Vanco v. Mancini, Case No. 19 C 6132
| Citation | 495 F.Supp.3d 712 |
| Decision Date | 19 October 2020 |
| Docket Number | Case No. 19 C 6132 |
| Parties | David K. VANCO, Plaintiff, v. Vincent MANCINI, Maddy Rossobillo, Chicago Flameproof and Wood Specialties Corp., Northern Illinois Lumber Specialties Corp., and Madison L.L.C., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Michael Alan Goldberg, The Rogers Law Group, Nfp, Deerfield, IL, Timothy Merritt Johnston, Johnston Tomei Lenczycki & Goldberg, LLC, Robert J. Tomei, Jr., JTLG, LLC, Libertyville, IL, for Plaintiff.
Edward Keating, Patrick Gerard Cooke, Swanson, Martin & Bell, LLP, Chicago, IL, for Defendants Vincent Mancini, Maddy Rossobillo.
William James Arendt, Kirsten Lauren Meeder, William J. Arendt & Associates, P.C., Burr Ridge, IL, for Defendants Chicago Flameproof and Wood Specialties Corp., Northern Illinois Lumber Specialties Corp., Madison LLC.
Joan H. Lefkow, U.S. District Judge David K. Vanco sues Vincent Mancini, Maddy Rossobillo, Chicago Flameproof and Wood Specialties Corp. ("Chicago Flameproof"), Madison L.L.C. ("Madison"), and Northern Illinois Lumber Specialties Corp. ("Northern") for shareholder oppression (Count I), refusal to permit examination of corporate records (Count II), breach of fiduciary duty (Count III), breach of contract (Count IV), and a shareholder derivative action (Count V). All defendants move to dismiss. Northern's motion (dkt. 54) is granted as unopposed. Chicago Flameproof's motion (dkt. 53) is denied. Madison's motion (dkt. 53) is granted. Mancini and Rossobillo's motion (dkt. 58) is granted in part and denied in part. The following claims will proceed:
Vanco was one of the original shareholders of Chicago Flameproof, a closely held lumber-treating business, incorporated in 1991. (Dkt. 49 ¶ 25.) Vanco loaned Chicago Flameproof $610,000 on favorable terms, which Chicago Flameproof used to buy the existing lumber-treating business of another company. (Id. ¶ 19–20, 28.) In connection with his early financing efforts, Vanco was permitted to purchase 160 of 1000 total shares of common stock for $1 per share. (Id. ¶¶ 18, 25.) Mancini and Thomas Schude had 370 shares each, and John Janssen (now deceased) had 100 shares. (Id. ¶ 25.)
The four original shareholders signed a shareholder agreement that restricted the transfer of shares. Under the agreement, "no shares of the Stock shall be transferred by a shareholder to any person or entity other than a Permitted Transferee unless such Shareholder" first offered the corporation or other shareholders a chance to purchase the shares. (Dkt. 49-1 Exh. D § 3(a).) The agreement defined "Permitted Transferee" to include "Each of the Shareholders." (Id. § 2.) The agreement also provided a procedure for valuing shares. (Dkt. 49 ¶ 44.)
Under the shareholder agreement, all new Chicago Flameproof shares had to be subject to the share restrictions in the shareholder agreement. (Id. ¶¶ 38–39.) Vanco concludes from this provision that Chicago Flameproof had to offer its existing shareholders a right of first refusal to purchase any newly issued shares, which he calls the "anti-dilution provisions." (Dkt. 49 ¶¶ 77–83.) But there are no anti-dilution provisions in either the shareholder agreement or the Chicago Flameproof bylaws. (Dkt. 49-1 Exh. A, Exh. D.) Rather, the bylaws permitted the directors to authorize officers to enter contracts and deliver any instruments without limitation. (Dkt. 49-1 Exh. A Art. V § 1.) The president was given authority to issue share certificates. (Id. Art. VI § 1.) Although new shares had to be subject to the original shareholder agreement's transfer restrictions, current shareholders did not have a right of first refusal to purchase newly issued shares. (Dkt. 49-1 Exh. D §§ 7–8.)
The shareholder agreement and bylaws of Chicago Flameproof effectively placed Mancini in unfettered control of Chicago Flameproof for life. (Id. ¶ 24.) Under the shareholder agreement, Mancini was to be a director and CEO for as long as he wished. (Id. ¶ 23.) Mancini, Janssen, and Schude—together controlling 83% of the original shares—mutually agreed and bound their successors to vote for themselves as the only three directors of Chicago Flameproof indefinitely. (Dkt. 49-1 Exh. D § 4(a).) They further agreed that, as directors, they would vote for Mancini as CEO every year. (Id. § 5(b)(3).) Mancini was also to serve as President. (Id. § 5(b)(4).) Mancini thus would control all day-to-day operations of Chicago Flameproof as both a director and an officer, with minimal restrictions on his power built into the bylaws. (Dkt. 49 ¶ 23.)
