Guick v. Sentinel Technologies
Annotate this Case
THIRD DIVISION
December 31, 1997
No. 1-96-2096
GERALD GUICE, )
) Appeal from the Circuit
Plaintiff-Appellant, ) Court of Cook
County.
v. )
)
SENTINEL TECHNOLOGIES, INC., ) No. 94 L 06456
f/k/a SENTINEL COMPUTER SERVICES, )
INC., ) Honorable
) Ian H. Levin,
) Judge Presiding.
Defendant-Appellee. )
JUSTICE GORDON delivered the opinion of the court:
Plaintiff, Gerald Guice, filed a three-count amended
complaint against defendant, Sentinel Technologies, Inc.
(Sentinel), alleging tortious interference with a stock pledge
agreement and conversion of a stock certificate evidencing the
stock pledged. Plaintiff also sought punitive damages in a
separate count. Plaintiff appeals from the section 2-615
dismissal of his second amended complaint. See 735 ILCS 5/2-615
(West 1996).
Plaintiff's second amended complaint alleged that he co-
founded Sentinel, an Illinois corporation, in 1982 with Dennis
Hoelzer. Prior to the filing of his complaint, plaintiff owned
51% of its outstanding stock. The plaintiff alleged that in
1988, after "bad feelings and antipathy" developed between
himself and Hoelzer, he agreed to a buy-out of his interests in
Sentinel.
The plaintiff further alleged that, on or about September
25, 1989, after the buy-out, he made a personal loan to Ajay
Joshi, a 10% shareholder of Sentinel. In consideration for the
loan, Joshi executed and delivered a secured demand note in the
amount of $63,752.04. The note was secured by a pledge of 6,075
shares of Sentinel stock which amounted to 6.5% of all issued and
outstanding common stock in Sentinel. Under the terms of the
pledge agreement between Joshi and Guice, and for the purpose of
allowing Guice to perfect his security interest in the pledged
stock, Joshi agreed to deposit with Guice a stock certificate
which was then in the possession of Sentinel. The demand note
and pledge agreement were attached to plaintiff's complaint.
The second amended complaint next alleged that Sentinel was
advised of the pledge agreement and note and that several
requests were made to Sentinel to turn over to Guice the stock
certificate representing Joshi's shares of stock. Specifically,
the complaint alleged that "[a]t the time the Pledge Agreement
was entered into" Guice's attorney called Sentinel's attorney to
advise him of the stock pledge and to request that the stock be
turned over. The complaint also alleged that letters of
direction were sent by Joshi to Sentinel on February 15 and March
13, 1991; that Guice's attorney sent Sentinel's attorney a letter
on March 13, 1991 requesting delivery of the stock certificate;
that Sentinel's president sent Joshi a letter on March 18, 1991
in which he stated that the February 15, 1991 notice to Sentinel
"does not appear to be in compliance with the provisions of the
[Stock Restriction] Agreement" and in which he requested "all
documentation in connection with the pledge"; and that on May 6,
1991 Guice's attorney sent Sentinel's attorney copies of the
pledge agreement and promissory note. All of the aforementioned
letters and documents were attached as exhibits to plaintiff's
second amended complaint.
The plaintiff further alleged that the stock restriction
agreement between Sentinel and Joshi did not prohibit Joshi's
stock pledge; did not require that Joshi obtain the consent of
the other shareholders of Sentinel; and only required notice of
the pledge. The plaintiff alleged that the notice requirements
were complied with prior to Hoelzer's March 18, 1991 letter and
that, if not fully satisfied then, were satisfied on May 6, 1991
when Sentinel was sent a copy of the pledge agreement and
promissory note executed by Joshi. The plaintiff further alleged
that "despite the repeated demands of Plaintiff and Joshi,
Sentinel "continued to refuse to deliver over to Plaintiff the
Pledged Shares although they were not subject to any other lien,
limitation or restriction on transfer." According to the
plaintiff's averment, Sentinel's failure to deliver the stock
certificates "was intentionally designed to prevent Plaintiff
from obtaining value for its security interest in the Pledged
Shares." The plaintiff alleged that he was in fact deprived of
that value when thereafter Joshi became insolvent and filed a
bankruptcy petition in February 1993 and was deprived of
recognition as a secured creditor since he did not have the stock
certificate in his possession.
With respect to his tortious interference count, Guice
alleged that Sentinel "deliberately, intentionally and
unjustifiably induced Joshi to breach the Pledge Agreement" with
Guice by preventing the delivery of the pledge shares to Guice.
Guice alleged that Sentinel's actions were a "malicious and
vindictive attempt by Hoelzer *** to punish Guice because of a
prior business dispute." Guice alleged that his lack of
possession of the stock certificates relegated him to the status
of an unsecured creditor resulting in negligible recovery from
Joshi's bankruptcy estate.
Plaintiff's punitive damages count adopted the above-stated
allegations and sought punitive damages based upon Sentinel's
"malicious" refusal to honor the requests for the transfer of
stock to Guice. Plaintiff's conversion count also adopted those
allegations and further alleged that Sentinel wrongfully and
without legal justification maintained custody and possession of
the pledged shares in contravention of plaintiff's immediate and
absolute right to possession. That count alleged that Sentinel's
wrongful possession denied Guice his collateral and prevented him
from obtaining value for his security interest in the pledged
shares.
In its motion to dismiss and memorandum in support thereof,
Sentinel argued, inter alia, that the tortious interference count
of plaintiff's second amended complaint failed to allege with
requisite particularity Sentinel's "refusal" to deliver the stock
certificates and failed to allege plaintiff's right to immediate
and unconditioned possession of the certificates. Sentinel
argued that the plaintiff was not entitled to possession of the
certificates because, as stated in its March 18, 1991 letter,
Joshi had not given Sentinel prior written notice of the stock
pledge and was in violation of the Stock Restriction Agreement
between Sentinel and Joshi, which also attached as an exhibit to
plaintiff's complaint. Sentinel further argued that the
plaintiff could not establish an enforceable contract between
Joshi and himself because their stock pledge agreement required
that the stock certificates be deposited with Guice before
execution of the agreement.
With respect to the punitive damages count, Sentinel argued
that the plaintiff failed to allege facts to support his
conclusory allegations of willful or wanton conduct. It argued,
inter alia, that the plaintiff's own allegations and exhibits
showed that Sentinel's conduct was justified based on the lack of
prior written notice and multiple citations to discover assets
issued on Sentinel with respect to Joshi's stock.
As to plaintiff's conversion count, Sentinel argued that the
complaint did not allege sufficient facts of an immediate,
absolute and unconditional right to possession of the stock
certificates. Sentinel argued that the exhibits attached to the
amended complaint showed that Sentinel had rightfully obtained
possession of the certificates and that Joshi had not given
timely notice prior to the pledge. Sentinel also argued that the
plaintiff failed to show his right to possession, rather than
Joshi's right to possession and failed to show an affirmative
refusal by Sentinel to turn over the stock.
To withstand a motion to dismiss, the complaint must allege
facts setting forth the essential elements of a cause of action.
E.g., Jones v. Eagle II, 99 Ill. App. 3d 64, 424 N.E.2d 1253
(1981). All well-pleaded facts in the complaint and those
contained in exhibits made a part of the complaint are admitted
and taken as true for purposes of the motion. E.g., Smith v.
Prime Cable, 276 Ill. App. 3d 843, 658 N.E.2d 1325 (1995); Evers
v. Edward Hospital Ass'n, 247 Ill. App. 3d 717, 617 N.E.2d 1211
(1993). A cause of action should not be dismissed on the
pleadings unless it clearly appears that no set of facts can be
proved under the pleadings which will entitle a plaintiff to
recover. E.g., Zadrozny v. City Colleges of Chicago, 220 Ill.
App. 3d 290, 581 N.E.2d 44 (1991).
I. Intentional Interference with Contract
To properly plead a cause of action for intentional
interference with contract, a complaint must allege: (1) the
existence of a valid, enforceable contract between the plaintiff
and a third party; (2) defendant's knowledge of that contract;
(3) defendant's intentional and unjustified inducement of the
third party to breach the contract; (4) occurrence of a breach
resulting from defendant's conduct; and (5) damages suffered by
the plaintiff as a result of the breach. E.g., Ray Dancer, Inc.
v. DMC Corp., 230 Ill. App. 3d 40, 594 N.E.2d 1344 (1992). In
the instant case, the parties disagree as to whether a valid,
enforceable contract existed between Guice and Joshi. They
disagree as to whether the 1985 stock restriction agreement
between Joshi and Sentinel prevented consummation of the stock
pledge agreement in that it required Joshi to obtain the prior
written consent of Sentinel to the stock pledge. They also
disagree as to whether the stock pledge agreement between Guice
and Joshi was enforceable in the absence of actual transfer of
the stock certificates to Guice at the time the pledge agreement
was signed.
