author: PRESIDING JUSTICE MEJDA PRESIDING JUSTICE MEJDA

text:
    JAMES J. CODUTI, Plaintiff-Appellant, v. WERNER E. HELLWIG et al., Defendants-Appellees.
    First District (5th Division)
    No. 82—2222
    Opinion filed July 20, 1984.
    Supplemental opinion filed on denial of rehearing October 12, 1984.

      DiMonte & Lizak, of Chicago (Edward G. Proctor, Theodore J. Low, and Eugene A. DiMonte, of counsel), for appellant.
    Pedersen & Houpt, of Chicago (Steven M. Stone and Jonathan B. Gilbert, of counsel), for appellee Hudson Tool & Die Corp.
    Katz, Karacic & Helmin, of Chicago (Kenneth A. Helmin and Thomas J. Karacic, of counsel), for appellee Werner E. Hellwig.
   PRESIDING JUSTICE MEJDA

delivered the opinion of the court:

This is an action by James J. Coduti (Coduti), a minority shareholder of Hudson Tool & Die Corporation (Hudson), a closely held Illinois corporation, seeking dissolution of the corporation and an accounting of allegedly improper benefits received from the corporation by its controlling shareholder and members of the family of and entities controlled by such shareholder. The trial court sitting without a jury found for the defendants. Coduti raises the following issues on appeal: (1) whether the trial court erred in refusing to order dissolution of defendant corporation and (2) whether the trial court erred in refusing to order an accounting of the benefits received from defendant corporation by the other defendants. We affirm.

The trial court heard testimony in this matter on 24 separate days and received into evidence more than 150 exhibits, many of which were group exhibits consisting of more than one item. A repetition of all of the testimony would serve only to unduly lengthen this opinion; therefore, testimony will be recounted only insofar as it is necessary to our disposition of the instant issues. However, a brief statement regarding the parties is in order.

Defendant Hudson engaged in the tool and die and metal stamping business and was formed in 1954 by plaintiff Conduti and defendant Werner E. Hellwig (Hellwig). Defendant Kurt Hellwig (Kurt) is Hellwig’s son and has held an executive position with Hudson since 1979. Defendant Hollywood Perforators, Inc. (Hollywood), is an Illinois corporation controlled by Hellwig and Kurt.

At the time of trial Hellwig owned approximately 60% of Hudson’s stock and Coduti owned approximately 40%. Kurt owned one share of Hudson stock. Initially, the members of Hudson’s board of directors were Hellwig, Coduti and James Southward. Upon his death, Southward was succeeded by Coduti’s brother. Coduti’s brother moved out of the area in 1977 and John Metropolos, a businessman and Hudson’s insurance agent, became the third director. Thereafter, Hellwig and Coduti agreed to increase the board to five members and elected Kurt and Lorraine Allen, Coduti’s daughter, as directors. Hellwig and Coduti later agreed to decrease the board to its present three members. At the time of trial the directors were Hellwig, Coduti and Kurt.

Hellwig has served as president since its incorporation; his responsibilities have been administrative in nature. Coduti has also served as an officer of Hudson; as an employee of the corporation he is principally responsible for supervising Hudson’s production facilities. Neither Hellwig nor Coduti has ever accounted to each other for the hours they devote to business. Since the inception of the business it has been Coduti’s practice to work many hours each week while Hellwig routinely spends long periods of time away from the plant, takes frequent vacations and long weekends, and spends several months each winter in Hawaii.

Salary adjustments for Hellwig and Coduti have over the years been effected without formal board action. In 1977 Hellwig voluntarily reduced his salary by 50% when, in his own judgment, he felt he was unable to continue at his previous level of performance because of personal pressures. He restored his salary to its former amount when he felt he was again working efficiently. The salaries and bonuses were paid to Hellwig and Coduti as follows:

Hellwig Coduti

1974 $36,200 $43,900

1975 22,100 37,100

1976 15,300 55,100

1977 30,900 53,200

1978 29,900 57,900

1979 18,000 65,100

1980 17,100 47,100

1981 40,400 49,900

Hellwig’s expense account, including country club payments, has been approximately $10,000 per year for the past four years. Coduti has an unlimited expense account and four weeks of vacation pay annually, in addition to 52 weeks of salary. All corporate officers have had the use of cars owned or leased for them by Hudson. Although Coduti has pursued negotiations for such an agreement since 1977, the parties have never had a stock purchase agreement.

Since 1977 there have been a number of disputes between Hellwig and Coduti, culminating in the filing of the instant action wherein Coduti sought injunctive relief, dissolution or liquidation of Hudson, an accounting by certain defendants to Hudson, and imposition of a constructive trust concerning certain shares of Hudson stock owned by Hellwig or a declaratory judgment thereon. The trial court found all issues in favor of defendants and against Coduti, specifically, that there was no evidence of fraud, waste, mismanagement, illegality or oppression to warrant dissolution of the corporation and the liquidation of its assets and, further, that the evidence is insufficient to grant Coduti’s request for accounting by the various defendants. Coduti appeals.

Opinion

The first issue is whether the trial court erred in refusing to order the dissolution of Hudson. The authority of courts to dissolve a corporation is statutory. (Central Standard Life Insurance Co. v. Davis (1957), 10 Ill. 2d 566, 572, 141 N.E.2d 45). Section 86 of the Illinois Business Corporation Act (Ill. Rev. Stat. 1983, ch. 32, par. 157.86) in relevant part provides:

“Circuit courts have full power to liquidate the assets and business of a corporation:
(a) in an action by a shareholder when it appears:
* * *
(3) That the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent; or
(4) That the corporate assets are being misapplied or wasted.”

Where the above factors are positively shown shareholders are entitled to the protection of the law. Our supreme court has cautioned, however, that corporate dissolution is a drastic remedy that must not be lightly invoked. Gidwitz v. Lanzit Corrugated Box Co. (1960), 20 Ill. 2d 208, 220-21, 170 N.E.2d 131.

Plaintiff Coduti contends, generally, that the findings of the trial court are against the manifest weight of the evidence. Our supreme court summarized the principles governing our consideration of this matter as follows:

“Concerning the manner of reviewing the findings of the trial court in a bench trial in which the evidence was conflicting, the court in Schulenburg v. Signatrol, Inc. (1967), 37 Ill. 2d 352, 356, said: ‘Although a trial court’s holding is always subject to review, this court will not disturb a trial court’s finding and substitute its own opinion unless the holding of the trial court is manifestly against the weight of the evidence. [Citations.] Underlying this rule is the recognition that, especially where the testimony is contradictory, the trial judge as the trier of fact is in a position superior to a court of review to observe the conduct of the witnesses while testifying, to determine their credibility, and to weigh the evidence and determine the preponderance thereof. We may not overturn a judgment merely because we might disagree with it or might, had we been the trier of facts, have come to a different conclusion.’ ” (Greene v. City of Chicago (1978), 73 Ill. 2d 100, 110, 382 N.E.2d 1205.)

With these principles in mind we turn to plaintiff’s specific allegations of error.

In support of his contention that the trial court erred in refusing to order the dissolution of Hudson, plaintiff Coduti first argues that Hellwig’s conduct has been and continues to be oppressive. In Gidwitz v. Lanzit Corrugated Box Co. (1960), 20 Ill. 2d 208, 214-15, 170 N.E.2d 131, our supreme court stated:

“We have held that the word ‘oppressive’ as used in this statute, does not carry an essential inference of imminent disaster; it can contemplate a continuing course of conduct. The word does not necessarily savor of fraud, and the absence of ‘mismanagement, or misapplication of assets,’ does not prevent a finding that the conduct of the dominant directors or officers has been oppressive. It is not synonymous with ‘illegal’ and ‘fraudulent.’ Central Standard Life Ins. Co. v. Davis, 10 Ill. 2d 566.”

