Munroe-Diamond v. Munroe , 2019 IL App (1st) 172966 ( 2019 )

2018 IL App (1st) 172966THIRD DIVISION
January 16, 2019
No. 1-17-2966
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST JUDICIAL DISTRICT
______________________________________________________________________________
BARBARA MUNROE-DIAMOND and SALLY )
SHARKEY, ) Appeal from the
) Circuit Court of
Plaintiffs-Appellees, ) Cook County
)
v. ) 16 CH 12292
)
JAMES P. MUNROE and MICHAEL F. MUNROE, ) Honorable
) Rodolfo Garcia
Defendants-Appellants. ) Judge Presiding
)
_____________________________________________________________________________
JUSTICE ELLIS delivered the judgment of the court, with opinion.
Presiding Justice Fitzgerald Smith and Justice Cobbs concurred in the judgment and
opinion.
OPINION
¶1 The question here involves the right of a corporate director in Illinois to demand
inspection of corporate books and records. Is the right unqualified? Need the director have a
legitimate purpose? And which side bears the burden of proof? No statute answers the question,
and the case law is surprisingly sparse.
¶ 2 BACKGROUND
¶3 The parties to this appeal are siblings and the shareholders and directors of the Pickens-
Kane Moving and Storage Company (Company).
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¶4 In winter 2013, the board of directors hired Ft. Dearborn Partners, Inc. (the Valuator) to
provide a fair market valuation of the Company’s stock. The next summer, the Valuator issued a
report opining that the Company’s stock was worth $3158 per share for controlling shares and
$1522 per share for minority shares. Defendants (the Brothers) owned controlling shares;
plaintiffs (the Sisters) owned minority shares.
¶5 Due to the valuation, the board of directors unanimously authorized the Company to
redeem minority shares for $1522 per share. In early 2015, following some price negotiation, the
Company paid $1660 per share for minority shares. The Sisters were the only minority
shareholders who did not redeem their stock. The four parties here are the only remaining
shareholders in the Company and each is on the board of directors.
¶6 On July 5, 2016, the Sisters made a “demand upon the Corporation to make available for
inspection and copying any and all documents (including electronic data) pertaining to each and
every one of the following categories.” The demand listed 24 categories including the Corporate
Minute Book, stock certificates, lists of assets and liabilities, etc. The Brothers refused to comply
with this demand because “no purpose was put forward as to why [the Sisters] need such
documents, nor how these documents relate to their duties as directors.”
¶7 A week later, the Sisters made a second demand. They believed the Brothers’ refusal was
“without merit because it is inconsistent with Illinois law *** and ‘Directors have an ‘absolute’
and ‘unqualified’ right to examine [the corporation’s] books and records.” Again, the Brothers
refused to produce, but this time tried to negotiate a sale price in lieu of production. The Sisters
tried to reach a settlement, but the Brothers “rejected [it] in its entirety.” The Sisters made a final
demand, to some avail. The Brothers rejected a complete production, but they did agree, “in the
spirit of good faith and cooperation,” to produce a limited amount of the documents requested.
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¶8 The Sisters filed this mandamus action a week later. The Brothers filed an answer,
denying that they refused to allow access to corporate records. As affirmative defenses, the
Brothers claimed “this litigation was commenced for the sole and exclusive purpose of forcing
the Defendants to either purchase the Plaintiffs’ stock at an excessive premium, or forcing the
Corporation to liquidate, close its doors and put over 100 employees out of a job.” In their eyes,
the Sisters were angry that their minority shares weren’t worth as much as the Brothers’
controlling ones. The Brothers claimed the requests were “overbroad, unduly burdensome and
disproportionate requests for documents for the sole purpose of harassing Defendants and not for
a good faith purpose in [their] role as Director of the Corporation.”
¶9 The Sisters moved to strike the affirmative defenses and for judgment on the pleadings.
The circuit court entered an interim order requiring the Brothers to allow access to the books.
