Santella v. Kolton

912 N.E.2d 1248, 393 Ill. App. 3d 889, 332 Ill. Dec. 362, 2009 Ill. App. LEXIS 733
CourtAppellate Court of Illinois
DecidedJuly 31, 2009
Docket1-08-1329, 1-08-1357, 1-08-1847 cons.
StatusPublished
Cited by13 cases

This text of 912 N.E.2d 1248 (Santella v. Kolton) 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
Santella v. Kolton, 912 N.E.2d 1248, 393 Ill. App. 3d 889, 332 Ill. Dec. 362, 2009 Ill. App. LEXIS 733 (Ill. Ct. App. 2009).

Opinion

JUSTICE JOSEPH GORDON

delivered the opinion of the court:

This matter arises from an order of the circuit court granting relief to plaintiff, Rick Santella, and against defendants William and Mary Kolton, under section 12.56 of the Business Corporation Act of 1983 (805 ILCS 5/12.56 (West 2006)). For the reasons that follow, we dismiss.

I. BACKGROUND

On October 31, 2005, plaintiff Rick Santella, a shareholder of an Illinois close corporation called Food Groupie, Incorporated, filed a verified complaint seeking declaratory, injunctive, statutory, and monetary relief from the two other shareholders of the corporation, defendants William and Mary Kolton. Mary Kolton is plaintiffs sister. According to plaintiffs complaint, Food Groupie was founded in 1987 and “sells and markets the use of copyrighted, design patented and trademarked anthropomorphic food characters and educational products promoting and focusing on healthy eating choices by highlighting the five food groups with positive images.” Plaintiff asserts that the anthropomorphic food characters, which together are known as the “Food Groupies,” were designed by the collective efforts of the Santella family. A corporation was formed to market products featuring the characters by plaintiff, defendants, and another member of the family, Ron Santella, with plaintiff holding a 35% ownership interest in the corporation, Mary and William Kolton each holding 25% interests, and Ron Santella holding a 15% interest. All four individuals were named directors of the corporation and plaintiff invested capital into the business. According to the complaint, the ownership interests in the corporation changed on May 1, 1988, when plaintiff purchased Ron Santella’s 15% interest (giving plaintiff a 50% interest). Ron remained as a director of the corporation until 2003. Plaintiff alleged that on May 20, 1988, he subsequently transferred to Mary a 1% ownership interest with the understanding that William would transfer his interest to his wife, giving her a combined 51% interest. Plaintiff contends that he transferred this share based on Mary’s representation that Food Groupie would be more successful if it was known as a female-owned company. In exchange for this stock transfer, plaintiff claims that the parties executed an agreement requiring unanimity of all shareholders for all company decisions.

Plaintiff claims that the parties carried on the business and complied with the shareholder agreement from 1988 until mid-2002. According to the complaint, Food Groupie sold an average of $350,000 worth of goods each year between 1993 and 2001, except for 1998, when the company sold $579,000 worth of goods. Plaintiff contends that the company made a profit every year between 1992 and 2001 and the compensation of the three shareholders was unanimously approved at annual “profitability projection and compensation” meetings.

On November 15, 2002, however, plaintiff alleges that defendants held a purported “Board of Directors meeting,” without providing notice to plaintiff and his brother, Ron. At that meeting, which plaintiff and Ron did not attend, defendants voted to provide themselves with bonuses, salary increases, and contributions from company funds to their 401(k) plans. Plaintiff asserts that defendants appropriated $243,000 from Food Groupie, or 45% of the $545,000 in gross company sales for 2002, even though the company only made $15,000 in profit. In 2003, according to the complaint, defendants gave themselves, without the approval of plaintiff or Ron, salaries in the amount of $73,000 each and contributions to their 401(k) plans in the amount of $20,000, despite that fact that Food Groupie only made a $10,000 profit after selling $459,000 in goods that year. In 2004, again without the approval of plaintiff and Ron, defendants gave themselves $300,000 in salary and a $45,000 contribution to their 401(k) account even though the company made only $31,000 in profits after selling $729,000 worth of goods. Plaintiff alleges that he received no dividend from the corporation in 2002 and 2003 and received a dividend of only $1,470 in 2004. He contends that under the shareholder agreement, he was entitled to $28,808, 49% of the cumulative profits earned by the corporation in the collective years 2002, 2003, and 2004.

Plaintiff alleges that he learned of defendants’ board meeting and 2002 compensation in 2003 and confronted his sister, Mary, on the matter. Plaintiff avers that in response, Mary sent him a letter stating her desire for him to leave the corporation and requesting from him a price quote at which he would sell his interests. Plaintiff contends that Mary subsequently refused his offers to participate in the company’s affairs, stating that she was only interested in buying his interest, and that he was, in effect, “frozen out of the company’s affairs.” Plaintiff alleges that defendants changed the locks on the company’s office to prevent him from entering.

Plaintiff also asserts that Mary usurped the corporation’s intellectual property by trademarking the Food Groupie characters in her own name, without his consent, even though the characters belonged to the corporation. The complaint contends that Mary improperly entered into a “Licensing Agreement” with the corporation in which she purported to license the rights to manufacture 26 different patents and copyrights to the corporation in exchange of an annual licensing fee. Plaintiff further alleged that on November 23, 2004, defendants held a shareholder meeting, during which they voted to remove him as a director of the company and replace him with William’s brother, Anthony.

In count I of the complaint, alleging breach of contract, plaintiff alleges that defendants breached the shareholders agreement by consistently entering into activities and initiatives on behalf of the corporation without his consent, which was required for all corporation actions under the shareholders agreement. These actions include paying themselves hundreds of thousands of dollars in purported salaries and benefits; holding director and shareholder meetings without him; transferring Food Groupies’ intellectual property to Mary; entering into the licensing agreement with Mary for the right to use the Food Groupie characters; depriving him of access to the corporate office; removing him as a director and officer; depriving him of his share of corporate profits in 2002, 2003, and 2004; failing to conduct “annual profitability projection and compensation” meetings for the years 2002, 2003, and 2004; making unauthorized contributions to their 401(k) plan; failing to hire experienced sales representatives and implement a sales lead tracking system as he requested; preventing him from assisting the corporation’s business; and creating corporate bylaws. Plaintiff alleges that these breaches deprived him of his share in the corporation’s profits since 2001 and substantially diminished the value of his interest in the company.

In count II of the complaint, alleging breach of fiduciary duty, plaintiff alleges that defendants, as fellow shareholders in a close corporation, owed fiduciary duties to treat him with the utmost candor, care, loyalty, and good faith.

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Bluebook (online)
912 N.E.2d 1248, 393 Ill. App. 3d 889, 332 Ill. Dec. 362, 2009 Ill. App. LEXIS 733, Counsel Stack Legal Research, https://law.counselstack.com/opinion/santella-v-kolton-illappct-2009.