The stock restriction agreement, which was attached to
plaintiff's complaint and which constitutes a part of the
pleading (735 ILCS 5/606 (West 1994)), must be taken as true for
purposes of a section 2-615 motion (Evers, 247 Ill. App. 3d 717,
617 N.E.2d 1211; Payne v. Mill Race Inn, 152 Ill. App. 3d 269,
504 N.E.2d 193 (1987)). The relevant provisions of that
agreement state the following:
"2.1 General Prohibition. Subject to the provisions
of paragraph 2.8 hereof, a Shareholder shall not,
without the prior written consent of all other
Shareholders, assign, sell, pledge, encumber, give or
otherwise transfer or alienate to any person *** or
other entity, by whatever means, any Shares owned by
him, except to the extent and in the manner hereinafter
set forth.
2.2 Right of First Refusal - Company Offer. No
voluntary transfer, except with prior written consent
of all other Shareholders shall be made except pursuant
to a bona fide offer as set forth in this Paragraph
2.2. If a Shareholder receives a bona fide offer to
purchase all or any portion of Shares from a bona fide
prospective purchaser ("Bona Fide Offer"), and if he
shall desire to sell or otherwise transfer his Shares
in accordance with the terms of a Bona Fide Offer, he
shall first make a written offer to the Company ***.
***
2.3 Right of First Refusal - Shareholder Offer. In
the event the Company either refuses the Company Offer
or fails to respond in writing to the selling
Shareholder within 10 days following service of the
Company Offer, the selling Shareholder shall make a
written offer to the remaining Shareholders
("Shareholder Offer") to sell the Shares ***. ***
2.8 Pledges. If a Shareholder desires to pledge,
encumber or otherwise transfer as collateral or
security for any obligation *** any Shares at any time
owned by him, subject to the terms and provisions of
Article II herein, he shall state his desire to make
the pledge in writing to the other Shareholders and the
Company. The pledgor-Shareholder's notice to the other
Shareholders and the Company shall set forth the number
of shares pledged, by class, and the name and principal
business address of the pledgee. The pledgor-
Shareholder shall also give written notice to each of
the other Shareholders and the Company of termination
of the pledge of such Shares *** or the receipt by the
pledgor-Shareholder of a notice from the pledgee of the
latter's intention to foreclose, sell or otherwise
resort to the pledged Shares toward the satisfaction of
any of the pledgor-Shareholder's obligations to the
pledgee. The receipt by the pledgor-Shareholder of
such a notice from the pledgee of the pledgee's
intention to foreclose, sell or otherwise resort to the
pledged Shares shall constitute an Involuntary Lifetime
Transfer ***."
Article III of the stock restriction agreement provides
procedures for involuntary lifetime transfers including the
giving of notice to the company and the other shareholders. The
other shareholders and company have the option to purchase that
portion of the shares necessary to satisfy the judgment or other
indebtedness for which the involuntary lifetime transfer was
suffered. If not so purchased, the shares can be offered to any
other purchaser who agrees to be bound by the stock restriction
agreement.
Our review of these provisions leads us to conclude that
Sentinel's prior written consent to Joshi's stock pledge was not
required. While paragraph 2.1, the general provisions, of the
stock restriction agreement prohibits any assignment, sale,
pledge or encumbrance of shares without the prior written consent
of all other shareholders, it does so "[s]ubject to the
provisions of paragraph 2.8." Paragraph 2.8, which specifically
relates to pledges, requires only that the pledgor-shareholder
give written notice of the pledge to the other shareholders and
the company. Similar written notice is required when the pledgee
seeks to foreclose or sell the pledged shares toward the
satisfaction of the pledgor-shareholder's obligations. That
occurrence, which is treated as an involuntary lifetime transfer,
requires that the other shareholders and the company be given the
first opportunity to purchase the shares necessary to satisfy the
pledgor's obligations.
A review of the stock restriction agreement shows an intent
to restrict stock purchases. Stock purchases, whether by
voluntary or involuntary transfer, cannot occur unless the
existing shareholders and the company are first given the
opportunity to purchase the shares of stock being offered for
sale. As set forth in paragraph 2.2, no voluntary transfer to a
bona fide prospective purchaser can occur unless the written
consent of all other shareholders is first obtained. That
written consent evidences the intentions of the company and the
other shareholders to forego any additional purchase of shares
guaranteed to them by their rights of first refusal. The
requirement of prior written consent insures that the company and
other shareholders can exercise their rights of first refusal
before the stock is offered for sale to other persons. It would
make no sense, however, to require prior written consent to a
pledge where the other shareholders do not have an obligation to
make the loan underlying the pledge. They need only be advised
of the pledge and of any involuntary lifetime transfer triggered
by the pledgee's subsequent foreclosure. In the latter event,
pursuant to the involuntary lifetime transfer provisions of the
stock restriction agreement, discussed above, the other
shareholders would be given the opportunity to exercise their
rights of first refusal to purchase the shares necessary to
satisfy the indebtedness of the pledgor before the stock is
offered for sale to any other purchaser. Thus, given the clear
language and intent of the stock restriction agreement, Joshi was
not required to obtain Sentinel's prior written consent to his
stock pledge agreement with Guice.
Sentinel argues that the plaintiff waived his right to
enforce the stock delivery requirement under his pledge agreement
with Joshi. Sentinel cites to the pledge agreement, attached as
an exhibit to plaintiff's complaint, which required that Joshi
deposit with Guice the stock certificate representing the pledged
shares before execution of the pledge agreement. Sentinel argues
that since Guice did not acquire the certificates before
executing that agreement, he waived that provision of the pledge
agreement. We disagree.
Waiver is an intentional relinquishment of a known right and
can arise either expressly or by conduct inconsistent with an
intent to enforce that right. E.g., Sexton v. Smith, 112 Ill. 2d 187, 492 N.E.2d 1284 (1986); Wald v. Chicago Shippers Ass'n, 175
Ill. App. 3d 607, 529 N.E.2d 1138 (1988). Parties to a contract
have the power to waive provisions placed in the contract for
their benefit and such a waiver may be established by conduct
indicating that strict compliance with the contractual provisions
will not be required. Whalen v. K-Mart Corp., 166 Ill. App. 3d
339, 519 N.E.2d 991 (1988). In order to determine the
applicability of waiver, one must focus on the intent of the non-
breaching party. Wald, 175 Ill. App. 3d 607, 529 N.E.2d 1138;
Whalen, 166 Ill. App. 3d 339, 519 N.E.2d 991.
Here, the facts alleged in plaintiff's amended complaint and
in the exhibits attached thereto do not establish that Guice
waived his right to receipt of the stock certificates as
collateral for his loan to Joshi. While it is undeniable that
Guice did not receive the certificates at the time of execution
of the stock pledge agreement, as provided in that agreement,
other conduct allegedly attributed to Guice shows a continuing
intention to obtain possession of the stock certificates. That
conduct includes the alleged telephone call made by Guice's
attorney to Sentinel's attorney requesting turn over of the
certificate to Guice "at the time the Pledge Agreement was
entered into" and letters dated March 13, 1991 and May 6, 1991
from Guice's attorney to Sentinel's attorney requesting delivery
of the stock certificate. While the oral communication would not
satisfy Sentinel's right to written notice of the pledge, it
certainly supports a contention that Guice intended to obtain the
stock certificate and did not waive his right to that collateral.
Moreover, even if Guice's alleged conduct could be
characterized as a waiver of his right to possession of the stock
certificate, it is doubtful that Sentinel who was not a party to
the stock pledge agreement could assert the defense of waiver by
Guice. Waiver of contractual rights cannot be asserted by third
parties. See Western Waterproofing Company v. Springfield
Housing Authority, 669 F. Supp. 901 (C.D. Ill. 1987). Thus,
Sentinel's waiver argument must fail.
Having concluded that plaintiff's second amended complaint
adequately pled a valid and enforceable pledge agreement between
Guice and Joshi, we next turn to the issue of whether the
complaint sufficiently alleged that Sentinel intentionally and
unjustifiably induced Joshi to breach the pledge agreement. The
plaintiff argues that his complaint is sufficient in that it
alleges an unjustified refusal by Sentinel over a four-year
period to turn over the stock certificate despite several
requests and despite the fact that Sentinel was provided with
notice as required by paragraph 2.8 of its stock restriction
agreement. Sentinel argues that the plaintiff's complaint was
insufficient because it pled facts showing privilege and
justification and failed to plead additional facts of actual
malice or lack of justification.
In intentional interference with contract cases, a
defendant's conduct is considered "privileged" if he acts to
preserve a conflicting interest which the law deems to be of
equal or greater value than the contractual rights at issue. HPI
Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill. 2d 145, 545 N.E.2d 672 (1989); Ray Dancer, Inc. v. DMC Corp., 230
Ill. App. 3d 40, 594 N.E.2d 1344 (1992); Philip I. Mappa
Interests, Ltd. v. Kendle, 196 Ill. App. 3d 703, 554 N.E.2d 1008
(1990). In Illinois, where the conduct of a defendant in an
interference with contract action is privileged, it is the
plaintiff's burden to plead and prove that the defendant's
conduct was unjustified and malicious. HPI Health Care Services,
131 Ill. 2d 145, 545 N.E.2d 672; Kendle, 196 Ill. App. 3d 703,
554 N.E.2d 1008. Allegations of actual malice must show that the
defendant acted with a desire to harm and engaged in conduct
totally unrelated to the property interest that gave rise to the
privilege. HPI Health Care Services, 131 Ill. 2d 145, 545 N.E.2d 672; Ray Dancer, Inc., 230 Ill. App. 3d 40, 594 N.E.2d 1344;
Kendle, 196 Ill. App. 3d 703, 554 N.E.2d 1008.
