Articles Posted in Closely Held Businesses

Lubin Austermuehle has clients that operate a variety of businesses all across the state of Illinois. While there are common laws and legal principles that apply to all companies and corporations, there are other Illinois statutes that apply to specific types of businesses. Our Elgin business attorneys came across Clark Investments, Inc. v. Airstream , Inc., which is an Appellate Court of Illinois case involving laws that govern motor vehicle dealerships.

Clark Investments, Inc. v. Airstream , Inc. is a dispute between a Recreational Vehicle (RV) manufacturer and an RV dealer over a contractual agreement between the two companies. Initially, the Plaintiff car dealer contracted with Defendant manufacturer to have exclusive rights to sell Defendant’s RV’s in the state of Illinois. The initial contract was for a period of approximately two years, and shortly before the end of that contract Defendant proposed to renew the agreement with different terms. Defendant’s new contract contained no expiration date and gave Plaintiff no exclusive sales territory. Plaintiff rejected this contract and proposed the same exclusivity terms as the first contract, but Defendant rejected Plaintiff’s proposed changes. Shortly after these negotiations, the initial contract expired, but Defendant continued to supply Plaintiff with merchandise and service and Plaintiff continued to operate its business for almost nine months. The parties then entered into a new contract that contained no exclusive sales region for Plaintiff but allowed Plaintiff to sell more types of Defendant’s RV’s. After this new contract was signed, Defendant entered into an agreement with another RV dealership located ninety miles from Plaintiff’s business. This agreement authorized that dealership to sell some, but not all of the same products contained in Plaintiff’s agreement with Defendant.

Upon learning of this new agreement, Plaintiff filed suit against Defendant alleging violations of the Franchise Act and the Franchise Disclosure Act. Defendant then filed a motion for summary judgment on both causes of action, and the trial court granted the motion as to both claims. Plaintiff appealed the court’s ruling as to the Franchise Act claim only, alleging that Defendant’s had violated section 4(e)(8) of the Act by granting an additional franchise within Plaintiff’s relevant market area and refusing to extend the first contract that granted Plaintiff all of Illinois as its exclusive sales territory. The Appellate Court rejected this argument by citing language from the Act that defines the relevant market area as the fifteen mile radius around Plaintiff’s principle location. Because the other franchise was located further than fifteen miles away, there was no violation of the Act.

Plaintiff also argued that Defendant violated section 4(d)(6) of the Act by refusing to extend the first contract that granted Plaintiff an exclusive sales territory of the whole state. The pertinent part of the Act makes it unlawful for a manufacturer
“1) to cancel or terminate the franchise or selling agreement of a motor vehicle dealer,
2) to fail or refuse to extend the franchise or selling agreement of a motor vehicle dealer upon its expiration, or
3) to offer a renewal, replacement or succeeding franchise or selling agreement containing terms and provisions the effect of which is to substantially change or modify the sales and service obligations or capital requirements of the motor vehicle dealer.”

The Court disagreed with Plaintiff’s claim that Defendant’s actions fell within the first category of conduct. The Court explained that Defendant’s conduct fell under the third category because Defendant offered Plaintiff a new contract with different terms before the initial contract expired. They held that the changes in the new contract did not substantially change the sales and service obligations or capital requirements of the Plaintiff, and upheld the lower court’s ruling.

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Most businesses require loans to normalize their income stream and ensure that they have the cash necessary to operate. Some business owners enter into guaranty contracts to get the capital that they need, and in the process become personally liable for the debt of their company. In such instances, disputes often arise when the other party attempts to enforce the guaranty contract to collect on the debt. Lubin Austermuehle has been involved with contract disputes of all kinds, and our Elgin guaranty contract attorneys recently uncovered a case that illustrates why it is important to draft such contracts carefully and enforce them in a timely manner.

In Riley Acquisitions Inc. v. Drexler, Defendant and her husband initially entered into a guaranty contract and promissory note with a third party to get credit for the two companies owned by the couple. Eventually, the marriage dissolved, and each spouse took control of one of the companies. Defendant’s company dissolved shortly thereafter, and Defendant then sent a letter to the third party revoking her personal guaranty. Her ex-husband eventually filed for bankruptcy – discharging his liability under the guaranty in the process, and leaving Defendant as the only guarantor on the loan. The third-party who owned the debt eventually sold and assigned its interest to Plaintiff, who filed suit to collect on the loan. Defendant asserted affirmative defenses that her obligation under the note terminated after her company (the principal on the note) dissolved and that Plaintiff’s claims were barred under the applicable ten-year statute of limitations. Defendant won a directed verdict on the basis of her discharge and statute of limitations defenses, and Plaintiff appealed.

