Court Opinion

ID: 9524665
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:55:38.405972+00
Date Added: 2024-06-11T13:11:23.391663
License: Public Domain

Mr. Justice Schaefer, dissenting: I think that the opinion of the court is wrong as to each of the three principal issues it decides. 1. I think that the plaintiffs are correct in their contentention that this court does not have jurisdiction upon direct appeal. The opinion sustains our jurisdiction “because of the alleged usurpation of executive power by the judiciary.” It is true that the appellants have argued that the supervision of banks and building and loan associations is a function of the executive branch of the government and not of the judicial branch and that therefore article III of the constitution has been violated. For that proposition they have relied upon People ex rel. Benefit Ass’n of Railway Employees v. Miner, 387 Ill. 393, 397; People ex rel. Palmer v. Niehaus, 356 Ill. 104, 109, and People ex rel. Barrett v. Logan County Building and Loan Ass’n, 369 Ill. 518, 525-6. Those cases do speak of the function of the Auditor (or of the Director of the Insurance Department) as “executive” in nature. They are “executive,” however, only because the legislature has made them so. There is nothing inherently “executive” about a receivership proceeding in equity, whether it terminates in liquidation or not. The way to test what is involved is to ask whether a statute would be unconstitutional which in specific terms authorized a judge to enter, upon a proper showing, the exact orders that were entered here. To me the power of the legislature to enact such a statute is so clear that its validity would not present a debatable constitutional question. The principle of separation of powers would not be violated if the legislature provided that the affairs of building and loan associations should be handled in the same way that the affairs of corporations were traditionally handled in Federal equity receiverships. No constitutional question more debatable than that is presented in this case, and in the absence of a debatable question this court does not have jurisdiction on direct appeal. The opinion also states: “In addition, the defendants’ claim that they were denied procedural due process of law under both the Illinois and Federal constitutions would require this court to take jurisdiction on direct appeal. First Federal Savings and Loan Ass’n v. Loomis, (7th cir.) 97 F.2d 831.” The opinion does not indicate what possible bearing a decision of a Federal court of appeals can have upon the question of the jurisdiction of this court upon direct appeal. On this point the contention of the appellants is that they were denied the right to cross-examine witnesses, and to rebut their opponents’ evidence. If such errors were committed, they are not of constitutional dimension. Due process does not guarantee that the rules governing the manner in which a controversy is tried will be applied without error in every case. For that reason we have consistently held that procedural errors that may occur in the course of a trial do not present constitutional questions and are reviewable only on appeal to the appellate courts. E.g., Biggs v. Plebanek, 407 Ill. 562; People v. Jiras, 340 Ill. 208, 211-12. The third ground upon which the opinion rests our jurisdiction is that there is a contention that the attorneys for the Auditor were improperly paid from funds of the association and that “If such contention is sustained, these fees may come from State funds. People ex rel. Hamilton v. Cohen, 355 Ill. 499; State Board of Agriculture v. Brady, 266 Ill. 592.” Each of the cited cases was a mandamus action to compel officers of the State to prepare and issue warrants drawn upon the State treasury. No claim against the State is asserted in the present case. I do not see how a possibility that the State might have an interest in some hypothetical case that might be instituted in the future can support jurisdiction in the case at bar. 2. In my opinion the trial court exceeded its jurisdiction. This action was brought under section 7 — 12 of the Illinois Savings and Loan Act. That section provides a special remedy by which it can be speedily determined whether or not the Auditor had legal grounds for taking custody of a building and loan association. It first requires the Auditor, immediately upon taking custody, to “mail a written notice thereof” to designated officers and directors of the association. It continues: “If the contention is made that the Auditor has no legal grounds for taking custody of the association or trust, the directors or officers of the association or the trustees or liquidators thereof, as the case may be, at any time within thirty (30) days after the mailing of such notice, may file a complaint in the Circuit Court of Sangamon County, Illinois, or in the circuit or superior court of the county in which the association is located, to enjoin further custody. The court thereupon shall cite the Auditor to show cause why further custody should not be enjoined. If upon a hearing thereon, the court shall find that such grounds did not or do not then exist, it may enter an appropriate order in accordance with the findings of fact, or an order enjoining the Auditor or any appointees acting under his direction from further custody.” Ill. Rev. Stat. 1955, chap. 32, par. 852. To understand the problem that exists as to the jurisdiction of the trial court under this statutory authority, it is necessary to set forth verbatim some of the provisions of the decree of December 6, 1957. That decree is now before us for review. (Ill. Rev. Stat. 1959, chap. 110, par. 74(1); cf. Biagi v. O’Connor, 18 Ill.2d 238, 241.) It ordered that the officers and directors be permitted immediately to resume control of the association, enjoined the Auditor from custody until the further order of the court, and ordered the Auditor to make an accounting within 10 days and to return custody of the association to the officers and directors within 7 days. The decree continued : “5. That the officers and directors of City Savings Association immediately undertake to do the following: A. With Respect to Conservation of Assets (1) All delinquent loans shall be required to be made current by the borrower within ninety (90) days from the date hereof, or foreclosure proceedings immediately instituted. In instances where the borrower is able to further collateralize the loan in consideration for forbearance from foreclosure, the collateral shall be described in a report to this Court, and if approved, may be accepted in lieu of immediate payment for the entire delinquency. In each instance, however, a substantial portion of the delinquency must be secured by payment in cash, in addition to the further collateral. (2) All multiple borrowers shall be required to further collateralize all present loans to the extent of six per centum (6%) of their present unpaid balances before being granted any further loans. (3) The value of the City Savings Association office building shall be carried on the books of the Association at a value of Six Hundred Thousand Dollars ($600,000.00), as of April 30, 1957- (4) The ratio of operating expenses to gross operating income should be revised downward to not in excess of twenty-five per centum (25%). B. Regarding Additional Reserve Requirements (1) This Court hereby reserves jurisdiction to impose, in addition to the conditions imposed hereby, a requirement that reserves be in an amount equal to not less than five per centum (5%) °f the total liabilities of the City Savings Association, including liabilities to withdrawable shareholders as of February 1, 1958, by which date it may fairly be assumed that the amount of withdrawable share accounts remaining in the Association and those requesting withdrawal will be definitely determined. C. Concerning Management (1) C. Oran Mensik having been elected to serve as president and director of City Savings Association, subject to the by-laws of the Association covering the election of officers and directors, he shall divest himself from all management and control of First Guarantee Association and Chicago Guarantee Association, and shall cease forthwith to serve as an officer or director of either First Guarantee Association or Chicago Guarantee Association, and so long as he shall remain the president and chief managing officer of City Savings Association, shall not associate himself in a management capacity with any other savings and loan association. (2) That Attorney A. J. Pikiel is hereby permanently enjoined from serving City Savings Association and any of its borrowers in the same transaction, and from serving City Savings Association and at the same time serving any other person in any transaction with said City Savings Association. (3) That Attorney A. J. Pikiel, if he occupies space in the offices of City Savings Association, shall pay the Association a fair rental therefor. D. Regarding the Officers’ Escrow Account (1) The officers and directors of City Savings Association, and their agents, representatives, subordinates and employees, and their respective successors, are hereby permanently enjoined from continuing or creating an officers’ escrow account. (2) Said officers and directors of City Savings Association, and their agents, representatives, subordinates and employees, and their respective successors, shall not create any escrow account other than that pursuant to which the particular transaction between City Savings Association and a borrower from the Association demands the creation of an escrow account to complete such transaction. E. Regarding Leases of Space in City Savings Association Building (1) The officers and directors of City Savings Association shall renegotiate the lease with City Safe Deposit Company, and adjust the same to provide for adequate rentals commensurate with the amount of space occupied for offices of said safe deposit company and for safe deposit box space. (2) The officers and directors of City Savings Association shall renegotiate the lease with City Insurance Agency, and adjust the same to provide for adequate rentals commensurate with the amount of space occupied for offices of said insurance company. (3) The officers and directors of City Savings Association shall renegotiate the lease with City Currency Exchange, and adjust the same to provide for adequate rentals commensurate with the amount of space occupied for offices of said currency exchange. F. Other Acts and Policies (1) The officers and directors of City Savings Association and their agents, representatives, subordinates and employees, and their respective successors, shall not pay in whole or in part any of the salaries of any of the employees of either City Insurance Agency or City Currency Exchange. (2) The bond account consisting wholly of United States Government bonds does not need a reserve for contingent loss, such requirement being contrary to the policies of the present Auditor of Public Accounts, and being inimical to the national interest in the promotion of the sale of United States Government bonds as the most secure investment available to any investor. G. Re-reference to Master in Chancery (1) There is hereby re-referred to Nathan M. Cohen, Master in Chancery herein, to take proof and to report his findings of fact, conclusions of law and recommendations to this Court within thirty (30) days from the date hereof, with respect to the fair and reasonable rental to be paid to City Savings Association by the following: (a) City Insurance Agency; (b) City Safe Deposit Company; (c) City Currency Exchange; (d) Mr. and Mrs. A. J. Pikiel, Attorneys. (2) The officers and directors of City Savings Association are hereby permanently enjoined from carrying out the present terms of the pension or deferred compensation plan now in effect, and the plan shall be modified to provide for contributions by the employees affected, and said plan shall conform in all substantial requirements with the pension plan recommended by the United States Savings and Loan League. The matter of said conformance