Ransom v. A.B. Dick Co.

                                             FIFTH DIVISION
                                             June __, 1997









No. 1-95-0953

FLOYD RANSOM, RANSOM S.A. de C.V.,      )    Appeal from the 
A Mexican Corporation, and ANGEL        )    Circuit Court of
SAYAGO M., Trustee of RANSOM S.A.       )    Cook County.
de C.V. In Bankruptcy,                  )
                                        )
     Plaintiffs-Appellants/             )
     Cross-Appellees,                   )    
                                        )
                                        )
v.                                      )    No. 87 L 12284
                                        )
A.B. DICK CO., An Illinois Corporation, )                        
                                        )
     Defendant-Appellee/                )    Honorable
     Cross-Appellant                    )    Michael Gallagher,
                                        )    Judge Presiding.    


     JUSTICE HOURIHANE delivered the opinion of the court:
     Plaintiffs, Floyd Ransom, Ransom S.A. de C.V., a Mexican
corporation, and Angel Sayago, as the trustee in bankruptcy of
Floyd Ransom S.A. de C.V., brought an action for breach of
contract, breach of fiduciary duty and interference with
prospective economic advantage against the defendant, A.B. Dick
Co. (A.B. Dick), an Illinois corporation.  Defendant answered and
counterclaimed seeking enforcement of two promissory notes
executed by plaintiffs and payment of an outstanding account.  A
trial was held and the jury returned verdicts (1) awarding
plaintiffs $1,050,000 on their breach of fiduciary duty claim,
(2) finding for defendant on all of plaintiffs' other claims, and
(3) awarding defendant $1,076,830.52 on its counterclaim.  The
verdict for the plaintiffs was offset against the verdict for the
defendant and defendant was awarded $26,830.52.  Plaintiffs now
appeal from the denial of their post-trial motions and from those
verdicts in defendant's favor.  Defendant has also filed a cross-
appeal from the judgment for the plaintiffs on their breach of
fiduciary duty claim.
     On appeal, plaintiffs seek resolution of the following
issues: (1) Whether the trial court abused its discretion when it
refused to grant comity to the Mexican Bankruptcy Court; (2)
Whether the trial court committed reversible error in allowing
evidence of post-bankruptcy interest on the promissory notes and
subsequently directing the jury to award interest on those notes;
and  (3) Whether the trial court abused its discretion in
offsetting the verdicts.
     On cross-appeal, defendant argues that the verdict awarding
plaintiff $1,050,000 was against the manifest weight of evidence.
                                BACKGROUND
     The relationship between the parties began in 1968 when
Ransom S.A. de C.V., a Mexican corporation engaged in the
business of selling office equipment and supplies, obtained the
exclusive rights to sell the reprographic and copier products of
defendant, A.B. Dick, in Mexico.  This functional arrangement
derived from two agreements between the parties.  First, on
December 31, 1968, representatives of Ransom S.A. de C.V. and
those of a Mexican subsidiary of A.B. Dick entered into an
agreement to form a joint venture (Ransom A.B. Dick S.A. de
C.V.).  This agreement specifically provided that Ransom S.A. de
C.V. would buy 51% of the stock of A.B. Dick's Mexican subsidiary
and together the parties would attempt to expand A.B. Dick's
share in the Mexican market.  Second, on February 23, 1970 the
parties entered a "Distributor Sales and Customer Service
Contract" which provided that Ransom A.B. Dick S.A. de C.V. would
be the exclusive distributor of A.B. Dick's products in Mexico.   
     After several years of successful and profitable operation,
Floyd Ransom and Sons, the owners of Ransom S.A. de C.V.,
purchased defendant's 49% interest in the joint venture. 
Additionally, at this time the distributorship agreement between
the parties was amended to include a five-year exclusive
distributorship term with one automatic five-year renewal. 
Following this change in ownership, A.B. Dick representatives
regularly attended Ransom A.B. Dick S.A. de C.V. business
meetings and were furnished with the company's financial and
business plans.
