Wright v. Abbott Capital Corp.

• Decision Date: 28 December 1979
• Docket Number: No. 79-355,T-O-W,79-355
• Citation: 35 Ill.Dec. 197,398 N.E.2d 1147,79 Ill.App.3d 986
• Parties: , 35 Ill.Dec. 197 Harold WRIGHT, Plaintiff-Appellant, v. ABBOTT CAPITAL CORPORATION, an Illinois corporation, Adams Street Capital, Inc., an Illinois corporation, Capital Enterprises, Inc., an Illinois corporation, Small Business Management Investors, Inc., an Illinois corporation, Richard E. Lassar, Mort Malis, Morris Weiser, Kenneth J. Eaton, Michael A. Silverman, andIndustries, Inc., an Illinois corporation, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 1147

398 N.E.2d 1147

79 Ill.App.3d 986, 35 Ill.Dec. 197

Harold WRIGHT, Plaintiff-Appellant, v. ABBOTT CAPITAL CORPORATION, an Illinois corporation, Adams Street Capital, Inc., an Illinois corporation, Capital Enterprises, Inc., an Illinois corporation, Small Business Management Investors, Inc., an Illinois corporation, Richard E. Lassar, Mort Malis, Morris Weiser, Kenneth J. Eaton Michael A. Silverman, and T-O-W Industries, Inc., an Illinois corporation, Defendants-Appellees.

No. 79-355.

Appellate Court of Illinois, First District, Fifth Division.

Dec. 28, 1979.

James S. Gordon and Edward Slovick, Chicago, for plaintiff-appellant.

Arthur M. Solomon and Vito M. Evola, Chicago, for defendants-appellees.

WILSON, Justice:

Plaintiff brought a derivative suit on behalf of an Illinois corporation against defendants which sought to impose a constructive trust on certain assets held by defendants in addition to money damages. On motion by defendants, plaintiff's third amended complaint was stricken and the cause dismissed pursuant to sections 45 and 48 of the Civil Practice Act (Ill.Rev.Stat.1977, ch. 110, pars. 45 and 48) on the ground that plaintiff had been divested of title to the assets as a result of his prior adjudication in bankruptcy and thereby had no standing to maintain the action. On appeal plaintiff contends that he has standing to maintain the action since title to the assets was not divested as a result of his prior adjudication in bankruptcy in the absence of the appointment of a trustee. We affirm the judgment of the trial court. The pertinent facts follow.

On March 1, 1977 plaintiff, Harold Wright, filed a derivative suit on behalf of T-O-W Industries, Inc. (T-O-W), an Illinois corporation, against the following corporate defendants: Abbott Capital Corporation Adams Street Capital, Inc.; Capital Enterprises, Inc.; Small Business Management Investors, Inc.; and T-O-W. Other defendants included Richard E. Lassar, Mort Malis, Morris Weiser, Kenneth J. Eaton and Michael A. Silverman, who were agents of the corporate defendants.

Count I of the complaint alleged that on August 27, 1973, T-O-W and the corporate defendants, along with one additional lender, entered into a loan agreement whereby T-O-W borrowed $125,000, of which $115,000 was loaned by the corporate defendants. The repayment period was for five years, with interest at 10% Per annum. All lenders were granted a first lien on all T-O-W assets and the loan was personally guaranteed by plaintiff. Also pursuant to the loan agreement, plaintiff entered into a voting trust agreement with defendants Lassar, Malis, and Weiser, whereby plaintiff conveyed fifty shares of T-O-W common stock to defendants as trustees and plaintiff was issued a voting trust certificate. The agreement was to terminate in ten years or upon the date when the principal and interest due under the loan agreement were paid, whichever event occurred first.

Subsequent to the execution of the loan and voting trust agreements, defendants Eaton, Lassar, and Silverman were elected as directors of T-O-W. Plaintiff was the fourth director. Thereafter, the corporate defendants were the record owners of all the outstanding shares of T-O-W, held exclusive voting rights, constituted a majority of the Board of Directors, and exercised complete control over the business and affairs of T-O-W.

Count I further alleged that by March 31, 1975, T-O-W had incurred an accumulated deficit exceeding $90,000 and by May 12, defendants had caused T-O-W to default under the loan agreement. On May 27 defendants dismissed plaintiff as President of T-O-W. During a directors meeting held on January 13, 1976, of which plaintiff received no notice, defendants authorized the corporation to make an assignment for the benefit of creditors. Defendants then organized Temp-Tech, Inc. for the purpose of purchasing all the assets of T-O-W at a purchase price of $7,500. The remaining portion of count I alleged, in essence, that Temp-Tech is merely an alter-ego of defendants and was created for the sole purpose of appropriating plaintiff's equity in the assets of T-O-W, and that such conduct by defendants constituted a breach of fiduciary duty and a constructive fraud against plaintiff. The prayer for relief sought to impose a constructive trust on all the outstanding shares of Temp-Tech stock for the benefit of plaintiff.

Count II alleged that on August 27, 1973 plaintiff and T-O-W entered into an employment agreement pursuant to which plaintiff was employed as President of the corporation for five years with a base salary of $26,400 per year. During a board meeting held on May 27, 1975 defendants adopted a resolution which terminated the agreement and discharged plaintiff as President; such action constituting a tortious and malicious interference with plaintiff's contractual rights. In conclusion, the prayer for relief sought $85,800 in damages plus interest and costs, in addition to $85,800 in punitive damages.

In response to the complaint, on April 28, 1977 defendants filed a motion to strike the complaint and dismiss the action and an affidavit pursuant to sections 45 and 48 of the Civil Practice Act. The motion alleged that count I of the complaint was insufficient in law in that plaintiff has no standing as a shareholder to maintain the action on behalf of T-O-W. Moreover, as a result of plaintiff's prior adjudication in bankruptcy, any cause of action that may have accrued to him with respect to the allegations in count II, now accrues to the benefit of creditors, rather than to plaintiff. The attached affidavit specifically stated that the sworn schedules filed by plaintiff in the bankruptcy proceeding revealed no cause of action owned by or accruing to plaintiff, nor any sums of money alleged to be due him under any employment contract. The schedules also reflected that "plaintiff owned no liquidated or unliquidated debts or claims, contingent, vested or otherwise." Furthermore, various creditors were scheduled by plaintiff with claims totalling $816,614.79; however, the bankruptcy court made a finding of "no assets" for...