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SECOND DIVISION

NOVEMBER 10, 1998

No.1-98-0653

JUSTICE COUSINS delivered the opinion of the court:

Marcia Rubin, one of the plaintiffs in this case, is the sole beneficiary of a trust (Mitchell Trust)created under the will of her father, Mitchell Nechtow. Along with her children, she is also abeneficiary of a trust (Marion Trust) created under the will of her mother, Marion Nechtow. JulesLaser, the defendant, was the executor of both wills and the trustee for both trusts. The MitchellTrust started with about $710,000, and the Marion Trust started with about $240,000.

In 1993, Laser resigned as trustee, and the plaintiffs, Marcia Rubin, her children Michelle andJason Gorchow and the successor trustee, Steven Rubin, brought suit alleging multipleimproprieties in Laser's administration of the trusts.

The trial court granted summary judgment for Laser on three counts of the complaint.The plaintiffs appeal the award of summary judgment on those counts, pursuant to thetrial court's finding under Supreme Court Rule 304(a) (134 Ill. 2d R. 304(a)) that therewas no just reason to delay an appeal.

The plaintiffs contend that the trial court erred by holding that: (1) Laser's duty of loyaltyas a trustee did not obligate him to make additional purchases for the trust of aparticular stock in which Laser and the trust already had holdings; (2) the plaintiffs' claimfor breach of a stock redemption agreement had been released by an agreement withLaser; and (3) the release had not been procured by duress.

BACKGROUND

The counts that form the basis of this appeal all involve Laser's investments, bothpersonal and in his capacity as trustee, in the First State Bank and Trust Company ofPark Ridge (Park Ridge Bank).

In 1975, Laser became aware of an opportunity to buy the Park Ridge Bank. He puttogether a group of investors, mainly from among his law partners, who could providethe $1.1 million in capital needed. He bought 7,450 shares of stock for himself and1,603 shares for one the trusts, representing 7.11% and 1.53% of the outstandingshares, respectively. Financing for the deal was put together by Continental Bank. Theplaintiffs allege that Laser used the trust assets as collateral for the loans. In any case,soon after the loans were approved, Laser moved the bulk of the trust assets to theContinental Bank.

Laser and his partners received a certain amount of stock as compensation for theservices rendered in connection with the purchase of Park Ridge Bank. The amount ofstock going to each individual partner was calculated on the basis of the amount ofstock that the person had previously purchased. The plaintiffs allege that Laser usedthe stock he purchased on behalf of the trust in calculating the amount of stock to whichhe was entitled as compensation.

From the beginning, Laser and his partners had planned to put together a bank holdingcompany. To get approval for this from the Federal Deposit Insurance Corporation, theinvestors needed more capital. The plaintiffs claim it was in consideration of Laser'sdeposit of the trust assets in Continental Bank that Continental Bank assisted with thefinancing for the holding company as well as subsequent Park Ridge Bank stockpurchases by Laser.

The investors signed a voting trust agreement, which gave Laser and his law partnersauthority to vote on behalf of the entire group. Laser and his partners adopted ano-dividend policy in order to promote long-term growth.

The investors also signed a stock redemption agreement. This agreement provided thatany shareholder who wished to sell his or her stock was required first to offer it to theother shareholders. The other shareholders could purchase a pro rata portion of theavailable stock based on their current holdings. In this way, the balance of poweramong the remaining shareholders could be maintained.

Laser acted as chairman of the board of directors of the bank and received substantialcompensation for his services. His law firm handled Park Ridge Bank's normal legalwork.

The Park Ridge Bank was operated as a private, closely held corporation. The plaintiffsclaim that Laser controlled the market for shares. Laser bought stock from othershareholders; however, the sellers did not tell the others as mandated by the stockredemption agreement. Laser neither informed the beneficiaries of these purchases norbought any stock for the trusts, although it is alleged that he knew the stock was worthmuch more than he was paying for it. It is also alleged that Laser violated the stockredemption agreement by selling stock without notifying other shareholders.

Plaintiffs allege that Laser failed to segregate the trust funds starting in the late 1970s.After 1987, they contend, he stopped filing separate tax returns for the two trusts andtreated the Mitchell Trust as containing all the funds. Plaintiffs contend there has beensome difficulty reconstructing where all the funds were due to Laser's failure to keeprecords and failure to render an accounting.

In 1993, Laser withdrew as trustee and was succeeded by Stephen Rubin, one of theplaintiffs in this suit. The record is unclear concerning which trust owned the bank stock.The plaintiffs allege that Laser has given them contradictory answers on this issue.

