APPELLATE COURT OF ILLINOIS, FOURTH DISTRICT
536 N.E.2d 231, 180 Ill. App. 3d 581, 129 Ill. Dec. 547 1989.IL.340
Appeal from the Circuit Court of Sangamon County; the Hon. Simon L. Friedman, Judge, presiding.
JUSTICE LUND delivered the opinion of the court. McCULLOUGH, P.J., and KNECHT, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE LUND
On September 22, 1986, plaintiffs Lewis Powell and others filed a derivative action against nominal defendants Western Illinois Power Cooperative and Soyland Power Cooperative, Inc. (Soyland), and real defendant Illinois Power Company, Inc. . The derivative action resulted from the failure or delay of WIPCO and Soyland to bring action against IP for alleged wrongdoing by IP in the construction of the nuclear power plant near Clinton, Illinois (Clinton Nuclear Station). After various motions and pleading procedures, including an amended complaint by plaintiffs on March 13, 1987, WIPCO and Soyland moved to be realigned as plaintiffs and asked that the original plaintiffs be dismissed as to all of the derivative counts. Plaintiffs objected, contending their amended pleadings suggested a conflict of interest existed with WIPCO and Soyland directors preventing proper determination of litigation matters. The trial court ordered a good-faith hearing, placing the burden on plaintiffs to establish the lack of good faith on the part of WIPCO and Soyland's board of directors. On January 7, 1988, the trial court denied pending motions and found plaintiffs failed to establish that the present board of directors suffered from a conflict of interest or acted in bad faith. An order was entered realigning the derivative defendants as plaintiffs and dismissing plaintiffs from the derivative action counts. This appeal followed.
From cases cited and from our additional research, it appears we are dealing with a case of first impression in the State of Illinois. Often, derivative actions are brought because of alleged specific wrongdoing by corporate management and directors. WIPCO and Soyland are cooperatives but, for purposes of this action, are treated as corporations.
Various rural electric cooperatives, serving rural Illinois, created WIPCO and Soyland for purposes of most economically obtaining electrical power supplies for the various distribution coops. The distribution coops do not and, for practical purposes, cannot produce the power they sell directly to their consumers.
The WIPCO and Soyland board of directors are elected by the directors of the various distribution coops. The directors of the distribution coops, in turn, are elected from the membership of their respective coops. The membership is composed of the coops' power consumers.
The present action evolved from a 1976 partnership agreement between WIPCO and Soyland on one hand and IP on the other. The initial agreement provided for IP to own 80% of the Clinton Nuclear Station, with Soyland owning 10.5% and WIPCO owning 9.5%. The original estimated cost for the Clinton Nuclear Station was $400 million. The final cost, evidently, exceeded $4 billion. The overrun on cost brought WIPCO and Soyland to the brink of bankruptcy. Many distribution coops were faced with unanticipated large rate increases.
In 1983 and 1984, as a result of the financial disaster facing WIPCO and Soyland, an agreement evolved between WIPCO and Soyland on one side and IP on the other, freezing the coops' required investments, reducing the
In December 1985, an independent audit by Touche-Ross alleged cost overruns exceeding $400 million at the Clinton Nuclear Station, due to IP mismanagement. The WIPCO and Soyland board started investigations
We, by our summary of the history, do not intend to downplay the complexity of all the facts surrounding this cause of action. Plaintiffs seek, as part of their requested relief, a rescission of the original partnership agreement and the voiding of the 1983 and 1984 agreements, especially those concerning mutual release liability.
Nominal defendants, together with their underlying member cooperatives, are faced with decisions concerning power sources, power costs, and the economic effect of winning or losing litigation with IP. These business decisions are far from simple and, possibly, beyond the actual ability of either plaintiffs or the management and directors of WIPCO and Soyland.
Legally, we begin by recognizing the principle that corporate decisions are the responsibility of the board of directors and not subject to various shareholders' control. This is referred to as the business judgment rule and extends to the management of matters of litigation. (United Copper Securities Co. v. Amalgamated Copper Co. (1971), 244 U.S. 261, 263, 61 L. Ed. 1119, 1124, 37 S. Ct. 509, 510.) There generally is a presumption that in making a business decision, the directors act on informed basis, in good faith, and in the honest belief that the action taken is in the best interest of the company. Aronson v. Lewis (Del. 1984), 473 A.2d 805.
Derivative actions exist when directors or officers commit wrongful acts detrimental to the corporation, and the corporation fails to bring a related legal action. (13 W. Fletcher, Cyclopedia of the Law of Private Corporations § 5941.1, at 18-22 (rev. ed. 1984).) These wrongful acts can include fraudulent conduct, breach of fiduciary duties, or the failure to bring a suit against a third party. The nature of a derivative suit is twofold. It is a suit to compel the corporation to sue, and a suit by the corporation, asserted by the shareholder on ...