Appeal from the Circuit Court of Ogle County. No. 09-L-10 Honorable Michael T. Mallon, Judge, Presiding.
The opinion of the court was delivered by: Justice Birkett
JUSTICE BIRKETT delivered the judgment of the court, with opinion. Justices Zenoff and Schostok concurred in the judgment and opinion.
¶ 1 Plaintiffs, Haul Reddick, both individually and in his capacity as executor of the estate of his deceased brother, Mark Reddick, and Debra Reddick, appeal the judgment of the circuit court of Ogle County granting the motion for summary judgment of defendants, M. Thomas Suits and the Law Office of M. Thomas Suits, P.C. Below, plaintiffs contended that they incurred damages resulting from defendants' errors in reinstating an administratively dissolved Illinois corporation. The trial court granted defendants' motion for summary judgment on the ground that defendants owed no duty to plaintiffs, but only to Mark's corporation. (The trial court expressly did not rule on other aspects of their motion or on plaintiffs' cross-motion for summary determination of major issues.) On appeal, plaintiffs contend that defendants owed a duty to them, that the remaining grounds asserted in defendants' motion for summary judgment were insufficient, and that the trial court erred in failing to grant plaintiffs' cross-motion for summary determination of major issues. We affirm.
¶ 2 We first summarize the facts appearing of record. On July 8, 2005, RPF Holdings, Inc. (RPF), was incorporated. Suits was the attorney who performed the incorporation. Mark Reddick, Neil Scott, and John Vukadinovich were the original shareholders of RPF, each with an approximately one-third share of the business.
¶ 3 RPF produced plastic film from resin. It had acquired the assets of an earlier corporation, Rochelle Plastic Film, Inc., which was in the same business. Suits had represented Rochelle previously. In 2005, Suits was approached by Mark Reddick and John Buckner to effect the transfer of assets from Rochelle to RPF. Rochelle was at that time in default with respect to a secured creditor and could no longer pay its debts. Suits provided legal services to both Rochelle and RPF. Rochelle's assets were transferred to the secured creditor and then purchased by RPF from the creditor in exchange for RPF assuming Rochelle's secured debt. RPF continued to do business with some of Rochelle's trade creditors, but sent letters to others indicating that Rochelle was unable to pay its debts to them.
¶ 4 Mark Reddick, who died on March 3, 2007, was the president of RPF until his death. When he died, his brother, Haul Reddick, became the executor of Mark's estate (Estate).
¶ 5 Early in 2007, as a result of Mark's illness, Haul first became involved with RPF's business. Haul testified in his deposition that he had grown up in North Carolina (where Mark lived) but had moved to Arizona in 1973. Haul had a doctorate in educational administration from Northern Arizona University and had taken two undergraduate courses in accounting. Haul had served as an officer of Reddick Education Services, an Arizona corporation; Reddick Realty, an Arizona real estate holding company; and Reddick Fumigants, a North Carolina corporation of which Mark had been president until his death. Haul's responsibilities with Reddick Education included making sure that the corporation remained in good standing. Haul testified that it was his understanding that, if a corporation did not remain in good standing, then the shareholders could be liable for the debts incurred by the corporation.
¶ 6 From January 2007 until Mark's death in March 2007, Haul reviewed the files relating to RPF and talked to Mark about the business. Haul reviewed, among other things, RPF's financial statements. Haul testified that the quality of all of the financial statements he reviewed was suspect, and he never received any financial statement that he would have been willing to say was correct. As a result of his review, Haul concluded that RPF should be sold or liquidated as quickly as possible, and no more money should be invested in the company. Haul advised Neil Scott of his conclusion in a written memo. Haul also advised Scott that he had reviewed a letter of intent from John Buckner, the general manager of RPF responsible for its day-to-day operations, on behalf of RPF Acquisitions, offering to purchase all of RPF's assets. He further noted that he had discussed with Buckner problems relating to Vukadinovich, who, in October 2006, had been removed from his director's position.
¶ 7 Shortly after Mark's death, Haul was elected president and director of RPF. Haul had not previously been an officer or a director of RPF, and he was never a shareholder. At the time of his elections, the shareholders of RPF were the Estate, Scott, and Vukadinovich. The directors of RPF were Debra Reddick (Mark's widow), Haul, and Scott. The officers of RPF were Haul (president), Scott (vice president), and Debra (secretary). Vukadinovich was RPF's registered agent, and its day-to-day operations were still under Buckner's direction.
