PHILLIP GOLDBERG and CYNTHIA | ) | Appeal from the Circuit Court |
MATTIA-GOLDBERG, on Behalf of | ) | of Lake County. |
Themselves and the GLENSTONE | ) | |
HOMEOWNERS ASSOCIATION, | ) | |
) | ||
Plaintiffs-Appellants, | ) | |
) | ||
v. | ) | No. 99--CH--965 |
) | ||
HOWARD W. MICHAEL, STANLEY R. | ) | |
RAZNY, JR., KURT W. LEWIS, | ) | |
NAPOLEAN P. TARNARIS, and | ) | |
MARSHALL N. DICKLER, LTD., | ) | Honorable |
) | John R. Goshgarian, | |
Defendants-Appellees. | ) | Judge, Presiding. |
JUSTICE BYRNE delivered the opinion of the court:
Plaintiffs, Phillip Goldberg and Cynthia Mattia-Goldberg, onbehalf of themselves and the Glenstone Homeowners Association(Association), appeal from the trial court's judgment granting themotions to dismiss of defendants, Howard W. Michael, Stanley R.Razny, Jr., Kurt W. Lewis, Napolean P. Tarnaris, and Marshall N.Dickler, Ltd. (Dickler). We affirm.
The Association consists of several homeowners in Long Grove,including plaintiffs, Phillip Goldberg and Cynthia Mattia-Goldberg. Michael served on the Association's board from July 1997 throughNovember 1998; Lewis served from October 1996 through December 1997and was vice president of the board from May 1997 through December1997; Razny served from October 1996 through November 1998 and waspresident of the board from May 1997 through December 1997;Tarnaris served on the board from May 1997 through November 1998and was alleged to have been "de facto" counsel for theAssociation; Dickler served as attorney for the Association fromOctober 1996 through December 1997.
In July 1996, a parcel of real estate within Glenstone (theMurphy Lot) fell behind in assessment payments, and the boardinstructed Dickler to file a lien and to commence a foreclosureaction against the owner. The Association filed a complaint toforeclose lien on January 23, 1997, which was verified by plaintiffPhillip Goldberg as treasurer of the board. The affidavit insupport of the judgment was signed by Goldberg on April 17, 1997. Dickler sent to Goldberg monthly descriptive bills that informedGoldberg of the status of the suit. On November 14, 1997, at thepublic auction of the Murphy Lot, some or all of the individual defendants bid on the Murphy Lot. Michael was the highest bidderand obtained title to the Murphy Lot. Goldberg received adescriptive bill on November 18, 1997, four days after the auction,informing him of the sale.
After the foreclosure sale, Goldberg, allegedly on behalf ofthe Association, commenced an investigation into Michael's purchaseof the Murphy Lot and the roles of Lewis, Tarnaris, Razny, andDickler in the purchase. On January 26, 1998, the board issued acorporate resolution alleging that Lewis, Michael, Razny, andTarnaris usurped the Association's corporate opportunity, breachedtheir fiduciary duties to the Association, and committed fraud byfailing to inform the Association of the foreclosure action and by planning to obtain the Murphy Lot for themselves. On October 18,1998, the board authorized outside counsel to conduct allappropriate negotiations with those against whom the board mighthave causes of action and to determine if any such causes of actioncould be resolved without recourse to litigation.
On March 31, 1999, the Association executed settlement offerswith Tarnaris and Lewis, releasing them from liability regardingany of the events, actions, and omissions relating to the sale ofthe Murphy Lot. The record does not contain a settlement agreementbetween the Association and Razny or Michael. However, theaffidavit of Frank Mondane, director, secretary, and treasurer ofthe Association, states that the board decided not to pursuelitigation and settled its claims against Lewis, Tarnaris, Michael,and Razny.
In 1998, Dickler filed an action against the Association tocollect amounts due to the firm by the Association (case No. 98--AR--1228). In May 1999, the Association released any and allclaims it had or may have had against Dickler, and the partiesentered into an executed settlement agreement.
