When an injunction is not an injunction--Part II

Continuing our discussion of the Illinois Appellate Court case Santella v. Kolton, in the second part of the opinion, the court determined that it lacked jurisdiction to hear the appeal of a trial court order requiring the return of bonus money paid to the individual defendants who were officers of a close corporation.

The order requiring the return of bonus money was found to be an injunction but the appellate court declined to assert jurisdiction on this aspect of the order as well. Rule 307(a)(1) only grants jurisdiction for appeals of injunctions “that merely preserve the status quo pending a decision on the merits, conclude no rights, and are limited in duration, in no case extending beyond the conclusion of the action.” As the mandated return of money altered the status quo and did not provide for the return of the money to the defendants, it was a permanent injunction and jurisdiction was not available under Rule 307(a)(1). The court refused jurisdiction under Rule 304, which provides for appeal of final judgments that do not dispose of an entire proceeding, because the trial court did not provide the requisite finding that no just reason exists to delay enforcement or appeal of the order.

Parties seeking to appeal injunction orders now need to be especially vigilant to ensure that the order has the necessary language that it is temporary, that is, that it lasts only until a further order or to the end of the case. The court’s decision that Rule 307 does not permit the appeal of mandatory injunctions will cause problems. Parties will argue over whether the injunction was mandatory or prohibitory. What should be a fast vehicle to review the propriety of a preliminary injunction will morph into arguments over the meaning of the rule. If this cannot be changed by another appellate opinion, the rule itself should be amended.

When an injunction is not an injunction

In Santella v Kolton, a derivative and individual action alleging corporate waste and mismanagement of a close corporation, the plaintiff filed an emergency motion to enjoin the defendants from dissipating assets of the company and remove the m as officers pursuant to Illinois Business Corporation Act § 12.56. After an evidentiary hearing, the trial court ordered the defendant officers replaced and three years of their bonuses returned to the company. The defendants then appealed the trial court’s order under the Illinois rule permitting an interlocutory appeal from orders “granting, modifying, refusing, dissolving, or refusing to dissolve or modify an injunction.”

The appellate court never reached the merits. It held that under Rule 307(a)(1), the order removing the officers was not appealable for these reasons:

  • Removing the individual defendants as officers and directors did not operate in personam as they were not required to do or refrain from doing a particular thing.
  • Their removal was a statutory remedy that changed their legal status within the corporation.
  • Requiring the return of bonus money lacked a temporal scope and thus was permanent and not temporary.

Preliminary injunction orders that lack a temporal scope are often deemed overbroad; they should be written to end upon the conclusion of the trial on the merits or some other event. In support of its determination that there was no injunctive action in removing the officers and directors, the court cites a treatise and the CJS for the proposition that the removal of officers or directors cannot be done through an injunction. 

While removal of the officers is a statutory remedy, the statute also provides that injunctions can be entered to enforce its provisions. This may be the first case that decided that the Act provided a remedy easier to obtain than an injunction and impossible to appeal as an injunction. The statements about the lack of in personam jurisdiction ignored that they were removed from their positions and restrained from exercising their rights as officers. 

The other half of the opinion will be commented upon tomorrow.