Schneiderman v. Kahalnik

• Citation: 146 Ill.Dec. 371,200 Ill.App.3d 629,558 N.E.2d 334
• Decision Date: 27 June 1990
• Docket Number: No. 1-88-1143,A-C,1-88-1143
• Parties: , 146 Ill.Dec. 371 Robert L. SCHNEIDERMAN, Individually and as Voting Trustee, Plaintiff-Counter-Defendant-Appellant, v. Helen KAHALNIK, as Executrix of the Estate of Yale Kahalnik, Deceased, Defendant-Appellee (Stanley Brill, Estelle Brill, and Luv-up Coffee Service, Ltd., Defendants-Intervenors-Counterplaintiffs-Appellees).
• Court: United States Appellate Court of Illinois

Page 334

558 N.E.2d 334

200 Ill.App.3d 629, 146 Ill.Dec. 371

Robert L. SCHNEIDERMAN, Individually and as Voting Trustee Plaintiff-Counter-Defendant-Appellant, v. Helen KAHALNIK, as Executrix of the Estate of Yale Kahalnik Deceased, Defendant-Appellee (Stanley Brill, Estelle Brill and Luv-A-Cup Coffee Service, Ltd. Defendants-Intervenors-Counterplaintiffs-Appellees).

No. 1-88-1143.

Appellate Court of Illinois, First District, Third Division.

June 27, 1990.

Rosemarie J. Guadnolo, Brian D. Vandenberg, Chicago, for appellant.

Alvin D. Meyers, Keith M. Kanter, Chicago, for appellees.

Justice RIZZI delivered the opinion of the court:

Plaintiff - counter - defendant - appellant, Robert L. Schneiderman (Schneiderman), appeals from a judgment of the circuit court of Cook County entered in favor of defendant-appellee Helen Kahalnik and defendants-intervenors-counterplaintiffs-appellees Stanley Brill, Estelle Brill and Luv-A-Cup Coffee Service, Ltd. (Helen and Brill), at the close of Schneiderman's case in a bench trial for declaratory judgment and specific performance. On appeal, Schneiderman contends that (1) the trial court erred in entering judgment in favor of defendants at the close his case; (2) the trial court erred in excluding relevant evidence; and (3) the trial court abused its discretion in denying his motion to re-open discovery. We affirm.

In 1967, Schneiderman and Yale Kahalnik (Kahalnik), became partners in the coffee service business. The partners formed Alpha Coffee Company in 1967 and Luv-A-Cup Coffee Service, Ltd. in 1972. Schneiderman and Kahalnik each owned 50 percent of Alpha Coffee Co., an Illinois corporation. Schneiderman and Kahalnik each held a 40 percent interest in the New York based Luv-A-Cup. Brill joined Luv-A-Cup as its New York based vice president and manager in 1973 and as of 1977, he owned 20 percent of the outstanding stock of the company.

In March 1981, Schneiderman and Yale signed an agreement by which the parties intended to create a voting trust (VTA), which would allow one of the parties to maintain control of Luv-A-Cup in the event of the other party's death. The VTA was prepared by attorney Robert Jacobs of the now defunct Chicago law firm of Friedman and Koven. The document was signed by both parties, but the procedural steps required under New York law to effectuate the VTA, e.g., the reissuance of stock certificates to Schneiderman and Kahalnik as trustees, the issuance of voting trust certificates to the partners as beneficiaries of the voting trust, or the filing of the agreement in the corporation's books and the notification of other shareholders, were never completed. Neither Schneiderman nor Kahalnik made any attempt to effectuate the VTA during the over two and one-half year period following its signing on March 27, 1981, and Kahalnik's death on December 31, 1983.

Following Kahalnik's death, both Brill and Schneiderman made stock purchase offers to his widow, Helen. Schneiderman offered Helen $140,000 for the purchase of the stock. When Schneiderman learned that Helen intended to call a shareholder's meeting at which she planned to vote Kahalnik's stock, he wrote her a letter within which he tendered certificates representing his shares in Luv-A-Cup, and demanded that they be reissued to him as voting trustee and recorded on the books of the corporation with the appropriate certificates issued to him. In addition, Schneiderman demanded that Helen deposit with him, as trustee, all the stock certificates representing Kahalnik's shares in Luv-A-Cup. Helen decided to sell her husband's stock to Brill for $190,000. After the stock purchase, Brill became president and owner of 60 percent of the outstanding stock of Luv-A-Cup.

Following Schneiderman's disclosure of the VTA to Luv-A-Cup's corporate counsel, Arthur Handler (Handler), Handler reissued Schneiderman's stock in trustee form. Several days later Schneiderman filed this legal action seeking declaratory judgment as to the validity of the VTA and an order compelling Helen to specifically perform the VTA's terms and transfer Kahlanik's shares to him. After pre-trial discovery was closed, Brill filed a motion for leave to amend the pleadings to add Luv-A-Cup as a defendant and to amend his answer by adding certain new affirmative defenses. Brill's motion was granted. In response, Schneiderman moved to re-open discovery and to compel the deposition of his former attorney, Jacobs. Following a hearing, the court denied the motion. Schneiderman later made another request for additional discovery and that motion was also denied. At the close of Schneiderman's case-in-chief, the trial court granted the defendants' section 2-1110 motion for judgment in their favor. This appeal followed.