Here, the plaintiff's complaint set forth facts that would
establish that Sentinel's acts were privileged at least during
the period of 1989 until May, 1991 when all documents relative to
the stock pledge agreement between Joshi and Guice were provided
to Sentinel. As set forth in paragraph 2.8 of the stock
restriction agreement between Sentinel and Joshi, Sentinel and
its shareholders were entitled to written notice of the pledge
agreement including information regarding the number of shares
pledged, by class, and the name and principal business address of
the pledgee. It cannot be disputed that Sentinel and its
shareholders had a right to be assured that the pledge was not a
sale so as to protect their rights of first refusal with respect
to voluntary and involuntary transfers involving the sale of
Sentinel's stock. See HPI Health Care Services, 131 Ill. 2d 145,
545 N.E.2d 672; Kendle, 196 Ill. App. 3d 703, 554 N.E.2d 1008.
Since paragraph 2.8 required written notice of a pledge,
plaintiff's oral notification to Sentinel that allegedly occurred
"[a]t the time the Pledge Agreement was entered into" would not
satisfy that requirement. As a result, Sentinel's acts in
refusing to deliver the stock certificate at that time were
privileged.
For similar reasons, we find that Sentinel's failure to
deliver the stock certificate in February and March 1991 was
privileged. According to the plaintiff's amended complaint and
exhibits attached thereto, letters of direction were sent by
Joshi on February 14, 1991 and March 13, 1991 to Sentinel and its
shareholders requesting that a stock certificate be issued to
Guice based upon Joshi's stock pledge to Guice. Attached to the
February 14, 1991 letter was a copy of a "Notice" purportedly
executed by Joshi on June 1, 1990 indicating that Joshi had
pledged 6,075 shares of his common stock to Guice. (Plaintiff's
complaint did not allege that this "Notice" had been sent to or
received by Sentinel and its shareholders in June 1990.) Joshi's
March 13 letter was sent to Sentinel's attorney with a second
letter from Guice's attorney, also dated March 13, 1991. The
latter letter requested delivery of the stock certificate to
Guice's attorney based upon the fact that a lien on Joshi's stock
entered pursuant to a legal action filed against Joshi in 1990
had been vacated. Sentinel's president, Dennis Hoelzer,
responded to Joshi's March 13, 1991 letter on March 18, 1991. He
requested "all documentation in connection with the pledge" in
order to "fully understand the facts and circumstances of the
pledge and the rights of the various parties" to the pledge
agreement. As discussed above, such a request was reasonable
given Sentinel's and its shareholders' ownership interests and
protectible rights with respect to stock transfers and sales.
This correspondence, attached to plaintiff's amended complaint,
negates plaintiff's averment that Sentinel's refusal to turn over
the stock certificate was unjustified. See Evers v. Edward
Hospital Ass'n, 247 Ill. App. 3d 717, 617 N.E.2d 1211 (1993);
Waller v. Davis (In re Estate of Davis), 225 Ill. App. 3d 998,
589 N.E.2d 154 (1992) (exhibit which is inconsistent with
averments negates those averments)). It also establishes that
Sentinel's conduct in failing to deliver the stock certificate,
at least through the period of May 6, 1991 when Guice's attorney
provided the requested stock pledge documentation, was
privileged.
Given the existence of a privilege through the period of May
6, 1991, plaintiff's amended complaint could not state a cause of
action for intentional interference with contract unless it
alleged actual malice. HPI Health Care Services, 131 Ill. 2d 145, 545 N.E.2d 672; Kendle, 196 Ill. App. 3d 703, 554 N.E.2d 1008. An allegation of actual malice to overcome a defendant's
privilege to interfere must show that the defendant acted with a
desire to harm which is independent of and unrelated to the
defense of the property interest that he is trying to protect.
HPI Health Care Services, 131 Ill. 2d 145, 545 N.E.2d 672; Ray
Dancer, Inc., 230 Ill. App. 3d 40, 594 N.E.2d 1344; Kendle, 196
Ill. App. 3d 703, 554 N.E.2d 1008. The plaintiff's amended
complaint in the instant case is devoid of any such allegations.
As previously discussed, that complaint establishes Sentinel's
right to notice of the stock pledge and its right to be assured
that a stock pledge and not a stock purchase is the transaction
necessitating the delivery of the stock certificate. Sentinel
actions, at least until May 6, 1991, directly related to its
efforts to protect its interests and those of its other
shareholders in the stock ownership of the company. Sentinel was
not required to deliver the stock certificate until it was
assured that the transfer was made pursuant to a pledge and not a
sale.
The period of May 6, 1991 through December 4, 1991, when
Joshi's shares of stock were not subject to any lien,[fn1]
requires a different conclusion. There are no facts alleged in
the plaintiff's complaint which would justify Sentinel's failure
to deliver the stock certificate after May 6, 1991. On that
date, Sentinel allegedly had the documentation necessary to
assure itself and its other shareholders that Joshi had entered
into a valid stock pledge agreement seeking to pledge his
Sentinel common stock as collateral for a loan made to him by
Guice. Nothing else is alleged which would suggest that
Sentinel's failure to act upon the May 6, 1991 request for
delivery of the stock certificate was privileged; and, as a
result, the plaintiff was not required to plead actual malice.
See generally Prosser & Keeton, Torts 15, at 100 (5th ed. 1984)
(after reasonable time for investigation "defendant is required
to make up his mind and becomes liable as a converter if he
refuses to deliver to the rightful claimants).
The plaintiff was, however, required to plead facts showing
intentional interference with contract. He argues that he did so
with allegations that Sentinel voiced no objection to the pledge
agreement and after all notice provisions of the stock
restriction agreement were complied with "continued to refuse to
deliver over to Plaintiff the Pledged Shares although they were
not subject to any lien, limitation or restriction on transfer."
Sentinel responds that the communications alleged to have
occurred from Sentinel could not be characterized as a "refusal."
Sentinel may be correct that the only communication from
Sentinel, the March 18, 1991 letter from Sentinel's president,
could not be viewed as a refusal since it requested copies of the
documents evidencing Joshi's stock pledge. However, that fact
does not negate plaintiff's further allegation that after
receiving the documents, Sentinel did not deliver the stock
certificate to Guice. This alleged failure to deliver supports
plaintiff's allegation of refusal to deliver, at least at the
pleading stage. Moreover, allegations that the failure to
deliver occurred despite the permissibility of stock pledges and
despite compliance with all the prerequisites for such pledges,
factually suffices as an allegation of intentional interference.
Of course, if Sentinel can plead and prove the existence of other
unfulfilled prerequisites or other legitimate and protectible
interests or that its failure to deliver was negligent rather
than intentional, plaintiff's cause of action could later fail on
those grounds.
Sentinel argues that the plaintiff's amended complaint did
not adequately allege that Sentinel's conduct caused plaintiff to
suffer damages. In support of this contention, Sentinel cites to
plaintiff's allegation that "as a result of the execution of the
Pledge Agreement by Joshi, his assignment of his stock, and the
notice provided to Sentinel, Plaintiff held a perfected security
interest." According to Sentinel, if, as the plaintiff alleges,
Guice perfected his security interest, then the plaintiff
suffered no damages. We disagree. While Sentinel is correct
that one paragraph of the amended complaint alleged that
plaintiff held a perfected security interest, when the complaint
is viewed in its entirety, no such conclusion can be made. In
accordance with the provisions of the Uniform Commercial Code
(810 ILCS 5/1-101 et seq. (West 1996)), which were cited in
plaintiff's complaint, a creditor cannot perfect his security
interest in stock without having possession of the collateral.
810 ILCS 5/8-321 (West 1996). Moreover, it is readily apparent
from a reading of plaintiff's entire complaint that the plaintiff
did not have a perfected security interest because he did not
have possession of the stock certificate due to Sentinel's
failure to deliver the stock certificate to him. That lack of a
perfected security interest resulted in Guice's being denied
secured creditor status by the trustee of Joshi's bankruptcy
estate. Thus, a causal connection between Sentinel's conduct and
Guice's injury was sufficiently alleged.
