Veco Corp. v. Babcock

• Decision Date: 09 February 1993
• Docket Number: No. 1-91-3624,1-91-3624
• Citation: 611 N.E.2d 1054,243 Ill.App.3d 153
• Parties: , 183 Ill.Dec. 406 VECO CORPORATION, Plaintiff-Appellant, v. Robert H. BABCOCK, Margaret F. Michails, and CorMac, Inc., Defendants-Appellees (Brokers and Traders Insurance, Defendant). 1
• Court: United States Appellate Court of Illinois

Page 1054

611 N.E.2d 1054

243 Ill.App.3d 153, 183 Ill.Dec. 406

VECO CORPORATION, Plaintiff-Appellant, v. Robert H. BABCOCK, Margaret F. Michails, and CorMac, Inc. Defendants-Appellees (Brokers and Traders Insurance, Defendant). ¹

No. 1-91-3624.

Appellate Court of Illinois,

First District, Second Division.

Feb. 9, 1993.

Rehearing Denied March 25, 1993.

Veverka, Rosen and Haugh, Chicago (Donald Veverka, Michael Haugh and Elizabeth Jurkacek, of counsel), for plaintiff-appellant.

Holleb & Coff, Chicago (David Herbst and Richard Rhodes, of counsel), for defendants-appellees.

Justice HARTMAN delivered the opinion of the court:

Plaintiff, Veco Corporation (Veco), an Illinois corporation, appeals from a judgment deciding the issues in favor of defendants, Robert H. Babcock and Margaret F. Michails, two of its former officer-employees. Presented as issues for review are whether the circuit court erred in implicitly holding that defendants did not breach their fiduciary duties while serving as officers and employees of plaintiff, and in the court's denial of damages.

Veco, formed in 1970 by its sole shareholder David Vear, is a life insurance benefit planning and financial services firm. Veco earns commissions based on the annual insurance policy premiums paid by its participants, which it earns only while it is the broker of record. ²

Babcock and Michails were former high-ranking officers of Veco. Babcock, initially employed by Veco as a salesman in 1972, by 1985 became executive vice president, the senior executive with authority over all Veco's group and employee benefits insurance. His management authority extended to several Veco group clients, among which was the National Exchange Benefit Trust (N.E.B.T.). N.E.B.T. was an association group account that consisted of individuals who traded at the Chicago Board of Trade, Chicago Mercantile Exchange, Chicago Board Options Exchange, and the Mid-American Stock Exchange. Veco earned about $250,000 in commissions from N.E.B.T. alone in 1985. That year, Veco paid Babcock a $70,000 salary and a $56,000 bonus. Michails, first employed by Veco as an assistant to a financial planner in 1978, by 1985 became vice president in charge of office administration. Michails' annual base salary was in the mid-$30,000s in January of 1986.

In December 1985, Michails and Babcock began to discuss leaving Veco to form their own company. Michails agreed that it was her "intention to take the business of Veco and move it over to" their own company. Michails spoke with another Veco employee, Jeanne Tucker, about the new company. Patricia Walker, another Veco employee, also was made aware of their plans.

Michails and Walker agreed to join Babcock sometime between January 1 and January 27, 1986. Tucker spent 90% of her time servicing N.E.B.T. Babcock cautioned them not to discuss their plans with Vear. Babcock admitted he planned to convert Veco business to his new company, CorMac, Inc. (CorMac), but denied expending any effort to do so before his termination.

Babcock stated that in January 1986, while he was still employed by Veco, he incorporated CorMac, in which Babcock owns a 75% interest and Michails a 25% interest. Babcock found office space for CorMac and ordered office equipment, telephone systems, and computer software. Babcock informed various insurance carriers of his plan to form CorMac, including N.E.B.T.'s underwriter.

Babcock prepared a document, introduced in evidence, which Michails typed at Veco on January 14, 1986. This document was the business plan for CorMac (the Plan). Babcock testified that the Plan "outlines what we intended to do."

The Plan provided:

"On February 1st, 1986 CorMac, Inc. will begin operation as an insurance and financial services company. The next three to four weeks will be the most important period of CorMac's existence dealing with the termination from Veco Corporation. * * *

Participants in CorMac are Bob Babcock, Peg Michails, Jeanne Tucker, Pat Walker and Shelly Thompson. ³ All are aware of the situation except Shelly Thompson who will be asked on or about 01/31/86.

* * * * * *

We are intending to take the N.E.B.T. business with us and a careful takeover needs to be planned. * * *

CorMac, Inc. will sell insurance and other financial products to individuals and corporations in the greater Chicago area. We will initially concentrate on writing current cases known to us as well as the conversion of approximately 30-35 million dollars of N.E.B.T. term business. * * *

In addition we will continue to sell benefit plans to 50 employee plus corporations. * * * Value of the group business we hope to take with us ranges from $40,000 to $75,000 annually. Prospect files * * * should be set up * * *.