     On August 31, 1976, the government of Mexico announced a
devaluation of the peso.  As a result, Ransom A.B. Dick S.A. de
C.V. experienced an increase of debt and an increase in expenses
associated with buying the defendant's products.  In response,
the Ransom family merged their various business ventures into a
single entity, Ransom S.A. de C.V. (hereinafter "Ransom
company").  Financial difficulties plagued the Ransom company in
the following years.  During this time, A.B. Dick guaranteed a
loan to Ransom company which was used to pay A.B. Dick.  By 1980,
the Ransom company had recovered from the 1976 devaluation of the
peso and was performing to the satisfaction of the defendant
under the distributorship agreement.
     In February of 1982 the Mexican government again devalued
the peso.  As a result, Ransom company faced another
instantaneous increase of debts and expenses.  Subsequent
devaluations of the peso in the following years worsened the
Ransom company's financial situation.   In order to allay
defendant's concerns, the Ransom company paid a part of its debt
to defendant and obtained a loan for $350,000 from the El Paso
National Bank which it used to satisfy its outstanding debt to
defendant.  Defendant again guaranteed this loan.
     During this period of financial difficulties,
representatives of A.B. Dick continued to attend Ransom company
meetings and provided advice for solving its debt problems.  A.B.
Dick also sent Clifford Mack, its chief financial officer, to
assist Ransom company in developing a business plan and
prospectus to attract new investors.  Around the same time, Mack
wrote a letter to defendant which stated that it was "important
to keep distributor alive as no other alternative distributor
[has been] found as yet."  When Ransom company became further
indebted, representatives of the defendant advised that Ransom
company should again refinance its debt rather than file for
bankruptcy.  In 1984, the promissory note was reissued by El Paso
National Bank for $277,083.34 and defendant again guaranteed the
loan (hereinafter known as "El Paso Bank Note").  A second
promissory note was issued for the remaining $192,837 that
plaintiff owed to defendant (hereinafter "Ransom Note").  
     The Ransom company continued as the defendant's exclusive
distributor and was able to stay current on its interest payments
for a short time.  However, in 1985 Ransom company again
experienced financial problems.  On September 5, 1985, Ransom
company sought and received a declaration of "suspension of
payments" from the Mexican Bankruptcy Court.  In November of 1985
Ransom company did not make the required interest payments on the
El Paso Bank Note, and the bank sent Ransom company a notice of
default which indicated the bank's intention to accelerate the
debt.  Thereafter, defendant paid the balance on the note and was
assigned the bank's interest.  
     At about the same time, defendant instructed one of its
employees, Rafael Alleguez,  to assist Ransom company in finding
a buyer for the company.  Alleguez put Ransom company
representatives in contact with Sanchez Y Compania (hereinafter
"Sanchez company").  Ransom met with representatives of the
Sanchez company and provided them with a variety of information
on the Ransom company.  At the conclusion of their meetings and
discussions with the Ransom company, representatives of the
Sanchez company indicated no interest in the investment in, or
purchase of, the Ransom company.
     In March of 1986, defendant informed plaintiff that they
intended to secure a new distributor of its products, and on July
14, 1986, defendant appointed the Sanchez company as the new
exclusive distributor of defendant's office products.     
     On November 4, 1986, defendant presented a claim to the
Mexican Bankruptcy Court for the El Paso note.  On June 4, 1987,
Ransom company filed a three-count complaint against the
defendant in the Circuit Court of Cook County alleging a
violation of the Illinois Franchise Disclosure Act, inequitable
conduct in the course of dealings, and fraud.  On December 10,
1987 the Ransom company petitioned the Mexican court for
conversion to bankruptcy.  On March 7, 1988, the Mexican
Bankruptcy Court declared Ransom company in a state of bankruptcy
and appointed Angel Sayago M. as receiver.  This order of the
Mexican court also prohibited Ransom company from making any
payments to or transferring assets to creditors.  
