Tcherepnin v. Franz

Decision Date06 August 1970
Docket NumberNo. 64-C-1285.,64-C-1285.
Citation316 F. Supp. 714
PartiesAlexander TCHEREPNIN et al., Plaintiffs, v. Robert FRANZ et al., Defendants.
CourtU.S. District Court — Northern District of Illinois

Don H. Reuben and Steven L. Bashwiner, Chicago, Ill., for Leonard B. Ettelson and William J. Friedman, receivers and cross-plaintiffs.

Fred Weiszmann, Northbrook, Ill., for cross-defendants Peerless Closure Co. and Henry A. Finlay, Jr.

Teitelbaum, Wolfberg & Guild, Chicago, Ill., for cross-defendants Trustees of the Central States, Southeast and Southwest Areas Pension Fund and George Washington Savings & Loan Assn.

Henry McGurren, Chicago, Ill., for cross-defendant Braewood Builders Corp.

Theodore C. Weinberg, Chicago, Ill., for cross-defendants Mensik, Kramer, Barto and Kulikowski.

Richard F. McPartlin, Chicago, Ill., for cross-defendant Henry McGurren.

FINDINGS OF FACT, CONCLUSIONS OF LAW, MEMORANDUM, ORDER AND JUDGMENT

CAMPBELL, District Judge.

This action, brought by the court appointed receivers as an ancillary proceeding in this case, seeks a determination that certain properties are held in constructive trust for the benefit of the estate in receivership. The court's receivers ask that an order be entered compelling certain persons allegedly in title or who claim some interest in the properties to convey said properties to City Savings Association.

Extensive evidence relating to these properties was presented by the receivers and by certain other interested parties. Upon the completion of all evidence of all interested parties, briefs were submitted clearly delineating the position of all parties. Having considered all of said evidence and the extensive briefs filed thereafter, I now make the findings of fact, and conclusions of law as set forth in this memorandum.

This case is most complex and difficult and requires some explanation of the proceedings in the case in chief. This case was originally brought by a group of shareholder-depositors of City Savings Association. Their complaint was filed July 24, 1964. Jurisdiction was based on the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.). After appeals to our Seventh Circuit Court of Appeals and to the United States Supreme Court, the jurisdiction of this court was affirmed. Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564. Upon remand from the Supreme Court and on motion of the depositors and after an extensive hearing on said motion, I removed the state appointed liquidators then in custody of the assets of the Association and appointed receivers of this court. 277 F.Supp. 472. That action was reviewed and affirmed by our Court of Appeals. Tcherepnin v. Kirby, 7 Cir., 416 F.2d 594.

In an effort to expedite a determination in this cause and because the case was and is a most complex one, involving thousands of documents and numerous claims of depositors who have been pursuing a federal remedy for almost six years, I ordered that this litigation should proceed pursuant to the enlightened procedures outlined in the Judicial Conference's Manual for Complex and Multidistrict Litigation. I also instructed the court's receivers that all claims of the Association were to be litigated in this court as ancillary to the case in chief.

On April 4, 1969, the Receivers filed a Cross Complaint herein alleging massive fraud by cross-defendants C. Oran Mensik ("Mensik") and Robert M. Kramer ("Kramer") in concert with the other officers and directors of City Savings and various other persons and corporations; the Cross Complaint alleged that certain parcels of real estate in the Chicagoland area owned or controlled by Mensik and Kramer belonged in equity to City Savings because of these frauds and urged the imposition thereon of a constructive trust for the benefit of City Savings, its members and creditors.

On May 1, 1970, the Receivers served notice of a hearing instanter on the issue of title to these properties. On May 4, through May 8, and on May 21, 1970, hearings were held and were consolidated by agreement of the parties with prior proceedings concerning the Rule upon cross-defendant Henry McGurren ("McGurren") as Trustee to show cause why the property commonly described as Palatine Estates should not be conveyed forthwith to City Savings. Cross-defendants McGurren, Kramer, Finlay, Peerless Closure Company and Braewood Building Corporation appeared and testified in support of their positions; evidence has also been offered by the Receivers to support City Savings' claim to these properties. Peerless Closure Company and Henry McGurren as Trustee have filed Briefs in support of their positions and in response to a Brief filed by the Receivers.

Cross-defendant Alexander J. Pikiel, Mensik's attorney, who is now deceased, testified extensively by deposition taken prior to his death by the attorneys for the Receivers.

Mensik is currently incarcerated in the Federal Penitentiary. However, on October 1, 1969, Mensik testified extensively by deposition taken by the attorneys for the Receivers in the DuPage County Jail in Wheaton, Illinois.

Robert M. Kramer appeared and testified before this court during the hearings on the issue of title to the properties under petition. In addition, Kramer testified at depositions taken by the attorneys for the Receivers on October 30, 1969; November 14, 1969; November 18, 1969; February 20, 1970; February 24, 1970; and February 25, 1970. Kramer's deposition exceeds 500 pages of testimony and involved the identification by him of several hundred documents, including numerous checks and records of City Savings Association, and of sundry other corporations. In addition, the Receivers have taken depositions of cross-defendants Henry McGurren, Henry A. Finlay, and Braewood Building Corporation (through its President, Clark Frothingham), as well as the deposition of John P. Divito, an engineer who participated in the initial plans for the development of the entire Howie in the Hills project. All depositions and the documents identified therein have been offered into evidence and received without objection. In addition, all the books and records of City Savings Association were received in evidence without objection pursuant to this court's Order of January 23, 1969.

