Lohr v. Havens

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Lohr v. Havens

State: Illinois

Court: 3rd District Appellate

Docket No: 3-06-0930 Rel

Case Date: 10/31/2007

Preview:No. 3-06-0930 _________________________________________________________________ Filed October 31, 2007. IN THE APPELLATE COURT OF ILLINOIS THIRD DISTRICT A.D., 2007 CHARLES R. LOHR, ) Appeal from the Circuit Court ) of the 13th Judicial Circuit, Plaintiff-Appellee, ) La Salle County, Illinois, ) v. ) ) TERRY HAVENS, Individually and ) as a shareholder, director and ) officer of Phoenix Paper ) No. 03-CH-688 Products, Inc.; SAMUEL J. ) MORRIS, Individually and as ) a shareholder, director and ) officer of Phoenix Paper ) Products, Inc.; and PHOENIX ) PAPER PRODUCTS, INC., an ) Illinois Corporation, ) Honorable ) Eugene P. Daugherty, Defendants-Appellants. ) Judge, Presiding. _________________________________________________________________ PRESIDING JUSTICE LYTTON delivered the opinion of the court: _________________________________________________________________ Plaintiff Charles R. Lohr filed a complaint against defendants Terry Havens, Samuel J. Morris and Phoenix Paper Products, Inc., seeking nonpublic shareholder relief, including the purchase of all his shares, under the Business Corporations Act of 1983 (Act) (805 ILCS 5/12.56 (West 2002)). Havens filed an election to purchase The trial

plaintiff's shares under section 12.56(f) of the Act.

court held that the election was defective and allowed plaintiff to voluntarily dismiss his statutory claim. We affirm.

Lohr owns 44 shares of stock in Phoenix Paper, a privatelyheld corporation. The majority shareholder, president and chairman of the board is defendant, Terry Havens, who owns 56 shares. Two

other shareholders, James Durham and Tom Truckenbroad, hold five shares each. In October 2002, Durham sent a letter to Havens on behalf of himself and Lohr, as directors and shareholders of Phonenix Paper, requesting information regarding the handling of corporate assets. Much correspondence followed in which Durham and Lohr questioned the accounting methods and fiscal management of the company. The

letters demanded a meeting of the directors and accused Havens and the company's accountant, Samuel Morris, of taking inappropriate action without shareholder approval. In November of 2003, after months of dissension among the directors, Lohr filed a six-count complaint against Havens, Phoenix Paper, and Morris, alleging that defendants were acting in an illegal and oppressive manner and that the corporate assets were being misapplied. Count I asked the trial court, pursuant to

section 12.56 of the Act, to (1) instruct the company, or one or more of its shareholders, to purchase all of Lohr's shares for their fair value, or alternatively, (2) order the dissolution of the company. Havens filed a timely "Election to Purchase Shares of The

Plaintiff Charles R. Lohr Pursuant to 805 ILCS 5/12.56(f)."

election set forth four alternative amounts Havens offered to pay in exchange for all of Lohr's shares. Within 30 days, Lohr responded to the offer. In addition to

his response to the specific purchase amounts, Lohr noted that the Act required the company to give notice of an election to all the shareholders within 10 days. Lohr stated that, in this case, he

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"did not know if the corporation [had] given written notice to all shareholders pursuant to 805 ILCS 5/12.56(f)(2)." See 805 ILCS

5/12.56(f)(2) (West 2002) (if an election to purchase is filed, the corporation shall give written notice within 10 days to all

shareholders). After two years of discovery between the parties, Lohr moved to voluntarily dismiss count I of the complaint. Havens objected

and argued that, under section (f)(4) of the Act, the election prevented Lohr from dismissing his statutory claim unless the court conducted a hearing and determined that it would be "equitable" to allow the dismissal. See 805 ILCS 5/12.56(f)(4) (West 2002)

(proceeding may not be discontinued unless the court determines that it would be equitable to the corporation and the shareholders to permit the dismissal). In response, Lohr claimed that because notice of the election was not provided to the other shareholders pursuant to section 12.56(f)(2), the election itself was defective, and the trial court had no authority to consider the "equities" of the case. The trial

court agreed that the election was invalid and allowed Lohr to dismiss count I of his complaint. ANALYSIS I. Section 12.56(f): The Illinois Election Remedy Statute

Section 12.56(f) of the Business Corporations Act allows a closely held company or its shareholders to elect to purchase a petitioning dissolution. shareholder's shares as a remedy in lieu of

In relevant part, section 12.56(f) states:

(f) At any time within 90 days after the filing of

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the

petition

under

this

Section,

or

at

such

time

determined by the court to be equitable, the corporation or one or more shareholders may elect to purchase all, but not less than all, of the shares owned by the petitioning shareholder for their fair value. *** (2) If the election to purchase is filed by one or more shareholders, the corporation shall, within 10 days thereafter, give written notice to all shareholders. *** (4) After an election has been filed by the corporation or one or more shareholders, the proceeding filed under this Section may not be discontinued or settled *** unless the court determines that it would be equitable to the corporation and the shareholders. 805 ILCS 5/12.56(f) (West 2002). The legislature based the provisions of section 12.56(f) on section 14.34 of the Model Business Corporation Act (Model Act). See Hamlin v. Harbaugh Enterprises, Inc., 324 Ill. App. 3d 612, 618-19 (2001); 3 ABA Model Business Corporation Act Ann.

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