author: JUSTICE MURRAY

text:
    MICHELLE BEAR, Plaintiff-Appellant, v. POWER AIR, INC., Defendant and Third-Party Plaintiff (J. Emil Anderson and Sons, Inc., et al., Defendants-Appellees and Third-Party Defendants).
    First District (5th Division)
    No. 1—91—0524
    Opinion filed May 22,1992.

      Williams & Marcus, Ltd., of Chicago (John F. Dziedziak, of counsel), for appellant.
    Tressler, Soderstrom, Maloney & Priess, of Chicago (Edmund J. Siegert and Jay H. Tressler, of counsel), for appellees.
   JUSTICE MURRAY

delivered the opinion of the court:

Plaintiff, Michelle Bear (Bear), appeals an order of the circuit court granting partial summary judgment in favor of defendants J. Emil Anderson & Sons, Inc., and Richard E Batchen. The facts are as follows.

In 1984 La Salle National Bank, as trustee under trust No. 47265, owned a building located at 1111 Plaza Drive, in Schaumburg, Illinois. Defendants J. Emil Anderson & Sons, Inc. (Anderson), and Richard Batchen (Batchen) were the beneficiaries of the trust. In 1984 the Illinois Department of Transportation (IDOT) leased portions of that building. Bear was employed by IDOT. In August 1984 Power Air, Inc. (Power Air), a defendant in the underlying suit but not a party to this appeal, was performing work on the premises to alter the air conditioning system in the computer room.

Bear testified that she first began experiencing problems with her eyes in approximately 1979 at which time she noticed that her eyes would become bloodshot, dry and itchy. As a result, she began receiving medical treatment from Dr. Sidney Bernstein, who placed her on artificial tears. By 1980 her eyes had become dryer and she started to experience “flare-ups.” She was told by Dr. Bernstein that she had “dry eyes.” She continued to experience problems with her eyes and “flare-ups” from 1980 until August 1984, when the incident which is the subject matter of this litigation occurred.

On the date of her incident, Bear arrived at the IDOT computer room at approximately 7 a.m. She began turning the equipment on. Robert Wagner, a co-worker, entered the computer room with an employee of Power Air. The Power Air employee told Bear that he was going to have to move some ceiling tiles to work on the duct work above. Wagner told Bear that work was going to commence on the air conditioning unit and that the computers had to be covered with plastic per the instructions of their boss, Jerry Daleiden. The Power Air employee offered to help Bear. Subsequently, Bear and the Power Air employee began to cover the computers with sheets of plastic provided by IDOT. While covering the machinery Bear spoke with the Power Air employee. Bear’s deposition testimony indicated that she told the Power Air employee that she was concerned about dust because she suffered from a serious eye condition.

Dust was generated by Power Air employees in the course of moving the ceiling tiles above the computer equipment. Bear described the amount of dust generated as follows:

“Q. How much dust was there in the air? Could you see it?
A. I could see particles blowing in the air.
Q. Were these larger than dust particles?
A. I don’t know how you measure them.
Q. You were able to visibly see the particles, anyway?
A. Some of them.”

Bear asked her boss, Mr. Daleiden, if she could leave the room because of the dust created by the work; however, Mr. Daleiden told her to stay with the workman from Power Air. Bear stayed in the room between two and six minutes before she left.

To the best of her knowledge, at no time did Bear ever have any discussions with anyone from Anderson concerning her eye condition. Moreover, she did not have any knowledge that Power Air or IDOT had any conversations with anyone from Anderson concerning her eye condition.

Robert Wagner testified through his affidavit that at no time did he ever have any communication with anyone from Anderson concerning Bear’s eye condition. William Shoemaker, Anderson’s property manager, testified that prior to the installation of the air distribution system he did not have any knowledge from any source that Bear suffered an eye condition.

Bear’s treating physician, Dr. Noth, testified at a discovery deposition. Dr. Noth's records disclosed that when he first saw Bear she had a history of corneal ulcers, chalazion and dry eyes. She also had a history of blepharitis. She was on a variety of lubricants and ointments. The lubricants were for the dry eyes.

When Dr. Noth first examined Bear he noted that she definitely had blepharitis. According to Dr. Noth, dry eye syndrome is not an uncommon entity in patients, especially females after the age of 25 or 30. In Dr. Noth’s opinion the exposure to dust or dirt at work could have contributed to her problem.

Bear filed a two-count complaint in tort. Count I alleged negligence by Power Air. Count II sought recovery from the landowner based upon plaintiff’s allegations that the landowner failed to provide plaintiff with a safe place to work, failed to warn of the dangerous conditions then and there existing, failed to make a reasonable inspection of the premises and the work being done thereon, and failed to provide adequate safeguards to protect plaintiff from injury. After a hearing on January 14, 1991, the trial court granted partial summary judgment in favor of Anderson and Batchen, affecting count II only. The trial court found “no just reason for delaying enforcement or appeal of [the] order.”

The sole issue on appeal is whether the trial court properly granted summary judgment as to count II of plaintiff’s first amended complaint. For the following reasons, we affirm the decision of the trial court.

Bear argues that although the incident did not involve an abnormally dangerous activity, the defendants were liable for harm resulting from their independent contractor’s failure to take precautions against the dangers inherent in the work. The risk of harm from falling tools, material and/or debris generated by the construction work was a danger inherent in the work that was both recognizable in advance and preventable. Bear maintains that a genuine issue of material fact exists as to the defendants’ liability to Bear as a probable consequence of the work being performed by the independent contractor.

Bear further argues that the trial court granted defendants’ motion for summary judgment, holding that no duty ran from the defendants to Bear because defendants did not have knowledge of Bear’s preexisting eye condition. Bear further argues that the trial court erred in its holding because foreseeability of the precise type of injury is not, under Illinois law, the sole factor for the court to consider in determining the existence of a duty. Bear maintains that the trial court erred by truncating its analysis to the point that the court construed the terms “duty” and “foreseeability of harm” as strictly synonymous. Defendants maintain that they are not liable for the negligence of the independent contractor and that the trial court’s grant of summary judgment was proper.

The evidence submitted to the trial court for consideration in ruling on the motion for summary judgment was the discovery deposition transcripts of Michelle Bear, Robert Wagner, William Shoemaker,

Dr. James Noth and Jerome Daleiden. The trial court was also supplied with the affidavits of Robert Wagner, Jerome Daleiden and William Shoemaker. In ruling on the motion for summary judgment the trial court stated:

“[W]hether there is a duty is a question of law. Whether duty ¡ has been breached is a question of fact. I don’t see a duty here on behalf of this movant when it employed an independent contractor.
Further that there is no evidence I have been able to find that the movants knew of this sensitive condition of the plaintiff. Had they known about it — there we get into words you don’t like, foreseeability. Had it been foreseeable that this plaintiff would be harmed, there are cases which hold that even though there is an independent contractor, then the owner might have some duty to guard against it. But here it's completely unforeseeable whether or not, to the movants, whether or not there was a sensitivity to this dust. ***
* * *
There are exceptions to that rule, the rule that an employer or independent contractor is not liable for the latter’s acts or omissions. The exceptions are that the principal orders the acts causing the harm, but the principal was negligent in hiring the independent contractor or that the principal retained control over the project. And there is no evidence of either of those presented here. So that this matter would not fall within either of those exceptions.”

Contrary to Bear’s assertion, after a review of the record, we do not believe that the trial court construed the terms “duty” and “foreseeability of harm” as synonymous.

A motion for summary judgment should be granted only when the pleadings, depositions, admissions, and affidavits establish there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. (Sons v. Taylor (1991), 219 Ill. App. 3d 923, 925, 579 N.E.2d 1281; Breeze v. Payne (1989), 181 Ill. App. 3d 720, 726-27, 537 N.E.2d 453, 458.) The purpose of summary judgment is not to try an issue of fact, but rather to determine whether a triable issue of fact exists. Sloan v. Jasper County Community Unit School District No. 1 (1988), 167 Ill. App. 3d 867, 870, 522 N.E.2d 334, 336.

The use of summary judgment is encouraged under Illinois law as an aid to the expeditious disposition of a lawsuit. (Purtill v. Hess (1986), 111 Ill. 2d 229, 240, 489 N.E.2d 867.) However, it is a drastic means of disposing of litigation and should be allowed only when the right of the moving party is clear and free from doubt. (Sons v. Taylor (1991), 219 Ill. App. 3d 923, 925, 579 N.E.2d 1281.) Although the plaintiff does not have to try his case, he must provide a factual basis which would arguably entitle him to judgment. (Handy v. Sears, Roebuck & Co. (1989), 182 Ill. App. 3d 969, 972, 538 N.E.2d 846.) The determination that summary judgment is appropriate will not be reversed absent an abuse of the trial court’s discretion such that the plaintiff’s right to fundamental justice is violated. Choi v. Commonwealth Edison Co. (1991), 217 Ill. App. 3d 952, 578 N.E.2d 33.