The court entered and continued the motion pending further argument on how to protect
customer information stored at the same location as the corporate records. After additional
briefing, the court entered its final mandamus judgment. The trial court found that “Plaintiff
directors have an absolute and unqualified right to examine the books and records of the
Corporation *** [and] the Defendants as both officers and directors of the Corporation are in
actual control and have a duty to cooperate and afford the Plaintiff directors equal and reasonable
access in their examination of corporate affairs.” As for the affirmative defenses, it found they
“do not allege facts that are relevant to the Plaintiffs’ efforts to inspect corporate books and
records and property, and thus do not state valid defenses to the Mandamus action.” Finding no
genuine issue of material fact on the pleadings, the court entered judgment in favor of the Sisters.
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¶ 10 ANALYSIS
¶ 11 The Brothers argue that their affirmative defenses should not have been stricken, that
questions of fact precluded judgment on the pleadings, and that compliance with the interim
order mooted the mandamus claim. Primarily, they contend that, because they allowed access to
some of the records there is a question of fact about whether they “denied” the Sisters access.
This argument is based on the view that a director’s right to corporate records must be related, in
some way, to her official duties as a director. The Sisters argue that limiting access to records is
denying access, because they have an absolute and unqualified right to access corporate records.
¶ 12 I
¶ 13 As we will see, a pivotal question here is whether a corporate director has the unqualified
right to examine corporate books and records, or whether that right is qualified by the director
having a “proper purpose” for doing so—and if it’s the latter, which party bears the burden of
proof on the question. We start with a little history—on the rights of corporate shareholders, not
directors. Our decision does not concern shareholders, but the comparison will prove helpful.
¶ 14 At the common law, shareholders had the right to inspect the records and books of the
corporation, but the shareholder had to show a specific interest or proper purpose—beyond idle
curiosity—to justify the inspection. Morris v. Broadview, Inc., 385 Ill. 228, 232 (1944). With the
enactment of the General Incorporation Act of 1872 (see Ill. Rev. Stat. 1874, c. 32, § 13), the
common law was abrogated; the consideration of a “proper purpose” was not eliminated, but the
burden shifted—the shareholder was no longer required to demonstrate a proper purpose for the
inspection on the front end, but the corporation could deny access if it carried the burden of
demonstrating an improper purpose. Morris, 385 Ill. at 232; Stone v. Kellogg, 165 Ill. 192(1896). The burden shifted back with the passage of the Business Corporation Act of 1933,
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which placed certain limitations on the shareholder’s right to inspect, including that the
inspection be for “proper purposes.” Morris, 385 Ill. at 233. That remains the case today: the
Business Corporations Act of 1983 likewise provides a shareholder’s right to inspect corporate
books, “but only for a proper purpose.” 805 ILCS 5/7.75 (West 2016); see ICD Publications, Inc.
v. Gittlitz, 2014 IL App (1st) 133277, ¶ 86.
¶ 15 But there is no corresponding legislative provision for corporate directors, nor, so far as
we can discern, has Illinois ever had one. That leaves us only with the common law—court
decisions construing the corporate director’s right to inspect records. They are surprisingly few
in number.
¶ 16 We start with an 1895 decision from the appellate court, cognizant that it has no binding
authority. Bryson v. News America Publications, Inc., 174 Ill. 2d 77, 95 (1996) (“Appellate court
decisions issued prior to 1935 had no binding authority.”). But it was followed by a supreme
court decision affirming it—which, of course, is binding authority—and it provides much-
needed context.
¶ 17 In Stone v. Kellogg, 62 Ill. App. 444, 463 (1895), we held that Kellogg, a corporate
director (and shareholder), had the right to inspect corporate books and records. In making his
request to Central Union Telephone Company, a request he incorporated into his complaint,
Kellogg meticulously cited what he believed to be pervasive conflicts of interest and self-dealing
between Central Union and its parent company, which profited the parent to the expense of
Central Union. Id. at 446-54. He added that he sought access to various books as records both as
director and shareholder of Central Union, that he had no interests adverse to the company, only
to secure “honest and efficient management,” and that he was willing to conduct his examination
during reasonable business hours. Id. at 454, 456.
