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Witters v. Hicks

May 6, 2003

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 (FIFTH THIRD BANK, INDIANA, INTERVENOR-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 Maag

PUBLISHED

Rule 23 order filed March 17, 2003; Motion to publish granted April 8, 2003

C. Michael Witters and Diane Witters (plaintiffs), individually and derivatively on behalf of Midwest Transit, Inc. (MWT), a nonpublic corporation, filed a three-count complaint in the circuit court of Lawrence County against Hal D. Hicks and MWT. The complaint alleged that Hicks, a 50% shareholder, had breached his fiduciary duty to plaintiffs and had converted corporate assets for his own use. Plaintiffs sought statutory relief pursuant to section 12.56 of the Business Corporation Act of 1983 (Act) (805 ILCS 5/12.56 (West 1998)) and money damages. The circuit court of Lawrence County granted a partial summary judgment in favor of plaintiffs and entered an order to dissolve MWT and to appoint a liquidating receiver for purposes of winding up and liquidating the business and affairs of the corporation. Hicks appeals this judgment pursuant to Illinois Supreme Court Rules 307(a)(2) and (a)(3) (188 Ill. 2d. Rs. 307(a)(2), (a)(3)).

The case is not new to this court. A number of interlocutory appeals have been filed that either are pending or have recently been decided. The early procedural history of the case was set forth in Witters v. Hicks, 335 Ill. App. 3d 435, 780 N.E.2d 713 (2002), a decision that we issued during the pendency of this appeal. That history will not be recounted here. The record in this case has grown since Hicks. The record on appeal now before us contains more than 5,900 hundred pages of pleadings, responses, and orders and an additional 3,000 pages of transcripts from hearings on discovery issues, summary judgment motions, and discovery violations. For purposes of this appeal, we need not summarize all of that activity. We will set forth only the facts and the procedural history pertinent to the issues raised in this appeal.

On January 21, 2000, plaintiffs filed a complaint alleging that Hicks, a director, officer, and shareholder of MWT, was engaged in illegal, oppressive, and fraudulent acts; that Hicks misapplied and wasted corporate assets; and that as a result of Hicks's conduct, MWT suffered or was in danger of suffering irreparable harm and plaintiffs, as 50% shareholders of MWT, were deprived of their rights and financial interests. Plaintiffs requested money damages and a variety of remedies pursuant to section 12.56(b) of the Act (805 ILCS 5/12.56(b) (West 2000)). The requested relief included orders to remove Hicks as an officer and director of MWT, to enjoin Hicks from conducting any business that would endanger MWT's assets, to appoint a custodian to manage the business of MWT, to order a corporate accounting, and to order a dissolution of the corporation if all other remedies were found to be inadequate.

Early in the proceedings, the parties stipulated to the entry of a temporary restraining order to protect the status quo with respect to the solvency of MWT. According to the stipulated order, Hicks was prohibited from taking any funds or receivables of MWT for his own use. Subsequently, the trial court issued a preliminary injunction with similar prohibitions. On November 16, 2000, the court granted a motion for sanctions and struck Hicks's pleadings, including his answer, affirmative defenses, and counterclaims, and entered a judgment against the defendants on all issues of liability because of numerous and repeated discovery violations. A hearing on the issue of the appropriate remedies and monetary sanctions was to be scheduled at a later date.

On March 21, 2001, plaintiffs filed a motion for the appointment of a receiver to run the business of MWT. In the motion, plaintiffs alleged that MWT's directors and shareholders were deadlocked, that Hicks had stolen money from the corporation, that Hicks failed to keep current and accurate financial corporate records, that Hicks had wasted or dissipated corporate assets and engaged in acts of self-dealing, and that this conduct caused irreparable harm to the corporation. Following an evidentiary hearing, the trial court entered an order appointing an interim receiver for MWT and waiving the receiver's bond. In its order, entered July 25, 2001, the court found that the evidence established that the directors were deadlocked and that the deadlock threatened the management of corporate affairs and the ability of MWT to carry on its business. The court also found that the evidence established that Hicks had misapplied corporate assets and engaged in fraudulent, illegal, and oppressive acts. The court concluded that MWT's business and existence were in "immediate jeopardy," and the court appointed an interim receiver to run the business of MWT until the litigation was resolved. Don Hoagland was appointed as the interim receiver. The court also granted plaintiffs' motion to waive bond for the receiver. Hicks appealed. *fn1

