{ "id": 3513335, "name": "THOMAS R. WEIL, Trustee for the Thomas R. Weil Trust, Indiv. and on behalf of all others similarly situated, Plaintiff-Appellant, v. NORTHWEST INDUSTRIES, INC., et al., Defendants-Appellees", "name_abbreviation": "Weil v. Northwest Industries, Inc.", "decision_date": "1988-03-08", "docket_number": "No. 87\u2014913", "first_page": "1", "last_page": "7", "citations": [ { "type": "official", "cite": "168 Ill. App. 3d 1" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "502 N.E.2d 838", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1984, "opinion_index": 0 }, { "cite": "151 Ill. App. 3d 471", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3540733 ], "year": 1984, "opinion_index": 0, "case_paths": [ "/ill-app-3d/151/0471-01" ] }, { "cite": "491 N.E.2d 851", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "142 Ill. App. 3d 453", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3450331 ], "pin_cites": [ { "page": "461" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/142/0453-01" ] }, { "cite": "477 A.2d 1040", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 7908902 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/a2d/477/1040-01" ] }, { "cite": "505 A.2d 757", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 7912678 ], "weight": 3, "pin_cites": [ { "page": "766" } ], "opinion_index": 0, "case_paths": [ "/a2d/505/0757-01" ] }, { "cite": "501 N.E.2d 192", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "149 Ill. App. 3d 845", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3461929 ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/149/0845-01" ] }, { "cite": "344 N.E.2d 805", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "36 Ill. App. 3d 654", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2632562 ], "weight": 2, "pin_cites": [ { "page": "663" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/36/0654-01" ] } ], "analysis": { "cardinality": 590, "char_count": 11889, "ocr_confidence": 0.765, "pagerank": { "raw": 5.8012622598987697e-08, "percentile": 0.36148767746691024 }, "sha256": "6b31fbcde2701447ea3c6ef0515184df81ca4f82f7fcec2856ee772f95c7e4fa", "simhash": "1:09590e8afd0090d5", "word_count": 1873 }, "last_updated": "2023-07-14T19:02:50.417384+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "THOMAS R. WEIL, Trustee for the Thomas R. Weil Trust, Indiv. and on behalf of all others similarly situated, Plaintiff-Appellant, v. NORTHWEST INDUSTRIES, INC., et al., Defendants-Appellees." ], "opinions": [ { "text": "JUSTICE SCARIANO\ndelivered the opinion of the court:\nPlaintiff brought this action for restitution and other relief, alleging wrongdoing by corporate fiduciaries in connection with the corporation\u2019s sale of one of its businesses. Plaintiff also alleges that this wrongdoing was fraudulently concealed from him until after he had sold his stock and after the corporation merged with another company. The trial court dismissed plaintiff\u2019s second amended complaint, ruling that the fiduciary duties owed and allegedly violated by the defendants related only to plaintiff\u2019s status as a shareholder and that defendants\u2019 alleged breach of their duties resulted in corporate claims rather than personal claims of the shareholders. Plaintiff appeals, arguing that the trial court erred in holding that a former shareholder cannot maintain an action against corporate fiduciaries where the misconduct and resulting damage were fraudulently concealed until after the shareholder sold his stock and after the merger of the corporation into a surviving corporation.\nPlaintiff Weil is a former stockholder of defendant Northwest Industries, Inc. He brought this action on behalf of himself and the class of Northwest shareholders; however, the class was never certified. Plaintiff alleges that in 1983 Northwest was considering selling its wholly owned subsidiary, Microdot, Inc. Albert Mendez, a prospective purchaser, communicated to Richard Strubel, Northwest\u2019s president, his desire to purchase Microdot for a price approximately equal to its book value of $145 million. During July and August 1983, Strubel and Mendez negotiated over the price for which Microdot could be purchased; Strubel informed Mendez that no offer less than book value would be considered.\nIn October 1983, Northwest contracted with defendant Goldman, Sachs & Co. to have that company prepare a financial analysis of Microdot in order to determine its fair market value. Defendant John Roberson, of Goldman, Sachs\u2019 Chicago office, was to compile and transmit Microdot\u2019s financial information to Goldman, Sachs\u2019 New York office; but Roberson never did so. As a result, Goldman, Sachs never completed the valuation of Microdot, and neither Northwest nor plaintiff was advised of Microdot\u2019s fair market value. In October 1983, Strubel terminated all communications with Mendez.\nOn January 4, 1984, Northwest announced that it had sold Microdot in a leveraged buyout to Strubel and his investor group of Microdot executives for $121 million, approximately $24 million less than its fair market value. Northwest took a $24 million write-off on the sale of Microdot, and John Roberson left Goldman, Sachs, to become a director of Microdot.