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¶ 18 When the company denied him the full access he requested, Kellogg sought a writ of
mandamus. In answering the writ, the corporation claimed that Kellogg had no interest in
ascertaining facts that he was “legitimately entitled to know,” but rather “to discover some
possible ground of attack upon said company and its management, contrary to the interests of
said company, and for the private advantage of the petitioner.” Id. at 460. It claimed that it never
denied Kellogg access to those documents he was “lawfully entitled to examine.” Id. Kellogg
filed a demurrer to the answer, and the trial court sustained it, granting him full access.
¶ 19 We affirmed. We rejected the notion that the corporation had the right to withhold
documents or to decide “how much of the records and affairs of the company all or any of its
directors may legitimately ‘know.’ ” Id. at 461. We said:
“It is not merely the right of petitioner to examine the records and books of
account of the company in which he is a director—it is his duty, if he has reason to think
that they contain that, a knowledge of which, if obtained by him, will be of service to
stockholders, the trust off all of whom he is.
***
The fact that a director is suspicious that affairs are not properly or judiciously
managed, is a reason why he should investigate; nor are we able to perceive any good
reason why a suspicious stockholder can be turned aside with the answer that his
suspicion is a mere caprice or his motives bad.” Id. at 463.
¶ 20 Our supreme court affirmed. Stone v. Kellogg, 165 Ill. 192 (1896). The court opened, one
introductory sentence aside, with this passage:
“[Kellogg] is both a stockholder and a director in the company. As a stockholder
owning more than $75,000 at its face value of the capital stock he had large interests to
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protect, and as a director he had important duties to perform. In both capacities he had
the undoubted right to inform himself (and, if necessary, by examination of the records,
books, and papers of the company at reasonable and proper times) as to the affairs and
condition of the company for the better protection of his own interests and the
performance of his duties. The petition was amply sufficient, and, unless it can be said
that the answer showed sufficient reason for refusing the writ, the judgment of the courts
below granting it must be affirmed.” (Emphases added.) Id. at 203-04.
¶ 21 The court then devoted nearly its entire substantive discussion to Kellogg’s rights as a
shareholder (we might presume because far more decisional law had developed on that question).
See id. at 204-07. In any event, the court then wrote: “As a director and stockholder, [Kellogg]
was legitimately entitled to know anything and everything which the records, books, and papers
of the company would inform him, so far as anything in the answer shows to the contrary.” Id. at
206. For that proposition, the court cited People ex rel. Muir v. Throop, 12 Wend. 185, 1834 WL
2986 (N.Y. Sup. Ct. 1834), in which the New York court ruled that a corporate director had the
right to inspect the corporate books. Our supreme court then found that “[t]here was no sufficient
allegation in the answer *** that the object and purpose of the petitioner was not legitimate, or
was to injure the corporation. It is no sufficient answer to such a petition to impugn the motives
of the petitioner.” (Emphasis added.) Stone, 165 Ill. at 206.
¶ 22 While it’s fair to say that this brief decision focused more on shareholders than it did on
corporate directors, the supreme court clearly applied its reasoning to both shareholders and
directors equally, saying so at the beginning and near the end of the opinion, and citing the
Throop case that dealt solely with corporate directors. There is no reasonable way to interpret the
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Stone decision otherwise. As of that decision in 1896, corporate directors had the same rights of
inspection as shareholders—no more, no less.
¶ 23 So that means that, as of 1896 at least, both shareholders and corporate directors had the
presumptive right to inspect any and all corporate records, “unless it [could] be said that the
answer show[ed] sufficient reason for refusing the writ.” Id. at 203-04. That is, the right was not
unqualified, but presumptive—the burden was on the corporation to demonstrate a “sufficient
reason” for refusing the writ, namely that the “object and purpose” of the inspection “was not
legitimate” or was “to injure the corporation.” Id. at 206.
¶ 24 That’s consistent with everything we know about shareholders’ rights at the time, and
consistent with how the supreme court explained that history 48 years later in Morris, as we
discussed above. No statute provided for corporate directors’ inspection rights in 1896—nor does
one today—but a statute did exist regarding shareholder inspection rights—section 13 of the
General Incorporation Act of 1872. See id. at 204-05 (referencing statute). That provision did not
require that the shareholder provide a proper purpose for requesting inspection on the front end.
See Morris, 385 Ill. at 232 (“The shareholder was not required, under that section, to show any
reason or occasion rendering an examination proper.”).
¶ 25 But as Morris explained, the supreme court’s Stone decision added a judicial caveat to
that shareholder right: if the corporate custodian “had reason to believe that the shareholder’s
purpose was improper or illegitimate, and refused access to the books and records on that
ground[,] the burden was on him to prove it.” Id. That rule, said the court in Morris, “was
consistently adhered to by this court from the early case of Stone v. Kellogg, 165 Ill. 192 ***
until the passage of the 1933 Business Corporation Act.” Id. And as we’ve said, what was true
for shareholders under Stone was true for directors—the same test—even if the shareholder’s
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inspection right was a combination of statute and judicial caveat, while the director’s right was
borne purely of common law.
¶ 26 So that’s where we stood from 1896 to 1933: directors and shareholders had a
presumptive right to inspect corporate books and records, per Stone, and the burden was on the
corporation to prove that the purpose of the director or shareholder was improper. Of course, as
we’ve explained already and as Morris noted, for shareholders, that rule changed with the new
Business Corporations Act of 1933, which shifted the initial burden back on the shareholder,
who had to demonstrate “proper purposes” for the inspection of corporate documents. Morris,
385 Ill. at 233. And it remains that way today. See 805 ILCS 5/7.75 (West 2016) (shareholder
may inspect corporate records “but only for a proper purpose”).
¶ 27 But for corporate directors? The rule never changed. No statute exists, or as far as we can
tell, ever existed, abrogating the common law. And no supreme court decision has overruled its
Stone decision. So for corporate directors, what was true in 1896 is true today: In Illinois,
corporate directors have the presumptive right to inspect corporate books and records, and the
burden falls on the corporation to show that the request is for an improper purpose.
¶ 28 Since 1896, two appellate decisions have addressed the inspection rights of corporate
directors. One of them, we think, could be reconciled with Stone. One of them cannot.
¶ 29 Sixty-three years after Stone, we held that a corporate director, Kunin, was entitled to a
writ of mandamus to obtain copies of the corporate auditor’s reports for 1956 and 1957. Kunin v.
Forman Realty Corp., 21 Ill. App. 2d 221, 227 (1959). The auditing reports were made for the
directors; they were addressed to them. Id. at 224-25. But the corporation only made two
photocopies of the 1957 report and 14 copies of the 1956 report. Id. at 224. The corporation
offered to let Kunin see the reports and take notes, but he couldn’t keep them. Id. at 223.
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¶ 30 We reversed the trial court and remanded for an entry of the writ. The law could not
“tolerate[]” that an auditing book would be kept from a corporate director—the very person for
whom it had been prepared. Id. at 226. Instead, “executive officers of a corporation and members
of a board of directors must cooperate to afford equal and reasonable facilities to all members of
the board in their examination of the affairs of the company.” Id. For this reasoning, we relied on
the decision of the appellate court, not the supreme court, in Stone.
¶ 31 We did leave room for the possibility, however, that there might be a “genuine basis for a
director’s being denied this privilege,” though we said “it should be asserted openly and be made
the basis for a legal objection.” Id. There, one basis had been claimed—an accountant-client
privilege, which we easily rejected because, of course, Kunin was the client. Id. at 227. We also
“conceived” that it might be unreasonable to request inspection of certain documents, “such as
the Coca-Cola formula.” Id. at 225.