On June 26, 1964, the Department of Financial Institutions of the State of Illinois took custody of City Savings Association (hereafter "City Savings") a state-chartered savings and loan association, upon a finding, based upon an examination report issued by Peat, Marwick, Mitchell & Co., certified public accountants, that as of April 30, 1964, City Savings had a capital impairment exceeding $14,000,000. City Savings was closed by the State on June 30, 1964, and is currently in receivership under the jurisdiction of this court. City Savings is hopelessly insolvent.

At the time the State took custody— and for at least 20 years prior thereto— cross-defendant C. Oran Mensik had been the chief executive officer of City Savings, simultaneously holding the positions of President, Chairman of the Board of Directors and Chairman of the Executive Committee.

Cross-defendant Robert M. Kramer, Mensik's brother-in-law, became a Vice President of City Savings, a member of its Board of Directors and a member of its Executive Committee in 1954 and held these positions until City Savings was closed on June 30, 1964.

Mensik and Kramer operated City Savings, with Mensik the dominant figure and Kramer by his own admission functioning largely as assistant to and nominee and messenger boy for Mensik. Mensik and Kramer were assisted and supported in their efforts by the deceased cross-defendant Alexander J. Pikiel, Mensik's then attorney, whose offices adjoined those of City Savings in the City Savings Building at 1654 W. Chicago Avenue in Chicago, Illinois, and by various other persons, including cross-defendants Walter Kulikowski, Mildred Riehl and Marianne Barto.

From 1959 to 1964, cross-defendant Robert J. Zaucha was loan officer at City Savings. From 1959 until 1964, cross-defendants Francis J. Sochacki, Robert J. Siman and Angelo LoMonaco purportedly appraised properties on which City Savings made loans. However, it is undisputed that none of these cross-defendants honestly and responsibly performed the job he purported to hold; rather, all these persons responded utterly to Mensik's direction and control. All loan applications and appraisals were prepared in accordance with Mensik's directions, without regard to either the real identity or integrity of the purported borrower and wholly without regard to the true value of the land.

The primary function of the Executive Committee of City Savings was purportedly to approve the applications for loans submitted to it by Mensik. In addition to Mensik and Kramer, Joseph Holley, a director of City Savings, was a member of the Executive Committee until his death in 1959. Thereafter, cross-defendant Herbert J. Hoover became the third member of the Executive Committee.

As is obvious from the sad history of this institution, the Executive Committee and the Board of Directors of City Savings never fulfilled their responsibilities to the depositors and creditors to safeguard and protect City Savings' funds and to make considered and prudent investments. No loan application that Mensik recommended was ever refused. Mensik alone decided the amounts of money to be loaned, which loans would be approved and under what conditions. In sum, Mensik alone, in the words of his attorney, Pikiel, "controlled the outpouring of funds from City Savings."

Under Mensik's domination, City Savings fell into ruin. By April 30, 1964, 82% of the entire loan portfolio of City Savings was concentrated in 776 loans in two projects, Apple Orchard in Bartlett, Illinois, and Howie in the Hills in Palatine Township, Illinois. The outstanding net unpaid balance of the Apple Orchard loans on June 30, 1964— when City Savings was closed—was $14,827,415.20;...

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7 cases
  • Tcherepnin v. Franz
    • United States
    • U.S. District Court — Northern District of Illinois
    • April 14, 1975
    ...public accountants, whose report dated June 15, 1964, showed a capital impairment of approximately $14,000,000. Tcherepnin v. Franz, 316 F.Supp. 714 (N.D.Ill.1970). On June 26, 1964, the State of Illinois took custody of City Savings and on June 30, 1964, City Savings was closed to the publ......
  • Tcherepnin v. Franz
    • United States
    • U.S. District Court — Northern District of Illinois
    • November 14, 1977
    ...directed the receiver to litigate all claims of the City Savings Association as ancillary to the principal case. Tcherepnin v. Franz, 316 F.Supp. 714, 716 (N.D.Ill.1970), aff'd, 485 F.2d 1251 (7th Cir. 1973), cert. denied sub nom., McGurren v. Ettelson, 415 U.S. 918, 94 S.Ct. 1416, 39 L.Ed.......
  • Tcherepnin v. Franz
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • July 27, 1973
    ...1967), rev'd 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967); Tcherepnin v. Kirby, 416 F.2d 594 (7th Cir., 1969); Tcherepnin v. Franz, 316 F.Supp. 714 (N.D.Ill., 1970) (the subject of the present appeals); Tcherepnin v. Franz, 461 F.2d 544 (7th Cir., 1972); Tcherepnin v. Campbell, 469 F.2......
  • Tcherepnin v. Franz
    • United States
    • U.S. District Court — Northern District of Illinois
    • April 14, 1975
    ...1967), rev'd 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967); Tcherepnin v. Kirby, 416 F.2d 594 (7th Cir. 1969); Tcherepnin v. Franz, 316 F.Supp. 714 (N.D.Ill.1970); Tcherepnin v. Franz, 461 F.2d 544 (7th Cir. 1972); Tcherepnin v. Campbell, 469 F.2d 531 (7th Cir. 1972); Tcherepnin v. Fran......
  • Request a trial to view additional results

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