Van Daele v. Vinci

• Decision Date: 30 March 1972
• Docket Number: No. 43855,43855
• Parties: , 72 A.L.R.3d 412 August A. VAN DAELE et al., Appellants, v. Henry VINCI et al., Appellees.
• Court: Illinois Supreme Court

Page 728

282 N.E.2d 728

51 Ill.2d 389, 72 A.L.R.3d 412

August A. VAN DAELE et al., Appellants, v. Henry VINCI et al., Appellees.

No. 43855.

Supreme Court of Illinois.

March 30, 1972.

As Modified on Denial of Rehearing May 25, 1972.

Thomas P. Sullivan, Robert E. Pfaff, Robert C. Keck, Jr., and Arthur M. Sussman, Chicago (Jenner & Block, Chicago, of counsel), for appellants.

Harry L. Rudnick and Paul D. Rudnick, Chicago (Rudnick & Wolfe, Chicago, of counsel), for appellee Certified Grocers of Illinois, Inc.

W. Donald McSweeney and Thomas P. Luning, Chicago (Schiff, Hardin, Waite, Dorschel & Britton, Chicago, of counsel), for other appellees.

KLUCZYNSKI, Justice:

We granted leave to appeal from a reversal by the appellate court (Van Daele v. Vinci, 129 Ill.App.2d 332, 264 N.E.2d 41) of a judgment of the circuit court of Cook County permanently enjoining Certified Grocers of Illinois, Inc. (hereinafter Certified) from enforcing resolutions of Certified's board of directors (hereinafter the Board) to expel plaintiffs from membership in Certified or to take any punitive action against plaintiffs by reason of the resolutions.

The pleadings alleged that Certified is a private, voluntary organization of independent retail grocers doing business under the Co-operative Act (Ill.Rev.Stat.1969, ch. 32, pars. 305--331) and the Business Corporation Act (Ill.Rev.Stat.1969, ch. 32, pars. 157.1--157.167). Certified's purpose is to secure lower prices through large volume purchasing. It then sells these products to its members at a slightly increased price. After Certified pays its own operating expenses, a portion of the excess is refunded to the members as a rebate, and the remainder is used for its own purposes, I.e., reserves, expansion and business loans to its membership.

On January 30, 1969, Certified's Board sent written notices to plaintiffs, Hickory Hills Super Mart, Inc. (hereinafter Hickory) and Sparkle Food Center, Inc. (hereinafter Sparkle), notifying them of a special Board meeting to be held on February 25, 1969. The purpose of the meeting was to determine whether Hickory and Sparkle should be censured, suspended or expelled as members of Certified pursuant to the corporate bylaws. The charges against Hickory and Sparkle arose from the alleged activities of Adolph Kalchbrenner, a shareholder and president of Hickory, and Frank R. Guinta, a shareholder and officer of Sparkle. It was alleged that Kalchbrenner and Guinta 'associated with the 'Certified Stockholders Committee for Fair and Better Management,' disrupted Certified's business, impeded the resolution of problems associated with Certified's construction program, spread false rumors and made untrue statements which were intended to and which did injure Certified's directors and officers, and engaged a public relations firm to publicize charges against Certified for the purpose of aiding the election of the Stockholders' Committee's nominees to the Board of Directors of Certified.' (129 Ill.App.2d 332, at 336, 264 N.E.2d 41, at 43.) The notice also advised plaintiffs that each could be assisted by legal counsel during the proceedings.

Pending at this time was a derivative class-action suit, filed in the circuit court of Cook County, by Hickory, Sparkle and other shareholders of Certified, against the chairman and other members of the Board averring that the defendants knew or should have known of the alleged activities of one of Certified's employees whose malfeasance in the operation of Certified's building program resulted in the loss of large sums of money by Certified.

On February 21, 1969, plaintiffs amended their complaint adding a count in which they informed the court of the special board meeting and alleging, Inter alia, that they would not receive a fair hearing before the Board because many of the Board members were defendants in the present action and that the Board was seeking retribution rather than acting in good faith in convening this disciplinary proceeding. Hickory and Sparkle prayed for injunctive relief to prevent the defendants 'from taking any action to censure, suspend or expel them from membership in Certified.' (129 Ill.App.2d 332, at 336, 264 N.E.2d 41, at 43.) The trial court continued disposition of the equitable prayer until the Board acted on the pending charges.

