Hagen v. Distributed Solutions, Inc.

764 N.E.2d 1141, 328 Ill. App. 3d 132, 262 Ill. Dec. 24, 2002 Ill. App. LEXIS 95
CourtAppellate Court of Illinois
DecidedFebruary 8, 2002
Docket1-01-0714
StatusPublished
Cited by10 cases

This text of 764 N.E.2d 1141 (Hagen v. Distributed Solutions, 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
Hagen v. Distributed Solutions, Inc., 764 N.E.2d 1141, 328 Ill. App. 3d 132, 262 Ill. Dec. 24, 2002 Ill. App. LEXIS 95 (Ill. Ct. App. 2002).

Opinion

PRESIDING JUSTICE GALLAGHER

delivered the opinion of the

court:

Plaintiff, Jeffrey Hagen, filed an action for a writ of mandamus to allow plaintiff to inspect the books and records of defendant corporation Distributed Solutions, Inc. (DSI). Plaintiff now appeals from the trial court’s order granting summary judgment to DSI and defendant Craig Johnson (Johnson) (collectively, defendants) and denying plaintiffs motion for reconsideration. We reverse and remand.

DSI, founded by Johnson in 1991, manufactured computer systems software and provided consulting services which included payroll services for small companies. Johnson was the sole officer and director of DSI, as well as the majority shareholder with approximately 74% of the total shares. Plaintiff was a minority shareholder with approximately 26% of the total shares, as well as an employee of the corporation. Plaintiff resigned in early 1992 after which he had no day-to-day involvement with the corporation. Plaintiff received financial statements of DSI on a quarterly basis.

In 1993, Johnson sold a portion of DSI’s business — its payroll services for small companies — to himself and a few other minority shareholders and established a company called Distributed Payroll Solutions, Inc. (DPSI). As part of the sales contract, DSI became a shareholder in DPSI. This investment was carried on the books of DSI and valued at $45,000. Johnson subsequently operated DSI and DPSI out of the same location.

In 1994, plaintiff filed an action in Lake County seeking to force a buyout of plaintiffs shares or seeking the dissolution of DSI. Plaintiff apparently was unsuccessful.

In 1996, Johnson brought suit against plaintiff alleging that plaintiff had not paid full value for his shares. Plaintiff, acting pro se, attempted to file a countersuit claiming oppressive actions by Johnson, but apparently failed to adequately state a cause of action. Johnson lost his suit in arbitration, rejected the arbitrator’s decision and requested a trial in which the court ultimately ruled in favor of plaintiff.

In or about October 1997, plaintiff requested and was given access to review the books and records of DSI. The records revealed that DSI reportedly had sales revenues of $739,034 and listed $541,168 in assets on its balance sheet in 1996. DSI’s total revenues in 1997 were reported as being $934,532.16.

At some point in 1998, Johnson notified plaintiff that an investment in Lilly Software, which had been carried on DSI’s books, actually belonged to Johnson and had been mistakenly placed on DSI’s books. Johnson removed the asset from the books and also reversed a $30,000 dividend paid by the Lilly investment to DSI. Plaintiff questioned Johnson, who explained that the investment had only been on DSI’s books for less than a year. Plaintiff wrote a letter to Johnson questioning this explanation. Apparently, plaintiff believed that Johnson’s statement was contradicted by DSI’s financial statements showing the investment had been carried on DSI’s books for approximately two years. Johnson did not respond to plaintiffs letter.

In a letter dated July 28, 1998, however, plaintiff was notified that Johnson, as the sole officer and majority shareholder, had adopted a resolution to dissolve DSI. Plaintiff was also provided with an income statement and balance sheet which showed that all of the assets of DSI had been sold or written off. The investment in DPSI had been sold to Johnson for $267.50 and a write-off of $44,732.50 was charged to DSI. The reasons contained in the resolution to dissolve DSI, signed by Johnson, were threefold: (a) that the corporation conducted no business; (b) that the corporation had no prospects for future business; and (c) that there were no employees of the corporation.

On or about August 20, 1998, a special meeting of the shareholders took place which was attended by Johnson, plaintiff and plaintiffs attorney. Plaintiff voted against the dissolution of the corporation and Johnson voted for dissolution. Thus, the resolution was passed by a majority vote of the shareholders. DSI was dissolved thereafter; DPSI still exists with Johnson as the majority shareholder.

At some point during the meeting of August 20, 1998, however, plaintiff verbally requested corporate records showing how the various assets of the corporation were valued and to whom they were transferred. These apparently were not provided to plaintiff during the meeting. Instead, Johnson told plaintiff to put his request in writing.

Within two weeks, by way of a certified letter dated August 31, 1998, plaintiff made a written request pursuant to section 7.75 of the Business Corporation Act of 1983 (805 ILCS 5/7.75 (West 1992)) (the Act). Plaintiff reiterated his request, made during the special shareholder’s meeting, to review the corporate books and records. Plaintiff received no response to his request.

On October 26, 1998, plaintiffs attorney sent another certified letter to Johnson again reiterating plaintiffs request. Again, there was no response to this letter.

On March 17, 1999, plaintiff filed a complaint for a writ of mandamus in the circuit court of Lake County. Unbeknownst to plaintiff, however, DSI had moved to a location near the border of Lake and Cook Counties. DSI was actually headquartered in Cook County. On August 13, 1999, plaintiff refiled his original complaint for a writ of mandamus in the circuit court of Cook County; plaintiff filed an amended complaint on October 25, 1999. In his amended complaint, plaintiff alleged that his purpose in seeking relief pursuant to section 7.75 of the Act was, as set forth in his letter, threefold: (a) to aid in the determination of the present value of the shareholders’ shares in the corporation; (b) to determine the financial condition of the corporation; and (c) to determine whether unauthorized and oppressive acts had occurred in connection with the operation of the corporation which impacted the value of the shareholders’ shares so as to justify remedies under the Act.

On November 19, 1999, defendants filed a motion to dismiss the amended complaint, pursuant to section 2 — 615 of the Code of Civil Procedure (735 ILCS 5/2 — 615 (West 1998)), arguing that plaintiff failed to sufficiently plead a proper purpose in his complaint. The trial court denied the motion to dismiss on December 10, 1999. On December 30, 1999, defendants filed their answer and affirmative defenses to plaintiffs amended complaint.

Subsequently, several status hearings transpired with respect to the pending litigation between January 2000 through July 2000. The record reveals that a series of correspondence ensued between the parties during this period. On February 23, 2000, defendants’ counsel sent a letter to Hagen’s counsel stating: “[0]ur client has no objection, nor has it ever objected, to Mr. Hagen’s reasonable examination of the books and records of [the corporation].” The letter further stated that defendants objected to plaintiffs demands for narrative answers and requested a written response informing them “exactly which corporate books and records” that plaintiff was seeking to examine.

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764 N.E.2d 1141, 328 Ill. App. 3d 132, 262 Ill. Dec. 24, 2002 Ill. App. LEXIS 95, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hagen-v-distributed-solutions-inc-illappct-2002.