Chicago Business Litigation Lawyer Blog
In Illinois, the concept of LLC member or shareholder oppression is generally conceived as actions that are “illegal, oppressive, or fraudulent”. For shareholders of a corpo”ration that has no shares listed on a national securities exchange or regularly traded in a market maintained by one or more members of a national or affiliated securities association, the Illinois Business Corporation Act (IBCA) states that the Circuit Court may intervene if it is established that the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent with respect to the petitioning shareholder.
In the context of LLC members, the Illinois Limited Liability Company Act (805 ILCS 180/35-1) provides for the dissolution of the company upon the application by a member or transferee of a distributional interest, upon entry of a judicial decree that the managers or those members in control of the company have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applican].
However, it’s important to note that in a manager-managed LLC, a member who is not also a manager does not violate a duty or obligation under the Act or under the operating agreement merely because the member’s conduct furthers the member’s own interest.
The specific conduct that courts have found to be oppressive varies. Some cases have found that conduct is oppressive if it is “arbitrary, overbearing and heavy-handed”. Other cases have found that even where corporate formalities are observed, the payment of a high amount of compensation to corporate officers, while refusing to pay dividends to benefit minority shareholders, can be considered oppressive conduct, depending on the corporation’s overall financial picture.
An unreported Illinois opinion discusses oppression and does an very good job of explaining the concept:
¶ 42 2. “Oppression” Under the Act¶ 43 The Act provides remedies to shareholders of closely held corporations where “directors or those in control of the corporation *** act [ ]*** in a manner that is illegal, oppressive, or fraudulent with respect to” the other shareholders. 805 ILCS 5/12.56(a)(3) (West 2014). Here, the circuit court, following a bench trial, found that the conduct of the majority shareholders was “oppressive” to the plaintiffs within the meaning of the Act. Generally, the standard of review in a bench trial is whether the judgment is against the manifest weight of the evidence. Green v. Papa, 2014 IL App (5th) 130029, ¶ 32. A judgment is against the manifest weight of the evidence only when the opposite conclusion is clearly apparent or when findings appear to be unreasonable, arbitrary, or not based on the evidence. Id. Mindful of this standard of review, we begin our analysis of issue three, raised by the defendants on cross-appeal, by examining the concept of “oppression” in the context of the Act.¶ 44 Our Illinois Supreme Court has stated as follows with regard to the concept of oppression in the context of the Act:“We have held that the word ‘oppressive’ as used in this statute, does not carry an essential inference of imminent disaster; it can contemplate a continuing course of conduct. The word does not necessarily savor of fraud, and the absence of ‘mismanagement, or misapplication of assets,’ does not prevent a finding that the conduct of the dominant directors or officers has been oppressive.10 It is not synonymous with ‘illegal’ and ‘fraudulent.’ ” Gidwitz v. Lanzit Corrugated Box Co., 20 Ill. 2d 208, 214–15 (1960) (quoting Central Standard Life Insurance Co. v. Davis, 10 Ill. 2d 566, 573–74 (1957)).¶ 45 With regard to what type of conduct does constitute oppression, our courts have found that conduct is oppressive if it is “arbitrary, overbearing and heavy-handed.” Compton v. Paul K. Harding Realty Co., 6 Ill. App. 3d 488, 499 (1972). Oppression has been found where the majority shareholder(s) solely controlled and directed the operations and policies of the corporation (id. at 493), violated bylaws, failed to call board meetings, reacted to the plaintiff’s requests in a dilatory fashion, or simply where a continuing course of refusal of the controlling group to agree with the plaintiffs existed. See Gidwitz v. Lanzit Corrugated Box Co., 20 Ill. 2d 208, 218–20 (1960). Here, the circuit court found that the majority shareholders acted in an oppressive manner toward the plaintiffs by failing to have annual meetings, by issuing profit-sharing bonuses to the majority shareholders without board action in violation of corporate bylaws, and by paying themselves bonuses in 2008 without paying bonuses to the plaintiffs, who were employees most of that fiscal year. On cross-appeal, the defendants do not dispute these facts, but instead assert that they do not constitute oppression. However, after careful review, and despite the arguments made by the defendants on cross-appeal, we cannot say an opposite conclusion than that reached by the circuit court in this regard is clearly apparent.
*11 ¶ 46 The defendants essentially argue that the failure of the majority shareholders to observe corporate formalities in issuing bonuses to themselves and failing to issue dividends or other profit sharing to the plaintiffs for the years 2008–2013 does not constitute oppression because even if the formalities had been observed, the majority shareholders would be entitled to vote their strength. However, our court has held that even where corporate formalities are observed, the payment of a high amount of compensation to corporate officers, while refusing to pay dividends to benefit minority shareholders, can be considered oppressive conduct, depending on the corporation’s overall financial picture. Gray v. Hall, 10 Ill. App. 3d 1030, 1034 (1973). Here, the circuit court found, based on the financial data in evidence, that the majority shareholders’ payment of high bonuses to themselves for the years 2008–2013, while paying no dividends or other profit sharing to the plaintiffs, was essentially a “freeze-out” of the plaintiffs. We find that this factual scenario fits within the definition of “oppression” as it has developed under Illinois law. Accordingly, the circuit court’s finding of oppression under the Act is not against the manifest weight of the evidence.
The specific conduct that courts have found to be oppressive varies. Some cases have found that conduct is oppressive if it is “arbitrary, overbearing and heavy-handed”. Other cases have found that even where corporate formalities are observed, the payment of a high amount of compensation to corporate officers, while refusing to pay dividends to benefit minority shareholders, can be considered oppressive conduct, depending on the corporation’s overall financial picture.
Proven Track Record of Success
Results speak louder than words, and Lubin Austermuehle’s history of successful outcomes in shareholder and LLC member oppression cases and media reports about their success is a testament to their efficacy. Their ability to secure favorable verdicts and settlements for their clients not only underscores their proficiency in the field but also establishes their reputation as a leader in minority shareholder litigation in Illinois.
For minority shareholders and LLC members facing oppression or unfair treatment in Illinois, choosing the right legal representative is crucial. Lubin Austermuehle’s combination of experience, specialization in shareholder rights, personalized legal strategies, commitment to client education, and a proven track record of success makes them a standout choice. By opting for such seasoned and focused counsel, minority owners can better protect their investments, secure their rights, and navigate their legal challenges with confidence and clarity. You contact us online or call us for a free consultation at 630-333-0333.