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12/06/88 Melvin Brown, v. Richard Tenney Et Al.

December 6, 1988





532 N.E.2d 230, 125 Ill. 2d 348, 126 Ill. Dec. 545 1988.IL.1762

Appeal from the Appellate Court for the First District; heard in the court on appeal from the Circuit Court of Cook County, the Hon. Joseph M. Wosik, Judge, presiding.


CHIEF JUSTICE MORAN delivered the opinion of the court.


In December of 1983, plaintiff, Melvin Brown, filed a three-count verified complaint in the chancery division of the circuit court of Cook County against Richard Tenney, William Jell, Agri-Econ, Inc., Pioneer Commodities, Inc., and Tì Holding Company (collectively, defendants) for injunctive and other relief on behalf of himself and Tì Holding Company (Tì Holding) as well as Pioneer Commodities, Inc. (Pioneer). The trial court granted defendants' motion to strike the complaint pursuant to section 2-615 of the Code of Civil Procedure (Ill. Rev. Stat. 1983, ch. 110, par. 2-615), and granted plaintiff 30 days in which to file an amended complaint. An amended complaint was filed, but it too was dismissed pursuant to another section 2-615 motion made by defendants. Plaintiff was granted 21 days to file a second amended complaint. However, the parties subsequently began settlement negotiations and various agreed orders were entered extending the filing deadline for the second amended complaint. The trial court intervened in an effort to prompt settlement, but the negotiations failed. In the meantime, the deadline for filing the second amended complaint had passed without extension, and in November of 1985, plaintiff filed a motion for leave to file an eight-count amended verified complaint. Plaintiff also filed a verified petition for change of venue. In March of 1986, the trial court denied the plaintiff's petition for a change of venue and also denied with prejudice the plaintiff's motion for leave to file the second amended verified complaint. Plaintiff appealed, and the appellate court affirmed the dismissal of the petition for change of venue but reversed the denial of leave to file the second amended complaint. (155 Ill. App. 3d 605.) We allowed the defendants' petition for leave to appeal under Rule 315 (107 Ill. 2d R. 315).

The only issue raised on appeal is whether Illinois corporate law recognizes a shareholder's right to bring a "double" derivative suit. A double derivative suit is one wherein a shareholder of a parent or holding company seeks to enforce a right belonging to a subsidiary of the parent or holding company.

This cause of action was decided at the pleading stage. Consequently, all properly pleaded facts must be taken as true and the complaint should not have been dismissed unless it clearly appeared that no set of facts could be proved which would have entitled the plaintiff to recover. Ogle v. Fuiten (1984), 102 Ill. 2d 356, 360-61.

Plaintiff's eight-count, second amended complaint asserts numerous claims. We briefly state only those facts alleged in the complaint which raise the so-called "double" derivative action, assertedly brought on behalf of Pioneer and Tì Holding.

The complaint alleges that Pioneer was formed as an operating company for purposes of engaging in the commodities brokerage and services business, and that Pioneer was incorporated under Illinois law in October of 1975 by plaintiff, defendant Tenney, and a third party, James P. Farnsworth. The three also served as Pioneer's directors.

Plaintiff became Pioneer's vice-president and was its chief operating officer, working out of Pioneer's Chicago headquarters. Defendant Tenney, Pioneer's president, was responsible for coordinating branch office functions, and arranging educational and promotional seminars. Pioneer paid the fees and expenses for these seminars, which were produced through Agri-Econ, Inc., a corporation in which defendant Tenney was the sole shareholder. Defendant Tenney lived in Florida and periodically came to the Chicago headquarters. Defendant William A. Jell, a Pioneer employee and Tenney associate, replaced Farnsworth as a Pioneer director in 1982.

The complaint further alleges that on August 31, 1982, Pioneer ownership was vested in plaintiff, as a 48.5% shareholder; defendant Tenney, also a 48.5% shareholder; Jennie Goldsby, a 2% shareholder; and Bonnie Fender, a 1% shareholder.

The complaint alleges that these four Pioneer shareholders incorporated Tì Holding as an Illinois corporation, on August 31, 1982, to act as a holding company for Pioneer. They then exchanged their Pioneer shares for an equal percentage of Tì Holding shares, through which they have maintained their interest and control over Pioneer from that date. Plaintiff and defendants Tenney and Jell were elected as Tì Holding directors. The Pioneer stock became the principal asset of Tì Holding. The complaint also alleges that on May 29, 1983, defendant Tenney obtained Goldsby's and Fender's proxies to vote their shares in Tì Holding, effectively giving him control over the holding company.

The complaint further alleges conduct which, if proven true, would indicate that the defendants have abused, manipulated, damaged, diverted and wasted Pioneer assets. Additionally, the complaint alleges that the ...

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