¶ 32 Kunin is a rather silly case on its facts, given the ludicrous position of the corporation, but
even though it never mentioned the supreme court decision in Stone, it is consistent with it. We
allowed for the possibility of a “genuine basis” for denying the director’s right to inspect
corporate documents—another way of saying that the director’s inspection rights were not
unqualified. An appellate decision couldn’t overrule a supreme court decision in any event, but
for what it’s worth, the rule remained intact, if stated slightly differently in Kunin: the corporate
director had the presumptive right to inspect corporate documents, and the corporation bore the
burden of establishing that the request was for an illegitimate or improper purpose.
¶ 33 But forty-eight years later, in 2007, in Semande v. Estes, 374 Ill. App. 3d 468, 472
(2007), we wrote this:
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“[A] director’s right to inspection is even broader than a shareholder’s.
See O'Neal v. Home Town Bank of Villa Rica, 237 Ga. App. 325, 514 S.E.2d 669 (Ga.
App. Ct. 1999). Directors have an “absolute” and “unqualified” right to examine books
and records (18A Am Jur.2d Corporations § 297, at 170 (2d ed.2004)), while
shareholders may only examine corporate books for a “proper purpose” (805 ILCS
5/7.75(c) (West 2006)).” (Emphasis added.)
¶ 34 We should first point out that this language above bordered on dicta. The question in
Semande was whether a corporate director could pierce the corporate veil; the court held that it
could not, and gave many reasons for that holding, including that shareholders can’t pierce the
corporate veil, and because directors have (in the court’s words) an even broader power to
inspect documents, they thus “have the ability to determine the financial condition of the
corporation and do not need the equitable protection afforded to third party creditors who may
have been injured.” Id.
¶ 35 In any event, essential to the court’s holding or not, this statement of the law cannot be
reconciled with the supreme court’s Stone decision. Under Stone, the director’s inspection right
can be rebutted if the corporation carries its burden of proving an improper purpose. It is not, as
Semande wrote, an “absolute” or “unqualified” right. To that extent, Semande is incorrect.
¶ 36 Here, the Sisters cite Semande for that very proposition, that as corporate directors, they
have the absolute and unqualified right to examine books and records. So did the trial court, in
entering judgment on the pleadings in the Sisters’ favor. For the reasons stated, we disagree and
reject Semande on this proposition of law.
¶ 37 We should not be understood as holding that the inspection rights of directors and
shareholders are entirely coextensive. They are not. For one, as noted, shareholders must
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establish a proper purpose as a precondition to inspection, and they carry the burden of proving a
proper purpose in a court action. See 805 ILCS 5/7.75(b), (c) (West 2016). But the opposite is
true for corporate directors, who have a presumptive right that must be rebutted, by proof of an
improper purpose, by the corporation.
¶ 38 And that’s not the only difference. Shareholders are only entitled to certain records of the
corporation. See 805 ILCS 5/7.75(b) (West 2016) (shareholders may inspect “the corporation's
books and records of account, minutes, voting trust agreements filed with the corporation and
record of shareholders ***”). As there is no statutory provision governing directors’ inspection
rights, there is likewise no statutory limitation on the books and records they may request.
¶ 39 After all, courts have recognized that corporate directors have “important duties to
perform.” Stone, 165 Ill. at 203. Indeed, “ ‘[d]irectors owe a fiduciary duty to their corporations
and to their shareholders.’ ” Illinois Non-Profit Risk Management Ass’n v. Human Services
Center. of South Metro-East, 378 Ill. App. 3d 713, 727 (2008) (quoting Stamp v. Touche Ross &
Co., 263 Ill. App. 3d 1010, 1015 (1993)); accord Kovac v. Barron, 2014 IL App (2d) 121100, ¶
64. Thus, “ ‘[i]t is not merely the right of [a director] to examine the records and books of
account of the company in which he is a director—it is his duty.’ ” Kunin, 21 Ill. App. 2d at 226
(quoting Stone, 62 Ill. App. at 463). So while the standard of a “proper purpose” is relevant to the
inspection rights of both shareholders and directors, what is “proper” for a corporate director and
what is “proper” for a shareholder may not always be the same.