A review of the case law discloses no single act which, by itself, will be deemed oppressive without consideration of the surrounding circumstances. In Gray v. Hall (1973), 10 Ill. App. 3d 1030, 1034, 295 N.E.2d 506, the court stated that “actions which might be oppressive under one set of circumstances would not be oppressive under others.” Thus, each case claiming oppression as a basis for corporate dissolution must be determined solely upon its own facts. The court found no oppression where preferred stockholders alleged that they would reap no investment gain before the expiration of a 99-year corporate charter. (Central Standard Life Insurance Co. v. Davis (1957), 10 Ill. 2d 566, 141 N.E.2d 45.) An equal division of stock which resulted in a 10-year deadlock enabling the corporate president to control the corporation so as to deprive certain shareholders of their rights and privileges as shareholders was, however, deemed oppressive. (Gidwitz v. Lanzit Corrugated Box Co. (1960), 20 Ill. 2d 208, 170 N.E.2d 131.) A loan allegedly in consideration for a second mortgage was considered fraudulent and oppressive where the court found that no second mortgage was executed or ever existed. (Ross v. 311 North Central Avenue Building Corp. (1970), 130 Ill. App. 2d 336, 264 N.E.2d 406.) An “arbitrary, overbearing and heavy-handed course of conduct” which included failure to call meetings of the board of directors or to consult with plaintiff regarding management, exhibiting “an imperious attitude when questioned about his salary,” and responding to plaintiff’s requests in a dilatory manner was also found to justify a finding of oppression. (Compton v. Paul K. Harding Realty Co. (1972), 6 Ill. App. 3d 488, 499, 285 N.E.2d 574.) Finally, it has been held that the conspiratorial nature of certain actions which allegedly affected “an individual shareholder’s control over corporate matters and the effective operation and profitability of the venture, coupled with alleged irregularity in the equity transfer, [met] the threshold of objectionable oppressiveness addressed by the statute and case law thereunder.” Notzke v. Art Gallery, Inc. (1980), 84 Ill. App. 3d 294, 299, 405 N.E.2d 839.

In the instant case plaintiff Coduti cites numerous actions on the part of defendants which, he argues, fit within the concept of arbitrary, heavy-handed and overbearing conduct that has been found to constitute oppression of minority shareholders. (See e.g., Compton v. Paul K. Harding Realty Co. (1972), 6 Ill. App. 3d 488, 285 N.E.2d 574.) We must, therefore, examine plaintiff’s contentions in the context of the operation of the corporation and consider the circumstances surrounding the actions which form the basis of his complaint. Briefly, Coduti asserts that Hellwig engaged in the following conduct which he seeks to have characterized as oppressive: refusing to authorize dividends or bonuses when the corporation has large cash reserves; refusing to allow Coduti’s attorney to be present at a director’s meeting; holding director’s meetings without notice to Coduti; causing Coduti to be arrested; and opening Coduti’s mail and belittling him in the presence of others. We will consider the evidence regarding each of these actions in turn.

Coduti first asserts that Hellwig’s refusal to authorize bonuses or dividends while Hudson amassed large reserves constituted oppression. The decision concerning whether to declare a dividend where funds are available for such dividend rests within the discretion of the board of directors. Courts are reluctant to interfere with such decisions “unless the withholding is fraudulent, oppressive or totally without merit.” (Romanik v. Lurie Home Supply Center, Inc. (1982), 105 Ill. App. 3d 1118, 1134, 435 N.E.2d 712.) The record here presented shows that Hudson paid bonuses in the following amounts in 1977, 1978 and 1979, respectively: Hellwig — $15,000, $5,000, $0; Coduti— $19,000, $19,000, $23,500; Kurt-$10,000, $10,000, $15,000. Frances and James Coduti, Jr., Coduti’s children, also received “bonuses” of $3,000 each in 1977 and 1978 and James received $1,500 in 1976. The sums received by Coduti’s children far exceeded the amounts they earned as part-time hourly workers at Hudson. At a board meeting in 1980 and again on May 28 and October 6, 1981, Hellwig proposed that bonuses be paid the officers of Hudson. Coduti did not agree and suggested at the 1980 meeting and at the May 1981 meeting that such payment be deferred until the close of the fiscal year. At the October 6, 1981, meeting of the board Hellwig recommended payment of a dividend and a resolution was passed by unanimous vote authorizing payment of a $50 per share dividend. No other dividend has ever been paid. Coduti did not recommend a larger dividend, nor has he ever presented a resolution that a dividend be declared.

It is not disputed that Hudson has accumulated a large cash reserve. Hudson has certificates of deposit in a total amount of approximately $775,000. Coduti testified that a reserve of $350,000 to $400,000 would be adequate for the type of business in which Hudson is engaged. Hellwig testified, however, that the accumulated reserve is required for the following business purposes: (1) to provide for continued existence of the corporation if its major account is lost; (2) to provide the liquidity needed in the present economic climate; (3) to provide for replacement of Hudson’s machinery and equipment without incurring debt at current high interest rates; and (4) to provide for plant expansion as presently under consideration. Thomas E. Reyer, Hudson’s accountant, also testified that such accumulation is good business practice considering the purposes specified for such reserves. Under these circumstances we are, therefore, unable to say that the trial court’s finding that there was no oppression is against the manifest weight of the evidence. See Gray v. Hall (1973), 10 Ill. App. 3d 1030, 1035, 295 N.E.2d 506.

Coduti next catalogues various improprieties regarding meetings of the board of directors. He first raises the board’s conduct in not allowing his attorney to remain in attendance at the board meeting on December 12, 1979. All five directors were present at that meeting. Only Coduti was represented by an attorney. A motion was passed to exclude attorneys from that particular meeting, whereupon Coduti and Allen left the meeting in protest. The three remaining directors constituted a quorum pursuant to Hudson’s bylaws and they proceeded to elect officers, including Coduti as treasurer.

Conduti also maintains that in January 1980 Hellwig consented to postpone a board meeting at Coduti’s request, then held the meeting as originally scheduled. Conflicting testimony was presented on this matter. No minutes of such board meeting were produced, nor was there a record of any action taken by the board at such meeting.

Coduti next asserts that in May 1980, without notice to him, Hellwig called a special meeting of the board and, in Coduti’s absence, obtained authorization from the board to draw checks with his signature alone, a departure from prior corporate policy which required that all checks carry both Hellwig’s and Coduti’s signatures. Coduti stated that his refusal to sign such checks, beginning at the end of April and continuing into the middle of May, was based upon his insistence that Hellwig sign the checks first, in accordance with long-standing corporate practice sanctioned by resolution of the board. Hellwig testified that he had requested that Coduti sign the checks first to indicate approval of the bills for payment, as Coduti had ordered the materials for which payment was being made. He admitted that on May 12, 1980, the board met in an emergency session and authorized Hellwig’s single signature on checks written on the general operating account. He stated, however, that Coduti was not available for such meeting and that the board’s action was necessitated by Coduti’s refusal to sign any checks drawn on the general account which caused interference of cash flow to accounts payable and the payroll account for over 14 days. Coduti resumed signing checks when informed of the board’s May 12 action. From the date of such action to the date of trial no check had been signed solely by Hellwig; Coduti does not contend that he or Hudson suffered any detriment as a result of the foregoing actions. Thus, the evidence supports the trial court’s finding that there was no oppression regarding these matters.

Coduti next contends that Hellwig’s causing him to be arrested was a form of oppression. On July 8, 1980, Hellwig delivered to Coduti a memorandum rescinding Coduti’s authority to make bids and requiring that, henceforth, all quotations to customers were subject to Hellwig’s written approval. Coduti testified that Hellwig swore at him and used a racial slur when delivering the memorandum. Hellwig denied swearing at Coduti and stated that his review of quotations was prompted by a 55% decline in business and was merely a part of his duties as president of Hudson. Coduti testified that Hudson was then experiencing a very profitable year. Coduti admitted, however, that upon delivery of the memorandum he lost control, shouted obscenities, and picked up a piece of copper and chased Hellwig into the plant. Coduti was arrested for aggravated assault, for which he was later acquitted. Hellwig issued a letter to Coduti discharging him due to such conduct. The board later reviewed the incident but took no vote to remove Coduti as an officer of the corporation. Coduti continued working and received his salary and vacation pay as before.

Finally, Coduti related the details of several incidents wherein he asserts that Hellwig belittled him in the presence of outsiders and consistently opened his mail. Hellwig admitted that he may have opened Coduti’s mail by accident upon occasion, but denied belittling Coduti or engaging in any other petty conduct as claimed by Coduti.

Our review of the entire record in this case reveals conflicting testimony regarding each of Coduti’s assertions. We must, therefore, defer to the determination of the trial court,-which is uniquely situated to hear and weigh the evidence and whose findings will not be disturbed unless against the manifest weight of the evidence. (Greene v. City of Chicago (1978), 73 Ill. 2d 100, 382 N.E.2d 1205.) A finding is against the manifest weight of the evidence only if, upon hearing such evidence, no reasonable person would reach the conclusion arrived at by the trial court. On the record here presented we cannot, therefore, state that the trial court’s finding that there was no oppression of Coduti was against the manifest weight of the evidence.