Finally, Sentinel contends that plaintiff's amended
complaint was insufficient in that it did not allege Sentinel's
knowledge of the pledge agreement. Specifically, Sentinel argues
that its knowledge was premised on "belated 'notice'" of the
pledge agreement delivered in writing to Sentinel in the Spring
of 1991, more than one and one-half years after the pledge
agreement was executed. First, we note that Sentinel has waived
any argument in this regard by failing to cite authority in
support thereof. 155 Ill. 2d R. 341(e)(7), (f) ("[a]rgument
shall contain citation of the authorities"). See Vernon Hills
III Limited Partnership v. St. Paul Fire & Marine Insurance Co.,
287 Ill. App. 3d 303, 678 N.E.2d 374 (1997); Bank of Illinois v.
Thweatt, 258 Ill. App. 3d 349, 630 N.E.2d 121 (1994). Second, we
would reject Sentinel's argument on its merits since, for
purposes of setting forth a cause of action for intentional
interference with contract, the plaintiff must only allege
knowledge by Sentinel of the pledge agreement. The date upon
which that knowledge was acquired by Sentinel is irrelevant
provided acquisition of that knowledge preceded the alleged
conduct of interference. As discussed above, the only period of
time with which an intentional interference with contract claim
can be lodged by the plaintiff against Sentinel is that period
occurring after Sentinel received the documentation evidencing
the Joshi's stock pledge agreement with Guice, namely after May
6, 1991.
II. Punitive Damages
The plaintiff next argues that his punitive damages count
(count II) should not have been dismissed on the basis that it
did not set forth an independent cause of action. The plaintiff
concedes that punitive damages represents a type of relief and
not a cause of action. See McGrew v. Heinold Commodities, Inc.,
147 Ill. App. 3d 104, 497 N.E.2d 424 (1986). He also concedes
that his count II does not set forth a separate cause of action
but merely seeks additional relief premised on additional acts of
misconduct, from the relief sought and the acts pled in count I.
Plaintiff's count II pleads a cause of action for intentional
interference with contract by incorporating count I into count II
and seeks additional relief based on the additional allegation of
malice.
Regardless of the question of the formal pleading
requirements with respect to punitive damages, the dismissal of
the punitive damages count is warranted here because the
allegations insufficiently plead entitlement to such damages.
Plaintiff's sole allegation which could support a punitive
damages award is that Sentinel's "refusal to honor the request
for transfer of stock to Plaintiff was malicious and purposely
done with intent to harm Guice who Sentinel was forced to buy-out
on terms not necessarily favorable to Defendant." This
allegation is conclusory and does not sufficiently allege
wrongful conduct that would entitle one to an award of punitive
damages. Instead it presents a bare assertion of malice without
supporting factual allegations. See HPI Health Care, 131 Ill. 2d 145, 545 N.E.2d 672 (finding allegation of actual malice to be
conclusory and factually insufficient). In order to be entitled
to punitive damages, one must allege outrageous conduct, acts
perpetrated by evil motive or with reckless indifference to the
rights of others. Reuben H. Donnelley Corp. v. Brauer, 275 Ill.
App. 3d 300, 655 N.E.2d 1162 (1995). See Duignan v. Lincoln
Towers Insurance Agency, Inc., 282 Ill. App. 3d 262, 667 N.E.2d 608 (1996). Punitive damages should not be awarded if the
defendant's misconduct is not above and beyond the conduct needed
for the basis of the underlying cause of action. Parsons v.
Winter, 142 Ill. App. 3d 354, 491 N.E.2d 1236 (1986). Here, the
only allegation that would suggest evil motive is that Sentinel
was perhaps acting vengefully because it was forced to buy-out
Guice on terms not necessarily favorable to Sentinel. However,
as was earlier alleged, the buy-out occurred one year before
execution of the pledge agreement by Guice and Joshi. Moreover,
no specific facts were alleged to suggest how the buy-out was
"less than favorable" to Sentinel. Absent any such further
allegations, plaintiff has not sufficiently pled a cause of
action upon which punitive damages can be awarded. See Wait v.
First Midwest Bank, 142 Ill. App. 3d 703, 710, 491 N.E.2d 795,
802 (1986) ("[t]he mere addition of the phrase 'willful and
wanton' *** is insufficient to allege reckless misconduct
necessary to support an allowance of punitive damages").
III. Conversion
Plaintiff's conversion count alleged that Guice was entitled
to possession and custody of the pledged shares and that
Sentinel, wrongfully and without legal justification, maintained
custody and possession of the pledged shares in contravention of
plaintiff's immediate and absolute right to possession of the
pledged shares. Plaintiff further alleged that he was damaged by
the wrongful possession in that he was denied the collateral to
which he was otherwise entitled which prevented him from
obtaining value for his security interest in the pledged shares.
To properly plead a cause of action for conversion, one must
allege: (1) an unauthorized and wrongful assumption of control,
dominion, or ownership by defendant over the property of
plaintiff; (2) plaintiff's right in the property; (3) plaintiff's
right to immediate possession of the property, absolute or
conditional; and (4) demand by plaintiff for possession of the
property. E.g., Fonda v. General Casualty Co., 279 Ill. App. 3d
894, 665 N.E.2d 439 (1996); Craig v. Citicorp Savings, 219 Ill.
App. 3d 142, 578 N.E.2d 1331 (1991). Where the defendant has
rightfully acquired the property, then demand for the property
and refusal to return must be alleged. Hobson's Truck Sales,
Inc. v. Carroll Trucking, Inc., 2 Ill. App. 3d 978, 276 N.E.2d 89
(1971).
On appeal, the plaintiff argues that his amended complaint
properly pled his right to possession of the stock certificate
and his demand and notice to Sentinel. He cites to several of
his general allegations which were realleged and incorporated
into his conversion count, particularly his allegation that "[a]t
the time the Pledge Agreement was entered into Plaintiff advised
Sentinel of the existence of the Note and Pledge Agreement."
Plaintiff also cites to his allegations concerning the exchange
of written correspondence between Sentinel, Joshi and himself
during the period of February 15, 1991 and May 6, 1991 and his
further allegation that Sentinel's refusal to deliver the stock
certificate was unjustified.
As discussed above with respect to plaintiff's intentional
interference with contract count, the oral notice alleged to have
been given Sentinel "[a]t the time the Pledge Agreement was
entered into" did not entitle plaintiff to possession of the
stock certificate because it did not comply with the stock
restriction agreement's requirement for written notice of the
pledge. As also discussed above, the subsequent written
communications to Sentinel in February and March 1991 were
insufficient in that they lacked transmittal of the documentation
surrounding the pledge agreement between Joshi and Guice which
Sentinel was justified in requesting. However, as further
discussed, it would appear from the allegations in the complaint
and from the exhibits attached thereto that Sentinel had no
further right to withhold the stock certificate once that
documentation was sent to Sentinel on May 6, 1991 and until
December 4, 1991, when Joshi's stock became the subject of
another legal proceeding thereby preventing Sentinel from taking
any action thereafter with respect to Joshi's stock. Thus, as to
the period of May 6, 1991 and December 4, 1991, the plaintiff has
set forth sufficient allegations showing a right to possession of
the stock certificate pursuant to a pledge agreement between
Joshi and himself; demand and proper notice to Sentinel of the
pledge agreement; a right to immediate possession having
satisfied the notice requirement in the stock restriction
agreement; and wrongful possession after demand and proper
notice.
The defendant argues, without citation to authority (see 155
Ill. 2d R. 341(e)(7)) that the plaintiff cannot maintain an
action for conversion because he is not the owner of the stock.
Defendant's argument is baseless. Under general tort principles,
a conversion action can be brought by any person who has the
right to immediate possession of property regardless of whether
that person owns the property. See Fonda, 279 Ill. App. 3d 894,
665 N.E.2d 439 (wherein assignee of creditor with security
interest in debtor's office equipment brought conversion action
against insurance company for wrongful payment of insurance
proceeds to debtor after fire loss to property). See generally,
Restatement (Second) of Torts 225 (1965) (converter is liable to
one who at the time is entitled to possession of the chattel); 18
Am. Jur. 2d Conversion 75, at 197 (1985) (the person bringing a
conversion action may be the owner of the property or one
entitled to possession), 63, at 188 (action for conversion may
be maintained by a person entitled to promissory note although
legal title to note and right to sue for money due thereon are in
another); W. Keeton, Prosser & Keeton on Torts 15 at 104 (5th
ed. 1984) ("the common law has been extended to permit recovery
by one who had the immediate right to possession, as in the case
of a bailor entitled to possession on demand, or a chattel
mortgagee or conditional seller after default"). Since the
plaintiff can maintain an action for conversion and since we have
held that the plaintiff's amended complaint sufficiently pled the
elements of that action, in so far as it alleged a right to
possession and a wrongful and unjustified failure to deliver the
stock certificate during the period of May 6, 1991 to December 4,
1991, the trial court erred in dismissing that count.
For the foregoing reasons, the judgment of the Circuit Court
of Cook County is reversed and remanded for further proceedings.
Reversed and remanded.
COUSINS, P.J. and LEAVITT, J., concur.
[fn1]The plaintiff seems to concede that Sentinel could not
deliver the stock certificate after December 4, 1991 and until
September 23, 1992 when Joshi's stock was the subject of another
legal proceeding. According to exhibits attached to plaintiff's
first amended complaint, the trial court in that action denied
that plaintiff's request for a turn over order of Joshi's
Sentinel stock finding that Guice, who intervened in that action,
had a superior interest to the stock.
