Articles Posted in Best Business And Class Action Lawyers Near Chicago

In the business world of closely held companies in Illinois, minority shareholders often find themselves vulnerable to what is known as a “freeze out” or “squeeze out.” This blog post delves into this phenomenon, exploring what it means, how it happens, and the legal backdrop in Illinois that governs such situations.

What is a Freeze Out/Squeeze Out?

A freeze out or squeeze out occurs when majority shareholders in a closely held company engage in practices aimed at marginalizing, reducing, or eliminating the minority shareholders’ stake in the company. This can be done in various ways, such as refusing to declare dividends, terminating employment, or other tactics that essentially force minority shareholders to sell their shares at a reduced value.

Common Tactics Used

  1. Withholding Dividends: Majority shareholders may decide not to declare dividends, thereby cutting off a key financial benefit of holding shares.
  2. Employment Termination: Minority shareholders who are employed by the company might be terminated or demoted.
  3. Denying Access to Information: Minority shareholders might be denied access to important company information, impacting their ability to make informed decisions.
  4. Dilution of Shares: The company might issue more shares, diluting the minority’s ownership percentage.

Legal Framework in Illinois

In Illinois, the rights of minority shareholders in closely held corporations are protected under various statutes and case law. The Illinois Business Corporation Act provides certain protections and remedies for minority shareholders, including the right to a fair valuation of their shares.

  1. Fiduciary Duties: Majority shareholders have fiduciary duties to the minority. Breach of these duties can form the basis for legal action.
  2. Oppression Remedies: The law provides remedies for “oppressive” actions by majority shareholders. This can include actions that are burdensome, harsh, or wrongful.

In Illinois, there are several significant cases that provide guidance on the treatment of minority shareholder or LLC member freeze-outs or squeeze-outs.

In “Vanco v. Mancini”, the court acknowledged the vulnerability of minority shareholders to freeze-outs or squeeze-outs where the majority, for personal rather than legitimate business reasons, deprives the minority shareholder of their office, employment, and salary. The court highlighted the availability of judicial remedies, including the dissolution of the corporation, in such instances.

The case of “Rexford Rand Corp. v. Ancel” further expanded on this issue. The court suggested the necessity of a fiduciary duty on shareholders in a close corporation as a protective measure against oppressive conduct by the majority. It also indicated that a minority shareholder who has been frozen out should rely on an oppressed shareholder lawsuit against the corporation seeking damages or dissolution. Interestingly, the court discussed whether a freeze-out terminates a shareholder’s fiduciary duty to a close corporation and concluded that a minority shareholder who has been frozen out no longer exercises influence over corporate affairs that gives rise to a fiduciary duty.

“Small v. Sussman” held that the injuries alleged by a minority shareholder were injuries to the corporation, thus only a shareholder derivative action was available. It also found that a freeze-out merger that, through a reverse stock split, eliminated a minority shareholder’s fractional share, did not support a constructive fraud claim. The court ruled that a minority shareholder cannot recover on a conversion claim against the majority shareholder and corporation in connection with a freeze-out merger that eliminated his fractional share.

Further to this, “Jaffe Commercial Finance Co. v. Harris” held that a majority, by merely voting its strength to effectively oust minority from participation in the business of a corporation, did not act oppressively within the meaning of the statute authorizing liquidation. Similarly, in “Jahn v. Kinderman”, it was held that frozen-out minority shareholders in closely held corporations may seek dissolution of the entity, and majority shareholders may avoid this result via a buyout of the minority at a “fair value” to be determined by the circuit court if the parties are unable to reach an agreement.

Lastly, “Bone v. Coyle Mechanical Supply, Inc.” found that majority shareholders’ conduct in failing to hold annual meetings, failing to observe corporate formalities in increasing bonuses and compensation, and effectively “freezing-out” minority shareholders could be considered as outrageous, due to evil motive or reckless indifference to the rights of others.

Please note that these cases provide a general outline of the law in Illinois on minority shareholder or LLC member freeze-outs or squeeze-outs, and the specific holdings may vary depending on the facts of each case.

Continue reading ›

In the complex world of trade secret theft and non-compete litigation, having the right legal team on your side is critical. Lubin Austermuehle, with its strong online presence at www.thebusinesslitigators.com and www.l-a.law, stands out as a premier choice for handling these intricate legal matters. Here are compelling reasons why they should be your go-to firm:

1. Experience in Trade Secret and Non-Compete Litigation

Lubin Austermuehle has a proven track record in successfully handling trade secret theft and non-compete cases. Their deep understanding of the legal complexities in these areas ensures that they can provide effective strategies tailored to each unique case.

2. Dedicated and Experienced Legal Team

The team, including highly recognized attorneys like Peter Lubin and Patrick Austermuehle, brings a wealth of experience and accolades. Their expertise is not just in the courtroom; they understand the nuances of negotiating settlements and crafting agreements that protect their clients’ interests.

3. Commitment to Protecting Client Interests

The firm is committed to protecting the rights and interests of their clients. Whether you are defending against an accusation of trade secret theft or challenging an unfair non-compete agreement, Lubin Austermuehle works tirelessly to ensure the best possible outcome for their clients.

