Court Opinion

ID: 9745827
Source: CourtListenerOpinion
Date Created: 2023-08-27 13:33:27.972621+00
Date Added: 2024-06-11T07:25:04.863404
License: Public Domain

BURKE, P. J., additional dissent following rehearing: The stock of South Parkway Building Corporation was never owned by the partnership. If appellant’s interest was in any way adversely affected as a member of the partnership his protection lies in the accounting procedure available to him in Engelstein v. Mackie. The overthrowing of the compromise approved by the court penalizes the true minority stockholders without benefiting the corporation and adds nothing to the rights appellant has as a partner. Under the compromise, approved by the chancellor, appellant as a shareholder receives more than he would upon an accounting. What he complains of is the effect of the compromise on his status as a partner in the partnership entity claiming some interest in the proceeds of the liquidation of the corporation which had owned the stock of South Parkway Building Corporation. The entities against which appellant’s interest may be asserted and the entity to which the South Parkway Building Corporation was distributed could have no standing to intervene in this case. The decree in the partnership case involving the transaction of the partners Engelstein expressly found that all services performed by Harry Engelstein to the time of his death on June 24, 1959, were performed pursuant to the continuing 40-60 partnership between Louis and Harry. The wrongful diversions from South Parkway Building Corporation were accomplished by Harry conducting the business partnership of Harry and Louis. In these proceedings the partnership and Louis, the appellant, as a partner are equally liable as participants in the wrongful diversions, under the provisions of the Uniform Partnership Act, Ill Rev Stats 1961, c 106%, §§ 9, 13, 14 and 15. Plaintiffs in the instant case had to sue Harry for actions he ostensibly did on his own account. The wrongs were established to have been done by Harry. Now that appellant has established that these acts were in fact done for a 40-60 partnership appellant cannot complain that this liability shifted to Louis. The appellant' as a surviving partner is obliged by the partnership decree to “discharge all partnership liabilities” which include the liability that has gone to judgment in this case. The appellant as a partner of Harry cannot plead immunity in these proceedings from exposure to 40% of the liability. Plaintiffs never represented Louis Engelstein, appellant, as successor to a wrongdoing partnership of Harry and Louis and appellant never thought that plaintiffs represented him. Appellant’s position as the owner of a few shares individually was such that he could have sought to intervene before final decree, but did not. Louis, as a partner of Harry was in privity with the wrongdoing majority and intervention to him was properly denied. A derivative suit by minority stockholders is not brought for the benefit of wrongdoing shareholders. In Duncan v. National Tea Co., 14 Ill App2d 280, 144 NE2d 86, the court says, p 295: “Because, in such an action, the stockholder-plaintiff is enforcing a right belonging to the corporation, and a recovery on its behalf would benefit all stockholders, except those who had actively participated in the wrong, . . . .” The appellant’s position during the long period of litigation has been that Harry was acting for a partnership of Louis and Harry. Louis never made the gesture of seeking to join the plaintiffs or took any other step to help plaintiffs prove Harry was a guilty fiduciary. The question before this court is whether intervention should have been allowed to appellant to permit him in 1961 to assume a position of opposition to the five transactions first challenged in 1952 and decreed wrongful in 1957. If there is some adjustment appellant would be entitled to in the partnership accounting that is the place to secure it. The purpose of the present intervention is to assert that as between himself and his partner he is entitled to claim the benefits, but not share the judgment arising out of the transactions by which the Supreme Court says “the Engelstein Corporation has drained from the Building Corporation approximately $464,886.” If appellant is allowed to intervene, as the majority opinion indicates, a key issue he would try would be opposition to the five challenged transactions. In effect he wants to prove he did not receive “unjust” enrichment out of the $464,886. The right of appellant, Louis Engelstein, to demonstrate in the instant case that he opposed the five challenged transactions was open to him in this case at least from the filing of the complaint on May 23,1952 to the final decree entered December 11, 1957. He decided not to oppose these challenged transactions in these proceedings. The chancellor was right in deciding that intervention came too late after a decree and appeal. Appellant came before the chancellor in the dual role of both being a minority stockholder with 45 shares of stock seeking to enforce an accounting for $464,886, against 12,919% shares of stock, and an owner of 40% of that 12,919% shares of stock trying to prevent it being sold to pay off a decree to account for $464,886. The petition established the existence of statutory grounds for liquidation. I am of the opinion that the plan of compromise adhered to the procedure established by Sec 90(c) of the Business Corporation Act, which makes available a method of compromising litigation, when approved by the requisite number of shareholders and found equitable. The record shows that the chancellor was right in finding the plan to be fair, equitable, desirable and a proper compromise of the litigation. The chancellor exercised good judgment in denying appellant application for leave to intervene and the order should be affirmed.