Carpenter v. Exelon Enter.S Co. LLC

• Decision Date: 18 March 2010
• Docket Number: No. 1-09-1222.,1-09-1222.
• Parties: Timothy J. CARPENTER, Mervin G. Schaefer, James P. Maloney, Henry Jackson, David Reindl, Henry C. Hess, David Falldorf, and Jane P. Koth, Plaintiffs-Appellees,v.EXELON ENTERPRISES COMPANY, LLC, and Exelon Corporation, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

399 Ill.App.3d 330

927 N.E.2d 768

340 Ill.Dec. 29

Timothy J. CARPENTER, Mervin G. Schaefer, James P. Maloney, Henry Jackson, David Reindl, Henry C. Hess, David Falldorf, and Jane P. Koth, Plaintiffs-Appellees,v.EXELON ENTERPRISES COMPANY, LLC, and Exelon Corporation, Defendants-Appellants.

No. 1-09-1222.

Appellate Court of Illinois First District, Fourth Division.

March 18, 2010.

Christopher J. Murdoch and Lisa D. Johnson, Holland & Knight, LLP, Chicago, for Appellants.

William Boznos and George S. Bellas, Bellas & Wachowski, Park Ridge, John Flood, Flood & Flood, and Roger S. Braugh, Jr., Sico, White, Hoelscher & Braugh, LLP, Corpus Christi, TX, for Appellees.

Justice FROSSARD delivered the opinion of the court:

This matter appears before this court on interlocutory appeal to consider a question certified by the circuit court, pursuant to Supreme Court Rule 308 (155 Ill.2d R. 308).

Plaintiffs, Timothy J. Carpenter, Mervin G. Schaefer, James P. Maloney, Henry Jackson, David Reindl, Henry C. Hess, David Falldorf, and Jane P. Koth, were formerly minority shareholders of InfraSource, Inc., a Delaware corporation (InfraSource). InfraSource's majority and controlling shareholder was defendant Exelon Enterprises Company, LLC, a subsidiary of defendant Exelon Corporation. Both entities were Pennsylvania corporations, with their principal places of business in Illinois, and they are hereinafter referred to as Exelon Corp. or Exelon Enterprises, and/or collectively as “Exelon.” In 2003, Exelon divested itself of most of its interest in InfraSource by entering into a merger agreement with a third party and directly acquiring InfraSource's remaining business units. As part of this transaction, the minority shareholders each received a pro rata share of the net proceeds of the merger and acquisition of InfraSource's assets.

The plaintiffs filed the instant suit against Exelon in 2007, asserting that the defendants abused their position as majority shareholders of InfraSource in such a way that the rights of the minority shareholders were violated and their interests were not fairly represented in the merger and sale transactions. Exelon filed a motion to dismiss this suit on the grounds that it was barred by the three-year statute of limitations contained in the Illinois Securities Law of 1953 (815 ILCS 5/13(D) (West 2008)). The trial court ultimately denied Exelon's motion to dismiss, determining that the Illinois Securities Law limitations period was inapplicable and the plaintiffs' suit was therefore timely filed within the residual five-year limitations period found in section 13-205 of the Code of Civil Procedure (Code) (735 ILCS 5/13-205 (West 2008)). However, the trial court did stay further proceedings and certified the issue of the appropriate statute of limitations for review on interlocutory appeal. For the reasons that follow, we answer the certified question in the negative.

I. BACKGROUND

The plaintiffs filed their initial complaint against Exelon in May of 2007. The plaintiffs alleged that they were among a number of minority shareholders in InfraSource, with Exelon controlling the remaining 97% of shares as the majority shareholder. In 2003, Exelon decided to divest itself of its stake in InfraSource. The plaintiffs' initial complaint generally alleged that Exelon accomplished this goal through a series of transactions as part of a merger and sale agreement. In essence, InfraSource would be merged with another corporation formed for the purposes of this transaction. Some of the business units and assets of the resulting corporation would be sold to Exelon itself, with the remainder being sold to a third party, GFI Energy Ventures (GFI). When all of the transactions were completed, InfraSource would continue on as a new entity and all of its former shareholders, including the plaintiffs, would be paid a pro rata share of the net proceeds.

Because Exelon owned the vast majority of InfraSource shares, it voted those shares in favor of this plan and the various transactions were completed in late 2003. The plaintiffs thereafter brought the instant lawsuit in 2007, essentially asserting that Exelon structured the transactions in such a way that the minority shareholders were mistreated and were not adequately compensated for their InfraSource shares. More specifically, the plaintiffs pled causes of action for breach of fiduciary duty, civil conspiracy, fraud, negligence, and negligent misrepresentation. The plaintiffs sought to recover damages, including the difference between the fair market value of their shares and what they actually received.