4. Client-Centric Approach

Understanding that every case is unique, Lubin Austermuehle prides itself on a client-centric approach. They listen to their clients, understand their specific needs, and develop strategies that are not just legally sound but also aligned with the clients’ business objectives. Continue reading ›

Extensive Experience in Partnership, LLC Member, and Shareholder Disputes

At Lubin Austermuehle, we understand the complexities of business disputes in closely held companies. Whether you are facing a partnership disagreement, LLC member conflict, or shareholder dispute, our experienced attorneys are here to provide you with the guidance and representation you need to protect your interests.

Personalized Attention for Closely Held Companies

When facing corporate oppression, selecting the right legal representation is crucial. Lubin Austermuehle stands out as a firm capable of effectively handling such complex legal matters. Here’s why you should consider them for your corporate oppression case:

1. Concentration in Corporate Law

Lubin Austermuehle possesses a deep understanding of corporate law, including the nuances of corporate oppression. Their experience in dealing with closely-held companies and understanding the dynamics of shareholder relationships positions them well to address the unique challenges of corporate oppression cases.

2. Commitment to Client Success

The firm’s commitment to delivering significant victories for their clients extends to their approach to corporate oppression matters. They focus on achieving outcomes that are not only legally sound but also aligned with the best interests of their clients.

3. Reputation for Integrity and Success

Lubin Austermuehle has established a reputation for honesty and success in the Chicagoland area. This is reflected in the recognition received by its lawyers, including Peter Lubin being named a “Super Lawyer” and Patrick Austermuehle as a “rising star” by prestigious rating services. Their accolades demonstrate their commitment to legal excellence.

4. Personalized Attention to Clients

One of the key strengths of Lubin Austermuehle is the personal attention they provide to each client. This is particularly important in corporate oppression cases, where understanding the specific context and nuances of each situation is crucial for effective representation. Continue reading ›

In closely held companies, particularly LLCs and corporations with a limited number of shareholders, the issue of compensation for owners and shareholders can be a legal minefield. A significant concern arises when majority owners, often also serving as executives, award themselves excessively high salaries or compensation. This practice, while appearing to be a clever business strategy, can veer into illegality, particularly if it’s done with the intent to minimize or avoid distributions to minority owners.

Understanding the Legal Framework

The legal principles governing such practices are rooted in the fiduciary duties that majority shareholders or LLC owners owe to minority stakeholders. These duties include the duty of loyalty, which mandates that decisions must be made in the best interests of the company and all shareholders, not just a select few.

When majority owners inflate their compensation unjustly, they may be breaching this duty. This is especially true if the inflated salaries negatively impact the company’s profitability or the ability to pay dividends or distributions to other shareholders.

Case Law and Legal Precedents

Various legal precedents highlight this issue. Courts have often scrutinized such practices under the lens of fairness and the fiduciary duties owed. For instance, in cases where the majority shareholders’ salaries are disproportionately high compared to the company’s overall financial health or industry standards, courts have found this to be a breach of fiduciary duty.

In cases such as Fleming v. Louvers International, Inc., courts have found that depriving a minority shareholder of his rightful pro rata distributions through excessive compensation can constitute a breach of fiduciary duty. Another case, Kovac v. Barron, identified a shareholder who committed constructive fraud by causing the corporation to pay him and his wife millions in excessive compensation, which was then concealed as “contract labor” on tax returns.

Certain regulations also provide guidance on this matter. For instance, compensation exceeding the costs that are deductible as compensation under the Internal Revenue Code are deemed unallowable for owners of closely held companies. The Small Business Administration (SBA) views the payment of excessive officers’ salaries as a type of withdrawal from a company, implying that the SBA may see such actions as an attempt to avoid excessive withdrawal limitations. Continue reading ›

In Illinois, the elements of tortious interference with prospective business relationships are as follows:

1) A reasonable expectation of the plaintiff entering into a valid business relationship.
2) The defendant’s knowledge of this expectancy.
3) The defendant’s intentional and unjustifiable interference, causing a breach or termination of the expectancy.
4) The plaintiff suffering damage as a result of the defendant’s interference.

Several notable cases have detailed and applied these principles. In Titan Intern., Inc. v. Becker, the plaintiffs claimed that the defendants interfered with their prospective business relations with various entities, causing economic harm. In Force Partners, LLC v. KSA Lighting & Controls, Inc., it was highlighted that commercial competitors can interfere with each other’s prospective business relationships as long as the intent is not solely motivated by malice or ill will. Doctor’s Data, Inc. v. Barrett clarified that a reasonable expectancy requires more than the mere hope of a business relationship – a plaintiff must identify a reasonable business expectancy with a specific third party. In Labor Ready, Inc. v. Williams Staffing, LLC, it was established that a company can state a claim against a competitor for tortious interference by alleging that the competitor purposely interfered with prospective business relations through various means, causing the company to lose future business. Lastly, in Giant Screen Sports LLC v. Sky High Entertainment, it was emphasized that a plaintiff must allege that the defendant’s interference prevented the expectancy from being fulfilled.