¶ 40 In sum, the inspection right of corporate directors in Illinois remains the same as it was in
1896, when our supreme court last spoke on the issue in Stone. The Sisters, as corporate
directors, have a presumptive right to inspect the corporate books and records, unless the
Brothers can carry their burden of proving that their purpose for inspection is improper.
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¶ 41 II
¶ 42 The question then becomes whether judgment on the pleadings was properly entered in
the Sisters’ favor. We review that question de novo. Pekin Insurance Co. v. Allstate Insurance
Co., 329 Ill. App. 3d 46, 49 (2002). “Any party may seasonably move for judgment on the
pleadings.” 735 ILCS 5/2-615(e). In considering judgment on the pleadings, the court may only
consider the face of the pleadings, matters subject to judicial notice, and judicial admissions.
Gillen v. State Farm Mutual Automobile Insurance Company, 215 Ill. 2d 381, 385 (2005). A
motion for judgment on the pleadings determines “whether there is an issue of fact or whether
the controversy can be resolved as a matter of law.” Pekin, 329 Ill. App. 3d at 49. Judgment on
the pleadings is only proper where “the pleadings disclose no genuine issue of material fact.”
Gillen, 215 Ill. 2d at 385. The denial of an allegation or a well-pleaded affirmative defense
precludes judgment on the pleadings where they raise an issue of material fact. Continental
Casualty Company v. Cuda, 306 Ill. App. 3d 340, 347 (1999).
¶ 43 For the reasons we have just explained above, the Sisters have a presumptive right to
inspect the corporate documents here, a right that can be denied only if the Brothers carry their
burden of demonstrating that the Sisters’ purpose for the inspection is improper or illegitimate.
So the first question is whether the Brothers have raised the claim of an improper purpose.
¶ 44 They have. In their affirmative defenses to the writ, the Brothers assert, among other
things, that “[t]his litigation was commenced for the sole and exclusive purpose of forcing the
[Brothers] to either purchase the Plaintiffs' stock at an excessive premium, or forcing the
Corporation to liquidate, close its doors and put over 100 employees out of a job.” They allege
that the Sisters “brought this action in an attempt to leverage a buyout of their shares of the
Corporation at a higher value than is appropriate” and that they have “made numerous
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overbroad, unduly burdensome and disproportionate requests for documents for the sole purpose
of harassing [the Brothers] and not for a good faith purpose” in their roles as Directors of the
Corporation. The Brothers have adequately pleaded that the “object and purpose” of the
inspection “was not legitimate,” that it was unrelated to performing their roles as directors, and
that it was intended to “injure the corporation.” Stone, 165 Ill. at 206.
¶ 45 Granted, they did so in a somewhat clunky fashion. They styled their claims under the
affirmative defense of “unclean hands.” But at the pleading stage, we have never exalted form
over substance. “No pleading is bad in substance which contains such information as reasonably
informs the opposite party of the nature of the claim or defense which he or she is called upon to
meet.” 735 ILCS 5/2–612(b) (West 2016). Courts should not view pleadings as technical
obstacles but, instead, should construe them liberally to do substantial justice between the
parties. Papadakis v. Fitness 19 IL 116, LLC, 2018 IL App (1st) 170388, ¶ 21. The purpose of
pleadings is to inform the court and the parties “ ‘of the legal theories relied upon and to give
notice of the factual issues which are to be tried.’ ” Id. (quoting People v. $1,124,905 U.S.
Currency & One 1988 Chevrolet Astro Van, 177 Ill. 2d 314, 335 (1997)).
¶ 46 The Brothers’ answer and affirmative defenses accomplished that mission. The Sisters
clearly understand, in factual detail, what the Brothers are alleging regarding their allegedly
improper purpose in seeking inspection of the books and records.
