Tasner v. US Industries, Inc.

• Decision Date: 29 May 1974
• Docket Number: No. 74 C 431.,74 C 431.
• Parties: Fred P. TASNER and Harry Fox, Plaintiffs, v. U. S. INDUSTRIES, INC. and I. John Billera, Defendants.
• Court: U.S. District Court — Northern District of Illinois

379 F. Supp. 803

Fred P. TASNER and Harry Fox, Plaintiffs, v. U. S. INDUSTRIES, INC. and I. John Billera, Defendants.

No. 74 C 431.

United States District Court, N. D. Illinois, E. D.

May 29, 1974.

Abner J. Mikva, Selwyn Zun and R. W. Gettleman, D'Ancona, Pflaum, Wyatt & Riskind, Chicago, Ill., for plaintiffs.

Henry M. Thullen, Stanley B. Block, John J. Cassidy, Jr., and Allan E. Lapidus, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

BAUER, District Judge.

This cause comes on the plaintiffs' motion for an order remanding this cause to the Circuit Court of Cook County, Illinois, on the ground that the cause was improperly removed therefrom in that this cause is not within the original jurisdiction of this Court.

On February 7, 1974 an action was commenced in the Circuit Court of Cook County, Illinois, Law Division entitled Fred P. Tasner and Harry Fox v. U. S. Industries, Inc. and I. John Billera, case no. 74 L 2124. The plaintiffs who have allegedly been U. S. Industries, Inc. ("U. S.I.") stockholders for more than six months, brought the state court action for a writ of mandamus to enforce their rights under Section 45 of the Illinois Business Corporation Act, Ch. 32 Ill. Rev.Stat. § 157.45, to inspect U.S.I.'s shareholder list and books, records of account and minutes and to make extracts therefrom and copies thereof. Due demand has allegedly been made on defendants and defendants have allegedly refused to permit such inspection and copying. Plaintiffs further sought the penalty of 10% of the value of their U. S.I. stock for which defendants have, pursuant to Section 45 of the Illinois Business Corporation Act, allegedly become liable because of their alleged unreasonable and unlawful refusal to permit appropriate inspection of U.S.I.'s list of shareholders, books, records of accounts and minutes.

On February 14, 1974 the defendants petitioned for removal of the state court action to this Court because the action was allegedly one over which this Court has original jurisdiction pursuant to the provisions of 28 U.S.C. § 1332 (diversity of citizenship) and is one which may be removed to this Court under the provisions of 28 U.S.C. § 1441 in that it is a civil action wherein the matter in controversy exceeds the sum or value of $10,000 exclusive of interest and costs, and is between citizens of different states.

Plaintiff Tasner is a citizen of the state of Illinois and a resident of Lake County. Plaintiff Tasner is and at all times since July, 1969, has allegedly been the legal and equitable owner, and the holder of record, of 34,100 shares of Special Preference Stock (Series L) of defendant U.S.I. The shares of Special Preference Stock (Series L) owned by plaintiff Tasner have at all times relevant been convertible into a total of 108,779 shares of the common stock of defendant U.S.I. and have at all such times allegedly had a total value of not less than $815,000. Plaintiff Fox is a citizen of the state of Illinois and a resident of Cook County. Plaintiff Fox is and at all times since April, 1969 allegedly has been the legal and equitable owner of not less than 59,850 shares of the common stock of defendant U.S.I., which shares of stock have at all times relevant allegedly had a value of not less than $448,000.

Defendant U.S.I. is a corporation organized and existing under the laws of the state of Delaware, having its chief executive offices in New York, New York. Defendant U.S.I. is a diversified company with major operations in Cook County and elsewhere in the state of Illinois, and is duly licensed and qualified to do business in the state of Illinois. Defendant Billera is and has been since 1964 an officer and member of the Board of Directors of defendant U.S.I. At all times relevant herein, defendant Billera has been Chairman of Board of Directors, Chief Executive Officer and President of defendant U.S.I. and has at all such times dominated the management, business and affairs of defendant U.S.I. At all such times access to and inspection and copying of the shareholder list, books, records and minutes of defendant U.S.I. has been subject to the control and direction of defendant Billera. Defendant Billera has allegedly solicited and accepted election as an officer and director of defendant U.S.I. at times when, and with knowledge that, defendant U.S.I. was licensed and qualified to do business in the state of Illinois, and has intentionally refused to accord plaintiff U.S.I. shareholders the rights provided them by Section 45 of the Illinois Business Corporation Act.

The plaintiffs in support of their motion to remand contend that:

1. This Federal District Court lacks jurisdiction to enforce the penalty which is provided for under Section 45 of the Illinois Business Corporation Act.