     On March 22, 1989, Ransom company filed a second amended
complaint in the Circuit Court of Cook County alleging violations
of the Franchise Act, breach of contract, breach of fiduciary
duty and intentional interference with prospective economic
advantage.  Defendant answered and filed a counterclaim seeking
principal and interest on a remaining open account and on the El
Paso and Ransom notes.
     Plaintiffs subsequently moved to dismiss the counterclaim
alleging that defendant's counterclaims were inappropriate
because the claims had already been filed with, and acknowledged
and prioritized by, the Mexican Bankruptcy Court.  Plaintiffs'
motion was denied.  Plaintiffs' refiled the same motion before a
second judge and it was granted.
     Immediately before trial, however, a third judge hearing the
case allowed the defendant to reinstate its counterclaim based on
the promissory notes.  In reaching his determination, the trial
judge stated:
          "It does seem to me to be equitable [sic] to allow
     someone to bring in a company and not allow them to
     counterclaim.  Especially when one of the arguments you
     made in your brief, Mr. Bayless, was you know how
     unfair is it [sic] that a nonresident can come in and
     sue a resident and the resident is forbidden or
     prohibited or barred from bringing a counterclaim ***.
          But I do think it is a waste of effort for
     everybody to have a trial on the very same transactions
     and not get rid of the whole thing and resolve all of
     the dispute.  So I am going to reinstate the
     counterclaim and grant your motion."
          At the subsequent trial, defendant was allowed to introduce
evidence of the interest that had accrued on the notes in
question, and the trial court instructed the jury that the
interest on the notes should be awarded if the jury found in the
defendant's favor on the counterclaim.  The jury returned a
verdict of $1,050,000 for the plaintiff on its breach of
fiduciary duty claim against the defendant.  The jury also
returned verdicts totaling $1,076,830.52 for defendant on its
counterclaims.  The trial court then offset defendant's verdicts
against plaintiffs' verdict and entered judgment for defendant
for $26,830.32.      
                                DISCUSSION
                            Plaintiffs' Appeal
     On appeal, plaintiffs contend that the trial court abused
its discretion when it allowed the defendant to reinstate its
counterclaim.  Plaintiffs assert that because defendant's
counterclaim was based on promissory notes and other debt which
had been "adjudicated" by the Mexican Bankruptcy Court, under the
doctrine of comity, the trial court should have afforded
deference to the ruling of the Mexican court and denied
defendant's request to reinstate its claims.
     While the doctrine of comity is one which has long been
accepted by the courts in this state (Nelson v. Hix, 122 Ill. 2d 343, 522 N.E.2d 1214 (1988); Rollins v. Ellwood, 141 Ill. 2d 244,
565 N.E.2d 1302 (1990)), the specific questions presently raised
regarding the application of that doctrine do not appear to have
been previously broached.  In the absence of guidance from our
courts on this issue, we look to the manner in which courts from
other jurisdictions have resolved similar issues.  
     Comity is a rule of practice through which a court in this
state may take notice of, and defer to, the laws and judicial
decisions of a foreign jurisdiction out of respect, goodwill and
cooperation. Schoeberlein v. Purdue University, 129 Ill. 2d 372,
378, 544 N.E.2d 283 (1989); Safety-Kleen Corp. v. Canadian
Universal Insurance Co., 258 Ill. App. 3d 298, 306, 631 N.E.2d 475.  Comity is to be accorded an act of a foreign court as long
as that court is of competent jurisdiction and as long as the
laws and the public policy of the forum state are not violated.
Daniels v. Powell, 604 F. Supp. 689 (N.D. Ill. 1985);
Schoeberlein, 129 Ill. 2d  at 378-79.  Illinois courts have
granted comity to the law of a foreign jurisdiction in the
absence of evidence that such recognition would be repugnant to
Illinois policy or prejudicial to Illinois interests. See Hall v.
