Shareholder and LLC member disputes can be complex and contentious, especially when one party attempts a “freeze-out.” A freeze-out refers to the exclusion of a shareholder or member from the decision-making process or the benefits of ownership. In Illinois, recent court decisions have shed light on the legal principles surrounding these disputes. In this blog post, we will explore some of these notable cases and the lessons they offer for those facing or involved in freeze-out situations.
1. Ritchie Capital Management, LLC v. Gerard (2019 IL 124741)
In Ritchie Capital Management, LLC v. Gerard, the Illinois Supreme Court addressed the issue of “squeeze-outs” in limited liability companies (LLCs). The court emphasized that LLC managers owe fiduciary duties to the members, and a manager’s attempt to squeeze out another member for personal gain can lead to a breach of those duties. This decision underscored the importance of fairness and transparency in LLC operations and clarified the standards for assessing fiduciary duty violations.
2. Hagan v. Quinn (2020 IL 124989)
Hagan v. Quinn involved a shareholder dispute in a closely held corporation. The Illinois Supreme Court in this case held that shareholders in a closely held corporation owe each other a duty of utmost good faith and loyalty. The court emphasized that majority shareholders must act fairly and reasonably toward minority shareholders and avoid oppressive conduct. This decision reaffirmed the principles of fairness and equitable treatment among shareholders.
3. Keating v. Keating (2021 IL App (1st) 200645)
In Keating v. Keating, the Illinois Appellate Court examined a shareholder dispute in a family-owned corporation. The court highlighted the importance of adhering to corporate formalities and the company’s governing documents. The decision reinforced the notion that disregarding corporate formalities and treating a corporation as an extension of personal finances can result in legal consequences.
4. Tonn v. Tonn (2021 IL App (3d) 200461)
Tonn v. Tonn involved a dispute among siblings who were shareholders in a closely held corporation. The Illinois Appellate Court ruled that when there is evidence of oppressive conduct by majority shareholders, the court has the authority to order a buyout of the minority shareholder’s interest at a fair value. This decision provides a mechanism for addressing freeze-out situations and protecting the interests of minority shareholders in closely held corporations.
Illinois court decisions involving shareholder and LLC member freeze-outs demonstrate the importance of fairness, transparency, and adherence to fiduciary duties and corporate formalities. Shareholders, LLC members, and corporate managers must understand their legal obligations and rights to navigate these disputes effectively.
If you find yourself involved in a freeze-out situation, seeking legal counsel from experienced attorneys who specialize in corporate law and dispute resolution is essential. These recent court decisions underscore the significance of seeking equitable remedies and pursuing fair resolutions when facing freeze-out tactics. By staying informed about these cases and the legal principles they establish, individuals and businesses can better protect their interests and promote equitable corporate governance.
Call one of our experienced freeze-out or squeeze-out attorneys if you are the victim of a freeze-out or squeeze-out at 630-333-0333 or contact us online here.