Newell Co. v. Petersen, 2-99-1232.

• Decision Date: 30 October 2001
• Docket Number: No. 2-99-1232.,2-99-1232.
• Citation: 758 N.E.2d 903,259 Ill.Dec. 495,325 Ill. App.3d 661
• Parties: NEWELL COMPANY, Plaintiff-Appellee, v. Allen D. PETERSEN, William F. Wright, Robert W. Brady, Charles D. Peebler, Jr., American Tool Companies, Inc., and Petersen Manufacturing Company, Inc., Defendants-Appellants.
• Court: United States Appellate Court of Illinois

758 N.E.2d 903
325 Ill. App.3d 661
259 Ill.Dec. 495

NEWELL COMPANY, Plaintiff-Appellee,
v.
Allen D. PETERSEN, William F. Wright, Robert W. Brady, Charles D. Peebler, Jr., American Tool Companies, Inc., and Petersen Manufacturing Company, Inc., Defendants-Appellants

No. 2-99-1232.

Appellate Court of Illinois, Second District.

October 30, 2001.

758 N.E.2d 904

Richard T. Franch, Joel T. Pelz, Samuel S. Miller, Matthew J. Thomas, James A. McKenna, and Oliver J. Larson, all of Jenner & Block, of Chicago, and James L. Wright, of Militello, Zanch & Coen, P.C., of Crystal Lake, for appellants American Tool Companies and Peterson Manufacturing Company

Ronald Wilder, Aaron Kramer, Linda K. Stevens, and Robert Unikel, all of Schiff, Hardin & Waite, of Chicago, and William J. Cowlin, of William J. Cowlin, Ltd., of Crystal Lake, for appellee.

Justice O'MALLEY delivered the opinion of the court:

Defendants, Allen D. Petersen, William F. Wright, Robert W. Brady, Charles D.

758 N.E.2d 905

Peebler, Jr., American Tool Companies, Inc., and Petersen Manufacturing Company, Inc., appeal from an order of the circuit court denying their motion to dismiss the second amended complaint of plaintiff, Newell Company. On this interlocutory appeal, the supreme court has directed us to answer two certified questions

The first certified question is as follows:

"Whether the Illinois borrowing statute for limitations periods, 735 ILCS 5/13-210 [(West 1994)], is inapplicable where none of the parties to a cause of action was an Illinois resident at the time the action accrued, but where one of the parties later becomes an Illinois resident within the foreign limitations period."

We hold that our borrowing statute is applicable in the above situation.

The second certified question is as follows:

"Whether section 218(c) of the Delaware Corporate Code [Del.Code Ann. tit. 8, § 218(c) (1985)] mandated, pursuant to the internal affairs doctrine, a maximum ten year term for Section 5(a)-(c) of the Shareholder Agreement entered into by the parties regardless of whether the parties actually agreed upon or intended a longer term."

We hold that the 10 year time limit in section 218(c) of the Delaware corporate code applied to section 5(a)-(c) of the shareholder agreement. We remand.

BACKGROUND

On August 22, 1997, plaintiff filed a nine-count complaint against defendants Allen D. Petersen (Petersen), William F. Wright, Robert W. Brady (Brady), American Tool Companies, Inc. (ATC), and Petersen Manufacturing Co., Inc. (PMC). On January 25, 1999, plaintiff filed a second amended complaint (complaint) adding Charles D. Peebler, Jr., as a defendant.

In relevant part, the complaint alleges that in 1985 Petersen, Brady, plaintiff, and others who are not parties to this appeal acquired the stock of PMC from other Petersen family members during a leveraged buyout. To effectuate the buyout, ATC was created as a holding company for all outstanding PMC common stock. ATC is a Delaware corporation with its principal place of business in Illinois. Petersen is chairman and chief executive officer of ATC and currently resides in Illinois. Since the buyout PMC has been a wholly owned subsidiary of ATC. Plaintiff also is a Delaware corporation with its principal place of business in Illinois. PMC is a Nebraska corporation with its principal place of business in Nebraska.

In connection with the buyout, a shareholders' agreement and irrevocable proxy were executed on June 21, 1985. Plaintiff attached a copy of the agreement to its complaint. The parties to the agreement include plaintiff, Petersen, Brady and others not relevant to this appeal. The agreement refers to all shareholders other than plaintiff as "Management Shareholders." The agreement provides that all Management Shareholders have the right to transfer shares among themselves. Section 5 of the agreement contains a voting agreement pursuant to which the parties pledged that each of them would vote their ATC stock so as to elect a board of directors for ATC composed of four directors designated by Petersen and three designated by plaintiff.

A provision in the shareholders' agreement entitled "Governing Law" provides:

"This agreement shall be governed by, and construed and enforced with the laws of Nebraska without giving effect to the provisions, policies or principles thereof respecting conflict or choice of laws."