December 31, 1997
No. 1-96-2096
GERALD GUICE, )
) Appeal from the Circuit
Plaintiff-Appellant, ) Court of Cook
County.
v. )
)
SENTINEL TECHNOLOGIES, INC., ) No. 94 L 06456
f/k/a SENTINEL COMPUTER SERVICES, )
INC., ) Honorable
) Ian H. Levin,
) Judge Presiding.
Defendant-Appellee. )
JUSTICE GORDON delivered the opinion of the court:
Plaintiff, Gerald Guice, filed a three-count amended
complaint against defendant, Sentinel Technologies, Inc.
(Sentinel), alleging tortious interference with a stock pledge
agreement and conversion of a stock certificate evidencing the
stock pledged. Plaintiff also sought punitive damages in a
separate count. Plaintiff appeals from the section 2-615
dismissal of his second amended complaint. See 735 ILCS 5/2-615
(West 1996).
Plaintiff's second amended complaint alleged that he co-
founded Sentinel, an Illinois corporation, in 1982 with Dennis
Hoelzer. Prior to the filing of his complaint, plaintiff owned
51% of its outstanding stock. The plaintiff alleged that in
1988, after "bad feelings and antipathy" developed between
himself and Hoelzer, he agreed to a buy-out of his interests in
Sentinel.
The plaintiff further alleged that, on or about September
25, 1989, after the buy-out, he made a personal loan to Ajay
Joshi, a 10% shareholder of Sentinel. In consideration for the
loan, Joshi executed and delivered a secured demand note in the
amount of $63,752.04. The note was secured by a pledge of 6,075
shares of Sentinel stock which amounted to 6.5% of all issued and
outstanding common stock in Sentinel. Under the terms of the
pledge agreement between Joshi and Guice, and for the purpose of
allowing Guice to perfect his security interest in the pledged
stock, Joshi agreed to deposit with Guice a stock certificate
which was then in the possession of Sentinel. The demand note
and pledge agreement were attached to plaintiff's complaint.
The second amended complaint next alleged that Sentinel was
advised of the pledge agreement and note and that several
requests were made to Sentinel to turn over to Guice the stock
certificate representing Joshi's shares of stock. Specifically,
the complaint alleged that "[a]t the time the Pledge Agreement
was entered into" Guice's attorney called Sentinel's attorney to
advise him of the stock pledge and to request that the stock be
turned over. The complaint also alleged that letters of
direction were sent by Joshi to Sentinel on February 15 and March
13, 1991; that Guice's attorney sent Sentinel's attorney a letter
on March 13, 1991 requesting delivery of the stock certificate;
that Sentinel's president sent Joshi a letter on March 18, 1991
in which he stated that the February 15, 1991 notice to Sentinel
"does not appear to be in compliance with the provisions of the
[Stock Restriction] Agreement" and in which he requested "all
documentation in connection with the pledge"; and that on May 6,
1991 Guice's attorney sent Sentinel's attorney copies of the
pledge agreement and promissory note. All of the aforementioned
letters and documents were attached as exhibits to plaintiff's
second amended complaint.
The plaintiff further alleged that the stock restriction
agreement between Sentinel and Joshi did not prohibit Joshi's
stock pledge; did not require that Joshi obtain the consent of
the other shareholders of Sentinel; and only required notice of
the pledge. The plaintiff alleged that the notice requirements
were complied with prior to Hoelzer's March 18, 1991 letter and
that, if not fully satisfied then, were satisfied on May 6, 1991
when Sentinel was sent a copy of the pledge agreement and
promissory note executed by Joshi. The plaintiff further alleged
that "despite the repeated demands of Plaintiff and Joshi,
Sentinel "continued to refuse to deliver over to Plaintiff the
Pledged Shares although they were not subject to any other lien,
limitation or restriction on transfer." According to the
plaintiff's averment, Sentinel's failure to deliver the stock
certificates "was intentionally designed to prevent Plaintiff
from obtaining value for its security interest in the Pledged
Shares." The plaintiff alleged that he was in fact deprived of
that value when thereafter Joshi became insolvent and filed a
bankruptcy petition in February 1993 and was deprived of
recognition as a secured creditor since he did not have the stock
certificate in his possession.
With respect to his tortious interference count, Guice
alleged that Sentinel "deliberately, intentionally and
unjustifiably induced Joshi to breach the Pledge Agreement" with
Guice by preventing the delivery of the pledge shares to Guice.
Guice alleged that Sentinel's actions were a "malicious and
vindictive attempt by Hoelzer *** to punish Guice because of a
prior business dispute." Guice alleged that his lack of
possession of the stock certificates relegated him to the status
of an unsecured creditor resulting in negligible recovery from
Joshi's bankruptcy estate.
Plaintiff's punitive damages count adopted the above-stated
allegations and sought punitive damages based upon Sentinel's
"malicious" refusal to honor the requests for the transfer of
stock to Guice. Plaintiff's conversion count also adopted those
allegations and further alleged that Sentinel wrongfully and
without legal justification maintained custody and possession of
the pledged shares in contravention of plaintiff's immediate and
absolute right to possession. That count alleged that Sentinel's
wrongful possession denied Guice his collateral and prevented him
from obtaining value for his security interest in the pledged
shares.
In its motion to dismiss and memorandum in support thereof,
Sentinel argued, inter alia, that the tortious interference count
of plaintiff's second amended complaint failed to allege with
requisite particularity Sentinel's "refusal" to deliver the stock
certificates and failed to allege plaintiff's right to immediate
and unconditioned possession of the certificates. Sentinel
argued that the plaintiff was not entitled to possession of the
certificates because, as stated in its March 18, 1991 letter,
Joshi had not given Sentinel prior written notice of the stock
pledge and was in violation of the Stock Restriction Agreement
between Sentinel and Joshi, which also attached as an exhibit to
plaintiff's complaint. Sentinel further argued that the
plaintiff could not establish an enforceable contract between
Joshi and himself because their stock pledge agreement required
that the stock certificates be deposited with Guice before
execution of the agreement.
With respect to the punitive damages count, Sentinel argued
that the plaintiff failed to allege facts to support his
conclusory allegations of willful or wanton conduct. It argued,
inter alia, that the plaintiff's own allegations and exhibits
showed that Sentinel's conduct was justified based on the lack of
prior written notice and multiple citations to discover assets
issued on Sentinel with respect to Joshi's stock.
As to plaintiff's conversion count, Sentinel argued that the
complaint did not allege sufficient facts of an immediate,
absolute and unconditional right to possession of the stock
certificates. Sentinel argued that the exhibits attached to the
amended complaint showed that Sentinel had rightfully obtained
possession of the certificates and that Joshi had not given
timely notice prior to the pledge. Sentinel also argued that the
plaintiff failed to show his right to possession, rather than
Joshi's right to possession and failed to show an affirmative
refusal by Sentinel to turn over the stock.
To withstand a motion to dismiss, the complaint must allege
facts setting forth the essential elements of a cause of action.
E.g., Jones v. Eagle II, 99 Ill. App. 3d 64, 424 N.E.2d 1253
(1981). All well-pleaded facts in the complaint and those
contained in exhibits made a part of the complaint are admitted
and taken as true for purposes of the motion. E.g., Smith v.
Prime Cable, 276 Ill. App. 3d 843, 658 N.E.2d 1325 (1995); Evers
v. Edward Hospital Ass'n, 247 Ill. App. 3d 717, 617 N.E.2d 1211
(1993). A cause of action should not be dismissed on the
pleadings unless it clearly appears that no set of facts can be
proved under the pleadings which will entitle a plaintiff to
recover. E.g., Zadrozny v. City Colleges of Chicago, 220 Ill.
App. 3d 290, 581 N.E.2d 44 (1991).
I. Intentional Interference with Contract
To properly plead a cause of action for intentional
interference with contract, a complaint must allege: (1) the
existence of a valid, enforceable contract between the plaintiff
and a third party; (2) defendant's knowledge of that contract;
(3) defendant's intentional and unjustified inducement of the
third party to breach the contract; (4) occurrence of a breach
resulting from defendant's conduct; and (5) damages suffered by
the plaintiff as a result of the breach. E.g., Ray Dancer, Inc.
v. DMC Corp., 230 Ill. App. 3d 40, 594 N.E.2d 1344 (1992). In
the instant case, the parties disagree as to whether a valid,
enforceable contract existed between Guice and Joshi. They
disagree as to whether the 1985 stock restriction agreement
between Joshi and Sentinel prevented consummation of the stock
pledge agreement in that it required Joshi to obtain the prior
written consent of Sentinel to the stock pledge. They also
disagree as to whether the stock pledge agreement between Guice
and Joshi was enforceable in the absence of actual transfer of
the stock certificates to Guice at the time the pledge agreement
was signed.
