Articles Posted in Business Litigation

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The Illinois Business Corporation Act, Section 7.75, gives shareholders the right to inspect a company’s records, “but only for a proper purpose.” The Illinois Business Corporation Act was amended in 1984, requiring shareholders to make their demand in writing, “stating with particularity the records sought to be examined and the purpose therefore.” 805 ILCS 5/7.75.

The plaintiffs in this case, Sunlitz Holding Co. (and three of the company’s shareholders) appealed from an order that dismissed its complaint for mandamus against Trading Block Holdings Inc., which claimed that it had satisfied the “proper purpose” and “particularity” requirements.

The lawsuit complaint contained exhibits attaching two letters the plaintiff sent to Trading Block. In an April 1, 2013 letter, plaintiff Sunliz said it wanted to inspect the corporation’s records “to determine the financial condition of the company, the character of the management of the company and whether the company’s financial practices were appropriate.” In another letter dated May 17, 2013, the plaintiff said he was worried that the corporation was being used “as a piggy bank for the insiders and the board of directors.”

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Daniel Nickell filed a lawsuit against the officers and directors of Engineer Support. He claimed it had improperly diverted financial benefits by backdating stock options, which decreased the value of the corporation for its shareholders. Nickell was a shareholder of Engineer Support Systems Inc. (ESSI). ESSI merged with DRS Technologies in January 2006.

In Nickell’s lawsuit, he alleged that the officers and directors made material misrepresentations to induce the merger at a reduced price for the company in exchange for DRS assuming responsibility for the backdating scheme.

The trial judge dismissed Nickell’s lawsuit on the grounds that his claims were pleaded as a shareholder derivative claim and that he did not have standing to sue the ESSI directors and officers for his individual claims. Nickell appealed to the Supreme Court of Missouri, which affirmed the dismissal of his case.

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Lawyers who handle jury trials prepare their cases typically by reviewing all of the depositions, all of the issues of damages, the pleadings, the written discovery, the law that applies and the jury instructions that may be used. That would be just the start. Some lawyers, like me, abstract all of the depositions, which mean a summary by page is made for each deposition transcript. That allows the lawyer to both read again the transcripts of depositions that may have been taken some years ago and now refresh the memory of the lawyer who may call the witness either as a witness on direct examination or a witness that may be called by the opposition and cross-examined during the trial.

Lawyers spend a lot of time doing all of this work in reviewing the case, meeting with the clients, re-reading the file, the medical records, the photographs and other evidence, the preparation of demonstrative evidence, the preparation of visuals such as large blow-ups or use of computers to generate images for the jury, all the while perhaps spending little time on preparing the case for the jurors in anticipation of what they will discuss in the jury room.

In my practice before trial I utilize the benefits of a focus group, which would be a method to test-drive the elements of the case before an uninterested, unbiased group just like the jury, to evaluate strengths and weaknesses of the case. The discussions that these practice jurors have are many times the same kinds of discussions and deliberations that take place at the end of the trial in the jury room.

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Pilot Flying J, a truck stop fueling and restaurant chain that is common along Illinois and U.S. highways, has agreed to pay $92 million in fines to the federal government for a scheme to cheat truck drivers out of agreed-upon diesel fuel rebates. The agreement was reached with the U.S. Attorney’s Office for the Eastern District of Tennessee and Pilot Travel Centers, LLC d/b/a “Pilot Flying J.”

It was alleged that the scheme cost the company’s truck driver customers more than $56 million. The agreement came after 10 Pilot Flying J employees pleaded guilty to involvement in the plot to defraud Flying J customers.

Pilot Flying J is one of the largest trucker diesel suppliers in the United States. Flying J offered rebates and discount programs to encourage loyalty among its trucking customers. The discounts offered by Pilot Flying J varied among its numerous truck stops making it difficult for customers to know whether they were getting their agreed-upon discounts. The U.S. Attorney’s Office stated that in some instances, Pilot Flying J instructed its sales staff how to reduce the rebates in order to make some discounts more profitable.

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The 7th Circuit Court of Appeals in Chicago has affirmed the dismissal of a fraud case in the U.S. District Court for the Northern District of Illinois. Patrick Camasta filed a lawsuit against Joseph A. Bank Clothiers Inc. claiming that prior to making purchases at the company’s far north suburban store in Deer Park, Ill., that he saw an advertisement about “sale prices” for certain items.

Camasta’s complaint did not specify when or where he saw the advertisement, what exactly the advertisement said, what the “sale prices” were or what particular merchandise was eligible for the sale.

