Madison - St. Clair Record

Thursday, September 19, 2019

Fifth District affirms Crowder's ruling in shareholder case

By David Hutton | Jun 12, 2017

MOUNT VERNON, ILL. – The Fifth District Appellate Court affirmed Madison County Circuit Judge Barbara Crowder's ruling that the majority shareholders in a closely-held corporation oppressed minority shareholders.

The appeals court's June 1 Rule 23 decision also upheld the Crowder's judgment awarding the plaintiffs employee bonuses where issues surrounding the plaintiffs’ employment agreement with the corporation were subject to mandatory arbitration.

Kathleen C. Bone and Melissa Favier appealed Crowder's Feb. 26, 2015, decision for Coyle Mechanical Supply Inc., Patrick Coyle, Michael Coyle, Jerome Coyle Jr. and Brian Coyle, who also cross-appealed the case.

Illinois 5th District Appellate Court

Bone and Favier originally filed a complaint in Madison County Circuit Court in 2011 requesting an accounting of the corporation’s assets and liabilities.

The pair also requested shareholder remedies pursuant to the Business Corporation Act of 1983. They alleged that the Coyles, as majority shareholders acting in control of the corporation, acted in a manner that “is illegal, oppressive or fraudulent with respect to the plaintiffs as minority shareholders.”

Bone and Favier also alleged that corporate assets were being misapplied and/or wasted and that the majority shareholders have individually and/or collectively engaged in conduct relating to the corporation's business that makes it not reasonably practicable to carry on that business in the future.

Specifically, Bone and Favier allege that the majority shareholders locked them out of the business and refused to communicate with them in a meaningful manner, withheld information from them and acted in a manner “that may be illegal and that is oppressive with respect to the plaintiffs.”

In the complaint, Bone and Favier requested that the corporation be dissolved and the corporation's assets be distributed; Pat Coyle and one or more of the other majority shareholder defendants be removed as directors and/or officers of the corporation; Bone and Favier be appointed as directors and officers; an accounting with respect to all transactions while they have been removed as officers and/or directors; and an award of damages to each plaintiff.

Alternatively, Bone and Favier proposed the Coyles buy out minority shareholders or appoint a receiver to take control of the corporation and liquidate and distribute its assets; and payment of legal fees.

Further, the pair alleged breach of contract, breach of fiduciary duty.

In a counter complaint, the majority shareholders alleged breach of fiduciary duty against Bone in connection with her duties as secretary, treasurer and human resources administrator for the corporation.

Stone Carlie & Company performed a valuation calculation analysis of the corporation, concluding that as of Dec. 31, 2011, the value of the corporation was $1,444,000, and the fair value of a one-sixth interest in the corporation was $240,000.  An updated Stone Carlie report, valuing a one-sixth interest of the corporation as of April 30, 2013, showed an indicated fair market value of the corporation of $1,787,000 "before discounts," making a one-sixth interest worth $297,000.  

Much of  the  evidence  presented  at  the  bench  trial  centered  on  issues between and among the plaintiffs and the individual defendants as employees of the corporation.

The circuit court characterized the work environment as "dysfunctional and disturbing."

The circuit court ruled that the Coyles breached their fiduciary duty by failing to have annual meetings, issuing profit-sharing bonuses to the majority shareholders without board action, and paying themselves bonuses in 2008 but not issuing any to the plaintiffs, who were employees during that fiscal year.

The lower court also agreed that the majority shareholders acted in a manner that “is oppressive with respect to the plaintiffs” in violation of the Business Corporation Act of 1983.

The court ordered a judgment of $74,553 plus 5 percent prejudgment interest from April 30, 2008, to March 5, 2014, and post-judgment interest of 9 percent to Bone for her 2008 bonus; $78,281 plus 5 percent prejudgment interest from April 30, 2008, to March 5, 2014, and post-judgment interest of 9 percent, in favor of Favier for her 2008 bonus.

The court further ruled Bone and Favier each be paid $375,000 for their respective shares of the corporation; and $250,000 for profit-sharing bonuses and dividends covering 2009-2013. However, the appeals court adjusted the value to be paid for their shares to $297,000.

The ruling noted that majority shareholders would not be required to forfeit any bonuses and no directors would be removed.

The appeals court vacated a portion of the decision which awarded Bone and Favier each $200,000 according to section 12.56(b)(10)of the Business Corporation Act. The court found that the circuit court’s decision to order the majority shareholders to pay an additional $200,000 to be “an abuse of discretion.”

No punitive damages were awarded.

The appeals court also adjusted the lower court’s ruling, awarding $139,292.64 in attorney fees and costs to be paid by the majority shareholders and not the corporation.

Madison County Circuit Court case number 09-CH-416

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Illinois Fifth District Appellate Court Madison County Circuit Court