Thereafter, on September 3, 1999, plaintiffs filed the presentaction. Plaintiffs' amended complaint raises against defendantsallegations of (1) breach of fiduciary duty, (2) unjust enrichment,and (3) constructive fraud, and it requests the imposition of aconstructive trust, a permanent injunction, and money damages. Plaintiffs allege that each defendant failed to fully inform theboard of the foreclosure action as it progressed and of his plan toobtain the Murphy Lot for himself. Plaintiffs claim that defendants' actions deprived the Association of the opportunity todecide for itself whether and how much to bid at the public auctionfor the Murphy Lot. Plaintiffs further allege that defendantsengaged in subterfuge and took actions to undermine the board ofdirectors after their scheme was uncovered rather than enter intogood-faith negotiations with the Association in its attempt tosettle this matter.
Michael, Razny, Lewis, and Tarnaris filed motions to dismissthe complaint pursuant to sections 2--615, 2--619, and 2--619.1 ofthe Code of Civil Procedure (Code) (735 ILCS 5/2--615, 2--619, 2--619.1 (West 1998)). Dickler filed a motion to dismiss pursuant tosection 2--619(a)(2), (a)(5), and (a)(6) (735 ILCS 5/2--619(a)(2),(a)(5), (a)(6) (West 1998)).
The trial court dismissed the action "for the reasons statedin those Motions," including that (1) plaintiffs lacked standingindividually; (2) there was no usurpation of corporate opportunitybecause the Association had full knowledge of the foreclosure sale;(3) the complaint lacked sufficient allegations to state a cause ofaction; (4) the settlement agreements releasing Tarnaris, Lewis,Razny, and Dickler are affirmative matters precluding the reliefsought; (5) Tarnaris had no fiduciary duty to the Association; and(6) the claims against Dickler were barred by the statute oflimitations. The trial court further denied the motion forsanctions previously filed by Dickler. Plaintiffs timely appeal.
The central issue before this court is whether the trial courterred in dismissing the complaint under sections 2--615 and 2--619.Regardless of whether the complaint is dismissed under section 2--615 or section 2--619, we apply a de novo standard of review. Provenzale v. Forister, 318 Ill. App. 3d 869, 874 (2001). Weaffirm the trial court and impose sanctions pursuant to SupremeCourt Rule 375(b) (155 Ill. 2d R. 375(b)) for the followingreasons.
Plaintiffs first argue that Lewis and Tarnaris filed animproper hybrid motion to dismiss that failed to set out whicharguments were made under section 2--615 or under section 2--619.Plaintiffs further contend that the trial court's order ofdismissal was improper because it also failed to cite each sectionof the Code that the court relied on in dismissing each count. Ourreview of Lewis' and Tarnaris's motion to dismiss reveals that itclearly delineates the grounds upon which it requested dismissal. Moreover, the court gave six reasons for dismissing the complaint,all of which were based on the grounds for dismissal stated in thevarious motions to dismiss filed by defendants. However, even ifwe found that the trial court failed to specify which sections ofthe Code it relied upon in dismissing the complaint, we may affirmthe decision for any reason appearing in the record regardless ofthe basis relied upon by the trial court. See Geick v. Kay, 236 Ill. App. 3d 868, 873 (1992). Accordingly, we find plaintiffs'argument pointless.
Next, plaintiffs assert that the settlement agreementsreleasing Tarnaris, Lewis, and Dickler from liability are invalidbecause those defendants were fiduciaries who breached an allegedlycontinuing duty to fully disclose all material fact with respect tothe matters purportedly released by the agreements. We note thatplaintiffs do not dispute the existence of the releases, whichclearly release Tarnaris, Lewis, and Dickler from the claims in thepresent suit. See 735 ILCS 5/2--619(a)(9) (West 1998) (a releasethat negates a plaintiff's claim constitutes affirmative matterthat requires dismissal).
The presumption of fraud that accompanies transactions betweenfiduciaries does not apply where the fiduciary relationship nolonger exists. Weisblatt v. Colky, 265 Ill. App. 3d 622, 626(1994). At the time the releases were signed in March and May1999, respectively, no fiduciary relationship existed between theAssociation and Lewis, Tarnaris, and Dickler. Lewis terminated hisservice as director or officer of the Association in December 1997;Tarnaris's fiduciary responsibility expired in November 1998, thelast time he allegedly served as a director, agent, or counsel ofthe Association; and Dickler's services terminated in December1997. Because Lewis, Tarnaris, and Dickler were not fiduciaries atthe time the releases were negotiated, there was no presumption offraud. Moreover, even assuming that there was some duty todisclose, plaintiffs' argument lacks merit, as any claims theAssociation might have had against Tarnaris, Lewis, and Dicklerwere known by plaintiffs before the releases were executed. Wetherefore reject this specious argument.