Following Laser's withdrawal, Marcia Rubin wished to remove the trust assets from ParkRidge Bank and invest them in a way that would provide more immediate return. Shecontends that she needed the money in order to provide for her children, one of whomis handicapped. She looked into the possibility of a sale of the bank. She was informedthat there was a limited "window of opportunity" to sell the bank at an advantageousprice. Laser, the largest shareholder, was opposed to a sale. In order to induce Laser togo along with a sale, other shareholders executed a release of all claims relating to thestock redemption agreement. Stephen Rubin insisted upon an exception to the releaseindicating that Laser would still be liable for any breaches of his duty as trustee.

Mr. Rubin signed the release as trustee of the "Maria Gorchow Rubin" trust since thiswas the name on the stock certificates. Mr. Rubin signed the exception agreementaccompanying the release as trustee of the "Marion Trust."

The plaintiffs filed this action in December 1993 alleging many violations of Laser'sduties as trustee. Laser moved for summary judgment on certain claims regarding ParkRidge Bank. Count VII of the second amended complaint alleged that Mr. Laserbreached his fiduciary duty by not obtaining a pro rata share for the trusts of the bankstock that he bought after the initial acquisition. Count VIII alleged that Laser violatedthe stock redemption agreement by buying stock without notifying the trustbeneficiaries. Count IX alleged that Laser violated the agreement by selling stockwithout notifying the trust beneficiaries and other shareholders. Count X alleged thatLaser breached his fiduciary duty by not enforcing the trusts' rights under the stockredemption agreement.

The trial judge granted summary judgment on count VII on the grounds that Mr. Laserhad no duty to buy any additional bank stock for the trusts. He granted summaryjudgment as to counts VIII and IX because these claims were covered by the release.He denied summary judgment on count X, however, on the grounds that the claim forbreach of fiduciary duty fell within the scope of the exception to the release.

The plaintiffs appeal the grant of summary judgment on counts VII, VIII and IX. As tocount VII, they claim that the court erred because the bank stock acquired was "soconnected" with the trust property that Mr. Laser had a duty to buy at least some for thetrust. As to counts VIII and IX, they claim that the release should not have been heldeffective because it was obtained through duress. Furthermore, they claim that there isa material issue of fact as to whether the trust on whose behalf the release was signedwas, in fact, the trust that held the stock.

For the reasons that follow, we affirm the judgment of the trial court.

DISCUSSION

I

The plaintiffs claim that Laser violated his duty of loyalty as a trustee by making furtherpurchases of bank stock for himself after the original acquisition without purchasing anyfor the trusts. Their theory of liability is that, by purchasing bank stock both in hiscapacity as a trustee and as an individual, Laser created a conflict of interest situation inwhich he was obligated to favor the trusts' interests above his own. The facts of thiscase, they contend, created enough of a connection between the trust property and theadditional stock acquired by Laser that Laser had a duty to purchase some additionalstock for the trusts.

The primary case relied upon by the plaintiffs is Wootten v. Wootten, 151 F.2d 147(10th Cir. 1945). In Wootten, the defendant held a third of the shares of a ranchcorporation individually and a third in trust for the widow and children of his late brother.The remaining shares became available and the defendant bought them at a substantialdiscount without informing the beneficiaries, even though the trust had sufficient assetsto participate in the transaction. The defendant thereby obtained majority control forhimself.

The court held that, as a general principle, a trustee must not compete with the trust inthe acquisition of property. Wootten, 151 F.2d at 150. In particular, the court held thatthe property in question was "so connected with the trust property or the scope of hisduties as fiduciary" that it was disloyal for him to purchase it for himself, even if he didnot have a general obligation to purchase it for the trust. Wootten, 151 F.2d at 150.

A similar case cited by the plaintiffs is Renz v. Beeman, 589 F.2d 735 (2d Cir. 1978). InRenz, a trust was structured to divide control of a family business evenly between twobranches of a family. There was an indication that the settlors wished the business toremain under joint control. The defendant trustee, without notifying the beneficiaries,purchased a large block of stock that gave her side of the family absolute control overthe corporation.

The court held that the trustee had a fiduciary obligation to preserve the balance ofcontrol in the corporation. Control of the corporation was a trust asset that the trusteehad appropriated for herself. Renz, 589 F.2d at 746. The court, however, specificallyreserved the question of whether a smaller purchase would have violated the trustee'sduty of loyalty. Renz, 589 F.2d at 746.

Wootten and Renz stand for the proposition that it may violate a trustee's duty of loyaltyto take control of a corporation away from his or her trust through purchasing stock.These cases do not hold that the mere purchase of stock in the same corporation is abreach of the duty of loyalty. One author puts the distinction thus: