August 07, 2001

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Plaintiff Barry Hamlin filed this action against defendantsHarbaugh Enterprises, Inc., Pamela Harbaugh and Charles Cain(collectively Harbaugh) to recover damages he allegedly sufferedafter Pam terminated his employment with Harbaugh. Count I ofBarry's complaint was a petition brought pursuant to section12.56(a) of the Business Corporation Act of 1983 (Act) (805 ILCS5/12.56(a) (West 2000)), which provides remedies for non-publiccorporate shareholders.

The court determined that an "election" to purchase Barry'sshares, filed by Harbaugh pursuant to section 12.56(f) of the Act,was timely filed. The court then entered a stay of the entireproceedings at Harbaugh's request, pursuant to section 12.56(f)(6). Barry appealed. We hold that an election not filed within 90 daysof the initial filing of a petition brought pursuant to section12.56(a) is not timely filed. Additionally, a trial court shouldhold an evidentiary hearing prior to finding that the filing of anelection brought outside the 90-day statutory period is equitableand prior to staying any counts of the complaint not broughtpursuant to section 12.56(a) of the Act. Thus, we reverse.

FACTS

Barry initially filed a three-count complaint. Count I was anaction against the corporation pursuant to section 12.56(a) of theAct on the basis of fraud and oppression. In count I, Barryalleged that he and Pam entered into an oral contract to commencea corporation to acquire and operate 17 Pizza Hut restaurants asfranchisees. Pam was to be president while Barry was to besecretary of the corporation. Barry was to receive 5% of theshares of the corporation.

Pursuant to the contract, Barry could earn an additional 5%ownership in the corporation. Barry was to be an employee of theenterprise and, in exchange for services to the corporation, Barrywas to receive a salary of $80,000 per year plus bonuses. Barryalleged that sometime after acquiring the restaurants, Pam orderedBarry and his wife to sign a shareholders' agreement or he wouldnot receive his shares of stock. Immediately thereafter, Barry wasterminated by Pam.

As relief, Barry requested that the shareholders' agreement beset aside, that his termination be set aside, that he bereinstated, that any director or officer who engaged inconspiratorial or oppressive conduct be removed, that an accountingbe taken, that Barry be awarded damages, that the corporationpurchase Barry's shares, that the corporation be dissolved, andthat Barry recover reasonable expenses and punitive damages.

Count II sought damages for breach of contract and count IIIalleged that Pam and Charles had defamed Barry. The trial courtgranted Harbaugh's motion to dismiss the complaint. Thereafter,Barry filed an amended complaint. Count I again sought reliefagainst Harbaugh pursuant to section 12.56(a) of the Act. CountsII and III were actions for civil conspiracy against Pam andCharles, respectively. Count IV was an action for slander per se. Count V was an action against Pam and Charles for breach offiduciary duty. Count VI sought compulsory examination ofcorporate records.

Harbaugh answered count I but filed a motion to dismiss theremaining common law counts. Barry sought leave to file a secondamended complaint wherein he proposed to change causes of action,to add new causes of action and new parties defendant, and to seekadditional damages.

Harbaugh then filed an election to purchase Barry's sharespursuant to section 12.56(f) of the Act. The trial courtdetermined that the election was timely filed or, alternatively,that it was equitable to allow the filing of the election. Withinthe election, Harbaugh proposed to pay Barry in excess of the valueof his shares to settle all claims against it. Because the partiesdid not agree on the value of Barry's shares, Harbaugh sought astay pursuant to section 12.56(f)(6) to allow the trial court todetermine the value. The court stayed the entire proceedings andBarry filed this interlocutory appeal.

ANALYSIS Both parties agree that this appeal of the trial court's stayis as of right pursuant to Supreme Court Rule 307(a)(1). 188 Ill.2d R. 307(a)(1). In an interlocutory appeal, the scope of reviewis normally limited to an examination of whether the trial courtabused its discretion in granting or refusing the requested relief. Where the question presented is one of law, however, a reviewingcourt determines it independently of the trial court's judgment. Inre Lawrence M., 172 Ill. 2d 523, 670 N.E.2d 710 (1996).

Initially, Barry urges this court to apply the "exceptionallystringent" standard determined to be applicable to the appointmentof a receiver pendente lite in Poulakidas v. Charalidis, 68 Ill.App. 3d 610, 386 N.E.2d 405 (1979). In light of the supremecourt's unambiguous statement of the proper standard to apply tointerlocutory appeals, we reject Barry's request.

The first issue we are asked to address is whether the trialcourt erred when it determined that Harbaugh had timely filed theelection or, in the alternative, that it was equitable to allow thefiling of the election.

At the outset, Harbaugh suggests that this court only hasauthority to determine the appropriateness of the stay, not theelection, as this case is on appeal pursuant to Supreme Court Rule307(a)(1), providing for interlocutory appeals from the issuance ofinjunctions. 188 Ill. 2d R. 307(a)(1).

The statute at issue provides that if, after an election isfiled, the parties cannot agree upon the value of the shareholder'sshares, the court must stay the proceedings to determine the value.805 ILCS 5/12.56(f)(6) (West 2000). As such, the propriety of thestay is wholly dependant upon whether the court properly allowedthe filing of the election. Accordingly, this court will addressthe issues Barry raises as to the propriety of the election first.

