People ex rel. Hartigan v. Kennedy

• Decision Date: 13 June 1991
• Docket Number: Nos. 1-90-1901,1-90-1902,s. 1-90-1901
• Citation: 576 N.E.2d 107,159 Ill.Dec. 438,215 Ill.App.3d 880
• Parties: , 159 Ill.Dec. 438 PEOPLE of the State of Illinois, ex rel. Neil F. HARTIGAN, Attorney General of Illinois, Plaintiff-Appellee, v. D. James KENNEDY, and Richard B. Shoff, et al., Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 107

576 N.E.2d 107

215 Ill.App.3d 880, 159 Ill.Dec. 438

PEOPLE of the State of Illinois, ex rel. Neil F. HARTIGAN, Attorney General of Illinois, Plaintiff-Appellee, v. D. James KENNEDY, and Richard B. Shoff, et al., Defendants-Appellants.

Nos. 1-90-1901, 1-90-1902.

Appellate Court of Illinois,

First District, Fourth Division.

June 13, 1991.

Pope, Ballard, Shepard & Fowle, Ltd., Chicago (Timothy C. Klenk, Jerome K. Bowman, of counsel), for defendant-appellant, D. James Kennedy.

Keith A. Klopfenstein and Bellande, Chicago, for defendant-appellant, Richard B. Shoff.

Roland W. Burris, Atty. Gen., Robert J. Ruiz, Sol. Gen., Chicago (Jennifer A. Keller Justice LINN delivered the opinion of the court:

[159 Ill.Dec. 440] Asst. Atty. Gen., of counsel), for plaintiff-appellee.

D. James Kennedy and Richard B. Shoff, defendants, brought this petition for leave to appeal pursuant to Supreme Court Rule 306(a)(1)(iii) on the grounds that the Illinois courts lack personal jurisdiction over them. (134 Ill.2d R. 306(a)(1)(iii).) The two defendants are non-resident directors of a Virginia not-for-profit corporation, National Aids Prevention Institute, Inc. ("NAPI"). In 1989, NAPI, acting through its president, engaged in fund-raising activities that ultimately resulted in the filing of a lawsuit by the Illinois Attorney General. The complaint alleges that 12 different defendants violated portions of the Illinois Solicitation of Funds for Charitable Purposes Act (Ill.Rev.Stat.1989, ch. 23, par. 5101, et seq.); the Illinois Consumer Fraud and Deceptive Business Practices Act (Ill.Rev.Stat.1989, ch. 121 1/2, par. 261, et seq.); and the Illinois Uniform Deceptive Trade Practices Act. Ill.Rev.Stat.1989, ch. 121 1/2, par. 311 et seq.

In their challenge to the Illinois courts' jurisdiction over them, Shoff and Kennedy assert that the State has failed to establish that they had the necessary minimum contacts with Illinois, thereby violating their due process rights. Alternatively, they rely on the fiduciary shield doctrine, the application of which would prevent the corporation's contacts with Illinois from being imputed to the individual defendants. The trial court found in favor of its in personam jurisdiction and denied their motions to quash.

We reverse.

BACKGROUND

The State's complaint alleges that various defendants collectively engaged in a profit-making scheme in Illinois under the guise of collecting charitable contributions for the Children with AIDS Foundation ("CWAF"), which is a subsidy service project of NAPI.

NAPI is a not-for-profit Virginia corporation with its principal place of business in Virginia. Kennedy, a resident of Florida, was chairman of the board of directors. Shoff, a resident of North Carolina, was vice-chairman. H. Edward Rowe, a Virginia resident, is a director and also NAPI's president. Rowe is not contesting the Illinois courts' jurisdiction over him based on his activities in this State.

At the heart of the controversy is the "wishing well" program that NAPI used to raise money for its AIDS-related charity, CWAF. Another defendant who is not a party to this appeal, Apple Marketing, exclusively markets the "Vortx Wishing Well Program," under which coin-collecting devices resembling wishing wells were placed in various retail stores for the purpose of garnering cash contributions to CWAF. Each wishing well bore a label containing CWAF's service message and identifying CWAF as a project of NAPI.

The record contains a number of documents relevant to the allegations of the complaint. These include NAPI's articles of incorporation; a copy of NAPI's registration in Illinois as a charitable organization intending to solicit funds in the State; copies of contracts between CWAF and certain "vendors" who placed the wishing wells in retail stores and collected the proceeds; and Apple Marketing's written presentation of "The Vortx Wishing Well Program of the Children With Aids Foundation," which contains representations about the program and is designed to encourage vendors to participate in it at an expected profit to themselves.