In support of his contention that the trial court erred in refusing to order the dissolution of Hudson, Coduti next asserts that Hellwig has breached his fiduciary duty to Hudson and that such breach constitutes fraud. There is no general rule for determining whether certain acts constitute fraud; such determination depends upon the facts of each case (Majewski v. Gallina (1959), 17 Ill. 2d 92, 99, 160 N.E.2d 783) and is therefore a matter peculiarly within the province of the trial court. The findings of the trial court will not be disturbed unless they are manifestly against the weight of the evidence. (Ross v. 311 North Central Avenue Building Corp. (1970), 130 Ill. App. 2d 336, 264 N.E.2d 406.) In determining the fairness of a specific transaction particular emphasis is placed on such factors as whether the corporation to which the fiduciary duty is owed has received full value in the transaction, whether there was a detriment to the corporation resulting from the transaction, whether there was a possibility that corporate gain was siphoned off in favor of the fiduciary, and whether there was full disclosure — although even full disclosure and shareholder assent will not save an inherently unfair transaction. Shlensky v. South Parkway Building Corp. (1960), 19 Ill. 2d 268, 283, 166 N.E.2d 793.

Coduti argues that Hellwig has dealt unfairly with Hudson and has profited thereby either directly or indirectly through Hollywood, a corporation under Hellwig’s control. Specifically, Coduti maintains that Hellwig obtained personal benefit by causing Hudson to pay for the following: airline tickets for Hellwig and his friends; entertainment expenses unrelated to Hudson’s business; personal items such as dry cleaning and gifts; automobile expense for Hellwig and Kurt when, allegedly, neither devoted substantial time or effort to Hudson; the cost of processing Hollywood’s payroll and advancing sums to cover same without interest, for periods up to one month; double-billing Hudson for certain expenses; and putting Kurt on Hudson’s payroll at full salary for little or no work. The following conflicting evidence was presented at trial regarding each of these items. Hellwig testified that travel, entertainment and other miscellaneous expenses were business-related. It is not disputed that Hudson pays automobile expenses for Hellwig and Kurt; Hudson also pays such expenses for Coduti. The trial court heard evidence that payment of such expense was a matter of corporate policy and also that Coduti allows his daughter and other family members personal use of his gasoline credit card, which charges are paid by Hudson. Hudson has processed Hollywood’s payroll in connection with its own payroll for over 15 years. Hollywood has six employees, Hudson has over 40. Hudson’s bookkeeper spends about one hour each week performing clerical tasks for Hollywood. Coduti alleges that Hudson allows Hollywood rent-free use of certain space at the Hudson facility. He later admitted that Hollywood utilizes about 10 square feet of Hudson’s total 29,000 square feet. Evidence was presented that Hudson benefits from this arrangement because it has immediate access to Hollywood’s inventory of die components stored there which are used by Hudson in its business operation. Such items can be obtained and used by Hudson, if needed, with no prior notice to Hollywood, thus benefiting Hudson. Evidence at trial showed that Hellwig had been reimbursed by Hudson for certain expenses which were initially paid for by Hudson. The amounts involved, however, were very small and can be considered insignificant in relation to the amount allowed Hellwig annually on his expense account. Hellwig testified that he had been unaware of the duplications until they were shown at trial and stated that he had reimbursed Hudson in full. Varying testimony was presented regarding the terms of Kurt’s employment relative to his responsibilities, compensation and amount of work performed. Coduti testified that he had made no objection to granting Kurt a raise in February 1981. The court found that there was no evidence of fraud on the part of defendants to warrant dissolution of the corporation. The record here presented supports that finding. There was no showing of detriment to the corporation or gain diverted from the corporation as a result of Hellwig’s actions. By this we do not intimate that misconduct resulting in gain can be made right upon discovery merely by reimbursing the wronged party the amount of gain fraudulently acquired. (See, e.g., Ross v. 311 North Central Avenue Building Corp. (1970), 130 Ill. App. 2d 336, 347, 264 N.E.2d 406.) We hold only that the trial court’s finding is not against the manifest weight of the evidence.

Coduti also argues that Hellwig’s financial dealings with Hudson have been illegal. He asserts that Hellwig’s records regarding his business expenses may be insufficient to meet the requirements of the Internal Revenue Code and, further, that the retention of a substantial cash reserve by Hudson may be in violation of Internal Revenue Code provisions. (See 26 U.S.C. secs. 274(d), 531-35.) However, Coduti presents no evidence of any prosecution or investigation pending or threatened against defendants. His bold allegation that certain of defendant’s actions “may well be” violations of the tax law is insufficient grounds for a finding of illegality on the part of defendants. The trial court’s finding is, therefore, not against the manifest weight of the evidence.

Coduti also charges waste and misapplication of assets by Hellwig as grounds for dissolution. He asserts that Hellwig has built up large credit balances on his corporate charge cards and country club membership, both paid by Hudson, and maintains that such advance payments deprive Hudson of interest on its money. Coduti also asserts that Hellwig acted in a manner adverse to the best interests of Hudson by failing to contest the claim for unemployment insurance made by Anne Bernardi, a former secretary for Hudson. Regarding the latter charge, Hellwig testified that Hudson filed two written objections to Bernardi’s claim. Thus, the trial court was presented with conflicting testimony on this point.

The manager of the Bob-o-Link Golf Club where Hudson maintains a membership for Hellwig testified that at Hellwig’s request, he is billed in advance for his membership dues. Although not the usual method, he added that there are other members of the club who are billed in that manner. Hellwig testified that his decision to pay such fees in advance and to maintain credit balances on various charge accounts was to provide for the continuance of business-related entertaining should Hudson fall into a position where cash was not available for such expenditures. Thus, these appear to be matters of business judgment, within the responsibility of the board of directors and the officers of Hudson and “with which the court will not concern itself— at least not in so far as they bear on the question of liquidation. (Bixler v. Summerfield 195 Ill 147, 150, 62 N.E. 849.)” (Polikoff v. Dole & Clark Building Corp. (1962), 37 Ill. App. 2d 29, 38, 184 N.E.2d 792.) Accordingly, we are unable to say that the trial court’s finding that there was no waste or misapplication of corporate assets was against the manifest weight of the evidence.

In reviewing Coduti’s assertions it is, we believe, important to keep in mind the context in which the events here complained of occurred, that is, within a corporate organization. Regarding such organization, our supreme court has stated:

“ ‘It is, however, fundamental in the law of corporations, that the majority of its stockholders shall control the policy of the corporation, and regulate and govern the lawful exercise of its franchise and business * * * Every one purchasing or subscribing for stock in a corporation impliedly agrees that he will be bound by the acts and proceedings done or sanctioned by a majority of the shareholders, or by the agents of the corporation duly chosen by such majority, within the scope of the powers conferred by the charter, and courts of equity will not undertake to control the policy or business methods of a corporation, although it may be seen that a wiser policy might be adopted and the business more successful if other methods were pursued. The majority of shares of its stock, or the agents by the holders thereof lawfully chosen, must be permitted to control the business of the corporation in their discretion, when not in violation of its charter or some public law, or corruptly and fraudulently subversive of the rights and interests of the corporation or of a shareholder.’ (Wheeler v. Pullman Iron and Steel Co., 143 Ill. 197, 207, 32 N.E. 420; quoted with approval in Central Standard Life Ins. Co. v. Davis, 10 Ill App 2d 245, 250-51, 134 N.E.2d 653.)” Polikoff v. Dole & Clark Building Corp. (1962), 37 Ill. App. 2d 29, 35-36, 184 N.E.2d 792.

The record here does not support Coduti’s contention that he has been deprived of his lawful right to participate in the management of Hudson. Rather, his complaints stem from his position as a minority shareholder and from personal disagreements with Hellwig, neither of which form a basis for the drastic remedy of corporate dissolution. The trial court found that plaintiff had not proved grounds for dissolution of Hudson, and we may not disturb such finding unless it is clearly against the manifest weight of the evidence. A finding is not against the manifest weight of the evidence merely because the record might support a contrary decision. (Graham v. Mimms (1982), 111 Ill. App. 3d 751, 767, 444 N.E.2d 549.) Accordingly, after review of the entire record, we conclude that the trial court’s findings were not against the manifest weight of the evidence and the court, therefore, did not err in refusing to order the dissolution of Hudson.