Woods, 325 Ill. 114, 156 N.E. 258 (1927).  A decision by the
trial court to grant or deny comity will not be reversed absent
an abuse of discretion. Safety-Kleen Corp., 258 Ill. App. 3d at
308.
     In the present case, the trial court abused its discretion
in granting defendant's motion to reinstate its counterclaim and
denying comity without first conducting a hearing.  A
determination of whether to grant comity to the laws of another
jurisdiction necessarily requires an examination of those laws
and their application in order to reach a reasoned decision
regarding its compatibility with the interests and policies of
this state.  Accordingly, we find that the trial court abused its
discretion in making this determination without first undertaking
an examination of the nature and effect of the Mexican Bankruptcy
Code and its compatibility with the interests and policies of
this state. 
     In determining what procedure should be employed by the
trial court when addressing questions of comity related to
foreign bankruptcy proceedings, we find it helpful to examine the
reasoning and procedures employed by federal courts.  In
Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187 (3d Cir. 1994) and Remington Rand Corp.-Delaware v.
Business Systems Inc., 830 F.2d 1260 (3d Cir. 1987) the Third
Circuit Court of Appeals was faced with similar questions
regarding the extension of comity to the rulings of a foreign
bankruptcy court.  In both cases, the court recognized that once
a party had made a specific request for the extension of comity,
a reasoned decision could only follow an ascertainment of the
foreign laws and procedures.  
     In Philadelphia Gear the court outlined procedures for
addressing a party's claim that comity should be afforded the
decisions of a foreign bankruptcy court.  First, a party seeking
to stay a proceeding in the federal court based on the existence
of foreign bankruptcy proceedings must present a prima facie case
that the extension of comity is appropriate.  A prima facie case
consists of a demonstration that the foreign bankruptcy court
shares this country's policy of the equal distribution of assets
among similarly situated creditors, and that the foreign law
mandates or permits the issuance of a stay of all proceedings
related to the bankruptcy. Philadelphia Gear, 44 F.3d  at 193.  If
the party seeking the extension of comity makes such a showing,
the court should consider the matter further, and in doing so,
may have to conduct an evidentiary hearing with expert witnesses
to ascertain foreign law and procedures. Philadelphia Gear, 44 F.3d  at 193-94.  The specific questions to be answered by the
trial court during this more exacting inquiry include: (1)
whether the foreign court is a duly authorized tribunal; (2)
whether the foreign bankruptcy law provides for the equal
treatment of creditors; (3) whether a stay of the action in the
United States would be in some way inimical to this country's
policy of equality; and (4) whether the non-moving party will be
prejudiced by the stay.  Philadelphia Gear, 44 F.3d  at 193-94.    
     While we do not feel compelled to adopt the particular
procedure outlined by the court in Philadelphia Gear, we
nonetheless find the reasoning of that decision persuasive and
the procedure instructive.  Accordingly, we hold that a party in
the courts of this state seeking the extension of comity to the
proceedings of a foreign bankruptcy court must make a minimal or
prima facie showing of the existence of such proceedings along
with a showing that those proceedings, should they be recognized
in this state through the extension of comity, would have an
effect on the claim before the court, i.e., that a stay is in
effect and would foreclose the current claim. 
     Once a party has made such a showing, the trial court should
conduct an evidentiary hearing, when necessary, in order to
determine whether the law of that jurisdiction offends the public
policy of Illinois or the general interests of its citizens.  At
this stage, it is appropriate for the court to consider the
similarity of objectives between the foreign bankruptcy laws and
those of the United States as well as whether the grant of comity
will prejudice the non-moving party.  Additionally, the trial
court should memorialize the factual basis of its decision in
order to permit subsequent review.
     In the present case, after the defendant filed his
counterclaim in the trial court, plaintiffs filed a motion to
dismiss pursuant to section 2-619 of the Code of Civil Procedure
(735 ILCS 5/2-619 (West 1994)) alleging that principles of comity
foreclosed the claim.  Plaintiffs' initial motion was denied. 
