Eby-Brown Co. v. Firstsecure Bank & Trust

2017 IL App (1st) 161366-U

EBY-BROWN COMPANY, LLC, Plaintiff-Appellee, v. FIRSTSECURE BANK AND TRUST f/k/a FAMILY BANK AND TRUST,an Illinois Bank, and COMMUNITY HOLDINGS CORPORATION,an Illinois Corporation, Defendants-Appellants.

No. 1-16-1366

APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT FOURTH DIVISION

August 3, 2017

NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Cook County

15-L-002613

Honorable Margaret Ann Brennan, Judge Presiding

JUSTICE McBRIDE delivered the judgment of the court.

Presiding Justice Ellis and Justice Burke concurred in the judgment.

ORDER

Held: In crossmotions for summary judgment as to breach of a settlement contract, plaintiff's evidence was deficient, only specific portions of defendants' affidavit that were not based on affiant's personal knowledge should have been stricken or disregarded, and defendants' motion seeking reconsideration of the summary judgment ruling should have been granted.

¶ 1 Defendants FirstSecure Bank and Trust and Community Holdings Corporation, which are based in Palos Hills, Illinois, appeal from orders resolving crossmotions for summary judgment in favor of plaintiff EBY-Brown Company, LLC and denying a motion for reconsideration as to a claim that the bank and its holding company breached a $250,000 settlement contract. The appellants contend the court relied on incompetent evidence that a contingency occurred which triggered the payment obligation, erroneously struck an entire affidavit, and further erred by refusing to reconsider the judgment despite a revised affidavit and corroborating affidavits which affirmatively established the contingency had not occurred.

¶ 2 EBY-Brown is a Naperville, Illinois wholesale distributor of convenience store products which sued one of its customers in 2001 for breach of contract, fraud, and conspiracy, and also sued the bank for providing a credit reference for the customer, and the bank's holding company. After 10 years of litigation, EBY-Brown, FirstSecure, and Community Holdings reached a settlement agreement in mid 2011 which entitled EBY-Brown to a lump sum of $130,000 within 10 days, monthly payments for three years totaling $120,000, and, if a certain event occurred, one additional payment of up to $250,000. At the time, FirstSecure was financially troubled. The additional payment was made contingent upon either an increase in "the Bank's total equity" or "The sale of 51% or more of the Bank's stock to a single buyer at any time within three (3) years of the date of the tender of the initial noncontingent settlement payment, resulting in the departure of at least three of the bank's five current Directors[.]" The exact amount of the contingent payment would be based on either the equity increase or the sale price. The first paragraph of the settlement contract indicated that the phrase "the Bank" was a collective reference to FirstSecure and Community Holdings.

¶ 3 EBY-Brown received the noncontingent payments without issue, but in 2015, filed the instant suit against FirstSecure and Community Holdings alleging breach of the contingent payment obligation. FirstSecure and Community Holdings denied the material allegations. More specifically, EBY-Brown alleged investor Jay Douglas Bergman bought 94.65% of the holding company's stock on May 6, 2014, and his "acquisition equated to the sale of more than 51% ofthe Bank's stock to a single buyer [within three years of the first noncontingent payment]." Also, "Mr. Bergman consequently was required to file a notice with the Federal Reserve as required under the Change in Bank Control Act [12 USC § 1817(j) (West 2012)]" and had received the board's approval of the change. The defendants answered that Bergman purchased 7,000,300 of the 14,745,574 total available shares in the holding company and that the holding company owned "a controlling interest but not 100%, of the Bank." The defendants denied that Bergman purchased any shares in the bank itself, denied that Bergman's acquisition "equated" to the purchase of any of the bank's stock, and denied that the federal notice of change in bank control had any relevance. EBY-Brown further alleged, "Upon information and belief, Mr. Bergman's acquisition resulted in the departure of at least three of the Bank's five directors, who were directors [when the settlement was reached in 2011]." In their answer, FirstSecure and Community Holdings "den[ied] that [Bergman's] acquisition of shares in Community Holdings resulted in the departure of any Bank directors" and then further specified the status of the five directors after the 2011 settlement. Although Dan J. Karalis returned to private law practice and resigned as president and a director in September 2012, and Jerry A. Meyer died in November 2012, the other three directors, namely Spiro P. Argiris, Theodore P. Argiris, and John Sellis "remained Directors as of the Bergman acquisition."