The second issue is whether the court erred in refusing to order an accounting of the benefits which Coduti asserts were improperly received from Hudson by the other defendants. Coduti argues first that the trial court erred in assigning the burden of proof to Coduti and, second, that Hellwig did not satisfy his burden of proof. Coduti asserts that where an officer or director transacts business with a corporation the burden of proof is on the officer or director to show the fairness of the transaction by clear and convincing evidence. Thus, he maintains that, as the controlling shareholder of Hudson, Hellwig has a duty to show that any dealings he (or any entity in which he has an interest) has had with Hudson are fair and reasonable.

It is undisputed that the individuals in control of a corporation owe a fiduciary duty to such corporation and its shareholders. (Schlensky v. South Parkway Building Corp. (1960), 19 Ill. 2d 268, 278, 166 N.E.2d 793; Graham v. Mimms (1982), 111 Ill. App. 3d 751, 761, 444 N.E.2d 549.) The duties imposed upon directors as fiduciaries require them to act with utmost good faith and loyalty in managing the corporation and thereby prohibit them from enhancing their own personal interests at the expense of corporate interests. (Patient Care Services, S.C. v. Segal (1975), 32 Ill. App. 3d 1021, 337 N.E.2d 471.) Where the discharge of this duty is challenged, the burden of demonstrating fairness rests on the fiduciary. (Karris v. Water Tower Trust & Savings Bank (1979), 72 Ill. App. 3d 339, 389 N.E.2d 1359; Romanik v. Lurie Home Supply Center, Inc. (1982), 105 Ill. App. 3d 1118, 435 N.E.2d 712.) It is not enough, however, to show merely that a fiduciary has entered into a transaction with the corporation to which he owes the duty of loyalty in order to shift the burden of proof. Rather, the one asserting the breach of the duty of loyalty must first establish that the fiduciary profited from the transaction. Karris v. Water Tower Trust & Savings Bank (1979), 72 Ill. App. 3d 339, 389 N.E.2d 1359.

Coduti’s argument that the trial court erred in assigning him the burden of proof is based solely upon the single statement of the trial court that “Plaintiff’s evidence *** bears the burden.” This is, of course, correct as it related to the claim for dissolution and to other matters not here on appeal. The court, however, was aware that the burden of proof may shift. When Coduti’s attorney argued that in certain situations the burden shifts to the fiduciary the court expressed such awareness by stating: “That will be conceded by everyone. You have to raise some inference of wrongdoing for the burden to shift.” The order entering judgment in this cause stated that the court had considered prior case decisions relevant hereto and the arguments of counsel. We are, therefore, unpursuaded by Coduti’s assertion that the court erred in assigning him the burden of proof. Neither are we pursuaded that, once the burden shifted to the fiduciary as to the accounting, Hellwig did not satisfy his burden. The record discloses that he presented evidence concerning each of Coduti’s contentions and the trial court made its findings based upon such evidence. Coduti presents no argument, other than his dissatisfaction with the decision, which rejects his contention that Hellwig failed in his burden of proof. The trial court here correctly applied the burden of proof and found that Hellwig satisfied his burden. We may not reverse the finding unless it is against the manifest weight of the evidence. After a full review of the voluminous record here presented, we are convinced that it supports the finding of the court.

For all the foregoing reasons the judgment of the trial court is affirmed.

Affirmed.

LORENZ and SULLIVAN, JJ., concur.

SUPPLEMENTAL OPINION ON DENIAL OF REHEARING

PRESIDING JUSTICE MEJDA

delivered the opinion of the court:

Plaintiff has petitioned for a rehearing and that this cause be remanded to the circuit court for consideration under section 12.55 of the Business Corporation Act of 1983, which became effective July 1, 1984 (Ill. Rev. Stat., 1983 Supp., ch. 32, par. 12.55). The petition alleges that the Act, which became effective during the pendency of this appeal, replaced the 1933 Business Corporation Act (Ill. Rev. Stat. 1983, ch. 32, pars. 157.1 to 157.167) and contains a new provision for alternative remedies to judicial dissolution of a corporation, specifically section 12.55. The new section in pertinent part is as follows:

“Sec. 12.55. Alternative remedies to judicial dissolution.
(a) In either an action for dissolution pursuant to Section 12.50 or in an action which alleges the grounds for dissolution set forth in Section 12.50 but which does not seek dissolution, the Circuit Court, in lieu of dismissing the action or ordering dissolution, may retain jurisdiction and:
(1) Appoint a provisional director;
(2) Appoint a custodian; or
(3) In an action by a shareholder, order a purchase of the complaining shareholder’s shares as provided in subsections (f) and (g) below.”

From the statutory language it is apparent that the new section contemplates only an alternative remedy, rather than a distinct action. Consequently, the right to that remedy depends upon proof of all of the elements which would have entitled a party to a judicial dissolution, because the action must be either for dissolution or must allege the same grounds for dissolution as set forth in section 12.50 (Ill. Rev. Stat., 1983 Supp., ch. 32, par. 12.50). The trial court, however, has already found that defendants in the instant case have not acted with oppression, fraud or illegality and that corporate assets were not being misapplied or wasted. We have heretofore determined that those findings were within the evidence. It follows therefrom that plaintiff has not proved his cause of action under section 12.50 and thus has not established his right to any remedy under the law. Accordingly, he is not entitled to the alternative remedy of a forced purchase of his shares. The petition for rehearing is therefore denied.

LORENZ and SULLIVAN, JJ., concur.

       Coduti also sought a declaration that he is the owner of certain shares of the corporation. He does not herein appeal the trial court’s finding against him on that issue.

       The other named defendants are Betty Hellwig (Hellwig’s former wife who claims an interest in his share of Hudson), O’Hare International Bank and Citizens Bank and Trust Company (holders of Hudson’s cash assets), and Sidney Frisch, Jr. (as sequestrator of the assets of Werner Hellwig). Only Hellwig and Hudson filed briefs in the instant appeal.

       Justice Wilson, who participated at oral arguments, has since died. Justice Sullivan has reviewed the briefs, record and the tape of the oral arguments.


source: Caselaw Access Project

author: JUSTICE GOLDBERG PRESIDING JUSTICE BUCKLEY,

license: Public Domain

text:
    WALTER ROBACKI, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.
    First District (1st Division)
    No. 82—2044
    Opinion filed August 20, 1984.
    Rehearing denied October 10, 1984.

      BUCKLEY, P.J., dissenting.
    Raymond P. Concannon, Ltd., of Chicago, for appellant.
    Sonnenschein, Carlin, Nath & Rosenthal, of Chicago (Duane C. Quaini, Robert C. Johnson, and Alan M. Posner, of counsel), for appellee.
   JUSTICE GOLDBERG

delivered the opinion of the court:

A three-count complaint filed by Walter Robacki (plaintiff) against Allstate Insurance Company (defendant) alleged that defendant committed fraud, violated the Uniform Deceptive Trade Practices Act (Uniform Act) (Ill. Rev. Stat. 1983, ch. 1211/2, par. 312), and committed fraudulent concealment, all in connection with the sale of automobile insurance coverage. The trial court dismissed counts I and III and entered summary judgment for defendant on count II. Plaintiff appeals.

I

Counts I and III of the complaint contain similar allegations and are based upon the same facts. Plaintiff alleged he had purchased an automobile insurance policy from defendant which expired August 18, 1975. The policy covered personal injury protection (PIP), comprised of Basic PIP coverage and Excess PIP coverage. Each form of PIP coverage included three types of benefits: (1) medical, funeral and hospital expense; (2) disability; and (3) loss of services.

Shortly before plaintiff’s policy expired, defendant mailed to plaintiff certain documents which plaintiff refers to as “Replacement Papers.” These papers explained that PIP was to be discontinued, but defendant would make other coverages available. They consist of two letters from defendant: an “Explanatory Pamphlet” outlining the terms of the new coverages, and a brochure listing new death indemnity and disability income provisions. The letters urged plaintiff to replace his PIP coverages with one or more of these three new coverages: (1) personal medical payment coverage; (2) automobile death indemnity coverage; and (3) automobile disability income coverage. Plaintiff alleged he elected to replace his PIP coverage with the three new coverages.

Counts I and III allege that defendant’s scheme was accomplished by the use of deceptive and misleading statements contained in these “Replacement Papers.” Plaintiff alleged these various statements led him to believe the new coverages would be the same as the old PIP coverages.