Since Vanco's initial investment, Mancini froze Vanco out of the business and arrogated more power and control to himself by increasing his stake as a shareholder. The Chicago Flameproof bylaws require annual shareholder meetings with advance notice. (Id. ¶ 37.) Yet Chicago Flameproof has not called or held an annual shareholders’ meeting since 1995. (Id. ¶¶ 45–46.) Nor has Chicago Flameproof called any special meetings of shareholders. (Id. ¶ 46.) Though Vanco has never had a large enough stake to call a special meeting himself, he and Schude called one together in 1994. (Id. ¶ 119.) At that meeting, Vanco and Schude, together with 53% of shares at the time, passed a resolution requiring an independent audit of Chicago Flameproof, which Mancini ignored. (Id. )
Throughout his tenure at Chicago Flameproof, Mancini has issued many new shares, diluting Vanco's stake. Without notice to Vanco, at some point, Madison—an LLC that Mancini, Rossobillo and Janssen formed in 1997—purchased 950 new shares in Chicago Flameproof for $475,000. (Id. ¶¶ 56, 64, 73, 82.) Vanco would have been willing to pay more, and no one investigated alternative investments that would have preserved existing shareholders’ equity. (Id. ¶¶ 76–77, 79, 81.) Vanco also alleges on information and belief that Madison's stock was not subject to the shareholder agreement. (Id. ¶ 75.) By 2014, Mancini had increased his own stake from 370 shares to 2,020, plus effective control of Madison's 950 shares, while Schude and Janssen disappeared from the shareholder rolls, and Vanco's shares stayed constant. (Id. ¶ 61.) Vanco claims that he never received notice of any issuances or transfers of shares, though, as the rolls reflect, the transfers must have occurred. (Id. ¶ 66.) Again, however, Vanco's exhibits contradict his complaint; he attaches a letter faxed to him in 2000 notifying him that Chicago Flameproof was buying back Janssen and some of Rossobillo's stock. (Dkt. 49-1 Exh. F.)
After these issuances and transfers, Chicago Flameproof has four shareholders. (Dkt. 49 ¶¶ 17, 19–20, 31.) Mancini is the majority shareholder with 2,020 shares. (Id. ¶ 6.) Rossobillo, who is also currently Vice President of Chicago Flameproof, owns 50 shares. (Id. ¶¶ 7, 14.) Madison owns 950 shares, and Mancini and Rossobillo are now Madison's sole members. (Id. ¶¶ 10, 16, 18.) Vanco remains a minority shareholder, with 160 shares. (Dkt. 49 ¶¶ 5.)
Vanco alleges that Mancini and Rossobillo have used their supermajority status to drain funds from Chicago Flameproof to the detriment of the corporation and its shareholders. (Id. ¶¶ 52–55, 89–90.) Mancini and Rossobillo caused Chicago Flameproof to pay them between $500,000 and $700,000 in combined salaries per year. (Id. ¶ 53.) They also borrowed from Chicago Flameproof and owe it over $300,000. (Id. ¶¶ 54–55.) And despite earning tens of millions of dollars in revenue, Chicago Flameproof has not paid a shareholder dividend since 1991. (Id. ¶¶ 51, 89.) Vanco also alleges that since the very beginning of Chicago Flameproof, Mancini and Rossobillo have owned Northern, a competing lumber-treating business, and diverted some potential Chicago Flameproof business to Northern. (Id. ¶¶ 108–13.) He "suspects" that Chicago Flameproof and Northern commingle assets. (Id. ¶ 115.) Vanco further claims that Mancini has hired his family members as "phantom" employees, which the court infers from context to mean that they are paid from Chicago Flameproof funds but perform no work for Chicago Flameproof. (Id. ¶ 132.)
Vanco had discussions with Mancini and Rossobillo at various points to buy out his stake in Chicago Flameproof. (Dkt. 49 ¶ 102.) In 2000, Chicago Flameproof offered to repurchase Vanco's shares for $250,000, but apparently the parties did not close the deal. (Dkt. 49-1 Exh. F.) To assess the value of his shares while negotiating the possible buyouts, Vanco made two clusters of requests to examine corporate records: one in 1998, and one in 2018. (Dkt. 49-1 Exhs. B, E.) In 1998, Vanco requested twelve broad categories of records "to protect my interests and the interests of my family" (dkt. 49-1 Exh. E) and claims that Chicago Flameproof never responded. (Dkt. 49 ¶ 105.) In 2018, for the stated purpose of valuing his shares, and to investigate "whether the acting president, Vincent Mancini, has engaged in wrongdoing," Vanco requested essentially every record that Chicago Flameproof had ever produced. (Dkt. 49-1 Exh. B.) Although Vanco claims that Chicago Flameproof "failed to comply with the information request," (dkt. 49 ¶ 68), yet again, Vanco's exhibits...
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