The stock restriction agreement, which was attached to
plaintiff's complaint and which constitutes a part of the
pleading (735 ILCS 5/606 (West 1994)), must be taken as true for
purposes of a section 2-615 motion (Evers, 247 Ill. App. 3d 717,
617 N.E.2d 1211; Payne v. Mill Race Inn, 152 Ill. App. 3d 269,
504 N.E.2d 193 (1987)). The relevant provisions of that
agreement state the following:
"2.1 General Prohibition. Subject to the provisions
of paragraph 2.8 hereof, a Shareholder shall not,
without the prior written consent of all other
Shareholders, assign, sell, pledge, encumber, give or
otherwise transfer or alienate to any person *** or
other entity, by whatever means, any Shares owned by
him, except to the extent and in the manner hereinafter
set forth.
2.2 Right of First Refusal - Company Offer. No
voluntary transfer, except with prior written consent
of all other Shareholders shall be made except pursuant
to a bona fide offer as set forth in this Paragraph
2.2. If a Shareholder receives a bona fide offer to
purchase all or any portion of Shares from a bona fide
prospective purchaser ("Bona Fide Offer"), and if he
shall desire to sell or otherwise transfer his Shares
in accordance with the terms of a Bona Fide Offer, he
shall first make a written offer to the Company ***.
***
2.3 Right of First Refusal - Shareholder Offer. In
the event the Company either refuses the Company Offer
or fails to respond in writing to the selling
Shareholder within 10 days following service of the
Company Offer, the selling Shareholder shall make a
written offer to the remaining Shareholders
("Shareholder Offer") to sell the Shares ***. ***
2.8 Pledges. If a Shareholder desires to pledge,
encumber or otherwise transfer as collateral or
security for any obligation *** any Shares at any time
owned by him, subject to the terms and provisions of
Article II herein, he shall state his desire to make
the pledge in writing to the other Shareholders and the
Company. The pledgor-Shareholder's notice to the other
Shareholders and the Company shall set forth the number
of shares pledged, by class, and the name and principal
business address of the pledgee. The pledgor-
Shareholder shall also give written notice to each of
the other Shareholders and the Company of termination
of the pledge of such Shares *** or the receipt by the
pledgor-Shareholder of a notice from the pledgee of the
latter's intention to foreclose, sell or otherwise
resort to the pledged Shares toward the satisfaction of
any of the pledgor-Shareholder's obligations to the
pledgee. The receipt by the pledgor-Shareholder of
such a notice from the pledgee of the pledgee's
intention to foreclose, sell or otherwise resort to the
pledged Shares shall constitute an Involuntary Lifetime
Transfer ***."
Article III of the stock restriction agreement provides
procedures for involuntary lifetime transfers including the
giving of notice to the company and the other shareholders. The
other shareholders and company have the option to purchase that
portion of the shares necessary to satisfy the judgment or other
indebtedness for which the involuntary lifetime transfer was
suffered. If not so purchased, the shares can be offered to any
other purchaser who agrees to be bound by the stock restriction
agreement.
Our review of these provisions leads us to conclude that
Sentinel's prior written consent to Joshi's stock pledge was not
required. While paragraph 2.1, the general provisions, of the
stock restriction agreement prohibits any assignment, sale,
pledge or encumbrance of shares without the prior written consent
of all other shareholders, it does so "[s]ubject to the
provisions of paragraph 2.8." Paragraph 2.8, which specifically
relates to pledges, requires only that the pledgor-shareholder
give written notice of the pledge to the other shareholders and
the company. Similar written notice is required when the pledgee
seeks to foreclose or sell the pledged shares toward the
satisfaction of the pledgor-shareholder's obligations. That
occurrence, which is treated as an involuntary lifetime transfer,
requires that the other shareholders and the company be given the
first opportunity to purchase the shares necessary to satisfy the
pledgor's obligations.
A review of the stock restriction agreement shows an intent
to restrict stock purchases. Stock purchases, whether by
voluntary or involuntary transfer, cannot occur unless the
existing shareholders and the company are first given the
opportunity to purchase the shares of stock being offered for
sale. As set forth in paragraph 2.2, no voluntary transfer to a
bona fide prospective purchaser can occur unless the written
consent of all other shareholders is first obtained. That
written consent evidences the intentions of the company and the
other shareholders to forego any additional purchase of shares
guaranteed to them by their rights of first refusal. The
requirement of prior written consent insures that the company and
other shareholders can exercise their rights of first refusal
before the stock is offered for sale to other persons. It would
make no sense, however, to require prior written consent to a
pledge where the other shareholders do not have an obligation to
make the loan underlying the pledge. They need only be advised
of the pledge and of any involuntary lifetime transfer triggered
by the pledgee's subsequent foreclosure. In the latter event,
pursuant to the involuntary lifetime transfer provisions of the
stock restriction agreement, discussed above, the other
shareholders would be given the opportunity to exercise their
rights of first refusal to purchase the shares necessary to
satisfy the indebtedness of the pledgor before the stock is
offered for sale to any other purchaser. Thus, given the clear
language and intent of the stock restriction agreement, Joshi was
not required to obtain Sentinel's prior written consent to his
stock pledge agreement with Guice.
Sentinel argues that the plaintiff waived his right to
enforce the stock delivery requirement under his pledge agreement
with Joshi. Sentinel cites to the pledge agreement, attached as
an exhibit to plaintiff's complaint, which required that Joshi
deposit with Guice the stock certificate representing the pledged
shares before execution of the pledge agreement. Sentinel argues
that since Guice did not acquire the certificates before
executing that agreement, he waived that provision of the pledge
agreement. We disagree.
Waiver is an intentional relinquishment of a known right and
can arise either expressly or by conduct inconsistent with an
intent to enforce that right. E.g., Sexton v. Smith, 112 Ill. 2d 187, 492 N.E.2d 1284 (1986); Wald v. Chicago Shippers Ass'n, 175
Ill. App. 3d 607, 529 N.E.2d 1138 (1988). Parties to a contract
have the power to waive provisions placed in the contract for
their benefit and such a waiver may be established by conduct
indicating that strict compliance with the contractual provisions
will not be required. Whalen v. K-Mart Corp., 166 Ill. App. 3d
339, 519 N.E.2d 991 (1988). In order to determine the
applicability of waiver, one must focus on the intent of the non-
breaching party. Wald, 175 Ill. App. 3d 607, 529 N.E.2d 1138;
Whalen, 166 Ill. App. 3d 339, 519 N.E.2d 991.
Here, the facts alleged in plaintiff's amended complaint and
in the exhibits attached thereto do not establish that Guice
waived his right to receipt of the stock certificates as
collateral for his loan to Joshi. While it is undeniable that
Guice did not receive the certificates at the time of execution
of the stock pledge agreement, as provided in that agreement,
other conduct allegedly attributed to Guice shows a continuing
intention to obtain possession of the stock certificates. That
conduct includes the alleged telephone call made by Guice's
attorney to Sentinel's attorney requesting turn over of the
certificate to Guice "at the time the Pledge Agreement was
entered into" and letters dated March 13, 1991 and May 6, 1991
from Guice's attorney to Sentinel's attorney requesting delivery
of the stock certificate. While the oral communication would not
satisfy Sentinel's right to written notice of the pledge, it
certainly supports a contention that Guice intended to obtain the
stock certificate and did not waive his right to that collateral.
Moreover, even if Guice's alleged conduct could be
characterized as a waiver of his right to possession of the stock
certificate, it is doubtful that Sentinel who was not a party to
the stock pledge agreement could assert the defense of waiver by
Guice. Waiver of contractual rights cannot be asserted by third
parties. See Western Waterproofing Company v. Springfield
Housing Authority, 669 F. Supp. 901 (C.D. Ill. 1987). Thus,
Sentinel's waiver argument must fail.
Having concluded that plaintiff's second amended complaint
adequately pled a valid and enforceable pledge agreement between
Guice and Joshi, we next turn to the issue of whether the
complaint sufficiently alleged that Sentinel intentionally and
unjustifiably induced Joshi to breach the pledge agreement. The
plaintiff argues that his complaint is sufficient in that it
alleges an unjustified refusal by Sentinel over a four-year
period to turn over the stock certificate despite several
requests and despite the fact that Sentinel was provided with
notice as required by paragraph 2.8 of its stock restriction
agreement. Sentinel argues that the plaintiff's complaint was
insufficient because it pled facts showing privilege and
justification and failed to plead additional facts of actual
malice or lack of justification.
In intentional interference with contract cases, a
defendant's conduct is considered "privileged" if he acts to
preserve a conflicting interest which the law deems to be of
equal or greater value than the contractual rights at issue. HPI
Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill. 2d 145, 545 N.E.2d 672 (1989); Ray Dancer, Inc. v. DMC Corp., 230
Ill. App. 3d 40, 594 N.E.2d 1344 (1992); Philip I. Mappa
Interests, Ltd. v. Kendle, 196 Ill. App. 3d 703, 554 N.E.2d 1008
(1990). In Illinois, where the conduct of a defendant in an
interference with contract action is privileged, it is the
plaintiff's burden to plead and prove that the defendant's
conduct was unjustified and malicious. HPI Health Care Services,
131 Ill. 2d 145, 545 N.E.2d 672; Kendle, 196 Ill. App. 3d 703,
554 N.E.2d 1008. Allegations of actual malice must show that the
defendant acted with a desire to harm and engaged in conduct
totally unrelated to the property interest that gave rise to the
privilege. HPI Health Care Services, 131 Ill. 2d 145, 545 N.E.2d 672; Ray Dancer, Inc., 230 Ill. App. 3d 40, 594 N.E.2d 1344;
Kendle, 196 Ill. App. 3d 703, 554 N.E.2d 1008.