* * * * * *

Over the next three weeks we will need to accomplish much so that the transition can be as easy as possible. * * *

* * * I will address each area specifically outlining the tasks which need to be accomplished by 01/31/86. * * *

* * * * * *

-- Takeover the N.E.B.T.

-- Broker of Record on Group Business.

* * * * * *

-- Records and information from the office.

-- Lists of prospects.

* * * * * *

The following information or rather copies of or tapes of should be out of the office by 01/24/86.

P -- Full client list with address and phone numbers

P -- Full attorney and accountant list with address and phone numbers

B -- Important papers from N.E.B.T. term underwriting files

B -- Important papers from transferring group accounts

B -- Important papers from prospective transferring clients

B -- Important papers from prospective transferring group clients

J -- Copy (tape) of full N.E.B.T. system

J -- Copies of medical enrollment cards

J -- Copies of LTD, dental, NYLIC, individual dental, etc. records and other information as needed from the N.E.B.T.

J -- Copies of last EOB statements on each individual also last EOB of 1985

P -- Copy (diskette) of full Executive Life System and ECS System

P -- Copy (diskette) of all other important systems"

Babcock gave Michails and Tucker the Plan. He denied that they ever removed any items from the office pursuant to the Plan except the important papers from N.E.B.T. underwriting files. He disclaimed ever having referred to these N.E.B.T. underwriting files before returning them to Veco. According to Michails, before leaving Veco she used Veco files to prepare a list of Veco clients that "they were going to talk to after we left Veco." Babcock asserted that he never saw or removed a full-client list.

Babcock admitted that he took steps to line up the N.E.B.T. business while still employed at Veco. During January of 1986, before being terminated, Babcock met with people involved with the various exchanges that made up N.E.B.T. to "see what their feelings were as to whether that could happen or not." Babcock and Tucker also met with the C.E.O. of the Commodities Future Self-Regulatory Group at a separate meeting, to which Babcock brought an underwriter. Babcock acknowledged that at these meetings he "expressed some concern as to what would happen to N.E.B.T. after we left," observed that the entire Veco staff responsible for N.E.B.T. was leaving, and that no one else at Veco knew anything about necessary N.E.B.T. servicing. Babcock prepared and Michails typed a handout for distribution at these meetings, which stated:

"Bob Babcock, Jeanne Tucker and Pat Walker have made it known to certain members of the Chicago Board of Trade and the Chicago Mercantile Exchange * * * that they will soon be terminating their employment with Veco Corporation. * * * Babcock, Tucker and Walker were the only three employees of Veco Corporation who knew anything about the trust and/or its operations and these three individuals were the only employees of Veco Corporation having anything to do with the administration and proper service to the members covered by the trust. * * *

* * * * * *

* * * Babcock, Tucker and Walker are also requesting that they be allowed through their company to fulfill the position as administrators and the broker of record for the various programs currently covered by the [N.E.B.T.]."

Meanwhile, on January 27, 1986, Vear returned to the office from a two week vacation. At 8 a.m. that morning he fired Babcock. Within an hour of Babcock's termination, Michails, Tucker, and Walker resigned. Only four employees and Vear remained at Veco. As defendants intended and predicted, no remaining Veco employee was experienced in administering N.E.B.T. account. As a result of this disruption to N.E.B.T., Veco lost approximately $100,000 during 1986, according to Vear.

Babcock testified that, starting the day after his termination, a number of Veco clients transferred their accounts from Veco to Babcock's corporation, CorMac. The switch-over clients included: Bell Chemical Company, by letter dated January 28, 1986; Chicago Mercantile Exchange, by letter dated January 28, 1986; J.J. Grundy, Incorporated, by letter dated January 31, 1986; John Nuveen & Company, by letter dated January 31, 1986; C & D Commodities, by letter dated January 31, 1986; Spiegel, Incorporated, by letter dated January 31, 1986; and Building Officials & Code Administrators International, by letter dated February 7, 1986. Babcock claimed he contacted these clients in person and by letter after his termination and did not make sales calls of any group customer for the purpose of obtaining a change in a broker of record letter before his termination. Defendants did not obtain any N.E.B.T. business served by Veco, Babcock asserted, and he has not contacted any N.E.B.T. members since his termination.

A group insurance purchaser ordinarily takes a careful, painstaking look at the insurance provider and analyzes the carrier, the benefits, and the premiums, according to Babcock. The John Nuveen business Babcock took from Veco for CorMac's benefit did not require such a procedure because it was the result of...