¶ 8 On March 7 or 8, 2007, Haul learned that, as of December 1, 2006, RPF had been administratively dissolved. On Friday, March 9, 2007, Haul sent an e-mail to Buckner about the dissolution, directing that the corporation be reinstated and the registered agent be changed from Vukadinovich to Tom Winebaugh. Haul testified that he wanted RPF to be reinstated because RPF Acquisition's letter of intent required the company to be in good standing, as well as to ensure that Mark or the Estate would not be personally liable (Haul believed at that time that a corporation's shareholders could be personally liable if the corporation were dissolved). Haul did not understand that it was not the shareholders who faced personal liability, but the directors and officers of the corporation who could be liable for the corporation's dealings while it was dissolved. Haul testified that, had he known, he would likely have consulted with an attorney and removed himself as an officer and director of RPF.
¶ 9 On the same day, Buckner forwarded Haul's e-mail to Suits, informing him that "we need to take care of this pronto." Later on the same day, Suits sent an e-mail to Haul stating that he had completed the documents needed for reinstatement and would send them to the Illinois Secretary of State on Monday, March 12.
¶ 10 Beginning March 12, 2007, a parade of missteps and errors ensued as Suits unsuccessfully attempted to have RPF reinstated. On that day, he submitted a package containing a completed 2006 annual report form, a check, and a form to change the registered agent. The package did not contain an application for reinstatement or a check for the reinstatement fee. On March 30, 2007, the Secretary of State rejected Suits' first submission because no application for reinstatement had been included. The Secretary of State sent a letter with this information to Vukadinovich stating why RPF remained dissolved and enclosing a reinstatement form as well as an estimate of the fees and penalties necessary to accomplish both the reinstatement and the change of the registered agent.
¶ 11 On April 17, Suits sent Haul a letter including two originals of the application for RPF's reinstatement and requesting that Haul sign them and return them. On April 20, Haul signed the reinstatement forms and returned them to Suits.
¶ 12 Suits did not submit the applications received from Haul, because, in the meantime, Tom Winebaugh told Suits that he had submitted the forms to reinstate RPF. Suits knew that Winebaugh was a certified public accountant. At this point, Haul had not told Suits that he was no longer to be involved in the effort to reinstate RPF. On April 27, Haul e-mailed Suits asking when RPF would be reinstated and asking Suits to identify the forms that Winebaugh had submitted. On May 2, Suits e-mailed his reply, averring that "[a]ll of the necessary forms and funds" were sent to the Secretary of State. Suits testified in his deposition that he believed he had asked Winebaugh what documents he had submitted and was satisfied with Winebaugh's response.
¶ 13 On May 3, the Secretary of State rejected Winebaugh's submission because Winebaugh did not include an application for reinstatement. On May 8, Winebaugh sent a letter to Suits noting that the application for reinstatement needed to be included. Winebaugh sent Suits all of the materials he had so Suits could forward them to Haul for signature. When Suits received Winebaugh's information, he mailed a second submission to the Secretary of State. In this submission, Suits included the signed application for reinstatement, the 2006 annual report, and a check sufficient to cover the fees and penalties.
¶ 14 On May 18, the Secretary of State rejected Suits' second submission because the registered agent on the annual report was not the same as the one on the application for reinstatement. On May 31, Suits made a third submission to the Secretary of State. However, on June 19, the Secretary of State returned the third submission to Suits because, on May 25, RPF had been reinstated. As it turned out, on May 24, Haul had retained a law firm in Springfield to accomplish the RPF reinstatement. On May 25, the Springfield law firm submitted the necessary paperwork and fees and penalties, and on the same day, RPF was reinstated.
¶ 15 In his deposition, Suits testified that, as of March 9, 2007, at the beginning of the reinstatement efforts, he understood that, if a corporation were dissolved but continued to carry on its regular business and to enter into contracts, then the officers and directors faced potential personal liability for any obligations the corporation incurred during the period it was dissolved. Further, their liability would not be extinguished retroactively by reinstatement of the corporation. Suits did not discuss these risks with Haul.
¶ 16 Suits further testified that he had experience in reinstating a dissolved corporation and was aware of the requirements for reinstatement, including the submission of all completed annual report forms that had not been previously submitted, a completed application for reinstatement, and all required fees and penalties. Suits was ...