No. 2--04--0455

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

JUSTICE KAPALA delivered the opinion of the court:

Plaintiff, Dean Hamilton, a former shareholder of Hahnaman-Albrecht, Inc. (HAI), a dissolved Illinois corporation, appeals the dismissal of his complaint against defendants, HAI; Kristopher Conley (Conley), a former officer and director of HAI; and Conley Grain Company (Conley Grain) and Harmon Grain, LLC (Harmon Grain), entities that Conley allegedly controlled. Plaintiff argues that he may maintain an action alleging that, following HAI's dissolution, Conley misappropriated HAI's assets by transferring them to Conley Grain and Harmon Grain. We agree. Thus, we reverse and remand.

I. BACKGROUND

HAI operated grain elevators in several counties throughout Illinois. The real estate on which those elevators were located and the elevators themselves were encumbered by a $5.5 million mortgage. The title to the real estate was held in a land trust, the beneficial interest of which lay with HAI. Additionally, HAI had power of direction over the land trust.

Plaintiff alleged the following facts. In late 1996 and early 1997, HAI began experiencing financial difficulties. Then, in February 1997, Conley, who was then serving as one of HAI's directors, offered a solution. Specifically, Conley proposed that the corporation make him its sole officer and director. In exchange, Conley said, he would lend or invest in HAI several million dollars from his father's trust fund. HAI's officers and directors agreed. At a special meeting on February 28, 1997, they resigned, and Conley was appointed sole officer and director of the corporation. However, time passed and the promised millions never arrived. Nor did HAI's situation improve. On May 2, 1997, HAI was involuntarily dissolved by the secretary of state for failure to file an annual report and pay annual franchise taxes. Not three weeks after HAI's dissolution, Conley began dealing away HAI's assets. On May 19, 1997, Conley caused HAI and the land trust to enter into a lease agreement with Conley Grain, which Conley owned and controlled. The lease agreement gave Conley Grain the option of purchasing both a portion of HAI's land and a number of its grain elevators by assuming HAI's mortgage. In the four years after it entered into the lease agreement, Conley Grain entered into a number of subsequent transactions involving HAI's assets. Eventually, Conley Grain assigned all of HAI's rights to use the grain elevators and occupy the land to Harmon Grain, another company controlled by Conley. In the fall of 2001, Conley entered into several more transactions, eventually transferring all of HAI's remaining assets to Harmon Grain.

In May 2003, plaintiff filed suit, individually and as a former shareholder of HAI, against Conley, Conley Grain, Harmon Grain, and HAI.⁽¹⁾ Plaintiff alleged that the other former shareholders of HAI, except Conley, had authorized him to pursue the action. He sought to have all of the assets allegedly misappropriated by Conley returned to him for distribution to the other shareholders; alternatively, he sought to have his individual share of those assets returned to him. For their part, defendants filed a combined motion to dismiss pursuant to sections 2--615 (735 ILCS 5/2--615 (West 2002)) and 2--619 (735 ILCS 5/2--619 (West 2002)) of the Code of Civil Procedure. See 735 ILCS 5/2--619.1 (West 2002). Defendants argued, among other things, that plaintiff lacked standing to bring his claims and that plaintiff's claims were untimely. As to the standing issue, defendants argued that, even assuming plaintiff's allegations were true, any claim against defendants would belong to the corporation, HAI, and therefore plaintiff, as a shareholder, had no standing to sue defendants. In other words, defendants argued, plaintiff's claims were derivative. As to the timeliness issue, defendants argued that section 12.80 of the Business Corporation Act (805 ILCS 5/12.80 (West 2002)), also known as the Corporate Survival Statute (Survival Statute), limits to five years the time period after dissolution in which suits may brought by or against a corporation. Because plaintiff's suit was filed over five years after HAI's dissolution, defendants concluded, it was time-barred. In response, plaintiff contended that his claims were individual, not derivative. Regarding the timeliness of his complaint, plaintiff pointed out that, in several situations, courts have allowed suits to go forward, notwithstanding that they were filed beyond the period allowed under the Survival Statute. The trial court dismissed plaintiff's complaint. As relevant here, the trial court found (1) that plaintiff's claims were derivative and plaintiff therefore lacked standing to bring them; and (2) that plaintiff's claims were untimely pursuant to the Survival Statute. This timely appeal followed.II. ANALYSIS