and compliance is hereby re-referred to Nathan M. Cohen, Master in Chancery herein, for the taking of proofs and reporting his conclusions and recommendations to this Court within thirty (30) days from the date hereof. H. Periodic Reports to the Court The matter of the officers and directors of City Savings Association, and their agents, employees and subordinates, and their respective successors, complying with the terms of this Order, shall be made the subject of periodic reports to this Court. Such reports are to be submitted first to Nathan M. Cohen, Master in Chancery; thereafter to be submitted to this Court, accompanied by the Master’s covering report, within ten (10) days after the filing with him of each such report, except if he shall deem it necessary to take proofs with respect to the subject matter of such report. If, in the discretion of the said Master in Chancery, the taking of proofs is required, he shall apply to this Court for an appropriate order. The first of such reports is to be filed with the Master within thirty (30) days from the date hereof. The costs of said hearings, including Master’s fees, shall be paid by City Savings Association, subject to the approval of the amounts of said costs by this Court. I. Insurance The officers and directors of City Savings Association, and their agents, employeese and subordinates, and their respective successors, shall exert every effort to contract for the insurance of withdrawable share accounts by the Federal Savings and Loan Insurance Corporation, or by a qualified private insurance company. A progress report concerning such efforts is to be submitted to the Master in accordance with the terms of paragraph H hereof.” Acting under this decree, with a master in chancery performing functions akin to those of a receiver, the court managed the most intimate details of the operations of the association for a period of 14 months. I find it impossible to reconcile the authority thus exercised by the trial court with the authority granted by the statute to determine whether or not legal grounds existed for taking custody of the association. To bridge the gap the opinion of the court attempts to read into the statute a grant of general equity powers. It states: “The language found in the act which authorizes the court to enter ‘an appropriate order in accordance with the findings of fact’ indicates that the legislature intended the court to exercise its historic powers of equity to shape its decree so as to do substantial justice to the parties.” This assertion can not survive even a casual reading of the statute. The only issue to be presented to the court is whether the statutory grounds which authorize the Auditor to take custody existed when he took custody, or exist when the hearing is held. That is the only issue upon which the court is authorized to make findings. The statute says, “If upon a hearing thereon, the court shall find that such grounds did not or do not then exist, it may enter an appropriate order in accordance with the findings of fact, or an order enjoining the Auditor or any appointees acting under his direction from further custody.” If by this language the legislature intended to confer upon the court the historic powers of equity, it chose a remarkable way of doing so. Of course the legislature had no such intention. The opinion also states that “the court had specific statutory power to enter further appropriate orders.” But the opinion does not explain the process by which the language of the statute referring to “an appropriate order” is converted into “specific statutory power to enter further appropriate orders.” No conceivable expansion of the phrase “an appropriate order,” in its context of a summary citation to show cause and a finding as to the existence or nonexistence of statutory grounds authorizing the Auditor to take custody, can justify the jurisdiction here exercised by the trial court. 3. On the merits, it is my opinion that action of the Auditor was justified. Section 7 — 8 of the act enumerates the grounds upon which the Auditor is authorized to take custody of an association. To sustain his action in this case it is necessary to refer to only one of them: “(d) That the business of the association * * * is being conducted in a fraudulent, illegal, or unsafe manner; * * *.” (Ill. Rev. Stat. 1955, chap. 32, par. 848) The portions of the decree set forth above fully establish this ground of custody. The decree is self-explanatory as to some of the conditions that it condemned. As to others, a word of explanation and identification is necessary. C. Oran Mensik was president of the association here involved, City Savings Association. He was also president of the two other building and loan associations mentioned in the decree, First Guarantee Association and Chicago Guarantee Association, and he owned more than 90% of the stock of those two associations. The “multiple borrowers” referred to in the decree were four construction companies, each of which was owned or controlled by relatives or close business associates of Mensik. Total City Savings Association loans outstanding in February of 1957 were approximately $8,400,000. Of this amount approximately $6,300,000 represented loans to those four building corporations. Mensik also owned City Safe Deposit Company, City Insurance Agency and City Currency Exchange, all of which leased space from the association. The “deferred compensation plan” to which the decree refers consisted of noncontributory contracts with Mensik and three other officers of the association which provided for voluntary retirements at age 45. It would be unnecessary to say more if it were not for certain inadequacies and inaccuracies in the opinion of the court. The opinion states that from the time of its creation in 1908 “the association transacted its business pursuant to applicable law, free from any written criticism by the State Auditor, with no questions or objections raised regarding its operations or valuations until April 16, 1957.” The fact is that the affairs of City