Hamlin v. Harbaugh Enterprises, Inc.
| Decision Date | 07 August 2001 |
| Docket Number | No. 3-01-0408.,3-01-0408. |
| Citation | 755 N.E.2d 993,324 Ill. App.3d 612,258 Ill.Dec. 174 |
| Parties | Barry R. HAMLIN, Plaintiff-Appellant, v. HARBAUGH ENTERPRISES, INC., an Illinois Corporation, Pamela C. Harbaugh, and Charles M. Cain, Defendants-Appellees. |
| Court | United States Appellate Court of Illinois |
James L. Hafele (argued), Scott E. Umland, James L. Hafele & Associates, Peoria, for Barry R. Hamlin.
Kenneth M. Snodgrass, Jr. (argued), David L. Wentworth II, Hasselberg, Williams, Grebe & Snodgrass, Peoria, for Harbaugh Enterprises, Inc., Charles M. Cain, Pamela C. Harbaugh.
Plaintiff Barry Hamlin filed this action against defendants Harbaugh Enterprises, Inc., Pamela Harbaugh and Charles Cain (collectively Harbaugh) to recover damages he allegedly suffered after Pam terminated his employment with Harbaugh. Count I of Barry's complaint was a petition brought pursuant to section 12.56(a) of the Business Corporation Act of 1983 (Act) (805 ILCS 5/12.56(a) (West 2000)), which provides remedies for non-public corporate shareholders. The court determined that an "election" to purchase Barry's shares, filed by Harbaugh pursuant to section 12.56(f) of the Act, was timely filed. The court then entered a stay of the entire proceedings at Harbaugh's request, pursuant to section 12.56(f)(6). Barry appealed. We hold that an election not filed within 90 days of the initial filing of a petition brought pursuant to section 12.56(a) is not timely filed. Additionally, a trial court should hold an evidentiary hearing prior to finding that the filing of an election brought outside the 90-day statutory period is equitable and prior to staying any counts of the complaint not brought pursuant to section 12.56(a) of the Act. Thus, we reverse.
Barry initially filed a three-count complaint. Count I was an action against the corporation pursuant to section 12.56(a) of the Act on the basis of fraud and oppression. In count I, Barry alleged that he and Pam entered into an oral contract to commence a corporation to acquire and operate 17 Pizza Hut restaurants as franchisees. Pam was to be president while Barry was to be secretary of the corporation. Barry was to receive 5% of the shares of the corporation.
Pursuant to the contract, Barry could earn an additional 5% ownership in the corporation. Barry was to be an employee of the enterprise and, in exchange for services to the corporation, Barry was to receive a salary of $80,000 per year plus bonuses. Barry alleged that sometime after acquiring the restaurants, Pam ordered Barry and his wife to sign a shareholders' agreement or he would not receive his shares of stock. Immediately thereafter, Barry was terminated by Pam.
As relief, Barry requested that the shareholders' agreement be set aside, that his termination be set aside, that he be reinstated, that any director or officer who engaged in conspiratorial or oppressive conduct be removed, that an accounting be taken, that Barry be awarded damages, that the corporation purchase Barry's shares, that the corporation be dissolved, and that Barry recover reasonable expenses and punitive damages.
Count II sought damages for breach of contract and count III alleged that Pam and Charles had defamed Barry. The trial court granted Harbaugh's motion to dismiss the complaint. Thereafter, Barry filed an amended complaint. Count I again sought relief against Harbaugh pursuant to section 12.56(a) of the Act. Counts II and III were actions for civil conspiracy against Pam and Charles, respectively. Count IV was an action for slander per se. Count V was an action against Pam and Charles for breach of fiduciary duty. Count VI sought compulsory examination of corporate records.
Harbaugh answered count I but filed a motion to dismiss the remaining common law counts. Barry sought leave to file a second amended complaint wherein he proposed to change causes of action, to add new causes of action and new parties defendant, and to seek additional damages.
Harbaugh then filed an election to purchase Barry's shares pursuant to section 12.56(f) of the Act. The trial court determined that the election was timely filed or, alternatively, that it was equitable to allow the filing of the election. Within the election, Harbaugh proposed to pay Barry in excess of the value of his shares to settle all claims against it. Because the parties did not agree on the value of Barry's shares, Harbaugh sought a stay pursuant to section 12.56(f)(6) to allow the trial court to determine the value. The court stayed the entire proceedings and Barry filed this interlocutory appeal.