At hearings before the Board on February 25 and April 9, 1969, plaintiffs made motions to dismiss the charges, to disqualify various Board members because of prejudice, and to preclude any Board member from participating if he might profit from plaintiffs' expulsions. These motions were denied.

The attorney for the Board then introduced various papers designated as exhibits, excerpts from sworn depositions, and trial testimony obtained in connection with other counts in the complaint. After presentation of this evidence, the Board again denied plaintiffs' motion to dismiss the charges.

Plaintiffs introduced proof which showed that they were members in good standing with Certified. Data on plaintiffs' rebates for prior years was also offered which indicated that during those years Sparkle had averaged approximately $40,700 and Hickory had averaged approximately $22,400 per year. No witnesses were presented by either side, although plaintiffs sought to call the Board chairman, who refused to testify, and the Board refused to request or direct him to do so. It then adopted resolutions excluding the plaintiffs from further membership in Certified.

Thereafter, the circuit court granted a temporary injunction and subsequently, after consideration of the Board's proceedings and exhibits, the court permanently enjoined Certified from expelling plaintiffs from membership in accordance with the Board's resolution of April 9, 1969. On appeal the appellate court reversed.

Plaintiffs now argue that the expulsion proceedings were so grossly unjust that they violated fundamental principles of due process of law. To support this position plaintiffs contend that the Board could not fairly hear these matters because many of its members were involved in the events which gave rise to the charges.

Certified's bylaws provide that a member can only be expelled by 'the affirmative vote of not less than two-thirds of the directors present at a board meeting.' The record before us indicates that the Board preferred the charges against plaintiffs and the resolutions to expel Hickory and Sparkle were adopted by vote of eleven Board members of which seven were defendants in the pending lawsuit. Both Hickory and Sparkle were expelled by ten affirmative votes. Thus it is apparent that at least six defendants voted to expel each plaintiff.

Furthermore, plaintiffs maintain that charges were initiated against them by the Board and the evidence was introduced by the same attorney who was representing the seven Board members in the instant case. Thus the directors were placed in the contradictory position of being both prosecutors and judges.

To refute these contentions defendants maintain that plaintiffs were allowed all appropriate protections in that Hickory and Sparkle were given notice of the pending charges and permitted to discredit these charges at the hearings. In addition plaintiffs were granted every request for information or production of documents. Moreover, defendants assert that the Board was not precluded from hearing the allegations simply because the Board had originated the charges. (Green v. Board of Trade, 174 Ill. 585, 51 N.E. 599.) Defendants finally argue that since the corporate bylaws exclusively authorize expulsion by Board action, the allegation of bias is immaterial.

While agreeing that the Board did follow the procedure set out in the bylaws for disciplinary hearings, we cannot find the defendants' final contention persuasive. There are too many factors indicating that the proceedings were in fact not good faith disciplinary hearings, but in reality, an attempt to silence and censure dissident members of the association. The record clearly shows that the Board was comprised of seven members that were also defendants in the pending derivative action. The allegations against the plaintiffs were supported entirely by the depositions, excerpts of record, and statements taken for use in the suit which were introduced in an attempt to authenticate various exhibits. The Board's decision to expel plaintiffs was based on at least six of the defendants voting against the plaintiffs. The bylaws provide that a commission could be appointed to investigate the conduct of members and report to the Board independently to avoid the possibility of bias in situations where the Board members could be biased. All these facts indicate a strong possibility that the plaintiffs were not given a fair hearing.

Although the courts in this State have traditionally been reluctant to interfere in the internal operations of associations, this strong possibility that an important economic interest of the plaintiffs was affected by an improper administrative proceeding gives the court power and the duty to act. We agree with the view expressed by the Supreme Court of New Jersey that said: 'We are here concerned with and therefore deal solely with an organization, membership in which may here, in the language of Trautwein, (Trautwein v. Harbourt, 40 N.J.Super. 247, 123 A.2d 30,) be viewed as 'an economic necessity'; in dealing with such an organization, the court must be particularly alert to the need for truly protecting the public welfare and advancing the interests of justice by reasonably safeguarding the individual's opportunity for earning a livelihood while not impairing the proper standards and...