Savings Association and Mensik’s two guarantee associations came under scrutiny immediately after Orville Hodge ceased to be Auditor of Public Accounts in the summer of 1956, and “questions and objections concerning its operations and valuations” existed continuously thereafter. Mensik’s two guarantee associations were organized in June of 1955. Shortly before their charters were approved Mensik delivered a City Savings Association check for $50,000 to Hodge. The check was drawn on the “officers escrow” account referred to in the decree. Mensik described this transaction as a personal loan , on an unsecured note. He testified that the loan was repaid a year later by Hodge’s check, but he did not know where the check had been cashed. While Hodge was Auditor, City Savings Association had also made a $200,000 mortgage loan on a hotel owned by Hodge at Fort Lauderdale, Florida. Two days after Dr. Lloyd Morey succeeded Hodge as Auditor of Public Accounts, Mensik purchased this mortgage with a check of the Melvin Building Corporation, one of the “multiple borrowers.” Mensik testified that at the time of his purchase the building corporation owed him $200,000 on an unsecured note. The mortgage was subsequently sold back to the association by Mensik. There were other bizarre transactions with the former Auditor for which satisfactory explanations were not forthcoming. Dr. Morey commenced an investigation immediately upon his appointment. The written preliminary report of that investigation is in the record, and it is critical of the conditions that were found. These conditions were the subject of discussions between Dr. Morey and Mensik, and Dr. Morey specifically brought them to the attention of his successor, Auditor Smith. The opinion does not adequately state the facts concerning the release of the Auditor’s report to the press. The Auditor had taken custody of Mensik’s two guarantee associations on February 18, 1957. Thereafter, the newspapers pressed the Auditor’s office daily for information, and press conferences were held in which Mensik’s then attorney participated. No report of the fact that the Auditor had taken custody was published, however. Efforts to reorganize the two associations were proceeding, and the Auditor was cooperating with Mensik and his attorney in the reorganization efforts. An understanding with the press contemplated that nothing would be published while negotiations for reorganization were pending. Reports of the conditions of the two associations, with portions deleted, were refused by the press. After many weeks had passed with the press continuing to demand complete reports, April 23 was fixed as the date when the reports of all three associations would be made available to the press. Mensik’s then attorney testified that at a conference with representatives of the Auditor’s office on the morning of April 23, the proposed release that afternoon was discussed, and “* * * in substance I said that it seemed to me that it was the only way to prevent publicity.” About 3 :oo P.M. on April 23 the Auditor’s reports with respect to the three associations were released to the press in accordance with the existing understanding. Nothing appeared in any newspaper on April 23 or on the morning of April 24. At 4:41 P.M. on April 23 Mensik filed an action for $2,000,000 against the Auditor and others, alleging that they had illegally taken custody of the two guarantee associations. At 2 :og P.M. on April 24 Mensik sent the following telegram to the city editors of the newspaper : “Will have a press conference 9:3o A.M. Thursday at my office at First Guarantee Savings, 5920 West North Avenue pertaining to two million dollar conspiracy suit involving my majority stock at First Guarantee Savings Association and Chicago Guarantee Savings Association filed Tuesday, Circuit Court case No. 57 C 5732. C. Oran Mensik, Board Chairman First Guarantee Savings Association.” The first assistant city editor of one of the major newspapers testified: “And upon reading the telegram with the information that Mr. Mensik had filed a suit, my reaction was then this agreement no longer existed, because the filing of the suit made the whole — put the whole situation into public record and made it available for inspection by anybody.” Thereafter, at 5 :oo P.M., on April 24, the article referred to in the opinion was published. On this record I do not see how it can be said, as the opinion says, that “The Auditor, in releasing the report to the press, prompted the news article, which in turn triggered the run, creating the so-called emergency.” The opinion also states: “Section 7 — 6 of the act limits the giving of the report of examination to the Federal Home Loan Bank or to the insurance corporation insuring the association’s shares.” I find no such limitation in section 7 — 6, which reads as follows: “The Auditor may give copies of reports of his examinations of an association, and copies of the association’s reports to him, and any other information he has concerning the association, to the Federal Home Loan Bank (or its successor instrumentality) of which the association is a member, or to the insurance corporation which has insured the association’s capital; but no such action by the Auditor shall relieve the association from compliance with any requirements of such Federal institution concerning examinations or reports, or limit the Auditor’s powers to examine or to require reports from the association.” (Ill. Rev. Stat. 1955, chap. 32, par. 846.) Nowhere does the act prohibit the publication of reports by the Auditor. On the contrary, section 7 — 2(c) of the act provides: “In the interests of the members of the association, the Auditor may prepare a statement of the condition of the association, and may mail the same to the members or may require a single publication thereof.” (Ill. Rev. Stat. 1955, chap. 32, par. 842.) In my opinion the Auditor neither violated the law nor abused his discretion in releasing the report of the association to the press. Mr. Justice Davis joins in this dissenting opinion.