Johnson v. Servicemaster Industries, Inc.

627 N.E.2d 1, 254 Ill. App. 3d 353
CourtAppellate Court of Illinois
DecidedDecember 18, 1992
DocketNos. 1—91—2739, 1—91—3567 cons.
StatusPublished
Cited by2 cases

This text of 627 N.E.2d 1 (Johnson v. Servicemaster Industries, Inc.) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Johnson v. Servicemaster Industries, Inc., 627 N.E.2d 1, 254 Ill. App. 3d 353 (Ill. Ct. App. 1992).

Opinion

PRESIDING JUSTICE EGAN

delivered the opinion of the court:

This is an appeal by the plaintiffs from an order granting summary judgment to the defendants. The plaintiffs sued their defendant employers alleging a breach of a particular provision of an employment agreement. In granting summary judgment the trial judge held as a matter of law that the agreement was to be interpreted in the manner advanced by the defendants.

The plaintiffs, Jack Baker, Douglas Carr, Merle Wratislaw and Arlo Johnson, were officer employees of the defendant ServiceMaster Industries, Inc. (ServiceMaster), a Delaware corporation, which provided management services to health care, educational and industrial facilities and cleaning services to residential customers. The plaintiffs began working for ServiceMaster at different times: Wratislaw in 1967, Carr and Johnson in 1970 and Baker in 1977.

In August 1979, the plaintiffs entered into a stock purchase program with other ServiceMaster officers. Under this plan, commonly known as the “487 Plan,” the plaintiffs were allowed to purchase a certain number of shares of ServiceMaster stock from the corporation; the number of shares subsequently increased as the result of stock splits. In addition to the stock he received under the 487 Plan, Baker participated in another stock program for select officers of ServiceMaster. As a result of these programs, the plaintiffs’ stock situation was as follows:

Initial Number
Plaintiff of Shares Number of Shares 12/30/86
Carr 2,000 10,125
Johnson 5,500 20,045
Wratislaw 3,000 15,187
Baker (1979) 3,000 15,187
(1981) 10,000 22,500

The plaintiffs and ServiceMaster executed two documents, both of which were drafted by ServiceMaster. The first document was entitled “Stock Subscription and Purchase Agreement”; the second document was entitled “Call Agreement.” ServiceMaster gave each of the plaintiffs a disclosure statement summarizing the two agreements. The summary stated that the rights and obligations under the 487 Plan were governed by the precise language contained in those agreements.

Under the Purchase Agreement, the participant would purchase a specified amount of ServiceMaster stock from the corporation. The purchase price was the market price at the time of the agreement. The participant could pay for the stock in a lump sum or installments which could be extended over a 15-year period. Under section 7 of the agreement, ServiceMaster had the right to “assign any or all of its rights and obligations under th[e Purchase Agreement] to any other person.”

The Call Agreement gave ServiceMaster the right to repurchase this stock under certain circumstances. Section 2 of the Call Agreement provided that ServiceMaster could repurchase a certain percentage of the issued shares at the original issue price from a participant who had suffered a triggering termination. A triggering termination would occur if the participant’s employment with ServiceMaster was terminated for any reason whatsoever. This provision listed several exceptions to the broad termination language, including a retirement exception. The precise percentage of shares which ServiceMaster could repurchase was determined by the length of the participant’s employment. The percentage of stock which could be repurchased by the corporation declined as the length of service increased. Termination during the following periods resulted in the following call percentages:

Between the 5- and 10-year anniversary of the Call Agreement 80%
Between the 10- and 11-year anniversary 60%
Between the 11- and 12-year anniversary 50%
Between the 12- and 13-year anniversary 40%
Between the 13- and 14-year anniversary 30%
Between the 14- and 15-year anniversary 20%
After the 15- year anniversary 0%

Section 6 of the Call Agreement allowed ServiceMaster to assign . the right to repurchase the shares issued under the plan in limited circumstances. The interpretation of section 6 is the heart of this lawsuit, and we will discuss it in detail later.

After the Purchase Agreement and the Call Agreement were executed, ServiceMaster issued the shares to the plaintiffs under Plan 487. Baker received his additional shares under the other plan in September 1983. At the time of the issuance, at least three of the plaintiffs executed a stock issue agreement in order to comply with securities laws and to acknowledge a lump sum payment of the purchase price through a financing agreement. Under a financing agreement with Harris Trust & Savings Bank, the participant could borrow money to make the purchase and sign a demand note held by Harris.

In 1986, the management of ServiceMaster proposed that Service-Master Industries, Inc., be liquidated before January 1, 1987, to take advantage of an expiring Federal tax code provision. Under this proposal, the business conducted by ServiceMaster Industries, Inc., would be taken over through an assignment of assets and assumption of liabilities by two limited partnerships. These limited partnerships would be managed by a corporation which would act as a general partner for the partnerships. The board of directors of the closely held corporation could be expelled only by a majority vote of at least two-thirds of the limited partners.

A proxy statement/prospectus was distributed to the shareholders by ServiceMaster. This document stated that the purpose of the liquidation and change in form was to allow ServiceMaster to operate its business without the payment of corporate income tax. The prospectus encouraged every stockholder to complete the proxy card which accompanied the prospectus.

The prospectus discussed ServiceMaster’s employee benefit plans, including the stock subscription plan, under a section of the document entitled, “Proposed Treatment of Employee Benefit Plans.” This section provided that all employee benefit plans not specifically described in the prospectus would be assumed by the new partnership unless it was necessary to terminate the plan for legal or tax reasons. The prospectus section discussing employee benefits stated that any terminated plans would be replaced with substantially similar employee benefit plans. The accompanying proxy card used similar language but qualified the replacement of terminated plans as “probable.”

In December 1986, the shareholders approved the liquidation plan. Each of the plaintiffs voted in favor of the plan. The plan was implemented by formation under Delaware law of ServiceMaster Limited Partnership and ServiceMaster Company Limited Partnership. ServiceMaster Limited Partnership owned 99% of the profits and losses of ServiceMaster Company Limited Partnership. Shares of ServiceMaster Limited Partnership were publicly traded on the New York Stock Exchange after December 30,1986.

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Cite This Page — Counsel Stack

Bluebook (online)
627 N.E.2d 1, 254 Ill. App. 3d 353, Counsel Stack Legal Research, https://law.counselstack.com/opinion/johnson-v-servicemaster-industries-inc-illappct-1992.