Ndc LLC v. Topinka

Decision Date15 June 2007
Docket NumberNo. 2-05-1206.,2-05-1206.
PartiesNDC LLC, d/b/a Nalco NDC LLC, Plaintiff-Appellee, v. Judy Baar TOPINKA, as Treasurer of the State of Illinois, and Jesse White, as Secretary of State of Illinois, Defendants-Appellants.
CourtUnited States Appellate Court of Illinois

Herman G. Bodewes, Creighton R. Castle, David O. Edwards and Kristina E. Mony (Court-appointed), Giffin, Winning, Cohen & Bodewes, P.C., Springfield, for Jesse White.

Lisa A. Hausten, Scott J. Heyman, Sidley Austin LLP, Chicago, Stephan N. Landsman, Bryan W. Sill, Nalco Company/Legal Department, Naperville, for NDC LLC.

Presiding Justice GROMETER delivered the opinion of the court:

This appeal involves a dispute as to the amount, if any, of additional franchise tax due under the Illinois Business Corporation Act of 1983 (Business Corporation Act) (805 ILCS 5/1.01 et seq. (West 2004)) as a result of the merger of Nalco Neighborhood Development Corporation (Neighborhood) into plaintiff, NDC LLC, d/b/a Nalco NDC LLC (NDC or plaintiff). NDC filed a multiple-count complaint against defendants, Judy Baar Topinka, as Treasurer of the State of Illinois (Treasurer) and Jesse White, as Secretary of State of Illinois (Secretary), pursuant to the State Officers and Employees Money Disposition Act (Protest Act) (30 ILCS 230/1 et seq. (West 2004)), seeking, inter alia, reimbursement of additional franchise taxes paid, under protest, on Neighborhood's behalf. Defendants appeal from the order of the circuit court of Du Page County granting plaintiff's motion for summary judgment. For the reasons set forth below, we affirm in part, reverse in part, and remand with directions.

I. BACKGROUND

The following facts are taken from the pleadings, depositions, affidavits, and exhibits contained in the record on appeal. Prior to March 2004, Neighborhood was a Delaware corporation authorized to do business in Illinois. Neighborhood was a subsidiary of Nalco Company and had its principal place of business in Naperville, Illinois. Beginning in October 2003, Neighborhood underwent a corporate reorganization. Before the reorganization, Neighborhood had reported to the Secretary paid-in capital in the amount of $509,997, represented by 20 shares of $1 par value common stock. As part of the reorganization, Neighborhood cancelled all of its then-outstanding 20 shares of $1 par value common stock and authorized the issuance of 40,000 shares of new $0.01 par value common stock. On or about October 31, 2003, Neighborhood issued 10 shares of $0.01 par value common stock in exchange for the 20 shares of the outstanding $1 par value common stock. On November 4, 2003, Neighborhood issued 6,036.46 shares of its $0.01 par value common stock in exchange for consideration in the amount of $301,823,000. On November 11, 2003, Neighborhood issued 22,650 shares of its $0.01 par value common stock in exchange for consideration in the amount of $1,132,867,759. As a result of these transactions, Neighborhood's paid-in capital increased from $509,997 to $1,435,200,756. In furtherance of the corporate reorganization, on March 29, 2004, Neighborhood was merged into NDC, a newly formed Delaware limited liability company. NDC, whose principal place of business was also in Naperville, was created immediately prior to the merger and pursuant to an "Agreement and Plan of Merger" between NDC and Neighborhood. On March 29, 2004, Neighborhood and NDC filed with the appropriate Delaware authority a "Certificate of Merger of Nalco Neighborhood Development Corp. into NDC LLC" (Certificate).

On March 30, 2004, the Certificate was submitted to the Secretary's Department of Business Services (Department). An employee of the Department issued a handwritten note indicating that the Department would not accept the Certificate until form BCA-14.30 was filed, showing any changes to Neighborhood's paid-in capital that had occurred since the filing of Neighborhood's last annual report. Form BCA-14.30, captioned "Cumulative Report of changes [sic] in Issued Shares and Paid-In Capital," requires the payment of additional franchise tax if the cumulative change to paid-in capital during certain specified reporting periods is positive. See www.cyberdriv eillinois.com/publications/pdf_publications/bca1430.pdf. Early in May, NDC prepared a draft of form BCA-14.30, in the name of Neighborhood, showing the changes that had occurred to Neighborhood's paid-in capital, including the increases and the decreases in paid-in capital resulting from the reorganization and merger. A net decrease in paid-in capital was reported on the draft form, resulting in no franchise tax due and owing. Pursuant to an informal practice, NDC tendered the draft to the Department. At that time, Robert Durchholz the head of the Department's corporate division, told NDC that the proposed reduction in paid-in capital did not comply with the Business Corporation Act. Thereafter, a representative of NDC met with Durchholz to discuss the proposed filing. Durchholz stated that the form would not be approved for filing as long as it showed a reduction in paid-in capital resulting from the merger.

