Court Opinion

ID: 9719740
Source: CourtListenerOpinion
Date Created: 2023-08-26 08:02:04.091634+00
Date Added: 2024-06-11T18:24:09.575333
License: Public Domain

BURMAN, P. J., dissenting: The defendant’s motion to strike the amended complaint admits the facts averred for the purpose of the motion. Villareal v. Trevino, 30 Ill App2d 77, 173 NE 2d 582. The only question presented by the motion is whether the amended complaint states a good cause of action. It is my opinion that the allegations in the amended complaint set forth factual misconduct by defendants in the operation and control of the corporate real estate requiring defendants to answer and defend. Broad application should be given Sec (a) (3) and (4) of the Business Corporation Act, Ill Rev Stats, c 32, § 157.86(a)(3) and (4). This is particularly true when the alleged misconduct involves the sole asset of the corporation, here a parcel of real estate consisting only of a theater, nine stores and a sixty-five room hotel. The corporation itself came about through a plan of reorganization out of a foreclosing proceeding. Pursuant to the plan the real estate was conveyed to the corporation and Class A and Class B stock was issued to the owners of the bonds and to the owner of the equity right of redemption. The plan provided that Class A stock was to be retired out of the surplus or net profits and no dividends were to be paid on either class of stock until the Class A is redeemed. It is alleged that the stockholders face the likelihood of losing this property to the members of the Grundman family who are the directors and officers of the corporation, and who exclusively manage and control its operations. In 1953, Mrs. Paul Grundman, wife of the corporate president, loaned $60,000 to the corporation and received a mortgage conveying the real estate as security. The mortgage also contained a waiver of the right of redemption. During the six year period from 1952 to 1957, inclusive, the average yearly rental amounted to $47,395.66, of which over $15,000 represented rent from the theater. The theater has been closed since April 3, 1958, and no income has been derived from it since that date. According to the operating statements the corporation suffered a loss each year during the six year period. While nothing has been paid on the principal, Mrs. Grundman has received the 5% annual interest on the mortgage. It matures in 1963. During the six year period the corporate president has received $6,000 a year for managing the property while the directors received a total of $900 a year. The $60,000 received on the mortgage was expended on rehabilitation of the property. During the six year period none of the Class A stock was retired. It is alleged that the fees paid and expenditures made “were fantastically high”; that instead of retiring Class A stock, one of the original purposes for which the corporation was formed, the mortgage money was expended to protect the mortgagee’s, Mrs. Grundman’s, interests. There are other numerous specific charges which, if true, are serious and should be met. For example, the expenses incurred by the Grundman family were considerably reduced in 1958, after the filing of the original complaint. In addition, the depreciation charges were adjusted in 1958 so that the balance sheet showed a profit for the first time in seven years. The allegations show that there is no reasonable prospect of a profitable operation. During the six years from 1952 to 1957, inclusive, the Grundmans had been purchasing shares of stock at depressed prices. The corporation did not show a profit when the theater was in operation. This lost rent is almost one-third the former income. Moreover, by holding the mortgage in addition to controlling the board of directors, the Grundman family occupies a doubly dominant position. I am not impressed with defendant’s contention that liquidation should not be ordered on the grounds of “oppressive” acts unless the shareholders are deadlocked. If we were to so find we would in effect be revising the statute and no matter how wrongful the acts of directors would be the statute would then be ineffectual. In my opinion, if the minority shareholder can prove her allegations, the defendants would have the burden of establshing the fairness of their positions and actions. The motion to strike should have been overruled and the defendants should have been ordered to answer.