Lohr v. Havens ( 2007 )

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
plaintiff’s shares under section 12.56(f) of the Act. The trial
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 privately-
held 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
Plaintiff Charles R. Lohr Pursuant to 805 ILCS 5/12.56(f)." The
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 shareholder’s shares as a remedy in lieu of
dissolution. 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. §14.34 (3d
ed. Supp. 2000, 2001, 2002). Section 14.34 of the Model Act
outlines the requirements for filing an election to purchase a
petitioning shareholder’s stock. Like the Illinois Act, section
14.34(b) provides for an election to purchase within 90 days after
the filing of a petition. Section 14.34(b) also requires notice to
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the other shareholders within 10 days. 3 ABA Model Business
Corporation Act Ann. §14.34(b) (3d ed. Supp. 2000, 2001, 2002).
The "historical background" of the Model Act states that
section 14.34 was added as an alternative to involuntary
dissolution to avoid the potentially devastating consequences of
dissolution and to provide greater flexibility and certainty to
closely held corporations. The comments note that the section does
so "by providing the corporation or the other shareholders a
limited right to purchase at fair value the shares of the
shareholder who has petitioned to dissolve the corporation." 3 ABA
Model Business Corporation Act Ann. §14.34, historical background,
(3d ed. Supp. 2000, 2001, 2002).
II. Notice Requirement under Section 12.56(f)(2)
On appeal, we are asked to determine whether a corporation’s
failure to provide notice of an election under section 12.56(f)(2)
renders the election defective. We believe that while a proper
election precludes a shareholder from dismissing a petition, a
valid election must include notice to the other shareholders. Both
the language and the intent of the Act support our conclusion.
First, to ascertain the meaning of a statute, we must seek
and, if possible, find the intention of the General Assembly in the
express language used in the statute. Segers v. Industrial
Commission, 191 Ill. 2d 421 (2000). The best evidence of
legislative intent is the words of the statute itself, which should
be given their plain and ordinary meaning. Krautsack v. Anderson,
223 Ill. 2d 541 (2006). Where the language is clear and
unambiguous, the statute will be given effect without resorting to
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other aids for construction. Krautsack, 223 Ill. 2d at 541. Courts
should not read language into a statute that does not exist.
Hamlin, 324 Ill. App. 3d at 618. The statutory provision must be
read as a whole and all relevant parts should be considered. Cole
v. State Department of Public Health, 329 Ill. App. 3d 261 (2002).
The plain language of the statute is clear and unambiguous.
Section 12.56(f)(2) states: "If the election to purchase is filed
*** the corporation shall, within 10 days, give written notice to
all shareholders." 805 ILCS 5/12.56(f)(2) (West 2002). Use of the
word "shall" appearing in a statute ordinarily imposes an
imperative duty. See Cole, 329 Ill. App. 3d at 264 (use of the
word "shall" will not be given a permissive meaning when used with
reference to any right or benefit to anyone). As we noted in
Hamlin, "courts must not depart from a statute’s plain language by
reading into it exceptions, limitations or conditions the
legislature did not express." Hamlin, 324 Ill. App. 3d at 618,
citing Newland v. Budget Rent-A-Car Systems, Inc., 319 Ill. App. 3d
452 (2001). The legislature did not express any exceptions or
limitations in section 12.56(f)(2). Accordingly, the notice
requirement is mandatory, not permissive, and must be given to all
shareholders within 10 days.
Second, the intent and purpose of section 12.56(f) indicate
that mandatory notice is required. The primary rule of statutory
construction is to ascertain and give effect to the true intent of
the legislature. Hamlin, 324 Ill. App. 3d 612. The purpose of the
election remedy is to provide the other shareholders a right to
purchase the shares of the petitioning shareholder’s stock at fair
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value in proportion to their percentage of shares. See 3 ABA Model
Business Corporation Act Ann. §14.34, historical background, (3d
ed. Supp. 2000, 2001, 2002). Statutory notice is essential to the
nonparty shareholders to protect that right. Notice to the
nonparty shareholders allows all shareholders to participate in the
election and protect their proportionate interest in the
corporation. See generally 805 ILCS 5/12.56 (West 2002); 3 ABA
Model Business Corporation Act Ann. §14.34, historical background,
(3 ed. Supp. 2000, 2001, 2002). If other shareholders are aware of
the number of shares a petitioning shareholder owns and the amount
an electing shareholder is willing to pay, they can determine
whether they wish to participate in the election proceeding.
Mandatory notification promotes that purpose.
Therefore, we conclude that (1) notice of an election must be
given to the other shareholders within 10 days, and (2) an election
is invalid if the corporation fails to comply with section
12.56(f)(2).
III. Consideration of Equities under Section 12.56(f)(4)
Next, Havens claims under section 12.56(f)(4) the court was
required to conduct a hearing to assess the equities before
allowing a voluntary dismissal. We disagree.
We determine the intent of the legislature by reading the
statute as a whole and considering all of its relevant parts. See
Sylvester v. Industrial Commission, 197 Ill. 2d 225 (2001)
(declining to read subsections of a statute in isolation). We must
construe the statute so that each word, clause, and sentence is
given a reasonable meaning and not rendered superfluous, avoiding
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an interpretation that would render any portion of the statute
meaningless or void. Sylvester, 197 Ill. 2d at 232.
Section 12.56(f)(4) prohibits the dismissal of a claim "after
an election has been filed by the corporation or one or more
shareholders *** unless the court determines that it would be
equitable [to the parties] to permit the discontinuance." 805 ILCS
5/12.56(f)(4) (West 2002). When reading section 12.56(f)(4) in
light of section 12.56(f) as a whole, the term "after an election
has been filed" becomes crucial to our analysis. Section
12.56(f)(4) comes after section 12.56(f)(2) within the procedural
scheme of the election statute. Its location within the election
statute presumes notice required under the preceding subsection has
been given to the remaining shareholders. We have already
determined that the words chosen by the legislature in section
12.56(f)(4) assume that notice has been given and is part of the
process of filing an election. If notice is not given, a valid
election has not been made. Since the corporation failed to give
the shareholders notice of the election, the election was not
effective. Thus, a hearing to determine the equities is not
appropriate in this case.
Nevertheless, Havens cites Hamlin as support for his position
that the trial court is vested with discretion to determine whether
the notification defect should be corrected. Hamlin, 324 Ill. App.
3d 612. In Hamlin, we held that the trial court was required to
conduct an evidentiary hearing to assess equities before allowing
a corporation to file an untimely election. The relevant statute
provided for the filing of an election "at such time determined by
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the court to be equitable." 805 ILCS 5/12.56(f) (West 2002).
Here, the trial court refused to conduct an evidentiary hearing
because the election was defective, not untimely. Further, the
statutory provision at issue in this case does not contain a
discretionary clause requiring the trial court to consider the
equities before making its determination. We therefore decline to
apply the holding in Hamlin to these circumstances.
Because the election in this case was defective, the trial
court properly allowed Lohr to voluntarily dismiss count I of his
complaint as a matter of law.
CONCLUSION
The judgment of the circuit court of La Salle County is
affirmed.
Affirmed.
MCDADE and WRIGHT, JJ., concurring.
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