Plaintiffs subsequently refiled the motion when the cause was
before a different trial judge and it was granted.  Thereafter, a
third judge sitting on the case allowed the defendant to
reinstate their counterclaim over plaintiff's objections.
     In the course of arguing this motion for the third time,
plaintiffs clearly asserted the existence of the Mexican
Bankruptcy Court proceedings and argued that application of
Mexican bankruptcy law would foreclose defendant's counterclaim
because of a stay provision similar to that contained in the
bankruptcy laws of the United States.  Accordingly, plaintiffs
met the threshold requirement and established a prima facie case
for the extension of comity and the recognition of, and deference
to, the authority of the Mexican Bankruptcy Court.  It was
therefore incumbent upon the trial court to examine the nature
and provisions of the Mexican bankruptcy laws and determine
whether they in some way offended the policies of this state. 
Because the trial court failed to conduct such an evaluation, we
must remand this matter to the circuit court. 
     Pursuant to this court's equitable powers under Supreme
Court Rule 366 (155 Ill. 2d R. 366), we vacate the order of the
trial court which reinstated defendant's counterclaim, remand
this matter to the circuit court for a hearing and determination
on the issue of comity and retain jurisdiction pending that
decision.  Thereafter, the parties will be permitted to
supplement their briefs for our further consideration of the
comity issue.                        
                         Defendant's Cross-Appeal
     On cross-appeal, defendant contends that the jury award of
$1,050,000 to plaintiffs on their breach of fiduciary duty claim
was against the manifest weight of evidence.  Defendant argues
that there was a complete absence of evidence to support a
finding that it owed a fiduciary duty to Ransom company or that
it breached any such duty proximately resulting in damages of
$1,050,000 to Ransom company.
     A fiduciary relationship may arise in one of two ways. 
Particular relationships, such as attorney-client and principal-
agent, constitute fiduciary relationships as a matter of law. See
Gunther v. Commonwealth Edison Co., 126 Ill. App. 3d 595, 467 N.E.2d 1104 (1984); Restatement (Second) of Agency 1, 13, at 7,
58-60 (1958).  Additionally, a fiduciary relationship and the
attendant duties may arise as a result of the special
circumstances of the parties' relationship, where one party
places trust in another so that the latter gains superiority and
influence over the former. In re Estate of Rothberg, 176 Ill.
App. 3d 176, 530 N.E.2d 1148 (1988); State Security Insurance Co.
v. F.B. Hall & Co., 258 Ill. App. 3d 588, 630 N.E.2d 940 (1994). 
When the relationship is not one which gives rise to a fiduciary
duty as a matter of law, the party asserting its existence has
the burden of establishing such by clear and convincing evidence.
State Security Insurance Co., 258 Ill. App. 3d at 595.
     As defendant correctly notes, ordinarily in a business
transaction each party guards his own interests and no fiduciary
duty exits. State Security Insurance Co., 258 Ill. App. 3d at
598.  Moreover, a distributorship arrangement does not, as a
matter of law, give rise to a fiduciary duty. Seaboard Seed Co.
v. Bemis Co., 632 F. Supp. 1133 (N.D. Ill. 1986).  Accordingly,
plaintiffs in the present case had the burden of establishing the
existence of a fiduciary relationship by clear and convincing
evidence.   
     The relevant factors in determining whether a fiduciary
relationship exists include: the degree of kinship between the
parties; the disparity in age, health, mental condition and 
education and business experience between the parties; and the
extent to which the "servient" party entrusted the handling of
its business affairs to the "dominant" party and placed trust and
confidence in it. State Security Insurance Co., 258 Ill. App. 3d
588.  Moreover, a fiduciary duty can arise if the dominant party
agrees to exercise its judgment on behalf of the servient party.