¶ 47 In Stone, 165 Ill. at 206, 46 N.E. 222, the supreme court affirmed a demurrer to the
corporation's answer, finding no question of fact presented on the pleadings. But there, the
director had laid out in exquisite detail the conflicts of interest and self-dealing that led him, as a
concerned director (and major shareholder), to seek inspection of the corporate books. And the
corporation's only response was, in essence, that the director was only allowed to see certain
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things, he already saw them, and he was just trying to find a way to hurt the company. Id. at 205­
06, 46 N.E. 222; see also Stone, 62 Ill. App. at 460. That was a clearly insufficient rebuttal.
¶ 48 Here, in contrast, the Brothers have pleaded factually specific allegations that the Sisters
have been holding out for more money for their shares and are using this rather ambitious
inspection demand as a cudgel to get that better offer. Given the liberality with which we
interpret pleadings, interpreting them in the light most favorable to the pleader and drawing all
reasonable inferences in its favor, we cannot say that the Brothers’ defense is invalid as a matter
of law at the pleading stage, as did the court in Stone.
¶ 49 But we emphasize that we express no opinion on the merits of the Brothers’ defense. The
Brothers will have the burden of proving that the Sisters’ purpose for the inspection demand was
to threaten the viability of the entire company and/or to coerce the Brothers into capitulating on
the Sisters’ demand for a higher price for their shares of stock. It is not altogether clear to us how
asking the company to open its warehouse for the inspection of documents would threaten the
company’s very existence, but the Brothers will have an opportunity to prove that. Nor have we
heard from the Sisters on the merits of this defense; as we have explained, they had no obligation
on the front end to plead a proper purpose, and they have not done so. The Sisters, in arguing
against the Brothers’ defense, may articulate a valid purpose of their own for inspection as well
as attacking the purpose attributed to them by the Brothers. It is far too early for us to take sides
in this factual dispute. We hold only that, at the pleading stage, we cannot say that the Brothers’
defense of improper purpose is insufficient as a matter of law.
¶ 50 As a question of fact exists as to whether the Sisters had a proper purpose for their
inspection demand, judgment on the pleadings in the Sisters’ favor was error. Gillen, 215 Ill. 2d
at 385; Cuda, 306 Ill. App. 3d at 347. We vacate that ruling and remand for further proceedings.
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¶ 51 III
¶ 52 Because we are remanding, we should address the question of the affirmative defense of
unclean hands. We have just held that two allegations contained within that affirmative defense
were more properly cast as claims of improper purpose. Nothing we say here changes that. But
the remainder of that defense, pleaded in two separate counts, was properly stricken.
¶ 53 The “unclean hands” doctrine is grounded in the principle that “he who seeks equity must
do equity,” and a party should not be allowed to profit from its own wrongdoing. In re Estate of
Opalinska, 2015 IL App (1st) 143407, ¶ 32; Gambino v. Boulevard Mortgage Corp., 398 Ill.
App. 3d 21, 60 (2009). That is, a party who has been guilty of misconduct, fraud, or bad faith in
connection with the matter in dispute may not seek equitable relief from the court and thereby
enlist the court’s aid in furthering that wrongdoing. Jackson v. Board of Election Commissioners
of City of Chicago, 2012 IL 111928, ¶ 26.
¶ 54 That’s where the remainder of the unclean-hands defense asserted here runs into a
problem—the plaintiff’s wrongdoing comprising the unclean-hands defense must be directly
related to the plaintiff’s request for relief in the case before the court. Id. Imagine a plaintiff who
fraudulently induces the defendant to sign a contract, then sues that defendant for payments on
that very contract. Or an insured who lies about her health on an insurance policy, then once the
insurer becomes the wiser and revokes the policy, sues to collect interest on the premiums paid
to date. See Long v. Kemper Life Insurance Co., 196 Ill. App. 3d 216, 219 (1990). In those
examples, the plaintiff seeks to profit from wrongdoing directly related to the case.
¶ 55 But it’s not enough to claim that the plaintiff did something else wrongful, in another
(even related) context; a nexus must exist between the wrongdoing and the relief sought in court.
For example, if a plaintiff buys real property but fails to record it because he wants to avoid
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housing-code fines, he is not later barred from an action to quiet title on the property, because his
wrongdoing in not recording the title had nothing to do with the separate purchase contract with
the defendants. See Cole v. Guy, 183 Ill. App. 3d 768, 776-77 (1989).