Here, the plaintiff's complaint set forth facts that would
establish that Sentinel's acts were privileged at least during
the period of 1989 until May, 1991 when all documents relative to
the stock pledge agreement between Joshi and Guice were provided
to Sentinel. As set forth in paragraph 2.8 of the stock
restriction agreement between Sentinel and Joshi, Sentinel and
its shareholders were entitled to written notice of the pledge
agreement including information regarding the number of shares
pledged, by class, and the name and principal business address of
the pledgee. It cannot be disputed that Sentinel and its
shareholders had a right to be assured that the pledge was not a
sale so as to protect their rights of first refusal with respect
to voluntary and involuntary transfers involving the sale of
Sentinel's stock. See HPI Health Care Services, 131 Ill. 2d 145,
545 N.E.2d 672; Kendle, 196 Ill. App. 3d 703, 554 N.E.2d 1008.
Since paragraph 2.8 required written notice of a pledge,
plaintiff's oral notification to Sentinel that allegedly occurred
"[a]t the time the Pledge Agreement was entered into" would not
satisfy that requirement. As a result, Sentinel's acts in
refusing to deliver the stock certificate at that time were
privileged.
For similar reasons, we find that Sentinel's failure to
deliver the stock certificate in February and March 1991 was
privileged. According to the plaintiff's amended complaint and
exhibits attached thereto, letters of direction were sent by
Joshi on February 14, 1991 and March 13, 1991 to Sentinel and its
shareholders requesting that a stock certificate be issued to
Guice based upon Joshi's stock pledge to Guice. Attached to the
February 14, 1991 letter was a copy of a "Notice" purportedly
executed by Joshi on June 1, 1990 indicating that Joshi had
pledged 6,075 shares of his common stock to Guice. (Plaintiff's
complaint did not allege that this "Notice" had been sent to or
received by Sentinel and its shareholders in June 1990.) Joshi's
March 13 letter was sent to Sentinel's attorney with a second
letter from Guice's attorney, also dated March 13, 1991. The
latter letter requested delivery of the stock certificate to
Guice's attorney based upon the fact that a lien on Joshi's stock
entered pursuant to a legal action filed against Joshi in 1990
had been vacated. Sentinel's president, Dennis Hoelzer,
responded to Joshi's March 13, 1991 letter on March 18, 1991. He
requested "all documentation in connection with the pledge" in
order to "fully understand the facts and circumstances of the
pledge and the rights of the various parties" to the pledge
agreement. As discussed above, such a request was reasonable
given Sentinel's and its shareholders' ownership interests and
protectible rights with respect to stock transfers and sales.
This correspondence, attached to plaintiff's amended complaint,
negates plaintiff's averment that Sentinel's refusal to turn over
the stock certificate was unjustified. See Evers v. Edward
Hospital Ass'n, 247 Ill. App. 3d 717, 617 N.E.2d 1211 (1993);
Waller v. Davis (In re Estate of Davis), 225 Ill. App. 3d 998,
589 N.E.2d 154 (1992) (exhibit which is inconsistent with
averments negates those averments)). It also establishes that
Sentinel's conduct in failing to deliver the stock certificate,
at least through the period of May 6, 1991 when Guice's attorney
provided the requested stock pledge documentation, was
privileged.
Given the existence of a privilege through the period of May
6, 1991, plaintiff's amended complaint could not state a cause of
action for intentional interference with contract unless it
alleged actual malice. HPI Health Care Services, 131 Ill. 2d 145, 545 N.E.2d 672; Kendle, 196 Ill. App. 3d 703, 554 N.E.2d 1008. An allegation of actual malice to overcome a defendant's
privilege to interfere must show that the defendant acted with a
desire to harm which is independent of and unrelated to the
defense of the property interest that he is trying to protect.
HPI Health Care Services, 131 Ill. 2d 145, 545 N.E.2d 672; Ray
Dancer, Inc., 230 Ill. App. 3d 40, 594 N.E.2d 1344; Kendle, 196
Ill. App. 3d 703, 554 N.E.2d 1008. The plaintiff's amended
complaint in the instant case is devoid of any such allegations.
As previously discussed, that complaint establishes Sentinel's
right to notice of the stock pledge and its right to be assured
that a stock pledge and not a stock purchase is the transaction
necessitating the delivery of the stock certificate. Sentinel
actions, at least until May 6, 1991, directly related to its
efforts to protect its interests and those of its other
shareholders in the stock ownership of the company. Sentinel was
not required to deliver the stock certificate until it was
assured that the transfer was made pursuant to a pledge and not a
sale.
The period of May 6, 1991 through December 4, 1991, when
Joshi's shares of stock were not subject to any lien,[fn1]
requires a different conclusion. There are no facts alleged in
the plaintiff's complaint which would justify Sentinel's failure
to deliver the stock certificate after May 6, 1991. On that
date, Sentinel allegedly had the documentation necessary to
assure itself and its other shareholders that Joshi had entered
into a valid stock pledge agreement seeking to pledge his
Sentinel common stock as collateral for a loan made to him by
Guice. Nothing else is alleged which would suggest that
Sentinel's failure to act upon the May 6, 1991 request for
delivery of the stock certificate was privileged; and, as a
result, the plaintiff was not required to plead actual malice.
See generally Prosser & Keeton, Torts 15, at 100 (5th ed. 1984)
(after reasonable time for investigation "defendant is required
to make up his mind and becomes liable as a converter if he
refuses to deliver to the rightful claimants).
The plaintiff was, however, required to plead facts showing
intentional interference with contract. He argues that he did so
with allegations that Sentinel voiced no objection to the pledge
agreement and after all notice provisions of the stock
restriction agreement were complied with "continued to refuse to
deliver over to Plaintiff the Pledged Shares although they were
not subject to any lien, limitation or restriction on transfer."
Sentinel responds that the communications alleged to have
occurred from Sentinel could not be characterized as a "refusal."
Sentinel may be correct that the only communication from
Sentinel, the March 18, 1991 letter from Sentinel's president,
could not be viewed as a refusal since it requested copies of the
documents evidencing Joshi's stock pledge. However, that fact
does not negate plaintiff's further allegation that after
receiving the documents, Sentinel did not deliver the stock
certificate to Guice. This alleged failure to deliver supports
plaintiff's allegation of refusal to deliver, at least at the
pleading stage. Moreover, allegations that the failure to
deliver occurred despite the permissibility of stock pledges and
despite compliance with all the prerequisites for such pledges,
factually suffices as an allegation of intentional interference.
Of course, if Sentinel can plead and prove the existence of other
unfulfilled prerequisites or other legitimate and protectible
interests or that its failure to deliver was negligent rather
than intentional, plaintiff's cause of action could later fail on
those grounds.
Sentinel argues that the plaintiff's amended complaint did
not adequately allege that Sentinel's conduct caused plaintiff to
suffer damages. In support of this contention, Sentinel cites to
plaintiff's allegation that "as a result of the execution of the
Pledge Agreement by Joshi, his assignment of his stock, and the
notice provided to Sentinel, Plaintiff held a perfected security
interest." According to Sentinel, if, as the plaintiff alleges,
Guice perfected his security interest, then the plaintiff
suffered no damages. We disagree. While Sentinel is correct
that one paragraph of the amended complaint alleged that
plaintiff held a perfected security interest, when the complaint
is viewed in its entirety, no such conclusion can be made. In
accordance with the provisions of the Uniform Commercial Code
(810 ILCS 5/1-101 et seq. (West 1996)), which were cited in
plaintiff's complaint, a creditor cannot perfect his security
interest in stock without having possession of the collateral.
810 ILCS 5/8-321 (West 1996). Moreover, it is readily apparent
from a reading of plaintiff's entire complaint that the plaintiff
did not have a perfected security interest because he did not
have possession of the stock certificate due to Sentinel's
failure to deliver the stock certificate to him. That lack of a
perfected security interest resulted in Guice's being denied
secured creditor status by the trustee of Joshi's bankruptcy
estate. Thus, a causal connection between Sentinel's conduct and
Guice's injury was sufficiently alleged.