Plaintiffs also argue that Dickler's motion to dismiss wasunsupported by affidavit. Plaintiffs failed to raise this issue inthe trial court, and we find this argument to be a malevolent "redherring." Here, the law firm that is the party to the agreementand release is the same firm that prepared and signed the motion todismiss that alleged the existence and validity of the release. The attorney's signature constitutes a certification that themotion is well grounded in fact. 155 Ill. 2d R. 137. Plaintiffsdo not allege the nonexistence of Dickler's release, and the filingof an affidavit would have been merely cumulative. Such atechnicality, raised by plaintiffs for the first time without anyevidence to dispute the execution and existence of the agreement,does not alter the manifest weight of the evidence regarding thisissue.
Furthermore, regardless of the validity of the releases or anyof the obtuse technicalities raised by plaintiffs, they have nostanding to bring this action either individually or derivativelyon behalf of the Association. To maintain a suit on behalf of acorporation, an individual shareholder must allege and prove anequitable basis for such intervention, and a shareholder is no moreentitled to challenge by a derivative suit a decision by thedirectors not to sue than to challenge any other action of theboard. Axelrod v. Giambalvo, 129 Ill. App. 3d 512, 519-20 (1984). There are no allegations that the board in settling with defendantsabused its discretion, was grossly negligent, or acted in bad faithor fraudulently. Thus, plaintiffs cannot pursue litigationderivatively on behalf of the Association when the board voted notto proceed with litigation. See Miller v. Thomas, 275 Ill. App. 3d779, 787 (1995)(shareholder should not undermine a corporateboard's decision and file derivative suit simply because thecorporate board chooses not to sue). Furthermore, in Illinois, ashareholder seeking relief for an injury to the corporation, ratherthan a direct injury to the shareholder himself, must bring hissuit derivatively on behalf of the corporation. Small v. Sussman,306 Ill. App. 3d 639, 643 (1999). Plaintiffs' allegation thattheir assessments were increased on a "pro-rata dollar for dollarbasis" because of the alleged misconduct is merely an indirectharm. The alleged primary wrong is to the corporate body and,because plaintiffs have experienced no direct harm, they have noright to sue individually. See Small, 306 Ill. App. 3d at 643. Wenote further that plaintiffs' standing is undermined because theentire complaint alleges injury to the Association and fails toallege any injury to plaintiffs that is separate and distinct fromany other Association member. See Spillyards v. Abboud, 278 Ill.App. 3d 663, 670-71 (1996).
Even assuming that plaintiffs have standing to sue on behalfof the Association, we reject plaintiffs' claim that defendantsusurped a corporate opportunity. The corporate opportunitydoctrine prohibits a corporation's fiduciary from misappropriatingcorporate property and from taking advantage of businessopportunities that belong to the corporation. Dremco, Inc. v.South Chapel Hills Gardens, 274 Ill. App. 3d 534, 538 (1995); Lindenhurst Drugs, Inc. v. Becker, 154 Ill. App. 3d 61, 67 (1987). An element of the theory of usurpation of corporate opportunity isthe failure to first disclose the opportunity to the corporation,which would then allow the corporation to act upon it. See Levy v.Markal Sales Corp., 268 Ill. App. 3d 355, 366 (1994).
The gravamen of plaintiffs' complaint is the allegation that defendants took advantage of either their positions on the board oras agents of the Association to appropriate, in a common scheme, abusiness opportunity for themselves by concealing the acquisitionof property for personal gain without first fully disclosing thisopportunity to the Association. However, there was no concealment. The Association was fully informed of the foreclosure action, whichit was prosecuting, and Goldberg was directly involved. The saleof the property was by public auction pursuant to published notice. Plaintiffs' assertions are unfounded. Defendants' status as boardmembers did not place them in a better position to purchase theMurphy Lot.