De Witt County Public Building Commissioner v. County of De Witt,
128 Ill. App. 3d 11, 26, 469 N.E.2d 689 (1984).
     The plaintiffs argue on appeal that there was sufficient
evidence to support a finding that, by virtue of the intimate
working relationship between Ransom company and defendant, a
fiduciary relationship arose along with the attendant duty of the
defendant to exercise utmost care, candor, loyalty and good faith
in its dealings with Ransom company.  Plaintiffs point to
defendant's access to Ransom company's business plans, attendance
and participation in its business meetings, extension of credit
and a variety of other facts relating to their relationship in
support of their claim that the parties had a special
relationship.  
     The record contained sufficient evidence to support a
finding by the jury that defendant owed a fiduciary duty to the
Ransom company.  The history of this relationship reveals that
the defendant's representatives regularly attended Ransom company
business meetings, were privy to its business plans and provided
credit and guaranteed financial obligations of the company. 
Additionally, after the 1982 devaluation of the peso,
representatives of the defendant attended monthly meetings where
they made recommendations for resolving Ransom company's debt
problem and advised against filing for bankruptcy.  Defendant 
assigned its chief financial officer, Clifford Mack, to help
Ransom company attract new investors.  During the same period of
time that Mack was helping Ransom company develop a plan, Mack
prepared a letter to defendant which advised the defendant that
it was "important to attempt to keep distributor alive as no
other alternative distributor [has been] found as yet".  Mack
analyzed Ransom company's debt situation and proposed outlines
for a prospectus designed to attract investors.  Thereafter,
defendant asked Ransom company to refinance its debt and again
guaranteed a loan from El Paso.  
     Once Ransom company went into suspension of payments,
defendant directed Rafael Alleguez to assist Ransom in finding a
buyer.  Alleguez directed Ransom company to contact Sanchez Y
Compania as a prospective buyer.  Ransom representatives
contacted the Sanchez company and gave them detailed information
regarding Ransom company customers and its internal operations. 
A short time later, defendant appointed the Sanchez company as
the new distributor.
     Based on these facts, the jury could reasonably conclude
that a special relationship existed between defendant and Ransom
company and that the defendant breached its fiduciary duty to the
Ransom company when it artificially prolonged the existence of
Ransom company until it could find a new distributor. Therefore,
we cannot say that the verdict was against the manifest weight of
the evidence.  Zavala v. St. Regis Paper Co., 256 Ill. App. 3d
736, 628 N.E.2d 405 (1993).    
     Likewise, there is sufficient evidence in the record to
support the amount of the award as there was testimony that the
A.B. Dick division of the Ransom company was valued at $2,000,000
prior to its bankruptcy.  The assessment of damages is a question
of fact for the jury.  While the amount awarded may not be
speculative, it does not need to be proved with mathematical
certainty.  Mohr v. Dix Mutual County Fire Insurance Co., 143
Ill. App. 3d 989, 493 N.E.2d 638 (1986).  The jury must bring in
a verdict which is in the range of valuation testimony presented.
City of Benton v. Odom, 123 Ill. App. 3d 991, 463 N.E.2d 785
(1984).  Here, the amount awarded plaintiffs was clearly within
the range of valuation testimony presented at trial.  
                                Conclusion
     Due to our ruling above, we believe that it would be in the
interest of judicial economy for this court to retain
jurisdiction over the remaining issues on appeal until such time
as the trial court conducts a hearing and rules on the issue of
comity.  If the trial court rules that the doctrine of comity
forecloses defendant's counterclaim, issues presently raised but
not addressed on appeal will become moot.  If, however, the trial
court determines that granting comity would be inappropriate, we
may consider that ruling along with all of the other errors
already raised on appeal but not addressed in this opinion.
     Accordingly, pursuant to the powers granted this court by
Supreme Court Rule 366(a)(5) (155 Ill. 2d R. 366), we affirm the
judgment for the plaintiff in the amount of $1,050,000; direct
the circuit court to stay enforcement of that judgment; remand
this case to the circuit court with directions that a hearing be
held solely on the issue of whether the court should afford
comity to the Mexican bankruptcy proceedings; and retain
jurisdiction.  
     Affirmed in part and remanded with directions.