Finally, Sentinel contends that plaintiff's amended
complaint was insufficient in that it did not allege Sentinel's
knowledge of the pledge agreement. Specifically, Sentinel argues
that its knowledge was premised on "belated 'notice'" of the
pledge agreement delivered in writing to Sentinel in the Spring
of 1991, more than one and one-half years after the pledge
agreement was executed. First, we note that Sentinel has waived
any argument in this regard by failing to cite authority in
support thereof. 155 Ill. 2d R. 341(e)(7), (f) ("[a]rgument
shall contain citation of the authorities"). See Vernon Hills
III Limited Partnership v. St. Paul Fire & Marine Insurance Co.,
287 Ill. App. 3d 303, 678 N.E.2d 374 (1997); Bank of Illinois v.
Thweatt, 258 Ill. App. 3d 349, 630 N.E.2d 121 (1994). Second, we
would reject Sentinel's argument on its merits since, for
purposes of setting forth a cause of action for intentional
interference with contract, the plaintiff must only allege
knowledge by Sentinel of the pledge agreement. The date upon
which that knowledge was acquired by Sentinel is irrelevant
provided acquisition of that knowledge preceded the alleged
conduct of interference. As discussed above, the only period of
time with which an intentional interference with contract claim
can be lodged by the plaintiff against Sentinel is that period
occurring after Sentinel received the documentation evidencing
the Joshi's stock pledge agreement with Guice, namely after May
6, 1991.
II. Punitive Damages
The plaintiff next argues that his punitive damages count
(count II) should not have been dismissed on the basis that it
did not set forth an independent cause of action. The plaintiff
concedes that punitive damages represents a type of relief and
not a cause of action. See McGrew v. Heinold Commodities, Inc.,
147 Ill. App. 3d 104, 497 N.E.2d 424 (1986). He also concedes
that his count II does not set forth a separate cause of action
but merely seeks additional relief premised on additional acts of
misconduct, from the relief sought and the acts pled in count I.
Plaintiff's count II pleads a cause of action for intentional
interference with contract by incorporating count I into count II
and seeks additional relief based on the additional allegation of
malice.
Regardless of the question of the formal pleading
requirements with respect to punitive damages, the dismissal of
the punitive damages count is warranted here because the
allegations insufficiently plead entitlement to such damages.
Plaintiff's sole allegation which could support a punitive
damages award is that Sentinel's "refusal to honor the request
for transfer of stock to Plaintiff was malicious and purposely
done with intent to harm Guice who Sentinel was forced to buy-out
on terms not necessarily favorable to Defendant." This
allegation is conclusory and does not sufficiently allege
wrongful conduct that would entitle one to an award of punitive
damages. Instead it presents a bare assertion of malice without
supporting factual allegations. See HPI Health Care, 131 Ill. 2d 145, 545 N.E.2d 672 (finding allegation of actual malice to be
conclusory and factually insufficient). In order to be entitled
to punitive damages, one must allege outrageous conduct, acts
perpetrated by evil motive or with reckless indifference to the
rights of others. Reuben H. Donnelley Corp. v. Brauer, 275 Ill.
App. 3d 300, 655 N.E.2d 1162 (1995). See Duignan v. Lincoln
Towers Insurance Agency, Inc., 282 Ill. App. 3d 262, 667 N.E.2d 608 (1996). Punitive damages should not be awarded if the
defendant's misconduct is not above and beyond the conduct needed
for the basis of the underlying cause of action. Parsons v.
Winter, 142 Ill. App. 3d 354, 491 N.E.2d 1236 (1986). Here, the
only allegation that would suggest evil motive is that Sentinel
was perhaps acting vengefully because it was forced to buy-out
Guice on terms not necessarily favorable to Sentinel. However,
as was earlier alleged, the buy-out occurred one year before
execution of the pledge agreement by Guice and Joshi. Moreover,
no specific facts were alleged to suggest how the buy-out was
"less than favorable" to Sentinel. Absent any such further
allegations, plaintiff has not sufficiently pled a cause of
action upon which punitive damages can be awarded. See Wait v.
First Midwest Bank, 142 Ill. App. 3d 703, 710, 491 N.E.2d 795,
802 (1986) ("[t]he mere addition of the phrase 'willful and
wanton' *** is insufficient to allege reckless misconduct
necessary to support an allowance of punitive damages").
III. Conversion
Plaintiff's conversion count alleged that Guice was entitled
to possession and custody of the pledged shares and that
Sentinel, wrongfully and without legal justification, maintained
custody and possession of the pledged shares in contravention of
plaintiff's immediate and absolute right to possession of the
pledged shares. Plaintiff further alleged that he was damaged by
the wrongful possession in that he was denied the collateral to
which he was otherwise entitled which prevented him from
obtaining value for his security interest in the pledged shares.
To properly plead a cause of action for conversion, one must
allege: (1) an unauthorized and wrongful assumption of control,
dominion, or ownership by defendant over the property of
plaintiff; (2) plaintiff's right in the property; (3) plaintiff's
right to immediate possession of the property, absolute or
conditional; and (4) demand by plaintiff for possession of the
property. E.g., Fonda v. General Casualty Co., 279 Ill. App. 3d
894, 665 N.E.2d 439 (1996); Craig v. Citicorp Savings, 219 Ill.
App. 3d 142, 578 N.E.2d 1331 (1991). Where the defendant has
rightfully acquired the property, then demand for the property
and refusal to return must be alleged. Hobson's Truck Sales,
Inc. v. Carroll Trucking, Inc., 2 Ill. App. 3d 978, 276 N.E.2d 89
(1971).
On appeal, the plaintiff argues that his amended complaint
properly pled his right to possession of the stock certificate
and his demand and notice to Sentinel. He cites to several of
his general allegations which were realleged and incorporated
into his conversion count, particularly his allegation that "[a]t
the time the Pledge Agreement was entered into Plaintiff advised
Sentinel of the existence of the Note and Pledge Agreement."
Plaintiff also cites to his allegations concerning the exchange
of written correspondence between Sentinel, Joshi and himself
during the period of February 15, 1991 and May 6, 1991 and his
further allegation that Sentinel's refusal to deliver the stock
certificate was unjustified.
As discussed above with respect to plaintiff's intentional
interference with contract count, the oral notice alleged to have
been given Sentinel "[a]t the time the Pledge Agreement was
entered into" did not entitle plaintiff to possession of the
stock certificate because it did not comply with the stock
restriction agreement's requirement for written notice of the
pledge. As also discussed above, the subsequent written
communications to Sentinel in February and March 1991 were
insufficient in that they lacked transmittal of the documentation
surrounding the pledge agreement between Joshi and Guice which
Sentinel was justified in requesting. However, as further
discussed, it would appear from the allegations in the complaint
and from the exhibits attached thereto that Sentinel had no
further right to withhold the stock certificate once that
documentation was sent to Sentinel on May 6, 1991 and until
December 4, 1991, when Joshi's stock became the subject of
another legal proceeding thereby preventing Sentinel from taking
any action thereafter with respect to Joshi's stock. Thus, as to
the period of May 6, 1991 and December 4, 1991, the plaintiff has
set forth sufficient allegations showing a right to possession of
the stock certificate pursuant to a pledge agreement between
Joshi and himself; demand and proper notice to Sentinel of the
pledge agreement; a right to immediate possession having
satisfied the notice requirement in the stock restriction
agreement; and wrongful possession after demand and proper
notice.
The defendant argues, without citation to authority (see 155
Ill. 2d R. 341(e)(7)) that the plaintiff cannot maintain an
action for conversion because he is not the owner of the stock.
Defendant's argument is baseless. Under general tort principles,
a conversion action can be brought by any person who has the
right to immediate possession of property regardless of whether
that person owns the property. See Fonda, 279 Ill. App. 3d 894,
665 N.E.2d 439 (wherein assignee of creditor with security
interest in debtor's office equipment brought conversion action
against insurance company for wrongful payment of insurance
proceeds to debtor after fire loss to property). See generally,
Restatement (Second) of Torts 225 (1965) (converter is liable to
one who at the time is entitled to possession of the chattel); 18
Am. Jur. 2d Conversion 75, at 197 (1985) (the person bringing a
conversion action may be the owner of the property or one
entitled to possession), 63, at 188 (action for conversion may
be maintained by a person entitled to promissory note although
legal title to note and right to sue for money due thereon are in
another); W. Keeton, Prosser & Keeton on Torts 15 at 104 (5th
ed. 1984) ("the common law has been extended to permit recovery
by one who had the immediate right to possession, as in the case
of a bailor entitled to possession on demand, or a chattel
mortgagee or conditional seller after default"). Since the
plaintiff can maintain an action for conversion and since we have
held that the plaintiff's amended complaint sufficiently pled the
elements of that action, in so far as it alleged a right to
possession and a wrongful and unjustified failure to deliver the
stock certificate during the period of May 6, 1991 to December 4,
1991, the trial court erred in dismissing that count.
For the foregoing reasons, the judgment of the Circuit Court
of Cook County is reversed and remanded for further proceedings.
Reversed and remanded.
COUSINS, P.J. and LEAVITT, J., concur.
[fn1]The plaintiff seems to concede that Sentinel could not
deliver the stock certificate after December 4, 1991 and until
September 23, 1992 when Joshi's stock was the subject of another
legal proceeding. According to exhibits attached to plaintiff's
first amended complaint, the trial court in that action denied
that plaintiff's request for a turn over order of Joshi's
Sentinel stock finding that Guice, who intervened in that action,
had a superior interest to the stock.
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