Appeal from the Circuit Court of Cook County. Honorable Stephen A. Schiller Judge Presiding.
The opinion of the court was delivered by: Justice McNULTY
Modified Upon Denial of Rehearing
Under the Business Corporation Act, frozen-out minority shareholders in closely held corporations may seek dissolution of the entity, and majority shareholders may avoid this result via a buyout of the minority at a "fair value" to be determined by the circuit court if the sides are unable to reach an agreement on the terms of sale. The instant matter results from such a buyout, and both the selling minority and the purchasing majority appeal: the sellers claim that they were entitled to prejudgment and postjudgment interest on the purchase price and that they should still be entitled to pursue claims of breach of fiduciary duty against the corporation's directors; the purchasers claim that the trial court's "fair value" determination improperly failed to include a discount reflecting the lack of marketability of the minority's shares. We reverse the trial court's denial of postjudgment interest and otherwise affirm its judgment.
Defendant Chicago Metallic Corporation (CMC) was purchased by Reinhardt G. Jahn in 1938, and he subsequently passed ownership and operation of the company to his three sons, Loren A. Jahn, Martin D. Jahn, and Reinhardt H. Jahn. The three shared ownership and decision-making equally, but disputes developed after their offspring entered the company's employment and shareholder ranks. Martin D. Jahn and four other members of his family filed a complaint seeking the remedies provided to shareholders of nonpublic corporations by the Business Corporation Act of 1983 (Act) (805 ILCS 5/12.56 (West 1996)), alleging that the families of Loren and Reinhardt Jahn, along with CMC's president and chief executive officer, defendant Larry Kinderman, and Gerald Lahey, the company's other non-family, non-owner member of the board of directors, had committed various acts which constituted oppression and "freeze-out" of the plaintiffs, and which also constituted corporate waste and a breach of fiduciary duty.
The Act provides that in the event of a petition for relief, the corporation or one or more of its shareholders may elect to purchase all of the shares of the petitioning minority, and that the court is to determine the fair value of the shares and other terms of purchase if the parties are unable to agree on those parameters. 805 ILCS 5/12.56(f)(6) (West 1996). In the instant case, the majority offered to purchase the interest of the minority, which amounted to approximately one-third of the shares of CMC, for $28,730,102. The minority shareholders did not agree to this figure, and the trial court, while issuing a stay of other matters raised by the plaintiffs' petition, conducted a 20-day trial on the valuation of the plaintiffs' shares. In the course of the trial, the defendants frequently objected to the plaintiffs' attempts to present evidence of the various actions alleged to be oppressive and wasteful, but the court ultimately determined that culpable conduct by the defendants could have unfairly depressed the value of the plaintiffs' shares, and that evidence of oppression and waste was thus relevant to the valuation question. After trial, the court issued a written memorandum of its findings which concluded in a determination that the conduct of the defendants did not constitute oppression or waste, and that the fair value of the plaintiffs' shares was $52,485,000.
Following the court's valuation order, the parties attempted to confirm that that order compelled the plaintiffs to relinquish their shares in exchange for the defendants' payment of the valuation price; the parties sought the court's clarification that the exchange, since it came pursuant to court order, did not constitute a waiver of the right to appeal. In the course of discussion of the matter, the court, sua sponte, raised the issue of interest for the first time; it advised the parties that it would not award prejudgment interest to the plaintiffs in the absence of evidence that the defendants were "not proceeding diligently to close this transaction." Asked about the scope of that ruling, the court replied, "I mean postjudgment interest and prejudgment interest."
The plaintiffs then sought the court's modification, clarification and reconsideration of its orders regarding valuation and interest. On the valuation issue, they suggested that the court may have arrived at an unduly low price for their shares on the basis of an improper interpretation of the valuation analysis of the economic experts. The court rejected this argument, and the plaintiffs do not seek our review of that ruling. The plaintiffs also claimed that the remedy of prejudgment interest calculated from the date before their filing of the action was equitably justified by various acts of the defendants: the alleged corporate freeze-out, a lowball purchase price offer, and bad-faith price negotiations. The plaintiffs also sought postjudgment interest from the date of the court's order. At the same time, the defendants moved to dismiss the plaintiffs' claim for breach of fiduciary duty, which had been stayed pending the court's adjudication of the valuation issue.
The trial court denied the plaintiffs' request for prejudgment interest: "With regard to prejudgment interest there was no liquidated or easily ascertainable amount that the [defendants] could have paid that would have resolved this litigation or this claim ***. So with regard to prejudgment interest I don't think that there is any issue whatsoever. Motion for that is denied." The court commented that the plaintiffs were not entitled to attorney fees, and then remarked, "I believe that resolves the motion - - the first motion that you've argued ***." Counsel for the plaintiffs interjected, "I think there was just one more regarding post-judgment, your Honor," and the court responded, "I don't think you're entitled to anything at all."
The court then turned to the defendants' motion to dismiss count III of the plaintiffs' petition, the breach of fiduciary duty claim. Proceedings on that claim had been stayed pending the valuation of the plaintiffs' shares, and the plaintiffs argued that the stay had prevented them from discovery and the presentation of evidence regarding that claim. The court was unpersuaded by this argument:
"I'm going to grant the motion to dismiss. The value that the Plaintiffs received on their shares involved the consideration of any reduction in value to those shares. It was a consequence of the alleged acts, wrongful acts of oppression which are exactly the same acts that are alleged in support of the breach of fiduciary duty claims.
And [plaintiffs' counsel] is correct, I did attempt to limit the scope of this trial to issues that related solely to value.
And indeed when Mr. Riley, Plaintiff's experts, [sic] testified, he testified as to what he considered on the question of value. But [plaintiff's counsel] was persistent and effective and he convinced me that beyond the value attributed to the shares by Mr. Riley there was a value that was lost as a consequence of acts of oppression. And we spent days listening to testimony brought forward by the Plaintiffs regarding those specific acts of oppression which again mirror exactly what's asserted in Count 3.
My findings in my opinion as defense counsel has argued addresses each of those allegations specifically ***. And I found both the evidence as to oppression and as to ...