Barry's main contentions are as follows: (1) his claims offraud and oppression make a section 12.56(f) election and stayinappropriate; (2) the election was not timely filed within 90days; (3) Harbaugh was required to, but did not, seek leave ofcourt to file the election outside the 90-day filing period; and(4) the court should have conducted a hearing before determining itwas equitable to allow the filing of the untimely election. Wenote that section 12.56(f) is a relatively recent enactment and, assuch, each of the issues raised by Barry is one of first impressionin Illinois.

Barry's first argument, that his allegations of fraud andoppression make the use of the election procedure in section12.56(f) inappropriate, is directly contrary to the language of theAct.

Section 12.56 provides that in an action by a shareholderwherein it is established that the directors have acted in a mannerthat is "illegal, oppressive, or fraudulent" (805 ILCS5/12.56(a)(3) (West 2000)), the court may order the corporation topurchase the shareholder's shares for fair value (805 ILCS5/12.56(b)(11) (West 2000)), or the corporation may pursue anelection on its own initiative (805 ILCS 5/12.56(f) (West 2000)).

Nothing in section 12.56(f), pertaining to the filing of anelection, indicates that it is not to be applied in cases of fraudor oppression. Indeed, in order for a corporation to file anelection pursuant to section 12.56(f), there must already be a suitpending, filed against the corporation by a shareholder, one basisfor that action being that the corporation engaged in fraud oroppression. Accordingly, we reject Barry's first contention.

Barry next contends that the court erred in determining thatHarbaugh timely filed the election within the 90-day statutoryperiod allowing for elections as of right. Harbaugh responds thatthe election was properly filed within 90 days of a "legallysustainable petition." A decision on this issue requires thiscourt to interpret section 12.56 of the Act.

The primary rule of statutory construction, to which all otherrules are subordinate, is to ascertain and give effect to the trueintent of the legislature. Dunahee v. Chenoa Welding & Fabrication,Inc., 273 Ill. App. 3d 201, 652 N.E.2d 438 (1995). In determininglegislative intent, a court should first consider the statutorylanguage. A court may look beyond statutory language when it isambiguous or when a literal interpretation of the statute wouldlead to an absurd result. Advincula v. United Blood Services, 176Ill. 2d 1, 678 N.E.2d 1009 (1996).

Section 12.56(f) provides in relevant part:

"At any time within 90 days after the filing of thepetition under this Section, or at such time determinedby the court to be equitable, the corporation or one ormore shareholders may elect to purchase all, but not lessthan all, of the shares owned by the petitioningshareholder for their fair value." 805 ILCS 5/12.56(f)(West 2000).

Here, Barry filed his complaint, count I of which included thesection 12.56(a) petition, on April 5, 2000. Harbaugh filed amotion to dismiss rather than an election, and the court grantedthat motion. Barry then filed an amended complaint on July 20,2000, again including the section 12.56(a) petition as count I. Harbaugh answered count I but filed a motion to dismiss theremaining counts. Harbaugh then filed an election on October 12,2000. The election was filed within 90 days of Barry's amendedcomplaint but was filed 189 days after his initial petition.

We reject Harbaugh's contention that its election was timelybecause it was filed within 90 days of a legally sustainablepetition. Harbaugh does not cite any support of its position thatthe 90-day limitations period does not commence running until thefiling of a viable petition. Nor does section 12.56(f), providingthat an election must be filed "within 90 days after the filing ofthe petition under this Section" (805 ILCS 5/12.56(f) (West 2000)),indicate that parties may withhold the filing of an election basedupon speculation that a shareholder's petition is not legallysustainable. Indeed, Harbaugh's interpretation would read languageinto the statute that simply does not exist. Harbaugh's argumentis best left to the legislature and not this court. See Newland v.Budget Rent-A-Car Systems, Inc., 319 Ill. App. 3d 453, 744 N.E.2d902 (2001) (Courts must not depart from a statute's plain languageby reading into it exceptions, limitations or conditions thelegislature did not express).

Additionally, we note that section 12.56(f) provides for thefiling of an election "at such time determined by the court to beequitable." 805 ILCS 5/12.56(f) (West 2000). This provisioneliminates any incongruous results that may spring from a strictinterpretation of the 90-day statutory period. For instance, inthe event a plaintiff files a petition pursuant to section 12.56(a)but, for legitimate reasons, is unable to obtain service until 75days later, the defendant corporation is not left with the soleoption of filing an election within 15 days or forever be barredfrom seeking to file the election.

Accordingly, we hold that Harbaugh's election, filed some 189days after Barry's initial petition, was not timely filed withinthe 90-day statutory period for the filing of elections as ofright.

We turn now to Barry's next contention, that becauseHarbaugh's election was not filed within the 90-day limitationsperiod of section 12.56(f), it was required to seek leave of courtbefore filing the election on equitable grounds.

As noted, section 12.56(f) states only that an election notfiled within 90 days must be filed "at such time determined by thecourt to be equitable." 805 ILCS 5/12.56(f) (West 2000). Thestatute is silent as to the proper procedure to be utilized by aparty filing an election after 90 days. Section 12.56(f) was basedupon section 14.34 of the Model Business Corporation Act (ModelAct) (3 ABA Model Business Corporation Act Ann.,