\nNorthwest\u2019s shareholders were not informed that a prospective purchaser was willing to pay book value for the company, nor were they told of Strubel\u2019s statement that no offer less than book value would be accepted. On June 26, 1984, plaintiff sold his shares of Northwest on the open market. During July 1985, Northwest was merged into Farley/Northwest Acquisition Corporation and Farley/ Northwest Subsidiary Corporation (collectively Farley).\nThe trial judge dismissed plaintiff\u2019s second amended complaint in March 1987, holding that he failed to allege facts indicating that he was bringing an action for personal claims rather than for corporate claims against the defendants. Plaintiff appeals from that order.\nOpinion\nPlaintiff claims that he has been injured by the diminution in the value of his stock as a result of the sale of Microdot for less than its fair market value. In his complaint he alleges conflict of interest, the taking of a corporate opportunity, waste of corporate assets, breach of fiduciary duty and breach of the contract between Northwest and Goldman, Sachs. The trial court dismissed plaintiff\u2019s second amended complaint, Holding that plaintiff\u2019s loss was one which was suffered in common with other shareholders and thus the cause of action belonged to the corporation. A shareholders derivative suit was thus the proper procedure to follow. The trial court relied on Zokoych v. Spalding (1976), 36 Ill. App. 3d 654, 344 N.E.2d 805, in making its decision.\n\u201cWhere there is no showing that plaintiff himself had been injured in any capacity other than in common with his fellow stockholders, the cause of action belongs to the corporation [Citations], and a stockholder may not seek relief on his own behalf. However, this general principle has no application where the wrongful acts are not only against the corporation but are also violations of a duty arising from a contract or otherwise, and owed directly by the wrongdoer to the stockholder. [Citation.] A suit brought by a stockholder upon a personal claim is by its nature distinguishable from a proceeding to recover damages or other relief for the corporation [Citation.] Not every allegation of wrongdoing is a Simon-pure charge of individual injury, but a court must preliminarily determine if the \u2018gravamen\u2019 of the pleadings states injury to the plaintiff upon an individual claim as distinguished from an injury which indirectly affects the shareholders or affects them as a whole.\u201d (36 Ill. App. 3d at 663.)\n(See also Bio-Scientific Clinical Laboratory, Inc. v. Todd (1986), 149 Ill. App. 3d 845, 501 N.E.2d 192.) Here, the trial court determined that the gravamen of plaintiff\u2019s complaint was that his stock suffered in value and that such an injury affected shareholders as a whole.\nOn appeal, plaintiff concedes that the usual remedy for wrongdoing such as been alleged would be a derivative suit; however, because plaintiff no longer owns stock in Northwest, he cannot seek redress for his injury through such a suit. Plaintiff argues that he has sufficiently alleged a personal claim rather than a corporate claim by alleging fraudulent concealment and should be allowed to proceed with his suit.\nPlaintiff contends that defendants\u2019 duty not to fraudulently conceal from the shareholders material facts and causes of action is a duty that is owed directly to shareholders rather than to the corporation. He further contends that defendants\u2019 breach of this duty gives him standing to sue. Plaintiff relies on Merritt v. Colonial Foods, Inc. (Del. Ch. 1986), 505 A.2d 757, in support of his argument.\nIn Merritt, plaintiffs brought an action against the directors and controlling shareholders of their corporation, challenging the fairness of a cash-out merger which terminated their status as shareholders of the corporation. The merger was instigated by the controlling majority shareholders and was accomplished via a tender offer and without the benefit of independent financial advice. The merger also terminated a derivative action pending in New Jersey State court.\nThe Merritt court first noted that the New Jersey court properly dismissed the derivative suit once the merger had been accomplished, as a cash-out merger terminates the standing of a plaintiff to maintain derivative claims on behalf of the corporation of which he formerly was a shareholder. (505 A.2d at 763 n.3.) The court went on to review the fairness of the merger, and in ruling on the parties\u2019 cross-motions for summary judgment, found that defendants had breached their duty of fair dealing with the plaintiff minority shareholders. The court allowed plaintiffs to pursue their class-action challenging the cash-out price and held that the derivative claims could be considered in that litigation, not as derivative claims, \u201cbut rather, indirectly, as evidence relevant to the fairness of the cash-out price.\u201d 505 A.2d at 766.