2. Plaintiffs' complaint for mandamus is not within the original jurisdiction of a Federal District Court.

The defendants in opposition to the instant motion contend that:

1. Since plaintiffs could have brought an original action in this Court seeking a mandatory injunction ordering defendants to permit inspection and copying of U.S.I.'s books and records (exactly the relief that plaintiffs seek), the fact that this relief is formally styled a "peremptory writ of mandamus" in the state but not the federal courts cannot defeat removal.

2. Even though the relief sought of 10% of the value of plaintiffs' stock is a "penalty" in the sense of not compensating for actual damages, this is not a criminal or quasi-criminal action where penalties recovered would be paid into the state treasury and thus it is a "civil action" and can be removed under 28 U.S.C. § 1441.

3. Even if the Court somehow had no jurisdiction over plaintiffs' demand for the 10% "penalty", it clearly has jurisdiction over the single cause of action alleged in the complaint and it must, therefore, retain jurisdiction to consider the other relief which it can give (i. e., injunctive relief) if plaintiffs prevail on the merits.

4. Even if the Court had no jurisdiction over the penalty claim and even if the demands for inspection and penalty were separate causes of action, the Court should adjudicate the penalty claims under 28 U.S.C. § 1441(c) because efficiency dictates that both interrelated claims be resolved in a single forum.

It is the opinion of this Court, given the present posture of the law, that the instant action should be remanded to the Illinois state court in order that the Illinois state court may properly apply Section 45 of the Illinois Business Corporations Act and its penalty provision consistent with the exercise of its police power over corporations doing business in that state.

I. SECTION 45 OF THE ILLINOIS BUSINESS CORPORATION ACT APPEARS TO BE APPLICABLE TO THE INSTANT DEFENDANT CORPORATION

The threshhold question crucial to the proper disposition of this motion to remand is whether section 45 and its penalty is applicable to the defendant foreign corporation doing business in Illinois.

The Illinois Supreme Court has clearly held that section 45 of the Illinois Business Corporation Act can be applied to foreign corporations doing business in Illinois. McCormick v. Statler Hotels Delaware Corporation, 30 Ill.2d 86, 195 N.E.2d 172 (1963). It is uncontrovertible that the Illinois legislature may prescribe reasonable conditions under which foreign corporations, other than those engaged in interstate commerce or constituting instrumentalities of the Federal government, may do business in this state and it has been repeatedly held that the qualification of a foreign corporation in accordance with the statutes permitting its entry into a state constitutes an assent on its part to all reasonable conditions imposed. State of Washington ex rel. Bond & Goodwin & Trucker, Inc. v. Superior Court of Washington, 289 U.S. 361, 53 S.Ct. 624, 77 L.Ed. 1256 (1933); Holz v. Smullan, 277 F.2d 58 (7th Cir., 1960); Cincinnati Indianapolis and Western Railroad Co. v. Barrett, 406 Ill. 499, 94 N.E.2d 294 (1950); Union Central Life Insurance Co. v. Lowe, 349 Ill. 464, 182 N.E. 611 (1932); State of Illinois v. Illinois Central Railroad Co., 246 Ill. 188, 92 N.E. 814 (1910).

Section 103 of the Illinois Business Corporation Act, Ch. 32 Ill.Rev.Stat. § 157.103, expressly provides that a foreign corporation shall enjoy the same, but not greater rights and privileges as a domestic corporation and shall be subject to the same duties, restrictions, penalties and liabilities now or hereafter imposed upon a domestic corporation of like character. Further, section 45 of the Illinois Business Corporation Act provides that "each corporation" shall keep a record of its shareholders at its registered office or at the office of its transfer agent in Illinois and that any officer, agent or corporation which shall refuse to allow a shareholder to examine its records for a proper purpose shall be subject to a specified penalty.¹

A foreign corporation is presumed to have known and assented to these conditions imposed upon its right to do business in Illinois and is likewise presumed to have known of the holdings of the Illinois Supreme Court that the penalty provision of section 45 is a proper exercise of the state's police power which neither violates due process nor the obligations of contracts and that the section has application to foreign corporations licensed to do business in Illinois, as well as domestic corporations. See People ex rel. Hollingshand v. American Discount Co., 322 Ill. 18, 163 N.E. 479 (1928); Babcock v. Harrsch, 310 Ill. 413, 141 N.E. 701 (1923). See also Wise v. Byllesby & Co., 285 Ill.App. 40, 1 N.E.2d 536 (1936). Such an application of section 45 to foreign corporations does not present a claim of denial of due process, based upon a supposed lack of knowledge of the scope and effect of the Illinois law to which it assented. See McCormick v. Statler Hotels Delaware Corporation, supra.

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