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Edwards v. Chicago & N.w. Ry. Co.

JANUARY 12, 1967.

GILBERT EDWARDS, ET AL., PLAINTIFFS-APPELLANTS,

v.

CHICAGO AND NORTHWESTERN RAILWAY COMPANY, A WISCONSIN CORPORATION; SUPERIOR COAL COMPANY, A CORPORATION; LOWELL HASTINGS, ET AL., DEFENDANTS. CHICAGO AND NORTHWESTERN RAILWAY COMPANY, A WISCONSIN CORPORATION, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Macoupin County; the Hon. SAMUEL O. SMITH and CREEL DOUGLASS, Judges, presiding. Affirmed in part, reversed in part, and remanded.

MORAN, P.J.

Rehearing denied February 10, 1967.

This is an appeal from judgments of the Circuit Court of Macoupin County, Illinois, dismissing the amended complaints in three consolidated cases.

The plaintiffs brought suit against the Chicago and Northwestern Railway Company, the Superior Coal Company, and five directors of the Superior Coal Company to recover for damage to their lands allegedly caused by surface subsidence. They alleged that the Superior Coal Company had been in possession of all coal underlying the surface of their lands and had engaged in mining and removing the coal at the time of the alleged subsidence, April 1, 1955; that, in mining and removing the coal, it failed to leave sufficient support for the surface property; and that, as a direct and proximate result of the failure to leave sufficient support, the surface property subsided, causing damage to the plaintiffs. They further alleged that the Superior Coal Company filed Articles of Dissolution on February 27, 1957; that, at the time of dissolution, the Chicago and Northwestern Railway Company owned all of the shares of the Superior Coal Company, except for the qualifying shares owned by the five directors also named as defendants; that the five named directors have and use the same address as the defendant railway company; that the defendant railway company is the successor in title to all mineral rights and assets formerly owned by the Superior Coal Company, having taken a quitclaim deed recorded on July 6, 1957; and that the railway company, together with the Superior Coal Company and the directors, are jointly and severally liable to the plaintiffs. The plaintiffs' initial complaints were filed on November 19, 1959, more than eight months after the expiration of the two-year period prescribed by section 94 of the Business Corporation Act for the maintenance of suits against dissolved corporations.

The plaintiffs plead, in the alternative, that the defendant railway company is liable because it performed actions which it knew would deceive the plaintiffs and made statements which it knew to be false, with the intent to defraud the plaintiffs and to induce them to refrain from filing suits prior to the end of the period for initiating suits against the Superior Coal Company.

The trial court entered orders dismissing the plaintiffs' complaints and this appeal followed. The lower court properly dismissed those allegations in the complaints naming the Superior Coal Company and its directors as defendants, since the complaints were not filed within the two-year period following the filing of Articles of Dissolution by the Superior Coal Company. Ill Rev Stats c 32, § 157.94. Therefore, two issues remain for our consideration: (1) May liability be predicated against a parent corporation, owning substantially all the shares of a subsidiary corporation, for surface subsidence over areas mined by a subsidiary corporation, where, upon dissolution of the subsidiary, the mineral rights and assets of the subsidiary were transferred to the parent and where suits for damage were initiated within five years after the alleged subsidence, but after the period within which a suit could be brought against the dissolved corporation; and (2) do those parts of the amended complaints which allege fraud on the part of the railway company state a cause of action?

In Kruse v. Streamwood Utilities Corp., 34 Ill. App.2d 100, at 113, 180 N.E.2d 731 the court commented upon a rule well established in Illinois:

"In Dregne v. Five Cent Cab Co., 381 Ill. 594, 46 N.E.2d 386, the court lays down the rule that it is sufficient in order to treat one corporation as the alter ego of another where there is such a unity of interest and ownership that the individuality of one corporation has ceased, and where the observance of the fiction of separate existence would under the circumstances sanction a fraud by promoting injustice. In Ohio Tank Car Co. v. Keith Ry. Equipment Co., 148 F.2d 4 (7th Cir) the court says: `The general rule that a corporation and its stockholders are deemed separate entities is subject to the qualification that separate identity may be disregarded in exceptional situations where it otherwise would present an obstacle to due protection or enforcement of public or private rights.'"

In the Dregne case, supra, our Supreme Court cited with approval Taylor v. Standard Gas & Electric Co., 306 U.S. 307, wherein the United States Supreme Court held that "the doctrine of corporate entity, recognized generally and for most purposes, will not be regarded when so to do would work fraud or injustice."

In the present case, if the plaintiffs can produce evidence that there was a unity of interest and ownership between the Chicago and Northwestern Railway Company and the Superior Coal Company and that the recognition of the coal company's separate identity would "present an obstacle to the due protection or enforcement of public or private rights" or would "promote injustice," then liability could properly be predicated against the railway company. The amended complaints of the plaintiffs have alleged that such a unity existed and that such an injustice would result. Therefore, the trial court erred in dismissing those parts of the amended complaints which predicated liability against the railway company for surface subsidence over areas mined by its subsidiary, the Superior Coal Company.

The defendant relies primarily upon Tankersley v. Peabody Coal Co., 31 Ill.2d 496, 202 N.E.2d 498, affirming 45 Ill. App.2d 101, 195 N.E.2d 402, and Buis v. Peabody Coal Co., 41 Ill. App.2d 317, 190 N.E.2d 507. In Tankersley, our Supreme Court held that a coal mine operator is not liable "for surface subsidence over areas mined only by his predecessor in title, where there has been no express assumption of such liability, and the predecessor is a wholly unrelated business entity." 31 Ill.2d at 498. In addition, the court stated the holding of the Buis case, at 501:

"In Buis, the Appellate Court, deciding the issue for the first time in Illinois held that a coal company which has purchased coal and mine workings of another unrelated company, without expressly assuming such liabilities, is not liable for subsidences or sinking of land areas due to the mining of its predecessor in title but is liable only for subsidences and the resultant damages due to its own mining operations."

Finally, the court placed emphasis upon the fact that forty years or more had passed between the discontinuance of active mining operations and the surface subsidence.

Reliance by the defendant on these cases is misplaced, because they are readily distinguishable from the present case. The predecessor in title is not a wholly unrelated business entity, but a subsidiary corporation. Then, too, the Superior Coal Company allegedly conducted active mining operations until the time of its dissolution and the transfer of its assets, ...


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