On May 28, 2004, NDC tendered for filing under protest form BCA-14.30, showing the changes to Neighborhood's paid-in capital from April 1, 2003, through and including March 29, 2004, the date of the merger, but not including the effect of the merger itself. NDC indicated on the form that it was being "filed under protest because taxpayer is entitled, and should have been allowed, to report a reduction in paid-in capital on this form in the amount of $1,435,200,756." NDC included a statutory "Notice of Payment Under Protest" and a corresponding check in the amount of $2,152,041, which included a $5 filing fee. See 30 ILCS 230/2a.1 (West 2004). Later that day, Durchholz rejected in writing the form and payment, stating that the form would not be accepted unless the protest language were removed and the $5 filing fee were omitted from the protested payment. Whereupon, NDC tendered for filing the same form without the protest language as well as a check for $2,152,041, of which $2,152,036 (the disputed tax) was paid under protest pursuant to the Protest Act. Durchholz approved the form for filing on May 28, 2004, and accepted the "Notice of Payment Under Protest" and corresponding retendered check. NDC's payment was placed by the Treasurer in a special fund known as the "protest fund" for 30 days from the date of payment under protest, pending entry of an order for injunctive relief. See 30 ILCS 230/2a (West 2004).

On June 11, 2004, NDC filed a four-count complaint in the circuit court of Du Page County. The complaint, which named the Treasurer and the Secretary as defendants, sought a preliminary injunction restraining the transfer of the disputed tax from the protest fund until the entry of a final order or judgment in this action. NDC also sought a determination by the court as to the proper disposition of such monies. According to NDC, the reduction in paid-in capital Neighborhood experienced when it was merged into NDC could be used to offset increases in Neighborhood's paid-in capital resulting from the reorganization occurring during the same taxable period. See 805 ILCS 5/14.30 (West 2004). Plaintiff also argued that (1) the franchise tax was improperly imposed on NDC, which, as a limited liability company, was not subject to the tax, and (2) the Secretary's interpretation and application of the Business Corporation Act violated the uniformity clause of the Illinois Constitution of 1970 (Ill. Const.1970, art. IX, § 2) and/or the equal protection clauses of the United States and Illinois Constitutions (U.S. Const., amend XIV; Ill. Const.1970, art. I, § 2). On June 15, 2004, the trial court entered a preliminary injunction enjoining the Treasurer from transferring out of the protest fund the money paid by NDC under protest.

On October 15, 2004, defendants filed a motion to dismiss NDC's complaint pursuant to sections 2-619(a)(1) and 2-619(a)(9) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(1), (a)(9) (West 2004)). In their motion, defendants argued that (1) the matter was not ripe because the Secretary had not "given written notice of any disapproval as to Neighborhood's filing" and (2) plaintiff's payment of the disputed tax was voluntary. The trial court denied defendants' motion to dismiss. Subsequently, the parties filed cross-motions for summary judgment. On November 4, 2005 the trial court granted plaintiff's motion for summary judgment and denied defendants' motion. Thereafter, defendants filed a timely notice of appeal.

II. ANALYSIS
A. Exhaustion of Administrative Remedies

On appeal, defendants first argue that this matter is not ripe for judicial review because plaintiff did not exhaust its administrative remedies. Defendants concede that where there is a notice of assessment regarding funds due the State of Illinois, the Protest Act "potentially" provides an alternate mechanism of review, apart from the administrative process. It is the position of defendants, however, that this case involves, not the assessment of a tax, but the discretion of the Secretary to accept a particular form for filing. Since the Secretary never issued to plaintiff an assessment of funds due, defendants conclude that plaintiff should not be allowed to invoke the Protest Act as a way to circumvent the Administrative Review Law (735 ILCS 5/3-101 et seq. (West 2004)).

Plaintiff responds that defendants waived their exhaustion claim by expressly representing to the trial court at the hearing on their motion to dismiss that they were not arguing exhaustion of administrative remedies. Waiver aside, plaintiff asserts that this case involves the payment of a disputed tax. According to plaintiff, the Illinois Supreme Court has expressly held that the Protest Act provides an alternative to the Administrative Review Law for seeking judicial review of such...

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