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De St. Aubin v. Johnson





Appeal from the Circuit Court of Cook County; the Hon. David Shields, Judge, presiding.


Plaintiff, Victor de St. Aubin, Jr., individually and as executor of the estates of his aunt and father, appeals a circuit court order denying him leave to file counts I and III of his second amended complaint against the former shareholders (defendants) of an allegedly wrongfully dissolved corporation. Plaintiff additionally appeals the granting of defendants' motion for summary judgment with respect to count II of the amended complaint. For the following reasons, we affirm.

The record reveals that between 1969 and 1970, plaintiff acquired 32 shares of common stock in Burlingshire, Inc. (Burlingshire), a Wisconsin corporation which had as its principal asset certain resort property located in Burlington, Wisconsin. In addition to being a shareholder, plaintiff was a creditor of Burlingshire, as was his aunt, Lillian de St. Aubin, and his father, Victor de St. Aubin, Sr., both of whom are now deceased. It is undisputed that during its corporate existence, Burlingshire was not a profitable operation.

In February 1976, the shareholders of Burlingshire held a meeting in which they considered various alternatives to remedy the corporation's financial situation. One option discussed was to change Burlingshire's form of ownership from a corporation to a limited partnership pursuant to section 333 of the Internal Revenue Code (26 U.S.C. § 333 (1976).) By doing so, the shareholders would be able to retain limited liability while deducting their pro rata share of the resort's operating losses from their personal income, thus reducing tax liabilities. Plaintiff opposed converting Burlingshire into a limited partnership because he did not want to be part of a scheme designed to "gyp" the government.

Following the conclusion of the February meeting, a plan was commenced to effectuate the change in Burlingshire's form of ownership. The first step was to dissolve the corporation under section 180.765 of the Wisconsin Business Corporation Law. According to the Wisconsin statute, articles of dissolution may be executed only "[w]hen all debts, liabilities and obligations of the corporation * * * have been paid and discharged, or adequate provision has been made therefor." (Wis. Stat. sec. 180.765 (1976).) To meet these requirements, Burlingshire first offered all debenture holders the opportunity to exchange debentures for corporate stock, and then receive a proportionate interest in the limited partnership, and second, entered into various agreements between itself and Burlingshire Management Corporation, the general partner of the limited partnership, by which Burlingshire's remaining liabilities were assumed.

On June 21, 1976, after the Burlingshire Management Corporation was incorporated in Wisconsin and the limited-partnership papers were executed, a special shareholders' meeting was called during which a resolution requesting the liquidation of corporate assets and dissolution of the corporation was ratified by more than two-thirds of the outstanding shares. The resolution provided in pertinent part as follows:

"RESOLVED, that the following plan of liquidation of The Burlingshire, Inc., be and it hereby is adopted:

1. The Corporation, by its duly authorized Officers, will distribute pro rata to its shareholders, or to their nominee named to receive same on their behalf, during the month of June, 1976, all of its assets, subject to any unpaid liabilities with the exception of a reasonable amount of cash to be retained for the payment of Federal and State taxes for the year 1976. Each shareholder shall assume, or cause to be assumed, his pro rata share of the said unpaid liabilities, and accept his interest in the real estate subject to a pro rata portion of the mortgages thereon.

Each shareholder will surrender all of his Certificates representing shares of the Corporation's stock for cancellation.

5. The Officers and Directors of the Corporation are empowered, authorized and directed to carry out the provisions of this Resolution, and to adopt any further resolutions that may be found necessary in liquidating the Corporation as provided in Section 333 of the Internal Revenue Code and dissolving it in accordance with the expressed intent of the shareholders and directors under the Plan adopted at this meeting."

While plaintiff, who owned approximately 5% of the outstanding shares, did not attend this meeting, he was represented by an attorney who abstained from voting on the resolution.

After the dissolution resolution was passed, another resolution was adopted at the meeting authorizing Burlingshire to distribute each shareholder's pro rata share of the corporation's assets to nominee Robert Graham Harles upon the shareholder's completion of a preprinted designation form. A majority of the Burlingshire shareholders submitted these forms on June 22, 1976. Shortly thereafter, Burlingshire conveyed its resort property to Harles, who in turn conveyed it to the Burlingshire Management Corporation, the general partner of the limited partnership. Burlingshire's articles of dissolution were subsequently filed on August 23, 1976, and most of the corporation's former shareholders became limited partners in the new venture. Pursuant to a letter dated July 2, 1976, plaintiff, as well as his aunt and father, refused to participate in the limited partnership or have their notes assumed by it.

Plaintiff took no further action until nearly three years later, in March 1979, when he instituted suit against Burlingshire Management Corporation, his attorney, and the former directors of Burlingshire. On November 21, 1984, plaintiff filed a four-count second amended complaint, the subject of this dispute, against the same parties named in his initial complaint as well as the following former shareholders of Burlingshire: Frederick Johnson, Ross Haeger, George Johnson, James Sullivan, James Anderson, Richard Blankshain, Martin Green, Sheldon Krasnow, Virginia Palmer, and Eugene Krasnow. In his complaint, plaintiff sought, among other relief, damages, an accounting, and the imposition of a constructive trust on certain assets of defendants.

In count I of his second amended complaint, plaintiff alleged that defendants misappropriated his interest as a shareholder in Burlingshire. Count II alleged that defendants are personally liable to plaintiff, and to his aunt and father, for unpaid promissory notes. Count III is premised on the claim that defendants failed to make adequate provisions for Burlingshire's debts upon the corporation's dissolution in violation of section 180.757 of the Wisconsin Business Corporation Law. The trial court denied plaintiff leave to file counts I and III against ...

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