APPELLATE COURT OF ILLINOIS, FIFTH DISTRICT
542 N.E.2d 1281, 187 Ill. App. 3d 1, 134 Ill. Dec. 774 1989.IL.1225
Appeal from the Circuit Court of Jackson County; the Hon. Robert H. Howerton, Judge, presiding.
PRESIDING JUSTICE WELCH delivered the opinion of the court. HARRISON and CHAPMAN, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WELCH
Plaintiffs, William J. Borgsmiller and Harold W. Koehn, individually and derivatively as shareholders of the City National Bank of Murphysboro, appeal the dismissal of their third amended complaint against defendants, Raymond C. Burroughs, Ben W. Daniel, Norman R. Ellis, City Bancorp, Inc. (hereinafter Bancorp), and City National Bank of Murphysboro (hereinafter Bank). The third amended complaint, which was filed in the circuit court of Jackson County on May 14, 1986, alleges that defendant Burroughs, who was president and director of Bank, and defendants Daniel and Ellis, who were directors of Bank, violated their fiduciary duties to said Bank in several respects.
Count I of plaintiffs' complaint alleges that defendants violated their fiduciary duties by incorporating a bank holding company, Bancorp, transferring their shares in Bank to Bancorp, and then making a tender offer to purchase a controlling percentage of stock in Bank. Plaintiffs allege that this violated defendants' fiduciary duties to Bank in the following respects: (1) defendants did not reveal their intention to attempt a take-over of Bank to Bank's board of directors, thereby violating their duty to conduct the business of Bank at all times for the best interest of all shareholders equally; (2) defendants did not give shareholders of Bank an opportunity to transfer their shares of Bank stock to Bancorp on the same basis as had defendants, thereby violating their duty to represent all shareholders equally; (3) defendants did not reveal their intention to attempt a take-over of Bank to Bank's board of directors so as to allow Bank to solicit a better tender offer or sale with a disinterested third party; (4) the tender offer letter is false and misleading in certain respects, thereby violating defendants' fiduciary duties to Bank's shareholders to protect their interests.
Count II of plaintiffs' complaint alleges that the formation of, and transfer of defendants' Bank stock to, Bancorp creates an inherent and actual conflict of interest for defendants, who are directors of both Bancorp and Bank, thereby breaching defendants' fiduciary duties to Bank. The conflict of interest arises, allege plaintiffs, because Bancorp has the power to acquire, and in fact has acquired, assets of other banks which are in competition with Bank, thereby dividing defendants' loyalties between these competing banks and creating the possibility that defendants might direct business away from Bank and toward a competing bank controlled by Bancorp.
Count III alleges that defendants have misappropriated corporate assets of Bank by using its staff, facilities, employees and premises for their personal benefit and gain, and the benefit and gain of Bancorp, without paying consideration therefore. Count III alleges that defendants have thereby violated their fiduciary duties to Bank and have acted contrary to the statutes of the State of Illinois.
The complaint further alleges that all demands and requests by plaintiffs for defendants to eliminate their breaches of fiduciary duties have been to no avail, and that any further demand by plaintiffs that Bank institute a lawsuit against defendants would be to no avail as defendants or Bancorp own or control a majority of Bank's stock. The complaint alleges that as a result of defendants' breaches of their fiduciary duties, the common stock of Bank has decreased in market value as the only purchaser of the stock is Bancorp at a depressed price. The complaint prays that the agreement between Bancorp and defendants Burroughs, Daniel and Ellis whereby the individual defendants transferred their Bank stock to Bancorp be declared null and void, that the tender offer be declared null and void and Bancorp be ordered to divest itself of any interest it has in Bank stock pursuant to the tender offer, that in the alternative, all shareholders of Bank stock be given the opportunity to transfer their Bank stock to Bancorp on the same terms as had defendants, that in the alternative, Bancorp be ordered to pay a fair and reasonable price for Bank stock, that defendants be enjoined from entering into any contract with Bank, that damages be awarded Bank and that plaintiffs Borgsmiller and Koehn recover their reasonable attorney fees and costs.
On June 16, 1986, defendants filed a motion to dismiss the third amended complaint and a supporting memorandum. The motion was granted on April 4, 1988, and plaintiffs' third amended complaint was dismissed. Plaintiffs elected to stand on the third amended complaint and filed a notice of appeal on April 26, 1988.
Upon review of dismissal of a complaint for failure to state a cause of action, the allegations thereof must be taken as true, and appeal from the dismissal preserves for review only the question of law as to the complaint's legal sufficiency. (Teter v. Clemens (1985), 131 Ill. App. 3d 434, 436, 475 N.E.2d 1063, 1065, modified (1986), 112 Ill. 2d 252, 492 N.E.2d 1340.) To state a cause of action, a complaint must be legally sufficient, i.e., it must set forth a legally recognized claim as its avenue of recovery, and it must be factually sufficient, i.e., it must plead facts which bring the claim within the legally recognized cause of action alleged. Teter, 131 Ill. App. 3d at 438-39, 475 N.E.2d at 1067.
Count I of plaintiffs' complaint seeks to state a cause of action for breach of fiduciary duty as a result of defendants' attempt to purchase, through their bank holding company, a controlling amount of stock in Bank. In their brief, plaintiffs argue that the Bank's directors, including defendants, had a duty to oppose any take-over attempt which was not in the best interest of Bank. Because defendant directors were orchestrating the take-over attempt, they were not in a position to impartially evaluate or oppose it. Further, they argue that the tender offer letter was misleading in that it did not inform the shareholders that defendant directors had transferred their Bank stock to Bancorp. The letter states:
"On or about March 12, 1982, Bancorp entered into an agreement with certain Shareholders of the Bank (the Agreement) wherein shareholders owning approximately twelve percent (12%) of the outstanding shares of the Bank have agreed to transfer their shares to Bancorp. Raymond C. Burroughs is President and a director of Bancorp ...