Emergency Business Litigation : Chicago Business Crisis Lawyer & Attorney : Tom Patterson Law Firm : IL Emergency Business Litigation, Temporary Restraining Orders

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.

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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.

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A few days after the Court granted the Bank of America’s motion for an ex parte TRO, the Federal Deposit Insurance Corporation (“FDIC”), in its capacity as receiver for Colonial Bank, was substituted as the real party in the case, and moved the court to dissolve the TRO. The FDIC argued that, pursuant to 12 U.S.C. § 1821 (j), the Court lacked subject matter jurisdiction to restrain the FDIC in exercising its powers and functions as a receiver. Because the Court determined that the sale proceeds and loan agreements, which the Bank seeks the return of, are outside the receivership estate, it denied the FDIC’s jurisdiction argument.

Of interest to me today, however, is the fact that the FDIC admitted, in its motion to dissolve the TRO, that the Court properly issued the injunction. While declining to torture the FDIC with this admission, the Court noted that there may have been “public interest considerations contemplated by the injunctive-relief analysis,” in light of Colonial Bank’s collapse and subsequent involvement of the FDIC, but the FDIC’s failed to raise the issue. The FDIC could have strengthen its motion if it demonstrated how the four factor test weighed against the issuance of an injunction, emphasizing the public interest in supporting the FDIC in its role as receiver.

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