¶ 56 Nor is an heiress equitably barred from inheriting her murdered mother’s estate, even
though she committed perjury and obstruction of justice during the police’s homicide
investigation, because the heiress “stood to inherit her mother’s estate regardless of whether she
cooperated with the law enforcement and the grand jury. If she receives her mother’s estate, it
will not be because of her acts of perjury and obstruction of justice.” Estate of Opalinska, 2015
IL App (1st) 143407, ¶ 33. Citing bad acts by the plaintiff, alone, is not enough. The plaintiff
must be viewed as using the court as a vehicle to profit from that very wrongdoing.
¶ 57 Here, aside from the allegations of improper purpose we already discussed, the
affirmative defense cites the following allegations of wrongdoing by the Sisters:
(1) Mrs. Munroe-Diamond, one of the sisters, has borrowed $77,340.40 from the
corporation and not repaid it;
(2) The other sister, Mrs. Sharkey, after initially voting as directors to redeem minority
shares at $1,522 per share, “helped lead an off-site meeting with several of the
minority shareholders in an effort to persuade them to reject the $1,522 per share
offer and hold out for a higher offer;” and
(3) After the corporation upped its offer to $1,660 per share, the Sisters “were the only
minority shareholders who chose not to redeem their shares.”
¶ 58 Munroe-Diamond’s alleged debt to the corporation has nothing to do with her entitlement
to review the corporate books and accounts. Nor does the fact that Sharkey organized a meeting
to discuss the original redemption offer. Likewise, the fact that the Sisters turned down the initial
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and upgraded offers to redeem their shares, by itself, is irrelevant to their right to demand
inspection of corporate records in their capacity as directors of the corporation. Some of these
claims might make for nice factual background for the claim of improper purpose, but they are
not freestanding, independent acts constituting unclean hands and were properly stricken.
¶ 59 IV
¶ 60 Finally, we briefly address the Brothers’ mootness argument, typically an issue we would
address preliminarily, but an understanding of the relevant legal doctrines was helpful
background to cast this argument in its proper light.
¶ 61 “A mandamus petition will be dismissed as moot if no actual rights or interests of the
parties remain or if events occur that make it impossible for the court to grant effectual relief to
either party.” Jackson v. Peters, 251 Ill. App. 3d 865, 867 (mandamus claim was moot because
visitation privileges sought were restored prior to dismissal of claim). But that was not the state
of affairs in the trial court.
¶ 62 The Brothers say they complied with the interim order issued by the court, that “in the
weeks that followed” its entry, they acted “in full compliance with the Interim Order” and
cooperated with the Plaintiffs to provide them the access to the Corporation’s books and records
as requested.” Maybe so, but that interim order did not grant the Sisters the full access they
sought. Part of what they received was simply knowing where and how certain records were
stored. And the Brothers offered several years’ worth of certain information, claiming that the
Sisters couldn’t possibly need or want more than that. But the Sisters do, in fact, want more. And
unlike shareholders, who have statutory limitations on what they can inspect, directors have no
such limitation—provided they can defeat a claim of improper purpose.
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¶ 63 The Brothers’ argument is not unlike the argument made by the corporation in Stone, that
it complied with Kellogg’s request by giving him everything to which the corporation believed
Kellogg was lawfully entitled. Stone, 165 Ill. at 205-06; Stone, 62 Ill. App. at 460. We rejected
the notion that the corporation could decide for itself “how much of the records and affairs of the
company all or any of its directors may legitimately ‘know.’ ” Stone, 62 Ill. App. at 461. We do
so here, as well. The Sisters’ claims were not and are not moot.
¶ 64 CONCLUSION
¶ 65 The order entering judgment on the pleadings is vacated. The order striking the “unclean
hands” defense is affirmed in part and reversed in part. The cause is remanded for further
proceedings.
¶ 66 Vacated in part, affirmed in part, reversed in part; remanded.
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