Exelon moved to dismiss the plaintiffs' complaint on the grounds that it was not timely filed. Specifically, Exelon argued that because the complaint was based upon matters for which relief was granted under the Illinois Securities Law, it was barred by the three-year statute of limitations contained in that law. The plaintiffs did not respond to Exelon's motion, choosing instead to voluntarily dismiss their initial complaint on November 19, 2007.

In July of 2008, the plaintiffs refiled their action with an amended complaint. The amended complaint contained additional detail regarding the plaintiffs' allegations and Exelon's purported activities. Among other things, the plaintiffs generally alleged that: (1) the price that Exelon Enterprises paid for those InfraSource business units not sold to GFI was artificially low, (2) Exelon Enterprises alone received a share of preferred stock that entitled it to benefits not adequately shared with the minority shareholders, (3) Exelon Enterprises agreed to purchase a minimum amount of services from GFI in the years following the transaction at an artificially low price, and (4) Exelon appointed a biased special committee to examine these transactions and protect the rights of the minority shareholders.

While the amended complaint contained more factual detail, it explicitly stated fewer individual causes of action. The complaint dropped any claims for fraud or misrepresentation, and instead pled only a single count of breach of fiduciary duty and one of civil conspiracy against Exelon Enterprises and one count each of aiding and abetting a breach of fiduciary duty and civil conspiracy against Exelon Corp. Indeed, the complaint contained an explicit statement that it purported to be brought under Delaware law and did “not allege that defendants' conduct constituted a violation of the Illinois Securities Law.” The plaintiffs continued to seek compensation for their damages, alleged to be in excess of $11 million.

Exelon again filed a motion to dismiss the plaintiffs' now refiled and amended complaint, pursuant to section 2-619(a)(5) of the Code. 735 ILCS 5/2-619(a)(5) (West 2008). Exelon asserted that, despite the plaintiffs' pleading efforts, their claims were still claims related to matters for which relief was granted under the Illinois Securities Law and it was therefore barred by that law's three-year statute of limitations. The trial court disagreed, finding that the suit was properly filed within the five-year limitations period found in section 13-205 of the Code. 735 ILCS 5/13-205 (West 2008).

Therefore, the court entered an order denying Exelon's motion to dismiss. However, the trial court also stayed further proceedings and certified the following question for interlocutory appeal, as the trial court found this issue involved a question of law upon which substantial ground for a difference of opinion existed:

“Whether plaintiffs' claim that Exelon Enterprises Company, LLC, as majority shareholder of InfraSource, Inc., breached its fiduciary duties in connection with InfraSource, Inc.'s 2003 merger transaction is governed by the three year statute of limitations contained in the Illinois Securities Law of 1953, 815 ILCS 5/13(D).”

We granted Exelon's petition for leave to appeal, and we now answer the certified question in the negative.

II. ANALYSIS

Supreme Court Rule 308 provides for a permissive appeal from interlocutory orders where the trial court has deemed that they involve a question of law as to which there is substantial ground for difference of opinion and where an immediate appeal from the order may materially advance the ultimate termination of the litigation. 155 Ill. 2d R. 308; Preferred Personnel Services, Inc. v. Meltzer, Purtill & Stelle, LLC, 387 Ill.App.3d 933, 936-37, 327 Ill.Dec. 391, 902 N.E.2d 146 (2009). The standard of review in such an interlocutory appeal is de novo. Brookbank v. Olson, 389 Ill.App.3d 683, 685, 329 Ill.Dec. 835, 907 N.E.2d 426 (2009).

A. Illinois Securities Law of 1953

“The purpose of the [Illinois] Securities Law is to protect innocent persons who might be induced to invest their money in speculative enterprises over which they have little control.” A.G. Edwards, Inc. v. Secretary of State, 331 Ill.App.3d 1101, 1110, 265 Ill.Dec. 324, 772 N.E.2d 362 (2002), citing People v. Bartlett, 294 Ill.App.3d 435, 439, 228 Ill.Dec. 845, 690 N.E.2d 154 (1998). The law is paternalistic and is to be liberally construed to better protect the public from deceit and fraud in the sale of securities. A.G. Edwards, Inc., 331 Ill.App.3d at 1110, 265 Ill.Dec. 324, 772 N.E.2d 362; Bartlett, 294 Ill.App.3d at 439, 228 Ill.Dec. 845, 690 N.E.2d 154. As such, section 12 of the Illinois Securities Law outlines a number of specific activities which violate the law, section 13 delineates the private and other civil remedies available for such violations, and section 14 outlines the possible criminal penalties available. 815 ILCS 5/12, 13, 14 (West 2008).

Of particular interest here are the provisions of section 13 relating to private and other civil remedies. Subsection 13(A) provides that “[e]very sale of a security made in violation of the provisions of this Act shall be voidable at the election of the purchaser,” while subsections 13(B) and 13(C) outline the various notice and mitigation...