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Witters v. Hicks

November 21, 2002

C. MICHAEL WITTERS AND DIANE WITTERS, INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF MIDWEST TRANSIT, INC., PLAINTIFFS-APPELLEES,
v.
HAL D. HICKS, DEFENDANT-APPELLANT, AND MIDWEST TRANSIT, INC., DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Lawrence County. No. 00-L-2 Honorable James V. Hill, Judge, presiding.

The opinion of the court was delivered by: Justice Rarick

UNPUBLISHED

Rule 23 Order filed September 4, 2002; Motion to publish granted November 21, 2002.

On January 21, 2000, Michael and Diane Witters filed, in the circuit court of Lawrence County, a shareholders action, individually and derivatively, against Hal Hicks and Midwest Transit, Inc. (MWT). MWT transports United States mail under contracts obtained from the United States Postal Service. Count I was brought pursuant to section 12.56 of the Business Corporation Act of 1983 (Act) (805 ILCS 5/12.56 (West 1998)) and alleged that Hicks had engaged in fraudulent and illegal acts and that a misapplication and waste of MWT's assets had occurred. Count I requested that Hicks be removed as an officer and director and that a custodian be appointed to manage MWT. On April 20, 2000, the trial court issued a temporary restraining order (TRO), providing that no monies be paid or transferred to Hicks. The TRO subsequently became a preliminary injunction, which remains in effect. In November 2000, a default judgment was entered against Hicks as a result of numerous and repeated discovery violations.

On March 21, 2001, the Witters filed an amended motion for the appointment of a custodian/receiver. During the hearing thereon, the Witters filed a motion to waive bond, asking the court to allow the receiver to act without requiring the Witters to post a bond.

Several hearings on the amended motion to appoint a custodian/receiver were held. During one of these hearings, Hicks requested the trial court to enforce his election, pursuant to section 12.56(f) of the Act (805 ILCS 5/12.56(f) (West 1998)), to purchase the Witters' shares of stock. The trial court rejected Hicks' request. On July 24, 2001, the trial court filed a letter constituting its findings and rulings on the issue and directing the Witters to prepare a proposed order in accordance therewith. The trial court found "largely uncontradicted *** evidence" that Hicks had committed fraud, illegal and oppressive activities, a misapplication of corporate assets, self-dealing, and conflicts of interest. On July 25, 2001, the trial court entered the order prepared by the Witters' counsel, appointing Don Hoagland as the receiver and waiving bond.

Hicks immediately filed a motion requesting a clarification of the trial court's order. Hicks alleged that there were critical differences between the July 24, 2001, letter and the July 25, 2001, order. Specifically, Hicks alleged that the July 24, 2001, letter made no mention of the Witters' motion to waive bond or the fact that no hearing was held thereon. The order prepared by the Witters' counsel and entered by the trial court stated that a hearing was held on the motion to waive bond. Further, while the July 24, 2001, letter states that the "court waives any bond on the part of the interim receiver" (emphasis added), the July 25, 2001, order states that the "court waives any bond on the parties of interim receiver" (emphasis added).

On July 26, 2001, the trial court appointed Terry Sharp as the attorney for the receiver and held an ex parte hearing with the receiver and his attorney. The receiver filed a motion asking the trial court to waive the attachment bond and for prejudgment attachments against Hicks. The trial court granted the motion waiving the attachment bond and entered five orders of prejudgment attachment.

On August 6, 2001, Hicks filed a motion to vacate the orders of attachment, arguing that the trial court did not have jurisdiction to enter those orders until an attachment bond was filed and that those orders were void in the absence of the filing of an attachment bond. The trial court denied Hicks' motion.

Hicks appealed the trial court's order appointing Hoagland as receiver. He also filed an interlocutory appeal of the trial court's order denying his motion to vacate the orders of attachment. This court ordered the appeals to be consolidated for purposes of the record, argument, and disposition.

In No. 5-01-0631, Hicks argues that the trial court erred in appointing an interim receiver because adequate legal remedies were available to the plaintiffs and because under section 12.56 the plaintiffs failed to meet their burden of proving that the appointment of a receiver was the most appropriate relief.

Section 12.56(a) of the Act provides that a shareholder may petition the circuit court for a variety of remedies if any of the following is established:

"(1) The directors are deadlocked, whether because of even division in the number of directors or because of greater than majority voting requirements in the articles of incorporation or the by[]laws or otherwise, in the management of the corporate affairs; the shareholders are unable to break the deadlock; and either irreparable injury to the corporation is thereby caused or threatened or the business of the corporation can no longer be conducted to the general advantage of the shareholders; or

(2) The shareholders are deadlocked in voting power and have failed, for a period that includes at least 2 consecutive annual meeting dates, to elect successors to directors whose terms have expired and either irreparable injury to the corporation is thereby caused or threatened or the business of the ...


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