The Appellate Court found that because Defendant’s company dissolved, its obligation on the note terminated five years later under the applicable portion of the Illinois Business Corporation Act of 1983. This effectively terminated Defendant’s liability as well because the guaranty contract did not expressly provide that liability would continue in such a situation. Thus, because Plaintiff filed suit nine years after the dissolution of Defendant’s company, the Court upheld the trial court’s verdict on discharge grounds and did not address the statute of limitations issue.

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No matter what kind of business you own and operate, an unfortunate part of running a company is the inevitable employment disputes with employees. Whether it is an action over wages, job duties, or other issues, many business owners will find themselves in court opposite a current or former employee at some point. Lubin Austermuehle’s Naperville business attorneys know the legal challenges that business owners face, and are always mindful of new case law that affects our clients.

Enterprise Recovery Systems, Inc. v. Salmeron is a decision handed down by the Appellate Court of Illinois earlier this year regarding an employer/employee dispute filed in the circuit court of Cook County. Plaintiff Enterprise Recovery Systems hired Defendant Salmeron as general manager and director of operations for their recovery and resolution of delinquent student loans business. Defendant worked for Plaintiff for four years before being terminated, and she sued Plaintiff for sexual harassment. This case settled, and Defendant signed a broadly worded release containing language that discharged Plaintiff from any other claims arising out of Defendant’s employment with Plaintiff in exchange for $300,000. After this settlement, Defendant Salmeron filed a qui tam action against Plaintiff Enterprise on behalf of the federal government alleging that Enterprise had defrauded the government. The federal government declined to intervene in the qui tam action, and the lawsuit was eventually dismissed with prejudice due to the misconduct of Salmeron’s lawyer, according to the court. Because of issues brought to light in the qui tam action, Plaintiff filed suit against Defendant alleging fraud in the inducement and breach of Defendant’s duty of loyalty to Plaintiff. After the court found repeated misconduct by Defendant’s attorney (which included multiple violations of court orders), the trial court banned Defendant from presenting evidence in her defense of the fraud and breach of fiduciary duty action. Plaintiff then moved for summary judgment on both claims.

Plaintiff’s motion showed that Defendant produced company log reports in the qui tam suit and those reports were stolen from the Plaintiff. Furthermore, Plaintiff alleged that Defendant failed to alert Plaintiff about the supposed illegal conduct of Plaintiff’s employees prior to notifying the government and filing the qui tam lawsuit. Additionally, Plaintiffs contended that Defendant planned to file the qui tam action before signing the release that was a part of the sexual harassment suit settlement. Defendant failed to file a response to the motion for summary judgment, so the court granted the motion. Plaintiff appealed, and the matter was reviewed de novo by the Appellate Court.

The Appellate Court upheld the trial court’s grant of summary judgment as to the fraud in the inducement claim because the court found that Defendant knew she had information for the qui tam case against Plaintiff at the time she negotiated the sexual harassment claim’s settlement and release. Furthermore, the court found that Defendant waited until she had received her last settlement payment before filing the qui tam lawsuit and signed the settlement agreement with no intention of honoring it. The Court upheld summary judgment as to Plaintiff’s breach of the duty of loyalty cause of action because Defendant was a high-level member of Plaintiff’s management team and owed a duty of loyalty to the company. This duty was breached when Defendant sought to profit from information harmful to the company that was obtained through her position of trust within the company. The Court also explained that it was reasonable for Plaintiffs to expect Defendant to neither exploit her position for personal gain nor hinder the business operations of the company

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Trade secrets are the lifeblood of many companies these days, and protecting those secrets is always of the utmost importance. Through our years of experience advising and representing companies, we here at Lubin Austermuehle know how to maintain the security of your trade-secret portfolio and prosecute those who attempt to misappropriate any of your trade secrets. Because employees with trade-secret knowledge come and go with such frequency these days, our Des Plaines trade-secret attorneys wanted to share a recent court decision that illustrates the perils companies face due to departing employees.