Plaintiffs argue that the Association's knowledge of theopportunity to buy the lot does not defeat an action for usurpationof corporate opportunity. This argument ignores that the knowledgeof the foreclosure is what forms the basis of the determinationsthat none of the defendants acted secretly or that the Associationdid not have sufficient information and the ability to act upon thepurported "opportunity." Notwithstanding, plaintiffs fail torecognize that a corporate opportunity exists where the proposedactivity is reasonably incident to the corporation's present orprospective business and one in which the corporation has thecapacity to engage. Lindenhurst Drugs, 154 Ill. App. 3d at 67-68. Here, it is clear from our review of the Association's declarationthat it is in the business of administrating and maintaining theexisting property, not purchasing new property. Although theAssociation may have had the capacity to purchase the Murphy Lot oran "interest" in acquiring the lot, as plaintiffs allege, it isclear that such a purchase would not be "incident" to theAssociation's business or hinder or defeat the plans and purposesof the Association. In fact, the complaint alleges that theAssociation had never before engaged in a judicial sale. To assertthat the Association was not sufficiently informed of theforeclosure sale, that defendants somehow acted secretly, or thatthe Association was deprived of a corporate opportunity is simplywithout basis in fact.
Plaintiffs argue that, "[b]y opting to redeem Murphy'sproperty taxes rather than purchase the relevant tax certificatesfrom its then current owner(s), Dickler thus deprived Glenstone ofa more efficacious remedy." Plaintiffs ignore well-settled lawthat the Association, as a lien holder, may not purchase the taxcertificate. See In re Application of Boone County Collector, 131 Ill. App. 3d 939, 941 (1985) (it is against public policy for anassociation lien holder to purchase a tax certificate, as it cutsoff claims of other lien holders).
Finally, although only Dickler has requested that we imposesanctions under Supreme Court Rule 375(b) (155 Ill. 2d R. 375(b))for filing a frivolous and bad-faith appeal, a reviewing court mayimpose sanctions against a party for an appeal that is eitherfrivolous or not taken in good faith. Belfour v. Schaumburg Auto,306 Ill. App. 3d 234, 244 (1999). An appeal will be deemed"frivolous" where it is not reasonably well-grounded in fact andnot warranted by existing law or a good-faith argument for theextension, modification, or reversal of existing law, or if areasonable and prudent attorney would not have brought the appeal. Belfour, 306 Ill. App. 3d at 244. An appeal or other action willbe deemed to have been taken or prosecuted for an improper purposewhere the primary purpose of the appeal or other action is todelay, harass, or cause needless expense. 155 Ill. 2d R. 375(b). Rule 375 sanctions are penal and should be applied only to thosecases falling strictly within the terms of the rule. Belfour, 306Ill. App. 3d at 244.
As elaborated throughout this appeal, plaintiffs' complaintalleges that defendants secretly prevented the Association frompurchasing the Murphy Lot when plaintiffs unquestionably knew orhad reason to know that the property was in foreclosure and thatthe auction of the property was a matter of public record. Yet,not only do plaintiffs, and their counsel, continue to gloss overthis fact, they also ignore that the Association decided not topursue any litigation regarding the Murphy Lot and settled with allof the defendants. Particularly alarming is plaintiffs' attempt toshield their unquestionably meritless claims by raising otherirrelevant issues.
We therefore direct plaintiffs and their attorneys,Sonnenschein Nath & Rosenthal, to file, within 14 days, a brief ormemorandum with this court showing why we should not imposesanctions or attorney fees under Supreme Court Rule 375(b).
Should we thereafter decide that this appeal warrantssanctions, we shall order, in due course, that all defendantseither resubmit their previously filed statements of reasonableexpenses and attorney fees incurred as a result of this appeal orfile an amended request, with an appropriate opportunity forplaintiffs and their counsel to respond. We will thereafter filea supplemental opinion or order determining the amount of thesanction to be imposed on plaintiffs and Sonnenschein Nath &Rosenthal. See First Federal Savings Bank of Proviso Township v.Drovers National Bank of Chicago, 237 Ill. App. 3d 340, 347-48(1992).
For the foregoing reasons, we affirm the judgment of thecircuit court of Lake County, and we issue a rule to show cause.
Affirmed; rule to show cause issued.
McLAREN and KAPALA, JJ., concur.