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Anest v. Audino

Case Date: 07/12/2002
Court: 2nd District Appellate
Docket No: 2-01-0599 Rel

No. 2--01--0599


IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

BILL ANEST,

          Plaintiff-Appellee,

v.

DAVID AUDINO,

          Defendant-Appellant.

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) 		Appeal from the Circuit Court
of Lake County.


No. 97--L--787

Honorable
Stephen E. Walter,
Judge, Presiding.

JUSTICE CALLUM delivered the opinion of the court:

Plaintiff, Bill Anest, sued defendant, David Audino, forbreach of a note and enforcement of a guaranty. Audino filed acounterclaim, alleging, inter alia, breach of fiduciary duty (countVI) and tortious interference with business expectancy (count VII). The trial court entered judgment for Anest on his claim and awardedhim $130,000 in damages, $47,041 in attorney fees, and $1,634 incosts. Audino appeals the award of attorney fees, and we affirm onthat issue. On Audino's counterclaim, Anest moved for a directedfinding at the close of Audino's case in chief. The court grantedAnest's motion, and Audino now appeals that ruling. We reverse thedirected finding on Audino's counterclaim and remand the cause.

In 1995, Anest lent $80,000 to Intergroup FinancialCorporation, Inc. (Intergroup). In exchange, Intergroup executeda note in favor of Anest. The five shareholders of Intergroup, oneof whom was Audino, executed a guaranty on the note. In September1997, Anest sued Intergroup and the guarantors for breach of thenote and enforcement of the guaranty. In January 1998, Anestobtained a default judgment against Audino. Anest subsequentlylevied against Audino's interest in another company, PrecisionPour, L.L.C. (Precision Pour), and, in February 1999, purchased theinterest at a sheriff's sale. On July 27, the trial court vacatedthe default judgment for want of service.

Precision Pour sold a product called the BLM 2000, a beer linecleaning device that replaces the manual cleaning of beverage lineswith continuous radio waves. Precision Pour was the exclusivedistributor of the device in the United States in 1997 and 1998 andwas a nonexclusive sales agent in 1999.

Before Anest acquired an interest in the company, the membersof Precision Pour were Audino, Leon Teichner, and WilliamSchilling. Membership interests in Precision Pour were held asfollows: Audino held a 23.33% interest; Teichner, 43.3%; andSchilling, 33.3%. The operating agreement of Precision Pourdefines a membership interest as a right to participate in theprofits and losses of the entity, in addition to the right to voteon, or consent to, management decisions. A membership interest isdistinguished from an economic interest, which affords the holdermerely a right to the profits and losses of the company.

After Anest acquired Audino's interest in Precision Pour, thefollowing actions were taken on behalf of the company. On June 18, Anest,Teichner, and Schilling executed a "Resolution of PrecisionPour, L.L.C." that stated as follows. Schilling and Teichnerconverted their accrued, but unpaid, salaries into capital. Accordingly, their interests in the entity increased to 41% and 54%respectively, and Anest's (formerly Audino's) interest was dilutedto 5%. The resolution described Anest's interest as an economicinterest.

On July 13, Anest, Teichner, and Schilling executed a"Memorandum of Understanding" that amended the operating agreementas follows. Precision Pour was insolvent and desired additionalcapital. Anest was willing to purchase membership units in thecompany and to lend it money. Thus, Anest bought an 18.3%membership interest from the entity and an additional 1.67%membership interest from Schilling. He also lent Precision Pour$59,166.67. Teichner and Schilling permitted Anest to convert his5% economic interest (the diluted interest that was formerlyAudino's) into a membership interest. In sum, the document statesthat Anest held a 25% membership interest in Precision Pour. Inaddition to the monetary transactions, the resolution altered themanagement structure of Precision Pour in that the company changedfrom a manager-managed limited liability company to a member-managed limited liability company. The memorandum also stated thatthe parties agreed to permit Schilling to transfer up to 6.77% ofhis interest to Anest and to permit Anest to transfer up to one-half of his interest to Mitchell Iseberg, his attorney.

On July 14, Schilling and Teichner executed an "Amendment toMemorandum of Understanding." The resolution contains a provisionentitled "Company Obligation to Repurchase," which states that, ifa court voids the sheriff's sale or otherwise returns Audino'soriginal interest in Precision Pour, and if the dilution ofAudino's interest is also invalidated, then the company (1) willrepurchase the interest that Anest purchased from Precision Pourand (2) repay the loan from Anest. The resolution also contains aprovision entitled "Anest Right to Purchase," which states that, ifAudino reacquires his "5% diluted interest," Schilling will conveyto Anest a 5% interest in the company for $4,286.33. Moreover, ifAnest subsequently reacquires his diluted interest by court order,Anest will reconvey the interest to Schilling for the sameconsideration.

On September 14, the trial court vacated the sheriff's sale,ordering that Audino's interest in Precision Pour "is restored asif said Sheriff's Sale(s) had never taken place."

A Precision Pour consent dated September 15 lists Audino as a5% membership interest holder in the company and lists Anest as a20% holder. A company consent dated September 16 sets forth themembership distribution on that date as follows: Teichner, 43units; Schilling, 26 2/3 units; Iseberg, 12