Plaintiff also alleged that on October 31, 1976, plaintiff was injured by an automobile. The injuries plaintiff received prevented him from continuing in his employment. Plaintiff alleged his claim for disability benefits of $12,700 was completely denied.

Plaintiff seeks reformation of the policies to include the discontinued coverages and also full payment of plaintiff’s claims under the terms of the discontinued provisions.

II

The first problem here is determination of the legal relationship between these parties. Plaintiff cites a number of Illinois cases in support of his contention that a fiduciary relationship existed between defendant and plaintiff. See, e.g., Simmon v. Iowa Mutual Casualty Co. (1954), 3 Ill. 2d 318, 121 N.E.2d 509; Harvey v. Johnson (1975), 30 Ill. App. 3d 750, 332 N.E.2d 680; Ledingham v. Blue Cross Plan for Hospital Care of Hospital Service Corp. (1975), 29 Ill. App. 3d 339, 330 N.E.2d 540, rev’d on other grounds (1976), 64 Ill. 2d 338, 356 N.E.2d 75; and Allstate Insurance Co. v. Keller (1958), 17 Ill. App. 2d 44, 149 N.E.2d 482.

None of these cases deals with the question of whether a fiduciary relationship exists between an insurance company and its insured. Simmon, Harvey, and Allstate Insurance Co. describe the importance of automobile insurance in the modern world and underscore the degree to which insurance contracts are “cloaked with a public interest.” (Allstate Insurance Co. v. Keller (1958), 17 Ill. App. 2d 44, 49.) These discussions were all within the context of the duty of the insured to cooperate with an insurance company as distinguished from any duty of the insurance company to its insured.

Only Ledingham discusses the duty of an insurance company to its insured. There, the insured plaintiff brought an action against his insurer based upon wrongful denial of benefits by the company under a health service policy. The plaintiff sought both actual and punitive damages. Proceeding upon a common law theory, the court concluded that, while the insurer did have an implied duty of good faith and fair dealing, the denial of benefits in that case was not in bad faith. Ledingham v. Blue Cross Plan for Hospital Care of Hospital Service Corp. (1975), 29 Ill. App. 3d 339, 352.

The duty of good faith and fair dealing described in Ledingham applied within the context of the right of the insured to punitive damages for wrongful denial of benefits under a policy of health insurance. Ledingham does not support plaintiff’s contention here that defendant owed him a fiduciary duty. While a fiduciary relationship exists between an insured and a broker who acts as the agent for the insured (see Black v. Illinois Fair Plan Association (1980), 87 Ill. App. 3d 1106, 409 N.E.2d 549), our research has revealed no Illinois case holding that such a relationship exists between an insurance company and its insured. An implied duty of good faith and fair dealing has never been held to constitute a fiduciary duty.

Further, there is no basis for concluding that defendant here breached a duty of good faith and fair dealing. As discussed below, the record in this case demonstrates that defendant acted in good faith in providing plaintiff with copies of all of the actual provisions of the new coverages.

Plaintiff also relies upon Fawcett v. Sun Life Assurance Co. of Canada (10th Cir. 1943), 135 F.2d 544. That case dealt with the action-ability of representations as to matters of law. No such problem is involved in the case at bar. We conclude there was no fiduciary relationship between the parties hereto.

Ill

Plaintiff contends that defendant made representations which were intended to deceive and mislead policyholders about new coverage. We find there is no representation of any kind by defendant that the new coverage was identical to or even the same as the previous coverage. The only statement made by defendant in this regard is that the two coverages are “similar.” This is a broad statement.

Plaintiff’s depositions reveals him to be a person of good intelligence. He is approximately 70 years old, and was born in America. He has a grammar school education and one year of high school. In addition, he lived in Poland for some time, during which he had two more years of high school education. Plaintiff has been employed in the printing business for many years. Prior to plaintiff’s disability, he was supervisor of the shipping room of a printing and packaging company.

Plaintiff testified he does not read policies but simply glances over them and files them away. He assumed that the policy which he received from the defendant was the same as his previous policy. There is nothing in the record to show that plaintiff ever sought assistance of any kind, expert or otherwise, in understanding the new policy provisions.

Generally speaking, it appears to us that the new coverages apply to the same general risks as the old. The new policy is, in some respects, more restrictive in its coverage, but not in all respects. For example, as regards total disability, the test under the former coverage was whether the injuries prevented the policyholder from engaging in his ordinary occupation. The new coverage provides benefits for total disability during the first year after its commencement if the insured is unable to perform every duty pertaining to his occupation, but provides benefits for subsequent years only if the insured is prevented from engaging in any occupation or employment for wage or profit. Plaintiff concedes he received, without prejudice, $5,200 for disability. This represents one year of benefits at the policy rate of $100 per week. However, the issue here is not whether there were differences between the old and new coverages. The question is whether plaintiff was taken advantage of so that the policy should be reformed to give plaintiff full payment of his claims.

Counts I and III of the complaint pray for reformation of the present policy. Actually, the legal basis of reformation of a contract is that “some provision that was not agreed upon was inserted either through mutual mistake or through the mistake on the part of one party and fraud on the part of the other.” (Jones v. Eagle II (1981), 99 Ill. App. 3d 64, 74, 424 N.E.2d 1253, and cases there cited.) No such situation is alleged in the instant case.

In addition, an insurance policy is, in a limited sense, a commercial agreement. This court has held that, “[i]n the absence of ambiguous language, this court has no legal basis to support a judicial reformation of a commercial agreement.” (Wishnoff v. Guardian Savings & Loan Association (1975), 34 Ill. App. 3d 107, 110, 339 N.E.2d 494, appeal denied (1976), 62 Ill. 2d 592.) No such situation exists in the instant case.

The legal requirements for an action for fraudulent misrepresentation have been repeatedly stated. (See, e.g., Soules v. General Motors Corp. (1980), 79 Ill. 2d 282, 286, 402 N.E.2d 599.) Examining these requirements, we find in the case at bar no false statement of a material fact which is known to be. false by the party making it. There can be no cause of action based on plaintiffs reliance on the truth of statements made because none of the statements in question are alleged to be false. Of course, there was an intent on the part of defendant to induce the plaintiff to act. But this single element is apparent in any advertisement or in virtually any sale of goods. Also we find no damage to plaintiff resulting from any reliance upon any false statement made by the defendant. There is no evidence of any false statement in any of the papers sent by defendant to the plaintiff.

In addition, no fraud is properly alleged in this case. Plaintiff had “ample opportunity to ascertain the truth of the representations.” (Schmidt v. Landfield (1960), 20 Ill. 2d 89, 94, 169 N.E.2d 229; see also Kusiciel v. La Salle National Bank (1982), 106 Ill. App. 3d 333, 435 N.E.2d 1217.) Plaintiff had the “burden of knowing the contents of [his] insurance policies ***.” (Foster v. Crum & Forster Insurance Cos. (1976), 36 Ill. App. 3d 595, 598, 345 N.E.2d 49.) We necessarily conclude that the trial court correctly dismissed counts I and III of plaintiff’s complaint.

IV

Count II of the complaint re-alleges all of the paragraphs of count I, and adds that defendant’s actions violated the Uniform Deceptive Trade Practices Act (Ill. Rev. Stat. 1983, ch. 1211/2, par. 312), which provides in part:

“A person engages in a deceptive trade practice when, in the' course of his business, vocation or occupation, he:
* * *
(5) represents that goods or services have sponsorship, approval, characteristics, uses, benefits, or qualities that they do not have * * *
* * *
(12) engages in any other conduct which similarly creates a likelihood of confusion or misunderstanding.”

Plaintiff’s motion for summary judgment is based primarily upon these two statutory provisions.

Defendant urges that the Uniform Deceptive Trade Practices Act does not authorize a monetary award. In a reply filed by plaintiff to defendant’s motion for summary judgment on count II, plaintiff urges that the Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1983, ch. 1211/2, par. 216 et seq.) is coordinated together with the Uniform Act. (See Ill. Rev. Stat. 1983, ch. 1211/2, par. 262.) Under the view we take of the case, we need not resolve this dispute. In our opinion, the trial judge properly denied plaintiff’s motion for summary judgment on count II and allowed defendant’s motion for summary judgment. In other words, the same result must be reached upon consideration of either or both statutes. In fact, virtually the same reasoning above set forth, regarding counts I and III of plaintiffs complaint, is decisive with reference to the present issue.

Plaintiff cites two cases pertaining to this portion of the appeal. In Perlman v. Time, Inc. (1978), 64 Ill. App. 3d 190, 380 N.E.2d 1040, the opinion is primarily concerned with the elements of fraudulent misrepresentation, not applicable to the instant case. The only reference to the Consumer Fraud Act is to describe it as an attempt “to eradicate all forms of deceptive and unfair business practices.” (64 Ill. App. 3d 190, 198.) The second case, Filter Dynamics International, Inc. v. Astron Battery, Inc. (1974), 19 Ill. App. 3d 299, 311 N.E.2d 386, appeal denied (1974), 56 Ill. 2d 586, involves primarily injunctive relief from confusion resulting from similar packaging. The issue there was whether the package had “acquired secondary meaning.” 19 Ill. App. 3d 299, 307.

As the trial judge correctly pointed out, the case must be viewed in the context of the totality of information available to plaintiff. Our careful study of all of the so-called replacement papers convinces us there is no element of deception in the dealings between these parties. It must be stressed that defendant provided plaintiff with a complete explanatory pamphlet. This document outlines all of the new coverages and is a clear summary of the provisions of the new policy. In our opinion, it eliminates any possibility of confusion or misunderstanding. Plaintiff testified in his deposition that when he first received the policy he was familiar with the coverages but he forgot the policy provisions themselves because “I don’t read them.”

Actually the record shows that plaintiff received a new policy from defendant on August 18, 1975. The automobile accident in which plaintiff was involved took place on October 31, 1976. Every year plaintiff received another policy from the defendant. This continued at least up to and including the time that plaintiff’s deposition was taken on May 14, 1981. Plaintiff testified on his deposition that he still had the same coverage on his policy and the same limits that he had at the time of the accident. Plaintiff testified he was familiar with the coverage of these policies but he forgot the policy provisions themselves.

Plaintiff specifically stated that he was familiar with the provisions as the policies came. It was never his practice to read any of the policies at any time, but he simply went over them or looked at them and then filed them away. Regarding the new policy, plaintiff specifically stated, “I glance over it” and also, “I don’t read them.” Plaintiff testified he received $20,167.19 for medical expenses from defendant. Also defendant paid him $5,200 in disability benefits accepted by plaintiff without prejudice to his claim for additional benefits. This testimony completely negates any possibility of deception or misunderstanding.

The dissent relies strongly upon Glazewski v. Allstate Insurance Co. (1984), 126 Ill. App. 3d 401. We find Glazewski readily distinguishable from the case at bar. As carefully pointed out in Glazewski, plaintiff there alleged that the defendant insurers marketed underinsured motorist coverage which simply duplicated existing coverage and which was therefore worthless. (126 Ill. App. 3d 401, 405.) Completely to the contrary, in the case at bar it is undisputed that the coverage offered by defendant was valuable and did not constitute the type of “phantom” coverage which we rejected in Glazewski. The issue in Glazewski was whether the stricken complaint stated a cause of action. The issue in the case before us is whether defendant was entitled to summary judgment based upon all of the matters before the trial court, including the plaintiff’s own testimony.

We agree with the finding of the trial court that all of the replacement papers, which included the various letters and the pamphlet, accurately and adequately informed the plaintiff that PIP coverage was to be discontinued and replaced with other coverage as described. There is nothing in any of these sources which described the new coverages as the “same” coverages as PIP. On the contrary, as above shown, the information available to plaintiff clearly showed what the' new coverages would consist of.

This record shows there was no actual confusion or misunderstanding on plaintiff’s part. Also, there was no likelihood of confusion by the plaintiff and in fact there was no deception or misunderstanding. There was no violation of the Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1983, ch. 1211/2, par. 261 et seq.), nor of the Uniform Deceptive Trade Practices Act (Ill. Rev. Stat. 1983, ch. 1211/2, par. 312). No genuine issue of material fact is raised so that defendant was entitled to judgment as a matter of law. See Murphy v. Urso (1981), 88 Ill. 2d 444, 464, 430 N.E.2d 1079.

Accordingly the judgment of the trial court is affirmed.

McGLOON, J., concurs.

PRESIDING JUSTICE BUCKLEY,

dissenting:

I respectfully dissent from that portion of the majority opinion affirming summary judgment for Allstate as to count II, which is based upon violation of the Uniform Deceptive Trade Practices Act (Uniform Act) (Ill. Rev. Stat. 1983, ch. 1211/2, par. 312). This court consistently has held that to recover under the Uniform Act a plaintiff need not show any actual confusion or misunderstanding; rather, a plaintiff need only allege and prove that the practices complained of created a “likelihood of confusion.” (Glazewski v. Allstate Insurance Co. (1984), 126 Ill. App. 3d 401; Williams v. Bruno Appliance & Furniture Mart, Inc. (1978), 62 Ill. App. 3d 219, 379 N.E.2d 52.) Clearly, at the very least, a genuine issue of material fact exists in this case as to whether the conduct in question created a “likelihood of confusion.”

In order to appreciate how the confusion in this case not only was likely, but rather inevitable and even intentional, it is helpful to review the conduct complained of in its proper context. The record reveals that Allstate decided that effective January 1, 1976, it would no longer offer PIP coverage, which initially had been written in conformity with no-fault principles. This decision was made after Allstate lost a class action suit concerning its offer of PIP coverages on renewals between July 1972 and July 1973. In a memorandum informing its agents of the litigation, Allstate stated: “That decision was against Allstate on a number of grounds, including the judge’s opinion that the Illinois No-Fault Law never went into effect and that we inadequately described the situation to our renewal customers.” The memorandum warned agents that a possible effect of the law suit might be to return part of the PIP premiums already paid, as well as future premiums collected. Therefore, rather than run the risk of refunding PIP premiums until the appeal of the suit was decided, Allstate opted to discontinue PIP and, to avoid losing customers, the company decided to provide alternative coverages beginning in January 1976. Allstate thereafter sent a letter to its PIP policyholders, signed by its associate vice president Raymond H. Kiefer, informing them of the changeover.

Allstate intercompany memoranda further revealed that renewals for the new alternative or “replacement” coverages were running poorly. Consequently in order to boost sagging renewals, Allstate apparently decided to take a new marketing approach that used confusing and ambiguous language to convey the erroneous impression that the broad protection the policyholders enjoyed under PIP would be continued under the new alternative coverages. Allstate subsequently sent PIP policyholders a second, stronger and more persuasive letter signed by Kiefer, accompanied by an explanatory pamphlet. It is this second Kiefer letter and the pamphlet, referred to as replacement papers, which form the crux of plaintiffs complaint.

The second letter from Kiefer, unlike his first letter, contained the following heading in large bold print:

“Personal Injury Protection Is Being Discontinued — Here’s How To Replace It!”

The first paragraph of the letter began:

“When your auto policy is renewed, it will no longer provide any medical, wage loss, or death benefits if you are injured in an auto accident unless you select Option 1 on the enclosed form. Here’s why.”

The letter continued in part as follows:

“Personal Injury Protection, which is now included in your policy is being discontinued ***. This could leave a dangerous gap in your protection. That’s why you should seriously consider replacing PIP with the coverage described in the enclosed insert ‘3 Coverages To Replace Personal Injury Protection.’ ” (Emphasis added.)

Kiefer further warned in the letter:

“As you know, hospital costs, physician fees, and other medical costs have jumped dramatically. That’s why we are anxious to make sure that you are protected and that your policy includes the coverage you want.”

The letter concluded with this postscript:

“P.S. Injuries can be expensive! Why not select Option 1 now and make sure your protection is continued!” (Emphasis added.)

The accompanying explanatory pamphlet, as noted in the letter, was entitled:

“3 Coverages to Replace Personal Injury Protection.”

The introductory paragraph of the pamphlet stated:

“These coverages can provide protection to replace similar benefits provided under Personal Injury Protection, PIP, which is being discontinued ***.”

Hence, the above replacement papers served to alarm Allstate policyholders that without PIP there would be a financially “dangerous gap” in their insurance protection and that this gap could be remedied by purchasing the replacement coverages. However, after comparing the replacement coverages with PIP, there is no question that PIP provided more extensive benefits and less exclusions than its replacement policy. The “dangerous gap” that Allstate was so “anxious” about would still remain, even after policyholders purchased the new coverages from Allstate; plaintiff’s individual claim is ample proof of that fact. As such, contrary to Kiefer’s postscript in his letter, the protection plaintiff enjoyed under PIP was hardly continued.

The majority maintains that the accompanying pamphlet eliminated any misunderstanding. I disagree. The pamphlet, which Kiefer in his letter directs the policyholder to read, is in fact particularly confusing as to the very provision which forms the basis for the claim in the instant case — that pertaining to total disability benefits. The pamphlet describes the total disability benefit as follows:

“Pays $100 a week if you are injured in an auto accident and cannot work at all.”

The misleading nature of the words “cannot work at all” becomes readily apparent when they are read in the context of plaintiff’s coverage under PIP. Total disability under PIP was defined as “inability of the injured person to engage in his ordinary occupation.” Here, the testimony of Allstate’s own physician indicates that plaintiff’s injuries prevented him from engaging in his ordinary occupation. While conceding in its brief that plaintiff may have been entitled to the disability benefits in dispute under PIP, Allstate asserts that he is not entitled to those benefits under the “similar” replacement coverage because the words “cannot work at all,” which appear in the pamphlet referred to in Kiefer’s second letter, actually mean the inability of the injured person to engage “in any occupation or employment for wage or profit.” (Emphasis added.) Allstate makes much of the fact that this latter, far more concise language appears in the new policy itself; however, this fact does not necessarily insulate Allstate from liability given the misleading nature of Kiefer’s letter and the pamphlet which plaintiff allegedly relied upon in deciding to continue his coverage with Allstate. See Glazewski v. Allstate Insurance Co. (1984), 126 Ill. App. 3d 401, 410.

It should be noted that the two definitions of total disability under PIP and the replacement coverage can by no means be deemed “similar.” In contrast to PIP, under the definition in the new policy it would be virtually impossible to collect total disability benefits after the first year, unless the insured was rendered completely mentally and physically disabled, i.e., a “vegetable,” as Allstate apparently would argue that the claimant could always perform some work, no matter how menial and demeaning.

The record of the proceedings below reveals that even the trial court found confusion and misunderstanding as to Allstate’s representations in the replacement papers. The court stated that:

“*** there may be some confusion and there may have been some misrepresentation which led to the confusion but I certainly, and I agree with Judge O’Brien, don’t think it was fraud.
* * * Yes, but it says ‘similar benefit.’ There is the confusing word, and you have told me that.”

Despite these findings, the trial court ruled that no issue of material fact existed as to whether count II satisfied the standard of the Uniform Act, which requires only a “likelihood of confusion.” The above comments indicate that the trial court apparently believed it was necessary to show fraud under the Uniform Act. Such a showing, however, is not required under the language of the Act, nor under case law construing the Act.

Finally, plaintiff is not precluded from recovering damages for violations of the Uniform Act. Section 2 of the Uniform Act is incorporated into section 2 of the Consumer Fraud and Deceptive Business Practices Act. (Ill. Rev. Stat. 1983, ch. 1211/2, par. 262; Glazewski v. Allstate Insurance Co. (1984), 126 Ill. App. 3d 401, 408; Crinkley v. Dow Jones & Co. (1978), 67 Ill. App. 3d 869, 874-75, 385 N.E.2d 714.) As we noted in Glazewski: “Through the incorporation, the legislature clearly intended to provide consumers with broader protection than initially provided under either act individually and to allow consumers to seek remedies for deceptive practices under the uniform act.” (126 Ill. App. 3d 401, 408.) Specifically, section 10a of the Consumer Fraud and Deceptive Business Practices Act provides the statutory basis for the recovery of damages for violations of the Uniform Act. (Crinkley v. Dow Jones & Co. (1978), 67 Ill. App. 3d 869, 874-75; Ill. Rev. Stat. 1983, ch. 1211/2, par. 270(a).) Although plaintiff in this case technically should also have pleaded the Consumer Fraud and Deceptive Business Practices Act as the basis for his monetary relief, Crinkley indicates that this is a mere pleading defect which easily can be remedied by filing an amended complaint. Given Illinois’ liberal pleading rules (Dinn Oil Co. v. Hanover Insurance Co. (1967), 87 Ill. App. 2d 206, 211-12, 230 N.E.2d 702), this minor technical flaw should not prevent plaintiff from seeking damages that he is clearly entitled to claim under the law. Consequently, on remand, I would allow plaintiff to amend his complaint to add the Consumer Fraud and Deceptive Business Practices Act as his basis for relief.

       In addition to Allstate’s economic reasons for keeping its renewal customers, the record discloses that its legal department warned that it could not cancel PIP from a policy that had a renewal guarantee.


author: JUSTICE CAMPBELL

text:
    THE PEOPLE OF THE STATE OF ILLINOIS, Plaintiff-Appellee, v. CHARLIE BREWER, Defendant-Appellant.
    First District (1st Division)
    No. 83—0659
    Opinion filed July 30, 1984.
    Rehearing denied October 3, 1984.

      Dennis M. Doherty, of Chicago, for appellant.
    Richard M. Daley, State’s Attorney, of Chicago (Michael E. Shabat, Jeanette Sublett, and Mary Ann Callahan, Assistant State’s Attorneys, of counsel), for the People.
   JUSTICE CAMPBELL

delivered the opinion of the court:

Defendant, Charlie Brewer, was found guilty of indecent liberties with a child in a bench trial. He was sentenced to an extended term of 25 years’ imprisonment. On appeal, defendant raises the following issues: (1) whether he was proved guilty beyond a reasonable doubt; (2) whether the court erred in denying his motion to order a psychiatric examination of the complaining witness; (3) whether the court erred in denying his motion to reconsider the finding of competency of the complaining witness following her alleged contradictory testimony; (4) whether the trial court abused its discretion in sentencing defendant to a maximum sentence under the statute; and (5) whether the application of the extended-term sentence to defendant constituted double enhancement.

Defendant was charged in a two-count information with indecent liberties with a child in violation of sections 11—4(a)(l) and (a)(2) of the Criminal Code of 1961 (Ill. Rev. Stat. 1981, ch. 38, pars. ll-4(a)(l), (a)(2)). The complaining witness, defendant’s step-daughter, was seven years old at the time of the incident and nine years old at the time of the trial. During the hearing to determine if the complaining witness was competent to testify, she stated that she was in the second grade and was able to read and write. She accurately testified to her current address and her address at the time of the incident on May 12, 1981. She knew the name of the school she attended in May 1981 and the name of the school she attended at the time of trial. She testified that she understood the difference between telling the truth and telling a lie and explained that if she told a lie, her mother would punish her. The court ruled that she was competent to testify.

At trial, the complaining witness testified to the circumstances surrounding the attack by defendant on the afternoon of May 12, 1981. She testified that the attack occurred in her family’s apartment when she got home from school. The victim used male and female dolls provided by the prosecution to describe the acts of oral copulation and fondling performed against her. The complaining witness testified to what the defendant had said to her, including the fact that the defendant had told her to go into the bathroom and wash herself following the attack.

Margaret Lynch, the complaining witness’ teacher, testified that on the morning of May 15, 1981, when her students entered the classroom several were giggling. When the teacher asked them why, they told her that the complaining witness had been “freaked” by her father. The teacher called the complaining witness out of the classroom and spoke with her alone. After being questioned by the teacher, the complaining witness, in tears, told the teacher what defendant had told her to do and what he had done to her. The description given the teacher was substantially the same as the description the complaining witness gave at trial. Dr. Anthony DeLach, an emergency room doctor who examined the complaining witness, also testified to the description of the attack given by the complaining witness. He testified to the same material facts as the teacher.

Two brothers of the defendant and a neighbor who was a friend of the complaining witness testified that the complaining witness never reported the alleged attack to them. Defendant’s mother testified that sometime during the month following defendant’s arrest, the complaining witness had admitted to her that she lied about the defendant. A friend of defendant’s testified that during the month of May 1981 he and defendant often worked on cars late into the evening but he could not remember with certainty defendant’s whereabouts on any particular day.

The trial court acquitted defendant of one count of the information which had alleged an act of intercourse and found defendant guilty of the other count of the information alleging an act of oral copulation.

Defendant first contends that the complaining witness’ testimony is not clear and convincing and fails to prove his guilt beyond a reasonable doubt. Defendant argues that several of her statements were absurd, such as her statements that although the defendant was on top of her he did not touch her and that after forcing her to perform acts of oral copulation, defendant sat on her for a few hours. Defendant also argues that her trial testimony was inconsistent with her testimony at the preliminary hearing and that the complaining witness denied discussing the incident with any doctor, despite the fact that Dr. DeLach testified that the complaining witness discussed the incident with him.