On appeal, Schneiderman first contends that the trial court erred in entering judgment in favor of defendants at the close of his case. We disagree.

The grant or denial of declaratory relief is discretionary. Absent an abuse of discretion, the trial court's determination will not be disturbed on appeal. Feeley v. Michigan Avenue National Bank (1986), 141 Ill.App.3d 187, 190, 95 Ill.Dec. 542, 544, 490 N.E.2d 15, 17. Nevertheless, the trial court's exercise of this discretion is subject to a searching appellate review and is not given the same deference as is the trial court's exercise of discretion in other contexts. Feeley, 141 Ill.App.3d at 190-91, 95 Ill.Dec. 542, 490 N.E.2d 15. A circuit court's decision in specific performance will not be disturbed absent an abuse of discretion, or unless it is against the manifest weight of the evidence. Rench v. Leihser (1986), 139 Ill.App.3d 889, 94 Ill.Dec. 324, 325-26, 487 N.E.2d 1201, 1202-03. Specific performance cannot, however, be demanded as a matter of right. The evidence necessary to support a decree for specific performance must be clear, explicit and convincing. Rench, 139 Ill.App.3d at 891, 94 Ill.Dec. 324, 487 N.E.2d 1201.

In ruling on a defendant's motion for judgment in its favor, at the close of the plaintiff's case in a bench trial, pursuant to section 2-1110 of the Civil Practice Law, the court should use a two step analysis. The court should first consider whether a prima facie case has been presented, and if so, it should then weigh the evidence to determine if the prima facie case still exists. Kokinis v. Kotrich (1980), 81 Ill.2d 151, 154, 40 Ill.Dec. 812, 814, 407 N.E.2d 43, 45; Stender v. National Boulevard Bank of Chicago (1983), 114 Ill.App.3d 1041, 1046, 70 Ill.Dec. 526, 529, 449 N.E.2d 873, 876. If the ruling is favorable to the defendant, the court should enter a judgment dismissing the action. Ill.Rev.Stat.1987, ch. 110, par. 2-1110; Kokinis, 81 Ill.2d at 154, 40 Ill.Dec. 812, 407 N.E.2d 43. On appeal, the decision of the trial court should not be reversed unless it is contrary to the manifest weight of the evidence. Stender, 114 Ill.App.3d at 1046, 70 Ill.Dec. 526, 449 N.E.2d 873.

The policy of New York State law is to give recognition to voting trusts created by a transfer of stock in a corporation from stockholders by their free and voluntary act. DeMarco v. Paramount Ice Corp. (1950), 30 Misc.2d 158, 102 N.Y.S.2d 692, 698. Further, a voting trust agreement established pursuant to New York Business Corporation Law is prima facie valid if it does not contravene any express charter or statutory provision or contemplate some fraud, oppression or wrong against stockholders or creditors. Dal-Tran Service Co. v. Fifth Avenue Coach Lines, Inc. (1961), 14 A.D.2d 349, 220 N.Y.S.2d 549, 557.

Section 621 of the New York Business Corporation Law provides in pertinent part:

Voting trust agreements:

(a) Any shareholder or shareholders, under an agreement in writing, may transfer his or their shares to a voting trustee or trustees for the purpose of conferring the right to vote thereon for a period not exceeding ten years upon the terms and conditions therein stated. The certificates for shares so transferred shall be surrendered and cancelled and new certificates therefor issued to such trustee or trustees stating that they are issued under such agreement, and in the entry of such ownership in the record of the corporation that fact shall also be noted, and such trustee or trustees may vote the shares so transferred during the term of such agreement.

(b) The trustee or trustees shall keep available for inspection by holders of voting trust certificates at his or their office or at the place designated in such agreement or of which the holders of voting trust certificates have been notified in writing, correct and complete books and records of account relating to the trust, and a record containing the names and addresses of all persons who are holders of voting trust certificates and the number and class of shares represented by the certificates held by them and the dates when they became owners thereof. The record may be in written form or any other form capable of being converted into written form within a reasonable time.

(c) A duplicate of every such agreement shall be filed in the office of the corporation and it and the record of voting trust certificates holders shall be subject to the same right of inspection by a shareholder of record or a holder of a voting trust certificate, in person or by agent or attorney, as are the records of the corporation under section 624 (Books and records; right of inspection, prima facie evidence). The shareholder or holder of a voting trust certificate shall be entitled to the remedies provided in that section.

* * * * * *

New York Business Corporation Law Section 621. (Emphasis added.)

In the present case, prior to issuing its ruling, the trial court stated that it had not only reviewed all the relevant pleadings and admissions, and its copious notes taken during the presentation of Schneiderman's case, but also that it considered the demeanor of the witnesses, the weight and credibility of their...