In order to state a cause of action for negligence, a plaintiff must establish that the defendant owed a duty of care to the plaintiff, the defendant breached that duty, and that the plaintiff was injured as a proximate result of that breach. (Estate of Johnson v. Condell Memorial Hospital (1988), 119 Ill. 2d 496, 503, 520 N.E.2d 37.) A. reviewing court, in determining whether summary judgment was properly granted in a negligence action, must first determine whether the defendant owed the plaintiff a duty. (Konyar v. Jonsson (1989), 184 Ill. App. 3d 865, 870, 540 N.E.2d 944, 947, citing Curtis v. County of Cook (1983), 98 Ill. 2d 158, 163, 456 N.E.2d 116, 118-19.) A number of factors are considered in determining duty: the foreseeability of harm, the likelihood of the injury, the magnitude of the burden of guarding against it, the consequences of placing that burden on the defendant, public policy, and social considerations. (Choi v. Commonwealth Edison Co. (1991), 217 Ill. App. 3d 952, 957, 578 N.E.2d 33.) “Whether or not the duty of care exists is a question of law to be determined by the court [citation], and thus may be determined on a motion for summary judgment.” Wodyla v. City of Park Ridge (1992), 148 Ill. 2d 417, 421.

In Gomien v. Wear-Ever Aluminum, Inc. (1971), 50 Ill. 2d 19, 21, 276 N.E.2d 336, the Illinois Supreme Court succinctly set forth the general rule regarding responsibility for the negligent acts of an independent contractor:

“Generally, it is the law that a master is liable for the acts of his servant committed within the scope of his employment; that a principal is liable for the acts of his agent performed within the scope of the agency; but neither is liable for the acts of an independent contractor unless the act or omission causing harm was pursuant to the order or direction of the principal or employer, or unless under certain circumstances, the principal or employer failed to exercise reasonable care in selecting a careful and competent contractor.”

Although generally not liable for the negligence of an independent contractor, there are exceptions to the general rule which insulates an employer from liability for the acts of an independent contractor. One of those exceptions provides that an employer could be held liable if he failed to exercise reasonable care in his selection of a particular independent contractor. (Kouba v. East Joliet Bank (1985), 135 Ill. App. 3d 264, 267, 481 N.E.2d 325.) Other exceptions include scenerios where the principal orders or directs the acts causing the harm or where the principal retains control of the operative details of the contractor’s work. See Pasko v. Commonwealth Edison Co. (1973), 14 Ill. App. 3d 481, 302 N.E.2d 642.

On appeal Bear does not dispute that Power Air was an independent contractor. Additionally, Bear does not present arguments as to any of the aforementioned exceptions, but rather argues that the “inherently dangerous activity” exception should apply to this case.

Illinois courts have held that “ ‘[t]he term “inherently dangerous” means that type of danger which inheres in the instrumentality or condition itself at all times, thereby requiring special precautions to be taken with regard to it to prevent injury and does not mean danger which arises from mere casual or collateral negligence of others with respect to it under particular circumstances.’ ” (Woodward v. Mettille (1980), 81 Ill. App. 3d 168, 176, 400 N.E.2d 934, quoting Watts v. Bacon & Van Buskirk Glass Co. (1958), 20 Ill. App. 2d 164, 168, 155 N.E.2d 333.) The rationale underlying the inherently dangerous exception to the general rule is that an owner ought to be required to take special precautions, and be liable for not doing so, where an independent contractor, on the owner’s property, is engaged in an activity or using an instrumentality which, even when properly and carefully operated, poses a significant risk of injury or damage to others. Woodward v. Mettille (1980), 81 Ill. App. 3d 168, 176, 400 N.E.2d 934.

If one employs another to do work which he should recognize as involving some peculiar risk to others unless special precautions are taken, the one doing the employing will remain liable if harm results because these precautions are not taken. (Johnson v. Central Tile & Terrazzo Co. (1965), 59 Ill. App. 2d 262, 276-77, 207 N.E.2d 160.) “[T]he proper test to be applied concerning the liability of an owner for the act of negligence of an independent contractor is whether there was sufficient evidence presented so that the trier of fact could determine that the work to be done was a probable and foreseeable source of injury to a party such as plaintiff unless proper precautions were taken.” (Donovan v. Raschke (1969), 106 Ill. App. 2d 366, 370, 246 N.E.2d 110.) “All activity involves some risk or exposure of risk to others, but it is only where the work is inherently dangerous or a probable source of injury to others, that a contractee may not delegate the duty to take precautions.” Johnson v. Central Tile & Terrazzo Co. (1965), 59 Ill. App. 2d 262, 277, 207 N.E.2d 160.

Bear relies on Benesh v. New Era, Inc. (1991), 207 Ill. App. 3d 1049, 566 N.E.2d 779, in support of her argument. Benesh involved an independent contractor who undertook to spray paint the exterior of a building. The plaintiffs property, a wooden fence and garage, was approximately 10 feet from the building being spray painted. In determining whether an exception to the independent contractor rule applied, the trial court found that the danger of paint overspray was clearly recognizable in advance by the very nature of the work. The damages complained of were the splattering of white paint onto a cedar fence 10 feet away. The defendant conceded in its brief that paint overspray is a relatively common occurrence. The appellate court held that the defendant should have anticipated that paint might be sprayed or splattered onto plaintiff’s fence and garage, which were only 10 feet from the area being painted. The court held:

“It is common knowledge that sprayed paint is often carried by the wind and often splatters on surfaces where it is not wanted. Such an occurrence is unavoidable regardless of how carefully one uses the paint sprayer. Splattering or overspraying of paint is normally to be expected in the ordinary course of the usual way of spray painting a building. This danger is recognizable in advance, and defendant should have anticipated it and taken precautions against it.” Benesh, 207 Ill. App. 3d at 1053.

Benesh recognized that the liability of an employer for harm caused by an independent contractor is not limited to “highly dangerous” activities. The liability of an employer also applies to work which involves a risk, recognizable in advance, that the danger inherent in such work, or in the ordinary or prescribed way of performing it, may cause harm to others. (Benesh v. New Era, Inc. (1991), 207 Ill. App. 3d 1049, 566 N.E.2d 779.) We agree with the analysis in Benesh, but find the facts distinguishable from the present case. In Benesh the defendants conceded that paint overspray is a relatively common occurrence. In the present case the defendants did not concede that plaintiff’s reaction to the dust was a common occurrence. In the present case the trial court properly determined that the injury to Bear was not such that it would have been anticipated by defendants as a probable consequence of the independent contractor’s work.

In Presbrey v. Gillette Co. (1982), 105 Ill. App. 3d 1082, 435 N.E.2d 513, the plaintiff brought an action against Gillette to recover damages for injuries allegedly sustained by the plaintiff when he developed severe welting after using an antiperspirant manufactured by Gillette. The court held that the plaintiff was not entitled to recovery because the injury sustained by the plaintiff was an idiosyncratic reaction that would not cause harm to the average person. Since the manufacturer did not know, and had no reason to know, that the plaintiff might be injured, the court held that there was no duty to warn of a risk that was remotely possible to the unknown few in the population. The court also stated that the rule barring the idiosyncratic consumer from recovery generally applies whether the suit is brought under strict liability, breach of warranty, or negligence. Presbrey, 105 Ill. App. 3d at 1092, 435 N.E.2d at 520.

In Garcia v. Jiminez (1989), 184 Ill. App. 3d 107, 539 N.E.2d 1356, a mother brought an action against her landlord where her child suffered neurological damage as a result of eating paint chips in their apartment. Declining to find that the landlord owed a duty the court stated, “paint chips, like dirt, coins, stones, or other objects that children may place in their mouths, are not in and of themselves sufficient as a matter of law to establish the dangerousness that makes an injury foreseeable and creates a duty to remedy.” (Garcia, 184 Ill. App. 3d at 112.) However, the court also indicated that “the actual or constructive knowledge that the paint chips contain a toxic substance, *** combined with the actual or constructive knowledge that a child may ingest those paint chips, will create such a duty.” (Garcia, 184 Ill. App. 3d at 112.) In the present case, one which involves the alleged negligence of an independent contractor, the moving of acoustical tiles is not in and of itself sufficient as a matter of law to establish the dangerousness that makes an injury foreseeable and creates a duty to remedy on the part of the landlord.

We find that the trial court properly ruled, as a matter of law, that the defendant owed no duty to the plaintiff. The activity Power Air was engaged in at the time of Bear’s injury, i.e., moving acoustical ceiling tiles, was not inherently dangerous. It became hazardous only to a person with Bear’s sensitive eye condition. Plaintiff’s injury was an idiosyncratic reaction to the dust. Bear never told defendants of her eye condition nor did Power Air advise them of her condition. Had there been any evidence that Anderson knew Bear had an eye ailment or even that Anderson knew employees of its tenant had eye ailments that could be aggravated by dust there might be a fact issue precluding summary judgment. There was no such evidence and neither we nor the trial court could infer such facts from the matters considered by the trial court. To hold defendants liable for Power Air’s alleged negligence in performing its work would warp the concepts of an independent contractor and inherently dangerous activities to the point of making an owner or landlord responsible for every act of an independent contractor.

Bear’s remedy, if any, is not against Anderson; rather, it is against Power Air or IDOT. For the above reasons, we affirm the trial judge’s grant of summary judgment in favor of Anderson and Batchen and remand the matter back to the trial court for further proceedings.

Affirmed and remanded.

LORENZ and GORDON, JJ., concur.


source: Caselaw Access Project

author: JUSTICE LaPORTA

license: Public Domain

text:
    FRANK D. SEINFELD, Indiv., as Class Representative, and Derivatively on Behalf of Baxter Healthcare Corporation, Plaintiff-Appellee and Cross-Appellant, v. KARL D. BAYS et al., Defendants-Appellants and Cross-Appellees (Baxter Healthcare Corporation, Nominal Defendant-Cross-Appellee).
    First District (6th Division)
    Nos. 1—90—3414 through 1—90—3416 cons.
    Opinion filed May 22, 1992.

      Hopkins & Sutter, of Chicago (John Conlon and Katherine T. Millett, of counsel), and Bass, Berry & Sims, of Nashville, Tennessee (Steven A. Riley and Robert E. Cooper, Jr., of counsel), for appellant Hospital Corporation of America.
    Sidley & Austin, of Chicago (Michael I. Miller, David M. Stahl, and Emily J. Rothman, of counsel), for other appellants.
    Seinfeld, Cherry & Flynn (Myron M. Cherry and Peter Flynn, of counsel), Robinson, Curley & Clayton (Fay Clayton and David Rubman, of counsel), and Sachnoff & Weaver, Ltd. (Lowell E. Sachnoff and Joel M. Shapiro, of counsel), all of Chicago, and Garwin, Bronzaft, Gerstein & Fisher (Betram Bronzaft, of counsel), and Wolf, Popper, Ross, Wolf & Jones (Klari Neuwelt, of counsel), both of New York, New York, for appellee Frank D. Seinfeld.
    Bell, Boyd & Lloyd, of Chicago (John P. Scotellaro and John W. Rotunno, of counsel), for appellee Baxter Healthcare Corporation.
   JUSTICE LaPORTA

delivered the opinion of the court:

This appeal arises from a four-count complaint brought by plaintiff against Hospital Corporation of America (HCA), Baxter Healthcare Corporation (Baxter), as nominal defendant, and against the former directors of American Hospital Supply Corporation (American).

Counts I and II of the complaint asserted shareholders’ derivative claims, on behalf of Baxter, against HCA and the individual defendants. Counts III and IV asserted individual claims on behalf of all persons holding an ownership interest in the common stock of American at the time American merged with Baxter. The trial court dismissed the shareholders’ derivative claims, finding that plaintiff had failed to make the necessary presuit demand upon the board of directors of Baxter. The court denied defendants’ motions to dismiss the individual claims and also denied defendants’ request that the entire cause of action be dismissed under the doctrine of res judicata.

Defendants have filed this interlocutory appeal, challenging the trial court’s denial of their motion to dismiss the individual claims raised in counts III and IV and challenging the court’s refusal to dismiss the entire cause of action under the doctrine of res judicata. Although these rulings would not normally be reviewable because they are not final orders which ascertain the rights of the parties and determine the litigation on the merits (Flores v. Dugan (1982), 91 Ill. 2d 108, 112, 435 N.E.2d 480, 482; People ex rel. Scott v. Silverstein (1981), 87 Ill. 2d 167, 171, 429 N.E.2d 483, 485; Village of Niles v. Szczesny (1958), 13 Ill. 2d 45, 48, 147 N.E.2d 371, 372), they are subject to review by this court because the trial judge certified the questions for interlocutory appeal. See 134 Ill. 2d R. 308.

Plaintiff has filed a cross-appeal attacking the court’s dismissal of counts I and II.

The record on appeal reveals plaintiff alleged in his complaint that he held common stock in American prior to its merger with Baxter. Subsequently, and as a result of the merger, plaintiff became a shareholder in Baxter. Baxter, American, and HCA were engaged in the health-care industry. Each of the individual defendants named in the complaint was a director of American at the time of and prior to its merger with Baxter. All of the claims asserted by plaintiff arose from two major transactions involving American, HCA, and Baxter.

The first transaction consisted of an agreement and plan of reorganization (merger agreement) executed March 30, 1985, between American and HCA. Under the terms of this agreement, the two corporations were to merge, and the shareholders of each company were to receive stock in a third, newly created company.

The merger agreement also included a term intended to defend against any take-over attempt by a third party. This term has been referred to by the plaintiff as the “lock-up” or “stock swap” provision (hereinafter the stock swap provision). The stock swap provision specified that, in the event a third party made a public offer for the stock of either HCA or American, either corporation had the right to effect an exchange of securities whereby HCA would acquire 35% of American’s common stock (39 million newly issued shares of American stock) and American would acquire 25% of HCA’s common stock (29.5 million shares of HCA stock). This stock swap provision also specified that in the event of its exercise, both companies agreed to vote the shares acquired thereunder in favor of the merger agreement previously described and against any other competing offers.

The second transaction challenged by plaintiff took place in July 1985, prior to a consummation of the American-HCA merger and as a result of a tender offer by Baxter to acquire American at a price significantly higher than that offered by HCA. This transaction consisted of an agreement by American, HCA, and Baxter (hereinafter the termination agreement) whereby American and HCA agreed to terminate their merger agreement, including the stock swap provision. Pursuant to this termination agreement, HCA agreed to accept a cash payment from American as consideration for HCA’s relinquishment of the stock swap option. HCA was to receive $150 million if the Baxter-American merger was consummated by March 31, 1986, and an additional $50 million if, following consummation but prior to December 31, 1990, HCA and its customers purchased a specified amount of Baxter products.

Plaintiff alleged in his complaint that defendant Bays, the former chairman and chief executive officer of American, and Thomas F. Frist, Jr., president and chief executive officer of HCA, were longtime friends and had orchestrated the merger agreement between American and HCA in order to preserve and entrench themselves in office. Plaintiff asserted that under the merger agreement, Bays, Frist, and a majority of the directors of both companies were to retain their respective positions.

The complaint asserted further that the stock swap provision included in the merger agreement was unlawful and gave to HCA the unilateral power to block any proposed merger of American with a third party, even if such a merger would be beneficial to American and its shareholders. Plaintiff alleged that through the stock swap provision of the merger agreement, the individual defendants abdicated and put into HCA’s hands their fiduciary duty to act in the best interest of American’s shareholders with respect to merger proposals and deprived themselves and American’s shareholders of the ability to take meaningful action on any subsequent third-party merger proposal, regardless of how desirable such a proposal might be.

Plaintiff also asserted that as a result of these actions, the individual defendants wrongfully forced American and its shareholders to suffer enormous and improper waste in the amount of $150 million in order to terminate the merger agreement and to rescind the stock swap provision. The complaint asserted further that because the termination fee to HCA was made a condition of the highly desirable merger agreement with Baxter, the individual defendants deprived American’s shareholders of any meaningful opportunity to object to the $150 million payment.

Counts I and II of the complaint asserted shareholders’ derivative claims on behalf of Baxter and against HCA and the individual defendants. Count I alleged that the individual defendants had breached their fiduciary duties as the former directors of American and did not approve the stock swap provision in good faith after a reasonable investigation. Count II alleged that HCA had aided, abetted, conspired with, and intentionally joined with the individual defendants in the breach of their fiduciary duties to American. Plaintiff asserted that a presuit demand upon Baxter’s board of directors would have been futile because the Baxter board included many of the individual defendants and because the conduct of these defendants was not protected by the “business judgment rule.”

In counts III and IV, plaintiff asserted individual claims, as class representative, on behalf of all persons holding an ownership interest in the common stock of American as of the date of the merger with Baxter. The grounds underlying these two counts were identical to those asserted in counts I and II.

The relief sought by plaintiff included an adjudication that the stock swap agreement between American and HCA was unlawful, invalid, and a breach of the fiduciary duties of American’s directors; damages in favor of Baxter in the amount of $150 million plus prejudgment interest; and an award of reasonable attorney fees, expert fees, expenses, and costs of suit.

Baxter, HCA, and the individual defendants moved to dismiss the derivative claims asserted in counts I and II based upon plaintiff’s failure to make a presuit demand upon the Baxter board of directors prior to filing his complaint.

HCA and the individual defendants moved to dismiss counts III and IV, contending that plaintiff lacked standing as an individual shareholder to pursue claims belonging solely to the corporation.

HCA and the individual defendants also sought dismissal of all four counts of the complaint, contending, inter alia, that the claims asserted by plaintiff were barred by the doctrine of res judicata because they had been previously litigated in a Federal court action brought by plaintiff in 1985.

The trial court dismissed the shareholders’ derivative claims in counts I and II, finding that plaintiff had failed to make the necessary presuit demand upon the board of directors of Baxter, but the court denied the motions to dismiss the individual claims asserted in counts III and IV. The trial court also denied defendants’ request that the entire cause of action be dismissed under the doctrine of res judicata.

Upon denial of defendants’ motion to reconsider its ruling, the trial court certified for interlocutory appeal under Supreme Court Rule 308 (134 Ill. 2d R. 308) the following questions:

(A) whether the trial court correctly dismissed plaintiff’s derivative claims asserted in counts I and II on the grounds that plaintiff was required to, but did not, make a presuit demand on the board of directors of Baxter;
(B) whether the trial court correctly denied defendants’ motions to dismiss plaintiff’s individual shareholder claims asserted in counts III and IV for lack of standing; and
(C) whether the trial court correctly ruled that counts I through IV were not barred by the doctrine of res judicata.

Defendants have appealed the trial court’s denial of their motion to dismiss counts III and IV of the complaint and the court’s refusal to dismiss the entire cause of action under the doctrine of res judicata. Plaintiff has filed a cross-appeal challenging the court’s dismissal of counts I and II.

We initially address the trial court’s refusal to dismiss plaintiff’s entire cause of action under the doctrine of res judicata.

HCA and the individual defendants have asserted that all of the claims raised in plaintiff’s complaint were barred by the doctrine of res judicata because they had been previously litigated in a Federal court action brought by plaintiff in 1985. We disagree.

Under the doctrine of res judicata, a final judgment of a claim or cause of action raised in a prior action bars a subsequent action between the same parties on the same claim or cause of action. Suslick v. Rothschild Securities Corp. (1987), 164 Ill. App. 3d 589, 595, 517 N.E.2d 600, 604, rev’d on other grounds (1989), 128 Ill. 2d 314, 538 N.E.2d 553; Redfern v. Sullivan (1982), 111 Ill. App. 3d 372, 375, 444 N.E.2d 205, 208.

In the case at bar, the Federal action filed by plaintiff in 1985 raised both Federal and State claims. The Federal claim asserted by plaintiff in that action was premised upon allegations of insider trading and was brought under section 16(b) of the Securities Exchange Act of 1934 (15 U.S.C. §78p(b) (1988)). (See Seinfeld v. Hospital Corp. of America (N.D. Ill. 1988), 685 F. Supp. 1057.) The State claims, asserted under pendent jurisdiction, were predicated upon the same allegations as the claims presented here and charged that the individual defendants had breached their fiduciary duties as directors of American.

Upon motions filed by HCA and American, the district court dismissed plaintiff’s cause of action. The court determined that because HCA was not an “insider” when it acquired the stock swap option and because its exercise of the option would not have amounted to a section 16(b) “purchase” of the underlying American stock, plaintiff was unable to prove any set of facts which would establish a “purchase and sale *** within six months” which could have been based on inside information. (See 15 U.S.C. §78p(b) (1988).) The district court found further that because HCA was not a beneficial owner of more than 10% of American stock at the time of the purchase, a claim under section 16(b) would not lie. Having determined that plaintiff had not alleged sufficient facts to assert a violation of section 16(b), the district court dismissed the Federal claim of insider trading.

Having disposed of plaintiff’s Federal claim for failure to state a cause of action under section 16(b), the district court also dismissed the State claims asserted under pendent jurisdiction. This action by the district judge was in accordance with the general rule requiring dismissal of pendent State claims for want of jurisdiction where all Federal claims have been eliminated before trial. See Carnegie-Mellon University v. Cohill (1988), 484 U.S. 343, 98 L. Ed. 2d 720, 108 S. Ct. 614.

In dismissing plaintiff’s Federal claim, the district court judge did not address or discuss the pendent State claims alleging breach of fiduciary duties. The dismissal of the pendent State claims was based solely upon a lack of jurisdiction and did not substantively affect those claims. For purposes of res judicata, the definition of a judgment on the merits is one which is based upon legal rights rather than mere matters of practice, jurisdiction, or form. (Harper Plastics, Inc. v. Amoco Chemicals Corp. (7th Cir. 1981), 657 F.2d 939, 943.) The dismissal of plaintiff’s Federal section 16(b) claim for failure to state a cause of action was an adjudication on the merits of that claim only, and the dismissal for want of jurisdiction of the pendent State claims cannot be construed as a determination on the merits. Harper Plastics, Inc., 657 F.2d at 943; Suslick, 164 Ill. App. 3d at 595.

Consequently, the judgment in the 1985 Federal action did not bar the refiling of plaintiff’s State claims in the case at bar. (Suslick, 164 Ill. App. 3d at 595. See also Nilsen v. City of Moss Point (5th Cir. 1982), 674 F.2d 379, aff’d (5th Cir. 1983), 701 F.2d 556; Gregory v. Mitchell (5th Cir. 1981), 634 F.2d 205; Management Investors v. United Mine Workers (6th Cir. 1979), 610 F.2d 384.) We conclude, therefore, the trial court correctly determined that the doctrine of res judicata did not apply in the instant case and properly denied defendants’ motion to dismiss plaintiff’s complaint on this basis.

We next consider whether the trial court erred in dismissing the derivative claims raised in counts I and II on the grounds that plaintiff failed to make a presuit demand upon the board of directors of Baxter.

Plaintiff asserted in his complaint that a demand upon the board of directors of Baxter was excused because such demand would be futile. The trial court, however, rejected this assertion and dismissed counts I and II on the basis that plaintiff had failed to make the requisite demand.

Because Baxter is a Delaware corporation, Delaware law governs any derivative claims brought on its behalf or any individual claims brought by its shareholders. See Panter v. Marshall Field & Co. (7th Cir. 1981), 646 F.2d 271, cert. denied (1981), 454 U.S. 1092, 70 L. Ed. 2d 631,102 S. Ct. 658.

A presuit demand upon the board of directors of the corporation is required under Delaware Court of Chancery Rule 23.1, which provides, in pertinent part, as follows:

“In a derivative action brought by 1 or more shareholders or members to enforce a right of a corporation *** the complaint *** shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or comparable authority and the reasons for his failure to obtain the action or for not making the effort.”

Consequently, a plaintiff seeking to enforce a claim which has accrued to a corporation must either (1) make a presuit demand requesting that the corporation’s board of directors assert the claim, or (2) establish that such a demand would be futile, prior to the filing of a derivative cause of action.

The test employed in determining whether a demand upon a corporate board of directors would be futile consists of an examination of whether, taking the well-pleaded facts as true, the allegations in the complaint raise a reasonable doubt that (i) the directors are disinterested and independent, and (ii) the directors exercised proper business judgment in approving the challenged transaction. Levine v. Smith (Del. 1991), 591 A.2d 194; Grobow v. Perot (Del. 1988), 539 A.2d 180, 186; Pogostin v. Rice (Del. 1984), 480 A.2d 619, 624; Aronson v. Lewis (Del. 1984), 473 A.2d 805, 814.

The first prong of this test is applied as of the time the litigation was commenced. (Pogostin, 480 A.2d at 624.) Thus, the court must review the factual allegations of the complaint to determine whether they create a reasonable doubt as to the disinterest and independence of the directors at the time the complaint was filed. Pogostin, 480 A.2d at 624.

Directorial interest exists whenever divided loyalties are present, or a director either has received, or is entitled to receive, a personal financial benefit from the challenged transaction which is not equally shared by the stockholders. (Pogostin, 480 A.2d at 624; Aron-son, 473 A.2d at 812.) Independence of directors is determined by examination of the influences upon the directors’ performance of their duties generally, and more specifically, in respect to the challenged transaction. Pogostin, 480 A.2d at 624; Aronson, 473 A.2d at 814, 816.

Demand typically is deemed to be futile when a majority of the directors have participated in or approved the alleged wrongdoing or are otherwise financially interested in the challenged transactions. Kamen v. Kemper Financial Services, Inc. (1991), 500 U.S. 90, 114 L. Ed. 2d 152, 111 S. Ct. 1711.

In the instant case, plaintiff has asserted that a demand upon Baxter’s board of directors was excused because such demand would be futile. Specifically, the complaint alleged that the Baxter board included many of the individual defendants who had been directors of American. Plaintiff also alleged that other members of the Baxter board approved and encouraged the termination of the merger agreement between American and HCA, including the provision for payment of $150 million as consideration for HCA’s relinquishment of its rights under the stock swap provision.

Moreover, the complaint also asserted that demand upon the Baxter board would have been futile because the members of that board approved and encouraged the termination agreement which included releases by which Baxter and American relieved HCA of all liability for the challenged transactions. This release provision in the termination agreement prevented the Baxter board from making an unbiased and independent assessment of a presuit demand by a former shareholder of American because it specifically precluded Baxter and American from asserting any claims arising out of the challenged transactions.

Our review of the allegations in plaintiff’s complaint indicates that he has raised a reasonable doubt as to the disinterest and independence of the Baxter board of directors. It is evident that the Baxter board cannot be considered independent where the release provision in the termination agreement effectively prohibited the board from acting on a right or claim which accrued to the corporation and arose out of the transactions at issue here.

In addition, plaintiff’s complaint alleged that the Baxter board approved the potential additional $50 million which Baxter might have been obligated to pay to HCA. This allegation supports the assertion that plaintiff raised a reasonable doubt as to the disinterest and independence of the Baxter board and that a presuit demand would have been futile.

Consequently, we hold that plaintiff’s complaint alleged sufficient facts to raise a reasonable doubt that, at the time the complaint was filed, the members of the Baxter board of directors were disinterested and independent.

In light of our determination on this issue, we need not consider whether plaintiff’s complaint asserted adequate facts to raise a reasonable doubt that the actions of the individual defendants were appropriate under the business judgment prong of the demand futility-test.

Finally, we consider whether the trial court erred in refusing to dismiss the individual claims raised in counts III and IV. HCA and the individual defendants have argued that counts III and IV should have been dismissed based upon plaintiff’s lack of standing, as an individual shareholder, to pursue claims which have accrued to the corporation.