¶ 4 Neither the complaint nor the answer was verified.

¶ 5 EBY-Brown used the discovery process to obtain documentation of the stock transfer and then filed a motion for summary judgment based on those documents. No one was deposed. In an attempt to show that 51% or more of "the Bank" stock was sold to a single buyer within three years of the first noncontingent settlement payment, EBY-Brown quoted the introductory Recitals section of the "Stock Purchase Agreement by and among Jay D. Bergman, CommunityHoldings Corporation, and Certain Shareholders of Community Holdings Corporation," for its indication that as of May 20, 2013, Bergman had agreed to purchase "7,150,000 newly issued shares of Common Stock [in Community Holdings Corporation] (the 'Shares'), which will represent 94.65% of the outstanding shares of Common Stock as of Closing." EBY-Brown attached correspondence about the sale, such as a letter indicating funds held in escrow had been released upon the closing of the sale in 2014. EBY-Brown also relied on a list of FirstSecure's shareholders which indicated Community Holdings owned 55,961 shares out of 60,000 outstanding shares of FirstSecure. Then, in an attempt to show that the sale "resulted in the departure of at least three" of the five directors who were on the board when the settlement was reached, EBY-Brown argued the stock purchase agreement was the "best evidence of what happened as a result of the stock sale," section 8.02(k) of the agreement set out a condition precedent to closing the sale, and the sale had closed. Section 8.02(k) states, "Resignations. Investor shall have received the resignations, effective as of Closing, of each director of the Bank and the Company, other than those whom Investor will have specified in writing at least two Business Days prior to Closing." EBY-Brown contended that none of the documents produced during discovery indicated Bergman excluded any director from the Resignations clause, and argued, thus, "[a]s a result of the stock sale, all of the Bank's directors resigned and departed from the Board on May 5, 2014."

¶ 6 In a combined response and crossmotion for summary judgment, FirstSecure and Community Holdings contended that two of the conditions for the noncontingent payment were not satisfied. The defendants first pointed out that Bergman bought stock in the holding company instead of "the Bank", and, in the context of the settlement agreement, "the Bank" meant FirstSecure, not the holding company, or, alternatively, if "the Bank" meant both entities, thenthere was no showing of a sale in both entities. In an attached affidavit, Bergman said, "I have knowledge of all matters set forth herein, from my own firsthand knowledge and/or from corporate records of the Defendants, and could competently testify to them if called upon to do so." Bergman swore that he owned a majority of stock in Community Holdings which owned a majority of stock in FirstSecure, but he owned no bank stock. The defendants' second argument was that regardless of the meaning of "the Bank," both entities shared the same five directors in 2011 but none of them had "depart[ed]" as a "result[]" of the Bergman transaction which closed in 2014. In his affidavit, Bergman described all the changes to the board membership between 2011 and 2015, stated that three of the directors who signed the settlement agreement were still on the boards, and that prior to closing on his stock purchase, Bergman "informed all the serving Directors (Ted Argiris, Spiro Argiris, John Sellis, and Mark Gasik) that I did not want their resignations, and intended for them to continue serving." Bergman addressed the significance of section 8.02(k) of the Stock Purchase Agreement, which he described as "a fairly standard term in an acquisition agreement, to give new ownership the freedom to replace Directors without controversy or expense," Bergman swore that he had not asked for the clause and he had not exercised the clause. Bergman also explained, "I am not a banker, and never had any intention of taking over the day-to-day management of the Bank or of Community Holdings, nor did I think it was prudent to replace the Directors with institutional knowledge pre-dating my acquisition of a controlling interest in Community Holdings."

¶ 7 EBY-Brown replied in part that the defendants were trying to create ambiguity about the unambiguous term "the Bank." EBY-Brown also criticized Bergman's sworn statement and filed a motion to strike the affidavit as noncompliant with Supreme Court Rule 191 (Ill. S. Ct. R. 191(a) (eff. Jan. 4, 2013)), in that he did not have personal knowledge of any corporate eventsprior to his involvement with the bank in 2013 and he made a vague reference to "corporate records" but did not attach supporting documentation. EBY-Brown also contended it was inconsistent for Bergman to characterize section 8.02 as a standard term, but then...