At the outset, we must address a motion by plaintiff to strike pursuant to Supreme Court Rule 341(e)(6) (188 Ill. 2d R. 341(e)(6)) the statement of facts appearing in defendants' brief.⁽²⁾ In his motion, plaintiff contends that defendants improperly engage in argument in their statement of facts. See 188 Ill. 2d R. 341(e)(6) (noting that a brief's statement of facts "shall contain the facts necessary to an understanding of the case, stated accurately and fully without argument"). We agree with plaintiff that defendants' statement of facts contains some improper argument. For example, in their statement of facts defendants attempt to persuade us to disregard plaintiff's assertions regarding the legal significance of a document entitled "Minutes of Special Meeting of Shareholders of Hahnaman-Albrecht, Inc." Contentions such as this should be reserved for the "Argument" section of a party's brief. However, we do not believe that these few improprieties require us to strike defendants' statement of facts. See Friends of Parks v. Chicago Park District, 203 Ill. 2d 312, 319 (2003) ("[a]lthough we believe the plaintiffs' recitation of the facts to be generally accurate, it is certainly argumentative and in violation of the rule. While we decline to strike the plaintiffs' factual summary, we admonish counsel to be mindful in the future of the requirement to eschew argument"). Instead, we will simply disregard the offending portions of that statement.P.J.'s Concrete Pumping Service, Inc. v. Nextel West Corp., 345 Ill. App. 3d 992, 997-98 (2004). We now pause to set out the standard of review. Although defendants styled their motion as a combined motion to dismiss pursuant to both sections 2--615 and 2--619, we think their motion is more properly treated as a motion under section 2--619 alone. We note that, under the section 2--615 heading of their motion, defendants attacked only plaintiff's standing to bring his claims. Standing is an affirmative defense. Wexler v. Wirtz Corp., 211 Ill. 2d 18, 22-23 (2004). In a section 2--615 motion, unlike in a section 2--619 motion, a party generally may not raise affirmative matters outside of the four corners of the complaint. Advocate Health & Hospitals Corp. v. Bank One, N.A., 348 Ill. App. 3d 755, 758 (2004). Thus, notwithstanding defendants' labeling their motion to dismiss as a combined motion under both sections 2--615 and 2--619, defendants' motion to dismiss was in fact a section 2--619 motion only. "Generally, a motion to dismiss made under section 2--619 admits the legal sufficiency of a plaintiff's complaint but raises defects, defenses, or other affirmative matters that appear on the face of the complaint or that are established by external submissions acting to defeat the allegations of the complaint." Barrett v. Fonorow, 343 Ill. App. 3d 1184, 1189 (2003). Our review of a section 2--619 dismissal is de novo. Barrett, 343 Ill. App. 3d at 1189.

We turn now to an analysis of plaintiff's claims. Plaintiff argues that his claims against defendants are not derivative. Specifically, plaintiff contends that duties owed to a corporation by its directors and officers change, upon the corporation's dissolution, into duties owed directly to shareholders. Plaintiff points out that he has alleged that Conley, along with Conley Grain and Harmon Grain, engaged in misconduct after HAI's dissolution. This being the case, plaintiff concludes that he has sufficiently alleged the violation of a duty owed by Conley directly to him, as an individual shareholder. Plaintiff argues that section 12.30 of the Act (805 ILCS 5/12.30 (West 2002)) requires this conclusion.

As preliminary matter, we note that plaintiff did not raise his section 12.30 argument in the trial court. That is, in the trial court plaintiff did not argue that section 12.30 creates postdissolution duties that expose directors and officers to suits brought by shareholders in their individual capacities. Issues not raised in the trial court generally are waived and may not be raised for the first time on appeal. Village of Lake Villa v. Stokovich, 211 Ill. 2d 106, 121 (2004). However, the rule of waiver is an admonition to the parties and not a limitation on the jurisdiction of this court. Dillon v. Evanston Hospital, 199 Ill. 2d 483, 504-05 (2002). Thus, we may consider plaintiff's section 12.30 argument. Dillon, 199 Ill. 2d at 505.

Plaintiff's argument requires us to construe section 12.30 of the Act. Statutory construction is a question of law. Du Page County Election Comm'n v. State Board of Elections, 345 Ill. App. 3d 200, 206 (2003). The fundamental rule of statutory construction is to ascertain and give effect to the intent of the legislature. People ex rel. Birkett v. City of Chicago, 202 Ill. 2d 36, 45 (2002). Generally, the best indicator of legislative intent is the plain language of the statute. Lulay v. Lulay, 193 Ill. 2d 455, 466 (2000). We must evaluate the statute as a whole, with each section construed in connection with every other section. Paris v. Feder, 179 Ill. 2d 173, 177 (1997).

Plaintiff contends that, pursuant to section 12.30 of the Act, his claims against defendants are direct and not derivative. To determine whether a claim is derivative or direct, courts must focus on the nature of the alleged injury. Small v. Sussman, 306 Ill. App. 3d 639, 644 (1999). If the injury is incurred by the corporation only, then the shareholders can bring a derivative claim only; they may not sue as individuals. Frank v. Hadesman & Frank, Inc., 83 F.3d 158, 160 (7th Cir. 1996) (applying Illinois law). Put another way, "[a] shareholder of a corporation does not acquire standing to maintain an action in his or her own right, as a shareholder, when the alleged injury is inflicted upon the corporation and the only injury to the shareholder is the indirect harm which consists in the diminution in value of his or her corporate shares resulting from the impairment of corporate assets." 13 Ill. L. & Prac. Corporations