Shareholders may bring direct actions, both as individuals and as a class, for injuries done to them in their individual capacities by corporate fiduciaries. (Kramer v. Western Pacific Industries, Inc. (Del. 1988), 546 A.2d 348, 351.) Yet, in order to properly assert an individual claim, a plaintiff is required to assert more than an injury resulting from a wrong to the corporation. (Kramer, 546 A.2d at 351.) A plaintiff must allege either an injury which is separate and distinct from that suffered by other shareholders, or a wrong involving a contractual right of a shareholder which exists independently of any right of the corporation. (Kramer, 546 A.2d at 351.) For a plaintiff to have standing to bring an individual action, he must be injured directly or independently of the corporation. Kramer, 546 A.2d at 351.

Whether a cause of action is individual or derivative must be determined from the nature of the wrong alleged and the relief, if any, which could result if plaintiff were to prevail. (Kramer, 546 A.2d at 352.) In determining the nature of the wrong alleged, a court must look to the body of the complaint rather than to the plaintiff’s designation or stated intention. Kramer, 546 A.2d at 352.

In the case at bar, plaintiff’s complaint asserted that he and the other members of the class of American shareholders suffered individual injuries as a result of the same conduct alleged in counts I and II which raise derivative claims. The factual bases of the wrongs alleged in all four counts of the complaint are identical. The nature of these allegations amounts to charges that the actions of the defendants resulted in a devaluation of American’s stock and subsequent corporate waste. Plaintiff’s complaint failed to allege that the merger with Baxter was unfair or that plaintiff and the other shareholders had a contractual right to vote on the stock swap or repurchase agreements.

Thus, the plaintiff failed to allege either an injury which was separate and distinct from that suffered by other shareholders, or a wrong involving a contractual right of a shareholder which existed independently of any right of the corporation. (See Kramer, 546 A.2d at 351.) In addition, the plaintiff did not assert that he was injured directly or independently of the corporation. Kramer, 546 A.2d at 351.

Claims of devaluation of stock and of corporate waste are claims which accrue to the corporation rather than to individual shareholders. (Kramer, 546 A.2d at 354; Moran v. Household International, Inc. (Del. 1985), 490 A.2d 1059, 1070.) Such suits must be brought derivatively on behalf of the corporation and its shareholders. (Kramer, 546 A.2d at 353.) Consequently, we find that the trial court erred in refusing to dismiss for lack of standing the individual claims which plaintiff attempted to raise in counts III and IV.

For the foregoing reasons, the trial court’s determination that the entire complaint could not be dismissed under the doctrine of res judicata is affirmed; the trial court’s dismissal of counts I and II for failure to make the requisite presuit demand upon the Baxter board of directors is reversed; and the trial court’s refusal to dismiss the individual claims raised in counts III and IV is reversed.

Affirmed in part; reversed in part.

McNAMARA and RAKOWSKI, JJ., concur.


author: PRESIDING JUSTICE EGAN

text:
    HYATT CORPORATION, d/b/a Hyatt Regency O’Hare, Plaintiff-Appellant, v. ROGER D. SWEET, Director of the Illinois Department of Revenue, et al., Defendants-Appellees.
    First District (6th Division)
    No. 1—91—0957
    Opinion filed May 22,1992.

      George M. Hoffman and Diane M. Anderson, both of Neal, Gerber & Eisenberg, of Chicago, for appellant.
    Roland W. Burris, Attorney General, of Springfield (Susan Frederick Rhodes, Assistant Attorney General, of Chicago, of counsel), for appellees.
   PRESIDING JUSTICE EGAN

delivered the opinion of the court:

This is an appeal involving the construction of a section of the Retailers’ Occupation Tax Act (the Act) (Ill. Rev. Stat. 1989, ch. 120, par. 441). The trial judge interpreted the Act in the manner argued by the defendant Director of the Illinois Department of Revenue (the Department), and entered summary judgment against the plaintiff, Hyatt Corporation. The Hotel-Motel Association of Illinois has filed an amicus curiae brief in this court in support of the plaintiff’s appeal.

The plaintiff operates the hotel known as the Hyatt Regency O’Hare (the Hotel), located at 9300 West Bryn Mawr in Rosemont, Illinois. The Hotel offers banquet facilities and employs waiters, waitresses, bartenders and busboys (collectively referred to as the Servers) to serve customers at its banquet functions.

The Hotel’s banquet customers pay a mandatory service charge equal to a percentage of the price of the food and beverages they consume. On the customers’ bills, the service charge is stated separately from the charges for food and beverages.

The Servers are compensated in accordance with the provisions of the Hotel’s collective bargaining agreements with the union representing the Servers. In addition to uniforms, vacation pay, and other benefits, the Servers receive direct cash compensation labeled “shift pay” and “commissions.” “Shift pay” is the specified dollar amount or wage that a Server earns for working at a banquet function. “Commissions” are 88.1% of the service charge billed by the Hotel for that function. “Shift pay” is 11.9% of the service charge. The Servers are not salaried employees; they are paid only for hours worked and receive a single weekly paycheck including shift pay and commissions earned that week. The Hotel is not obligated to hire the Servers for any minimum hours per week or other period, nor is it required to pay the Servers any fixed or minimum compensation. Under the terms of the collective bargaining agreements, the service charge for the period of July 1, 1986, through October 31, 1988, was to be 16%, and the service charge for the period of November 1, 1988, through August 31, 1989, was to be 17%. If the Hotel did not charge a service charge at least equal to the percentage stated in the collective bargaining agreements, then the Servers were free to solicit tips, and they were entitled to keep 100% of the tips they solicited.

For the period of July 1, 1986, through August 31, 1989 (the Audit Period), the Hotel collected and remitted the proper amount of State and local Retailers’ Occupation Tax (ROT) on its charges for the food and beverages it served at banquets. The Hotel did not collect or remit State or local ROT on the service charges, believing those charges to be exempt under the following provision of the Retailers’ Occupation Tax Act (Ill. Rev. Stat. 1989, ch. 120, par. 441):

“§2. Except as hereinafter provided, a tax is imposed upon persons engaged in the business of selling tangible personal property *** at retail at the rate of 6.25% of the gross receipts from such sales of tangible personal property made in the course of such business, excluding, however, from those gross receipts *** (e) the proceeds of any mandatory service charge which is separately stated on customers’ bills for purchase and consumption of food and beverages, if all of the proceeds of the service charge are in fact turned over to the employees who would normally have received tips had the service charge policy not been introduced ***.”

The Department proposed the following deficiencies of ROT and interest in connection with the service charges for the Audit Period:

Tax Interest Total
State ROT $179,442.71 $40,297.14 $219,739.85
Municipal ROT 35.888.14 8.059.43 43.947.57
RTAROT 35.888.15 8.059.43 43.947.58
Totals $251,219.00 $56,416.00 $307,635.00

The plaintiff paid $307,635.00 pursuant to section 2a of the State Officers and Employees Money Disposition Act (Ill. Rev. Stat. 1989, ch. 127, par. 170 et seq.) and filed this action in the circuit court to review the proposed deficiencies. Count I of the complaint claimed that the service charge was exempt under the regulations promulgated under the Act. (86 Ill. Adm. Code §130.450 (1985).) Count II, pleaded as an alternative to count I, claimed that the service charge was exempt under section 2(e) of the Act. Count III alleged that an additional $15,094 plus interest paid by the Hotel under protest represented taxes on banquet sales for high school proms, which were exempt sales to exclusively charitable, religious or educational organizations under section 2 of the Act. The funds sought in count III were refunded to the Hotel by agreed order dated September 18,1990.

Each count of the complaint sought an order (1) restraining the Department from transferring the funds that the plaintiff had paid under protest from the special protest fund to the general revenue fund; (2) directing the Department to repay to the plaintiff the funds paid under protest, plus interest; and (3) restraining the Department from seeking to impose ROT on any portion of the service charge.

On October 26, 1989, the trial judge granted the plaintiff’s emergency motion for a temporary restraining order enjoining the Department from transferring from the protest fund the sum paid by the plaintiff until a final judgment was rendered. The injunction was continued by agreement and is presently in force.

The plaintiff filed a motion for summary judgment on count II of its complaint, and the Department filed a cross-motion for summary judgment. Both sides maintained that section 2(e) of the Act was unambiguous; the plaintiff argued that its service charges were clearly exempt under the statute, and the Department argued that the charges just as clearly were not exempt. On December 10, 1990, the judge denied the plaintiff’s motion and granted the Department’s motion. The judge then granted the plaintiff’s motion to voluntarily dismiss count I.

This appeal centers on the interpretation of section 2(e) of the Act, which provided when this dispute arose an exemption for

“the proceeds of any mandatory service charge which is separately stated on customers’ bills for purchase and consumption of food and beverages, if all of the proceeds of the service charge are in fact turned over to the employees who would normally have received tips had the service charge policy not been introduced.” (Ill. Rev. Stat. 1989, ch. 120, par. 441.)

Accordingly, a service charge must meet three requirements in order to qualify for the exemption. First, it must be mandatory. Second, it must be separately stated on the customers’ bills. Third, all of the proceeds of the service charge must be in fact turned over to the employees who would normally have received tips absent the mandatory service charge.

Neither party disputes that the plaintiff’s service charge met the first two requirements: it was mandatory and it was separately stated on the bill. The plaintiff admits that only 88.1% of the proceeds of the service charge was turned over to the Servers in the form of tips, or “commissions.” However, the plaintiff argues that the trial judge erred in finding that it did not meet the requirements of the statute by turning over the remaining 11.9% to the Servers in the form of wages, or “shift pay.”

