Chavin v. General Employment Enterprises, Inc.

584 N.E.2d 147, 222 Ill. App. 3d 398, 164 Ill. Dec. 935
CourtAppellate Court of Illinois
DecidedJanuary 13, 1992
Docket1—90—3430, 1—90—3483, 1—90—3694 cons.
StatusPublished
Cited by13 cases

This text of 584 N.E.2d 147 (Chavin v. General Employment Enterprises, Inc.) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Chavin v. General Employment Enterprises, Inc., 584 N.E.2d 147, 222 Ill. App. 3d 398, 164 Ill. Dec. 935 (Ill. Ct. App. 1992).

Opinion

JUSTICE CAMPBELL

delivered the opinion of the court:

This is a consolidated appeal. Defendants, General Employment Enterprises, Inc. (GEE); 1 and Herbert E Imhoff, Herbert F. Imhoff, Jr., Walter T. Kerwin, Jr., Philip A. Piety, Anthony F. Spadaro and Howard S. Wilcox, as directors of GEE, appeal from orders entered by the trial court on November 28, 1990, and on December 6, 1990, both of which granted a preliminary injunction to plaintiffs, Leonard Chavin and Harry Lewis, enjoining defendants from implementing GEE’s “Share Purchase Rights Plan” (the Plan) and from an order entered on December 20, 1990, permanently enjoining defendants from implementing the Plan.

On appeal, defendants contend that: (1) the trial court erred in holding that the Plan violated the constitutional guarantee of cumulative voting provided in the Illinois Constitution of 1870 (the 1870 Constitution) and in section 8 of the transition schedule of the Illinois Constitution of 1970 (the 1970 Constitution); and (2) the parties should be returned to the status quo that existed before the preliminary injunction was entered. While the appeal was pending, plaintiffs filed a motion with this court to dismiss defendants’ consolidated appeal from the preliminary injunction on the ground that the permanent injunction rendered the appeal moot. The motion was taken with this appeal. For the following reasons, plaintiffs’ motion to dismiss defendants’ consolidated appeal from the preliminary injunction is denied, the judgment of the trial court is reversed, and the cause is remanded for further proceedings.

The record sets forth the following facts relevant to this appeal. GEE is a publicly traded Illinois corporation, engaged in the business of providing personnel services through a network of employment agencies in major cities in the United States and Canada. Plaintiffs Leonard Chavin and Harry Lewis are shareholders of GEE. At the time the complaints were filed, Chavin was the second largest shareholder of GEE, owning approximately 9.4% of GEE’s issued and outstanding common shares.

Prior to February 12, 1990, GEE’s articles of incorporation authorized the issuance of five million common shares and 100,000 preferred shares. Pursuant to article XI, section 3, of the 1870 Constitution, in effect when GEE was incorporated, GEE’s articles of incorporation and bylaws provide for the election of the six-member board of directors by cumulative votes.

Between January 19 and February 6, 1990, Chavin, together with other individuals (the Chavin Group), purchased 85,000 common shares of GEE, representing approximately 5% of the outstanding voting power of GEE. The members of the Chavin Group orally agreed to vote their common shares as Chavin requested. On February 17, 1990, Chavin filed a schedule 13D with the United States Securities and Exchange Commission, on behalf of the Chavin Group. The schedule 13D filing indicated the Chavin Group’s acquisition of the common shares for investment purposes and indicated their intent to acquire an undetermined amount of additional GEE shares. Schedule 13D further stated that the Chavin Group, along with other investors, were considering whether to seek control of GEE. Between February 8, 1990, and June 22, 1990, Chavin purchased additional GEE common shares, including some owned by other members of the Chavin Group.

On February 7, 1990, defendants received a copy of the Chavin Group’s schedule 13D, which disclosed that the Chavin Group had acquired 5% of GEE’s outstanding common shares, intended to increase their investment and were considering whether to seek control of GEE. On February 12, 1990, the GEE board of directors unanimously adopted a “poison pill” plan, designated the “Share Purchase Rights Plan” (the Plan), which included the creation of series A junior participating preferred shares (the Preferred Shares), having voting rights of 100 votes per share. Pursuant to the Plan, the board of directors authorized the issuance of and declared a dividend distribution of one preferred share purchase right (the Right) for each common share outstanding as of February 22, 1990, including the shares owned by the Chavin Group. Each Right represented a right to purchase one Vioo of a preferred share and a right to purchase additional common shares of GEE stock at 50% of the current market price per common share upon terms and conditions set forth in the Rights agreement.

Plaintiffs described the operation of the Plan as follows:

“20.1 The Rights are attached to all common share certificates without distribution of any separate rights certificate and are exercisable only under specified conditions.
20.2 The Rights are exercisable only after a shareholder who had acquired 5% or more of GEE’s voting power after December 31, 1989 has increased ownership to 10% or more of the voting power.
20.3 If any person acquires 5% or more of the voting power of GEE after December 31, 1989, and thereafter becomes the beneficial owner of 10 %• or more of the voting power, all other shareholders have the right to acquire the number of newly issued common shares of GEE having a market value equal twice the exercise price of the right, which is $12.
20.4 At any time after the Rights become exercisable for common shares, the Board of Directors may exchange each unexercised Right, other than the Rights beneficially owned by the person acquiring 10% or more of the voting power, for a newly-issued common share.
20.5 The Rights of any shareholder who acquired 5% or more of the stock after December 31, 1989, and thereafter increased ownership of voting power to 10% or more automatically become null and void. As a result, such shareholder forfeits all rights to acquire additional common shares or to exchange his Rights for common shares on the same terms and conditions accorded by the Plan to every other shareholder.
20.6 GEE may redeem the Rights at a price of one cent per Right.
21. The purpose of the Plan is to prevent and penalize the acquisition of over 10% of the common shares of GEE by any individual or group desiring to make an investment in GEE sufficient to elect one or more members of the Board of Directors. The natural and necessary effect of the Plan is to entrench the Directors in their positions by erecting a substantial barrier to the acquisition of more than 10% of GEE’s common shares.
21.1 The Plan accomplishes its purposes and effects by automatically working a forfeiture of shareholder Rights, which drastically reduces the voting power and economic value of common shares of any minority shareholder who acquires 10% or more of GEE’s voting power.
21.2 The Plan automatically reduces the investment of a minority shareholder regardless of whether the shareholder (a) has acquired sufficient shares to elect a single director, or (b) has either the intent or ability to acquire sufficient voting power to control GEE.”

On June 15, 1990, Chavin filed a two-count verified complaint, seeking declaratory and injunctive relief.

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Bluebook (online)
584 N.E.2d 147, 222 Ill. App. 3d 398, 164 Ill. Dec. 935, Counsel Stack Legal Research, https://law.counselstack.com/opinion/chavin-v-general-employment-enterprises-inc-illappct-1992.