Pretrial proceedings continued while the case was on appeal. On October 26, 2001, plaintiffs filed a motion for a partial summary judgment asking the court to enter an order to dissolve the corporation pursuant to section 12.56 of the Act and to appoint a liquidating receiver pursuant to section 12.60(e) of the Act (805 ILCS 5/12.60(e) (West 1998)). Following a hearing, the trial court granted plaintiffs' motion. On February 22, 2002, the trial court ordered the dissolution of MWT and appointed Don Hoagland to serve as the liquidating receiver. On March 15, 2002, plaintiffs moved for a waiver of the receiver's bond. After considering Hicks's objections, the trial court granted the motion and waived the receiver's bond. It is from these orders that Hicks now appeals.

In his first point, Hicks contends that the trial court lacked jurisdiction to enter an order appointing a liquidating receiver while the order granting the interim receiver was on appeal. Hicks argues that the February 22, 2002, order is an impermissible modification of the order on appeal because it extends the authority and powers of the interim receiver.

The appeal of an interlocutory order does not divest the trial court of all jurisdiction in a case. See Payne v. Coates-Miller, Inc., 68 Ill. App. 3d 601, 608, 386 N.E.2d 398, 403-04 (1979); Cygnar v. Martin-Trigona, 26 Ill. App. 3d 291, 293, 325 N.E.2d 76, 78 (1975). Rather, it restrains the trial court from entering any order which would change or modify the order on appeal or which would have the effect of interfering with the review of that order. See Payne, 68 Ill. App. 3d at 608, 386 N.E.2d at 403-04; see also Lind v. Spannuth, 8 Ill. App. 2d 442, 452, 131 N.E.2d 796, 802 (1956) (Feinberg, J., specially concurring). Orders entered after the filing of a notice of appeal are valid if the substantive issues in the interlocutory appeal are not altered so that they present a new case to the reviewing court. R.W. Dunteman Co. v. C/G Enterprises, Inc., 181 Ill. 2d 153, 162, 692 N.E.2d 306, 312 (1998).

The trial court retains jurisdiction to hear and determine matters which arise independently of and are unrelated to that portion of the proceeding that is before the reviewing court. After reviewing the record, we conclude that the issues regarding the dissolution of MWT were independent of the order appointing an interim receiver.

An interim receiver or custodian is appointed to manage the business and affairs of the corporation under the conditions and for the term established by the court. See 805 ILCS 5/12.56(b)(6), 12.60(h) (West 1996). The receiver's duties include preserving the corporate assets and carrying on the business of the corporation until a full hearing can be held in regard to the shareholder's action. Firebaugh v. McGovern, 404 Ill. 143, 150, 88 N.E.2d 473, 476 (1949). Generally, an interim receiver may be appointed if (1) the directors are managing or disposing of the corporate business or assets in such a manner to serve their own interests so that the assets will probably be lost or destroyed before a decision on the merits, (2) internal dissensions are deadlocking the corporation and frustrating or threatening its purpose or objectives, (3) the failure or refusal of directors to meet and transact business is jeopardizing the interests of the shareholders, or (4) other conditions of dissension, dispute, fraud, or mismanagement exist that make it impossible for the corporation to carry on its business or preserve its assets until a settlement is reached. Firebaugh, 404 Ill. at 149, 88 N.E.2d at 476.

A liquidating receiver may be appointed once the court orders the dissolution of the corporation. 805 ILCS 5/12.60(e) (West 1998). A liquidating receiver is appointed to close up the affairs of a corporation or to effect its dissolution. Firebaugh, 404 Ill. at 150, 88 N.E.2d at 476. The powers and duties of the liquidating receiver are set forth in the order of appointment, but those duties may be revised by the court throughout the proceedings. 805 ILCS 5/12.60(e) (West 1998). The court may authorize the liquidating receiver to collect the assets of the corporation, to sell, convey, or ...


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