The plaintiff contends that it met the requirements of the statute by paying the Servers cash compensation, designated as “commissions” and “shift pay,” totalling nearly $1 million more than the total amount of the service charges. It maintains that its distinction between “shift pay” and “commissions” is simply an internal accounting procedure which should not be considered in determining whether the exemption requirements have been met.

The Department’s argument has been abbreviatedly identified as an “all-or-nothing” position: If the plaintiff paid over anything less than the full amount of the service charge, it would be required to pay tax on the entire amount, not just on the amount paid as “shift pay.” The Department bases its argument on the language of section 2(e) which conditions the exemption on the employer’s turning over to its employees “all of the proceeds” of the service charge. (Emphasis added.)

The trial judge accepted the defendant’s argument; she found that the statute was unambiguous and ruled as follows:

“Although this Court finds Section 2(e) to be free from apparent ambiguity, plaintiff relies on the legislative history to demonstrate that their [sic] interpretation and application of Section 2(e) is within the meaning and intent of the legislature. Unfortunately, the legislative history supports the defendant’s position instead of the plaintiff’s position. Clearly, the legislators intended the mandatory service charge to be the servers’ tips, and the employer to be the collecting agent of the servers. None of the monies collected were to be used to cover the employer’s expenses and obligations but were to be treated and disbursed as ‘commissions’, paid completely and directly to the servers. [(Emphasis added.)] Here, the servers received no benefit; their tips were used to pay them what was already theirs by way of the employer’s contract obligations.” (Emphasis in original.)

Both parties have argued, and the judge agreed, that the statute is unambiguous. The plaintiff maintains that even though the statute is unambiguous, legislative history may still be considered by the court in determining legislative intent, citing People ex rel. Nelson v. Olympic Hotel Building Corp. (1950), 405 Ill. 440, 445, 91 N.E.2d 597, 600 (“Resort to explanatory legislative history has been declared not to be forbidden no matter how clear the words may first appear on superficial examination”). The Department maintains that the Act is not ambiguous and that, therefore, legislative history may not be considered; but, if this court determines that the statute is ambiguous and that legislative history may be considered, the legislative history will disclose that the legislature intended that the Act be construed in the manner urged by the Department. Our threshold task is to determine whether the statute is ambiguous; we are not bound by the agreement of the parties that the statute is not ambiguous.

Ambiguity exists when a statute is capable of being understood by reasonably well-informed persons in two or more different senses. (2A N. Singer, Sutherland on Statutory Construction §45.02, at 6 (Sands 5th ed. 1992).) The Department’s interpretation of the statute in this case hinges on the language “employees who would normally have received tips had the service charge policy not been introduced.” The Department argues that this language clearly expresses the legislature’s intent that the service charge is to be a substitute for tips; therefore, all of the proceeds of the charge are to be paid in addition to “shift pay.” The plaintiff focuses on the language “if all of the proceeds of the service charge are, in fact, turned over.” The plaintiff asserts that it turned over an amount in excess of the proceeds of the service charge, thus satisfying the “all of the proceeds” requirement, and that this money was paid to the Servers, who are “employees who would normally have received tips had the service charge policy not been introduced.” Both of these interpretations are reasonable, and, in our judgment, they reveal an ambiguity in the statute. We cannot determine from the express language of the statute whether the legislature intended that the service charge be turned over to the Servers in addition to wages as a substitute for tips, or whether it merely intended that the service charge be turned over in lieu of wages or other benefits. Moreover, the language of the statute itself does not make it clear that the legislature intended to tax all of the service charge if less than all of it was turned over to the employees, or whether only the portion not turned over to the employees was intended to be taxable.

Our next step is to determine to what extent we may consider the legislative history and particularly the remarks of the legislators during debates. It is the general rule that legislative debates may be considered to determine the history of the times or of the evil which the legislation was intended to remedy. (Finish Line Express, Inc. v. City of Chicago (1978), 72 Ill. 2d 131, 379 N.E.2d 290.) Finish Line was cited in Morel v. Coronet Insurance Co. (1987), 117 Ill. 2d 18, 509 N.E.2d 996, in which the supreme court said more broadly that “[t]his court has previously looked to the debates on the floor of the General Assembly to ascertain the legislative intent underlying specific legislation.” (117 Ill. 2d at 24.) The court, however, restricted the use of legislative debates as a construction aid to those statements made within the context of legislative debates and refused to consider statements of legislators made four years after the legislation had been passed. We conclude that we may properly consider the debates, at least, to determine the history of the legislation and the evil it was intended to remedy.

Before 1979, the Act provided that taxes were to be paid on “gross receipts” and defined gross receipts as the “total selling price or the amount of [sale of personal property].” “Selling price” or “amount of sale” meant the consideration for a sale valued in money including cash and services as “determined without any deduction on account of the cost of the property sold, the cost of materials used, labor or service cost or any other expense whatsoever” excluding State or local taxes. (Emphasis added.) (Ill. Rev. Stat. 1977, ch. 120, par. 440.) The Department argued, and the appellate court agreed, that the 15% mandatory gratuity charged by a catering company and separately stated on the customer’s bill was not deductible from the selling price of food and drinks and thus was a taxable part of gross receipts. Fontana D’Or, Inc. v. Department of Revenue (1976), 44 Ill. App. 3d 1064, 358 N.E.2d 1283, relying on Cohen v. Playboy Clubs International, Inc. (1974), 19 Ill. App. 3d 215, 311 N.E.2d 336.

In 1979, Senator Mitchler introduced Senate Bill 1137, which added section 2(e); he said this:

“The bill provides for exemption of the proceeds of any mandatory service charge which is separately stated on a customer’s bill for purchase and consumption of food and beverages. Now this bill is necessary *** to reverse a rule of the Department of Revenue, which provides that the State Sales Tax must be collected on a service or gratuity charge if the charge is mandatory.” 81st Ill. Gen. Assem., Senate Proceedings, May 22, 1979, at 151-52 (statement of Senator Mitchler).

After that statement by Senator Mitchler, the following occurred: “SENATOR SAVICKAS:

*** I could see the need for this bill. The only question comes to mind is how are we sure that the employees are getting this tip or the service charge and the employer is not just keeping it in his pocket. Is there some way that this can be determined that the waitresses or whatever are receiving the gratuity charge?

* * *

SENATOR MITCHLER:
Senator Savickas, there is nothing in the bill that relates to the collection and distribution of the gratuities to the employees, that’s a[n] ... arrangement between the employees. I have discussed this bill, however, in the various restaurants and find that there’s many, many ways that the gratuity that’s shown on an American Express card or other types of the bill, when it’s added on the bill and not given as direct cash to the waiter or waitress, is distributed. Some places immediately hand it to the waiter or waitress upon presentation of the bill at the cash registers, *** others hold it till the end of the evening. Some hold it till the end of the week, some till the end of the month. And I found all different systems. So I guess it’s up to the employer and employee when they’re making their contractual arrangements for employment how they work that out.” 81st Ill. Gen. Assem., Senate Proceedings, May 22, 1979, at 152-53 (Statements of Senators Savickas and Mitchler).

The Department apparently took no position on Senate Bill 1137 at the committee hearings. The bill passed the Senate and House but was vetoed by the Governor, we are informed, at the request of the Department. The Senate and House voted to override the veto.

The Department took no action against any entity which separated the service charge in the manner used by the plaintiff until 1989 when the Department completed the three-year audit of the plaintiff. The plaintiff filed this suit on October 23, 1989, and the judge entered judgment for the Department on December 10, 1990.

After the judge issued the ruling in this case, the Department promulgated the following rule:

“If any part of the service charges are used to fund or pay wages, labor costs, employee benefits or employer costs of doing business, all of the service charge is includable in gross receipts.” See 86 Ill. Adm. Code §130.2145 (1991).

Pursuant to the Illinois Administrative Procedure Act (Ill. Rev. Stat. 1989, ch. 127, par. 1001 et seq.), the Department submitted the rule to the Joint Committee on Administrative Rules (JCAR), which was established as a “legislative support services agency” to review proposed administrative agency rules. (Ill. Rev. Stat. 1989, ch. 63, par. 1002 — 1.) Under the Illinois Administrative Procedure Act, each agency is required to submit proposed rules to JCAR, and JCAR then either issues an objection to the rule or notifies the agency that no objection will be issued. If an objection is issued, the agency then determines whether it wishes to withdraw the rule in response to the objection. (Ill. Rev. Stat. 1989, ch. 127, par. 1005.01.) JCAR objected to the rule proposed by the defendant and cited the comments of Senators Savickas and Mitchler and suggested that the Department’s rule was contrary to section 2(e) of the Act. JCAR also noted the trial judge’s action in this case and that this appeal was pending.

During oral argument, this court was informed that section 2(e) was amended, effective September 3, 1991. Section 2(e), now section 2 — 5(15) (Ill. Rev. Stat. 1991, ch. 120, par. 441 — 5(15)), reads as follows:

“Proceeds of mandatory service charges separately stated on customers’ bills for purchase and consumption of food and beverages [purchased at retail from a retailer], to the extent that the proceeds of the service charge are in fact turned over as tips or as a substitute for tips to the employees who participate directly in preparing, serving, hosting or cleaning up the food or beverage function with respect to which the service charge is imposed.” (Emphasis added.)