In Mintel International Group LTD v. Neergheen, Plaintiff Mintel initially employed Defendant in its London-based marketing department, and upon his hiring, Defendant signed an employment contract that included non-compete and confidentiality restrictive covenants. Defendant was then transferred to Plaintiff’s Chicago office where he signed a second employment contract containing non-compete and confidentiality clauses similar to those in the first agreement. This second contract also contained a clause prohibiting the solicitation of Plaintiff’s employees and customers – all of the clauses were in effect for one year after the cessation his employment with Plaintiff. Defendant eventually left the employ of Plaintiff and began working for a competitor company in a different product area in order to comply with his non-compete. Plaintiff failed to ask Defendant to return the laptop given to him by the company during his exit interview, and also failed to ask him about proprietary information he had emailed to himself prior to his departure – despite knowing that he had taken possession of the information before he left.

Eventually, Plaintiff filed suit against Defendant alleging violations of the Computer Fraud and Abuse Act (CFAA), the Illinois Trade Secrets Act (ITSA), and breach of the non-disclosure, non-compete, and non-solicitation provisions in his employment contract with Defendant. Plaintiff sought injunctive relief and money damages. After a bench trial, the Court found that Defendant had not violated the CFAA because he had only emailed copies of Plaintiff’s files to a private email address, which did not satisfy the damage requirement of the statute. The Court next held that, while the copied files qualified as trade secrets, Defendant did not violate the ITSA because there was no proof that he had or would use the information in his position at a competing company. Finally, the Court found that the restrictive covenants were not invalid as a matter of law, and enjoined Defendant from: ever using any of Plaintiff’s proprietary info, contacting any of Plaintiff’s customers for nine months, or working for his new employer in the same area as he had with Plaintiff for a period of six months.

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Lubin Austermuehle has successfully litigated many business disputes, and in our many years of experience we have found that contract claims are among the most contentious conflicts. Because so many of our clients deal with breach of contract issues, our Elmhurst business attorneys are always mindful of new court decisions issued in this area of the law. In fact, our lawyers just discovered one such case, Jumpfly Inc. v. Torling, in the US District Court for the Northern District of Illinois.

Jumpfly Inc. v. Torling pits a Plaintiff employer against two former employees who allegedly violated the non-compete agreements signed when they were hired by Plaintiff. Plaintiff contends that Defendant Torling started a competing pay-per-click internet advertising side-business while in Defendant’s employ, and upon discovering its employee’s side-business, fired him and sent a cease and desist letter demanding that he stop violating the non-compete. The parties eventually negotiated a settlement allowing Torling to continue his business, but the agreement prohibited him from soliciting any of Plaintiff’s employees. Torling allegedly solicited Defendant Burke — who was working for Plaintiff at the time under a similar non-compete agreement — and got him to quit his position with Plaintiff to work for Defendant Torling.

Plaintiff then filed suit against the two individuals and the new company (Windy City) that they worked for — alleging rescission of a settlement agreement, breach of contract, violations of the Lanham Act and Illinois Deceptive Trade Practices Act, and intentional interference with contract based upon non-compete agreements between the parties. Plaintiff’s requested the Court to enjoin Defendants’ competitive business conduct and for monetary damages. In response, Defendants filed a motion to strike Plaintiff’s request for injunctive relief and filed a motion to dismiss under 12(b)(6).

The Court granted the motion to strike as to the breach of contract claim because the two year term of the non-compete agreement had already expired and an injunction would result in an unreasonable restraint of trade. The Court also noted that Plaintiff’s seven-month delay — after discovery of the illicit conduct — in asking for an injunction also weighed in favor of Defendants. The Court denied the motion to strike as to the statutory claims, however, because injunctive relief is provided by both laws which rendered the motion premature.

Next, the Court granted Defendants’ motion to dismiss the breach of contract and intentional interference with contract claims due to pleading insufficient facts that Defendant Windy City induced either of the individual Defendants to breach their contracts with Plaintiff. In dismissing Plaintiffs conspiracy to interfere with contract, the Court applied the Intracorporate Conspiracy Doctrine and declined to agree with Plaintiff’s argument that Defendants’ conduct fell with in an exception to the rule. Finally, the Court denied the motion to dismiss the settlement agreement breach claim as the effect of Defendants’ breaches had yet to be determined.

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At Lubin Austermuehle, we pride ourselves on staying abreast of changes in the law that may affect our clients, especially those rendered by the highest court in the state. The Supreme Court of Illinois released a new decision not long ago that was picked up by our Lombard business litigation attorneys, and the case is of particular interest to business owners who have personally guaranteed a business loan. In JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. the Court addressed the meaning of the term surety and whether a guarantor falls within that definition under the Illinois Sureties Act.

