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SOBEK v. STONITSCH

February 19, 1998

DALE W. SOBEK, a California corporation, individually and on behalf of Rovanco Piping Systems, Inc., an Illinois corporation, Plaintiff,
v.
LAWRENCE STONITSCH, RICHARD STONITSCH, and ROVANCO PIPING SYSTEMS, INC., an Illinois corporation, Defendants.



The opinion of the court was delivered by: ASHMAN

 Plaintiff, Dale W. Sobek ("Plaintiff"), seeks partial summary judgment with respect to Count I of the Fourth Amended Verified Complaint for Declaratory and Other Relief. According to Plaintiff, between September 19, 1996 and December 19, 1996, during 3 separate meetings of the Board of Directors of Defendant, Rovanco Piping Systems, Inc. ("Rovanco"), Lawrence Stonitsch and Richard Stonitsch ("Individual Defendants"), as Directors, authorized the following actions by the Board of Directors, inter alia :

 
1. The issuance by Rovanco to the Individual Defendants of an additional 500 shares of Common Stock, 250 shares to each of the Individual Defendants (which had the effect diluting Sobek's ownership of Common Stock from 60% to 10%);
 
2. The advance by Rovanco to the Individual Defendants of an amount equal to all expenses incurred by the Individual Defendants in the defense of this lawsuit;
 
3. The declaration of payment by Rovanco of a $ 6.00 per share dividend on the Preferred Stock which the Individual Defendants alone own; and
 
4. The payment by Rovanco of legal fees and costs incurred by the Individual Defendants in the prosecution of a lawsuit to collect a promissory note which is payable to the Individual Defendants.

 The Individual Defendants were, asserts Plaintiff without contradiction by any of the Defendants, parties to the transactions authorized by the Board of Directors and were not disinterested in the transactions. Plaintiff objected to the adoption of the resolutions on the grounds that under the Illinois Business Corporation Act, 805 ILCS 5/8.60, the Individual Defendants, as parties to the proposed resolutions, were prohibited from voting upon them.

 Section 8.60 of the Illinois Business Corporation Act reads as follows:

 
Director conflict of interest. (a) If a transaction is fair to a corporation at the time it is authorized, approved, or ratified, the fact that a director of the corporation is directly or indirectly a party to the transaction is not grounds for invalidating the transaction.
 
(b) In a proceeding contesting the validity of a transaction described in subsection (a), the person asserting validity has the burden of proving fairness unless:
 
(1) the material facts of the transaction and the director's interest or relationship were disclosed or known to the board of directors or a committee of the board and the board or committee authorized, approved or ratified the transaction by the affirmative votes of a majority of disinterested directors, even though the disinterested directors be less than a quorum; or
 
(2) the material facts of the transaction and the director's interest or relationship were disclosed or known to the shareholders entitled to vote and they authorized, approved or ratified the transaction without counting the vote of any shareholder who is an interested director.
 
The presence of the director who is directly or indirectly a party to the transaction described in subsection (a), or a director who is otherwise not disinterested, may be counted in determining whether a quorum is present but may not be counted when the board of directors or a committee of the board takes action on the transaction.

 Plaintiff contends that a plain reading of the last paragraph of Section 8.60 results in an unambiguous flat prohibition upon counting the vote of a director of a corporation who votes on a transaction in which he or she has an interest. *fn1" Plaintiff cites Abreu v. Unica Industrial Sales, Inc., 224 Ill. App. 3d ...


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