Under the previous act, the “proceeds of the mandatory service charge” were exempt if “all of the proceeds of the service charge” were turned over to the Servers. Under the present act the proceeds are exempt “to the extent that the proceeds” are turned over.

We were aware that an amendment to a statute may be an appropriate source for determining the original legislative intent of the statute. (People v. Bratcher (1976), 63 Ill. 2d 534, 349 N.E.2d 31.) At our request, both parties submitted memoranda on any effect the amendment may have in this case. The Department concedes that the present section 2 — 5(15) does not support its “all-or-nothing” argument. But, the Department contends section 2 — 5(15) is a change in the law and that all cases pending on September 3, 1991, are to be decided under the Act passed in 1980. The plaintiff, on the other hand, maintains that the remarks of the legislators during debate reflect the intent to clarify the law.

The Department correctly points out that a statutory amendment presumptively represents an intent to change existing law. (State of Illinois v. Mikusch (1990), 138 Ill. 2d 242, 562 N.E.2d 168.) That presumption, however, does not apply where the legislature enacted the amendment in response to an erroneous interpretation of the original statute. In Gill v. Miller (1983), 94 Ill. 2d 52, 58, 445 N.E.2d 330, the supreme court, quoting from 1A A. Sutherland, Statutory Construction §22.31, at 276 (4th ed. 1972), spoke as follows:

“ ‘If the amendment was enacted soon after controversies arose as to the interpretation of the original act, it is logical to regard the amendment as a legislative interpretation of the original act — a formal change — rebutting the presumption of substantial change [of the original act by the amendment].’ ”

In People v. Rink (1983), 97 Ill. 2d 533, 455 N.E.2d 64, the supreme court held that an amendment to a statute enacted “shortly after” a circuit court decision holding a statute unconstitutional was a legislative interpretation or clarification of the statute rather than a change in the law. See also People v. Badoud (1988), 122 Ill. 2d 50, 521 N.E.2d 884.

The immediate issue before us is whether the amendment was “enacted soon after controversies arose.” House Bill 1982, which amended section 2(e), was introduced in the House on April 5, 1991, less than four months after the judge’s ruling; and the bill first passed the House on July 1, 1991, and the Senate on July 5, 1991. We judge that the legislature moved swiftly. We strongly disagree with the Department’s argument that we should consider the lapse of time from 1980, when the original act went into effect, and the time the amendment was passed. The delay in action by the legislature is understandable in light of the delay in action by the Department. We judge that the proper watershed is the judge’s ruling.

We also disagree with the Department’s statement that “[t]here is no reference to the circuit court ruling [in this case] in the legislative history.” As previously noted, the objection of JCAR made specific reference to the circuit court’s ruling in this case and this appeal. Senator Fawell was a member of JCAR. She made reference to the proceedings before JCAR when she spoke in support of the amendment. Moreover, legislative awareness of a judicial construction of the earlier version of a statute is presumed. See People v. Badoud (1988), 122 Ill. 2d 50, 521 N.E.2d 884.

This case brings into play two fundamental rules of statutory construction: (1) where the letter of a statute conflicts with the spirit of it, the spirit of it will be controlling (Inskip v. Board of Trustees (1962), 26 Ill. 2d 501, 187 N.E.2d 201); and (2) that construction of a statute will be avoided which would lead to an absurd or unjust result. (Loyola Academy v. S & S Roof Maintenance, Inc. (1992), 146 Ill. 2d 263, 586 N.E.2d 1211.) Acceptance of the Department’s “all-or-nothing” interpretation of the statute would violate both those fundamental rules. The unfairness of the Department’s position is obvious. The legislature could never have intended such an unjust result, and we believe that the amendment of section 2(e), was a clarification of the original section 2(e).

Although we make our determination without resort to the legislative debates, since the parties have argued that those debates support their position, we deem it appropriate to address them. In our view they support our determination that the amendment was a clarification of the law.

During the debates in the Senate, Senator Fawell, who, as noted, was a member of JCAR, said the following:

“I brought this issue up in front of JCAR. As I understand it, this legislation retroactively overrules the Department of Revenue’s erroneous treatment of mandatory service charges under the existing Section of the Statute that was meant to be a broad exemption, and which applies to any compensation paid to employees for a banquet. *** It has always been the legislators’ intent that all or any part of the mandatory service charge should be exempt from sales taxes, as long as the employer doesn’t pocket — pocket the service charge. House Bill 1982 clarifies the legislative original intent on this Statute, and [I] certainly urge the Members to support this bill.” (Emphasis added.) (87th Ill. Gen. Assem., Senate Proceedings, June 20, 1991, at 79 (statement of Senator Fawell).)

Senator Luft also noted that “[t]he amendment clarifies the intent of the underlying bill.” 87th Ill. Gen. Assem., Senate Proceedings, June 18,1991, at 58 (statement of Senator Luft).

Senator Rock, who spoke in favor of the bill, said that he had conferred with the “Restaurant Association and the hotel and motel folks.” He specifically referred to the “Hyatt hotel.” He concluded that “what the Department of Revenue has attempted to do simply isn’t fair.” (87th Ill. Gen. Assem., Senate Proceedings, June 20, 1991, at 80 (statement of Senator Rock).) Senator DeAngelis also spoke in support of the bill. No one disagreed with the statements of Senators Fawell and Luft that the amendment was a clarification of the original act.

In the House the bill was introduced by Representative Bugielski, who said this at the second reading:

“Thank you, Madame Speaker. Amendment No. 3 is an amendment that has been agreed upon after prolonged negotiations that have been taking place over the last month with the Department of Revenue and with the industry. House Bill 1982 clarifies existing law relative to the applicability of sales taxes on mandatory service charges imposed by hotels and restaurants, and what the legislation clarifies is that it specifies that whatever portion of the service charge or the tips that is turned over to any employee is exempt from the sales taxes. In the previous legislation it was a little ambiguous and all this will do is clean up the language and specifying [sic] exactly that the service charges that are paid out to the employee is not applicable to sales tax.” 87th Ill. Gen. Assem., House Proceedings, May 23,1991.

When the Speaker asked if anyone stood in opposition, Representative Rubik said, “Not necessarily in opposition, but I would like to ask the sponsor a question.” Rubik then asked Bugielski whether the amendment was a clarification of or a change in existing law. He said he wanted to make sure “for legislative intent on this amendment.” When Bugielski said the amendment was “clarifying” and represented an agreement that had been proposed by the Department, Rubik again said he wanted an answer “so that we have legislative intent on this issue.” Bugielski read from something which described the amendment as “clarifying.” Rubik said, “We want it understood that from this point forward the law has been changed.” (Emphasis added.) (87 Ill. Gen. Assem., House Proceedings, Mays 23, 1991.) The following more significant exchange took place:

“KUBIK: Well, Representative, if — Madam Speaker, we can agree on this Amendment if we — I think if we work this out with the sponsor, and Representative Bugielski, if this is merely a clarification of the law, then we m\\ — then I’m not sure the Department will stand in support of this particular amendment. If it is a change of the law, they will be in support of the amendment, and that is, that is basically what we are trying to get at here.
McCRACKEN: Alright. It’s a change in the law where it says — before it said, ‘if all of the proceeds’ and now it’s ‘to the extent that the proceeds’. So it’d be a change in the law in that section right there.
KUBIK: So we have changed the law.
McCRACKEN: Okay.
KUBIK: We have changed the law?
McCRACKEN: Yes.
KUBIK: Okay. I think we now have an agreement. Thank you very much, and I stand in support of the amendment.” (Emphasis added.) 87th Ill. Gen. Assem., House Proceedings, May 23,1991.

At the third reading, Representative Bugielski still had the last word when he spoke as follows:

“Thank you, Madam Speaker, Members of the House. As I mentioned before, House Bill 1982 changes the, you know, clarifies the existing law relative to the applicability of sales tax ***.” (Emphasis added.) 87th Ill. Gen. Assem., House Proceedings, May 23,1991.

The Department places great store in the remarks of Representative Kubik as an expression of legislative intent. We put none. It is the rule that a court in determining legislative intent may not consider statements made by those interested in passage of the law. (Illinois Chiropractic Society v. Giello (1960), 18 Ill. 2d 306, 164 N.E.2d 47.) It is obvious to us that Representative Kubik’s words were those of a spokesman for the Department. It is as though the Director of the Department himself spoke. The only reasonable inference to be drawn is that the remarks of Representative Kubik and his insistence on the answer that he ultimately extracted from the other legislators were prompted by the Department, which had an eye on this litigation and any other litigation involving the same issue and which anticipated foresightedly that a court might some day consider legislative debates in determining legislative intent. The Department, in short, was “making a record.” By these observations we do not intend any criticism of either Representative Kubik or the Department.

For all these reasons, we conclude that the legislature never intended that section 2(e) be interpreted as the Department argued. Consequently, we further conclude that the trial judge should not have granted the Department’s motion for summary judgment.