The initial dispute in JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. arose from a line of credit extended by Plaintiff JP Morgan Chase Bank to Defendant Earth Foods. The loan was personally guaranteed by the three co-owners of Earth Foods, and three years after the line of credit was first extended, Earth Foods defaulted on the loan. Plaintiff then filed a lawsuit against both the company for breach of contract and the co-owners as guarantors of the defaulted loan. The individual Defendants asserted an affirmative defense that the guaranty obligation was discharged under the Sureties Act because the Act applies to both guarantors and sureties and the law does not distinguish between the two. Plaintiffs then filed a motion for summary judgment, which was granted by the trial court. In granting the motion, the court held that the individual Defendants were guarantors and the Act only applied to sureties. Defendants appealed the trial court’s decision, and the appellate court held that the term surety encompassed both a surety and a guarantor under the Act and remanded the case. Plaintiffs petitioned the Supreme Court to review the appellate court’s reversal.

On appeal, the Supreme Court performed an extensive statutory analysis of the Illinois Sureties Act. In performing this analysis, the Court first determined that dictionaries, treatises and past court decisions recognize a clear legal distinction between guarantors and sureties. They then went on to determine the legislative intent behind the Sureties Act through a discussion of other laws related to the same subject matter. Through their discussion, the Court held that a suretyship differs from a guaranty in that a suretyship is a primary obligation to ensure the debt is paid, while a guaranty is an obligation to pay the debt if the principal does not pay. The Court went on to say that the plain language of the Act indicates that the protections of the Sureties Act are not applicable to guarantors. Despite this ruling, the Court held that summary judgment was improperly granted in JP Morgan Chase Bank’s favor and remanded the case to the trial court due to genuine issues of fact regarding whether the parties intended the individual Defendants to be guarantors or sureties for the loan in question.

JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. unequivocally answered the question whether the terms surety and guarantor are interchangeable for the purposes of the Illinois Sureties Act. Despite the fact that there is a clear distinction between the two, the Supreme Court allows for the intent of the parties to rule when including either term in a loan agreement. Therefore, business owners should be careful when drafting and negotiating the terms of a guarantor or a surety and be clear which role is intended by the parties to avoid a potential lawsuit down the road.

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Business litigation is necessarily an adversarial process – the stakes are high and as such the opposing parties in most lawsuits will fight over many issues during the case. One of the most contentious segments of any case is the discovery process. Because the information obtained during discovery can make or break a case, it is important to understand the law in this area. In that vein, our Berwyn business attorneys would like to share a recent Illinois Appellate Court decision that may affect many of our clients the next time they go to court.

In Mueller Industries Inc. v. Berkman, Defendant Berkman worked for Plaintiff as president of a company owned by Plaintiff pursuant to an employment contract. During his employment, Defendant formed an investment partnership and obtained a 10% ownership interest in a company that was one of Plaintiff’s primary suppliers. Defendant’s lawyer – whose firm was also counsel for Plaintiff – advised him how to structure the investment venture so as to not run afoul of his employment contract with Plaintiff. The initial employment agreement subsequently expired, and a new open-ended agreement was consummated that contained a non-compete clause and other restrictive covenants governing outside financial interests and business opportunities. Defendant then had his attorney form a new company to compete with Plaintiff, and Defendant subsequently resigned his position with Plaintiff.

Plaintiff filed suit for breach of his employment contract and breach of fiduciary duty, alleging Defendant profited personally at the expense of Mueller through his investment partnership. A discovery dispute ensued when Defendant refused to produce documents related to his investment in the supply company and his creation of the competing company. Defendant refused production based upon the 5th amendment and attorney-client privileges. Plaintiff filed a motion to compel production, which was granted by the trial court.

Defendant appealed the trial court’s grant of the motion, and reasserted that the documents were privileged. The Appellate Court reversed in part, holding that Defendant’s pre-existing relationship with his lawyer kept all communication prior to the attorney’s firm’s representation of Plaintiff privileged. However, all communications after the dual representation began were no longer so protected because Defendant no longer had any reasonable expectation of confidentiality. Finally, the Court found that Defendant had failed to demonstrate that producing the requested documents would amount to incriminating testimony, but remanded the case with orders for the lower court to perform an in camera review of the disputed documents and urged the trial court to make a detailed record of its findings.

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While most businesses strive to maintain employee stability, the fact of the matter is that during the course of any company’s existence there will be a certain amount of turnover. In states like Illinois, many employers utilize employment contracts that contain non-compete clauses and other restrictive covenants to protect themselves when employees depart. In spite of these precautionary measures, disputes will often still occur, which is why our Aurora non-compete lawyers are always watching developments in this area of the law.