Both parties agree that this appeal of the trial court's stay is as of right pursuant to Supreme Court Rule 307(a)(1). 188 Ill.2d R. 307(a)(1). In an interlocutory appeal, the scope of review is normally limited to an examination of whether the trial court abused its discretion in granting or refusing the requested relief. Where the question presented is one of law, however, a reviewing court determines it independently of the trial court's judgment. In re Lawrence M., 172 Ill.2d 523, 219 Ill.Dec. 32, 670 N.E.2d 710 (1996).
Initially, Barry urges this court to apply the "exceptionally stringent" standard determined to be applicable to the appointment of a receiver pendente lite in Poulakidas v. Charalidis, 68 Ill.App.3d 610, 25 Ill.Dec. 134, 386 N.E.2d 405 (1979). In light of the supreme court's unambiguous statement of the proper standard to apply to interlocutory appeals, we reject Barry's request.
The first issue we are asked to address is whether the trial court erred when it determined that Harbaugh had timely filed the election or, in the alternative, that it was equitable to allow the filing of the election.
At the outset, Harbaugh suggests that this court only has authority to determine the appropriateness of the stay, not the election, as this case is on appeal pursuant to Supreme Court Rule 307(a)(1), providing for interlocutory appeals from the issuance of injunctions. 188 Ill.2d R. 307(a)(1).
The statute at issue provides that if, after an election is filed, the parties cannot agree upon the value of the shareholder's shares, the court must stay the proceedings to determine the value. 805 ILCS 5/12.56(f)(6) (West 2000). As such, the propriety of the stay is wholly dependent upon whether the court properly allowed the filing of the election. Accordingly, this court will address the issues Barry raises as to the propriety of the election first.
Barry's main contentions are as follows: (1) his claims of fraud and oppression make a section 12.56(f) election and stay inappropriate; (2) the election was not timely filed within 90 days; (3) Harbaugh was required to, but did not, seek leave of court to file the election outside the 90-day filing period; and (4) the court should have conducted a hearing before determining it was equitable to allow the filing of the untimely election. We note that section 12.56(f) is a relatively recent enactment and, as such, each of the issues raised by Barry is one of first impression in Illinois.
Barry's first argument, that his allegations of fraud and oppression make the use of the election procedure in section 12.56(f) inappropriate, is directly contrary to the language of the Act.
Section 12.56 provides that in an action by a shareholder wherein it is established that the directors have acted in a manner that is "illegal, oppressive, or fraudulent" (805 ILCS 5/12.56(a)(3) (West 2000)), the court may order the corporation to purchase the shareholder's shares for fair value (805 ILCS 5/12.56(b)(11) (West 2000)), or the corporation may pursue an election on its own initiative (805 ILCS 5/12.56(f) (West 2000)).
Nothing in section 12.56(f), pertaining to the filing of an election, indicates that it is not to be applied in cases of fraud or oppression. Indeed, in order for a corporation to file an election pursuant to section 12.56(f), there must already be a suit pending, filed against the corporation by a shareholder, one basis for that action being that the corporation engaged in fraud or oppression. Accordingly, we reject Barry's first contention.
Barry next contends that the court erred in determining that Harbaugh timely filed the election within the 90-day statutory period allowing for elections as of right. Harbaugh responds that the election was properly filed within 90 days of a "legally sustainable petition." A decision on this issue requires this court to interpret section 12.56 of the Act.
The primary rule of statutory construction, to which all other rules are subordinate, is to ascertain and give effect to the true intent of the legislature. Dunahee v. Chenoa Welding & Fabrication, Inc., 273 Ill.App.3d 201, 209 Ill.Dec. 898, 652 N.E.2d 438 (1995). In determining legislative intent, a court should first consider the statutory language. A court may look beyond statutory language when it is ambiguous or when a literal interpretation of the statute would lead to an absurd result. Advincula v. United Blood Services, 176 Ill.2d 1, 223 Ill.Dec. 1, 678 N.E.2d 1009 (1996).
Section 12.56(f) provides in relevant part:
"At any time within 90 days after the filing of 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." 805 ILCS 5/12.56(f) (West 2000).
Here, Barry filed his complaint, count I of which included the section 12.56(a) petition, on April 5, 2000. Harbaugh filed a motion to dismiss rather than an election, and the court granted that motion. Barry then filed an amended complaint on July 20, 2000, again including the section 12.56(a) petition as count I. Harbaugh answered count I but filed a motion to dismiss the remaining...
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