The State argues that a seven-year-old child would not be able to accurately and consistently describe the sexual acts at issue unless these acts had been performed against her. The State also argues that any discrepancies in her testimony are minor and do not detract from the reasonableness of her testimony as a whole. We agree. The trial court stated in its findings of fact that the testimony of the complaining witness was “clear and convincing in spite of some very minor inconsistencies.” The court also noted that “she brought out facts that a seven year old just would not know about unless it happened to her.” Defendant contends that the complaining witness at several points in her testimony would not answer questions. A review of the record reveals, however, that after the courtroom was cleared of spectators, the complaining witness answered the questions asked of her. The evidence produced at trial adequately supports the trial court’s finding that defendant was guilty beyond a reasonable doubt. People v. Britton (1980), 80 Ill. App. 3d 482, 400 N.E.2d 33.

Defendant next contends that the trial court erred in denying his motion to compel a psychiatric examination of the complaining witness. A trial court in the exercise of its discretion may order the psychiatric examination of a complaining witness in a sex offense case where the defendant presents a compelling reason therefor. (People v. Glover (1971), 49 Ill. 2d 78, 273 N.E.2d 367.) We are not persuaded that the reasons for a psychiatric examination advanced by the defendant were of a compelling nature. Defendant argues that the complaining witness at one point testified that she was “telling a story at first,” that her testimony was contradictory on whether her step-father had ever attacked her before and that she apparently had twice failed to pass on to a higher grade in school. A psychiatric examination is not warranted under the facts of this case merely because the complaining witness did poorly in school or became confused under cross-examination. (People v. Alexander (1983), 116 Ill. App. 3d 855, 452 N.E.2d 591.) The trial court did not err in concluding that the defendant had failed to present compelling reasons to support his motion for a psychiatric examination of the victim.

Defendant’s third contention is that the trial court erred in denying his motion to reconsider the finding of competency in light of the complaining witness’ alleged contradictory testimony. A child who is mature enough to receive correct impressions by his senses and to recollect and narrate intelligently, and to appreciate the moral duty to tell the truth is competent to testify. (People v. Ballinger (1967), 36 Ill. 2d 620, 225 N.E.2d 10, cert, denied (1967), 388 U.S. 920, 18 L. Ed. 2d 1366, 87 S. Ct. 2141.) The age of the witness is not the controlling factor as to her competency but rather the degree of intelligence and understanding she possesses. (People v. Brown (1972), 52 Ill. 2d 94, 285 N.E.2d 1.) A determination of competency of a witness under the age of 14 years will be reversed only where there has been an abuse of discretion or manifest misapprehension of some legal principle. People v. Ballinger (1967), 36 Ill. 2d 620, 225 N.E.2d 10.

During the competency hearing the trial court established that the complaining witness could appreciate the difference between the truth and a lie and understood the moral obligation to tell the truth. The court also stated that it found the witness to be “a very bright young girl with a good recollection.” Her testimony at trial does not suggest that the finding of competency was wrong. The record indicates that she made several contradictory statements when confused by the questions of the defense attorney. When the questions were clarified, the complaining witness gave consistent testimony. Further, she explained her statement that she told a story at first because she did not understand what was being asked of her at the time. Any remaining inconsistencies in her testimony were insignificant.

Next, defendant contends that the trial court abused its discretion in sentencing by allegedly considering defendant’s “life on public welfare” as an aggravating factor. The State argues that the trial court did not base defendant’s sentence on the fact that defendant has received public welfare but rather on defendant’s lengthy criminal record, the heinousness of the charged offense and defendant’s low rehabilitation potential. We have reviewed the court’s comments at sentencing and find that they do not indicate that the trial court abused its discretion in sentencing defendant. (People v. Carlson (1980), 79 Ill. 2d 564, 404 N.E.2d 233.) The trial court merely noted that defendant had spent the previous five years since he was last released from jail on public welfare and consequently, had no employment history. The court based its sentence on defendant’s criminal record which included convictions of rape, attempted rape, robbery and burglary.

Lastly, defendant argues that the imposition of an extended term under section 5—5—3.2(b) of the Unified Code of Corrections (Ill. Rev. Stat. 1981, ch. 38, par. 1005—5—3.2(b)(3)(i)) is inappropriate here. That section authorizes the imposition of an extended-term sentence for a defendant who is convicted of committing a felony against a person under the age of 12. Defendant contends that when applied to his conviction for indecent liberties with a child the extended-term sentence constitutes an automatic double enhancement. Defendant argues that where the legislature has established a penalty to be imposed for a crime, a factor already implicit in that crime, here the child’s age, cannot be considered an aggravating factor. As support for this position, defendant cites the case People v. Conover (1981), 84 Ill. 2d 400, 419 N.E.2d 906. In that case the court held that a trial court may not consider as a factor in aggravation an element which is already part of the offense.

The State contends that this issue has been waived by defendant’s failure to raise the issue of the alleged double enhancement during the sentencing hearing and in the post-trial motion. (People v. Collins (1981), 97 Ill. App. 3d 465, 422 N.E.2d 1061.) Further, the State argues that the extended-term sentence as it applies to felonies committed against children under 12 has not been held unconstitutional and, therefore, enjoys a strong presumption of constitutionality (People v. La Pointe (1982), 88 Ill. 2d 482, 499, 431 N.E.2d 344, 352). The State also argues that application of the extended-term sentence to defendant does not constitute double enhancement since the extended-term sentence does not apply to the entire class of persons protected by the indecent liberties with a child statute. The offense of indecent liberties with a child punishes acts committed against a child under the age of 16. (Ill. Rev. Stat. 1981, ch. 38, par. 11—4.) The extended-term sentence may be imposed for felonies committed against a child under 12. Thus, the extended-term sentence does not apply where the felony of indecent liberties with a child is committed against a child between the ages of 12 and 16. Therefore, the State argues, the extended-term sentence is not an automatic double enhancement.

In Conover, the court held that a factor necessarily implicit in every theft and in most burglaries, namely the taking of the proceeds of the burglary or theft, cannot be utilized as an aggravating factor in sentencing under section 5—5—3.2(a)(2) (Ill. Rev. Stat., 1981 Supp., ch. 38, par. 1005—5—3.2(a)(2)). In the present case, the trial court’s consideration of the extreme youth of the victim, however, presents an additional consideration not necessarily implicit in every offense of indecent liberties with a child. We find this case to be analogous to People v. Hunter (1981), 101 Ill. App. 3d 692, 428 N.E.2d 666, and People v. Tolliver (1981), 98 Ill. App. 3d 116, 424 N.E.2d 44, both of which have found that the supreme court did not intend an inflexible application of the Conover rule. In Tolliver, the court stated, “[i]t is permissible for a sentencing judge to consider the nature and circumstances of the offense, including the nature and extent of each element of the offense as committed by the defendant.” (98 Ill. App. 3d 116, 117-18, 424 N.E.2d 44, 45.) In Hunter, the appellate court held that the trial court did not err in considering the “degree of gravity of defendant’s conduct.” (101 Ill. App. 3d 692, 694, 428 N.E.2d 666, 668.) There, the defendant was convicted of aggravated arson, which includes as an element of the offense knowledge that at least one person would be present in the structure. (Ill. Rev. Stat. 1979, ch. 38, par. 20—1.1(a)(1).) The trial court had considered in aggravation the fact that the defendant had endangered the lives of an entire family at a time when the family was likely to be sleeping. The appellate court found that this and other factors constituted the “nature and circumstances” of defendant’s crime which should be considered in determining defendant’s sentence consistent with Conover and section 5—5—3.2.

The legislature under the State’s police power has wide discretion to classify offenses and prescribe penalties for the defined offenses. (People v. McCabe (1971), 49 Ill. 2d 338, 275 N.E.2d 407.) In enacting section 5—5—3.2(b)(3)(i) the legislature determined that felonies committed against children under 12 were of a greater harm to society than those committed against persons over 12 and therefore deserved a heavier sentence. Furthermore, we note that the utilization of section 5—5—3.2(b)(3)(i) is discretionary with the trial court. It was not error to consider in aggravation the extreme youth of the victim when sentencing a defendant for indecent liberties with a child. People v. Hunter (1981), 101 Ill. App. 3d 692, 428 N.E.2d 666; People v. Tolliver (1981), 98 Ill. App. 3d 116, 424 N.E.2d 44.

For the reasons given, defendant’s conviction and sentence are affirmed.

Affirmed.

BUCKLEY, P.J., and GOLDBERG, J., concur.