In Steam Sales Corp. v. Summers, Defendant Summers worked for Plaintiff soliciting and servicing customer accounts pursuant to a written employment agreement that contained both non-compete and liquidated damages clauses. The clauses were to be effective for two years after the cessation of Defendant’s employment with Plaintiff. Plaintiff had several exclusive relationships with manufacturers, which gave it access to information not available to its competitors that served as an advantage in the marketplace. Defendant had access to this information, and after working for Plaintiff for almost two years, he quit to form a competing company and subsequently obtained the business of two of Plaintiffs (now) former clients.

In response, Plaintiff filed suit for Defendant’s violation of the restrictive covenant contained in the employment agreement between the parties and demanded injunctive relief pursuant to the liquidated damages clause in the contract. The circuit court granted the preliminary injunction based upon the non-compete clause and enjoined Defendant from soliciting or selling any service or product similar or identical to Plaintiff’s. Defendant then filed an interlocutory appeal. The Appellate Court found that Plaintiff had not breached the parties’ contract and that the restrictive covenant was enforceable because it was reasonable in its geographic (Defendant’s sales territory when he worked for Plaintiff) and temporal scope and in its application.

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The issues faced by our clients, and particularly our business clients, are often complex both factually and legally. Our Palatine business lawyers recently discovered a case filed in Du Page county that illustrates how business legal issues can, and often do, dovetail with personal legal issues. Prignano v. Prignano demonstrates the importance of obtaining legal advice before making business agreements and contracts that include will and probate issues.

In Prignano v. Prignano, the widow of George Prignano, a man who owned several businesses with his brother Louis, sued that brother for allegedly failing to honor an agreement that the survivor of the two brothers would buy the decedent brother’s share of their co-owned businesses. The Prignano brothers jointly owned two corporations, Sunrise Homes and Rainbow Installations, and were equal partners in 710 Building Partnership. The Plaintiff widow alleged that the Defendant had an oral agreement with her deceased husband George whereupon Louis would purchase George’s share of their three businesses with the proceeds from life insurance policies purchased for that purpose. Plaintiff also alleged that she and Defendant had an oral agreement that Defendant would purchase his brother’s share of the businesses from Plaintiff.

After George’s death, Defendant, who was the executor of George’s estate, allegedly kept George’s share of the businesses and the life insurance payments for himself unbeknownst to Plaintiff. When Plaintiff discovered this, she filed suit against him for fraud, breach of fiduciary duty, breach of contract, and unjust enrichment. The trial court ruled in her favor on all counts and awarded her damages and prejudgment interest. Defendant then appealed the trial court’s finding of liability and the award of prejudgment interest.

On appeal, the Second District of the Appellate Court of Illinois reaffirmed the trial court’s finding that both oral agreements (between the brothers and between Plaintiff and Defendant) were valid and enforceable due to the testimony of third parties who were aware of the oral agreement between the brothers, and the existence of a written agreement that was drawn up after the oral contract between Plaintiff and Defendant was initially formed. The Court also found that Defendant owed a fiduciary duty to Plaintiff as he was a corporate officer and partner in the businesses, and upon George’s death, his interest in the businesses was transferred to Plaintiff. As such, the Court held that Defendant owed Plaintiff a duty to exercise “the highest degree of honesty and good faith” in dealing with Plaintiff, and Defendant breached that duty. The Court then vacated the trial court’s judgment on the unjust enrichment claim because Plaintiff was victorious on her breach of contract claim. The Court stated that unjust enrichment does not apply when there is a breach of contract under Illinois law. Finally, the Court reaffirmed the award of prejudgment interest because Plaintiff had been deprived of money that was rightfully hers, and Defendant should not profit from his wrongful retention of the funds.

Prignano v. Prignano exemplifies why business owners should have all of their business agreements and contracts reviewed by a trained legal professional. Family business owners, in particular, should guard against casual or oral agreements, as personal relationships can be strained when there is a misunderstanding regarding such agreements. If you are unsure about the legality or legitimacy of your business agreements, or are currently in a dispute, you should consult a discerning Chicago and Naperville business attorney to determine your rights.

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Our Oak Brook, Ill. shareholder dispute attorneys and Chicago business law lawyers took note of a recent appeals court decision in a heavily disputed case involving a family business. In Santella v. Kolton and Food Groupie Inc., Nos. 1-08-1329, 08-1357 & 08-1847 consolidated (Ill. 1st July 31, 2009), Rick Santella accused his sister, Mary Kolton, and her husband William of undermining the family’s business to enrich themselves once they became majority shareholders. The business is Food Groupie, Inc., which markets and sells use of anthropomorphic food characters and educational products that promote healthy eating. According to Santella, the intellectual property is the collective work of the family.

