When Do You Need A Preliminary Injunction In An Illinois Corporate Shareholder Dispute?

Illinois is supposed to be more shareholder friendly than Delaware. Its Business Corporation Act provides minority shareholders protections if the majority shareholders are

  1. committing waste;
  2. practicing fraud;
  3. acting illegally; or
  4. oppressing minority shareholders. 

There was an article in Business Law Today a while ago that contended that minority shares of stock are worthless apart from whatever rights were provided in a shareholders’ agreement, but I disagree: minority shareholders in Illinois--without any shareholders’ agreement-- have the rights given them by the Illinois Business Corporation Act (and this Act influenced the drafting of the Model Business Corporation Act). If they sue to vindicate these rights, the majority shareholders can elect to buy them out, and their buy out price is the fair value (not the fair market value) of their shares. 

Listing the rights given by statute begins to answer the question posed. If you are a minority shareholder, you need a preliminary injunction if the majority shareholders are doing one or more of the above acts and you or the corporation is going to be immediately irreparably harmed as a result. Waste of corporate assets might not be recoverable absent immediate action; an illegal act may cause the corporation to be sanctioned by law enforcement officials. Oppression is an elastic concept, but the standard is the reasonable expectation of the shareholders.   Most of these defalcations will diminish the goodwill of the corporation, a harm that is difficult to quantify, justifying a preliminary injunction.

In the midst of the ill-will that accompanies actions that necessitate shareholder actions, actual or threatened improper withdrawals from the corporation may require a preliminary injunction or temporary restraining order. Minority shareholders need to be vigilant in guarding the corporate purse. A preliminary injunction can be justified on a constructive trust theory (corporate money is a res that is the subject of dispute over whether the payment is proper). The Illinois Business Corporation Act codifies the court’s power to issue injunctions as well. And the Act provides panoply of remedies available to the court: appointment of a receiver or director, for example, and, more broadly, any order necessary.

Chris Rock's Movie Good Hair Prevails against Motions for Injunctive Relief

Regina Kimball was probably pleased when comedian Chris Rock requested to view her film, My Nappy Roots, a documentary that explores the politics, culture and history of African-American hair. However, this happiness inevitably faded after she saw a trailer for Rock’s film, Good Hair, in late September.   Kimball believed that Rock’s movie incorporated elements of her film, so she filed suit, alleging copyright infringement and requested that the Court enjoin the film’s October debut. (Kimball v. Rock, et. al., case number 2:09-cv-07249-DSF-E (C.D. Cal.)). However, U.S. District Court Judge Dale S. Fischer ultimately denied Kimball’s request for injunctive relief, and allowed the film to show.

To establish copyright infringement, two elements must be proven: (1) ownership of a valid copyright and (2) copying of constituent elements of the work that are similar. The Court refused to grant Kimball’s request for injunctive because she had failed to demonstrate a likelihood of success on the merits. 

First, even though her film debuted in 2005, Kimball’s copyright registration is still pending. The Court noted that there is a disagreement, among various Circuits, about whether a pending registration is enough to confer jurisdiction. 

Second, with regard to infringement, Kimball provided the following chart to demonstrate the similarities between the two films:

My Nappy Roots

Good Hair

Title connotes the perceived
negative end of the spectrum
of black hair
 

Title connotes the perceived
positive end of the
spectrum of black hair

Is socially and politically
conscious
 

Is socially and politically
conscious

Kimball was inspired to make
the film because of her daughter's
hair angst
 

Rock claims he was inspired
to make the film because of his
daughter's questions about
her hair
 

Includes an interview with a doctor
 

Includes an interview with a
dermatologist and Chemist
 

Includes an interview with hair
care [sic] George Johnson
 

Includes an interview with hair
care pioneer Joe Dudley

Tells story of weave with film
clips of India, focusing on
Tonsure ceremony at Temple
Tirumala Tirupati
 

Visits India to explore a principle
source of human hair, focusing
on Tonsure ceremony at Temple
Tirumala Tirupati

Has comedian Tommy Chung
for comedic relief
 

In addition to Rock, has comedian
Paul Mooney for comedic relief

Covers the business of black
hair care
 

Covers the business of black
hair care

Celebrities tell their own hair
stories
 

Celebrities tell their own hair
stories

Tour of manufacturing plant
where hair relaxers are made
 

Tour of manufacturing plant where
hair relaxers are made

Interviews Aleila Bundles
 

Interviews Aleia Bundles

Photos of Madame C.J. Walker
graduation ceremony
 

Footage of J. Dudley graduation
ceremony

Discuses controversy over inventor
of the "Jheri Curl"
 

Interviews Willie Morrow the
"self-proclaimed Jheri Curl
inventor"
 

Interviews Sam Enos, founder of BOBSA

Interviews Sam Enos, founder of
BOBSA

This chart did not convince the court. In particular, when it applied the substantial-similarity test, which has both an intrinsic and extrinsic component, the Court held that the two films differed with regard to their theme, plot, sequence of events, characters, dialogue, setting, mood and pace.  The court held that Good Hair is a comedic documentary, while My Nappy Roots takes a serious and holistic view, and is an authority on the history and social dynamics of African-American Hair. 

Ten Reasons Your Company Should Not File a Lawsuit To Resolve a Business Dispute

While I make my living suing people, I think all clients should be advised of the top ten reasons not to file a lawsuit. I offer this list:

  1. You owe your opponent more money than he or she owes you.
  2. You don’t want to turn over relevant documents to your opponent’s lawyer or they are already shredded.
  3. You fired all of your employees who are knowledgeable about the dispute.
  4. You lack the time to educate your lawyer about the dispute, retrieve relevant documents, or give a deposition.
  5. You think that all witnesses tell the truth.
  6. You regard yourself as superior to jurors or the Judge.
  7. You believe that just by filing the lawsuit, you will get a settlement.
  8. Your opponent has no money to pay a judgment.
  9. Your company or key witnesses must continue to do business with your opponent or his or her allies. 
  10. The cost of the lawsuit is more than you would benefit with total victory.

If none of your clients are now contemplating a lawsuit, print and save.