Additional case law includes Buckley v. Peak6 Investments, LP, which explained that even when an employer’s statement is deemed privileged from a tortious interference claim, the plaintiff can still prevail by showing that the defendant acted with malice. This can be achieved by showing that the defendant made unjustified statements, excessively published statements, or made statements in conflict with the interest which gave rise to the privilege. Furthermore, the terms “tortious interference with prospective economic advantage”, “business expectancy”, and “business relations” are used interchangeably under Illinois law, as noted in Allstate Insurance Company v. Ameriprise Financial Services, Inc. Finally, Butler v. Holstein Association, USA, Inc. clarified that a plaintiff must demonstrate that the defendant purposefully interfered, preventing the plaintiff’s legitimate expectancy from ripening into a valid business relationship. These cases collectively provide a comprehensive view of tortious interference with prospective business relations under Illinois law.

Continue reading ›

The statute of limitations that applies to a contract that is both oral and written is generally that of an oral contract. This is because if essential terms of the contract cannot be fully ascertained from the written contract itself and require oral evidence to be complete, it is treated as an oral contract for the purposes of the statute of limitations.

Illustratively, in Illinois, actions on written contracts are generally subject to a 10-year statute of limitations, while actions on oral contracts have a 5-year statute of limitations. Therefore, for a contract that is both oral and written, the 5-year statute of limitations would be applied.

Moreover, a contract is considered to be written if all the essential terms of the contract are in writing and can be determined from the document itself. If additional oral evidence is needed to make the contract complete, then the contract is treated as being oral under the statute of limitations. However, if parol evidence is not necessary to establish the existence of an essential term, but is used to interpret a term, the contract is deemed a written contract and the ten-year statute of limitations applies. Continue reading ›

Choosing the best attorneys for a corporate oppression matter in Illinois involves considering several factors. Look for a legal team with extensive experience in corporate law and specifically in handling shareholder disputes and oppression cases. They should have a strong track record of successfully advocating for minority shareholders’ rights. Also, consider firms that offer personalized attention to understand the unique aspects of your situation and provide tailored legal strategies. It’s important to choose attorneys who are adept in both negotiation and litigation, as resolving these disputes can require a flexible approach. Firms like Lubin Austermuehle, known for their experience in business litigation, including shareholder and LLC member disputes, is a good choice. Continue reading ›

Illinois has two rules that can be used to dismiss cases which allows for more flexibility in defending some actions then in federal court where there is only one means to seek dismissal of an action.

A Section 2-615 motion to dismiss and a Section 2-619 motion to dismiss under Illinois law are two distinct legal tools, each serving specific purposes.

A Section 2-615 motion to dismiss tests the legal sufficiency of a complaint by challenging whether the complaint states a claim upon which relief can be granted. This motion is concerned with defects appearing on the face of the complaint and does not rely on matters outside the complaint. It admits all well-pleaded facts and attacks the legal sufficiency of the complaint [5], [7], [12]. The court, in ruling on a 2-615 motion, considers only the allegations in the pleadings.

On the other hand, a Section 2-619 motion to dismiss acknowledges the legal sufficiency of the complaint but asserts that there are certain external defects or defenses that defeat the claims. It admits the legal sufficiency of the plaintiff’s claim but asserts ‘affirmative matter’ outside of the pleading that defeats the claim. This motion is sometimes referred to as a ‘Yes, but’ motion because it essentially says, ‘Yes, the complaint was legally sufficient, but an affirmative matter exists that defeats the claim’.

The two types of motions can be combined under Section 2-619.1, but it is important to maintain procedural distinctions between them. Each part of a combined motion should be limited to and specify that it is made under one of Sections 2-615, 2-619, or 2-1005, and should clearly show the points or grounds relied upon under the Section upon which it is based.

In dealing with these motions, the court interprets all pleadings and supporting documents in the light most favorable to the plaintiff. Furthermore, dismissals pursuant to sections 2-615, 2-619, and 2-619.1 are reviewed de novo. Continue reading ›

Choosing Lubin Austermuehle for business litigation offers several compelling advantages. Firstly, the firm is known for its commitment to achieving significant victories and effecting change for clients and the community. This dedication is reflected in the firm’s ability to deliver high-quality services with a level of personal attention that is sometimes lacking in larger law practices​​.

Lubin Austermuehle’s team is adept at handling a wide range of business litigation matters. This includes shareholder, owner, LLC member, and partnership disputes, trade secret theft, copyright and trademark infringement, business fraud, non-compete agreements, and restrictive covenants​​​​. Their experience also extends to dealing with emergency (preliminary) injunctive relief in business disputes, class actions, consumer fraud, employment litigation, and real estate litigation​​.

The firm’s reputation for integrity and success is well-recognized in the Chicagoland area and among peers. Notably, Peter Lubin has been distinguished as a “Super Lawyer,” and Patrick Austermuehle has been named a “rising star” by a prestigious rating service. These accolades reflect their commitment to legal excellence and professionalism​​.

Contact Information