Pursuant to the distribution contracts between CWAF and the individual vendors, the vendor pays CWAF $6500 for 200 wishing wells. In return, the vendor has the right to collect and keep all contributions to each wishing well except for $2.50 per month per wishing well, which is to be remitted to CWAF.

The complaint alleges, in essence, that the defendants collectively violated the law through their participation in a scheme that allowed charitable donations to end up in the pockets of private individuals rather than in the coffers of CWAF. This fact was not disclosed to those members of the Other, unverified allegations in the complaint, which were made "upon information and belief," state that the defendants intentionally misled the owners of stores in which the wells were placed into thinking that the donations put into the wells by store customers would primarily benefit the charity. The complaint characterizes the conduct of defendants as fraudulent misrepresentation of the nature of their business activities in violation of the statutory law prohibiting consumer fraud, deceptive trade practices, and the law governing charitable solicitations in Illinois.

[159 Ill.Dec. 441] general public who donated cash to the charity by placing coins in the wishing wells located in retail stores. The complaint alleges that NAPI and the defendant officers and directors are trustees of the solicited funds and have a fiduciary duty to safeguard the funds and to prevent waste of charitable donations. The complaint further alleges that the defendants, in placing signs on the wishing well regarding CWAF's purpose, misrepresented to the contributors where the donations would go, leading them to believe that the money benefited children with AIDS.

Relevant to the pending appeal are those facts that bear on the issue of whether two of the 12 defendants, Kennedy and Shoff, had sufficient jurisdictional contacts with Illinois to justify our courts' exercise of jurisdiction over them.

On December 15, 1986, Kennedy, Shoff, and H. Edward Rowe incorporated NAPI and served as initial directors. NAPI was formed as a charitable corporation designed to benefit persons suffering from AIDS. It has been given a Federal income tax exemption for the donations received by the charity. On August 25, 1989, NAPI registered with the office of the Illinois Attorney General as a charitable organization, pursuant to Illinois law. In the registration statement CWAF was listed as the subsidiary service project of NAPI that would be soliciting funds in Illinois. The registration form indicated NAPI/CWAF's intention to use coin collection containers and direct mail in its solicitation efforts.

The allegations directed against Kennedy and Shoff in their capacity as directors and officers of NAPI state that both men were and are "responsible for the day-to-day business decisions and activities of NAPI, including the conduct of its affairs relating to charitable solicitations and use of donations and other funds." The complaint does not specifically allege that the two men had actual knowledge of the wishing well program, which apparently was initiated by H. Edward Rowe, NAPI's president and chief operating officer. Nor does the complaint allege that Kennedy and Shoff took any profits from the scheme or received any compensation from NAPI for their services as directors.

In their motions to quash summons pursuant to special and limited appearances, Kennedy and Shoff filed affidavits in support of their position that they had no contacts with Illinois that would justify the court's exercise of jurisdiction over them. Kennedy stated as follows: In 1987, NAPI's board of directors, of which he is the uncompensated chairman, delegated to defendant Rowe, NAPI's president, the matter of possibly employing a professional fund-raiser, but there was no mention of the wishing well program; Kennedy himself was not involved in any way with the wishing well program, nor was he aware of its existence until the pending lawsuit; he never negotiated any aspect of NAPI's fund-raising efforts in any State or otherwise participated in such activities. He further stated that he owns no property in Illinois, is a resident of Florida, and never conducted any business in the State on behalf of NAPI or otherwise acted on behalf of the organization in Illinois.

Shoff's affidavit averred that he served as an uncompensated board member of NAPI from December 1986 until his resignation in January 1990. He stated that he never had any involvement with NAPI fund-raising in Illinois. The only time fund-raising was discussed at a NAPI board meeting was in 1987, when Rowe was authorized to consider employing a professional fund-raiser. Shoff did not recall any discussion of the wishing well program or Apple Marketing. Shoff further The wishing well program did not begin until 1989, more than two years after the board meeting in which fund-raising was generally discussed, and both Kennedy and Shoff maintain that they had no involvement in or knowledge of the program.

[159 Ill.Dec. 442] stated that he never resided in Illinois; owned no property in the State; received no money or other benefit from NAPI [215 Ill.App.3d 886] fund-raising activities; never participated in the wishing well program; and did not learn of its existence until the instant lawsuit was filed. Finally, he stated that he did not know that a letterhead bearing his name and 18 others was used in marketing the wishing well program.

The State did not file counter-affidavits or additional evidentiary material, and did not request leave to take discovery of the jurisdictional issues. Instead, the government chose to rely on the verified and unverified allegations of its complaint, along with the attached exhibits.

In addition to the general allegation that Kennedy...