Following the buyout of PMC stock, plaintiff owned 3,500 shares, or about 39%, of the 9,000 outstanding shares of ATC's class A voting stock. Petersen owned 3,972, or about 44%, of the class A shares. Subsequently, plaintiff acquired an additional

758 N.E.2d 906

1,000 class A shares for a total of 4,500, or 45%, of the outstanding shares

In June 1992 and November 1994 Petersen purchased stock from other Management Shareholders and thereby obtained a total of 5,530, or 55%, of the class A shares. Plaintiff continued to own the remaining 4,400 class A shares comprising 45% of the total shares. When the June 1992 stock purchases occurred by which Petersen obtained 50.44% of the class A stock, no parties to this action were residents of Illinois. In 1994, Petersen became a resident of Illinois, where he resides today. In December 1996 Petersen removed two of the ATC directors that plaintiff had designated and reduced the board of directors from seven members to five members.

In counts I through IX of its complaint plaintiff alleged, respectively, breach of fiduciary duty, breach of a shareholders' agreement, breach of an employment agreement, breach of covenants of good faith and fair dealing, fraud and fraudulent concealment, oppression of a minority shareholder, civil conspiracy, tortious interference with a shareholders' agreement, and tortious interference with an employment agreement. Each count alleged numerous acts of wrongdoing by defendants.

Counts I, II, IV, V, VI, VII, and VIII of the complaint are all premised partly on Petersen's purchase of the class A voting stock of ATC from other Management Shareholders. Plaintiff asserted that these purchases were coerced by Petersen, who threatened to fire the other Management Shareholders if they refused to sell him their stock. Counts I, II, IV, VI, VII, and VIII are all premised partly on Petersen's removal of the directors plaintiff had designated, which, plaintiff asserted, contravened the voting agreement in section 5 of the shareholders' agreement.

Defendants moved to dismiss the complaint pursuant to sections 2-603(b), 2-615, and 2-619(a)(5) of the Code of Civil Procedure (735 ILCS 5/2-603(b), 2-615, 2-619(a)(5) (West 1998)). They contended, inter alia, that plaintiff's causes of action based on Petersen's June 1992 purchases of the class A voting stock of ATC arose in Nebraska while none of the parties were Illinois residents. Therefore, defendants argued, section 13-210 of the Code of Civil Procedure (735 ILCS 5/13-210 (West 1994)) requires that the limitations law of Nebraska, not Illinois, be applied to plaintiffs' contract and tort claims based on Petersen's 1992 stock purchases. Those claims, defendants observe, are barred under Nebraska law.

Defendants also argued that, because the voting agreement contained in section 5 of the shareholders' agreement concerned the internal operations of ATC, the "internal affairs doctrine" mandated that the agreement be deemed controlled by the law of the state of ATC's incorporation, that is, Delaware. Defendants asserted that, by operation of section 218(c) of the Delaware corporate code, which then imposed a 10-year limit on shareholder voting agreements, the voting agreement expired on June 21, 1995, well before Petersen removed the directors plaintiff had designated.

Plaintiff replied that Petersen's establishment of Illinois residency before the Nebraska limitations periods expired triggered an exception to section 13-210 as set forth in McGuigan v. Rolfe, 80 Ill.App. 256 (1899), and subsequent cases. Plaintiff also argued that the parties' choice of Nebraska law to govern the shareholders' agreement superseded the internal affairs doctrine.

The trial court, holding that section 13-210 did not apply to plaintiff's claims and that Nebraska law governed the shareholders'

758 N.E.2d 907

agreement, denied defendants' motion to dismiss but granted their subsequent motion under Supreme Court Rule 308 (155 Ill.2d R. 308) to certify the questions indicated above for interlocutory appeal. We initially denied defendants' application for leave to file an interlocutory appeal under Rule 308. The supreme court denied defendants' petition for leave to appeal but, exercising its supervisory power, ordered this court to grant the application for interlocutory appeal and answer the two certified questions.

Concerning the first certified question, defendants first argue that no Illinois case has authoritatively announced that section 13-210 applies only if all parties to the action remain non-Illinois residents until the expiration of the limitations period of the state in which the cause of action accrued. Defendants acknowledge that this "continuous non-Illinois residency requirement" has been recited in many Illinois cases. Nonetheless, defendants assert, the requirement was first announced in the dicta of very early supreme court cases such as Hyman v. Bayne, 83 Ill. 256, 1876 WL 10332 (1876), and Wooley v. Yarnell, 142 Ill. 442, 32 N.E. 891 (1892), and has since survived exclusively in the dicta of later cases, the most recent being Employers Insurance of Wausau v. Ehlco Liquidating Trust, 309 Ill.App.3d 730, 243 Ill.Dec. 384, 723 N.E.2d 687 (1999). Defendants claim that the correct state of the law is represented in the First District case of First National Bank of Boulder v. Hurlbut, 224 Ill.App. 297, 1922 WL 2396 (1922), in which the court applied the foreign statute of limitations despite the fact that not all the parties maintained non-Illinois residency continuously until the foreign...