock.

DISCUSSION

I

The plaintiffs claim that Laser violated his duty of loyalty as a trustee by making further purchases of bank stock for himself after the original acquisition without purchasing any for the trusts. Their theory of liability is that, by purchasing bank stock both in his capacity as a trustee and as an individual, Laser created a conflict of interest situation in which he was obligated to favor the trusts' interests above his own. The facts of this case, they contend, created enough of a connection between the trust property and the additional stock acquired by Laser that Laser had a duty to purchase some additional stock for the trusts.

The primary case relied upon by the plaintiffs is Wootten v. Wootten, 151 F.2d 147 (10th Cir.1945). In Wootten, the defendant held a third of the shares of a ranch corporation individually and a third in trust for the widow and children of his late brother. The remaining shares became available and the defendant bought them at a substantial discount without informing the beneficiaries, even though the trust had sufficient assets to participate in the transaction. The defendant thereby obtained majority control for himself.

The court held that, as a general principle, a trustee must not compete with the trust in the acquisition of property. Wootten, 151 F.2d at 150. In particular, the...