At the Deer Park Joseph A. Bank store, Camasta found that there was a promotion in which customers were able to buy one shirt and get two for free. Camasta purchased six shirts for $167. After his purchases, Camasta alleged that he learned that Bank’s practice was to advertise normal retail prices as normal price reductions. Camasta alleged but for this fraudulent retail tactic, he would not have purchased the six shirts.

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In 1952, the owner of a parcel of land in Illinois granted a pipeline operator an easement for two pipelines to cross his land. The first pipeline was built immediately.

The easements specified that the second pipeline, if constructed, was required to be built within ten feet of the first pipeline. The pipeline operator promised the landowner that the land would remain farmable.

In 2012, the current pipeline operator notified the landowner that it planned to build the second pipeline. The owner responded with a lawsuit to quiet title. The pipeline operator removed the case to the federal district court under diversity jurisdiction.

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Fortunee Massuda was an investor in a group of Panda Express restaurants in Chicago. The restaurants were owned by a joint venture, RC Partnership, made up of Panda Express Inc. and Rezko Concessions Inc. Massuda invested $4 million in the joint venture in exchange for an ownership interest of 11% in the joint venture. The joint venture also owned and controlled PE Chicago, a Delaware LLC. By the year 2001, the value of the RC Partnership was estimated to be $56.4 million.

By 2005, Rezko Concessions’ owner, Tony Rezko, was in deep financial and legal trouble. In April 2006, Massuda went to Panda and informed it of her intent to sue Rezko and asked whether Panda would be interested in buying her 11% share. Panda’s general counsel declined the offer and instead told Massuda that her stake was worthless.

In mid-May 2006, Rezko was urgently in need of money. In order to secure funds, Rezko offered to sell PE Chicago’s interest in RC Partnership to Panda. Panda agreed to pay Rezko $3 million, keep the deal between them secret and grant Rezko personally a buy-back option.

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Shuffle Tech made automatic card-shuffling equipment for the consumer market and particularly for casinos. In 2010, Shuffle Tech and Wolff Gaming, a distributor of the equipment, signed a letter of intent that expressed their mutual commitment to proceed with a draft agreement regarding product development and distribution.

The agreement laid out a deal in which Shuffle Tech and Wolff Gaming would collaborate to develop a casino-grade shuffling machine. In return for providing financial assistance, Wolff would become the exclusive equipment distributor in the Western Hemisphere.

The next year, but before the new equipment was developed, Shuffle Tech wrote to Wolff proposing that the companies part ways and settle all outstanding business. Several months later, Shuffle Tech filed a lawsuit in the federal court seeking a declaratory judgment that the draft agreement was not an enforceable contract, that the letter of intent was enforceable and that Wolff had broken the letter of intent agreement.

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In a case involving a default judgment in the amount of $421,582 against an Illinois corporation, Mama Gramm’s Bakery requested that a Cook County judge pierce the corporate veil of Silver Fox Pastry and put the liability on Haitham Abuzir. Abuzir was never a director, officer, shareholder or employee of the corporation, Silver Fox.

In the attempt to pierce the veil, Mama Gramm’s alleged that Abuzir funded Silver Fox, “made all business decisions” and “exercised ownership control over the corporation to such a degree that separate personalities of the corporation and defendant did not exist.” The trial judge dismissed the complaint for failing to state a cause of action against Abuzir. The Illinois Appellate court reversed that decision and provided an opinion on the issue of “whether the veil may be pierced to reach non-shareholders.”

The underlying case that resulted in a default judgment was a trade secret case. The appellate court discussed the ways to create and organize a sham corporation. “In some instances, the wrongdoer neither holds stock nor serves in an official capacity. Making officer, director or shareholder status a pre-requisite to veil-piercing elevates form over substance and is therefore contrary to veil-piercing’s equitable nature.”

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An Illinois Appellate Court has affirmed a decision by a Cook County Circuit Court judge relating to a guaranty. In 2001, Paul Steiner and Ricky Nelson, representatives from Superior Wine Selections, submitted a credit application to a wine distributor, Morand. With the application, Steiner and Nelson each tendered a personal guaranty. The guaranty required Steiner and Nelson to pay fully and promptly for any amount due the wine distributor. The agreement stated that “the guaranty shall be continuing, absolute and unconditional and shall remain in full force and effect until written notice of its discontinuance shall be actually received . . . and also until any and all indebtedness existing before receipt of such a notice shall be fully paid.”

In addition, Steiner and Nelson waived notice and stated that the guaranty “shall be binding on the undersigned jointly and severally, and upon their legal heirs, legal representatives, successors and assigns of the undersigned and each of them.”

In 2002, Southern Wine and Spirits of Illinois purchased Morand — the wine distributor that received Steiner’s and Nelson’s personal guaranties. In May 2003, Superior began using Southern as a wholesale distributor — unaware that it had purchased Morand.

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