\nPlaintiff\u2019s reliance on Merritt is misplaced, as that case does not address the issues presented in the instant matter. The Merritt court allowed a class action challenging a cash-out merger to proceed. Here, plaintiff is challenging Northwest\u2019s sale of Microdot, not the merger of Northwest with Farley. Farley, as the successor in interest to Northwest, is the only party which may challenge the actions taken by Northwest fiduciaries when Microdot was sold.\nPlaintiff admits that Farley may have a cause of action for defendants\u2019 wrongdoing, but contends that that fact does not deprive him of his action. Plaintiff\u2019s argument is incorrect. The alleged breach of a duty owed to one party does not give that party standing to sue for an alleged breach of a duty owed to another party. Plaintiff may have a cause of action against defendants for fraud, but that does not change the fact that he does not have standing to sue for corporate claims. (Plaintiff sold his stock on the open market prior to disclosure of defendants\u2019 alleged wrongdoing with regard to the sale of Microdot. The price he received for his stock was not affected by this disclosure, and it does not appear that he suffered any injury as a result of defendants\u2019 alleged breach of duty. Therefore, he may not have even an action for fraud.)\nPlaintiff also argues that if he is not allowed to bring an action defendants\u2019 wrong will go unremedied, as Farley is barred from bringing suit.. According to plaintiff, Farley did not pay for the cause of action when it acquired Northwest stock (because the action was still being concealed), and cannot be regarded as having been wronged by defendants. As noted above, Farley purchased its Northwest stock from Northwest shareholders and not from the wrongdoing fiduciaries. When Farley merged with Northwest, it acquired all of Northwest\u2019s assets and liabilities. (Lewis v. Anderson (Del. 1984), 477 A.2d 1040.) Farley therefore acquired Northwest\u2019s cause of action against defendants for their alleged wrongdoing regarding the sale of Microdot. Farley\u2019s choice not to pursue its action does not confer a cause of action upon plaintiff.\nFor the foregoing reasons, the judgment of the circuit court of Cook County is affirmed.\nAffirmed.\nHARTMAN, P.J., and STAMOS, J., concur.\nThe trial court applied Illinois law in dismissing plaintiff\u2019s second amended complaint. The parties agree that because Delaware law gives shareholders the right to bring a derivative action, Delaware substantive law should apply to questions concerning the duties defendants owe to their corporation (Pros v. Mid-America Computer Corp. (1986), 142 Ill. App. 3d 453, 461, 491 N.E.2d 851); however, plaintiff contends that Illinois law should apply to his fraudulent concealment claim, to the extent that Illinois and Delaware law diverge as to the impact that claim has upon his standing to sue. We need not decide which State\u2019s law applies, as Illinois and Delaware law are identical on who may maintain derivative actions: in order to bring a shareholders derivative suit, plaintiff must be a shareholder both at the time of the transaction of which he complains and during the pendency of the action. Lower v. Lanark Mutual Fire Insurance Co. (1986), 151 Ill. App. 3d 471, 502 N.E.2d 838; Lewis v. Anderson (Del. 1984), 477 A.2d 1040.", "type": "majority", "author": "JUSTICE SCARIANO" } ], "attorneys": [ "Law Offices of Frederic F. Brace, Jr., Holstein, Mack & Dupress, and Marshall Patner, P.C., all of Chicago (Frederic F. Brace, Jr., Keith A. Klopfenstein, and Robert A. Holstein, of counsel), for appellant.", "Katten, Muchin & Zavis, of Chicago (Donald E. Egan, Joel G. Chefitz, and Stephen D. Libowsky, of counsel), for appellee Northwest Industries, Inc.", "Mayer, Brown & Platt, of Chicago (Alan N. Salpeter and Herbert L. Zarov, of counsel), for appellee Microdot, Inc.", "Isham, Lincoln & Beale, of Chicago, and Sullivan & Cromwell, of New York, New York (Don H. Reuben, Thomas E Ging, Roy B. Underhill, William R. Norfolk, and William Farris, of counsel), for appellee Goldman, Sachs & Company." ], "corrections": "", "head_matter": "THOMAS R. WEIL, Trustee for the Thomas R. Weil Trust, Indiv. and on behalf of all others similarly situated, Plaintiff-Appellant, v. NORTHWEST INDUSTRIES, INC., et al., Defendants-Appellees.\nFirst District (2nd Division)\nNo. 87\u2014913\nOpinion filed March 8, 1988.\nLaw Offices of Frederic F. Brace, Jr., Holstein, Mack & Dupress, and Marshall Patner, P.C., all of Chicago (Frederic F. Brace, Jr., Keith A. Klopfenstein, and Robert A. Holstein, of counsel), for appellant.\nKatten, Muchin & Zavis, of Chicago (Donald E. Egan, Joel G. Chefitz, and Stephen D. Libowsky, of counsel), for appellee Northwest Industries, Inc.\nMayer, Brown & Platt, of Chicago (Alan N. Salpeter and Herbert L. Zarov, of counsel), for appellee Microdot, Inc.\nIsham, Lincoln & Beale, of Chicago, and Sullivan & Cromwell, of New York, New York (Don H. Reuben, Thomas E Ging, Roy B. Underhill, William R. Norfolk, and William Farris, of counsel), for appellee Goldman, Sachs & Company." }, "file_name": "0001-01", "first_page_order": 23, "last_page_order": 29 }