When Food Groupie was originally formed in 1987, Santella held a 35% interest; Mary and William Kolton held 25% each; and a non-party, their brother Ron Santella, held 15%. All four were named directors. In 1988, the plaintiff bought Ron Santella’s interest, giving him a 50% interest in the corporation to match the Koltons’ combined 50%. Shortly afterward, plaintiff transferred 1% of his interest to Mary Kolton, with the understanding that William Kolton would transfer his 25% to Mary, giving her a majority 51% interest with the idea that Food Groupie would be more successful if it was known as a woman-owned company. In exchange for this transfer, Santella claims, the parties executed an agreement that company decisions would be made only by a unanimous vote.

The business ran without incident until 2002. During that time, Santella claims Food Groupie made a profit each year between 1992 and 2001 and the three shareholders always unanimously approved compensation. But in 2002, Santella alleges that the Koltons called a shareholders’ meeting without him or Ron Santella, and gave themselves salary increases, bonuses and 401(k) contributions. This cost Food Groupie a total of 45% of gross company sales, despite a profit that year of only $15,000. The alleged ruse was repeated in 2003 and 2004. As a result, Santella claims, he was paid only one dividend of $1,470 during that time, rather than the $28,808 he believes he was entitled to as a 49% shareholder.

When he confronted his sister about this in 2003, he says she froze him out of the business decisions, changed the locks on the office and was interested only in buying him out. He further claims she usurped Food Groupie’s intellectual property by trademarking characters in her own name, and inappropriately licensed the company’s intellectual property without his consent. Finally, he claims the Koltons held a secret shareholder meeting in 2004 at which they voted to replace him with William’s brother, Anthony Kolton. He sued the Koltons, individually and as a shareholder derivative claim, for breach of the shareholder agreement, breach of fiduciary duty, usurpation of corporate opportunities and violations of the Illinois Business Corporations Act.

In 2005, that lawsuit resulted in the court’s appointment of John Ashendon as custodian of Food Groupie. In 2008, Santella filed an emergency motion to stop what he claimed was his sister’s plan to liquidate the company and move its misappropriated intellectual property to a similar business called Healthypalooza. He also alleged that the couple had continued to pay themselves inappropriately high salaries and commissions, and use the company’s profits for their personal legal defense. He sought to remove the Koltons as officers and enjoin them from using the company’s assets or competing with it, among other things. The court eventually found for Santella on some issues, removing the Koltons and ordering them to return the $144,019 in commissions they had been paid in 2005, 2005 and 2007. It said the court would appoint new officers and directors. It did not say any of these remedies were interlocutory or time limited.

The Koltons filed an interlocutory appeal in 2008, but failed to move to stay the repayment order or actually repay the $144,019. The trial court found them in contempt and ordered them to pay a fine for every day they were late. They eventually paid back the $144,019, but not the roughly $20,000 or so in fines.

On appeal, the Koltons argued that the relief granted to Santella was not supported by sufficient evidence or proof. Specifically, they argued that the Business Corporations Act requires a plaintiff like Santella to prove his claims of improper conduct before the court may order return of the allegedly improper bonuses or their removal as corporate officers. For that reason, they said, the court orders must be reversed. Santella made several arguments against the appeal, most notably that the appeals court lacked subject matter jurisdiction over the non-financial claims. The defendants filed their appeal pursuant to Rule 307(a)(1), which applies to appeals concerning injunctions, and Santella argued that the trial court’s orders removing and replacing directors and officers were not injunctions.

The First agreed with this, saying it lacked subject matter jurisdiction over those orders because they were not direct orders to the Koltons “to do a particular thing, or to refrain from doing a particular thing.” In fact, it took the analysis a step further and examined whether it had jurisdiction over the repayment order. That order was an injunction, the First wrote, but it also must be interlocutory to fall under Rule 307(a)(1). If it was a permanent order, it was outside the scope of the rule. The appeals court found that it was a permanent order, because it did not preserve the status quo. In fact, the court noted, the trial judge had specifically said so when she made her contempt ruling. The trial court had also made conclusions about the rights of the parties and had not time-limited the order. For those reasons, the First found that it also lacked subject matter jurisdiction over the repayment order, and dismissed the appeal entirely. The opinion noted that appellants may still seek a finding from the trial court under Rule 304(a).

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