The plaintiff asks that we enter summary judgment in its favor. We refuse to do so. The judge properly denied the plaintiff’s motion for summary judgment. We agree with the trial judge’s finding that the legislature intended that “none of the monies collected [as service charges] were to be used to cover the employer’s expenses and obligations.” Shift pay is an obligation imposed on the employer regardless of whether a mandatory service charge is also imposed on the customer. It is to be treated the same as reimbursement for uniforms, vacation pay or any other benefits required of the employer under the union agreement or by law, such as social security taxes. We are not impressed by the plaintiff’s argument that shift pay is really simply a bookkeeping convenience. Acceptance of that argument could lead to widespread avoidance of otherwise lawful taxes by imaginative accounting maneuvers. Moreover, the amendment supports our view that the legislature never intended to exempt an item such as shift pay. We conclude, therefore, that any amount paid to the Servers as shift pay was not exempt from the tax.

For these reasons, the judgment of the circuit court granting summary judgment to the Department is reversed; that part of the judgment denying summary judgment to the plaintiff is affirmed; this cause is remanded for further proceedings consistent with this opinion.

Judgment affirmed in part; reversed in part and remanded.

McNAMARA and LaPORTA, JJ., concur.

      The relevant section of the Act was amended after the judge issued a ruling in this case. (Pub. Act 87 — 207, eff. Sept. 3, 1991.) The effect of the amendment will be discussed later in this opinion.

      The plaintiff informs us that there are pending 10 other cases involving the same issue. The Department has asked us to disregard that statement of the plaintiff on the ground that it is not supported by anything in the record. There is, however, a reference to another case in the objection of JCAR to the Department’s proposed rule.


author: JUSTICE O’CONNOR

text:
    THE PEOPLE OF THE STATE OF ILLINOIS, Plaintiff-Appellee, v. TOM U. CHOE, Defendant-Appellant.
    First District (1st Division)
    No. 1—90—0354
    Opinion filed May 26,1992.
    Sam Adam and Burch & Delgado, both of Chicago (Clarence L. Burch, of counsel), for appellant.
    John M. O’Malley, State’s Attorney, of Chicago (Renee Goldfarb, Veronica X. Calderon, and Catherine A. Hufford, Assistant State’s Attorneys, of counsel), for the People.
   JUSTICE O’CONNOR

delivered the opinion of the court:

On August 18, 1987, Julio Aguirre was murdered on North Central Park Avenue in Chicago by members of a street gang who believed him to be a member of a rival gang. Based on a photo identification by an eyewitness, police sought out defendant on September 29, 1987, at his parents’ restaurant. At a police station shortly thereafter, defendant admitted to having shot Aguirre while Aguirre was restrained by two other individuals. Defendant’s statement subsequently was admitted at his jury trial, and he was convicted of the murder (Ill. Rev. Stat. 1987, ch. 38, par. 9 — 1). Defendant was sentenced to a prison term of 60 years. He appeals.

We affirm.

Defendant first contends he was arrested illegally and, as a result, his pretrial motions to quash his arrest and to suppress his statement were denied improperly.

Chicago police detective John Enault provided testimony concerning the circumstances which led the police to defendant. Enault stated that he interviewed, among others, Gloria Santiago, in conjunction with his investigation of Aguirre’s murder. Santiago witnessed the murder and described Aguirre’s assailants as two Orientals and one Caucasian. All were male. Enault’s reports, dated August 19 and 21, 1987, contained notes taken after interviews with Santiago. The August 21, 1987, report indicated that the gunman had worn his hair in a “spiked” style. Santiago gave police a physical description of the Oriental males.

On September 28, 1987, Santiago identified a photograph of defendant as the gunman from an array of six photographs. That photograph had been taken following defendant’s arrest in an unrelated matter five days earlier. Enault explained that Santiago did not speak fluent English and that her son acted as translator when she reviewed the photographs. Based on her identification, detectives sought out defendant the following day.

Insun Manna, a waitress at defendant’s parents’ restaurant, testified that four detectives came looking for defendant on September 29, 1987, at the restaurant. Finding that defendant was not then present, the detectives left a business card with Manna and instructed her to have defendant telephone police upon his return. Defendant arrived at the restaurant an hour later and was advised of the police visit. The detectives also returned shortly thereafter and told defendant they wished to ask him some questions. Manna testified defendant then accompanied the police. Defendant was not handcuffed.

The testimony of defendant’s brother, Peteo Choe, mirrored that of Manna.

Enault testified that, at the police station, he and his partner spoke with defendant at approximately 9:45 p.m. When Enault informed defendant that police were investigating Aguirre’s murder, defendant “jumped off the chair” and began to pace, stating, “I didn’t shoot anybody.” Enault indicated however, that, up to that point, there had been no mention of the manner in which Aguirre had been killed. Enault then advised defendant that he had been identified through a photograph. Defendant asked if the photograph showed him as he then looked. When Enault indicated that it did, defendant stated that the identification based on the photograph had to have been erroneous because, at the time the shooting had occurred, he had worn his hair “spiked.” It was at that point, Enault stated, that defendant was arrested and advised of his constitutional rights.

The circuit court ruled that defendant voluntarily accompanied police to the station. The trial judge specifically noted that, based on the testimony of the defense witnesses, there was no evidence of any coercive conduct on the part of the police at the restaurant. Indeed, defense counsel conceded that there was “nothing” to directly indicate the presence of police coercion at the time defendant left with police from the restaurant.

The trial judge’s determination regarding custody is fact dependant, and the resolution of that question may not be overturned by a reviewing court unless it is manifestly erroneous. (People v. Gorman (1991), 207 Ill. App. 3d 461, 468, 565 N.E.2d 1349, appeal denied (1991), 139 Ill. 2d 600, 575 N.E.2d 919.) Here, no basis exists to disturb the court’s decision as there is nothing in the record to indicate that defendant did not accompany the detectives voluntarily.

The circuit court further ruled that probable cause for arrest occurred when defendant implicated himself in the crime.

The question of whether probable cause exists is a commonsense, practical question to be determined by the totality of the circumstances. (Illinois v. Gates (1983), 462 U.S. 213, 76 L. Ed. 2d 527, 103 S. Ct. 2317.) Generally, probable cause exists when the circumstances within the arresting officer’s knowledge are sufficient to warrant a man of reasonable caution to believe an offense has been committed and that the person arrested committed the offense. (People v. Tisler (1984), 103 Ill. 2d 226, 469 N.E.2d 147.) Only where a finding of probable cause constitutes manifest error will a reviewing court reverse the circuit court’s ruling. People v. Clark (1982), 92 Ill. 2d 96, 440 N.E.2d 869.

As noted above, defendant implicated himself by revealing, almost immediately to police, certain factual material which he could have garnered only by having prior knowledge of the murder. Accordingly, the trial judge’s decision was not manifestly erroneous.

Defendant also contends Enault’s testimony at trial was admitted improperly in view of Santiago’s equivocation regarding her identification of defendant.

At trial, Santiago did not make an in-court identification of defendant as the gunman. However, she testified that after looking through photographs shown to her by Enault, she had “found a man similar” to defendant and showed the photo to Enault, indicating that the gunman resembled the subject pictured. Detective Enault then testified that he showed Santiago an array of photos, which she studied. She then took defendant’s photograph from the array and responded affirmatively when Enault asked her if defendant was the gunman.

We find that defendant has waived the opportunity to take issue with Enault’s testimony regarding Santiago’s identification. Defendant failed to object to Enault’s testimony at trial and did not include the issue in his post-trial motion for a new trial. Either of those failures is fatal to the preservation of that claim for review. (People v. Enoch (1988), 122 Ill. 2d 176, 186, 522 N.E.2d 1124.) We find no reason to excuse defendant’s waiver here under the limited plain error exception. See People v. Carlson (1980), 79 Ill. 2d 564, 404 N.E.2d 233.

Finally, defendant contends the trial judge committed reversible error by allowing the State to question defendant regarding gang affiliation and activity. At trial, defendant had denied being a gang member. The State attempted to rebut that denial with the testimony of Chicago police officer Greg Bella, who stated that defendant had admitted he had endured the initiation rite of, and was affiliated with, a particular street gang.

Evidence of a defendant’s involvement in gang activity is regarded as prejudicial for the reason that such evidence may lead to the defendant’s conviction “merely because of his membership in an organization that is unpopular.” (People v. Hairston (1970), 46 Ill. 2d 348, 372, 263 N.E.2d 840.) The trial judge must weigh the probative value and prejudicial effect of evidence in determining whether it should be admitted. (People v. Shum (1987), 117 Ill. 2d 317, 512 N.E.2d 1183.) Evidence will be admissible, however, if it is relevant to other issues such as motive, knowledge, criminal intent, or identity. (People v. Sadaka (1988), 174 Ill. App. 3d 260, 263, 528 N.E.2d 283.) The ruling regarding admissibility will not be reversed absent a clear abuse of discretion. People v. Shum, 117 Ill. 2d at 353.

Here, the trial judge ruled that the probative value of the evidence outweighed its prejudicial effect due to defendant’s “blanket denial” of gang affiliation. Moreover, Officer Bella’s testimony was relevant to the crime charged (see People v. Hairston, 46 Ill. 2d at 372), and it established motive (see People v. Ayala (1990), 208 Ill. App. 3d 586, 592, 567 N.E.2d 450; People v. Rivera (1986), 145 Ill. App. 3d 609, 618, 495 N.E.2d 1088). The trial judge did not err in allowing the testimony.

We therefore affirm defendant’s conviction.

Affirmed.

BUCKLEY, P.J., and MANNING, J., concur.